H.R. 4126

[david rigby]

The non-key could be better off with that $21,000 being spent by the government.

Having said that and having seen government in operation I am all for giving government as little money as possible since I see it as corrupted and dysfunctional. But, being from New Jersey, I might be looking at an extreme case.

It may be hasty to assume that any money given to any government will be used to enhance the lives of anyone.

[Mike Preston]

1) Cross-testing is based on the premise that it's fair if you give B $1 at the same time you give A $10 because A is retiring now and B is able to invest that dollar for 30 years to get to $10 and buy the same widget that A bought - that's the flaw. The forces operating to increase that $1 to $10 in 30 years are also operating to raise the price of that widget to $100. OK, I'm pretty much out of examples without resorting to semaphore.

I have already said that 8% might be a bit too high in today's economic environment, but the above evidences a stark ignorance of the relationship between the real rate of return and inflation. Even if we accept your philosophy that, in general, the price of equivalent goods rises with inflation (it doesn't, but this isn't a board that is intended to educate about economics), your argument above is that inflation will be 8% per annum in the intervening years. A bit of the hyperbole, wouldn't you say? You lose all of your street cred (to the extent you had any) when you flail around like this and throw false conclusions around like facts when they can't be supported upon the slightest inspection.

2) Assuming the IRS operates like other parts of the government you get people from the industry essentially 'advising' lawmakers and lately writing their own rules since the glorified-event-planners manning the legislative staffs couldn't reason their way past a sufficiently complicated concept. Cross-testing came about solely because it sold plans and made money for pension planners with the rulemakers cashing in also upon their return to the private sector. Government 101.

I think the above, as is typical from you, is a populist argument meant to denigrate the IRS. That is Populism 101. If you throw stones at the IRS who is to stand up for them, since to do so goes against the grain of those who despise governmental intervention? I am aware of precisely one government employee who "cashed in" on cross-testing upon leaving the government. The vast majority of people who participated in the drafting of the 401(a)(4) regulations are actually still at the IRS, or have left within the last few years. So, if you think that your assertions in this second paragraph have any validity beyond your desire to "stir the pot", you are sadly mistaken. No, industry doesn't have anywhere close to the influence you ascribe to them. Certainly they are nowhere close to "writing their own rules." Do they work within the system to argue for modifications by writing comment letters and the like? Of course they do. It is beyond comprehension to say that doing so is the equivalent to writing their own rules. You might want to get involved with an industry group that does participate in the process. I'm sure you would be surprised at how difficult it is to move the regulators in any specific direction.

3) An interest rate between 7.5% and 8.5% was deemed reasonable by IRS when they were trying to disallow DB contribution of Vinson & Elkins plans within a small plan audit program that argued 5% was unreasonable and it stuck for target and age-weighted plans.

So you admit that the IRS, at times, strains logic to get at the result they would like to see. How does that bolster your argument that industry, and not the IRS, wrote these rules?

4) I get that this is a cross-tested board and most of you make big money off this legal scam but wasn't there a time when you entered the profession to ensure secure retirements for the greatest number and it wasn't all about your fees? Just wondering.

This is like a holistic medicine man claiming that heart surgery exists solely for the economic well being of the heart surgeon. Others have made the point that given the tax rate structure that currently exists, the relationship between owners and employees has to take the marginal tax rate into consideration when designing tax incentives. Again, as you like to point out, Government 101. If you lower the marginal rate (which, although it hasn't changed in a number of years, it is much lower today than it was when ERISA was first enacted - can somebody back this up with a numeric example?), the cost for tax-based social engineering goes up. Do I need to explain to you why? The fact is that it isn't, as you put it, a scam, but a system firmly based in economic reality.

As far as your other assertion that dismantling the entire private pension system in favor of funding the rank and file's benefits from the increased taxes which would be generated by eliminating the retirement tax break entirely, all I can say is that I'd rather have the private system funding a benefit payable in 30 years than a public system doing the same thing. Why? Well, Government 101, of course. How much does the government spend of that theoretical $21,000 towards its intended use? Think toilet seats that cost the Pentagon thousands of dollars. If you think the net remainder of that $21,000 which ends up benefitting the non-highly compensated employees would be anywhere close to the purchasing power of the privately invested pension account, even after 30 years of inflation, you need to take off your rose colored glasses.

[Bird]

Gee, I think it is unfortunate that this veered off towards the validity or non-validity of the testing methodology because I do believe that the methodology can prove non-discrimination in (projected) benefits. The question is, should defined CONTRIBUTION plans be allowed to use those projected benefits when they are not guaranteed or even promised to continue to be funded for more than the one year in question? And I at least have my doubts, from a policy standpoint. As far as target benefit plans, to the extent that they exist any more, I don't think they prove that Congress meant to allow DC plans to test on benefits, because they at least have a required contribution element.

One thing I am sure about...not enough time to do much more of this!

[david rigby]

Let's see if this link works: http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.4126:

The current language of HR4126 indicates that target plans would not get any special treatment, so they would suffer the same fate as any cross-tested DC plan. However, cash balance plans do get special treatment.

Just as interesting is the proposed change to 410(b).

As one with actuarial letters after my name, I believe (of course) that everyone should have a DB plan, and all actuaries should be fully employed. But, neither the Congress nor the IRS has asked for my opinion.

[drakecohen]

The non-key could be better off with that $21,000 being spent by the government.

Having said that and having seen government in operation I am all for giving government as little money as possible since I see it as corrupted and dysfunctional. But, being from New Jersey, I might be looking at an extreme case.

It may be hasty to assume that any money given to any government will be used to enhance the lives of anyone.

It does and those people enhanced are desperate to keep the status quo. Keep in mind that it's New Jersey and your state is likely not as corrupt, but in Union County they routinely trade no-bid contracts for campaign cash. Here's an extreme example:

http://blog.nj.com/njv_johnbury/2009/07/our_trial.html

This keeps going on even as pension deferrals continue apace. Here's an extreme example that came to my attention today:

http://blog.nj.com/njv_johnbury/2009/12/mo...ate_pensio.html

[movedon]

I, for one, am shocked and dismayed by all of the populism and socialism going on around here. What next, devil worship?

[Mike Preston]

So, is drakecohen really John Bury?

[K2retire]

But, neither the Congress nor the IRS has asked for my opinion.

And how annoying is that?!?

[david rigby]

[And how annoying is that?!?

Married. Used to it.

[drakecohen]

So, is drakecohen really John Bury?

Yes and sorry about not responding to your recent extended retort by point since:

1) It smacked too much of work;

2) Didn't see any profit in it;

3) Would flash me back to PIX days which I can't seem to get back onto. How'd that Iraq thing work out for

you anyway? Haven't been keeping up.

[Mike Preston]

It is ok. Those who are in the habit of throwing around unsubstantiated opinion as reasoned arguments rarely have the fortitude to respond point by point. It is so taxing on their systems to maintain a logical outlook.

[drakecohen]

It is ok. Those who are in the habit of throwing around unsubstantiated opinion as reasoned arguments rarely have the fortitude to respond point by point. It is so taxing on their systems to maintain a logical outlook.

You sound like an expert there.

My choice came down to watching Andrzej Wajda's Pan Tadeusz or responding by point to your post. I chose what seemed like it would take less time.