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The BenefitsLink Newsletter -
Retirement Plans Edition

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July 14 - 17, 2000

Automatic Deferrals (or "Negative Elections") Work for 403(b) Programs, IRS Rules
Revenue Ruling 2000-35. Excerpt: "... contributions made on the employee's behalf to the annuity contract in lieu of receipt of cash compensation will not fail to be considered to be made under a salary reduction agreement merely because they are made pursuant to an arrangement under which, in any case in which an employee does not affirmatively elect to receive cash, the employee's compensation is reduced by a fixed percentage and that amount is contributed ... to the annuity contract." (Internal Revenue Service)

IRS Announcement Reminds Prototype Sponsors: Automatic 401(k) Enrollment Provisions Are OK by Us
Announcement 2000-60. Excerpt: "In general, section 401(k) plans that have automatic enrollment features reportedly have had significantly higher employee participation rates than section 401(k) plans without such features." (Internal Revenue Service)

Joint Committee Describes Chairman Archer's Substitute Bill Increasing IRA, 401(k) Limits (PDF)
Excerpt: "Chairman Archer's amendment in the nature of a substitute to the 'Comprehensive Retirement Security and Pension Reform Act' would include the provisions of the bill, modified as follows:" (Joint Committee on Taxation)

27 Reasons to use the Current Year Data Method
Excerpt: "In a study of 401(k) plan tests done by TPAs, use of the current year data method has proven to be the best practice for ADP and ACP testing. This memo will review 27 reasons why this is true--including thoughts on future implications, after the remedial amendment period expires." (Pension Edunet)

Bill on Pension Rules Moves Forward in House
Excerpt: "The House Ways and Means Committee [on Thursday] approved legislation that would significantly raise maximum allowable contributions to individual retirement accounts and 401(k) plans." (New York Times; free registration required)

The Truth about Company Stock
Excerpt: "... let's make that decision with our eyes wide open. Because contrary to popular opinion, owning company stock is not a win-win. It's a win-lose." (Morningstar's John Rekenthaler on 401kWire.com; free registration required)

Teachers: Do Your 403(b) Homework
Excerpt: "Schoolteachers cope with two major problems: salaries that make it difficult to save in the first place and cost-ridden savings plans that can make their work lives look like Fat City compared with their retirement income." (Thanks to Tim Younkin for recommending the link!) (Scott Burns, in the Dallas Morning News)

Rollover Distributions from a One Plan to Another Preserves Net Unrealized Appreciation on Stock
Re PLR 200027058. Excerpt: "... the IRS ruled that there would be a qualifying lump sum distribution under Code Section 402(e)(4)(B) if there were a distribution (within one taxable year) of all the corporation's stock in Plan X to a participant, and, within the same taxable year, all remaining assets includible in such participant's Plan X balance were, pursuant to the participant's rollover election, paid directly to Plan Y." (EBIA Weekly)

IRS OKs Plan Amendment to Require Direct Rollover of Small Payments When Participants Don't Respond
Excerpt: "An amendment to change the default method of payment to a direct rollover as the default when a distributee fails affirmatively to elect to make a direct rollover or to elect a cash payment under the facts described above does not cause Plan A to fail to satisfy section 401(a)(31) or section 411(d)(6)." (Internal Revenue Service)

House Panel Backs Rollback of Federal Employees' Pension Contributions
Excerpt: "A House Appropriations subcommittee, in a 7 to 6 vote, adopted an amendment to roll back higher contribution rates employees have paid toward their retirement as part of the 1997 balanced-budget agreement." (Washington Post)

Opinion: Be Skeptical About Proposal to Invest Nevada Pension Funds to Boost In-State Businesses
Excerpt: "... telling the retirement fund's investment firm, Pathway Capital Management Co. of Irvine, Calif., to actively consider Nevada companies could create undue pressure to select Nevada firms over out-of-state companies, even if in its professional judgment a Nevada company may not offer the same return." (Las Vegas Sun)

Divorce and Pensions
Excerpt: "Pension and retirement benefits that are earned during the marriage are potentially of great value. In a longer marriage, these benefits may be the most valuable asset the couple owns." (RIA Pension & Benefits Week)

Self-Directed Accounts: Myths and Misunderstandings
Excerpt: "Too many DC plan members are confused about their investment options, or simply have incorrect information. Plan sponsors can clear away the confusion and help employees become financially savvy." (Benefits Canada)

Bonus Annuity Might Not Live Up to Its Name
Excerpt: "The latest something-for-nothing claim: bonus annuities, where the company chips in 1% or so in addition to your contributions. There are good reasons to buy a variable annuity, but bonus offers usually aren't among them." (USA Today)

Generation X Green About Investing Money
Excerpt: "For young professionals, financial advisers recommend a 401(k) made up of 70 percent growth and aggressive growth funds--higher-risk funds that offer potentially higher returns." (Arizona Republic)

Regular Investing Makes a Difference, Compared to Occasional Single-Sum Deposits
Excerpt: "The great benefit of 401(k) plans is that we can invest regularly, automatically and in small amounts. Investing a multitude of small sums also means that we get a different return on our investment(s) from those who make one investment, once. How can that be?" (Scott Burns, in the Dallas Morning News)

The Upside of Downside Risk
Excerpt: "Downside risk is an accurate and customized tool for measuring risk. A growing number of investors are discovering its advantages." (Benefits Canada)

Is Investment Risk Dead? Not Hardly
Excerpt: "Despite the belief in a perpetual bull market, risk is alive and well. In fact market valuations, volatility and index concentration demonstrate that it's on the rise." (Benefits Canada)

Same Desk Rule Stops Distributions to Outsourced Workers
Excerpt: "In this ruling, the corporation maintained a subsidiary that performed an information services contract for (it appears) a government agency. The corporation decided to outsource the subsidiary's information services work to an unrelated company (Company C)." (EBIA Weekly)

(Note: the following items also appear in the Welfare Plans Edition)

6th Cir: ERISA Does Not Allow for Recovery of Attorney's Fees Spent on Administrative Appeal
Anderson v. Proctor & Gamble Co. Excerpt: "The participant in this case was successful in the appeal of her claim to the plan administrator, and she received her benefits. However, she brought suit against the plan to recover attorney's fees spent on the administrative appeal of the initial denial of her claim. The Sixth Circuit [followed] the precedent of other federal courts..." (EBIA Weekly)

Conseco Outdoes Itself in Piling Gifts on Wendt
Excerpt: "If you owed $127 million on loans you used to buy shares at 30, and if the stock was now in the single digits, wouldn't you do just about anything to get out of the hole? That could well have been the reasoning of the worthy members of the compensation committee of Conseco Inc. in crafting the astounding pay package they gave Gary Wendt to become chief executive." (Graef Crystal, on Bloomberg.com)

US Airways Executives May Get Millions, if United Merger Goes Through
Excerpt: "Chairman Stephen M. Wolf and President and chief executive Rakesh Gangwal would receive $11.6 million and $12.8 million, respectively, in incentive and termination pay above and beyond stock option and pension payments already due them." (Washington Post)

Senate Sends Clinton Bill Repealing Estate Tax
Excerpt: "With President Clinton promising a veto, Senate Republicans muscled through a bill on Friday that would gradually repeal inheritance taxes originally imposed to prevent concentration of vast wealth in few hands." (Associated Press)

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