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The BenefitsLink Newsletter -
Retirement Plans Edition
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March 5, 2002 - 12,334 subscribers
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ERIC Testifies to House Oversight Subcommittee on Retirement Plans (PDF)
Excerpt: "But for every employee who suffered as a result of Enron's collapse, there are a great many more who have benefited mightily by investing in employer stock under other companies' § 401(k) plans. It has been estimated that if § 401(k) plans were not permitted to invest in employer stock, employees' investment returns under their § 401(k) plans would be substantially reduced." (ERISA Industry Committee)

ASPA Testifies at House Oversight Committee Hearing on Retirement Security
Excerpt: "[The Enron situation] highlights the need to expand and reform the private pension system. This need is especially acute with respect to encouraging plan sponsors to adopt and provide defined benefit pension plans.... ASPA is developing a proposal that combines the best features of 401(k) plans-- participant choice-- with the best features of defined benefit plans-- a guaranteed benefit. We call it the DB-K and we would happy to discuss it more with you." (American Society of Pension Actuaries)

Written Statement of American Benefits Council at House Oversight Hearing on Retirement Plans (PDF)
14 pages; hearing held on March 5, 2002. Excerpt: "It is this positive investment performance of employer stock, together with employee preference for this investment option, that can result in a substantial percentage of a company's 401(k) plan assets being invested in employer securities. The idea that this concentration in employer stock is due largely to employer contributions subject to holding periods is simply not accurate." (American Benefits Council)

Written Statement of the Scarborough Group, Inc. to House Oversight Subcommittee (PDF)
Excerpt: "We recommend a 90-day holding limit on stock received through a company match; the encouragement of plan sponsors and plan providers to work with independent advice providers; and the passage of legislation which will permit participants to hire an independent retirement planner on a pre-tax basis.... The idea of 'managed accounts' as a service for 401(k) participants has resonated throughout the Defined Contribution industry." (The Scarborough Group, Inc.)

Opinion: Wait a Minute. Didn't Enron's Employees Ride That Stock Up?
Excerpt: "Somehow the media reports suggest Enron forced its employees to keep their savings in Enron shares.... For the most part, workers held shares voluntarily and could have sold them, and diversified their portfolios, at any time. The reason they didn't is that they were greedy: They had seen Enron's stock rocket and decided the smart thing to do was bet that it would keep rocketing." (Washington Post)

Texas Class Action Settlement Improves 403(b) Teacher Retirement Plans
Excerpt: "On January 25 the College Life Insurance Company of America and other plaintiffs settled a class action suit brought by a Laredo schoolteacher. The settlement was for $10,875,000 for a class of 130,000 policy holders who [allegedly] had been sold misleading 'tax-sheltered life' plans inside their 403b plans, largely because no agency or school district did anything to protect the teachers." (Scott Burns of The Dallas Morning News)

Court Lets Employer Off the Hook for Late Deposits of 401(k) Deferrals
Golden v. WWWRRR, Inc. (D. Minn. 2002). Excerpt: "In the months leading up to its closing, the company made its 401(k) deposits later than its past practice of depositing funds within one week.... The participants sued the plan's fiduciaries for the delays in making contributions.... [T]he court found that, because the contributions were made before the 15th day of the month following the month in which the payroll was paid, the deposit satisfied the DOL's deposit requirement." (EBIA Weekly)

ERISA Section 510 Does Not Apply to an Employer's Decision Whether to Rehire Particular Individuals
Becker v. Mack Trucks, Inc. (3d Cir. 2002). Excerpt: "Ten years later when production needs increased, the employer sought to rehire displaced employees, but soon realized that hiring employees with credited service under its pension plan would result in increased pension liabilities. It therefore adopted a conscious policy of excluding such former employees from hiring consideration." (EBIA Weekly)

Safe Harbor Tax Explanation Published in Internal Revenue Bulletin Has Some Changes
Excerpt: "The IRS has now published the safe harbor explanation in the Internal Revenue Bulletin. We have learned that the safe harbor explanation in the Internal Revenue Bulletin includes a few corrections from the version that was published in the IRS's announcement in December." (EBIA Weekly)

Huge Losses and Plummeting Stock Undermine United's Experiment with Employee Ownership
Excerpt: "United's troubles go far beyond the ESOP, multiplied by the falloff in business travel, recession, terrorist attacks and an alarming decline in its revenues and stock price. But Corey Rosen, executive director of the National Center for Employee Ownership in Oakland, Calif., calls the airline's plan a virtual case study of how not to do it." (Pittsburgh Post-Gazette via Society for Human Resource Management)

Analysis: DOL Decision Allows Service Providers to Offer Investment Advice
Excerpt: "After years of debate over its pros and cons, a Department of Labor advisory opinion (2001-09A, Dec. 14, 2001) has approved a plan for providing investment advice to 401(k) participants. Based on this new ruling, brokerages, mutual fund companies, and insurance companies will be allowed to hire an independent financial advisor to provide investment advice to 401(k) participants on funds including those managed by the mutual fund company et al." (IOMA's Managing 401(k) Plans)

Britons Face Looming Pension Crisis
Excerpt: "More and more firms are instead switching to money purchase schemes, where the employee builds up a pot of money and then buys an annuity, or guaranteed income for life, upon retirement. The main difference with final salary schemes is that they are cheaper for companies to operate and workers bear all the risk." (Reuters.co.uk)

CalPERS Divests from Four Emerging Countries
Excerpt: "California's public pension fund withdrew its equity from four emerging countries in response to a review that considered social and financial factors equally.... Based on these guidelines, CalPERS decided to end its investment of public equity in Indonesia, Malaysia, the Philippines, and Thailand." (SocialFunds.com)

Opinion: Key to Social Security Reform and Avoiding Enron-Type Plans is Diversification
Excerpt: "[Former Fidelity Investments executive Robert C. Pozen] is dismayed that Corporate America is 'noticeably silent' on the subject [of Social Security reform]. 'This is a serious problem, and it is going to impact all CFOs pretty soon,' he says, noting, for example, that changing benefit patterns will cause workers to retire later." (CFO.com)

Opinion: Breaking the Social Security Contract
Excerpt: "If converting Social Security to a system of private retirement accounts is such a good idea, why can't advocates of that conversion try, just once, to make their case without insisting that 1+1=4? Last week George W. Bush did it again ..." (Paul Krugman in the New York Times; free registration required)

Working Paper: DC Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance
Excerpt: "Our analysis identifies a key behavioral principle that should partially guide the design of 401(k) plans: employees often follow 'the path of least resistance.' For better or for worse, plan administrators can manipulate the path of least resistance to powerfully influence the savings and investment choices of their employees." (James J. Choi, David Laibson, Brigitte Madrian, and Andrew Metrick, published by Pension Research Council, The Wharton School, University of Pennsylvania)

Working Paper: Default Effects and 401(k) Savings Behavior
Excerpt: "Using several years of administrative data from three large firms, we analyze the impact of automatic enrollment on 401(k) participation rates, savings behavior, and asset accumulation. We find that although employees can opt out of the 401(k) plan, few choose to do so.... 401(k) participation rates at all three firms exceed 85%, but participants tend to anchor at a low default savings rate and in a conservative default investment vehicle." (James J. Choi, David Laibson, Brigitte Madrian, and Andrew Metrick, published by Pension Research Council, The Wharton School, University of Pennsylvania)

In Central Florida, Many Workers Bet Their Retirement on 401(k)s Laden with Company Stock
Excerpt: "A look at the 20-largest employers among the region's publicly traded companies reveals that each operates a 401(k) plan, now the most common form of retirement savings. But in nearly half of those plans, company stock accounts for at least 40 percent of total assets -- leaving employees' nest eggs vulnerable should that stock tumble, experts warn." (Orlando Sentinel via International Foundation of Employee Benefit Plans)

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


Enron's Troubles Bolster Critics of Chief Executive Officers' High Pay
Excerpt: "[A] Business Week magazine analysis found that the average chief executive officer at one of the nation's 365 largest corporations made $13.1 million in 2000. Total pay was up 6.3 percent and cash compensation rose 18 percent ... [T]he increase in 2000 was in a year when stock prices, a key measure of executive performance, fell significantly." (Knight Ridder/Tribune Business News via Society for Human Resource Management)

Opinion: AOL Time Warner Shows Another Way to Pay Plenty
Excerpt: "When times are tough, as they were last year, companies cut the cash and put the pedal to the metal on stock-option grants. The result: Total pay actually rises after bad performance." (Graef Crystal, on Bloomberg.com)

For Executives, Nest Egg Is Wrapped in a Security Blanket
Excerpt: "The boom in executive pensions began in the 1980's, after the federal government enacted a law limiting the amount of an employee's salary that a company can consider when contributing to pension coffers. Executives quickly flipped the purpose of the law by establishing separate retirement plans for themselves, divorcing their financial interests from company pensions." (New York Times; free registration required)




Newly Posted or Renewed Job Openings - Post a Help Wanted Ad
Document and Compliance Specialist for Louis Kravitz & Associates, Inc.
in CA
Business Retirement Specialist for Franklin Templeton Investments
in CA
CIT Manager for Diversified Investment Advisors
in NY
Defined Contribution Team Lead for CitiStreet
in FL
Plan Administrator for Arizona Qualified Plan Services, Inc.
in AZ
Qualified Pension Administrator for B & B Benefits Administration, Inc.
in CA
Relationship Manager for Ceridian
in FL
Client Consultant for Brandywine Benefits Corporation
in DE, NJ, PA



Newly Posted Conferences (Post Yours!)
Implementing an Effective Disease Management Programin ALL STATES on March 19, 2002
presented by International Foundation of Employee Benefit Plans



Newly Posted Press Releases (Post Yours!)
First NAGDCAST Gets Rave Reviews (National Association of Government Defined Contribution Administrators, Inc.)
SunGard Corbel Appoints New Vice Presidents (SunGard Corbel)
Medical Rehabilitation Consultants, Inc., Launches Its New Elder Care Management Benefit Program (Medical Rehabilitation Consultants, Inc.)

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Copyright 2002 BenefitsLink.com, Inc., but you may freely distribute this email newsletter in whole. This newsletter is edited by David Rhett Baker, J.D.