The BenefitsLink Newsletter -
Retirement Plans Edition
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August 18 - 21, 2000
Announcement 2000-77 Describes Procedures for Determ. Letter Submission of Volume Submitter Plans
Excerpt: "The following guidelines address the plan amendments that may be needed to obtain a GUST II determination letter [which includes post-1998 issues] where the specimen plan's latest advisory letter is a GUST I letter [addressing only pre-1999 issues]. The guidelines also address the situations in which a request for a GUST II determination letter may require plan restatement, use of Form 5300 instead of Form 5307 and payment of a higher user fee." (Internal Revenue Service)
Should You Borrow From Your 401(k)?
Excerpt: "You can't deduct your interest expense from your taxes on a 401(k) loan as you might from a college or home equity loan. Then when you retire and start withdrawing money from your 401(k), you pay income tax on it again." (The Oregonian)
Ready or Not, Welcome to the 401(k) Plan
Excerpt: "The experience of 7-Eleven shows that automatic sign-up can go a long way toward closing the enrollment gap for lower-paid employees-- an important issue for all participants, because federal rules sharply restrict benefits for top earners if too few of their lower-paid co-workers take part. Still, some critics wonder whether herding uninterested workers into the plans accomplishes much in the long run." (New York Times; free registration required)
Historical Limits and Other Values Affecting Retirement Plans (PDF)
Nice - these charts extend back to ERISA's enactment or before, including the Social Security taxable wage base, DB annual limit, DC annual limit, and the 401(k) maximum deferral amount. Excerpt: "This Reference Guide consolidates certain historical limits and other numbers affecting retirement plans including the Social Security wage base, 415 limits, 401(k) deferrals, and maximum PBGC guaranteed benefits." (HayGroup)
British Airways Retirees Worry Their Overfunded Pension Plan Will Be Merged With Underfunded Plan
Excerpt: "Thousands of angry British Airways pensioners who say BA wants to help itself to a UKpound 1 billion slice of their pension surplus are bracing themselves for a renewed propaganda war when they hear the latest valuation of their fund this autumn. The trustees have brought forward a valuation of the fund, apparently at BA's prompting, and some pensioners are worried that the move will be used to derail opposition to a controversial merger of old and new pension [plans]." (Evening Standard, London)
East Providence [RI] Firefighters' Fund Gets Rave Reviews; Plan Amended to Enhance Benefits
Excerpt: "[T]he actuarial consultant ... praised the city's Pension Board for implementing policies that he said produced positive results for the pension plan. 'The Retirement Board hired an investment consultant, and has managed the plan very effectively,' he said." (Providence Journal)
When the IRS Audits-- Being Right Can Be a Costly Experience
Excerpt: "... sometimes a Revenue Agent may take a position which would not be sustained by the Appeals Office or the Courts. Thus, it is important for plan sponsors to be aware that whenever any action is taken with respect to a plan that is not supported by clear published authority, it is possible that the IRS will take an audit position which is contrary to the appropriate interpretation of the law. If this occurs, proving that the taxpayer is right could be very costly." (Reish & Luftman)
Psst ... Need a Loan?
Excerpt: "American Express is cross-selling home equity loans to plan participants visiting its retirement Web site. Is this a product sponsors should be comfortable with?" (401kWire.com)
DOL's Voluntary ERISA Fiduciary Correction Program
The attorneys at Ludwig Goldberg & Krenzel discuss the Department of Labor's recently introduced Voluntary Fiduciary Correction program ("VFC") for ERISA fiduciaries. (National Center for Employee Ownership)
Ethics Case Costs Senator His Pension
Excerpt: "The [Massachusetts] high court [on August 18] ruled against former state Sen. William Q. 'Biff' MacLean, saying his 1993 conviction on ethics charges stripped him of a state pension worth $625,000. MacLean lost his $23,000-a-year pension after he pleaded guilty to secretly receiving $512,000 from two state contracts: a deferred compensation program his insurance company sold to the state and a state-financed housing development in Fairhaven that paid fees to his wife." (Boston Herald)
Correcting Systemic Qualification Failures: Group VCR
Excerpt: "Despite the [third-party administrator's] policies and training, an employee whose duties included the processing of minimum required distributions (MRDs) required by Code Section 401(a)(9) failed to carry out those duties. The firm discovered that over 50 clients were affected.... Even though each of the plans was eligible to self-correct under APRSC, the service provider would be exposed to the potential liability for the excise taxes on over 50 distributions..." (Reish & Luftman)
Engagement Agreements For Third Party Administrators (TPAs)
Excerpt: "This checklist describes the principal provisions which should appear in a TPA services agreement. Under each heading, we provide a brief description of the key points, but the actual agreement would contain additional detail and elaboration." (Reish & Luftman)
Society of Professional Administrators and Recordkeepers (SPARK) Offers RFP Guide for $100
Excerpt: "The RFP Guide was developed by SPARK to assist plan sponsors in evaluating and/or selecting service providers for their defined contribution plan, especially their 401(k) plan. Since its inception in 1997, the RFP Guide has gained widespread acceptance within the industry and has been widely acclaimed as the industry standard for RFP requests." (SPARK)
How Should We Insure Longevity Risk in Pensions and Social Security?
Excerpt: "While many economic and political issues are relevant to this debate, it is important not to forget that one essential element of ensuring lifelong, retirement income security is to provide adequate insurance against the financial risks of longevity. Regardless of whether Social Security in the year 2050 more closely resembles the existing system or an individual accounts system, the provision of inflation-protected, annuitized income should continue to play a central role." (Jeffrey R. Brown, published by the Center for Retirement Research at Boston College)
Figure Out Your Retirement Needs in 10 Minutes
Excerpt: "In 10 minutes or less-- it depends on how fast you can type or do simple math-- you can find out how much you need to save for retirement. Admittedly, it will be just an estimate. A very rough estimate. But at least you won't have to wade through interminable questionnaires that probe into every intimate detail of your financial life." (Salt Lake Tribune)
Privatization Abroad: United Kingdom 'Stakeholder Pensions' Explained (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 Limits of Saving
Excerpt: "How might raising the limits on contributions to defined contribution plans affect individual retirement savings through the private pension system? Using a model of hypothetical lifetime savings, this paper analyzes the reform proposals for a sample of defined contribution plans that permit individuals to choose how much to save for retirement every year. The paper argues that the reforms would do little to change the savings status quo in the private pension system." (Urban Institute)
(Following also appears in Welfare Plans Edition)
Latest Application Service Provider-Hosted Service: Benefits Administration
Excerpt: "Software that lets employees manage their own benefits from corporate intranets has been available for years, but only recently have application service providers started offering options for companies that don't want to buy the software. This year, a growing number of ASPs have begun offering services that let companies outsource the administration of their benefits programs. Among them are iBenefits.com, Simpata, WebMD.com and Workscape." (CMP Media Inc.)
Cutback of Ancillary Benefits in a Retirement Plan
Excerpt: "Up to three years preceding [the plaintiff's] disability, the plan's disability pension formula provided for an immediate benefit based on the benefit that would have been payable at age 65 assuming the employee's compensation would have remained the same from the date of disability until 65 but giving credit not only for all service actually earned but for service that would have been earned ... [the] formula was then amended to take away the imputed service credit [to age 65]." (Nixon Peabody LLP)
Who is the Proper Beneficiary After Plan Participant Divorces But Does Not Change Designation?
Excerpt: "[In the case of] Engelhoff v. Engelhoff, 23 EBC 2189 (Wash. Sup. Ct. 11/18/99)[, the] Washington court decided that ERISA did not preempt Washington law, that beneficiary determinations are a matter to be determined by state law, and that under Washington state law, the plan's beneficiary designation automatically became invalid upon the dissolution of the marriage. The U.S. Supreme Court has recently decided to hear an appeal of this decision." (Nixon Peabody LLP)
Opinion: Marquis de Sade Would Smile at RCN's Option Plan
Excerpt: "Face it, your standard stock options cost shareholders a bundle and deliver great wealth to scads of CEOs who contribute nothing to deserve them. Now RCN Corp. has set out to change all this.... RCN's plan boldly raises the bar: Executives are to be rewarded only if its shares significantly outperform the stock market, thereby giving its shareholders an exclusive call on all the early stock price appreciation. " (Graef Crystal, on Bloomberg.com)
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