BenefitsLink Retirement Plans Newsletter September 26, 2005 Today's sponsor: www.ftwilliam.com (Click on company name or banner to learn more.) Register for our free on-line demo! www.ftwilliam.com offers the employee benefits professional the highest quality plan documents and forms at highly competitive prices. Plan documents on a per document basis are only $50/adoption agreement, or $100/volume submitter document (including cross testing). An annual subscription to all documents is only $1,500. The Form 5500 package and the IRS/PBGC form package are only $250 each. Prices include access for five concurrent users. (Please visit our sponsors. We try to make sure their products and services will be of interest to you. Thanks! --Editor) Summary of KETRA Retirement Plan-Related Provisions Excerpt: "[This is a] detailed summary of KETRA's provisions pertaining to retirement plans, as taken from the JCT's Technical Explanation of H.R. 3768, The 'Katrina Emergency Tax Relief Act of 2005' as passed by the House and the Senate on September 21, 2005." (Attorney B. Janell Grenier via Benefitsblog.com) Overview: Congress Passes Tax Relief for Katrina Victims that Includes Qualified Plan Provisions Excerpt: "KETRA does not address the ERISA requirement that loans be adequately secured. DOL regulations provide that no more than 50% of a participant's vested account balance can be used to meet the ERISA security requirement. Most plans are designed to use the participant's vested account balance as security for the loan, and therefore plans generally limit plan loans to 50% of the vested account balance. Without relief from the ERISA security requirement, plans will need ...." (Employee Benefits Institute of America Inc.) Storm Victims' Withdrawals from 401(k)s Debated Excerpt: "The federal government's push to waive the early-withdrawal penalty on retirement savings for victims of Hurricane Katrina might be the second act of a horrible tragedy, some advisers say." (InvestmentNews.com) Opinion: Relief on Pre-Retirement Distributions Welcome but Should Be Expanded Beyond Katrina Excerpt: "[I]t is not uncommon for years to pass before legislators and regulators act on an issue. Given that track record, it is a surprise, a pleasant one, to see how quickly both the legislative and regulatory branches have responded to resolve some benefit issues-- important ones-- affecting victims of Hurricane Katrina." (Business Insurance) Working Paper: Regret, Portfolio Choice, and Guarantees in Defined Contribution Schemes (PDF) 18 pages. Excerpt: "[The authors] model how asset allocation decisions in a defined contribution (DC) pension plan might vary with participants' attitudes about risk and regret. [They] show that anticipated disutility from regret can have a potent effect on investment choices. Compared to a risk-averse investor, the investor who takes regret into account will hold more stock when the equity premium is low but less stock when the equity premium is high." (Pension Research Council) Public Pensions Top Tasks for Next Governor of New Jersey Excerpt: "For years, New Jersey's underfunded pension system has been the simmering problem no politician dared to solve. But with a pension-fund shortfall approaching $30 billion as baby-boomer public employees are poised to begin retiring, the state's next governor has little choice but to confront a pension puzzle that experts say has no painless answer." (The Philadelphia Inquirer; one-time registration required) Overview of the Current Legislative Outlook for Defined Benefit Plan Funding Reform Excerpt: "In this article [Chicago Consulting Actuaries] review the politics of defined benefit plan funding reform and the key provisions of the third entry in the DB reform project -- the Senate Health, Education, Labor and Pensions (HELP) Committee's Defined Benefit Security Act. [The article concludes with a Comparison chart of Pension Funding and Premium Provisions of House and Senate Finance and HELP Committee Bills.]" (Chicago Consulting Actuaries, LLC) ERIC Letter to Senators: Current Negotiations Regarding Pension Funding Legislation Excerpt: "{ERIC believes] that the final Senate bill must meet the criteria and follow the recommendations outlined [in this letter] if it is to encourage companies to establish and maintain pension plans in the future while also protecting participants in those plans through sound funding practices." (The ERISA Industry Committee) Pensions Pose Time Bombs for Public Budgets Excerpt: "The aging of baby boomers in the state government work force is prompting fears that pension payouts will bust state budgets and is spurring efforts from Alaska to Massachusetts to reform public employee retirement systems. Experts say states, counties and cities are short $292.4 billion in money promised through their public employee retirement systems, makes them ticking time bombs for state and local budgets." (Stateline.org) Pensions Are in Crisis -- Effects on Plan Participants and Retirees Excerpt: "Across thousands of workplaces -- from steel mills to airline hubs to small businesses -- the status of many employee pensions now sits somewhere between threatened, and dead and gone. A country where private industry counted 114,000 pension plans a generation ago now has only 31,000 -- and the decline is accelerating." (Star Tribune; one-time registration required) Editorial: The Colorado Public Employees Retirement Association's Problems Are Real but Not Unique Excerpt: "State employees - and taxpayers, in general - are rightly concerned about the long-term health of the Colorado Public Employees Retirement Association (PERA). Unfortunately, PERA's predicament isn't unique. In fact, it's entirely too typical among public pension plans nationwide." (The Pueblo Chieftain) Editorial: West Virginia Public Pension Programs Still Not Controlled Excerpt: "The enormous burden of pension programs for public employees is a critical issue facing West Virginians. Legislative action relating to it needs to be taken carefully and in full view of the public - taxpayers who, after all, are saddled with the burden of about $5 billion in unfunded liabilities for pension programs." (Wheeling News-Register) Report: Promises to Keep -- The True Nature of the Risks to the Defined Benefit Pension System (PDF) 16 pages. Excerpt: "The PBGC's deficit is overstated because unreasonably low interest rates overstate future liabilities. Further, much of the deterioration of PBGC's funded status resulted from the unusual economic circumstances of the last several years." (American Benefits Council) American Benefits Council Says Pension Funding Crisis Overstated Excerpt: "The liabilities of the federal agency that guarantees worker pensions, estimated at $23.3 billion at the end of 2004, are inflated by excessively low interest rate assumptions and overly conservative investment strategies, according to a report prepared for the American Benefits Council, which represents companies with defined benefit pension plans." (AP via MSN Money) A Pension Time Bomb: California Officials Wake Up to Pension Debt Excerpt: "After years of paying little attention to the tabs they were racking up by granting some of the nation's most extravagant public-employee pensions and benefits, California officials have awakened to the sobering reality of the massive long-term debt they created. The largest government agencies in Los Angeles and across the state face setting aside at least $110 billion in coming years to pay for promised retiree pensions, health care and workers' compensation benefits, ...." (DailyNews.com) Pension Plans for City Workers in Utah under Scrutiny Excerpt: "Most would call a retirement plan where the employee didn't contribute anything and the employer contributed 6, 7 or 8 percent generous. Cities in Utah also call such a plan necessary to get the level of employee they need to perform city services. But a tax watchdog group calls it a 'gold-plated retirement' -- a retirement plan taxpayers are financing but not earning themselves." (The Daily Herald) Policy Brief: Congress Likely to Impose New and Expanded Disclosure Requirements on Pension Plans (PDF) 2 pages. Excerpt: "[T]he bills that have passed the Senate Finance Committee (S. 219), Senate Health, Education, Labor and Pensions Committee ... and the House Workforce Committee (H.R. 2830) would increase the disclosures that pension plans must provide to the PBGC. In addition to enhancing annual filings and accelerating reports to participants, the bills require that detailed financial information filed with the PBGC that is confidential under current law be made available to the public." (HR Policy Association) Overview: Dividends v. Distributions In ESOP Planning Excerpt: "This article, the first in a series, is an overview of the differences in the utility of C corporation dividends and S corporation distributions in ESOP transactions. It assumes the reader has some familiarity with the basics of ESOPs and the fact that ESOPs may now be sponsored by S corporations." (Chang, Ruthenberg & Long PC) Overview: Elimination of Optional Forms of Benefit Excerpt: "The IRS continued its series of guidance regarding the ability of retirement plans to eliminate optional forms of benefit (OFOB) by finalizing regulations that offer relief to defined benefit pension plans. .... Under the new regulations, that are generally effective for amendments adopted after August 12, 2005, a plan can be amended to eliminate: ...." (Chang, Ruthenberg & Long PC) Overview: Retirement Plan Distributions of Insurance Contracts Excerpt: "The IRS has issued a number of pronouncements in the last few years regarding the treatment of insurance provided to employees by employers directly and through retirement plans. Although all of this guidance is important to employers, employees and their advisors, of particular note is the final regulation governing distributions of insurance contracts from qualified retirement plans." (Chang, Ruthenberg & Long PC) Overview on Avoiding ERISA Liability Issues In ESOP Repurchase Liability Planning Excerpt: "This article addresses the nuances of ERISA fiduciary involvement in the corporate obligation for share repurchase liability for ESOPs sponsored by non-public companies. The objective is to provide plan sponsors an understanding of how to best protect ESOP fiduciaries and corporate directors and officers dealing with this fundamental aspect of ESOP planning." (Chang Ruthenberg and Long PC) Morgan Lewis on ESOPs-- September 2005 (PDF) 5 pages. Excerpt: "The issue contains articles titled: IRS issues proposed regulations denying deduction for redemption of stock held by an ESOP; A growing split among federal courts on the right of participants in individual account plans to recover losses from fiduciary breaches; The Delaware chancery court rejects Disney shareholders' claims; Mckesson revisited; and, New SEC rules may benefit public ESOP companies." (Morgan, Lewis & Bockius LLP) Overview: DOL Amends 'QPAM' Exemption (PDF) 5 pages. The Department of Labor published proposed amendments to the Prohibited Transaction Class Exemption 84-14. (Dechert LLP) Can.ada Adopts New Pension Tax Treatment Rules Excerpt: "The Canadian government has adopted a series of tax changes for deferred income pension plans including steps to eliminate foreign property restrictions. The Department of Finance published the final regulations September 21 that were first outlined in the nation's 2003 and 2005 budgets, according to a BNA report." (PLANSPONSOR.com: one-time registration required) Japan PM Says to Enact Postal Reform by November 1 Excerpt: "Backed by a landslide election victory, Prime Minister Junichiro Koizumi told parliament on Monday he is determined to push ahead with privatizing Japan's postal system and other reforms. But his policy speech to the lower house was short on details of pressing issues including ties with other Asian nations and reforming Japan's pension system to cope with an aging society." (Reuters via The New York Times; one-time registration required) Cash-Balance Plans Change Rules of Pension Game Excerpt: "Employers like them because they are less risky and usually cheaper. The plans also are portable, moveable from one job to another, which suits the modern, mobile workforce. Some workers' advocates like them because they are among the last vestiges of employer-paid pensions. But courts across the country are divided on whether the plans are legal. A judge in one high-profile case ruled that they discriminate against older workers." (Star Tribune; one-time registration required) Overview: Relief for Delayed Participant Contributions, Loan Repayments, and Blackout Notices Excerpt: "In this enforcement policy statement, the DOL provides relief to ERISA pension plans (including 401(k) plans) affected by Hurricane Katrina. The relief relates to the deadlines for depositing participant contributions and loan repayments in a plan's trust and to blackout notice requirements, and it applies to certain employers, plan sponsors (as well as service providers to those employers), and plans that are located in areas in Louisiana, Mississippi, or Alabama ...." (Employee Benefits Institute of America Inc.) Bankrup.tcy Court Denies Termination of United Airlines' Pilots' Pension Plan Excerpt: "The US Bankrup.tcy Court for the Northern District of Illinois has denied the Pension Benefit Guaranty Corporation's (PBGC) motion for an order approving its involuntary termination of United Airline's defined benefit pension plan for pilots." (PLANSPONSOR.com: one-time registration required) New Advice to Retirees: Spend More at First, Cut Back Later Excerpt: "Ty Bernicke, a financial planner in Eau Claire, Wis., for example, says retirees generally spend less as they age, so that it is reasonable for them to spend more when they are in retirement's early stages. Mr. Bernicke's conclusions, which relied on data from the Bureau of Labor Statistics' Consumer Expenditure Survey for 2002, were published in June in The Journal of Financial Planning ...." (The New York Times; one-time registration required) Reality Retirement Planning: A New Paradigm for an Old Science Excerpt: "Traditional retirement planning assumes that a household's expenditures will increase a certain amount each year throughout retirement. Yet data from the U.S. Bureau of Labor's Consumer Expenditure Survey show that household expenditures actually decline as retirees age. Consequently, under traditional retirement planning, consumers tend to oversave for retirement, underspend in their early years of retirement, or postpone retirement." (Journal of Financial Planning) A Guide to Understanding the Pension Benefit Guaranty Corporation (PDF) 32 pages. Excerpt: "[This paper] aims to provide a basic understanding of federal pension insurance, the operations of PBGC, and the financial condition of and the outlook for the agency over the next 10 years." (U.S. Congressional Budget Office) Links to Items on Executive Comp, Benefits in General Employee Plans News -- Fall 2005 -- With an Emphasis on Hurricane Katrina Relief (PDF) 15 pages. Excerpt: "In this time of extreme need, the IRS is doing all that it can to help out. An innovative way to help the victims of Hurricane Katrina is the 'Leave Donation Program.' Employees who want to help their fellow citizens can ask their employers to convert their unused vacation, sick or personal leave into a cash donation to tax-exempt organizations providing relief to the citizens of the Gulf Coast." (U.S. Internal Revenue Service) Time Frames Extended under COBRA, HIPAA, & ERISA Claims Procedures for Hurricane Katrina Victims Excerpt: "The DOL and IRS have announced additional relief for victims of Hurricane Katrina in the form of an extension of certain time frames that would otherwise apply under the HIPAA portability and COBRA provisions of ERISA and the Code, and under the ERISA claims procedure requirements." (Employee Benefits Institute of America Inc.) Overview: Katrina Victims to Get Tax Breaks Excerpt: "Victims of Hurricane Katrina are getting help from Congress. Congress approved and sent to President Bush last week a $6.1 billion package of tax breaks to help families recover. The president signed the bill into law last week." (The Dallas Morning News; one-time registration required) Katrina Tax Relief Act in Plain English Excerpt: "The 'Katrina Emergency Tax Relief Act of 2005' is aimed at helping residents in the hurricane-ravaged areas of Louisiana, Mississippi, and Alabama rebuild their homes and lives as quickly as possible. Here's a rundown of the major provisions: ...." (Fox News) Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards (PDF) 5 pages. Excerpt: "[Proposed FASB Staff Position No. FAS 123(R)-c] provides a practical transition election related to accounting for the tax effects of share-based payment awards to employees." (Financial Accounting Standards Board) Overview: 10th Circuit Court Broadens Requirements for Waiving Age Discrimination Claims Excerpt: "Employers seeking waivers of Age Discrimination in Employment Act (ADEA) claims in accordance with the Older Workers' Benefit Protection Act (OWBPA) now must clearly explain not only who has been selected for layoff, but why selections were made." (Littler Mendelson, P.C.) The Rules Are About to Change for Executives Receiving 'Non-Qualified' Compensation Excerpt: "Last October, President Bush signed the American Jobs Creation Act of 2004. The Act makes dramatic changes to the tax rules impacting virtually all so-called 'Non-Qualified Deferred Compensation' arrangements for all amounts deferred on or after Jan. 1, 2005." (Dallas Business Journal via bizjournals.com; one-time registration required) GAO Report: Tax Expenditures Represent a Substantial Federal Commitment and Need to Be Reexamined (PDF) 135 pages. According to the report, the exclusion from income tax of employment-based health insurance benefits represents $102.3 billion, or 14%, of the 2004 'lost' revenues. (U.S. Government Accountability Office) Newly Posted Events Medicare Retiree Drug Subsidy: Countdown to October 31 Nationwide on September 29, 2005 presented by Chicago Consulting Actuaries, LLC Newly Posted Press Releases New Report: PBGC Deficit Overstated; Based On Inappropriate Assumptions, Investment Strategy (American Benefits Council) Invesmart Expands Operation in Louisville (Invesmart, Inc.) National Business Coalition on Health Brings Together Health Care Influencers (National Business Coalition on Health) Newly Posted or Renewed Job Openings ERISA Consultant for BISYS Retirement Services in MN Pension Administrator for The Nolan Company in KS, MO Retirement Plan Administrator for Independent Retirement Plan Administration Company in FL Installation Administrator for Transamerica in CA Defined Contribution Business Analyst for Veritude in MA Conversion Implementation Specialist for BenefitStreet Inc. in CA Client Relationship Manager for Great-West Retirement Services in NY Retirement Plan Operations Manager for Charles Schwab in AZ Assistant Pension Administrator - College Graduate/Math for Retirement System Group Inc. in NY Benefit Consultant for Unified Trust Company, N.A. in KY Client Service Representative for Charles Schwab in AZ Retirement Services Provider Consultant for Deloitte Consulting LLP in CT, NJ, NY Client Service Representative for Great-West Healthcare in NJ, NY, TX, VA Pension Administrator for Kenneth F. Hackett & Associates Inc in FL Financial Benefits Program Manager for Apple Computer in CA Health Insurance & Group Insurance Sales Executive for Alliance Benefit Group of Kansas City, Inc. in IA, KS, MN, MO Pension Administrator for Pension Benefit Consultants, Inc. in CT 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