Month: January 2009

From the Mercury News.com: “401(k) change may create new lost generation.” Excerpt:

. . . Sears, which recently announced the suspension of its match, contributed $91 million to its employees’ 401(k) funds in 2007 on a profit of $825 million. With 2009 expected to be one of the most challenging years for retailers, the company will cease the match Jan. 31, even though it will finish 2008 with a profit that is forecast to be around $300 million at best. My read between these numbers is the match could threaten Sears’ profit in 2009.

Multiply what is happening at Sears a thousand times over. Quickly you can see that billions of dollars will be absent from not just 401(k) accounts but the financial markets as well. That takes away capital from equity markets, which is supposed to fuel our future corporate growth.

At some point, companies such as Sears will reintroduce the matching funds. But the longer it takes, the more confidence will erode from this retirement savings model, and more people will develop empty gaps in their retirement savings time line.

Without companies leading the push for workers to save, the 401(k) model is in trouble. . .

In reading this story, it sounds like it could have been an episode of 24. From the Wall Street Journal: Adviser Who Made Daring Getaway Is in Police Custody. The adviser allegedly faked his own death by parachuting from a plane and leaving the plane to fly on autopilot. One of the many allegations reportedly being made in the case is that money was moved from a retirement account into a deferred annuity without the client’s knowledge, incurring large penalties.

More here from Fox News.

Seyfarth Shaw’s Fifth Annual Workplace Class Action Litigation Report (a 665-page report) provides some discouraging news for employers on the ERISA front. The report analyzes the “foremost class action and collective action decisions of 2008 involving claims against employers in federal and state courts” and concludes that there is “an explosion in class action and collective action litigation involving workpace issues.” The report also predicts that the “present downturn in the economic climate is likely to fuel even more lawsuits, and the financial risks in this type of employment litigation can be enormous.”

Regarding ERISA litigation specifically, the report indicates:

The plaintiffs’ bar increased the pace of ERISA class action filings seeking recovery for 401(k) losses; and

The lawsuits resulted in a series of “massive settlements” in ERISA class action resolutions.

The report includes in its analysis a review of the “top ten” class action and collective action settlements during 2008. The report concludes that, “[a]s compared to 2007, settlement totals decreased for the top ten employment discrimination and wage and hour class action settlements, but increased for the top ten ERISA class action settlements”:

For ERISA class actions, the monetary value of top ten private plaintiff settlements entered into or paid in 2008 totaled $17.7 billion. By comparison, the top ten settlements in 2007 totaled $1.8 billion.

The report provides confirmation about what most practitioners know already–that there has been a surge of excessive fee cases involving 401(k) plans as well as “stock drop” suits from the plaintiffs’ bar. The report concludes that “given the enormous financial stakes, pro-active planning and legal compliance programs—to get ahead of class action risks—are of paramount importance to companies in 2009.”

More on what employers can and should be doing in posts to come. . .

Patty Duke is helping to promote Social Security’s new online enrollment process. From the SeniorJournal.com:

Facing the deluge of 10,000 Baby Boomers joining Social Security and Medicare every day for the next 20 years, Social Security has decided the monumental enrollment task is best handled online. The agency, with some promotion help by “Patty Duke,” has launched the Retire Online campaign.

Featuring cousins Patty and Cathy Lane from the hit 1960’s sitcom, “The Patty Duke Show,” the campaign will let Americans know that it’s now easier than ever to retire online.

“Social Security’s new online retirement application can be completed in as little as 15 minutes from the comfort of your home or office,” said Michael J. Astrue, Commissioner of Social Security.

Access Ms. Duke’s five videos on Social Security enrollment here.

As a followup to this previous post here, please note that the IRS has issued Notice 2009-9 providing more of the details regarding reporting requirements for financial institutions pertaining to the RMD 2009 waiver. In that Notice, the IRS hopes to ward off some of the confusion that will likely occur as a result of the change in the rules for 2009 by encouraging financial institutions to provide some clear communications to seniors:

The IRS encourages all financial institutions to inform IRA owners who delayed taking their 2008 RMD until April 1, 2009, that they are still required to take that distribution.

That last post was my 2000th post: http://www.benefitscounsel.com/archives/002000.html. Thanks to Congress, the IRS, the DOL, the PBGC, and courts for providing all of the great material. Some think that benefits and ERISA topics are “mundane” or even “dreary“, but some of us find it to be very interesting stuff. 🙂

In the IRS’s Special Edition of its Employee Plan News:

On December 23, 2008, the President signed the Worker, Retiree and Employer Recovery Act of 2008 (the Act) into law. Section 201 of the Act waives any required minimum distribution (RMD) for 2009 from retirement plans that hold each participant’s benefit in an individual account, such as 401(k) plans and 403(b) plans, and certain 457(b) plans. The Act also waives any RMDs for 2009 from an Individual Retirement Arrangement (IRA). This means that most participants and beneficiaries otherwise required to take minimum distributions from these types of accounts are not required to withdraw any amount in 2009. If they do make a withdrawal in 2009 (that is not a RMD for 2008), they might be able to roll over the withdrawn amount into other eligible retirement plans. Of course, they must still include any previously untaxed portion of the withdrawal that they do not roll over in their gross income. . .

The Act does not waive any 2008 RMDs, even for individuals who were eligible and chose to delay taking their 2008 RMD until April 1, 2009 (e.g., retired employees and IRA owners who turned 70½ in 2008). These individuals must still take their full 2008 RMD by April 1, 2009, or they might face a 50% excise tax on the amount not withdrawn. The 2009 RMD waiver under the Act does apply to individuals who may be eligible to postpone taking their 2009 RMD until April 1, 2010 (generally, retired employees and IRA owners who attain age 70½ in 2009). However, the Act does not waive any RMDs for 2010.

If a beneficiary is receiving distributions over a 5-year period, he or she can now waive the distribution for 2009, effectively taking distributions over a 6-year rather than a 5-year period.

Bottom-line then is this:

If you have a 2008 required minimum distribution that is payable in 2009 (before April 1st of 2009) because you turned 70&frac12 in 2008, you must go ahead and make the payment in 2009 or you could end up paying the IRS a very nasty 50% excise tax on the amount not withdrawn–a catastrophic result when combined with the losses already incurred in 2008 from the stock market.

But if you turn 70&frac12 in 2009 and would have had until April 1, 2010 to make the payment under normal rules, your 2009 RMD is waived even though it could have been made in 2010.

Great op-ed from Dr. Arnold Kling at the Library of Economics and Liberty: Managing Retirement Accounts. (Thanks to RothCPA.com for the link.) Excerpt:

The only difference between amateur management and professional management is that the professionals get bailed out. Corporations will have to plow more earnings into pension funds–or else default on their obligations, in which case taxpayers will do the bailout through the Pension Benefit Guaranty Corporation. And state and local pension plans, which also lost money, are going to be bailed out by taxpayers.

I fully expect to pay more in taxes to bail out other people’ retirement losses than I lost myself in the market.

If anybody else is afraid to manage their own retirement money and wants the government to do it for them, they are welcome to do so. I would prefer to suffer for my own mistakes.

From Kaisernetwork.org:

During a speech in Washington, D.C., on Wednesday, President-elect Barack Obama said overhauling entitlement programs such as Medicare and Social Security will be “a central part” of his administration’s efforts to curb federal spending, the New York Times reports (Zeleny/Harwood, New York Times, 1/8). Obama said, “We are beginning consultations with members of Congress around how we expect to approach the deficit,” adding, “We expect that discussion around entitlements will be a part, a central part, of those plans” (Montgomery, Washington Post, 1/8). Obama said, “If we do nothing, then we will continue to see red ink as far as the eye can see,” and “at the same time, we have an economic situation that is dire, and we’re going to have to jump-start this economy with my economic recovery plan, creating three million jobs. That’s going to cost some money” (Weisman/Meckler, Wall Street Journal, 1/8). Obama said he plans to unveil more details about his approach to rein in entitlement spending when he releases his budget next month, the Times reports.

Article from Proskauer Rose LLP: Fully-Insured Benefit Plans in New York Must Recognize Out-of-State Same-[Gender] Marriages. Excerpt:

The New York State Insurance Department issued a Circular Letter on November 21, 2008 (the “Circular Letter”) stating that it expects all New York insurers to recognize the marriages of same-[gender] couples legally performed in other jurisdictions for purposes of providing the same level of insurance coverage as is provided to opposite-[gender] spouses.

Also:

In general, the Employment Retirement Income Security Act of 1974, as amended (“ERISA”) preempts state laws that relate to employee benefit plans. However, state insurance laws are excepted from ERISA’s broad preemption provision. Accordingly, it seems clear that the Insurance Department’s pronouncement would apply to employee benefit plans that are provided under insurance policies issued in New York because the insurance companies will have to recognize same-[gender] spouses under their policies. Employers (and other plan sponsors) that provide insured benefits will therefore be required to offer the same benefits to both same-[gender] spouses and opposite-[gender] spouses.

Self-insured plans would be exempt from the requirement per the “deemer clause” of ERISA.