Month: July 2003

Lynn Brenner has this helpful article for Newsday.com: “Changing Beneficiaries Without Their Knowing.”

The Philadelphia Inquirer has an article by Todd Mason–“Easing up on company stock“–which discusses the impact that class-action lawsuits are having on companies’ offering company stock as a match or an investment. (The article reports that Seattle-based Keller Rohrback has “18 class-action suits alleging fraud in 401(k) plans and company stock, including one filed in February against Cigna Corp.”)

Today’s edition of the Wall Street Journal has an article worth reading by Ian McDonald: “Mutual Funds Grateful for Automatic Pilots.” The article discusses the impact 401(k) automatic deferrals had on the mutual fund industry last year. Normally investments coming from tax-deferred retirement plans, like a 401(k) or 457 plan, represent only 15% to 20% of money that has flowed into stock, bond and money market mutual funds. Last year, due to the downturn in stocks, investments from such accounts now represent a “full 85% of all net buying of mutual funds in 2002.” That’s because stock funds suffered “$54 billion in net outflows from nonretirement accounts” according to the article which discusses a report from the Investment Company Institute, the fund industry’s largest trade group. What is driving the numbers, according to the article, is the automatic payroll deduction. The article reports Chris Brown, a retirement product analyst with Boston fund consultant Financial Research Corporation, as saying that without automatic deductions “there’s just no way people would write a check every week or two in a bear market.”

A very important factor to consider in the whole analysis would be the impact that company matching had on the continued influx of such deferrals during the bear market. Did participants for the most part continue their deferrals during the bear market in plans where there was no company match?

Today’s Federal Register contains proposed IRS regulations governing when certain distribution options may be eliminated from qualified defined contribution plans. The regulations amend Regulation Section 1.411(d)-4, Q&A-2(e)(1) which provides that a defined contribution plan may be amended to eliminate or restrict an optional form of benefit without violating the Internal Revenue Code section 411(d)(6) anti-cutback rules if certain conditions are met, one of which was a 90-day notice requirement. These proposed regulations apparently eliminate the 90-day notice requirement (although there are still DOL requirements for notifying participants via a summary of material modification or summary plan description which must be complied with). The purpose of the elimination of the 90-day requirement is to make the regulations consistent with Section 645(a)(1) of EGTRRA which revised section 411(d)(6) in a manner that is similar to Section 1.411(d)-4, Q&A-2(e), but without the advance notice condition.

Also, final catch-up regulations have been released (via Benefitslink.com). More on this later. . .

IRS Notice 2003-49 (via Benefitslink.com) has been released and provides guidance regarding when the EGTRRA remedial amendment period begins for purposes of determining if a determination letter application is eligible for elimination of the user fee.

Today’s edition of the Wall Street Journal (“Bush Team Develops Plan on Pension Shortfalls: Long-Term Rule Change Could Hurt Companies with Many Older Workers” by John D. McKinnon) and other sources are reporting that the Bush administration has unveiled its proposal for helping businesses address the “massive shortfalls in their pension funds.” You can read the Treasury Department’s Press Release here which provides as follows:

The Administration recommends that pension liabilities ultimately be discounted with rates drawn from a corporate bond yield curve that takes into account the term structure of a pension plan’s liabilities. For the first two years, pension liabilities would be discounted using the blend of corporate bond rates proposed in HR 1776 (Congressmen Portman and Cardin). A phase-in to the appropriate yield curve discount rate would begin in the third year and would be fully applicable by the fifth year. Using the yield curve is essential to match the timing of future benefit payments with the resources necessary to make the payments.

How would this proposal affect pension liabilities and funding requirements? By linking the calculation of corporate pension liabilities to corporate bond rates instead of Treasury bonds, it would lower the amount of money many companies would have to put into their pension plans. Corporations have been putting heavy pressure on the administration for relief, arguing that the money they were shoveling into their pension funds was money they could be investing to expand and hire new workers.

More on this: Jonathan Weisman for the WashingtonPost.com reports: “Bush Seeks To Change Pension Calculation: Employers Would Set Aside Less Money, Release More Data.” Jonathan Nicholson for Reuters via Yahoo! News reports: “Bush Administration Proposes Pension Fund Overhaul.”

 

You don’t want to miss How Appealing‘s “20 Questions for Senior Circuit Judge Ruggero J. Aldisert of the U.S. Court of Appeals for the Third Circuit.” It is exceptional. I had no idea what little time is allotted to an appellate judge to decide a case as Senior Circuit Judge Aldisert states so well:

When I became a member of the Third Circuit in 1968 each active judge was responsible for deciding 90 appeals a year. The national average was 93. That was “Then.”

But “Now” in the Third Circuit, each active judge was responsible for deciding 381 cases in 2002, 327 in 2001, 330 in 2000; and 381 in 1997. That’s fully briefed cases on the merits. The national average in 2002 was 485 per active judge, up from 429 in 1997. Divide 485 cases by 255 working days a year and you start to get the message I have been preaching for years — to no avail. One-A-Day is a great name for vitamins, but I doubt that it’s equally great in describing the caseload for U.S. Circuit judges.

You must understand that the case you file with us moves along an assembly line of over one case every 4.9 hours. Think about it. That’s the time allotted to your case. In that time, the judge must read the briefs, research the law, perhaps hear argument, conference with colleagues, make a decision, write an opinion or order, examine draft opinions written by other judges, and at the same time study motions in other cases or petitions for rehearing. And, of course, travel to the court, check into the hotel. Answer the phone. One fully briefed case for decision every 4.9 hours.

Thompson Publishing provides an article on what’s in store for employers and plan administrators under the new COBRA proposed regulations: “Without More Clarification, DOL’s COBRA Notice Rules Will Result in More Administrative Problems.“

EBIA Weekly provides an article on Rev. Rul. 2003-70: “IRS Addresses Impact of Stock and Assets Sales on COBRA’s Small Employer Exception.“

Note to Readers: Benefitsblog will begin collecting links to articles written about recent regulations and guidance issued by the IRS and DOL over in the “Recent Hot Topics” links section on the right.

“Generation X walks fine line between fear, necessity of investing“: Michelle Melendez reports for the Houston Chronicle. Much has been written about how the stock market tumble has hurt retirees and baby boomers, but now you can read about how it has impacted Gen X’rs as well. The article points out how in the long run, Gen X’rs could really stand to gain. The article quotes Dallas Salisbury, president and chief executive officer of the Washington-based Employee Benefit Research Institute which published a Retirement Confidence Survey, as stating:

As a practical matter for anybody that is young, meaning anybody not yet ready to retire, the best thing in the world is for the markets to be lousy year after year after year, so that your dollar-cost average and your 401(k) assets are at the lowest possible purchase prices.