BenefitsLink Retirement Plans Newsletter for August 20, 2001

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The BenefitsLink Newsletter -
Retirement Plans Edition

August 20, 2001 - 12,875 subscribers

Today's sponsor: Financial Finesse (click)

(Please help us continue to provide this valuable newsletter at no charge to you -- our sponsors pay our way. Remember to visit them periodically; we try to make sure their products and services will be of interest to you. Thanks! --Editor)

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Will the Bear Market Spoil the Pension Party?
Excerpt: "Pension fund surpluses have bulged in recent years, transforming funds that were big annual expenses into steady contributors to a company's bottom line.... One often overlooked side effect is that the incentive pay of top executives, which is based on how much a company earns, has been boosted in part by pension gains that companies are booking as profits. The phenomenon hasn't escaped the attention of retirees whose pension checks never increase." (The [Pittsburgh] Post-Gazette)

Summary: IRS Issues Final Regs On Control Test For Certain Benefit Trusts
Excerpt: "In issuing the final regulations, the IRS is adding two categories of trusts that may use the 'special' control test: (1) group trusts consisting of qualified plan trusts and IRA trusts that meet the requirements of Rev. Rul. 81-100 ... and (2) investment trusts, with certain restrictions." (CCH)

Federal Interest Rates Announced For Pensions
The following interest rates have been announced for use in the operation and administration of qualified pension plans: Aug. 2001 Mid-Term Applicable Federal Rate (AFR) is 4.99% and July 2001 30-year U.S. Treasury Bonds Constant Maturity are 5.61%. (Spencernet)

A New Way of Looking at the Risk in Defined Benefit Pension Plans (PDF)
30 pages; look for 'PDF version' button. Excerpt: "The portability feature of a defined contribution (DC) pension greatly reduces the risk to the accumulation of pension wealth. Conversely, defined benefit (DB) pensions have a variety of default risks that decrease the expected value of DB pension wealth. This paper examines those risks. Accrual of DB pension wealth is characterized in terms of purchases of risky bonds. Changing jobs triggers default on these bonds." (TIAA-CREF Institute)

Summary: EGTRRA, EGTRRA, Read All About It
Excerpt: "[The increase of the profit-sharing deduction limit from 15% to 25% of compensation in 2002] will affect the self-employed or small business owner, who will not need a money purchase pension plan in order to maximize his/her contributions [and] the owner with compensation above the maximum ($200,000 in 2002) ... who will be able to reduce his/her percentage contribution, contribute the maximum and reduce the contributions for other employees." (Rough Notes magazine)

Primer on Life Annuities
7 pages; look for 'PDF version' button. Excerpt: "This short informal paper, presented at a 1999 World Bank Workshop, explains what a life annuity is, where it is made available in the United States, and its various forms and types. The paper then describes, in more detail, annuities from TIAA-CREF and the Thrift Savings Plan, including information about pay out levels and utilization rates. It concludes with some observations about public policy considerations." (TIAA-CREF Institute)

Exchange-Traded Funds Not for Everyone
15 pages; look for 'PDF version' button. Excerpt: "What are the features of [exchange-traded funds] that have made them popular with both the financial press and with investors? How do they work? Are they comparable with traditional index mutual funds? Are they suitable investments for the individual investor? These are the questions that have motivated this paper." (TIAA-CREF Institute)

Variable Annuities Can Benefit a Few
Excerpt: "What's so bad about variable annuities? Nothing, experts say, as long as you fit within a relatively narrow investor profile. The profile in a nutshell: a high-income individual who started saving late for retirement and now is in a desperate scramble to catch up.... For nearly everyone else, there are better options, financial advisors say." (Los Angeles Times)

Using Retirement Planning Software to Assess Americans' Preparedness for Retirement: An Update
19 pages; look for 'PDF Version' button. Excerpt: "This paper is an update to an earlier analysis (Warshawsky and Ameriks 2000) of the predictions of financial planning software regarding Americans' preparedness for retirement. [Author John] Ameriks finds that for 48.5 percent of households, the algorithm predicts that assets and planned saving are insufficient to fund retirement." (TIAA-CREF Institute)

Public and Employer Opinion on Social Security and Social Security Reform (PDF)
38 pages; August 2001. Excerpt: "The Employee Benefit Research Institute (EBRI) is pleased to provide this summary public opinion document in response to the Commission's request.... This summary contains four sections focusing on different Social Security issues." (Employee Benefit Research Institute)

ERISA After 25 Years: a Framework for Evaluating Pension Reform (PDF)
9 pages. Excerpt: "... we describe the role and evolution of pension policy by giving a brief history of the passage of ERISA and significant legislation passed in the 25 years since 1974 ..." (TIAA-CREF Institute)

(Following items are in both editions of the BenefitsLink Newsletter)

ERISA Industry Group Supports Legislation to Exempt Stock Options from Employment Tax Withholding
Excerpt: "Dear Senator Clinton: The ERISA Industry Committee (ERIC) strongly supports your legislation (S.1383) to clarify that Congress never intended to subject income from Employee Stock Purchase Plans (ESPPs) and Incentive Stock Options (ISOs) to employment tax and wage tax withholding." (ERIC - the ERISA Industry Committee)

Exorcising Underwater Stock Options
Excerpt: "By far, the best approach to dealing with underwater stock options is to educate and remind optionees that their stock options are a long-term compensation device and that the typical 10-year option term allows more than enough time for their options to come back to life." (Westward Pay Strategies)

Newly Posted or Renewed Job Openings (Post Yours!)

Executive Compensation & Benefits Consultant

for Clark Bardes Consulting/Compensation Resource Group, Inc
in CA, DC, GA, IL, MA, NY, OH, TX

Pension Consultants/Administrators; F/T & P/T

for Northern NJ Mid-Size Pension Consulting Firm
in NJ, NY

Executive Benefits Associate

for Winged Keel Group
in NY

Account Service Leader/Plan Administrator

for INVESCO Retirement, Inc.
in GA

Operations Disbursement Analyst

for ICMA Retirement Corporation
in DC

Executive Compensation & Benefits - Analyst/Sr. Analyst

for Clark/Bardes Consulting - CRG
in TX

Implementation Specialist

for Financial Engines
in CA

Newly Posted Conferences (Post Yours!)

The 2001 PenServ Fall Seminar Series

in NY, TX on October 2, 2001
presented by PenServ, Inc.

INTRODUCTION TO 401(k) (2 Day workshop) - 13 Locations

in CA, CO, GA, IL, MA, MI, MN, MO, NC, PA, TX, WA on November 1, 2001
presented by SunGard Corbel