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The BenefitsLink Newsletter -
Retirement Plans Edition

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August 11 - 15, 2000

IRS Allows Participants to Direct Investments to Purchase Coverage Under LTD Policies
Excerpt: "A question for plan sponsors is, what if an electing participant does not become disabled? He or she would then lose the amount of the premium payments and would forgo tax-deferred earnings growth on those payments. This seems potentially inconsistent with the retirement savings goal that underlies a 401(k) plan, and it therefore raises fiduciary concerns that a plan sponsor should resolve before implementing this type of arrangement." (EBIA Weekly)

Wrong! Auto Enrollment is Not So Bad
Excerpt: "The bottom line is, Automatic Enrollment programs get people to a better place. By providing that nudge to get started, Automatic Enrollment programs overcome that deadly disease of inertia." (401kWire.com)

Bill Seeks Better Advice Within 401(k)s
Excerpt: "Most of today's workers are at least partly responsible for managing their own retirement nest egg. And many have absolutely no idea what they're doing." (Thanks to Tim Younkin for recommending the link!) (Los Angeles Times)

No Adverse Tax Consequences to 401(k) Plan's Disability Insurance Option
Excerpt: "IRS has ruled privately that a 401(k) plan's purchase of long-term disability insurance out of designated employee elective deferrals won't violate the contingent benefit prohibition of Code Sec. 401(k)(4)(A), and won't be taxed to employees when benefits are paid to the plan; rather, tax will be deferred until benefits are paid from the plan. (IRS Letter Ruling 200031060)." (RIA Pension & Benefits Week)

More Companies Cutting 401(k) Eligibility Periods
Excerpt: "Struggling to stay competitive in a tight labor market, companies from UPS to Bank of America say they've cut 401(k) eligibility periods to lure money-savvy Generation X recruits." (Atlanta Journal-Constitution)

IRS PLR: 401(k) Participants Can Purchase Long-Term Disability Insurance as Investment Option
Excerpt: "The LTDI insurance is subject to the incidental insurance benefit rules ... [if] the premiums violate the incidental insurance limits, the continued qualification of the plan would be jeopardized. ... The participant does not include in gross income the amount paid by the participant's account for premiums. There are no "P.S. 58 costs" taxable to the participant ... [T]he payments are not annual additions for IRC 415 purposes." (TRI Pension Services)

PBGC Explains Early Warning Program
Excerpt: "In PBGC Technical Update 00-3, released on July 24, 2000, the PBGC explains its Early Warning Program, which is designed to avoid forced plan terminations under ERISA section 4042 by working with plan sponsors to obtain protections before a business transaction significantly increases the risk of loss." (TRI Pension Services)

Welcome to new BenefitsLink advertiser MorningstarAdvisor.com
MorningstarAdvisor.com is the comprehensive source for financial advisors. The site includes: News & editorial, labs, forums & events, learning center, virtual trade show and best of the web resources. For more information visit advisor.morningstar.com (BenefitsLink.com)

Welcome to new BenefitsLink advertiser Sterling Trust Company
Sterling Trust Company provides quality administrative services for self-directed IRAs, qualified business retirement plans, personal custodial accounts and corporate trust and escrow arrangements. For more information visit www.sterling-trust.com (BenefitsLink.com)

Standard & Poor's Retirement Services Receives P.T. Exemption from DOL
From an S&P press release: "In offering its range of [Internet-based investment recommendation] services to plans and their participants, Standard & Poor's works with plan providers that often sponsor-- and receive fees arising out of-- investments offered in the plan. As a result, a question arose as to whether Standard & Poor's contractual arrangements with these types of plan providers might, in some cases, be considered transactions that are prohibited under ERISA." (U.S. Department of Labor (in 8/10/2000 Federal Register))

11th Cir.: Participants Win in Cash Balance Distribution Calculation Case
Lyons v. Georgia Pacific Corporation Salaried Employees Retirement Plan (11th Cir. 2000). Excerpt: "[W]e are called upon to decide issues about how to calculate a consensual, lump sum payout in a front-loaded, defined benefit, cash balance pension plan with fixed interest credits. The principal issue is whether such a payout must be calculated using the present value methodology set out in ... 1.411(a)-11 and 1.417(e)-1 ... [W]e are convinced that those Treasury regulations are valid." (FindLaw.com)

Why Employee Stock Ownership Plan Didn't Help United Air Lines
Excerpt: "At least two lessons can be learned from the current United Airlines fiasco ... First, if you want to buy somebody's cooperation, pay with cash, not with stock that may seem quite unreal to recipients who lack the right to sell it when they want. The pilots own 25 percent of UAL, United's parent company, through an employee stock-ownership plan, or ESOP. But they do not seem especially concerned that their disinclination to fly overtime is hurting the share price." (New York Times; free registration required)

Pensions Governance: The Control Of Occupational Pension Funds In The UK And Germany (PDF)
Excerpt: "Pensions governance in the UK takes the form of awareness-raising consultation procedures ... neither the scheme actuary nor the investment adviser play autonomous roles. In Germany ... occupational pensions ... are tensely regulated and hardly enjoy any discretion over investment and funding. Co-management, i.e. employee representation on the employer's supervisory board [provides] a distinctive role of employees in the governance of pension schemes." (Centre for Pensions and Social Insurance, Birkbeck College, University of London)

My Private Journey Away From Privatization
Excerpt: "As the public debate over privatizing Social Security has intensified, I have been thinking about my own personal journey down the path of privatization. I began with fascination, which led to exploration, then apprehension, and ultimately rejection." (Joseph I. Lieberman)

Social Security Offset for Spousal Benefits Is Questioned
Excerpt: "On one side, there's Eileen Ryan, a 71-year-old widow ... [who] believes she should receive spousal benefits from her husband's Social Security, in addition to her own benefits and public pensions. On the other side, there's 65 years of Social Security regulations and policy-- specifically, the one passed in order to prevent 'double dipping.' Called the offset rule, it enforces the notion that you are entitled to only one Social Security benefit." (Cincinnati Enquirer)

Intrafamily Installment Sales of Nonqualified Stock Options (PDF)
Excerpt: "Today's employees of dotcom companies are fast becoming tomorrow's millionaires. Every day, Internet companies are going public; their initial public offerings are making their workers wealthy, often via the use of nonqualified stock options (NQSOs). This article suggests that these noveau riche clients sell their NQSOs on an installment basis to a familycontrolled entity, thereby deferring taxes and converting ordinary income to capital gain." (James R. Hamill, Ph.D., CPA and Roger W. Lusby, III, CPA, AEP, CMA, on OptionWealth.com)

(Following also appears in Welfare Plans Edition)

Opinion: Beware CEOs With Multiple Incentive Plans
Excerpt: "My analysis of pay at the 500 largest U.S. companies by market capitalization shows that each incentive plan adds 93 percent to a CEO's pay. I've found that companies whose CEOs receive more than one long-term incentive plan usually are sending a signal of pay excess. There's a simple reason: Most CEOs are unwilling to cut back on their current pay to make room for more 'incentive' pay, however lucrative, sometime in the future." (Graef Crystal, on Bloomberg.com)

Compensation Resource Group Makes $175 Survey Available for Downloading
Excerpt: "... [the survey shows] how corporate America is providing certain nonqualified retirement and welfare benefits to its executives. The Survey focuses on two types of nonqualified retirement plans: Nonqualified Deferred Compensation Plans and Supplemental Executive Retirement Plans; and two types of nonqualified welfare plans: Supplemental Death Benefits and Disability Benefits ... [also listed are] International Executive Benefit Plans and Corporate Financial Planning Benefits." (Compensation Resource Group)

George Zimmer of Men's Wearhouse Keeps a Lid on CEO Pay-- His Own
Excerpt: "When George Zimmer, CEO of Men's Wearhouse Inc., promotes his clothes on TV, he looks earnestly into the camera and proclaims: 'I guarantee it.' Until now, I'd figured Zimmer was only guaranteeing the quality of his threads and discount pricing. After some analysis I've concluded the guarantee might also apply to his consistently under-paying himself and being ultra-fair to shareholders." (Graef Crystal, on Bloomberg.com)

Cheney's Dallas Company Giving Him $20 Million Retirement Package
Excerpt: "The energy services company that Dick Cheney served for much of the last five years as chairman and chief executive has agreed to let Mr. Cheney ... retire with a package worth an estimated $20 million, according to people who have reviewed the deal.... The board's vote allowed Mr. Cheney to avoid a potentially costly aspect of his employment contract, which said he would forfeit some of his compensation if he retired before age 62 without the board's permission." (New York Times; free registration required)

Options on Steroids
Excerpt: "A 'super stock option' bill moving through the U.S. House of Representatives is designed to make stock option plans more ubiquitous than ever. Introduced by Rep. John Boehner (R-Ohio), the super stock option will allow employers to deduct the cost of the options when the employees exercise them while allowing workers who exercise those options to defer taxes on profits until shares are actually sold." (CFO magazine)

Job Openings Newly Posted or Reposted on EmployeeBenefitsJobs.com

Pension Plan Administratorfor Michael Reece & Associates, Inc.
in IN
Pension (401k) Professionalsfor KeyBank
in OH
Defined Benefit Client Account Managerfor New York Life Benefit Services LLC
in MA
Defined Benefit Specialist Ifor American Century Investments
in MO
Client Relationship Managersfor Leading Search Firm
in NC
Experienced Defined Contribution Consultantsfor Ceridian Retirement Plan Services
in AZ, CA, CO, FL, VA, WI
in DC
Defined Benefit Conversion Consultantfor American Century Investments
in MO
Employee Benefits Account Managerfor America At Work
in PA
Defined Benefit Conversion Specialistfor American Century Investments
in MO

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