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November 18, 2002 - 12,842 subscribers
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(Help BenefitsLink to provide this newsletter at no charge to you -- our sponsors pay your way. Remember to visit them periodically; we try to make sure their products and services will be of interest to you. Thanks! --Editor)
In Rev. Rul. 2002-63, IRS Issues Covered Compensation Tables for 2003
Excerpt: "This revenue ruling provides tables of covered compensation under section 401(l)(5)(E) ... for the 2003 plan year. Section 401(l)(5)(E)(i) defines covered compensation with respect to an employee, as the average of the contribution and benefit bases in effect under section 230 of the Social Security Act ... for each year in the 35-year period ending with the year in which the employee attains social security retirement age." (Internal Revenue Service)

IRS Notice 2002-71 Formally Sets Forth COLA Adjustments to Qualified Plan Limitations for 2003
Excerpt: "Effective January 1, 2003, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) remains unchanged at $160,000.... The annual compensation limit ... remains unchanged at $200,000. The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $130,000.... The limitation used in the definition of highly compensated employee under § 414(q)(1)(B) remains unchanged at $90,000." (Internal Revenue Service)

IRS Publishes Frequently Asked Questions About Revenue Ruling 2002-62
Excerpt: "Are there new rules that may be used for calculating substantially equal periodic payments under section 72(t)(2)(A)(iv)? ... If an individual began receiving substantially equal periodic payments before calendar 2003 using one of the three methods in Notice 89-25, may that individual continue with that method on or after January 1, 2003? ... Are the methods contained in Rev. Rul. 2002-62 the only acceptable methods of meeting section 72(t)(2)(A)(iv) of the Code?" (Internal Revenue Service)

Plan's Service Provider Off the Hook for Erroneous ADP Testing
Excerpt: "EBIA Comment: This case provides a cautionary tale for both sponsors and service providers. Sponsors are reminded that notwithstanding a service provider's role, a sponsor may be the one held responsible for testing errors. And service providers should take note: absent the 'hold harmless' clause in the service contract, the service provider in this case could have been held responsible for the erroneous information provided to the sponsor." (EBIA Weekly)

Pension Community Pushes 30-Year Treasury Rate Replacement
Excerpt: "When the federal government decided one year ago that it no longer needed to sell 30-year Treasury bonds, it pulled the rug out from under pension plan sponsors that are required to use this long-term benchmark interest rate to calculate current plan liabilities. Now sponsor representatives are calling lawmakers on the carpet." (BenefitNews.com)

Would an Actuarial Audit Have Prevented the Enron Disaster? (PDF)
Excerpt: "An actuarial audit is the independent and expert search for the real value, discussed below, of a share of the subject company's common stock. It's a major undertaking, an investigation and analysis of corporate finances and prospects that is essentially unconcerned with market price, quarterly earnings, and price/earnings ratios. The actuarial audit team usually is led by an actuary, with substantial participation by other independent experts and knowledgeable company personnel." (Contingencies magazine)

Overview: Proposed IRS Reg Explain Concept of "Relative Value" of Optional Forms of Benefit Payments
Excerpt: "The IRS has proposed regulations that would require plan administrators to disclose information to help participants compare the relative values of the distribution options available under their defined benefit plans.... Many believe that Q&A #36 [of current regulations] could serve as a basis for claiming that a QJSA waiver violated the [current] regulations by not providing sufficient information ... This is true especially for lump sums." (Watson Wyatt's Insider)

Delta Switching to Cash Balance Pension Plan
Excerpt: "The Atlanta-based airline said it will switch its non-pilot U.S. employees to a cash-balance plan, which states the retirement benefit as an account balance rather than a monthly payment.... Delta said that the new plan structure is expected to reduce the company's expenses significantly in 2003 and save about $500 million during the next five years ..." (Reuters via MSNBC.com)

Delta Changes Retirement Plan To Save $500 Million
Excerpt: "Employees hired after June 30, 2003, will be eligible for the cash balance benefit only. For current employees who are employed on June 30, 2003, there will be a seven-year transition period to the new plan from June 30, 2003, to June 30, 2010, during which these employees will earn the current plan retirement benefit or the new cash balance benefit, whichever is greater." (Atlanta Business Chronicle via bizjournals.com; free registration required)

Overview: DOL Releases "Friend of the Court" Brief in Enron Litigation
Excerpt: "The DOL brief opposes Enron's motion to dismiss a class action complaint ... The brief supports participant claims that Enron's plan fiduciaries are personally liable for the plan's investment losses in employer securities due to their deliberate failure to take aggressive action to protect participants' interests." (Watson Wyatt's Insider)

Employee Ownership Update for November 15
NCEO executive director Corey Rosen discusses an alternative to expensing proposed by a coalition of high-tech companies, plus a federal district court ruling giving ESOP fiduciaries a wide leeway in holding onto employer stock in the plan. (National Center for Employee Ownership)

Faceoff: Is the Trend Toward 401(k)s a Good Idea?
Excerpt: "Yes-- Let Workers Pick Their Savings Plan [by James Glassman;] No-- Most Workers Risk Outliving Savings [by Karen Ferguson; link to the Ferguson article is at the bottom of the Glassman page]." (AARP Bulletin)

Opinion: Defined Benefit Plan Relief Needed for Elimination of Certain Forms of Benefit
Excerpt: "EGTRRA requires the IRS to provide relief for plan amendments that reduce or eliminate early retirement benefits or retirement-type subsidies that create significant burdens or complexities for the plan and plan participants, unless the amendment 'adversely affects the rights of any participant in a more than de minimus manner.' ... [IRS solicited comments from interested parties.] The following paragraphs are Watson Wyatt's comments to the IRS." (Watson Wyatt's Insider)

Despite Loss of $43.5 Billion, CalPERS Barely Blinks
Excerpt: "Overall, the system's investment strategy is similar to that of many other large pension funds, which have also posted steep losses. The funds emphasize that they're long-term investors, resistant to the shocks that might rattle smaller players into shifting away from stocks into less-risky investments.... [S]upporters of a heavy reliance on stocks argue that the stock market is closer to the bottom now than it was two years ago; they say it would be foolish to sell now." (San Diego Union-Tribune)

While Trustees Dozed, a Fund Manager Stole From Maryland's Pension Fund
Excerpt: "To many in the financial world, it was big news when New York prosecutors indicted money manager Alan B. Bond in 1999 on charges of defrauding pension systems. But in Maryland, trustees of the state pension system reacted with a shrug. The pension board never discussed the indictment, members acknowledge, though the system had about $30 million in Bond's care." (The Baltimore Sun)

CalPERS Fund Managers to Press Issue of Offshore Incorporations
Excerpt: "California's big state employee pension fund will vote [on Monday, Nov. 18, 2002] to ask three major corporations to become American companies again, giving up the offshore status addresses that allows them to escape taxes and reduce shareholder rights. The vote by the California Public Employees' Retirement System, known as Calpers, a major investor in the three companies, is the first move in what is expected to be a national campaign by public pension funds and unions." (New York Times; free registration required)

Pitfalls for Some in Roth IRAs
Excerpt: "There's one group that, on the surface, can be ideal for Roth conversions: retirees. Their incomes may be lower than they were when the retirees were working, and they may very well like the idea of leaving income to heirs. But things quickly become tricky." (Washington Post)

Overview: DOL Issues Blackout Period Regulations and Model Notice
Excerpt: "Comment: The model language does not specifically reference 'employer securities.' However, participants in plans holding employer stock could (and probably will) read this language as a warning to dump their stock before a blackout period commences.... The plan administrator may consider modifying the model language, particularly where participants under the plan's investment options may not invest in a 'single security.'" (SunGard Corbel)

Senator Bob Dole to Inaugurate National Retirement Planning Week
Press release. Excerpt: "The National Retirement Planning Coalition (NRPC), a group of prominent financial industry and advocacy organizations, today announced a national campaign to heighten public awareness of the need for comprehensive retirement planning. To underscore this urgency, the NRPC has selected the week of November 18 as National Retirement Planning Week and has appointed Senator Bob Dole honorary chairperson of the coalition." (Business Wire via Yahoo! Finance)

Opinion: a New Way of Saving-- Government Matching Contributions
Excerpt: "The idea would be to provide Americans a matching contribution for up to $1,000 a year in savings deducted from their paychecks. For middle-income families, it could be a one-to-one match; for low-income families, it could be a two-to-one match ..." (New York Times; free registration required)

Opinion: Ten Points Concerning Carve-Out Social Security Individual Accounts
Excerpt: "1. Diverting current payroll taxes from Social Security to create carve-out individual accounts without other revenues to make up the difference means that guaranteed benefits would have to be cut substantially.... 4. Carve-outs would replace part of Social Security's progressive benefit with a proportional one, hurting low-income workers.... 9. Returns to individual accounts would be lowered by substantial administrative costs." (AARP Research)

Another Question is Answered in the Who's the Employer Q&A Column
X owns 100% of stock in his S corporation (Corp A). It is a service organization that jointly provides services to clients with a C corporation (Corp B), another service organization. Neither is a Professional Service Corporation. X's wife is a 33% owner in Corp B. Can I assume this an affiliated service group due to the attribution rules? (BenefitsLink.com)

Links to Items on Executive Comp, Benefits in General

Field Assistance Bulletin 2002-3: DOL Addresses Disclosure and other Obligations Relating to "Float"
Excerpt: "A number of financial services providers, such as banks and trust companies, acting as non-discretionary directed trustees or custodians maintain general or 'omnibus' accounts to facilitate the transactions of employee benefit plans. The service provider may retain earnings ('float') resulting from the anticipated short-term investment of funds held in such accounts. Typically, these accounts hold contributions and other assets pending investment directions from plan fiduciaries." (U.S. Department of Labor, Pension and Welfare Benefits Administration)

Many Companies Cutting Back on Employee Benefits
Excerpt: "Workers are facing some of the most dramatic cuts and cost shifts in more than a decade. Almost every company, it seems, has chiseled away at employee benefits. Many of the gains employees made during the economic boom of the late-1990s are being lost as anemic job growth and a weak economy leave workers with few options.... But if companies don't cut, some analysts say, they won't be able to survive today. Companies are cutting in large part because their own costs are rising." (USA Today via Yahoo! News)

Another Question is Answered in the Stock Options, Restricted Stock and Other Long-Term Employment Incentives Q&A Column
Can a company authorize additional shares to be issued as employee stock options, after the company goes public? For example, I know a public company that already has unexercised employee stock options representing roughly 25% of the common shares outstanding. (BenefitsLink.com)

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Newly Posted Press Releases
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CNA Trust Offers Pure Mutual Fund Product With Redesigned 457Custom
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