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January 10, 2005
Today's sponsor: Securities Industry Association

(Click on company name or banner to learn more.)

Register now!  SIA Savings & Retirement Symposium

Retirement and education savings play a key role in building
long-term success for the securities industry.  SIA’s Savings &
Retirement Symposium attracts broker-dealers and mutual fund and
insurance partners with a variety of perspectives: marketing and
sales, legal, and operations. Sessions include Social Security
reform and SEC developments; 401(k) fiduciary issues and new tools
to enhance 401(k)s; IRA rollovers, including automatic rollovers
and asset retention strategies; and 529 updates will also be featured.

(Please visit our sponsors. We try to make sure their products and services will be of interest to you. Thanks! --Editor)
Public Pensions, Like Private Pensions, Are Moving to Defined Contribution Plans
Excerpt: "Arnold Schwarzenegger is not the first governor to propose saving money by closing the state's defined-benefit pension plan to newly hired public employees, putting them instead in a defined contribution plan, similar to a 401(k). A couple of states including Michigan have already done so for all or some new employees. More states have started 401(k)-style plans as an option for new and, in some cases, present employees." (San Francisco Chronicle)

Additional Figures for the EBRI/ICI Participant-Directed Retirement Plan Project for Year-End 2003 (PDF)
Excerpt: "The August 2004 [report] '401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2003' examines asset allocation, account balance, and loan activity of a large and representative group of 401(k) plan participants as of year-end 2003 using data gathered by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) in their collaborative effort known as the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project." (Investment Company Institute)

Overview: IRS Final Rules Consolidate and Modify Existing 401(k) Plan Guidance
Excerpt: "The IRS has finalized a sweeping series of regulations governing cash or deferred arrangements under Code Sec. 401(k) and matching and employee contributions under Code Sec. 401(m). The final rules, which adopt, with modification, proposed rules issued on July 17, 2003, primarily reflect the significant changes to the methodology of the applicable nondiscrimination tests and other requirements that have been implemented, since regulations were last issued in 1994, by the ...." (CCH Pension & Benefits News)

Focus on 401(k): Information and Ideas for 401(k) Decision-Makers, Third Quarter 2004 Edition (PDF)
6 pages. Excerpt: "The edition includes articles on Hidden Costs in Mutual Funds; Hedge Funds and DC Plans: A New Wrinkle? Health Savings Accounts; and, The Hidden World of Directed Brokerage and Soft Dollars." (The 401(k) Company)

Overview: Final 401(k) & 401(m) Regulations Clarify & Modify Existing Guidance & Add New Provisions
Excerpt: "In this article, we highlight what we view as the most significant ways in which the final regulations change the proposed regulations or existing guidance, but plan sponsors will want to review the final regulations carefully to determine which of the many changes affect their plans. The changes fall into roughly four categories: (1) testing; (2) safe harbor 401(k) plans; (3) contributions; and (4) distributions." (Employee Benefits Institute of America Inc.)

Perspectives on Managing Cost and Risk-- Let's Change Canadian Pension Accounting (PDF)
6 pages. Excerpt: "This edition [examines] today's pension system in the context of the 21st century Canadian workforce. Different articles will examine the other key areas of Pension Design, Funding, Investment and Employee Communication. Towers Perrin published a White Paper in May 2004 which proposes key steps to renovate and rejuvenate the private pension system to keep in step with changing employer and employee needs. The White Paper is available at www.towersperrin.com." (Towers Perrin)

DOL Secretary's Amicus Brief on Motion to Allow United Airline's Minimum Funding Contribution Claim (PDF)
38 pages. Excerpt: "This case presents a critically important issue – whether minimum contributions, required under ERISA section 302, 29 U.S.C. § 1082, constitute an administrative expense and are an actual and necessary cost of operating the debtor's business in a Chapter 11 bankrup.tcy proceeding, where the debtor in possession has continued and not terminated the affected ERISA plan. The Secretary respectfully submits this amicus brief to aid and assist the Court." (U.S. Bankrup.tcy Court for the Northern District of Illinois, Eastern Division)

Paper on Pension Benefit Guaranty Corporation Policy Options for Reform (PDF)
28 pages. Excerpt: "This paper attempts to comprehensively list the major policy options that have been proposed to solve the problem, with a brief explanation of each and a summary of their advantages and disadvantages. The intent is to neutrally present the range of alternatives; the Center On Federal Financial Institutions (COFFI) does not advocate any particular solution." (Center On Federal Financial Institutions)

Pension Agency Is About to Get a Rescue Plan
Excerpt: "With the federal pension insurance program in a rapid decline and bracing itself for another year of record losses, officials in the Bush administration are close to unveiling a rescue plan - medicine they hope will be strong enough to save the agency from a costly bailout but not so strong that it kills the pension system." (The New York Times; one-time registration required)

Audio: United Airlines Working to Eliminate Pension Plans
Excerpt: "United Airlines is in federal bankrup.tcy court, locked in a battle with some of its unions over pensions. The airline hopes to void existing employee contracts and get rid of its traditional employee pension plans. NPR Cheryl Corley reports." (Morning Edition via National Public Radio)

Bankrup.tcy Judge Rejects United Airlines's Contract with Pilots that Terminates Pension Plans
Excerpt: "A federal bankrup.tcy judge rejected a contract between United Airlines and its pilots' union on Friday, saying the agreement unfairly forced other unions to join the pilots in letting United terminate their pension plans." (The New York Times; one-time registration required)

Congressional Pension Benefits for Recently-Retired Lawmakers
Excerpt: "The following tables depict estimated retirement benefits for Members of the House and Senate who have left the 108th Congress and may qualify for a defined benefit pension (lawmakers with fewer than five years of Congressional service do not qualify). [Charts prepared by the National Taxpayers Union are at http://www.ntu.org/main/page.php?PageID=68.]" (The Conservative Voice)

Overview: IRS Proposes Phased-Relief in Response to Phased-Retirement Pressures (PDF)
6 pages. Excerpt: "The IRS has proposed a fix that would permit a partial pension distribution proportional to an employee's reduction in his workload. Prop. Treas. Reg. §1.401(a)-3. For example, if an employee has an accrued benefit of $2,000 per month and agrees to reduce his working hours by 25%,he or she could collect 25% of $2,000, or $500 per month in pension benefits while continuing to work." (Nixon Peabody LLP)

Settlement Reached in Alabama State Pension Fund's Suit Against Bear Stearns
Excerpt: "An attorney for Alabama's pension system said Sunday that a settlement has been reached in the fund's suit against Bear Stearns Cos. that had deadlocked a Montgomery jury in November. The case was set for retrial Monday, but Retirement Systems of Alabama general counsel William Stephens told The Wall Street Journal, 'The case has been resolved.' He declined to give details." (Wall Street Journal via SFGate.com)

General Background Information on Public- Vs. Private-Sector Pension Plans, with Relevant Citations
Excerpt: "In response to media interest related to Gov. Schwarzenegger's proposal to restructure the California Public Employees' Retirement System (CalPERS), EBRI is posting [various] background information ...." (Employee Benefit Research Institute)

An Update from Morningstar's CEO: Morningstar's Retirement Plan Consulting Business
Excerpt: "As you know, the mutual fund industry and the retirement consulting business have come under more scrutiny from regulators during the past few years--all with the goal of protecting investors. .... Because there have been several news reports about these inquiries, we want to give our customers an overview of the retirement-plan consulting business, provide details about our role and the compensation we receive for our work, and discuss how this work fits within our mission of ...." (Morningstar Inc.)

Deductions for Contributions to Plans for Employees of Controlled Group Members
Excerpt: "Technical Tip 136: The following question and answer were from the IRS Q&A Session at the 2003 ASPPA Annual Conference: Employer X acquires Employer Y, and Employer Y subsequently declares bankrup.tcy. Employer Y sponsors a defined benefit plan. Can Employer X, as a member of a controlled group, deduct contributions to the defined benefit plan sponsored by Employer Y if Employer X has no employees covered under the plan?" (Reish Luftman Reicher & Cohen)

Advance Release of 'Retirement Annuity and Employment-Based Pension Income' Study from EBRI (PDF)
8 pages. Excerpt: "Recent data from the March 2004 Current Population Survey, conducted by the U.S. Census Bureau, confirm earlier findings that gender, marital status, age, education, and other demographic variables have a significant impact on the likelihood of a worker receiving a retirement annuity and/or employment-based pension income in retirement. There may also be a strong correlation between these same variables and the amount of pension income received from employment-based ...." (Employee Benefit Research Institute)

Institute Identifies Seven Characteristics of Effective Financial Education Programs
Excerpt: "There must be a clearly articulated mission, defining values, priorities and goals. Companies that want to offer financial education for women--or employees in general--might want to consider the characteristics of successful programs identified by the nonprofit Institute for Socio-Financial Studies in Middleburg, Virginia. The institute developed a list of effective practices from its study of 90 companies and organizations." (Workforce Management)

Expectations for Retirement: A Survey of Retirement Investors (PDF)
20 pages. Excerpt: "Nine of 10 retirement investors have given at least some thought to the adequacy of their savings and the impact of inflation during retirement. Eight of 10 have thought about how they will manage their assets during retirement, how they will pay for health care, and how long their retirement might last. Yet despite this awareness, many lack specific plans. Only 41% have a target goal for asset accumulation. Eight of 10 feel they are not saving enough for retirement, or ...." (The Vanguard Center for Retirement Research)

Working Paper: The Age Profile of Income and the Burden of Unfunded Transfers in Four Countries
The 49 page PDF is at http://www.bc.edu/centers/crr/papers/wp_2005-33.pdf. Excerpt: "This paper uses micro-census income data from the Luxembourg Income Study (LIS) to measure the current and future burden of financing public transfers, especially benefits supporting the aged and near-aged. The analysis distinguishes between income obtained from households' own saving and labor earnings, on the one hand, and the part financed with unfunded transfers, on the other." (Center for Retirement Research, Boston College)

Working Paper: Understanding Expenditure Patterns in Retirement
The 41 page PDF is at http://www.bc.edu/centers/crr/papers/wp_2005-03.pdf. Excerpt: "Understanding the consumption needs of retirees is critical to assessing the adequacy of retirement income and the possible impact of Social Security reform on the well-being of older Americans. This study uses data from the Health and Retirement Study, including a recent supplemental expenditure survey, to analyze spending patterns and consumption needs for adults ages 65 and older." (Center for Retirement Research, Boston College)

Treasury Secretary John W. Snow Will Promote Social Security Reform for the Administration
Excerpt: "Treasury Secretary John W. Snow yesterday vowed to 'take the case' for Social Security reform 'to the American people,' even as congressional Republicans wait for a specific legislative proposal from the Bush administration. 'We won't get good success ... in the Congress until the issue is well understood abroad in the land,' Mr. Snow told reporters, citing town hall meetings, presidential speeches and travel by administration officials in the coming weeks." (The Washington Times)

Audio: Bush's Personal Accounts for Social Security Payroll Tax Plan Stirs Waters
Excerpt: "President Bush has proposed a plan for Social Security that allows individuals to place certain payroll taxes in private investment accounts. Senior News Analyst NPR's Daniel Schorr explains that the idea is somewhat controversial, even within the ranks of the president's own party." (Weekend Edition via National Public Radio)

Critics Claim Exaggeration As White House Begins Social Security Reform Push by Proclaiming Crisis
Excerpt: "In the first phase of a strategy to build support for overhauling Social Security, White House officials are planning to describe the retirement program as a system in 'crisis' whose promises to younger workers are a 'fiction.'" (The New York Times; one-time registration required)

Opinion: Give More Credit to Prolific Parents –- A Rise in the Birth Rate Would Help Social Security
Excerpt: "Ever wonder why Social Security didn't crash and burn years ago? After all, for nearly all of the program's history, each generation of retirees has taken far more money out of the system than it contributed in taxes. The answer is simple, though largely ignored in the current debate over Social Security reform. Today's retirees may not have paid anywhere near as much in taxes as today's workers do. But most contributed something far more valuable to the system: They created, ...." (The Washington Post; one-time registration required)

Opinion: How Nobelist Edward Prescott Wants to Save Social Security
Excerpt: "Edward Prescott, the 2004 co-winner of the Nobel Prize for economics, says he has a blueprint that would add individual savings accounts to Social Security program without the tax increases or benefit cuts being floated in Washington. For the adviser to the Federal Reserve Bank of Minneapolis and Arizona State economics professor, it's a matter of rebuilding Social Security rather than reforming it." (Bloomberg News)

Opinion: Reforming the Calculation of Social Security Benefits
Excerpt: "The Bush administration has suggested shifting the calculation of initial Social Security benefits from wages to prices to reduce costs. Reporters and pundits flew into a tizzy as if this were breaking news. But the indexing proposal has been discussed publicly since it was developed three years ago." (The Washington Times)

Readers Challenge Wisdom of Using Federal Thrift Savings Plan as Model for Social Security Accounts
Excerpt: "The Diary's mailbag has been stuffed for two weeks by thoughtful readers who think the White House is mixing apples and oranges when it suggests that the Thrift Savings Plan could serve as a possible model for personal investment accounts in Social Security. Numerous readers said the two programs are unrelated and that the TSP, which relies on federal payroll systems for its basic operation, cannot be replicated on a scale as large as Social Security." (The Washington Post; one-time registration required)

Opinion: Five Observations About the Politics of Social Security Reform
Excerpt: "First, many Republicans will be loathe to back a bill that has no Democratic support. They don't want to transform a big, popular program without bipartisan cover. Second, it will be hard to get Democratic votes for a bill that includes personal accounts. Democrats oppose them for the same reason that Republicans support them: because they think the accounts will create Republicans. People who have them will start thinking like investors. Third, any compromises ...." (The New York Times; one-time registration required)

What's Ahead for Social Security? Act Two's Guide to the Looming Debate
Excerpt: "Unfortunately, the fog of rumors and frightening predictions, confusing claims and misinformation has obscured the forest - as well as many of the trees. It's no wonder if Act Two readers don't realize that this debate isn't really about them. Social Security benefits for anyone at or near retirement won't be affected. The ones who should be worried are those 55 and under - and there's good reason for concern." (Newsday, Inc.)

Opinion: Democrat Rep. Charles Rangel Disputes Social Security 'Crisis' in Weekly Radio Broadcast
Excerpt: "There is no looming crisis in Social Security ..., and Congress should not rush to create private accounts, Rep. Charles Rangel ..., D-N.Y. said Saturday. 'The facts prove that there is no imminent crisis with Social Security. The nonpartisan Congressional Budget Office (news - web sites) says Social Security can pay full benefits for nearly 50 years,' Rangel said in the Democratic weekly radio address." (AP via Yahoo! News)


Links to Items on Executive Comp, Benefits in General

The January 2005 issue of Milliman's Monthly Benefit News and Development (PDF)
2 pages. Excerpt: "[This edition] covers: the outlook for federal legislation affecting employer-provided health and retirement benefits; the Department of Health and Human Services' study of the nation's health in 2002; upcoming key dates; IRS, DOL, CMS, and Social Security Administration regulatory guidance; accounting guidance from the FASB, the GASB, and the IASB; and the Centers for Medicare & Medicaid's guidance on security standards under HIPAA." (Milliman)

New FASB Rules Make Stock Options an Expense -- Companies Using Tactics to Lighten the Costs
Excerpt: "With the long-awaited decision by the Financial Accounting Standards Board in December requiring U.S. companies to expense their stock options, one of the great accounting debates of all time has ended. Barring congressional intervention, by July most public companies will begin treating stock options as an expense. But that doesn't mean the battle is over. Instead, companies that use options are gearing up for the next round: cutting their expense by any means legally possible." (BusinessWeek Online)

Report: Benefit Cost Comparisons Between State and Local Governments and Private-Sector Employers (PDF)
Pages 6-9 of 16 page October 2002 EBRI Notes. Excerpt: "This article examines some of the causes of the differences in total compensation costs between state and local government employers and private-sector employers." (Employee Benefit Research Institute)

Mayday? Payday! Hit the Silk! Executive Pension Plans Provide Soft Landings
Excerpt: "Public companies are required to publish a fairly detailed list of the more obvious forms of compensation: annual pay, bonuses and stock awards. But shareholders and securities lawyers say that there is a dearth of clear, concise information about retirement pay from most companies. And now that other forms of compensation are simpler for investors and shareholders to scrutinize, critics are concerned that chief executives may be ... bundling potential riches in ... retirement plans." (The New York Times; one-time registration required)

Overview on Nonqualified Deferred Compensation Plan Legislation - What Should You Be Doing Now? (PDF)
4 pages. Excerpt: "The legislation can be summarized as covering three general areas: initial deferral elections, distributions, and changes to elections. Generally, an initial election to defer compensation must be made in the taxable year before the services relating to such compensation are performed. A special rule applies to new participants if the election is made within 30 days of becoming eligible for the plan. Deferral elections for certain performance-based compensation must be ...." (The Cochlan Group, Inc.)

Overview: IRS Transition Guidance on Deferred Compensation Legislation (PDF)
15 pages. Excerpt: "The guidance comes in the form of Notice 2005-1 (Dec. 20, 2004) and provides generous and flexible transition relief for most arrangements, typically extending to the end of 2005. Much of the information in the Notice was contained in the Act or the conference report on the Act. Our focus below is on the new guidance in the Notice – primarily the transition relief and definitions of key terms." (Groom Law Group)

Short Note on the Death of the Discount Non-Qualified Stock Option
Excerpt: "A frequent planning technique for management compensation has been the issuance of non-qualified stock options (NQOs) where the option exercise price is less than the fair market value of the option stock on the date of grant. This planning technique is no longer tax effective under the American Jobs Creation Act of 2004, which was enacted on October 22, 2004." (Pepper Hamilton LLP)

Applying Brakes to Entitlement Programs Gets Wide G.O.P. Backing
Excerpt: "In his budget request to Congress, President Bush will try to impose firm, enforceable limits on the growth of federal benefit programs, and the chairmen of the Senate and House Budget Committees say they strongly supported that effort." (The New York Times; one-time registration required)

Contract Drivers Deliver Trouble to FedEx by Seeking Benefits of Employees
Excerpt: "The Internal Revenue Service is also investigating FedEx's driver classification, prompted by driver complaints, according to people familiar with the situation. The tax agency will examine whether FedEx has 'pushed the envelope of control so far' that it's no longer in compliance with an earlier agreement under which its predecessor company was permitted to count drivers as independent contractors, according to one knowledgeable person." (Wall Street Journal via SFGate.com)


Newly Posted Events

2005 NAGDCAST #1 - Plan Structure
Nationwide on January 25, 2005
presented by NAGCDA (National Association of Government Defined Contribution Administrators, Inc.)

Health Care Literacy - Are Your Employees Truly Informed?
Nationwide on January 20, 2005
presented by International Foundation of Employee Benefit Plans

Healthcare Cost Containment Strategies for Employers
in Florida on April 27, 2005
presented by International Quality & Productivity Center (IQPC)

New 401(k) Rules: Automatic Rollover of Mandatory Distributions
Nationwide on January 19, 2005
presented by Employee Benefits Institute of America Inc. (EBIA)


Newly Posted Press Releases

Employers Keeping Retiree Drug Coverage After Medicare Drug Benefits Become Available
(Deloitte)

Invesmart Advisors Forms Partnership With Nation's Leading Retirement Advisors
(Invesmart, Inc.)

Assist America Lends a Strong Hand in Helping Tsunami Victims
(Assist America, Inc.)

New Health Benefit for Union Retirees of Bethlehem, LTV, Acme Metals, Georgetown Steel Begins March 1
(United Steelworkers of America (USWA))


Newly Posted or Renewed Job Openings
Post a Help Wanted Ad

Trust Operations Manager
for Charles Schwab
in CA

Institutional Investment Consultant
for Charles Schwab
in AZ

Benefits Compliance Manager
for Hewitt Associates
in IL

Account Executive - Client Services
for Diversified Investment Advisors
in NC

Vice President, Retirement Services
for Invesmart, Inc.
in PA

Sr. Pension Administrator
for Retirement Alliance, Inc.
in NH

Account/Client Services Manager (Seattle)
for Zenith Administrators
in WA

Pension Administrator
for Retirement Alliance, Inc.
in NH

Account/New Business Development Manager
for Zenith Administrators
in WA

Internal Sales Specialist (Retirement Plans)
for Standard Insurance Company
in OR

Benefits Manager
for Genuine Parts Company
in GA

Benefits Administrator
for Swiss Re
in NY

Employee Benefits Tax Manager
for Deloitte Tax LLP
in OH

Resource Manager
for Hewitt Associates
in IL

HM Benefit Plan Consultant -Entry
for Hewitt Associates
in IL

Connections Health Plan Conslt
for Hewitt Associates
in IL

HM Analyst
for Hewitt Associates
in TX

Senior Benefits Analyst
for Chugach Alaska Corporation
in VA

Benefits Analyst
for Chugach Alaska Corporation
in VA

Daily Valuation Specialist
for A Pension Administration Firm
in OR

Account Representative for Employee Retirement Plans
for Great-West Retirement Services
in MO

Retirement Plan Specialist
for Diversified Investment Advisors
in IN

Field Trainer--Benefits
for AMS Services, Inc.
in ANY STATE




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