BenefitsLink Retirement Plans Newsletter July 25, 2005 Today's sponsor: ASC & The ASC Institute (Click on company name or banner to learn more.) ASC-- YOUR PREMIER SOURCE FOR RETIREMENT PLAN SOFTWARE, DOCUMENTS & EDUCATION For over 25 years ASC has helped pension professionals build their businesses by turning advances in technology into opportunities to increase efficiency and profitability. ASC Software includes DC/401(k) and DB administration and valuation systems, Compliance Testing, DV Direct Daily Valuation, Gemini Participant & Plan Sponsor Web Access, AIM - Case Management Database and Single-Step Processing. The ASC Institute offers Retirement Plan Documents, Education for pension professionals and ERISA Compliance Consulting. Contact us today! (Please visit our sponsors. We try to make sure their products and services will be of interest to you. Thanks! --Editor) Companies Get Creative in Selling Their 401(k) Plans Excerpt: "[C]ompanies in San Antonio are utilizing a variety of methods to boost participation in their 401(k) plans. Last year, human resources executives at USAA pushed 401(k) participation to more than 90 percent by adding more financial planning tools and increasing their marketing. Additionally, USAA offers one of the highest company matches and promotes it through a new financial wellness program that includes ongoing free seminars during work hours, online investment planning tools ...." (San Antonio Express-News; one-time registration may be required) House Pension Funding Reform Bill Enables Employers to Provide Professional Investment Advice (PDF) 2 pages. Excerpt: "H.R. 2830 would remove the potential for liability as long as advice is provided through a qualified advisor." (HR Policy Association) Testimony: 2005 ERISA Advisory Council Working Group on Communications to Plan Participants (PDF) 4 pages. Testimony on ERISA requirements, plan compliance, and participant utility in regards to communication to retirement plan participants. (Profit Sharing / 401k Council of America) Corporations Could Fix the 401(k) Faults-- Some Suggestions of What to Do Excerpt: "The 401(k) began as a noble concept. The workplace retirement plan was heralded as a way to boost our chances of retiring with the kind of lifestyle that you see on Carnival Cruise Lines ads. But plenty of warning signs now suggest that 401(k) boosters were far too optimistic. 'What we've done is conducted a vast experiment in social engineering that almost certainly is going to fail,' suggests William Bernstein, the author of 'The Four Pillars of Investing, ....'" (Union-Tribune Publishing Co.) Real Estate Is Becoming an Investment Option for More Workers' 401(k) Plans Excerpt: "Employees ... have had few opportunities to invest in real estate through the retirement plans they finance themselves, like 401(k)'s. These so-called defined-contribution plans offer mainly stock and bond funds. But that is changing. Plan sponsors have been looking for new alternatives in light of Wall Street's uneven performance of recent years, and some are finding them in mutual funds that hold real estate investment trusts, or REIT's ...." (The New York Times; one-time registration required) Overview of Automatic Rollovers: Useful Innovation or Nuisance? Excerpt: "To comply with the new rules, an amendment is needed, and it must be made no later than the last day of the plan year in which March 28, 2005, occurs. If you have not done so, you should contact your plan advisor immediately to decide how your plan should handle the automatic rollover and to amend the plan documents accordingly." (Reish Luftman Reicher & Cohen) Rethinking Default Accounts for Retirement Plans Excerpt: "'Default accounts' is a term used to describe automatic investments in situations where a participant does not direct the investment of his account. .... From a legal perspective, however, there is no such thing as a default account. That is, ERISA says that, where participants do not give directions, the plan fiduciaries must prudently invest the money on their behalf." (Reish Luftman Reicher & Cohen) Overview: Employee Preferences for Automatic Retirement Plans Excerpt: "In April, the Employee Benefit Research Institute (EBRI) issued a report on its survey of employee retirement attitudes. The report is entitled 'Encouraging Workers to Save: The 2005 Retirement Confidence Survey.' The report can be found at www.ebri.org/ibpdfs/0405ib.pdf. While most of the findings were consistent with conventional thinking, I found three to be particularly noteworthy. Those involved eligible employees who were not participating in their plans: ...." (Reish Luftman Reicher & Cohen) Too Many Benefits: Use of Plan Assets to Benefit Employer Excerpt: "[Can a 401(k) plan] be used to obtain a benefit of some kind for the plan sponsor. Generally speaking, the answer is, no, it cannot. More specifically, the question is often framed as: 'Can a plan sponsor pick a bank's 401(k) offering in order to obtain better terms for its debt financing from the bank?'" (Reish Luftman Reicher & Cohen) Bulletin to NTSAA Members from Kristi Cook After Meeting with IRS About Status of New 403(b) Regs (PDF) 1 page. Excerpt: "'Ellie [Lowder] and I met with the IRS work group on the proposed 403(b) regulations in Washington DC yesterday. The purpose of the meeting was to discuss issues that have arisen since the comment period on the regulations closed, to request clarifications on certain provisions in the regulations that have been interpreted differently by various reviewers and to offer suggestions targeted to address compliance concerns." (403(b)wise.com) The Full Cost of Retirement is a Challenge to Businesses and Boomers Excerpt: "'We are seeing factors for why boomers might have to or want to work longer: inadequate savings, access to good health insurance and starting families later,' said Deborah Russell, an AARP analyst overseeing economic security issues. 'Boomers will redefine retirement. [It] will look more cyclical as they cycle in and out of the work force starting new careers, going back to school, or caregiving.'" (East Bay Business Times via bizjournals.com; one-time registration required) Opinion: Why Is Company Pension Funding Such a Big Secret? Excerpt: "If you were working for or investing in a company, wouldn't you want to know how much cash it was putting into its pension plan? Some members of Congress know the answer, though they aren't telling. If disclosed, these figures might change company credit ratings, market valuations and accounting on how much cash is really going into defined-benefit pension plans." (Bloomberg News) A Review of Pension Funding History and Current Legislation Excerpt: "Because of numerous loopholes, tightening the pension rules failed to eliminate underfunding by many employers. But it did drive a lot of companies to terminate their pensions. In fact, the special tax-deferred savings arrangements -- yes, those would be your 401(k) plans and similar retirement accounts -- provided a seemingly painless way for employers to replace the traditional pension, escaping the new rules and shifting the risks of retirement saving onto their workers." (The Washington Post; one-time registration required) Shadows Looming Over Mississippi's State Pension System's Future Excerpt: "'The Legislature postponed dealing with the unfunded pension liability at a time when a strong window of opportunity was open to successfully issue pension obligation bonds in Mississippi,' said Watkins. 'There's still a significant unfunded liability out there even with the $50 million. With rising interest rates, it might correct itself and then it just might not. That's a risk as well.'" (The Clarion Ledger) Benefit Inequity Deepens Gap: Executives Keep Bonuses While Workers' Retirement Nest Eggs Slashed Excerpt: "After bankruptcies that swept through the steel industry and more recently at United Airlines and US Airways, Congress is taking a closer look at pension issues and disparities in the treatment of executives and workers. Lawmakers also are concerned that more companies like GST, United and US Airways will dump millions of dollars in underfunded pension plans on the federal agency that takes over such plans and pays retirees." (The Kansas City Star; one-time registration required) Senate Eyes 15-Yr Limit on Airline Pension Fix Excerpt: "U.S. Senate legislation to strengthen the private pension system is unlikely to give financially struggling airlines more than 15 years to stretch out their pension payments -- a decade less than they have sought, finance committee aides said on Thursday. Older carriers such as Delta Air Lines Inc. and Northwest Airlines Corp. have asked Congress for 25 years to replenish their pension plans, warning that without such help they will tip into bankrup.tcy." (Reuters via RedNova) Senators Grassley and Baucus Present a Plan for Strengthening Pensions Excerpt: "The two leaders of the Senate committee responsible for most corporate and tax legislation presented a major proposal for strengthening the nation's pension system yesterday in the hope of avoiding further catastrophic failures similar to what happened at United Airlines this year. The bipartisan proposal, released [July 22, 2005] by Charles E. Grassley, ..., and Max Baucus ..., expands on a bill the two senators introduced in January." (The New York Times; one-time registration required) Overview: Retirement Fund Exclusion from the Bankrup.tcy Estate Excerpt: "President Bush recently signed the Bankrup.tcy Abuse Prevention and Consumer Protection Act of 2005 (the 'Act'). In general, the Act excludes from the bankrup.tcy estate retirement funds that are exempt from taxation under the Internal Revenue Code (the 'Code')--such as profit sharing plans, 401(k) plans, pension plans and IRAs. The Act protects tax-exempt retirement funds that are transferred to another tax-exempt retirement fund (i.e. a rollover to an IRA)." (Reish Luftman Reicher & Cohen) July Ushers in Advent of Retirement Boom: Older Workers Face Tough Financial Decisions Excerpt: "All workers, but especially baby boomers near retirement, should weigh factors such as longevity, taxes, inflation and unforeseen events in devising a retirement strategy." (Seattle Post-Intelligencer Reporter) Academy Presentation to ERISA Advisory Council Meeting about DB and DC Distribution Options (PDF) 17 pages. Excerpt: "The Pension Practice Council of the American Academy of Actuaries asks you to consider the following while looking to enhance financial security through defined contribution plan distributions: The potential solution already is out there in the form of defined benefit plans; Tax incentives for annuitization should universally apply; Default options are effective tools, provided they are perceived as economically equivalent." (American Academy of Actuaries) Passing It On: Inheriting an Individual Retirement Arrangement Excerpt: "In general, only surviving spouses can treat inherited IRAs as their own. Everyone else should rename the inherited IRA to be 'for the benefit of (the beneficiary)' to reduce the income tax owed on the amount inherited." (AccountingWeb) IRS/Treasury Officials Comments: Safe Harbor Plans, Corrective Distributions, Rehired Employees, ... Excerpt: The Joint Committee on Employee Benefits (JCEB) of the American Bar Association (ABA) has posted on its website a report of the May 2005 informal question and answer session between JCEB representatives and officials from the IRS and Treasury Department." (Employee Benefits Institute of America Inc.) Keeping an Eye on Retirement Plan Fees and Costs Excerpt: "Fees and costs associated with a retirement plan's investments are inevitable. However, ERISA considers any compensation paid to any service provider--including an investment provider, manager or advisor--to be a prohibited transaction unless the compensation is reasonable." (Reish Luftman Reicher & Cohen) Missouri Studies Pension Use: Examines Use of Retirement and Other Funds to Invest in Businesses Excerpt: "Some Missourians have bad memories of past attempts to use public pension funds to promote the local economy, but State Treasurer Sarah Steelman is revisiting the idea. Steelman in mid-June formed the Task Force on Increasing Access to Capital for Missouri Business. At its first meeting this month, the committee split into two subcommittees to study the possible use of retirement and nonretirement funds to invest in Missouri businesses." (Columbia Missourian) MOSERS Ups Ante on Terrorism Investments Excerpt: "Missouri state pension officials have instituted terrorism screening on its direct investments, either by its staff or an outside money manager, planning to dump investments the screening determines are problematic. The move by the Missouri State Employees' Retirement System (MOSERS) was a nod to Missouri Treasurer Sarah Steelman who first raised concerns in May that the state potentially backs companies with terrorist ties, ...." (PLANSPONSOR.com; one-time registration required) Raises Come ... and Raises Go: Union Dues and Benefit Deductions Eat Into Gains on State Paychecks Excerpt: "Today thousands of state workers pick up paychecks with their first cost-of-living increase since 2001 -- but most of it probably is already spoken for. Increased pension deductions and new union dues will eat up most of the 3.2 percent pay raise for many union workers. For nonunion state workers who must wait until Sept. 1 for the same raise, the increased retirement costs will mean a temporary pay cut." (The Olympian) Pension Reform Ignores Long-Term Plan Health, Poll Says Excerpt: "Financial executives managing pension plans feel that proposed pension reform focuses too much on the Pension Benefit Guaranty Corporation's need for solvency and not enough on the long-term health of the plans, according to a quick poll by SEI Investments." (SmartPros Ltd.) Opinion: Road to Retirement May Be Blocked for Some Excerpt: "Recently, a series of retirement surveys have been released whose common message has long been trumpeted: We aren't saving enough, if we're saving at all. But it's not that simple. If you drill down deeper, there are issues specific to certain segments of the population that make it more difficult for them to save. If those roadblocks were removed, people would feel more comfortable with socking away for retirement." (Pamela Yip via The Dallas Morning News; one-time registration required) ERIC Sends Comments to Senate on Legislation Affecting Hybrid Defined Benefit Pension Plans Excerpt: "[The ERISA Industry Committee sent] a letter stating employers' concerns with, and describing the likely outcome of, proposals to provide clarification regarding the lawfulness of hybrid plan designs on a prospective only basis. The concerns in the letter focus on the design of hybrid plans and would apply whether the hybrid plan was established in the past as a new plan or through a conversion from a traditional plan." (The ERISA Industry Committee) DOL Considers Measures to Help Plan Sponsors Get Fee Info Excerpt: "The Department of Labor is considering a variety of measures to help plan sponsors and participants better understand the money they spend to manage and maintain their 401k investments." (Employee Benefit News) Pensions Freezing Out Younger Workers in Attempt to Cool Pressure on Funding and Benefits Excerpt: "Companies looking to cool their pension problems are freezing benefits for the workers least likely to complain. This means cutting off new employees, or a combination of new employees and workers of a certain age - often those under 40. Only people ages 40 and over are covered by federal age-discrimination labor laws, an area of growing concern to employers who are still reeling from age-discrimination lawsuits over so-called cash-balance plans." (AP via Times Daily) Untangling Pensions: Retirees Caught in Pension Disputes Find Advocates Who Can Help Them Collect Excerpt: "While traditional pensions are going to a declining share of the population as businesses replace them with 401(k)s and other retirement plans, they still cover 44 million workers and retirees, according to the Pension Benefit Guaranty Corp., the federal corporation that insures those plans. Sometimes, buyouts and other ownership changes make it extremely difficult to track down the benefits, much less collect them. [Article lists resources that could be helpful.]" (The Christian Science Monitor) Retirement Reservations: Low Savings Rate Worries Congress Excerpt: "Congressional leaders of the drive to overhaul Social Security will limp into their August recess next week, divided and hoping against hope that political magic will resurrect the centerpiece of President Bush's domestic agenda this fall. Out of the Social Security stalemate, however, a separate, bipartisan push is emerging to address an issue that is arguably more pressing: the nation's abysmal savings rate, which most economists see as a broader threat to retirement security." (The Washington Post; one-time registration required) Text: H.R. 3304, Growing Real Ownership for Workers Act of 2005 (PDF) 56 pages. Excerpt: "To amend the Social Security Act and the Internal Revenue Code of 1986 to stop the Congress from spending Social Security's tax revenue surpluses on other Government programs by dedicating those surpluses to personal accounts." (U. S. House of Representatives via American Benefits Council) Social Security Reform: How Carve-Out Private Accounts Deal with Increases in Life Expectancy Excerpt: "Increases in life expectancy are one cause of Social Security's projected insolvency. As people live longer, they receive Social Security benefits for more years, which raises the cost of providing benefits. When no countervailing changes in the U.S. Social Security system are made, longer average life expectancy eventually leads to financing problems. Increasing life expectancy, however, has no effect on the financial solvency of proposed private account plans." (AARP) Links to Items on Executive Comp, Benefits in General So You Think You Can Outsmart the Market-- Remember the Fears about Accounting for Stock Options? Excerpt: "Remember the debate about the accounting treatment of employee stock options? The fight was intense. One side said that companies should be required to count options as expenses, in order to give a truer picture of profits, while the other said that such a move would lead to some companies' financial ruin. Well, the rules did change: the shifts were announced in December and took effect in June." (The New York Times; one-time registration required) Three Questions on a Neglected Area of Sarbanes-Oxley Compliance Excerpt: "Has Sarbanes-Oxley increased the responsibility of corporate executives and board members with respect to the management of pension funds? .... What are the implications of what appears to be a lax compliance approach when it comes to retirement plans? .... What role does IT play in this mess?" (IT Business Edge) Employees and Retirees Being Squeezed by Company Bankruptcies Excerpt: "The AFL-CIO estimates that hundreds of thousands of steelworkers have lost their retirement security as well as health care benefits as one result of some 40 bankruptcies since 1997." (Pittsburgh Tribune-Review) Overview: Proposed Regs Address Electronic Media to Provide Benefit-Related Notices, Elections, ... Excerpt: "These regulations would conveniently consolidate existing retirement plan guidance for electronic communications required by the Code, and would provide new guidance for other employee benefit arrangements. Until final regulations are issued, however, plan sponsors and administrators should continue to follow existing IRS guidance regarding electronic communications." (Employee Benefits Institute of America Inc.) Overview of the DOL Investigative Agenda -- 2005 Excerpt: "The DOL has published a list of its enforcement initiatives at both a national and regional level. The list includes: Employee contributions ...; ESOPs ...; MEWAs ...." (Reish Luftman Reicher & Cohen) The Executive Edition, No. 2, 2005, on the Design and Implementation of Executive Packages (PDF) 7 pages. Excerpt: "The articles in this issue include: Design - Peer Group Selection: Best Practices, and The Role of Boards and Compensation Committees; Data - Changes in Director Compensation; and, Worldwide - Share Grants: Recent Changes in French Law." (Hay Group) AFL-CIO Preps for Contentious Convention in Chicago -- Health and Pension Benefits Major Issues Excerpt: "The loss of pensions at United Airlines and the successful unionization of area home day care workers will make Chicago more than a benign host of next week's AFL-CIO's 50th anniversary convention. As officials of the nation's largest federation of labor unions gather from around the country for the quadrennial convention on Chicago's Navy Pier, union delegates are preparing for a showdown that could result in the splitting away of 35 percent to 45 percent of its membership." (Daily Herald) Renewing the Benefits Outsourcing Relationship (PDF) 4 pages. Excerpt: "Considering the substantial cost and business impact of a multiyear benefits outsourcing relationship, it's often well worth the up-front time and expense required to effectively research and implement the best option for your company." (Hewitt Associates) The Future of the Compensation and Benefits Professions-- As Predicted by You (PDF) 40 pages. Excerpt: "[Research conducted with members of WorldatWork and the Chicago Compensation Association] Hay Group wanted to take stock of what some of the most knowledgeable, in-tune people had to say about the future of these professions: We asked today's 'in the trenches' working professional. From over 200 responses, we gained unique opinions and invaluable insights into what the future holds." (Hay Group) Newly Posted Events Defined Care 2006 Web Summit Nationwide on March 13, 2006 presented by MCOL Future Care 2006 Web Summit Nationwide on January 16, 2006 presented by MCOL Managing Health Care Costs Web Summit Nationwide on November 1, 2005 presented by MCOL Marketing Medicare Prescription Drug Plans Audio conference Nationwide on September 15, 2005 presented by MCOL Pension Strategy: Designing Resilient Retirement Systems in Pennsylvania on September 19, 2005 presented by Wharton Executive Education The Complete Program for Integrating HSAs Into Your Company Audio conference Nationwide on October 6, 2005 presented by MCOL Newly Posted Press Releases ERIC Urges Senate Finance Committee to Clarify Law on Hybrid Pension Plans (ERIC (ERISA Industry Committee)) Labor Department Releases Advance Form 5500 Annual Report And Filing Requirements (U.S. Department of Labor, Employee Benefits Security Administration) Court Rejects Arguments of CNA Financial Corp. and Orders that Fraud, ERISA and Breach of Contract Lawsuit go Forward (Meites, Mulder, Burger & Mollica) Newly Posted or Renewed Job Openings Employee Benefits Attorney (emphasis on Executive & Equity Comp.) for McDermott Will & Emery LLP in MA Benefit Administrator Part-time for Pinnacle Financial Group in MA Pension Administrator/Accountant for Boulay, Heutmaker, Zibell & Co. P.L.L.P. in MN Client Relations Assistant for The Allocation Company, Inc. in TX Assistant Account Administrator for McCready and Keene, Inc. in IN Handy Links: View Today's Active Message Threads Search BenefitsLink Using the Web for Employee Benefits Research (hypertext article) Employee Benefits Library Copyright 2005 BenefitsLink.com, Inc.; except that you may reprint this newsletter in full (including this sentence) without obtaining our permission. Published by: BenefitsLink.com, Inc. https://benefitslink.com/about.html 1298 Minnesota Avenue, Suite H Winter Park FL 32789 (407) 644-4146 Fax: (407) 644-2151 Editor and Publisher: David Rhett Baker, J.D. Housekeeping: How to Sponsor an Issue Subscribe to a Daily Email Announcing Publication of Each Day's Newsletter Privacy Policy Archive of Previous Newsletters If you'd like to STOP this newsletter, just click on this link: STOP sending this newsletter to me