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No more cross-testing, permitted disparity or top-heavy in D.C. Plans


KJohnson
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Actually, the ERSA proposal doesn't in of itself seem to be of the "revenue enhancement" ilk found in the 80s. The only revenue trick I see is in the LSA and RSA accounts (let's get the revenue now, and forget that we just gave away all future claims to taxation when the monies come out). In fact, the revenue estimates on p. 127 seems to indicate that there will be revenue loss to the government. If this was a revenue enhancement strategy, you would have seen cutbacks in the 415 limits I would think.

If you're referencing the elimination of CT plans, I could see your disappointment (I wasn't making any comment good or bad about their existence - we do a number ourselves). Of course as an actuary, I must admit (like Mike Preston's previous comment) that I might shed a few crocodile tears over their demise while I'm handing over the DB proposal;) to the client.

Actually, I was kind of wondering in my previous comment re: the standard interest rate when the SRI would move to the APR, not the other way around. I think that we're in a very different environment than was found in the late 80s with regards to prevailing rates.

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Bankrupcy law will soon become hot again; start mass mailings to TPA firms.

I'd put my money on ASPA before I put it on the Democrats to preserve 401(a)(4) and "pension reform". Remember that victory? We hardly knew ye.

But this will be a real uphill battle from the comments that I've read so far.

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Any truth to the rumor that as part of the President's plan, the enrollment exams will increase from 2 to 4 and will be 8 hours each and there will be a 7 year experience requirement?

No?

Shucks.

Well, that's ok.

There apparently will be enough to do for all actuaries.

Seriously, does anybody really think that this thing will pass in its current form?

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If 401(a)(4) is repealed. Does the plan permit the following:

Plan provides 401k, 3% safe harbor, and profit sharing to HCEs only.

HCEs get profit sharing amount up to 415 limit.

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Who knows? Obviously, given the relative connections displayed by some members of our message community, this proposal came as somewhat of a surprise (or did it?). IMHO, nothing coming out of the Administration is as important to our economy and country as Secretary Powell's appearance at the UN tomorrow morning. The rest of this is somewhat of a sideshow at this point in time.

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Guest deathbycashcall

Very interesting and amusing to read all the comments! Actually, the tax code as it relates to retirement plans is absolutely and unequivocally the most complicated pile of useless garbage in this country! I too have spent more than half my life studying this area of the law, trying to stay on top of it all and attempt to have some type of life for myself. When it's all said and done at the end of the day, what have I accomplished? NOTHING! I preserved a tax deduction for someone that lives in a country with trillions of dollars of debt! The folks I supposedly helped to save for their retirement lost literally all of their earnings in the most horrible market I could have ever imagined. Meanwhile, there are plenty of folks out there making a legitimate contribution to society....building homes, curing diseases, teaching children, exploring space. Today was a particularly bad day..... trying to explain to a client that you can terminate a profit sharing plan, allow distributions, and set up another one next week, BUT you can't do the same with a 401(k)....if you let employees have their salary deferral contributions, you are prohibited from establishing another 401(k) plan for 12 months...but it's certainly OK to distribute $1,000,000 in employer money and still set up a different plan. Now where's the sense in that? I felt like an idiot explaining that one! Anyway, although I make a living doing this pile of garbage, I have to say, it definitely needs to be overhauled and perhaps abolished all together. How about abolishing the income tax while we're at it and instituting a national sales tax instead?!!!!!

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Careful. You might get both!

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Mike Preston asked, "Seriously, does anybody really think that this thing will pass in its current form?"

I don't know what form it will take, but the mutual fund industry is getting behind the proposal and we should expect them to be aggressive in lobbying for passage. Here is just a sampling of recent comment:

"The administration's plan is a milestone. If Congress enacts it, long-term savings and investment opportunities truly will be within the reach of every working American." (Matthew P. Fink is president of the Investment Company Institute, the national association of the mutual fund industry.)

Fidelity Investments today applauded President Bush's initiatives to expand and simplify savings for millions of Americans. (Fidelity in press release dated January 31, 2003)

"This is a tremendous opportunity! If these proposals are passed, Americans would have easy-to-use, tax-advantaged savings vehicles for a number of different goals including retirement, college, home purchases, medical expenses, and more," says John Mroz, Manager of Retirement and College Planning Services for Strong Financial Corporation. "With America's dismal savings rate, these proposals are a breath of fresh air." (Strong press release dated January 31, 2003)

President Bush's budget proposal correctly targets increased saving and investment as a critical economic need. Incentives to raise the level of saving and investment have double value: they help individuals and families provide more effectively for their own economic security, while creating a pool of capital that fuels economic growth and creates jobs. (Merrill Lynch in press release date January 31, 2003)

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I agree and any legislation that reduces the need for TPAs is good public policy. The current structure doesn't work because it requires good TPAs. The need for good TPAs far exceeds the supply. There are too many mistakes. Because very few (perhaps no one) can run can follow all the rules all the time, the rules need to change.

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To regulate or not to regulate, that is the question. We already passed legislation that produced simple 401ks, simple IRAs, and safe harbors. Employers do not have to choose something other than simple and safe harbor plans. The question is whether plans outside the box need restrictions. I'd like to think that TPAs, whether they are good or bad, provide a meaningful service in ensuring those who venture outside the box aren't taking advantage of the system. I'd also like to think that the evolution of current regulations were developed to permit flexibility while also defining what taking advantage of the system is.

What is "taking advantage of the system." It occurs when an employer or key people take advantage of tax breaks simply by being labeled an employer without providing equivalent benefits to all members of the employer. If we don't care about providing equivalent benefits, then why not scrap the idea of employer plans all together. If the employer wishes, they can put money in my roth account as an employee perk, but don't call it an employer plan.

I think ASPA is going the wrong route in this arguement personally. Yes, I see the LSA and RSA provides a limit greater than 402(g), but I don't see limits on employer contributions to employer plans. 415 hasn't gone away. The small employer who is only worried about putting $15K away shouldn't have a 401k now. The combination of a simple IRA contribution and what we can put into a roth and coverdale IRA's gives the same benefit. 529 plans allow $10k w/o tax issues right. I don't see anything in the proposed employer retirement plan rules that prevents an employer from contributing amounts up to the 415 limit, and if this new simplified nondiscrimination testing is meant to be the sole nondiscrimination test for all contributions to the plan, what's stopping an employer from taking advantage of the system? I don't get it.

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I agree that the country would be better off with a host of simplifications. And the rules on ERSA's are fine as they will encourage understanding of the rules as to employee deferral, simplify choices as to non-discrimination within the four corners of salary deferral and therefore promote savings.

The creation of the LSA's and RSA's however, discourages capital formation as they require saving by individuals on a non-deductible basis. This just isn't going to happen for the vast majority of workers. Even saving on a deductible basis has not been popular outside employer plans. Witness the lack of traditional IRA contributions by those eligible. But if the employer has the incentive to retain or create a plan removed by the elimination of disparities, the worst of all worlds has been implemented.

While I don't think it is good public policy to force employers into defined benefit plans as they are currently regulated, if the defined benefit plan rules were substantially simplified and, at the same time, substantially modified to provide more flexibility, it MIGHT begin to sound like good public policy.

But, right now, it is merely something that will dramatically reduce retirement savings for the people who need it most. Oh, it will mean an increase in business for me. A big increase. But I still don't think it makes sense in its current form, my previous tongue-in-cheek comments notwithstanding.

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Even more important about the article is that Portman ® doesn't back it. The vehicle for getting the Presiden't proposal moving in Congress is the Portman-Cardin legislation. Instead of adding the President's proposal to it, they are going to introduce their legislation without it next week.

See http://www.washingtonpost.com/wp-dyn/artic...6-2003Feb6.html

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That's NOT good news. That's horrible news. The President's proposal is great because it reduces the need for TPAs. Portman's just jealous he didn't present it to the public.

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REgardless of whether its a good idea or not, timing is important, and the timing here is ridiculous!

It was bad enough that after every single plan in the country was required to be rewritten from soup to nuts for GUST.

Then Georgie Porgie passes EGTRRA and it was back to the drawing board again. Treasury is still digging themselves out of that whole, as tons of regulations still need to be issued.

Now we're going to overhaul it again? More amendments? More restatements? Is he basically admitting that EGTRRA was a mistake?

Also, talk about class warfare! How many people can take advantage of these opportunities? $7,500 each in LSA and whatever the new IRA thingamabob is called, $15K to ERSA's. That's $30K a year! Every American must realize that this another break for the rich - as if EGTRRA wasn't enough!

It does nothing to address that the lower income people will still do noting to save, to say nothing of middle america. D- Georgie!

But go kick some butt over in the Middle East! You've got this pension geeks support in those efforts!

Austin Powers, CPA, QPA, ERPA

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The use of "class warfare" here makes me fell like I'm watching a shouting match on cable t.v. where style rules over substance.

Allowing the "rich" to save more is not a detriment to the "not rich," in and of itself. And, If you were "not rich" and you maxed out your Roth IRA last year, you may like being able to put more into a similar account (especially if your employer no longer sponsored a 401k plan).

To the extent that this legislation decreases the desire to have employer-funded contributions made to plans, that is bad for the not rich. But "warfare" it isn't.

To the extent that this legislation increases the budget deficit in future years, that may or may not be bad. But it is beyond most people's skills at predicting with precision and certainly not germane to a discussion looking at this from a perspective of killing employer-sponsored DC plans.

I agree with many of the other comments in the posts that try to use "class warfare" to make a point. I just think it is an over-used term whose meaning has been lost.

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Do, clearly you are not aware that the vast majority of this board earns their living from the complexity of these plans. any so called tax reform that dimininshes our ability to earn a living will be of course be considered bad. however, this plan is bad for the average employee for the reasons cited by ASPA. small business owners will have no incentive to sponsor plans under this proposal. this proposal makes it highly unlikely that the average worker will receive an annual 3 or 4% matching or profit sharing contribution.

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