Headlines about "Distributions - misc"
Gathered from the web by the editors at BenefitsLink.com.
[Guidance Overview] Supreme Court Accepts Xerox ERISA Case for Review
Excerpt: "U.S. Supreme Court justices have agreed to consider an appeal of an Employee Retirement Income Security Act (ERISA) violations case involving the method used by the Xerox Corp. pension plan to figure out how much to offset a participant's benefits to properly reflect distributions already taken." (PLANSPONSOR.com; free registration required)
Supreme Court Will Review Decision Concerning Whether Employer Followed Proper Procedures When Changing Pension Benefits Calculation Rules
Excerpt: "The court has granted certiorari to Sally L. Conkright et al. Petitioners vs. Paul J. Frommert et al., a class-action brought on behalf of participants in a pension plan sponsored by Xerox Corp., Norwalk, Conn. The plaintiffs sued the administrators of the Xerox Corporation Retirement Income Guarantee Plan and the plan itself, alleging the plan had violated the participants' rights under the Employee Retirement Income Security Act by adding a mechanism that involved use of 'phantom account' factor and the hypothetical growth of an employee's previous lump-sum retirement benefits distribution to calculate current benefits." (The National Underwriter Company; free registration or paid subscription required)
[Guidance Overview] Supreme Court Will Hear Case Concerning an ERISA Retirement Plan and Administrator
Excerpt: "The US Supreme Court has granted certiorari in an ERISA case that raises issues on (1) the extent to which a district court must defer to the views of an ERISA plan administrator and (2) the appropriate scope of appellate review. This case will be argued in the fall. Conkright v. Frommert (Certiorari granted 06/29/2009)." (LawMemo Employment Law Blog)
General Motors Using Huge Pension Fund in Way It Never Intended
Excerpt: "For now, the pension payments to its younger 'retirees,' part of a deal G.M. negotiated with the United Automobile Workers union in 2007, allow the company to drastically shrink its work force without having to come up with the cash to pay severance. The payments also relieve some of the burden on social service programs in the countless factory towns and counties around the country with large numbers of G.M.'s newly jobless. 'G.M. basically raided the pension plan, by having a lot of these severance benefits paid through it,' said Douglas J. Elliott, a fellow with the Brookings Institution who specializes in financial institutions and policy. What G.M. has done is perfectly legal. Nor is this the first time an employer has used a pension fund to pay for pruning its ranks." (The New York Times; free registration required)
[Guidance Overview] Plan Loans: Plan Loan in Excess of 50% Vested Account Balance
Excerpt: "[A]lthough a participant loan of 100% of the vested account balance up to $10,000 is permitted, the amount of the loan in excess of 50% of the vested account balance must be secured by actual collateral to be provided by the participant, not the vested account balance. The additional collateral is required from the participant in order for the participant loan to be considered a prohibited transaction exemption." (McKay Hochman Co., Inc.)
[Guidance Overview] Debtor Can't Deduct 401(k) Loan Repayments Under Bankruptcy Means Test As Necessary Expense
Excerpt: "A debtor's repayment of a 401(k) plan loan did not constitute a payment of secured debts or a necessary expense that could be deducted from the debtor's monthly income for purposes of applying the means test under Chapter 7 of the Bankruptcy Code, according to the U.S. Court of Appeals in San Francisco (CA-9), in Egjebjerg v. Anderson, a case of first impression." (Wolters Kluwer)
Chrysler Bankruptcy Cuts Deep Into Retirees' Pensions
Excerpt: "The collapse of the old Chrysler isn't just hitting the folks on the line. Federal law protects pension funds held in qualified plans from the company's creditors in bankruptcy. But a non-qualified plan participant technically becomes an unsecured creditor in a bankruptcy case. Executives and other managers can be offered a non-qualified plan once the company and/or the employee already has hit the limits for funding contributions into qualified plans. Then, bonus money or other compensation can apply to nonqualified plans. Trouble can hit, though, once companies go through bankruptcy." (Detroit Free Press)
How Will the Stock Market Collapse Affect Retirement Incomes?
Excerpt: "Urban Institute projections suggest the stock market collapse will have small effects on most Americans' retirement incomes. It's estimated that 37 percent of Americans born between 1941 and 1965 owned no stocks when the market crashed in 2008 and that income from assets will account for a small share of retirement income, even for those with stocks. For most retirees, Social Security provides the majority of income. Had Social Security been invested in private accounts with equities, the impact of the crash would have been much larger -- positive or negative, depending on one's birth cohort and on future market performance." (Urban Institute)
Business Group Presses Los Angeles City Council for Details on Early-Retirement Proposal
Excerpt: "Two days before the Los Angeles City Council is expected to vote on an early retirement package for thousands of workers, the city's largest business organization warned the proposal would contribute to a 'massively unfunded and unsustainable' pension liability. The Los Angeles Area Chamber of Commerce sent Mayor Antonio Villaraigosa and the City Council a letter demanding that taxpayers receive more information on the financial consequences of the proposed five-year labor agreement with the Coalition of L.A. City Unions, which represents 22,000 workers." (Los Angeles Times)
Consumers Should Take 401(k) Plan Loans Instead of Consumer Loans, Study Contends
Excerpt: "The cost for a non-401(k) plan loan is the after-tax interest rate that is paid to the outside vendor. In contrast, the lower interest rate for a 401(k) plan loan is paid to the participant's account, causing it to grow. The authors noted that a participant who is trying to maximize 401(k) plan contributions but is constrained by the contribution limits 'might prefer a 401(k) loan with a sufficiently high interest rate simply as a way to get more assets into the tax-favored account.'" (Wolters Kluwer)
Hope for Pre-Retirees' Savings Recovery Shown in Analysis
Excerpt: "Financial Engines says its new analysis on the impact of the market decline in 2008 on investors nearing retirement found that even for investors within five years of retirement, modest increases in savings combined with slightly delayed retirement can recover their pre-2008 retirement outlooks if they stay in a diversified, age-appropriate portfolio. According to a press release, many 401(k) participants assume that the large portfolio losses experienced in 2008 mean needing to work five or 10 years longer than planned, but Financial Engines' analysis shows that large portfolio losses do not translate into equally large percentage decreases in projected retirement income." (PLANSPONSOR.com; free registration required)
[Guidance Overview] Plans Failing to Follow Own Procedures Must Pay Spouse Amounts Already Paid to Children
Excerpt: "EBIA Comment: Although the trial court in this case agreed with the plans that it was reasonable to make payment even in the face of a potentially conflicting claim, the reversal on appeal shows that the safer course was to wait and allow the conflict to be resolved before proceeding. This case is another lesson to plan administrators of how important it is to know, understand, and follow their plans' own procedures. But even in the absence of specific procedures, controlling law in many jurisdictions would require plans to investigate conflicting claims or risk the double-payment liability now facing the plans in this case." (Employee Benefits Institute of America)
Service Provider's Notice of Overpayment Imputed to Plan Administrator
Excerpt: "The Fifth Circuit recent affirmed this district court opinion wherein the court held that a two year statute of limitations applied and that knowledge of an 'overpayment' by a service provider may be imputed to the plan administrator for purposes of the discovery rule." (Roy Harmon III via Health Plan Law)
Bridging Employees' Retirement Income Gap with Income Annuities: An Employer's Guide
24 pages. Excerpt: "This paper is intended to help employers assess the feasibility of adding income annuity options and to understand how they can do so with minimal disruption to the plan's administration and coststructure." (Principal Financial Services, Inc.)
Rep. Pomeroy Introduces Bill to Boost Annuity Tax Breaks
Excerpt: "Rep. Earl Pomeroy (D-ND) and Rep. Ginny Brown-Waite (R-FL) have introduced the Retirement Security Needs Lifetime Pay Act (H.R. 2748). Similar to legislation introduced by Pomeroy in the 110th Congress, the bill contains several provisions to encourage retirees to create annuities as part of their retirement savings plans. The bill excludes from income a portion of lifetime income payments received from IRAs, qualified retirement plans (other than defined benefit plans), and non-qualified annuities. It also excludes the value of longevity insurance from amounts subject to required minimum distributions (RMDs); and it clarifies the taxation of payments from deferred annuity contracts." (ICMA-RC)
Borrowing from 401(k) Plan May Have Positive Effects for Some Participants
Excerpt: "A new government report breaks from conventional wisdom and casts doubt on some long-held beliefs about the negative effects of borrowing from a 401(k) fund. Shifting expensive consumer debt to defined-contribution plans may make sense for some workers." (Human Resource Executive Online)
[Guidance Overview] Loans on 401(k) Plans a Tax Trap
Excerpt: "Conventional wisdom and prudent financial planning caution against borrowing against a 401(k) retirement account for anything other than emergencies. A post by Dana Wilkinson on Bankruptcy Law Network similarly urges caution in using 401(k) loans to pay off dischargeable credit card debt. Now, given last year's overwhelming decline in investment portfolio value, people who borrowed against their 401(k) plans for any reason while the market was still strong may have come out ahead, provided they are able to repay the loans as originally scheduled." (Bankruptcy Law Network, LLC)
GM Slashes Pensions at the Top
Excerpt: "General Motors Corp. is making dramatic reductions in the pensions of some of its outgoing high-level executives -- a move that is expected to cost ousted CEO Rick Wagoner up to $15 million. GM President and CEO Fritz Henderson confirmed Friday that pensioners whose yearly payments are $100,000 or less will lose nothing. But those who get more will receive a third of what they had expected in excess of $100,000. No one is likely to lose as much as Wagoner, who was fired more than two months ago by President Barack Obama." (The Detroit News)
Stable Value: A Closer Look at This Hybrid Fixed Income Strategy
20 pages. Excerpt: "Executive summary. The financial crisis and credit crunch in 2008 have prompted plan sponsors and investors to reassess the return and risk of their investment assets. Even stable value and money market funds -- investment vehicles often considered the safest options in 401(k) plans -- have been subject to increased scrutiny (Kim and Laise, 2008). Given investors' risk?reward reassessments as well as the recent cash inflows into fixed income securities, this paper examines some of the unique characteristics of stable value funds and details the benefits and potential downsides to investing in funds of this type. We also look at the performance characteristics as well as recent negative plan events affecting these funds." (The Vanguard Group, Inc.)
Official Summary of Retirement Security Needs Lifetime Pay Act, H.R. 2748 (PDF)
1 page. Excerpt: "The Retirement Security Needs Lifetime Pay Act contains three provisions to encourage retirees to receive some of their retirement savings in the form of guaranteed lifetime income payments. The bill (1) excludes from income a portion of lifetime income payments received from IRAs, qualified retirement plans (other than defined benefit plans), and non-qualified annuities; (2) excludes the value of longevity insurance from amounts subject to required minimum distributions (RMDs); and (3) clarifies the taxation of payments from deferred annuity contracts that are partially annuitized." (U.S. House of Representatives via American Benefits Council)
Text of Retirement Security Needs Lifetime Pay Act, H.R. 2748 (PDF)
Excerpt: "To amend the Internal Revenue Code of 1986 to encourage guaranteed lifetime income payments by excluding from income a portion of such payments." (U.S. House of Representatives via American Benefits Council)
Legislation Provides Incentives for Annuitizing Retirement Plan Distributions
Excerpt: "Bipartisan legislation has been introduced to give workers a new incentive to annuitize, rather than spend, their retirement savings. U.S. Representatives Earl Pomeroy (D-North Dakota) and Ginny Brown-Waite (R-Florida) today introduced The Retirement Security Needs Lifetime Pay Act, which provides tax incentives for workers to annuitize part of their retirement savings. The Retirement Security Needs Lifetime Pay Act, H.R. 2748, would encourage workers to annuitize some of their retirement savings by providing a 50% tax exclusion for up $10,000 of lifetime annuity payments annually." (PLANSPONSOR.com; free registration required)
Annuity Ladders
Excerpt: "Enter the concept of laddered annuities. Or perhaps we should say welcome back. In a recent study entitled Variable Payout Annuities and Dynamic Portfolio Choice in Retirement, Olivia Mitchell, a professor of insurance and risk management at the Wharton School of the University of Pennsylvania, argues that by laddering the purchase of annuities-buying annuities gradually over time, while keeping the rest of a portfolio invested in a mix of equities and bonds-people can substantially increase the likelihood of meeting their retirement income goal. They can also 'do almost as well as the fully optimized outcome if they hold variable annuities invested 60/40 in stocks/bonds.'" (Financial Planning)
The 401(k): Employers Look to Cut Costs, Workers Crave Stability Following Market Crash
Excerpt: "Retirement plan consultants foresee financial firms and employers embracing hybrid plans with features of both 401(k)s and pensions. Fred Cox, director of compensation and benefits at Evansville-based Vectren Corp., talked with a vendor in late May about adding an annuity option to the gas and electric utility's 401(k) plan. The option would help participants invest in stable choices that guarantee a certain yearly payment upon retirement -- like a pension does. 'What you've created is sort of a floor out of what's going to come out of that annuity,' Cox said. Such tweaks are not enough for Monique Morrissey, an economist at the liberal Economic Policy Institute in Washington, D.C. She wants to see individual retirement accounts mandated, controlled and guaranteed by the government -- because 401(k)s have failed to provide Americans what they need in retirement." (Indianapolis Business Journal)
New Working Paper from Federal Reserve Suggests Borrowing from 401(k) Fund May Not Be So Bad
Excerpt: "A new government report breaks from conventional wisdom and casts doubt on some long-held beliefs about the negative effects of borrowing from a 401(k) fund. Shifting expensive consumer debt to defined-contribution plans may make sense for some workers." (Human Resource Executive Online)
Can You Count on Monthly Pension Checks from Your Former Employer? Five Things You Need to Know
Excerpt: "If you're entitled to a pension, you might be wondering how your plan is faring. The numbers alone suggest there's reason for concern: In 2008 assets in private defined-benefit plans fell an average of 26%, according to Watson Wyatt management consulting. That has left many plans below their legal funding target." (CNNMoney.com)
[Guidance Overview] Letter Ruling Illustrates Need for Care to Preserve Beneficial Taxation of ESOP Stock Distributions
Excerpt: "It is not necessary to physically distribute a stock certificate to the former employee, if he immediately sells the stock back to the employer. However, it is crucial that the ESOP, the distribution documents and the operating procedures clearly provide that the employee is receiving stock from the ESOP and is immediately selling the stock to the employer. The ruling DOES NOT consider the situation where the ESOP itself purchases the stock from the terminated employee, instead of a purchase by the employer." (Warner Norcross & Judd LLP)
Protecting Your Social Security and Pension from Creditors
Excerpt: "Federal law says creditors can't take Social Security, veterans, disability and pension benefits to pay a debt. But it happens anyway. . . . Most [bank] account applications . . . include fine print stating the bank maintains the right of 'set off' -- that is, to take money from your checking, savings, or other accounts to repay a debt you owe the bank. But banks aren't allowed to 'set off' exempt funds . . . ." (Ellen E. Schultz in the Wall Street Journal)
[Guidance Overview] Debtor's Chapter 7 Bankruptcy Filing Was 'Presumptively Abusive'; 401k Loan Repayments Not 'Necessary Expense'
Excerpt: "Applying the 'means test' from the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the United States Court of Appeals for the 9th Circuit held (in an issue of first impression for the court) that the section 401(k) plan loan was not a 'secured debt' or a 'necessary expense' of the debtor." (PLANSPONSOR.com; free registration required)
[Guidance Overview] Optional IRS Withholding Calculations Address ARRA Provisions Affecting Pensioners (PDF)
2 pages. Excerpt: "Employers may want to proactively communicate with pensioners regarding their withholding directions as well as advise them of the one-time $250 economic recovery payment under ARRA." (Buck Consultants)
[Opinion] The Case for 'Distributed Custodial Accounts' from Terminated 403(b) Plans
Excerpt: "The draconian position taken by the IRS in drawing a distinction between an individually owned annuity and a custodial account is hard to understand. From a strictly statutory view, it seems to have little support. The language of 403(b)(7) is unambiguous: 'for purposes of this tilte, amounts paid by an employer described in paragrph (1)(A) to a custodial account which satisfies the provisions of 401(f) shall be treated as amounts contributed by him for an annuity contract for his employee....'" (Giller & Calhoun, LLC)
Strange But True: Claim and Suspend Social Security Benefits
Excerpt: "For those thinking of re-entering the workforce, Social Security provides for higher benefits later in exchange for withholding benefits while they are employed. For those under the Full Retirement Age (currently 66), this adjustment is accomplished automatically through the annual retirement earnings test. For those over the Full Retirement Age, the adjustment can be made through the voluntary option of 'claim and suspend.' The 'claim and suspend' strategy also enhances the claiming options of one-earner couples. For example, a husband who reaches the Full Retirement Age may elect to claim and immediately suspend benefits, allowing his wife to receive a spousal benefit based on his earnings record. The husband is then free to continue working and receive delayed retirement credits, which increases not only his monthly benefit but also his wife's survivor benefit. By using 'claim and suspend' in this way, the couple can enhance the value of their lifetime benefits..." (Center for Retirement Research at Boston College)
[Guidance Overview] Circuits Split on Deductibility of Proceeds from Stock Redemption Used to Satisfy ESOP Distribution Obligations
Excerpt: "An Internal Revenue Service (IRS) official recently commented at an American Law Institute-American Bar Association conference that the IRS will continue to litigate the issue of whether a corporation is entitled to a deduction under Section 404(k)(1) of the Internal Revenue Code (the Code) for payments used to redeem its stock to satisfy the distribution obligations under its employee stock ownership plan (ESOP). . . . This comment appears to be in response to the Eighth Circuit's decision on this issue in General Mills v. United States, 554 F.3d 727 (8th Cir. 2009), which although favorable to the IRS, is contrary to the decision reached by the Ninth Circuit in Boise Cascade v. United States, 329 F.3d 751 (9th Cir. 2003)." (Morgan, Lewis & Bockius LLP)
One of Los Angeles' Biggest Pensioners Warns of the Costs
Excerpt: "Los Angeles Councilman Bernard Parks, City Hall's budget committee chief who is warning that soaring payroll and pension costs threaten the city's financial stability, receives $22,000 a month in city retirement benefits, in addition to his $178,789 a year salary, records and interviews show." (Los Angeles Times)
Are General Motors Pensions in Peril?
Excerpt: "James Seward, an associate professor of finance, investment and banking at UW-Madison, said if GM files for bankruptcy, it likely would terminate the pension plan and offload its obligations to the Pension Benefit Guaranty Corp. The PBGC insures private-sector pension plans and pays benefits to workers when plans fail. It likely would pick up a portion -- but not all -- of the unfunded obligations. . . . The shortfall likely would hit retirees in the form of smaller benefits. Some analysts have said retirees on average could see a 10 to 20 percent reduction in monthly pensions. But that reduction likely will be much larger for workers age 55 to 62, said Karen DeOrnellas of the newly formed General Motors Retirees Association." (The Janesville Gazette)
Extending Life Cycle Models of Optimal Portfolio Choice: Integrating Flexible Work, Endogenous Retirement, and Investment Decisions with Lifetime Payouts
Excerpt: "This paper derives optimal life cycle portfolio asset allocations as well as annuity purchases trajectories for a consumer who can select her hours of work and also her retirement age. Using a realistically-calibrated model with stochastic mortality and uncertain labor income, we extend the investment universe to include not only stocks and bonds, but also survival-contingent payout annuities. We show that making labor supply endogenous raises older peoples' equity share; substantially increases work effort by the young; and markedly enhances lifetime welfare. Also, introducing annuities leads to earlier retirement and higher participation by the elderly in financial markets. Finally, if we allow for an age-dependent leisure preference parameter, this fits well with observed evidence in that it generates lower work hours and smaller equity holdings at older ages as well as sensible retirement age patterns." (Pension Research Council; registration required to download fulltext of paper)
[Guidance Overview] Exception to Premature Distribution Tax for IRA Distributions Used to Pay Health Insurance Premiums Is Limited to Payments Made During Tax Year of Distribution
Excerpt: "A taxpayer who received IRA distributions in 2004 was not entitled to claim the exception from the 10% early withdrawal tax for the amount of premiums that she paid in 2003 and 2005, even though she may have been prevented from taking a distribution from her IRA in 2003 because of state unemployment compensation laws, the U.S. Tax Court has ruled in Davis v. Commissioner of Internal Revenue." (Wolters Kluwer)
[Guidance Overview] IRS Withholding Table Fix for Pension Payments
Excerpt: "Many plan sponsors will wish to use the new withholding tables and some have already provided their participants with information regarding the February 2009 change in the withholding tables. If the plan sponsor desires to implement the optional procedure to apply additional withholding, a supplemental communication may be appropriate. Plan sponsors should be aware that the IRS will soon launch an outreach effort to educate pensioners about the withholding tables and the Making Work Pay Tax Credit. Plan sponsors should be prepared for inquiries from participants." (McDermott Will & Emery)
Old Maternity Leave Won't Count Toward Pensions, Supreme Court Rules
Excerpt: "Working women who were denied paid pregnancy leave in the 1960s and 1970s have lost an appeal at the US Supreme Court aimed at forcing their employer to grant compensatory service credits to boost their pensions. In a 7-to-2 decision announced Monday, the high court ruled that the company, AT&T Corp., did not engage in gender discrimination when it calculated lower pension benefits for the women based on company pregnancy leave policies that were later deemed illegal gender discrimination. At the heart of the case is a heated debate among legal scholars over whether the present effects of past discrimination can amount to a current and ongoing violation of antidiscrimination laws." (The Christian Science Monitor)
[Guidance Overview] Indiana Employer Wins Mixed Ruling in Benefits Case
Excerpt: "An Indiana manufacturer has received a mixed ruling from a federal judge in a lawsuit alleging its misdeeds in the handling of its benefits program constituted a fiduciary breach. While U.S. District Judge Philip P. Simon of the U.S. District Court for the Northern District of Indiana threw out several of the Employee Retirement Income Security Act (ERISA) allegations against Sanlo Manufacturing Co., he ruled that plaintiff Keith Lewalski could move forward with other charges." (PLANSPONSOR.com; free registration required)
[Guidance Overview] Bill Would Waive Some 401(k) Withdrawal Penalties
Excerpt: "Participants who are undergoing specific financial hardships would get some relief on 401(k) penalties under new legislation. Congressman Robert Latta (R-Ohio) has introduced H. R. 2331, the Individual Recovery Assistance Act of 2009, which waives the 10% penalty on early withdrawals from qualified retirement plans for participants who meet two specific conditions: those who use the funds to make mortgage payments on a primary residence; those who have lost jobs and have received unemployment compensation for 12 consecutive weeks." (PLANSPONSOR.com; free registration required)
IRS Gives Pension Plans Fix for Tax Credit Glitch
Excerpt: "The IRS on Thursday offered pension plans a way to fix a glitch that has been causing the new Making Work Pay tax credit to incorrectly boost pension payments to retirees. Many retirees have been receiving additional money they are not entitled to, money that will have to be repaid at tax time next year, either through a smaller refund or a larger tax bill. The glitch will still affect millions of other taxpayers who will continue to receive money they are not entitled to. The IRS said it is planning an outreach campaign to educate at-risk taxpayers, including married couples in which both couples work, individuals with multiple jobs and Social Security recipients who also have jobs that provide taxable income." (Associated Press)
Consider Consequences of Lump-Sum Distributions from Retirement Plans
Excerpt: "Lost tax-deferred growth opportunities. When you take a lump-sum withdrawal from a qualified retirement plan or IRA, you are removing your funds from a tax-deferred environment. Even if you reinvest this money (instead of spending it), you're still missing out on tax advantages. When you reinvest the funds outside of the retirement plan, your earnings generally will be on a taxable basis. Over time, taxes greatly cut into the growth that you're able to achieve. Even if you immediately reinvest your lump-sum amount in another tax-deferred vehicle (such as an annuity), you will still be required to pay income tax on the amount of your lump-sum withdrawal. For that reason, if you're planning to buy an annuity, it may make sense to do a rollover to an IRA (to avoid income tax) and then buy the annuity inside your IRA." (Chillicothe Gazette)
[Guidance Overview] Detailed Description of Code Section 436 Restrictions on Single-Employer Defined Benefit Plans (PDF)
18 pages. Excerpt: "The Pension Protection Act of 2006 . . . established a new code section -- section 436 -- that imposes benefit restrictions for underfunded single-employer defined benefit plans. . . . This report examines the proposed regulations and the impact they will have on single employers that maintain defined benefit plans during 2008 and beyond. . . . Because the rules affect the plan's qualification and the sponsor's fiduciary responsibility under Title I of ERISA, they are important not only to actuaries, but to employee benefits attorneys as well." (Prof. Kathryn J. Kennedy; Reprinted by Permission of Tax Analysts; All Rights Reserved)
IRS Distributes Pension Withholding Procedures
Excerpt: "The Internal Revenue Service (IRS) has put out new withholding adjustment procedures for pension plans - to make sure those receiving pensions are having the proper amount withheld. An IRS news release said the new procedures will help some pensioners avoid a smaller refund next spring or a balance due in limited situations. The tax agency said pension payors are not required to use this new procedure, and may continue to use only the withholding tables released by the IRS in February . . . ." (PLANSPONSOR.com; free registration required)
[Guidance Overview] SEPP Is Not Busted Because of Additional Distributions That Qualify for Another Exception?
Excerpt: "The US Tax Court issued a summary opinion, in which they held that an amount withdrawn from an IRA that is earmarked for a substantially equally periodic payment (SEPP) program, does not result in a modification if the amount qualifies for another exception under IRC ? 72(t)[1]. This decision surprised many tax and retirement planning professionals, as previously they have always understood from available guidance that the only distributions that could occur from such an account without causing a modification was a SEPP." (RetirementDictionary!)
[Official Guidance] IRS Notice 1036-P: Optional Procedure for Those Making Pension Pension Payments To Offset Withholding Reductions for the Making Work Pay Credit (PDF)
2 pages. Excerpt: "This procedure is optional for those making pension payments subject to withholding under section 3405 of the Internal Revenue Code. The procedure is an approximate offset for the withholding reduction included in the February 2009 withholding tables found in the Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables, which reflect the Making Work Pay credit. Eligibility for the credit requires earned income, which does not include pension payments." (Internal Revenue Service)
Social Security Finances: Findings of the 2009 Trustees Report (PDF)
8 pages. Excerpt: "According to the 2009 Trustees report, the Social Security trust funds will have an annual surplus of $137 billion in 2009. Annual surpluses are projected to continue for the next 14 years and reserves are projected to grow to $4,332 billion by the end of 2023. Beginning in 2016, tax revenues flowing into the trust funds will be less than total expenditures. In 2037, the reserves are projected to be depleted. At that time, tax income coming into the trust funds will cover about 76 percent of benefits due, according to the 2009 report of the Social Security Trustees." (National Academy of Social Insurance)
Pros and Cons for Plan Sponsors of 401(k) Loans and Early Distributions
Excerpt: "Some employers . . . seek to protect employees and only allow loans for limited purposes, and other employers even restrict hardship distributions. In today's economic climate, it is important to understand the basic rules in making business decisions to allow or not allow such distributions. " (Employee Benefit News)
Participants Could Accept 'Mortality-Contingent' Products, According to Retirement Study
Excerpt: "A new study by a Hartford-based retirement services firm asserted that service providers looking to help participants get ready for retirement should concentrate on improving investor education and providing mortality-contingent products. A news release from String Financial, LLC about its recent study claimed 30% of participants surveyed would definitely or likely be willing to trade the ability to have a portion of their portfolio set up to go to their heirs on their death if such a trade meant they could generate more lifetime income than would be possible otherwise. Some 40% said they possibly would consider such a move." (PLANSPONSOR.com; free registration required)
[Guidance Overview] The Impact of Disability on Non-Qualified Deferred Compensation Under Code Section 409A
Excerpt: "This article examines the interrelationship between disability and the rules of Section 409A and discusses potential pitfalls that may be avoided with proper examination and drafting of a plan's disability definitions and procedures. Internal Revenue Code Section 409A allows 'disability' to be a payment trigger for deferred compensation, with disability defined under stringent standards set forth in the final regulations under Section 409A. Even if disability is not a payment trigger as such, the occurrence of a disability may impact the timing of payments made under a separation from service trigger. Additionally, a disability may affect vesting or other aspects of the operation of a deferred compensation arrangement, which may have implications under Section 409A. [Originally published March 23, 2009.]" (Faegre & Benson)
What Makes a Better Annuity?
Excerpt: "The wide gulf between actual and predicted annuity demand has been well documented. However, a comparable gap exists between the current and ideal annuity market. In a world with costly and limited annuity products, we investigate what types of new annuity products could improve annuity market participation and increase individual welfare. We find that participation gains are most likely for new annuity products that focus on late-life payouts which offer a large price discount relative to their financial market analogues." (Social Science Research Network)
Delta Proposes Retirement Incentive Plan to Cut Pilot Staffing
Excerpt: "Delta Air Lines has proposed to cut pilot staffing by offering incentives for pilot retirements, according to a Delta pilots union memo. Delta management proposed the retirement incentive program to the Air Line Pilots Association at Delta to address 'what management perceives to be a pilot staffing overage,' according to the Friday memo. . . . Delta said it is trying to avoid involuntary job cuts resulting from economic conditions and working with the pilots union 'to ensure we have any flexibility needed' while cutting flight capacity to adjust to demand. Under the terms of the proposal, pilots who are eligible would get a severance payment, retiree travel benefits and medical and dental benefits for a limited time. Eligibility would depend on age and length of service." (The Atlanta Journal-Constitution)
Tax Strategies for IRA Owners Affected by the Market
Excerpt: "The sharp stock market decline we've experienced has no immediate tax effect on pre-retirement-age taxpayers who invested their traditional IRAs or Roth IRAs in stocks and mutual funds, since losses as well as gains are not recognized within either type of IRA. At the same time, there are some tax strategies for owners of traditional or Roth IRAs to consider, whether they are still in their working years, or are retired and taking required minimum distributions (RMDs) from their accounts." (Thomson Reuters, "CPA Wealth Provider," via On Wall Street)
More Participants Tap Retirement Accounts
Excerpt: "The number of companies reporting early withdrawals for hardship from 401(k) and 403(b) plans (the nonprofit version of 401(k)s) rose to 44% last month from 15% in October 2008, according to a recent Watson Wyatt study that polled executives at 141 U.S.-based companies using an online questionnaire." (The Wall Street Journal)
[Guidance Overview] Problems to Avoid in ESOP Distributions
Excerpt: "The adverse impact of ESOP distribution provisions on company profits must be balanced with the company's desire to provide meaningful benefits to plan participants. In most cases, ESOP plan design starts with the assumption that distributions should resemble the form and timing for distributions from profit sharing plans or other plans sponsored by the employer. It is not unusual to find ESOPs drafted to provide distributions commencing in the year after separation from service and including single sum distributions. Often single sum distributions are called for in the document to allow distributees to take advantage of capital gain treatment for the appreciation in the stock's value - a sound, but often impractical planning point." (Chang Ruthenberg & Long PC)
Radical Retirement Initiative from Brookings in the Works
Excerpt: "Some top retirement gurus are in the process of developing proposals that could make annuity products a crucial part of millions of Americans' retirement plans. This movement, which is being led by retirement experts from the Brookings Institution in Washington, is still young. However, it is gaining steam in its bid to persuade lawmakers and employers that guaranteed-income products should be a critical component of the nation's 401(k) system--particularly as more than 75 million Americans are expected to stop working and search for sources of retirement incomes during the next two decades." (Investment Company Institute)
Chrysler Bankruptcy Could Lower Pension Benefits in the Future
Excerpt: "The Chrysler bankruptcy filing Thursday, April 30, could result in lower federally guaranteed pension benefits for Chrysler employees and retirees if the financially troubled automaker later jettisons its massively underfunded plans. In a new question-and-answer guide about Chrysler's pension plans, the federal Pension Benefit Guaranty Corp. notes that a bankruptcy filing can result in a reduction of benefits if plans are later taken over by the PBGC. For example, under law, the PBGC does not guarantee benefits earned after a bankruptcy filing. The PBGC provides in its guide an example of a company that filed for bankruptcy on July 1, 2009." (Workforce Management; free registration required)
[Guidance Overview] Indemnification Provisions: Do They Apply to Excuse a Party's Own Wrongdoing?
Excerpt: "A novel indemnification issue arose in the context of the complex ERISA litigation before U.S. District Court Judge Melinda Harmon in the Texas Southern District. Can a party invoke an indemnification provision in an administrative services agreement as a defense to its own negligence? The facts are quite complex, but unnecessary for comprehending the essential issue at stake here. The litigation is not about the Enron class action settlement, but about mistakes in calculation of entitlement to the settlement funds. In short, the critical issue is responsibility for losses and expenses resulting from Hewitt's mistaken calculations for distribution of the first tranche of the settlement funds, as well as for defense of claims brought against Hewitt by Enron Corp. Savings Plan and the Administrative Committee of the Enron Savings Plan." (Roy Harmon III via Health Plan Law)
401(k) Plan Sponsors Eye Annuities With Caution
Excerpt: "Given the stock market's volatility, [a number of 401(k) plan sponsors are] seriously discussing adding an annuity option to their 401 (k) plans. With most employees' 401(k) accounts decimated, the idea of providing guaranteed post-retirement income seems attractive, experts say. But while many companies are talking about these offerings, very few employers are actually adding them to their plans. Only 8 percent of 401(k) plans allow participants to roll over their account balances to an annuity upon retirement, according to Hewitt Associates' '2009 Hot Topics in Retirement.' Twenty-two percent expect to add this option to their plans in 2009." (Workforce Management; free registration required)
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