INSIDER

Influences on Workers’ Asset Allocations in Defined Contribution Accounts
Defined contribution (DC) plan participants in the private sector who are younger, better-educated, more risk-tolerant, and have an employer-sponsored defined benefit (DB) plan and a longer planning horizon, generally hold a larger share of equities in their DC accounts than other participants. Being married and in good health reduces the likelihood that a household will avoid equities altogether. These and other findings are from Watson Wyatt’s recent analysis into asset allocations in DC plans. [January 2008]

DOL Finalizes Qualified Default Investment Alternative Regulation
The Pension Protection Act of 2006 (PPA) required the U.S. Department of Labor (DOL) to provide fiduciary protection for default investments in participatory defined contribution plans. The DOL proposed default investment guidance in 2006 and now has finalized the qualified default investment alternative (QDIA) regulation.  [December 2007]

IRS Proposes Regulations on Automatic Contribution Arrangements
The IRS has issued proposed regulations on automatic contribution arrangements under the Pension Protection Act of 2006 (PPA). The proposed regulations address the special 401(k) and 401(m) nondiscrimination test safe harbor for qualified automatic contribution arrangements (QACAs).  [December 2007]

SAR Exemption for DB Plans
Under the Pension Protection Act of 2006, defined benefit plans will no longer be required to furnish a summary annual report (SAR) to participants and beneficiaries. Defined benefit plans will file their first annual funding notice in 2009 for the 2008 plan year, which will replace the SAR. [December 2007]

401(k) Fees Receive Legislative Attention
In early October, Congress continued to focus on 401(k) fees. On October 4, the House Education and Labor Committee held a hearing on the 401(k) Fair Disclosure for Retirement Security Act (H.R.3185), which committee Chair George Miller (D-California) introduced in July.  [October 2007]

Representative Miller Introduces 401(k) Fee Legislation
The 401(k) Fair Disclosure for Retirement Security Act of 2007 (H.R.3185) would require plans to disclose more information about fees charged to 401(k) participants and potential conflicts of interest. It also would require that 401(k) plans offer an index fund.  [September 2007]

Cashing Out: A Threat to Retirement Security?
Many workers who leave their jobs must make a decision that may have significant ramifications down the road: what to do with their defined benefit (DB) or defined contribution (DC) plan. Sometimes one of the choices is to cash out the account — withdraw the money in one lump-sum payment. But workers who exchange tax-deferred savings for ready money may be dimming their later prospects for a secure, adequate retirement income. [September 2007]

Workforce Management and Retirement in a 401(k) World
Media reports about private-sector employers — including many large, financially sound companies — freezing and terminating their defined benefit (DB) plans have appeared frequently in both business journals and the popular press. Commentators have proposed various theories to answer the “whys” of the recent employer shift from DB to defined contribution (DC) plans: maintaining competitiveness, exploding health costs, unmanageable pension costs and risks, changing workforce characteristics, and a punishing regulatory environment. Most of the media coverage focuses on how the change will affect workers, but the consequences will ripple to employers as well.  [September 2007]

IRS Addresses Midyear Changes to 401(k) Safe Harbor Plans
In Announcement 2007-59, the IRS clarifies that a plan will not fail to be a 401(k) safe harbor plan merely because of midyear changes to implement a qualified Roth contribution program or the hardship withdrawals relating to a primary beneficiary described in Notice 2007-7.  [July 2007]

IRS Issues Final Roth 401(k) Regulations
The IRS has issued Roth 401(k) final regulations that address the taxation of distributions, rollovers, reporting and recordkeeping. The final regulations generally adopt the provisions of the proposed regulations with some modifications.  [July 2007]

Retirement Issues Remain on Legislative Agenda
After the drawn-out and arduous pension reform debate preceding enactment of the Pension Protection Act (PPA) last summer, Congress is unlikely to pursue new pension legislation this year. However, lawmakers are discussing a variety of retirement issues.  [July 2007]

DOL Issues Request for Information on Fee Disclosure in 401(k) Plans
The U.S. Department of Labor (DOL) has issued a Request for Information (RFI) about fee disclosure for 401(k)-type plans.  [May 2007]

Default Investment Options in Defined Contribution Plans: A Simple Comparison
Employers increasingly provide retirement benefits to their employees through defined contribution (DC) plans. To build up enough wealth for a secure retirement, workers must save regularly and invest wisely. Automatic enrollment and effective default investments can help with both.  [March 2007]

DOL Releases Guidance on Pension Benefit Statement Requirements Under the PPA
In Field Assistance Bulletin (FAB) 2006-3, the U.S. Department of Labor provides guidance on the new requirements for benefit statements for both defined benefit and defined contribution plans, which were enacted by the Pension Protection Act of 2006 (PPA).  [February 2007]

DOL Proposes Default Investment Guidance
The U.S. Department of Labor (DOL) has proposed guidance concerning default investments in participant-directed defined contribution plans under ERISA section 404(c), as required by the Pension Protection Act of 2006. The guidance would protect plan fiduciaries if, in the absence of investment direction from the participant, the fiduciary invests the participant’s assets in a qualified default investment alternative (QDIA) and certain notice and other conditions are met. Plan fiduciaries would still have to prudently select and monitor any QDIAs under their plans. [November 2006]

Market Payouts From Immediate-Life Annuities: Trends and Volatility
Popular discussions of the shift from defined benefit plans to defined contribution and other individual account plans have thus far focused mainly on differences in risks, returns and flexibility during the benefit accrual/asset accumulation phase of the retirement cycle. As the baby boom generation begins to retire, however, the zeitgeist will follow the money, focusing on differences in risks, returns and flexibility at the other end of the retirement cycle, when distributions begin in earnest. [November 2006]

More FORTUNE 1000 Plan Sponsors Freezing Their Defined Benefit Plans
The number of firms in the FORTUNE 1000 that sponsor one or more frozen or terminated defined benefit (DB) plans rose from 71 in 2004 to 113 in 2005. Watson Wyatt has been tracking DB plan terminations and freezes among the FORTUNE 1000 for the last five years. [July 2006]

Defined Contribution Provisions Gain Traction as Pension Reform Moves Ahead
Defined benefit reform has dominated the 2005 legislative agenda, but defined contribution issues started gaining traction as pension reform moved through the House and the Senate. [December 2005]

Congress Hoping to Improve 401(k) "Autopilot"
With retirement security and personal savings acquiring an increased sense of urgency, Congress wants to encourage workers to save more in their 401(k) and other employer-sponsored defined contribution plans.  [June 2005]

IRS Proposes Regulations on Designated Roth Contributions to 401(k) Plans
The IRS has issued proposed amendments to the 401(k) and (m) regulations that would provide guidance on designated Roth contributions under Internal Revenue Code section 402A, added by EGTRRA. Beginning in 2006, a 401(k) plan may permit employees to designate some or all of their elective contributions as Roth contributions. [April 2005]

401(k) Plans: Boosting Participation and Participant Contributions
For many workers today, 401(k) plans are their primary retirement savings vehicle. Are American workers making the most of their 401(k) plans? Unfortunately, most of them are not. One-quarter of eligible workers choose not to participate in their employer's 401(k) plan, and, of those who do participate, less than 10 percent contribute the maximum. [January 2005]

DOL Finalizes Blackout Notice Guidelines
The U.S. Department of Labor (DOL) has finalized, with some changes, requirements for blackout notices to 401(k) plan participants as required by the Sarbanes-Oxley Act. [March 2003]

Defined Contribution Plans and the Safest Available Annuity Provider Rule
In Advisory Opinion 2002-14A, the U.S. Department of Labor (DOL) responds to a request from an insurance company for clarification of how the safest available annuity provider requirements, described in Interpretive Bulletin (IB) 95-1, apply to defined contribution plans. [February 2003]

IRS Extends Deadline for Adopting Minimum Distribution Amendments and Complying with Restrictions on Annuity Payments
In Revenue Procedure 2003-10, the IRS extends the deadline for plan sponsors to amend their defined benefit (DB) plans to comply with the 401(a)(9) final and temporary regulations. [February 2003]

Legislative Wrap-Up: Highlights, Accomplishments and Postponements
The 107th Congress finished its work with a post-election “lame duck” session — further legislative action must wait until the 108th Congress convenes in January. During the 2001-2002 term, Congress focused on a range of benefits-related issues. [December 2002]

Defined Benefit Plan Relief Needed
In an effort to counter the increasing complexity of pension plan administration, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 directed the IRS to provide plan sponsors with some relief. [November 2002]

Mark-to-Market Madness
Since 1985, defined benefit plan sponsors have been required to report pension income and expense for accounting purposes using Statement 87 of the Financial Accounting Standards Board (FASB). The rules, which amortize asset gains and losses over many years to compute pension expense, have recently come under attack.  [October 2002]

Senate Moves Forward on 401(k) Protections
On July 10, the Senate Finance Committee approved the National Employee Savings Trust and Equity Guarantee (NESTEG) Act (S.1971). [August 2002]

Restorative Payments: Easier Said Than Done
News of a company’s 401(k) plan misfortunes usually hits plan participants hard, often affecting attention to work, quality of work and employee morale. [August 2002]

Defined Benefit Relief Signed into Law
On March 9, President Bush signed the Job Creation and Worker Assistance Act into law. The bill – an economic stimulus package aimed at creating new jobs and providing assistance to displaced workers – includes important provisions for defined benefit plans.  [April 2002]

Congress Keeps Focus on 401(k)s
As expected, employer stock in 401(k) plans has become a key issue for Congress. Committees in both the House and Senate have held or planned 401(k)-focused hearings, and legislative proposals continue to pour in. The range of issues is growing as discussions continue, so in addition to limits on employer stock in 401(k) plans, Congress is talking about blackout periods, investment education, fiduciary responsibility, portfolio diversification and other related issues. By mid-February, almost a dozen proposals were on the table to fix a range of perceived problems. [March 2002]

Congress to Look at Employer Stock in 401(k) Plans
When Enron declared bankruptcy last year, Congress began taking a closer look at 401(k) investments — especially 401(k) plans invested heavily in employer stock. [February 2002]

IRS Announces 2002 Benefit Limits
The IRS has announced the annual cost-of-living adjustment of various dollar limits for employee benefit plans.  [January 2002]

IRS to Review 411(d)(6) Amendments
The final Internal Revenue Code section 411(d)(6) rules have given plan sponsors the green light to eliminate the following optional forms of payment from their defined contribution plans.  [December 2000]

Stock Plans for UK Employees: New Legislation, New Opportunities
The UK has recently enacted two important pieces of legislation that could affect U.S. companies with operations in the UK. The All-Employee Share Ownership Plan will significantly change the way equity compensation is used in the UK - and offers U.S. companies even more exciting opportunities.  [September 2000]

More Participants Will Get 401(k) Plan Distributions in Certain Corporate Transactions
The IRS has issued a revenue ruling concerning one event that enables participants to get a distribution from their 401(k) plan. The ruling broadens the IRS's interpretation of the separation from service distributable event to cover certain corporate transactions.  [July 2000]

Hardship Withdrawals of Elective Deferrals No Longer Eligible Rollover Distributions
Over the past two months, FASB has been revisiting its Proposed Interpretation of APB Opinion No. 25 (Exposure Draft 195-B), Accounting for Certain Transactions Involving Stock Compensation (Watson Wyatt Insider, May 1998).  [September 1998]

Comparing Investment Returns among Occupations
Many investment and pension professionals would agree that better-educated workers tend to take more risks and be more aggressive in investing their 401(k) plans. Since occupation generally corresponds to level of education, it would logically follow that average rates of return would differ significantly by occupation. A Watson Wyatt study confirms that workers in industries that generally require more skills, training and education generally achieve better rates of return in their 401(k) accounts than workers in other occupations. [September 1998]

Comparing Returns between Large and Small Average 401(k) Accounts
A new Watson Wyatt study of investment performance showed a surprising result — plans with small average 401(k) accounts achieved rates of return that are comparable to plans with much larger average 401(k) accounts. [August 1998]

DOL Releases 401(k) Fee Booklet
As promised, the Department of Labor's Pension and Welfare Benefits Administration (PWBA) has issued "A Look at 401(k) Plan Fees," a booklet intended to help employees understand the fees and expenses associated with 401(k) plan accounts. [August 1998]

Investment Returns: Defined Benefit vs. 401(k)
As we all know, the phenomenal growth of 401(k) plans has materially shifted ultimate investment responsibility from plan trustees to individual participants. Concern about the impact of this shift was the seed for a four-part series called: "Can Your Employees Afford To Direct Their Own Retirement Plan Investments?" [June 1998]

Safe Harbor 401(k) Plans: The Harbor May Be Safe But Expensive!
Responding to plan sponsors' complaints about the complexity of 401(k) nondiscrimination tests and the resulting refunds to highly compensated employees, the Small Business Job Protection Act of 1996 (SBJPA) included a provision for "safe harbor" 401(k) plans. These plans were to be sufficiently generous so as to exempt adopting sponsors from testing. [June 1998]

Retirement Account Portability Bill Introduced
After much discussion and careful crafting, Representatives Earl Pomeroy (D-North Dakota) and Jim Kolbe (R-Arizona) have introduced the Retire-ment Account Portability (RAP) Act (H.R. 3503). The RAP Act would allow rollovers between 401(k), 403(b) and 457 plans and from Individual Retire-ment Accounts (IRAs) to workplace-based retirement accounts. [May 1998]

DOL Studying 401(k) Fees
Stretching the Pension Dollar is a recent study conducted by Watson Wyatt Worldwide for the American Council for Capital Formation and the Association of Private Pension and Welfare Plans. [January 1998]