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The BenefitsLink Newsletter -
Retirement Plans Edition

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July 21 - 24, 2000

Final Regs on $5,000 Retirement Plan Cash-Out Threshold Completely Eliminate Lookback Rule
Excerpt: "IRS has finalized proposed regs that provide guidance on the Taxpayer Relief Act of 1997 (TRA '97) increase from $3,500 to $5,000 in the limit on involuntary cash-outs from qualified retirement plans. The regs completely eliminate the lookback rule under which the plan benefits of certain participants that are below the cash-out limit were deemed to exceed it, thus preventing any cash-out." (RIA Pension & Benefits Week)

PBGC Technical Update 00-3 Describes the Agency's 'Early Warning Program'
Excerpt: "The PBGC contacts a company for further information about a transaction only if: (1) The company has a below investment-grade bond rating and sponsors a pension plan that has current liability in excess of $25 million, or (2) The company (regardless of its bond rating) sponsors a pension plan that has current liability in excess of $25 million and that plan has unfunded current liability in excess of $5 million." (Pension Benefit Guaranty Corporation)

'ERISA Modernization' Bill Introduced, Would Revise Legal Rules on Investment Advice to Participants
A synopsis of the "ERISA Modernization Act of 2000" (H.R. 4749), the "Retirement Security Advice Act of 2000" (H.R. 4747), and the "Comprehensive ERISA Modernization Act of 2000" (H.R. 4748). (Groom Law Group)

ICI Applauds Subcommittee Approval of Boehner Bill on Retirement Advice to Plan Participants
Excerpt: "Institute President Matthew P. Fink said, 'Saving for retirement is more important today than ever before. H.R. 4747 would close the "advice gap" that exists today when retirement plan participants decide how to invest their vital retirement savings.'" (Investment Company Institute)

Supplemental Comments Regarding Cash Balance Conversions and Age Discrimination Prohibitions (PDF)
Excerpt: "We strongly believe that the age discrimination claims that have been made with respect to cash balance plan conversions are without merit." (Association of Private Pension and Welfare Plans)

Bloomberg Institute Provides Free Online Course for 401(k) Plan Participants
Online free course, new from Bloomberg Institute. Excerpt: "This course covers what you should know about your employer's plan, the tax implications going in and coming out of your 401(k), what kind of investments are right for your personal risk and time horizon, and the resources available to help you make informed retirement and investment decisions." (Bloomberg Institute)

Household Borrowing from 401(k) Plans (PDF)
Excerpt: "The newly released 1998 Survey of Consumer Finances shows that borrowing from pension plans has more than doubled between 1992 and 1998. The problem with using pension funds prior to retirement is the risk that retirement income will be inadequate. The questions are 'Why do people borrow' and 'What do they do with the money?'" (Center for Retirement Research at Boston College)

Uncertain Future for Pension Reforms After House Vote
Excerpt: "With a Presidential election in the offing this year, will this momentum be strong enough to carry the bill through to a Presidential signature? At this point, the best answer is, it's a flip of the coin. Most of the bill enjoys wide support in Congress, at the White House and on Main Street. With the right guidance and massaging, it could easily be signed into law. But, it's just as likely the bill could fall victim to political posturing, observers say." (401Kafe.com)

Editorial: House-Passed Bill Raising IRA Contribution Limit Won't Do Much to Improve Savings Rate
Excerpt: "With much fanfare about national saving and retirement security, the House on Wednesday passed a bill that would greatly expand the amount of money that Americans can salt away in tax-sheltered retirement accounts. Rhetoric notwithstanding, this bill would do little to improve the nation's deplorable savings rate or to broaden pension coverage, and the Senate should be in no hurry to pass a companion bill." (StarTribune.com)

APPWP Also Urged Legislators to Reject Sanders Amendment to IRS Spending Bill
Excerpt: "The Sanders amendment is built on the assertion that conversions from traditional defined benefit pensions to cash balance plans violate the pension age discrimination prohibitions. This is mere assertion. No court or expert agency has ruled that this is the case and indeed existing guidance indicates that these plans are not discriminatory." (Association of Private Pension and Welfare Plans)

Sanders-Gutknecht Anti-Cash Balance Conversion Amendment Added to IRS Appropriations Bill
We understand the bill was passed by the House last night, July 20, with the Sanders-Gutknecht amendment included. (BenefitsLink)

ERIC Opposes Sanders-Gutknecht Amendment About Cash Balance Conversions
Excerpt: "... the House may be asked to consider a Sanders-Gutknecht amendment to the Treasury Postal Service Appropriations bill that would bar the IRS from "funding ... activities that violate current pension age discrimination laws ... ," particularly as they relate to the conversion of traditional defined benefit pension plan designs to newer cash balance defined benefit plan designs. The amendment is based on its sponsors' 'belief' that the new plan designs violate age discrimination laws." (ERISA Industry Committee)

Opinion: Evolution of Kentucky State Lawmakers' Pension Bill Truly Byzantine
Excerpt: "The issue is an increase in legislative retirement pensions, which are slated to almost double under a bill that the General Assembly approved in the final, hectic days of the 2000 regular session. The raise didn't become public until after legislators had adjourned and gone home. Since then, some lawmakers who voted for the raise have been protesting that it was slipped in without their knowledge and that, had they known, they would never have approved it." (Kentucky Post)

Court May Decide Constitutionality of Kentucky Law Doubling State Legislators' Pensions
Excerpt: "The fate of a new law that could double the retirement pension for state legislators will be decided by the courts. The state board responsible for implementing the pension increase decided Tuesday to ask the Franklin Circuit Court to determine whether the measure is constitutional and, if so, how it should be applied." (Kentucky Post)

House-Passed Pension Bill Would Do Little for Federal Work Force
Excerpt: "The House vote to change the nation's pension laws would provide no meaningful benefits to rank-and-file federal employees, because the Thrift Savings Plan would have to be altered for most employees to take advantage of increased contribution limits for retirement accounts." (Washington Post)

Mortality Risk, Inflation Risk, and Annuity Products
Link to a Working Paper available for downloading from the National Bureau of Economic Research. Excerpt: "As growing numbers of retirees reach retirement age with substantial balances in self-directed retirement plans, annuities are likely to become increasingly important instruments for drawing down retirement savings. This study explores recent trends in the pricing of single-premium annuity products in the United States." (National Bureau of Economic Research Working Paper)

Participants Are Investors, Too
Excerpt: "The retirement education process has evolved to a new level that's more sophisticated, more complex and yet still must meet the needs of those new to the investment process. Participants are demanding more-more choice, more disclosure, more flexibility, better performance." (Sue Stevens of Morningstar, on 401kWire.com)

States Sue Microsoft, While Holding Millions in Stock
Excerpt: "But the news was grim for Massachusetts Treasurer Shannon O'Brien, who oversees the state pension fund. As Microsoft Corp. stock plunged in the aftermath of the judge's ruling, the value of the fund plunged nearly $150 million." (New York Times; free registration required)

Coming to Britain: Stakeholder Pensions (PDF)
Excerpt: "From April 2001 individuals will be able to purchase stakeholder pensions. Stakeholder pensions are a government designed financial product which private sector financial institutions will supply. They are low cost, flexible, defined contribution pension schemes. In this article Ian Tonks examines these new financial products and argues that they are unlikely to meet the government's objective of providing a satisfactory pension for the less well-off." (Ian Tonks, University of Bristol)

The Politics of the Joy of Retirement
Excerpt: "The politics of the current debate over retirement plans is complex and tricky. But the maneuvering can be potentially significant if the Social Security issue finally emerges as the dominant one in this presidential campaign." (Jack W. Germond and Jules Witcover, in the Baltimore Sun)

(Following also appears in Welfare Plans Edition)

Opinion: Adobe's Warnock Benefits From Weak-Kneed Moments
Excerpt: "The way I see it, Adobe Systems Inc.'s chief executive, John E. Warnock, is a man of little faith in his company. Ironically, his excellent performance has proven him wrong. Still, it would be nice if he would return the $2.8 million in extra stock option profits he has accumulated -- profits that were predicated on his lack of faith." (Graef Crystal, on Bloomberg.com)

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