Retirement Plans Edition
December 4, 2000
Today's sponsor is Fortress Financial Group, Inc. (click on banner for more information)
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The Effects of 401(k) Plans on Household Wealth: Differences Across Earnings Groups
Working paper. Excerpt: "This paper provides a new econometric specification and new evidence on the impact of 401(k) plans on household wealth. We allow the impact of 401(k)s to vary over both time and earnings groups. Our specification--motivated by a variety of theoretical considerations and data patterns--generalizes earlier work in the literature, and we show that the modeling constraints imposed by previous authors are rejected by the data." (Eric M. Engen, William G. Gale, National Bureau of Economic Research)
What Determines 401(k) Participation and Contributions?
Working paper. Excerpt: "This paper uses the 1998 Survey of Consumer Finances to identify the factors that determine whether an eligible employee elects to participate in a 401(k) plan and the magnitude of the employee's contribution. The conclusion is that the most important factor affecting employees' participation and contribution decisions is their planning horizon." (Center for Retirement Research at Boston College)
Another Question is Answered in the Correcting Plan Defects Q&A Column
If an ineligible employee is inadvertently permitted to make elective deferrals to a 401(k) plan, can the plan sponsor treat the defect as resulting from a 'mistake of fact,' so that the deferrals can be distributed to the employee without using an IRS remedial correction program? (BenefitsLink.com)
Another Question is Answered in the Who's the Employer Q&A Column
How are deferrals accomplished when a leased employee is included in a 401(k) plan of the recipient? Is the compensation paid by the leasing organization (PEO) considered to be compensation paid by the recipient for purposes of the recipient's 401(k) plan? Is the deferral withheld by the PEO and then a check mailed to the recipient's plan? (BenefitsLink.com)
401(k) Loans: Was Polonius Right? (Neither a Borrower Nor a Lender Be)
Excerpt: "Fast-forward to the 21st century, and we find a substantial number of 401(k) plan participants ignoring all of Polonius's advice and becoming both a borrower and a lender by borrowing money from their 401(k) plans and lending it to themselves." (Thompson Publishing Group)
Another Question is Answered in the ESOP Q&A Column
An S corporation employer maintains an existing 401(k) plan. It starts a leveraged ESOP. Is the employer eligible for the 25% employer deduction limit of section 404(a)(9)? If so, does it qualify because of its maintaining two defined contribution qualifed plans, or because it is a leveraged ESOP? (BenefitsLink.com)
Another Question is Answered in the ESOP Q&A Column
John, age 44, receives 100 shares of employer stock with a cost basis of $1,000. He rolls over 40 shares into an IRA and takes the remaining 60 shares in a stock certificate in his name. Does John take into income $1,000 as ordinary income and pay a 10% penalty for that tax year? If John redeems the 60 shares in 2 years, does he have to pay an additional 10% penalty on the unrealized gain? (BenefitsLink.com)
Online Advice Becomes Key Benefit to 401(k) Plan Sponsors
Excerpted from December 2000 edition. (IOMA's Managing 401(k) Plans)
Schwab Considers Launch of Online Bundled Product
Excerpt: "to a source familiar with the firm�s plans, Schwab is in discussions with online bundled providers GoldK and Emplanet to possibly private label an Internet platform in order to offer a Web-based bundled product." (Defined Contribution News)
ERISA Liability for CPAs
Excerpt: "CPAs who provide professional services to employee benefit plans face potential liability exposure under ERISA. A June U.S. Supreme Court case made it clear that CPAs and other service providers are at risk even though in many instances their actions may seem innocuous." (AICPA Journal)
How to Maximize IRA Accumulations
Excerpt: "Tax law requires IRA owners to begin taking minimum distributions from traditional IRAs starting in the year they turn age 70-1/2. Since the balances in these accounts can be quite sizable, some owners prefer to continue generating tax-deferred earnings as long as possible. CPAs can help clients prolong the distribution period by recommending certain techniques." (AICPA Journal)
In Britain, Pension Sharing Upon Divorce Becomes Available
Excerpt: "From today, couples getting divorced will be able to apply to the courts to share their pension rights between them." (M2 Communications)
House Committee Publishes Web Page Collecting Information About H.R. 1102
Excerpt: "On October 26, 2000, the House passed the 'Retirement Savings and Pension Coverage Act' as part of H.R. 2614." (House Committee on Education and the Work Force)
Final Rule: Auditor Independence Requirements
Excerpt: "The amendments modernize the Commission's rules for determining whether an auditor is independent in light of investments by auditors or their family members in audit clients, employment relationships between auditors or their family members and audit clients, and the scope of services provided by audit firms to their audit clients." (Securities and Exchange Commission)
(Following also appears in Welfare Plans Edition)
DOL Issues Final Claims Regulations
(Groom Law Group)
2001: A Claims Odyssey
Excerpt: "During the next year, employers will have to overhaul the claims procedures for all of their ERISA health and disability plans. An overhaul is required because the Department of Labor is drastically changing the claims procedure rules, especially those for health plans (including medical, dental, vision and prescription drug programs).... This Alert includes: (1) a table listing the new deadlines, and (2) a plan administrator's To Do List." (Lisa L. Collins and Timothy J. Stanton of Gardner Carton & Douglas)
IRS to Require Separate Reporting of Income from Exercise of Stock Options in 2001
Excerpt: "The purpose of this announcement is to advise employers about an additional code for use on the 2001 Form W-2. This code will be used to identify the amount of compensation related to the exercise of an employer-provided nonstatutory stock option currently required to be included in an employee's wages in boxes 1, 3 (up to the social security wage base), and 5." (Internal Revenue Service)
| Senior Compliance Specialist | for Putnam Investments in MA |
| Implementation Specialist | for Towers Perrin - Benefit Administration Services in NJ, PA |
| International Executive Benefits Consultant | for Clark Bardes Consulting/Compensation Resource Group, Inc. in |
| Pension Administrator | for Clifton Gunderson L.L.C. - Regional CPA firm in IL |
| Senior Paralegal- Retirement Consultant | for William M. Mercer in NY |
| DC Pension Plan Administrator | for Employee Benefits Group, Inc. in MN |
| ERISA Attorney | for The Northern Trust Company in IL |
| 401(k)/ DC Plan Administrator | for The Stoller Company in CA |
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