Retirement Plans Edition
December 7, 2000
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Nonqualified Wrap Arrangement Can Maximize 401(k) Deferrals
Excerpt: "Nonqualified plans which benefit an employer's key personnel are often designed to allow such employees to defer compensation in excess of the qualified plan limits. Employers may mitigate the effect of the Code's limits on elective deferrals under a 401(k) plan (including statutory maximums and fact sensitive discrimination testing) by offering a nonqualified plan in tandem with a 401(k) plan." (Pitney, Hardin, Kipp & Szuch LLP)
401K Marketplaces: The Matching Game
Excerpt: "As B2B exchanges invade every industry, the 401k marketplace is attracting several 401k exchanges that can match buyers and sellers of 401k plans and help financial advisers manage RFPs online. Experts wonder whether such complex financial products can be sold over the Internet, or whether these sites will mainly function as lead generators for financial intermediaries." (Wall Street and Technology magazine)
NJ Supreme Court Holds IRA Assets Fraudulently Conveyed To Defeat Creditor Are Not Protected
Excerpt: "A recent case decided by the New Jersey Supreme Court may be of interest to qualified plan sponsors that find themselves in the unfortunate position of dealing with a former employee's embezzlement of corporate funds and the resulting attempt to recover the embezzled money from the embezzler's individual retirement account (IRA)." (Pitney, Hardin, Kipp & Szuch LLP)
Another Question is Answered in the Who's the Employer Q&A Column
An LLC taxed as a partnership has four owners, three of whom are medical corporations and one is an individual doctor. The three corporations and the partnership are an affiliated service group. The LLC has one rank-and-file employee, who participates in a 25% money purchase pension plan. That plan excludes doctors from participating. The individual doctor owner would like a plan. Can he set one up? (BenefitsLink.com)
Federated and InvestLink Form First of its Kind Affinity Group for TPA Market
Excerpt: "Group members [of TPA Advantage] will enjoy economies of scale historically available only to the largest retirement service providers, while still maintaining business and decision making autonomy." (Federated Investors, Inc.)
Applying ERISA's Fiduciary Standards To Cash Balance Plan Conversions (PDF)
Excerpt: "The article discusses settlor functions as opposed to fiduciary functions, the obligation of plan fiduciary's to administer a plan in accordance with its terms, the provision of ERISA which states that plan provisions must be overridden or ignored if they are inconsistent with ERISA, Section 404(a)(1)(D) of ERISA, and a fiduciary's obligation to communicate candidly with plan participants. The article also discusses potential liability for misinforming a participant." (Snell & Wilmer, L.L.P.)
IRS Rulings Allow Multiple IRA Beneficiaries To Use Their Own Life Expectancies In Determining RMDs
Excerpt: "Prior to the issuance of the Rulings, practitioners understood based on IRS regulations and previous letter rulings that multiple beneficiaries of a single IRA account would each receive a distribution from the account based on the life expectancy of the oldest beneficiary." (Pitney, Hardin, Kipp & Szuch LLP)
Illinois Lawmakers Pass Enhanced Pension Plan
Excerpt: "Illinois lawmakers gave the go-ahead Thursday to a pension improvement that, if signed into law, would enable some longtime state employees to retire early and without any financial penalty. House Bill 1582 would enact the so-called 'rule of 85.' Under that plan, a state employee may opt for early retirement if his or her age plus years on the job equal 85. At present, early retirees' benefits may be reduced, depending on their age." (State Journal-Register [Springfield, IL])
Evaluation Of PWBA's 'Prohibited Transactions' Exemptions Process (PDF)
Originally released September 21, 2000. Excerpt: "We concluded that timeliness is determined on a case-by-case basis, and therefore, applying rigid deadlines to the exemption process would be counter-productive. Nonetheless, we identified two areas where PWBA can be more efficient in the processing of exemption applications, which will increase overall productivity." (Office of Inspector General, U.S. Department of Labor)
New PSCA Survey Indicates Faster 401(k) Eligibility for Workers
Excerpt: "Companies are increasingly permitting their new employees to participate in their 401(k) and profit sharing plans right away, according to a study just released by the Profit Sharing/401(k) Council of America." (Profit Sharing/401(k) Council of America)
Self-Directed Brokerage Accounts Have Drawn Raves From Some, Doubt From Others
Excerpt: "The growing interest in [Self Directed Brokerage] accounts reflects a philosophical shift away from what's viewed as corporate paternalism; in essence, the same impulse that led to the creation of 401(k)s to begin with reaches a new level with SDB accounts." (CFO magazine)
Northrop Shares Dip on Pension Concerns
Excerpt: "Shares of defense contractor Northrop Grumman Corp. slid nearly 3 percent on Wednesday ... on concerns about the effect of lower income from pension funds on total earnings next year.... Pension fund proceeds account for about half of Northrop's earnings.... Northrop's dependence on income from pension funds makes it unique in the defense and aerospace sector. Other companies, particularly financial services firms, have also booked pension fund gains in their bottom lines." (New York Times; free registration required)
SEC Adopts New Independence Rules
Excerpt: "On November 15, 2000 the SEC unanimously approved new auditor independence rules, ending months of heated debate within the accounting profession. The new rules are less stringent than those originally proposed by the SEC, particularly as they relate to providing information technology (IT) consulting and internal audit services to audit clients." (Practitioners Publishing Company)
(Following also appears in Welfare Plans Edition)
Review of PWBA's Enforcement and Training Programs (PDF)
Originally released March 24, 2000. Excerpt: "[The purpose of this report is] to assess the effectiveness of [the Pension and Welfare Benefits Administration's] entire enforcement program. Our assessment focused on two areas: (1) the effectiveness of PWBA's enforcement program based on the agency's performance data; and (2) the adequacy of the training programs that support the enforcement program." (Office of Inspector General, U.S. Department of Labor)
Vesting in the Option Economy
Excerpt: "The usual purpose of a vesting schedule is to provide employees with an incentive to stay with the company. As competition for employees intensifies, however, companies seem to be willing to shorten the vesting schedules.... But what happens when an employee is fired for the specific purpose of depriving him of his stock options?" (Professor D. Gordon Smith, on TheLaw.com)
DOL Revises Claims Procedures and SPD Regs (PDF)
Summary of new rules, with chart of claims procedure deadlines. (Aon Consulting)
Employee Staffing and Plan Design
Excerpt: "Although an employer may exclude temporary and leased workers as well as other classes of employees from participation in its benefit plans, some plans fail to clearly exclude individuals that are otherwise reclassified as employees. Every benefit plan must exclude leased and reclassified individuals from plan participation to the extent legally possible." (CPA Journal)
Opinion: Admirable And Rare Political Cooperation Saves Workers' Stock Option Option
Excerpt: "A curious human resources manager at a company that has never been identified wrote a letter to the Labor Department's Wage and Hour Division seeking clarification of a fine point in the FLSA. How do you calculate option grants to hourly or nonexempt employees who work overtime?" (MicroTimes.com)
Having It Both Ways
Excerpt: "If employees shouldn't be penalized by factors such as market slumps, they shouldn't benefit from market mania either.... As e-stocks continue to seek their natural level, the people who run the stumbling companies feel compelled to grope for anything-- anything-- that'll keep their key employees from wandering elsewhere. Thus, the repriced option, which works like this: ..." (eCompany)
Crunch Time for Options Recipients
Excerpt: "The beauty of incentive stock options is that you owe no income tax until you actually sell the stock. So why is freshly minted millionaire Mike Smith so irate about his tax bill? It's because although he doesn't owe regular income tax on his options yet, he must scrape up about $2.5 million of Alternative Minimum Tax by April 15 if he hangs onto his stock into 2001." (San Jose Mercury News)
| Experienced Pension Professionals | for DailyAccess.com in AL |
| Consulting Actuary | for Pentec, Inc. in CT |
| Pension Consultant | for McKay Hochman Co., Inc. in NJ |
| 401(k) Enroller/Contractor | for Transamerica Insurance & Investments in ALL STATES |
| Senior Institutional Trust Relationship Manager | for The NorthernTrust Company in IL |
| Defined Contribution Administrator | for 401kservices.com, inc. in CA |
| Director of Client Services | for Universal Pensions, Inc. in MN |
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