Tom Poje Posted January 31, 2003 Share Posted January 31, 2003 [Full text of the press release with first details of the proposal: http://benefitslink.com/cgi-bin/pr.cgi?dat...tabase_id=33984 ] Good grief. check these suggested changes out! Yes. The proposal includes the following provisions that would greatly simplify the administration of all defined contribution plans: 1. There would be a single test to show that the plan meets the nondiscrimination rules with respect to coverage -- ratio-percentage coverage. Under this test, the percentage of an employer’s nonhighly compensated employees covered under a plan would have to be at least 70% of the percentage of the employer’s highly compensated employees covered under the plan. The other coverage testing alternatives would be repealed. 2. Permitted disparity and cross-testing would be prohibited for defined contribution plans. 3. The top heavy rules would be repealed for defined contribution plans. 4. There would be a uniform definition of compensation for all purposes for defined contribution plans – the amount reported on form W-2 for wage withholding, plus the amount of ERSA deferrals. 5. A simplified definition of highly compensated employee would be adopted under which all individuals with compensation for the prior year above the Social Security wage base for that year would be considered to be highly compensated employees. Does the ERSA proposal have any effect on defined contribution plans that do not involve employee deferrals or employee after-tax contributions? In other words, does the proposal affect pure profit sharing plans, stock bonus plans, and money purchase pension plans? Other than the simplifications discussed in the preceding question, the ERSA proposal would not affect the rules applicable to employer contributions to defined contribution plans, other than safe harbor nonelective contributions or matching contributions. Does the ERSA proposal have any effect on defined benefit plans? No, the proposal would not affect the rules applicable to defined benefit plans. Link to comment Share on other sites More sharing options...
AndyH Posted January 31, 2003 Share Posted January 31, 2003 Relax, it must be a hoax perpetrated by Ted Kennedy. Good hoax, Ted! Link to comment Share on other sites More sharing options...
mbozek Posted January 31, 2003 Share Posted January 31, 2003 No- Its due the inability of the IRS to administer all of the crazy provisions for Q plans with a reduced staff- In other words there are few resources available for regulation of an area that yields no revenue. mjb Link to comment Share on other sites More sharing options...
Guest hoss Posted January 31, 2003 Share Posted January 31, 2003 As a relatively new benefits attorney, I am somewhat fond of the complexity of the retirement plan rules because they provide work for me. Do others view these changes, if implemented, as a boon for attorneys, or with they make our work disappear? Link to comment Share on other sites More sharing options...
AndyH Posted January 31, 2003 Share Posted January 31, 2003 It'll make this message board and 3/4 of ASPA disappear, among other things. Hope they're on top of this. Link to comment Share on other sites More sharing options...
Mike Preston Posted January 31, 2003 Share Posted January 31, 2003 AndyH, no, it won't. It will force those who are in the business of providing retirement planning consulting to concentrate on, er, retirement concepts. Now, if only we could get rid of lump sums entirely we could return focus to where it belongs. Saving money for retirement. Link to comment Share on other sites More sharing options...
AndyH Posted January 31, 2003 Share Posted January 31, 2003 I'm going to dig out the cross tested final regulations and see if I can unscramble the coded message that says "payback's a bitch"! Link to comment Share on other sites More sharing options...
mbozek Posted January 31, 2003 Share Posted January 31, 2003 The hidden agenda is to reduce revenue loss by limiting er contributions to DC plans. Another part of the agenda is to eliminate deductible IRAs and permit all taxpayers to make contributions to Roth IRAs of up to $7500. The thinking is that taxpayers will be willing to trade current income tax deductions in return for elimination of taxation on all distributions to the owner, spouse and heirs which will create parity with non retirement investments in which dividends are tax free. mjb Link to comment Share on other sites More sharing options...
Guest RBeck Posted January 31, 2003 Share Posted January 31, 2003 What are the odds that Bush's proposal will pass in anything close to its entirety? I agree with mbozek about the hidden agenda. and AndyH, when you find that coded message, let me know where it is! Link to comment Share on other sites More sharing options...
Tom Poje Posted January 31, 2003 Author Share Posted January 31, 2003 The logic of the plan to make things simpler so maore people adopt plans makes no sense. Such an animal already exists, and no one wants them. Standardized plans. But now they want to take away the ability to even integrate the plan. But you don't have to integrate anyway. So really, the only change is getting rid of top heavy. ok, a change to the definition of who is an HCE, but since the plan passes coverage, who cares. so it looks like this proposal takes the standardized plan and gives you even less options in return for getting rid of top heavy. But you can already do that if you adopt a safe harbor 401k. Link to comment Share on other sites More sharing options...
mbozek Posted January 31, 2003 Share Posted January 31, 2003 The idea is to reduce contributions to DC plans by requiring that ers make the same % contributions for non HCEs as owners and HCEs. Employers will not want to increase pension plan costs by contributing the same % of comp for all ee. Elimination of intergration could require doubling of er contributions for comp under FICA limit to make same % contribution for comp above the limit. The ers will either contribute less for HCEs or abandon such plans and employees will contribute $7500 to roth IRAs on an after tax basis with no revenue loss up front. The admin has to support DB plans in order shore up the PBGC which will continue to take big hits from the bankruptcy of airlines (UAL, USAIR) and steel cos (National, Bethelham, etc) not to mention Enron. PBGC added $8B in pension liabilities in 2002 which wiped out its surplus. mjb Link to comment Share on other sites More sharing options...
RTK Posted January 31, 2003 Share Posted January 31, 2003 My cynical ear heard that the goal is to shift pre-tax saving to after-tax saving to maximize short term revenue. Note that the combination of LSA and RSA permits $15,000 of "tax-preferred savings" per individual per year (subject to RSA compensation). Now, ignoring the kids for the moment, I wonder where I can find that extra $30K for me and the spouse each year. Link to comment Share on other sites More sharing options...
jevd Posted January 31, 2003 Share Posted January 31, 2003 This makes for great discussion but the expected timing on this is impossible. Congress has to Digest, Debate, Decide & Deliver this legislation before the end of the year so the general public can notify their trustees/custodians to convert existing accounts to take advantage of four year tax break on the conversion. Not to mention that the DEMS will say this is just another break for the rich. I also wonder where that loose 30k/yr is coming from? JEVD Making the complex understandable. Link to comment Share on other sites More sharing options...
Mike Preston Posted January 31, 2003 Share Posted January 31, 2003 Defined benefit plan installations? Link to comment Share on other sites More sharing options...
RTK Posted January 31, 2003 Share Posted January 31, 2003 $7,500 for my LSA, $7,500 for my RSA, $7,500 for my spouse's LSA and $7,500 for my spouse's RSA Link to comment Share on other sites More sharing options...
E as in ERISA Posted January 31, 2003 Share Posted January 31, 2003 $7.500 to my LSA, $7,500 to my RSA, $15,000 to my ERSA Link to comment Share on other sites More sharing options...
david rigby Posted February 1, 2003 Share Posted February 1, 2003 Please don't forget to leave some for your EA. 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. Link to comment Share on other sites More sharing options...
Mike Preston Posted February 1, 2003 Share Posted February 1, 2003 Where's Allan Sherman when you need him? How would Harvey and Sheila have reacted? How do we pronounce ERSA? Is it three syllables (er-es-eh)? If so, new lines can be added below the following: They bought a house one day, Financed by FHA. It had a swimming pool full of H2O. Funded their RSA, filled up their LSA IBM's CBP became an Er-S-A. Transferred their IRA's Switched their QSTP's Now they'll pay no tax until their dying day! ===================== I know, I know. I won't give up my day job. Link to comment Share on other sites More sharing options...
Guest wilkinson Posted February 1, 2003 Share Posted February 1, 2003 this could be.... only in the USA Link to comment Share on other sites More sharing options...
Gilmore Posted February 1, 2003 Share Posted February 1, 2003 I found the benefits attorney's comments on the previous page most amusing. Usually when things get "simplified" we work even harder. Link to comment Share on other sites More sharing options...
Guest LauraH Posted February 3, 2003 Share Posted February 3, 2003 What amazes me most about this proposal is the fact that Bush feel this is going to be an incentive for small businesses to implement retirement plans . . . all of our small businesses love the cross tested designs, particularly the blend of safe harbor with new comp. The complexities of these plans that Bush takes issue with aren't really the concern of the clients in terms of understanding the details. They certainly understand the basics, and we have never heard any complaints . . . The saddest thing is, if the only options available for DC plans will essentially be "vanilla," we consultants will lose a large chunk of our client base to the big investment houses who can package these standardized retirement plans for lower fees. We consultants will certainly not be able to provide anything unique in terms of plan design, and that has always been our edge. I'm depressed. Link to comment Share on other sites More sharing options...
jevd Posted February 3, 2003 Share Posted February 3, 2003 Mike Preston, Its great to hear there's an Allen Sherman fan still out there. Maybe my LPs are worth something. Lets All Call Up ATT & Protest to the President March! jvd JEVD Making the complex understandable. Link to comment Share on other sites More sharing options...
Guest LoloV Posted February 3, 2003 Share Posted February 3, 2003 Does anyone think this proposal will get passed? Link to comment Share on other sites More sharing options...
mbozek Posted February 3, 2003 Share Posted February 3, 2003 yes because the republicans control both houses with greater majorities than they had in 2001 and because the pension proposals will be part of the overall tax reduction package. There will be some tweaking in the proposals. mjb Link to comment Share on other sites More sharing options...
Guest LauraH Posted February 3, 2003 Share Posted February 3, 2003 For what it's worth from a "cog:" I'm willing to bet that this proposal will remain as a package deal, perhaps with some modifications, but I'm sure pensions as we know them will be a thing of the past. We've got a slew of financial institutions who will gain: banks, credit unions, mutual fund companies . . . (the IRS will surely be glad they don't have to audit cross-tested plans any more)! Who will care about any outcry from the pension industry? How can an outsider truly appreciate the fine art of compliance mathematics and plan design? No, in one big sweep, it will all be gone, and our professional designations will be meaningless. (If the proposal passes, anyone can pass the C-4!) Link to comment Share on other sites More sharing options...
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