DOL Proposes Employee Contribution Safe Harbor Rule for Small Pension Plans
The U.S. Department of Labor (DOL) has proposed a safe harbor for deposits of employee contributions to pension plans (including 401(k) plans) with fewer than 100 participants. Employers sponsoring such plans would have seven business days after the employer received or withheld the contribution to make the deposits. [April 2008]House Approves PPA Technical Corrections
On March 12, the House approved the Pension Protection Technical Corrections Act (H.R.3361), which would make important corrections and clarifications to the Pension Protection Act of 2006 (PPA). [April 2008] IRS Answers Questions About PPA Distributions
In Notice 2008-30, the IRS answers questions about certain distribution-related provisions of the Pension Protection Act of 2006 (PPA) that took effect in 2008. The notice addresses interest rate assumptions for lump sum distributions, rollovers from eligible retirement plans to Roth IRAs, qualified optional survivor annuity (QOSA) requirements and gap-period earnings. [April 2008] U.K. Recommendations Could Have Significant Effects on Pension Accounting Worldwide
Recent recommendations by the U.K. Accounting Standards Board (ASB) could have significant effects on pension accounting worldwide if the International Accounting Standards Board (IASB) and U.S. Financial Accounting Standards Board (FASB) follow the same line of reasoning. The ASB’s recommendations would substantially increase the reported pension liabilities that appear on the balance sheet. [March 2008] Pension Funding Improves Again in 2007
Pension plan funding has been up and down during the last seven years. In many firms, the pension plan surpluses of the late 1990s turned into deficits early in the next decade, as both the stock market and interest rates declined. Then in 2006, an inverse of the earlier “perfect storm” delivered strong asset returns and higher discount rates for pension liabilities. These market trends helped to bring pension plans’ aggregate funding status back to full financial health. [February 2008] DOL Proposes Regulation and Class Exemption for Fee Disclosure
The U.S. Department of Labor (DOL) has released proposed regulations that require certain service providers to disclose information about fees and compensation – both direct and indirect – to plan fiduciaries. [January 2008] IRS Proposes Regulations on PPA Requirements for Hybrid Plans
The IRS has proposed regulations to implement the Pension Protection Act of 2006 (PPA) requirements for hybrid plans. The regulations expand on the transitional guidance released last year in Notice 2007-6, clarifying some issues and asking for comments on others. [January 2008] Form 5500 in Transition
The U.S. Department of Labor’s Employee Benefits Security Administration, in conjunction with the IRS and the Pension Benefit Guaranty Corporation, recently finalized new Form 5500 regulations, making a few changes to the proposed version. [January 2008] Recent Developments in Pension Plans in the Netherlands
Pension systems in developed countries are often described as having three pillars: Social Security, employer-sponsored pensions and personal savings. In the Netherlands, the first two pillars are unusually comprehensive and widespread among workers. Nonetheless, employer-sponsored pensions have undergone significant changes recently, both in benefit structures and in regulatory oversight. [January 2008] Congress Delays Final Action on Tax and Retirement Benefits for Military Reservists
The House and Senate approved separate versions of legislation to grant tax relief to members of the U.S. armed forces. The Senate’s Defenders of Freedom Tax Relief Act of 2007 and the House’s Heroes Earnings Assistance and Relief Tax Act have similar or identical provisions addressing retirement plan benefits, differential pay and other tax issues for workers who are called to active military duty. [December 2007] Recent and Prospective Developments in Retirement Programs in the United Kingdom
Like in the United States – and for many of the same reasons – there has been a shift in the United Kingdom in the provision of retirement benefits to workers by private-sector employers from defined benefit (DB) to defined contribution (DC) plans. The change has unfolded differently, however, in the two countries. [December 2007] End of an Era: The 2007 Schedule B
The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) has released new 5500 forms for 2007 plan years. The new (and last) Schedule B has been updated for certain Pension Protection Act of 2006 (PPA) changes that became effective in 2007. [November 2007] Legislation to Delay PPA Effective Date Proposed
Representatives Earl Pomeroy (D-North Dakota) and Eric Cantor (R-Virginia) have introduced legislation (H.R.3868) to delay the effective date of certain provisions in the Pension Protection Act of 2006 (PPA). [November 2007] A Brave New World for Lump Sum Distributions
The Pension Protection Act of 2006 (PPA) calls for the use of corporate bond yields rather than 30-year Treasury yields to calculate minimum lump sums payable from defined benefit plans that define benefits in terms of annuities. [November 2007] House Approves Expatriate Tax Provision
The House approved the Tax Collection Responsibility Act (H.R.3056) on October 10. The legislation would prohibit the IRS from using private debt collectors. It also would impose so-called mark-to-market taxation on expatriates, which would affect plan administration and communication for employers. [October 2007] Minimizing Pension Risks
If today’s defined contribution approach to saving for retirement relies too heavily on workers’ doing the right things at the right times, and being lucky besides, maybe it’s time to restructure traditional pensions for the 21st century. To make defined benefit plans more viable, we need to minimize the risks that are scaring off sponsors but retain the benefits that make these plans so valuable. [October 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] Proposed Regulations on Benefit Restrictions for Underfunded Plans
The IRS recently released proposed regulations on benefit restrictions soon to be imposed on certain underfunded pension plans (and on those deemed to be underfunded by the new rules). The regulations address credit balances, limitations on benefits and accelerated payouts, and the certification of funded status under the Pension Protection Act of 2006 (PPA). [October 2007] Improved Pension Funding and Lower Business Risk in 2006
Pension funding has generated considerable interest during the last decade. Former surpluses became shortfalls in 2001 and 2002, as deteriorating market conditions drove plan assets down and pension obligations up. Getting funding levels back where they should be has required steady effort — including large cash infusions — from many sponsors, as well as good asset returns, but in 2006, most employer-sponsored plans regained full financial health. [October 2007] Sixth Circuit Court of Appeals Rules Cash Balance Plans Not Inherently Age Discriminatory
The Sixth Circuit Court of Appeals affirmed the district court ruling in Drutis v. Rand McNally; Quebecor World that Quebecor’s cash balance plan is not inherently age discriminatory under pre-PPA law. It is the third appellate court to arrive at the same verdict, following the Cooper v. IBM and Register v. PNC decisions. The decision adopts a similar analysis to that used in the Cooper and Register cases, and quotes heavily from the earlier appellate decisions. [October 2007] District Court Rules No Accrual Rule Violation in "Greater of" Transition
A district court has specifically rejected the argument that a “greater of” hybrid plan conversion violates the accrual rules. In Wheeler v. Boeing, the court ruled that plans do not have to aggregate separate benefit formulas for accrual-rule testing, and that the IRS’s interpretation of the regulations is unpersuasive and not entitled to any deference. [October 2007] Court Permits Plan NRA Based on Service
The federal district court for the northern district of Illinois recently ruled that defining normal retirement age (NRA) by years of service does not violate ERISA, thereby eliminating the need for a whipsaw calculation. [October 2007] Watson Wyatt Comments on Pension Harmonization for Government Contractors
The Pension Protection Act of 2006 (PPA) requires the Cost Accounting Standards Board (CASB) to harmonize the PPA’s funding requirements with the cost accounting standards applicable to government contractors by January 1, 2010. Watson Wyatt has filed comments with the CASB regarding the harmonization project. [October 2007] PPA Remains on Legislative Agenda
More than a year after its enactment, the Pension Protection Act of 2006 (PPA) remains under discussion on Capitol Hill and in the administration. Just before heading off for their month-long August recess, lawmakers introduced legislation that would make technical and clarifying changes to the PPA. [September 2007] Pay Discrimination Bill Would Affect Benefit Plans
Legislation pending in the House and the Senate to address pay discrimination could have unintended consequences for employer benefit plans. Representative George Miller (D-Massachusetts) introduced the Lilly Ledbetter Fair Pay Act of 2007 in the House, and Senator Edward Kennedy (D-Massachusetts) introduced the Fair Pay Restoration Act in the Senate. Both bills share nearly identical language that would eliminate the statute of limitations on federal employment discrimination lawsuits, effective retroactively to May 28, 2007. [September 2007] Pension Freezes: Has the Worst Passed?
The percentage of plan sponsors that froze their pension plans dropped from 7 percent in 2006 to 4 percent in 2007, according to a recent study by Watson Wyatt. Studies over the last few years have shown a gradual and steady increase in plan freezes, but this year we might be seeing the beginning of a slowdown. [September 2007] Investment Issues on Congress’ Radar Screen
Recent publicity surrounding private equity firms, carried interest and hedge funds has drawn legislative attention to those issues. Key lawmakers have indicated that legislation is unlikely to advance in 2007, but the issues could move up the legislative agenda in 2008. Any new tax or disclosure rules for these investments could have significant implications for retirement plans. [September 2007] Developments in Retirement Programs in Spain
The retirement system in Spain includes three pillars: a generous, almost universal Social Security program; employer pension and insurance plans, which are mainly sponsored by large companies and cover fewer people; and a moderate but significant penetration of individual retirement savings products. Spain’s population is aging rapidly, and, like many developed countries, Spain must act soon to avert significant deficits later in its public retirement income programs. [September 2007] Benefits Legislation Active as 2007 Session Hits Midpoint
As Congress headed into the July 4 recess, compensation and benefits were high on the legislative agenda. The focus is expected to last through the year, with health care likely to play a role in the presidential elections as well. After the prolonged debate preceding enactment of the Pension Protection Act of 2006 (PPA), retirement issues slipped down the agenda a few notches. However, Congress enacted some technical corrections to the PPA and is discussing others, as well as retirement savings, 401(k) fees, hedge fund disclosures and other retirement matters. [August 2007] A Comparison of Limits in Tax-Qualified Retirement Plans With Those in Social Security: 1987 to 2007
The legislated limits on covered compensation, benefits and contributions to tax-qualified retirement plans have been changed many times. Although the limits are indexed to consumer prices, these legislative changes have kept absolute dollar limits flat or only modestly higher from 1987 to today. By contrast, benefits under Social Security, which are indexed to faster-rising average wages, have increased significantly over the period. [August 2007] IRS Releases Guidance on Partial Plan Terminations
In Revenue Ruling 2007-43, the IRS clarifies that a participant turnover rate of at least 20 percent creates a presumption of a partial plan termination, although the ultimate determination still rests with the specific facts and circumstances. While the ruling does not establish any new principles for determining when a partial termination has occurred, it consolidates existing guidance and important case law. [August 2007] Supreme Court Rules Merger Is No Way
To Terminate a Plan
In Beck v. PACE International, the U.S. Supreme Court ruled that a plan merger is not a method of plan termination, so in choosing whether to merge plans or to undergo a standard plan termination, the sponsor is not making a fiduciary decision. The ruling confirms that choices about a plan’s future — such as changing the plan design, freezing or terminating the plan and recovering excess assets — are not fiduciary decisions subject to ERISA. [August 2007] IRS Challenges “Greater of” Cash Balance Transitions
For the first time in eight years, the IRS is responding to determination letter requests for cash balance plans. But now the IRS is challenging some cash balance conversions that used a “greater of” formula. In a greater-of transition, participants receive benefits under the previous plan formula or under the cash balance formula, whichever gives them the bigger benefit. This is good for participants, but the IRS is claiming that these greater-of transitions violate the accrual rules that govern all pension plans. [July 2007] DOE Abandons Proposal to Restrict Defined Benefit Reimbursements to Contractors
The U.S. Department of Energy (DOE) has decided to drop a controversial proposal to stop reimbursing contractors for new employees' defined benefit coverage. [July 2007] IRS Proposes Mortality Tables for Pension Plan Minimum Funding Purposes Under PPA
The IRS recently proposed regulations regarding the mortality assumptions used to determine present values for minimum funding purposes under the Pension Protection Act of 2006 (PPA). In addition to establishing standard mortality tables, the guidance proposes a framework for using a plan’s mortality experience to establish a substitute mortality table and outlines the process for obtaining IRS approval. [July 2007] PBGC Proposes Changes to Variable-Rate Premium Calculations
The Pension Benefit Guaranty Corporation (PBGC) recently proposed changing the calculations that determine variable-rate premiums under the Pension Protection Act of 2006 (PPA). The proposed changes would take effect for 2008 premium payment years. [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] IRS Finalizes Restrictions on NRA in Pension Plans
The IRS recently released final regulations on phased retirement that restrict a plan’s normal retirement age (NRA) to an industry-based typical retirement age and establish certain safe harbors for in-service distributions. [July 2007] Looking Into the FASB’s Crystal Ball: What’s Ahead for Balance Sheet Consolidation?
The Financial Accounting Standards Board (FASB) concluded the first phase of its two-part project on postretirement benefit accounting reform last year with the issuance of Statement of Financial Accounting Standards (SFAS) 158. Although the FASB is pleased with the first phase of its accounting reforms, which moved market-based measures of funded status from the footnotes of financial statements to the balance sheet, the board left many of the biggest issues for Phase Two. [May 2007] Watson Wyatt Comments on Hybrid Plans and Future Guidance
Early this year, the IRS released guidance on the Pension Protection Act (PPA) provisions concerning hybrid defined benefit plans and asked the public to comment on the proposed guidance along with several other issues concerning hybrid plans. [May 2007] IRS Issues Final Section 415 Regulations
The IRS recently issued final regulations under section 415. These are the first comprehensive revision of the section 415 regulations since 1981, and the new rules incorporate all the statutory and other changes released during the 26-year interim. [May 2007] Department of Energy Seeks Comments on Policy Toward Contractors’ Pensions
The Department of Energy (DOE) is seeking recommendations on the best way to address rising costs and liabilities in its contractors’ pension and health plans. The DOE first announced a controversial policy to stop reimbursing contractors for defined benefit (DB) plan expenses for new employees in April 2006. [May 2007] Looking Into the FASB’s Crystal Ball: What’s Ahead for Liability Measurement?
Last year, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 158, bringing the first phase of the FASB’s accounting reforms for pensions and other postretirement benefits to a close. Phase One moved market-based measures of funded status from the footnotes of sponsors’ financial statements to the balance sheets.
Many important issues were left for Phase Two, including the determination of expense, liability measurement and balance sheet consolidation. Phase Two will essentially rebuild the foundation of pension accounting. As plan sponsors and their advisers are completing the implementation of Phase One, this article, the second in a planned series about Phase Two, focuses on liability measurement.
[April 2007] DOL Issues Final Regulations on Timing of QDROs
As required under the Pension Protection Act of 2006, the U.S. Department of Labor (DOL) recently issued interim final regulations to clarify the qualified status of domestic relations orders (DROs). A qualified domestic relations order (QDRO) assigns all or part of a participant’s retirement benefits to a spouse, former spouse, child or other dependent. [April 2007] DOL Releases Guidance on PTE for Investment Advice
In Field Assistance Bulletin (FAB) 2007-01, the U.S. Department of Labor provides guidance on the statutory prohibited transaction exemption (PTE) for investment advice under the Pension Protection Act of 2006 (PPA). The guidance primarily affects defined contribution plan sponsors and those who provide investment advice to defined contribution plan participants. [March 2007] Looking Into the FASB’s Crystal Ball: What’s on the Horizon for Phase Two of Postretirement Benefit Accounting Reform?
On September 29, 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 158, which concluded the first phase of the FASB’s accounting reforms for pensions and other postretirement benefits. [March 2007] IRS Releases New Mortality Tables for 2007 Plan Years
Last month, the IRS published final regulations that provide new mortality tables for 2007 plan years for single-employer defined benefit plans. The regulations change the assumption used for non-disabled participant mortality when determining a pension plan’s current liability. Overall, the new tables are expected to increase plans’ current liability for 2007 and funding targets for 2008 and later. [March 2007] IRS Accepting Cycle B Applications for Determination Letters
On February 1, 2007, the IRS began accepting Cycle B applications for determination letters that consider the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and other changes to tax law. Cycle B closes on January 31, 2008. All plan sponsors that want determination letter reliance on a new or amended plan’s tax-qualified status must file a determination letter application within the determination letter cycle assigned to the plan. [March 2007] A Return to Better Funding for Pensions in 2006
Pension plan funding has been up and down during the last six years. In many firms, formerly fully funded defined benefit plans became significantly underfunded early in the decade, as the stock market plummeted and falling interest rates pushed up present-value measures of liabilities. These trends are cyclical and, fortunately, the trend for 2006 is up. [February 2007] Supreme Court Declines to Review Cooper v. IBM and Appellate
Court Rules That Cash Balance Plans Are Not Age-Discriminatory
The U.S. Supreme Court has declined to review the appellate court decision in Cooper v. IBM, thereby ending the litigation. The case — one of the most controversial pension decisions in many years — significantly influenced the Pension Protection Act, which clarified, prospectively, that hybrid defined benefit plans are not inherently age-discriminatory. [February 2007] IRS Releases Grab Bag of Guidance on Pension Distributions
The IRS has released guidance on a variety of retirement plan distribution issues arising from the Pension Protection Act of 2006 (PPA). The guidance addresses both defined benefit and defined contribution plans. Because it deals with so many different issues, the IRS is calling the guidance the distribution “grab-bag.” [February 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] IRS Releases Transitional Guidance for Hybrid Plans
The IRS has released guidance explaining how to apply the Pension Protection Act (PPA) to cash balance plans, pension equity plans (PEPs) and other hybrid defined benefit plans. The PPA established — prospectively — that hybrid plans are not inherently age-discriminatory and imposed new rules on hybrid plan conversions, benefit accruals and benefit payouts. This guidance is the first interpretation of those new restrictions and provisions by government regulators. [January 2007] PBGC Introduces New Enforcement Initiative
The Pension Benefit Guaranty Corporation (PBGC) recently announced its intention to audit all terminating defined benefit plans that distribute cash or purchase irrevocable annuity commitments without first having filed a standard termination notice (Form 500). [January 2007] Online Year 2007 ERISA Reporting Calendars
The 2007 ERISA Reporting Calendars are now available online! Plan administrators of single and multiemployer pension and welfare benefit plans can visit our web site for concise information on filing annual and special reports with the DOL, IRS and PBGC. [January 2007] Diversification Requirements for DC Plans Holding Publicly Traded Employer Securities
The Pension Protection Act of 2006 established diversification rights for participants and beneficiaries who hold publicly traded employer securities in their defined contribution plans. [January 2007] Watson Wyatt’s Survey on Default Investments and the DOL’s Proposed Regulations
Automatic enrollment arrangements and the corresponding default investment provisions in defined contribution (DC) plans have been gaining popularity as a way to help more workers save for retirement. [December 2006] Age-Discrimination Claims Against Cash Balance Plans Still Have Life
Two recent decisions show there is still life in age-discrimination claims against cash balance plans. In Re J.P. Morgan Chase, the district court for the Southern District of New York denied the plan’s motion to dismiss an age-discrimination claim, applying an analysis that considers all cash balance plans inherently age-discriminatory. [December 2006] How Will FASB’s Accounting Changes Affect Shareholders’ Equity and Credit Ratings?
On September 29, 2006, the Financial Accounting Standards Board (FASB) released its Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). [December 2006] Phased Retirement: A Conflict in the Works?
Beginning in 2007, the Pension Protection Act of 2006 (PPA) permits in-service retirement plan distributions to employees 62 and older. The act does not mention the IRS regulations proposed in 2004 (see Watson Wyatt Insider, December 2004), which would permit phased retirement distributions to employees 59½ and older, as long as certain conditions were met. The PPA provision and the proposed guidance set out different rules, leaving the status of the proposed regulations unclear. [December 2006] Age-Discrimination Claims Against Cash Balance Plans Still Have Life
Two recent decisions show there is still life in age-discrimination claims against cash balance plans. In In Re J.P. Morgan Chase, the district court for the Southern District of New York denied the plan’s motion to dismiss an age-discrimination claim, applying an analysis that considers all cash balance plans inherently age-discriminatory. In Richards v. FleetBoston, the district court for the District of Connecticut denied FleetBoston’s motion for reconsideration of the court’s original denial of a motion to dismiss an age-discrimination claim earlier this year. [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] PPA Combines Stricter Rules With New Savings Opportunities for Defined Contribution Plans
The Pension Protection Act of 2006 offers defined contribution plan sponsors new opportunities
within a more demanding regulatory framework. The act permanently extends important
retirement savings and IRA provisions that were scheduled to expire in 2010, and endorses and
encourages automatic enrollment arrangements. [October 2006] President Signs Landmark Pension Reform Into Law
President Bush has signed off on pension reform, finally concluding a debate that has swirled around Capitol Hill for years. The Pension Protection Act of 2006 enacts sweeping changes that will affect defined benefit plan sponsors, workers and — eventually — retirees. [September 2006] Court Rules IBM’s Cash Balance Plan Is Not Age-Discriminatory
On August 7, the Seventh Circuit Court of Appeals ruled that IBM’s cash balance plan is not inherently age-discriminatory. In a strongly worded decision, the court rejected arguments against hybrid plans, specifically that: (1) compound interest is age-discriminatory, and (2) the accrual rate of the normal retirement annuity benefit is the only standard for judging age discrimination. [September 2006] FASB to Implement Postretirement Benefit Accounting Reform in 2006
The Financial Accounting Standards Board is moving ahead with the first phase of its proposed changes to postretirement benefit accounting, which involves recording a plan’s underfunding or overfunding on the corporate balance sheet. [September 2006] Pension Funding and Business Risk in 2005
Over the last six years, pension finances — just like the stock market — have been riding a roller coaster. Before then, defined benefit plan assets were outpacing pension liabilities. [September 2006] Energy Department Will No Longer Reimburse Contractors for Defined Benefit Plans
The Department of Energy (DOE) has announced that it will no longer cover the cost of defined benefit (DB) pensions for its contractors’ new employees. [June 2006] The FASB’s Phase 1 Proposals Contain Several Controversial Provisions
On March 31, the Financial Accounting Standards Board (FASB) released its exposure draft of proposed phase 1 changes to accounting for defined benefit pensions and other postretirement benefit plans. Some of the more controversial changes could significantly affect corporate financial statements and impose new administrative burdens on some companies. [May 2006] Legal, Legislative Uncertainty Continues for Hybrid Plan Sponsors
As Congress entered its April recess, hybrid plan sponsors remained in a state of sustained uncertainty about the legal status of their plans. Legislation that would prospectively clarify their status is pending before a pension reform conference committee, but the House and Senate provisions differ significantly and negotiations are expected to be contentious. [May 2006] Pension Reform Negotiations Continue
Congress began a two-week legislative recess on April 7, leaving pension reform on hold. When lawmakers return to the conference committee negotiating table, they must try to agree on key reform issues: how to determine at-risk status, new rules for credit balances, the length and conditions for smoothing periods for assets and interest rates, the best way to transition to new funding rules, the legal status of hybrid pension plans and much more. [May 2006] Some Employers Finding Relief From Rising Health Care Costs, According to NBGH/Watson Wyatt Survey
Escalating increases in health care costs in recent years have wreaked havoc on companies’ compensation budgets, often holding pay and other perks hostage. Health care costs continue to rise, but at least the rate of increase has slowed. And some employers are finding ways to regain control over these costs, according to the latest National Business Group on Health/Watson Wyatt Employer Survey on Purchasing Value in Health Care. [May 2006] IRS Releases Final Revisions to Relative Value Regulations
When plan participants become eligible for their pensions, they generally must choose from several optional forms of payment, typically including a qualified joint and survivor annuity (QJSA). Optional forms of payment are usually equal in value. However, differences may arise from less-than-full actuarial reductions for longevity or surviving spouse benefits, mandated actuarial assumptions or simplified actuarial factors. [May 2006] The 11th Hour for Pension Reform
The House-Senate conference committee will try to reconcile the pension reform bills before April 15, when the next round of corporate pension contributions for calendar-year plans are due. But what will happen if pension reform doesn’t pass this year? Without reform, pension law will “snap back” to pre-2002 law. [April 2006] Moody’s Proposes Methodology to Disclose Multiemployer Plan Underfunding on Financial Statements
To more accurately quantify the cost of participating in multiemployer pension plans, Moody’s Investors Service has proposed a methodology for estimating a contributing employer’s share of plan underfunding and reflecting it on the company’s financial statement. This information would be used for credit analysis purposes. [April 2006] Congress Increases PBGC Premiums
Pension plan sponsors will pay higher Pension Benefit Guaranty Corporation (PBGC) premiums
this year, now that the Deficit Reduction Act has been signed into law. The act increases flat-rate premiums for single-employer and multiemployer plans. It also establishes a new premium
for single-employer plans that undergo involuntary terminations or distress terminations in
connection with a bankruptcy reorganization. [February 2006] Marking to Market: A Second Look
A couple of months ago, Watson Wyatt projected the effects of phase 1 of the Financial
Accounting Standards Board's (FASB) proposal to change accounting standards for pensions and
postretirement benefit plans. Phase 1 focuses on disclosing the funded status of postretirement
benefit obligations on corporate balance sheets. As the details of FASB's approach have evolved, we have undertaken a second analysis. [February 2006] Multiemployer Plans Must Give Annual Notice of Funded Status
The U.S. Department of Labor (DOL) recently released a final regulation implementing the
annual funding notice requirements for multiemployer defined benefit plans, which were added
by the Pension Funding Equity Act of 2004. Under the act, plan administrators of multiemployer
defined benefit plans must annually notify interested parties of the plan's funded status. [February 2006] Pension Reform Moves Forward — Stage Set for Final Agreement in 2006
As the U.S. House of Representatives was wrapping up its 2005 legislative session, the Pension
Protection Act (PPA, H.R.2830) seemed stalled. But a last-minute agreement between key
lawmakers and the United Auto Workers cleared the way, and the House approved the PPA
by a vote of 294-132 on December 15, 2005. [January 2006] Pension Fund Finances for 2005: Losing Ground
During the last five years, most defined benefit plan sponsors have watched their plans' funded
status topple from overfunded to significantly underfunded and then slowly recover lost
ground. [January 2006] Benefits Activity During 2005 Session Will Continue Into 2006
Benefits-related legislation remained high on the legislative agenda during 2005 as Congress
focused on pension reform. Legislators proposed clarifications to the legal status of hybrid
pension plans and new laws to encourage automatic 401(k) enrollment, improve retirement
education and increase other retirement savings. [January 2006] Marking to Market: A Preliminary Look at Proposed Changes to FASB Accounting Standards for Pensions and Postretirement Benefit Plans
Sentiment has been rising among financial market participants that pension accounting standards are confusing and lack a solid grounding in economic principles. [December 2005] New Legislation, Litigation in Cash Balance Debate
Hybrid plans remained a key pension reform issue as the 2005 legislative session drew to a close. Both the House and the Senate pension reform bills address hybrid plans, but important differences between the two bills remain to be worked out. [December 2005] GAO’s Report on Cash Balance Plans: Flawed and Misleading
The Government Accountability Office (GAO) recently released a study on how participants fare in cash balance plan conversions. In a sharp departure from earlier studies, the GAO report concludes that such conversions significantly reduce most participants’ retirement benefits. [December 2005] Pension Reform: New Mandates for Hybrid Plans
Pending pension reform would attempt to clear up the legal ambiguity surrounding hybrid plans
and would impose new restrictions on conversions of traditional defined benefit plans to hybrid
plans. But the new rules may leave existing plans in legal limbo. [November 2005] PBGC Premium Hikes Move Ahead, Funding Reform Stumbles
As Congress entered the final stretch of the 2005 legislative session, broad pension reform was
moving, but slowly. The Senate approved its pension bill — the Pension Security and
Transparency Act. The House Ways and Means Committee approved the Pension Protection Act,
which the Education and the Workforce Committee approved in June. [November 2005] How Would the Proposed Changes to Mortality Standards Affect Plan Sponsors?
Pending pension reform would require defined benefit plan sponsors to change the mortality
assumptions they use to value their plan liabilities, so Watson Wyatt analyzed the impact of the
proposed changes. We find that the new mortality assumptions would increase liabilities
somewhat for most plan sponsors, especially for plans in which men outnumber women. [November 2005] A Balanced Look at the Case for Defined Benefit Pensions
A media frenzy has surrounded the pension woes of several airlines and the resultant potential
financial hit on the Pension Benefit Guaranty Corporation (PBGC). This, along with the increasing number of large defined benefit (DB) pension sponsors that have either frozen or closed their plans to new hires, has led many analysts to conclude that the traditional DB pension system is in a tailspin. [November 2005] Tax Reform Panel Final Report Recommends Significant Changes for Employer-Sponsored Programs
In January 2005, President Bush tasked the President's Advisory Panel on Federal Tax Reform
with reforming the U.S. tax code. Former U.S. Senators Connie Mack (R-Florida) and John
Breaux (D-Louisiana), the panel's chair and vice-chair, recently presented the panel's final report
to Treasury Secretary John Snow. [November 2005] Cashing In: Do Aggressive Funding Policies Lead to Higher Credit Ratings?
This article takes a fresh look at the relationship between pension deficits and the credit ratings
of sponsoring firms. [October 2005] Senate HELP Committee Approves Defined Benefit Security Act
On September 8, the Senate Health, Education, Labor and Pensions (HELP) Committee approved the Defined Benefit Security Act (DBSA). [September 2005] Defined Benefit Plans Become Significantly More Valuable
As interest rates have declined over the past five years, sponsoring defined benefit pension plans
has become increasingly expensive — as plan sponsors are well aware. [September 2005] Finance Committee Approves Pension Reform Legislation
Senate Finance Committee chair Charles Grassley (R-Iowa) and ranking member Max Baucus
(D-Montana) released a new version of their National Employee Savings and Trust Equity
Guarantee Act (NESTEG) on July 22, placing a stronger focus on defined benefit funding and
related pension reform issues. The Finance Committee approved NESTEG on July 26, thus
advancing the pension reform debate. [August 2005] Tales of the Dodo Bird and the Yellowstone Wolf: Lessons for DB Pensions and the Retirement Ecosystem
Changes in the underlying economics of defined benefit plans have made hybrid plans more
attractive to employers and to many employees as well. But it could be foolhardy to establish these
plans in today's unfriendly legal environment. Unless employers can safely go with the economic
and demographic flow to hybrid plans, defined benefit plans may be headed for extinction. [August 2005] Credit Balances in Funding Reform — Will They Be Real or Illusory?
Under pension funding law established over 30 years ago in ERISA, plan sponsors that contribute
more than the minimum funding requirement in any plan year accumulate the overpayments as
"credit balances" in their funding standard accounts. This encourages sponsors to prefund their
plans when they can afford to, generally during good economic times, so there is less need for
additional funding during poorer economic times. [August 2005] Pension Protection Act Would Establish New Rules for Multiemployer Pension Plans
The Pension Protection Act (PPA) approved by the House Education and the Workforce Committee
on June 30, 2005, would significantly reform the rules governing multiemployer pension plans.
The act would reduce the amortization period from 30 to 15 years, establish special funding rules
for "endangered" or "critical" multiemployer plans and impose new reporting requirements. [August 2005] Retirement Savings on Congress' Radar Screen
As defined benefit reform was debated on Capitol Hill in June and July, lawmakers also continued
to focus on retirement savings and other issues that affect defined contribution plans. Final pension
reform could include provisions to ease automatic 401(k) enrollment, encourage annuities, and
promote retirement education and investment advice. [August 2005] House Committee Approves Pension Funding Bill
Congress moved one step closer to pension reform when the House Education and the Workforce
Committee approved the Pension Protection Act of 2005 (H.R.2830) on June 30, 2005. [July 2005] Hybrid Plan Legislation Introduced
Representative John Boehner, chairman of the House Education and the Workforce Committee,
recently introduced the Pension Preservation and Portability Act, which would clarify that cash
balance and other hybrid plans do not violate age discrimination laws. [July 2005] Increasing Employees' Appreciation of Their Retirement Programs
Employers devote considerable resources to designing, funding and administering their retirement
programs. [July 2005] Pension Fund Finances and Business Risk
As recently as five years ago, companies didn't have to think much about their defined benefit
pension funds. [July 2005] FASB Considers Amending SFAS 87 for Plans That Pay Lump Sum Benefits
At its May meeting, the Financial Accounting Standards Board directed its staff to analyze how
accounting for a defined benefit plan that offers a lump sum payment option would be affected
if the accumulated benefit obligation for each participant eligible for a lump sum were required to
at least equal the lump sum payable to the participant as of the measurement date. [July 2005] Recent Funding and Sponsorship Trends Among the FORTUNE 1000
The last five years have been difficult ones for firms that sponsor defined benefit pension plans. Volatility in financial markets arrived at a time when many firms were facing poor business conditions. [June 2005] News in Brief
Budget Resolution Affects PBGC Premiums, President Signs Bankruptcy Reform Act, DOL Revises Voluntary Fiduciary Correction Program, PBGC Takes Over United Airlines’ Pension Plans [June 2005] Pension Reform Under Active Discussion
Congress has started public discussions about the administration's pension reform proposal.
The Senate Finance Committee, House Education and the Workforce Committee, and House
Ways and Means Select Revenue Measures Subcommittee held hearings in March. In addition,
the Senate Health, Education, Labor and Pensions (HELP) and Finance Committees conducted a
joint forum to discuss the future of the private pension system. [April 2005] How Do Retirement Plans Affect Employee Behavior?
Recent trends in U.S. private pensions are undeniable. Over the last 25 years, defined benefit
plans — once the centerpiece of the retirement portfolio — have lost considerable ground to defined
contribution plans, which have become the primary vehicle for saving for retirement. Some
analysts claim that traditional defined benefit plans are a dying breed (if not already dead). [April 2005] New Filing Requirements for U.S. Residents With Canadian Retirement Plans
Under the U.S.-Canada Tax Treaty, U.S. taxpayers with a Canadian Registered Retirement Savings
Plan or Registered Retirement Income Fund can make an election to avoid paying taxes on plan
earnings until they start receiving benefits from the plan. Typically, a U.S. taxpayer who has an
RRSP or RRIF is a U.S. resident who previously lived and worked in Canada. [April 2005] Administration's Funding Proposals Score High Marks for Protecting
the PBGC and Earned Benefits, Low Marks for Preserving the System
In the recently released budget proposals, the Bush administration outlines pension funding
reforms whose stated goals are twofold: to protect workers' benefits and to avert a taxpayer
bailout of the financially beleaguered Pension Benefit Guaranty Corporation. [March 2005] 2006 Budget Includes New Details on Funding Reform
On January 10, 2005, the Bush administration released a proposal to overhaul the funding rules
for single-employer defined benefit plans, establish new disclosure requirements for plan sponsors
and raise PBGC premiums. President Bush's budget proposal for the 2006 fiscal year provided more
details about the proposal. [March 2005] President's Budget Proposal Also Addresses Hybrid Pension Plans,
Other Issues
In addition to proposing reforms to the defined benefit funding rules, President Bush's budget
proposal for fiscal 2006 would change the rules governing hybrid pension plans, health care plans
and retirement savings plans. [March 2005] Workers' Retirement Plan Preferences and Expectations
Social Security and the baby boomers' impending retirement have received considerable attention
from the media, the business community and academia lately. [March 2005] Annual Funding Notice for Multiemployer Defined Benefit Plans
The U.S. Department of Labor has issued proposed regulations implementing the annual funding
notice requirement for multiemployer defined benefit plans, which was enacted by the Pension
Funding Equity Act of 2004. [March 2005] PBGC Releases Final 4010 Regulations
In March, the Pension Benefit Guaranty Corporation released final revised 4010 regulations. [March 2005] News in Brief
News in Brief: JCT Recommendation Would Affect Cafeteria Plans, Dependent Care Plans;
Senators Introduce FSA Rollover Bill; Senate Approves Genetic Nondiscrimination Bill; and
IRS Challenges Short-Service Employee Accruals for Nondiscrimination Testing [March 2005] Administration Proposes Pension Funding Reform
The Bush administration has unveiled a new proposal to reform the pension funding rules. [February 2005] The Changing Nature of Defined Benefit Plans
The composition and character of retirement plans for U.S. workers have changed over the past
few decades. [February 2005] News in Brief
Treasury Won't Change FSA Use-It-Or-Lose-It Rule, President Bush Appoints Tax
Reform Panel, PBGC to Assume United Airlines Pilots' Plan, PBGC Proposes Changes to ERISA [February 2005] Pension Reform in Japan and Germany: Time to Panic?
As the United States considers reforms to its social security system, it has plenty of company.
All over the world, countries with aging populations are trying to squeeze their old pension
systems into the shape of new demographic realities. The combination of too few workers and
too many retirees poses a threat to the comfortable retirement most workers in developed
economies have come to expect as their due. [January 2005] IRS Proposes Phased Retirement Regulations
The IRS has proposed regulations permitting phased retirement arrangements in qualified defined
benefit or money purchase pension plans under specified conditions. After the rules become final,
these plans will be able — for the first time — to provide in-service distributions to participants
younger than normal retirement age. [December 2004] Cash Balance Litigation Trend Continues
The wave of litigation against cash balance plans continues. A new lawsuit against the Bank of America's
cash balance plan alleges age discrimination and makes a variety of other claims based on the plan's
unique design and features. [December 2004] IRS Proposes 403(b) Rules
The IRS has proposed the first comprehensive guidance under section 403(b) in 40 years. 403(b)
plans involve retirement annuity contracts and mutual fund custodial accounts for employees
of 501(c)(3) tax-exempt organizations and public educational organizations, and retirement
income accounts established or maintained by churches or church-affiliated organizations. [December 2004] 2004 Legislative Session Saw Active Benefits-Related Discussions
The 2004 session of Congress continued into December, but benefits-related discussions were wrapped
up in November. The 108th Congress had a busy legislative agenda, enacting legislation on hybrid
pension plans, defined benefit funding and nonqualified deferred compensation. [December 2004] New Rules Ahead for Nonqualified Plans
President Bush signed the American Jobs Creation Act (H.R.4520) into law on October 22, 2004. [November 2004] American Jobs Creation Act Has Broad Range
In addition to the highly publicized new rules for nonqualified deferred compensation plans, the
American Jobs Creation Act includes several other compensation and benefit provisions. [November 2004] President Signs Working Families Tax Relief Act
On October 4, President Bush signed the Working Families Tax Relief Act. The act extends the
Mental Health Parity Act and changes the interest rate provisions of the Jobs Creation and Worker
Assistance Act. [November 2004] IRS Proposes New Determination Letter Procedure
The vast majority of qualified plan sponsors seek IRS confirmation of their plan’s tax-qualified
status. [November 2004] DOL Provides Guidance on Missing Participants in Terminated Defined Contribution Plans
In Field Assistance Bulletin (FAB) 2004-02, the U.S. Department of Labor provides guidance on steps
for plan fiduciaries to take to locate missing participants and beneficiaries in terminated defined
contribution plans. [November 2004] Retirement Costs: Something's Happening Here, and What It Is, Is Exactly Clear
Can America Afford to Grow Old? is the title of a book written by three economists at the Brookings
Institute and published in 1988. The book title, along with much else written on the subject since
then, suggest that the answer is no. [November 2004] DOL Proposes Veterans’ Rights Regulations for Health Care, Pension Plans
The U.S. Department of Labor has proposed regulations to clarify the implementation of the
Uniformed Services Employment and Reemployment Rights Act of 1994. [November 2004] Election 2004: What's Ahead for Health Care and Retirement Issues?
Election Day is approaching, and President Bush and Senator Kerry are entering the final stages
of their presidential campaigns. Health care reform has been a popular campaign topic. Both
candidates have plans for increasing access to health care coverage, controlling prescription
drug costs, improving health information technology and otherwise reforming the U.S. health
care system. [October 2004] Cash Balance Court Ruling Leaves Ambiguity in Its Wake
The Sixth Circuit Court of Appeals has overturned the district court's ruling in Crosby v. Bowater.
In that case, the district court had ruled that, in a cash balance plan where accrued benefits are
payable as a death benefit, a pre-retirement mortality discount should not be figured into the
lump sum payment amount. [October 2004] FASB Works Toward Finalizing Exposure Draft
On March 31, 2004, the Financial Accounting Standards Board (FASB) released Share-Based
Payment, its exposure draft (ED) on share-based payment transactions, which would require
companies to expense their stock options. [October 2004] Defined Benefit vs. 401(k): The Returns for 2000-2002
Managing investment returns in a volatile stock market is always challenging. How do rates of return differ between professionally managed and participant-managed funds? [October 2004] House Committee Holds Hybrid Plan Hearing
Hybrid pension plans have been in the spotlight for some time now, receiving ongoing attention
from lawmakers, regulators and the media. One of the most focused public discussions of cash
balance issues was on July 7, 2004, when the House Education and the Workforce Committee
held the hearing "Examining Cash Balance Plans: Separating Myth from Fact." [September 2004] Court Finds Cash Balance Plans Nondiscriminatory, Treasury Withdraws Regulations, Legislators Plan Hearings
The controversy surrounding cash balance and other hybrid pension plans shows no signs of letting up. [August 2004] Supreme Court Rules ERISA Prohibits Retroactive Changes to Plan Benefit Suspension Terms
In Central Laborers’ Pension Fund v. Heinz, the Supreme Court ruled that ERISA’s anti-cutback rule prohibits changes to a pension plan’s suspension-of-benefits rules that would reduce benefits for employees who continue working after retirement. [August 2004] News in Brief
Prescription Drug Importation Activities Continue, House Approves Stock Option Accounting Legislation [August 2004] Pension Plan Funding Regains Some Lost Ground
Despite significant increases in plan liabilities, the average funded status of pension plans sponsored by Fortune 1000 companies rose from 82 percent in 2002 to 88 percent in 2003, according to their annual reports. [June 2004] Pension Funding Equity Act Becomes Law
After months of delay, President Bush signed the Pension Funding Equity Act
into law on April 10, 2004. The act provided important funding reform for
defined benefit plan sponsors only days before the April 15 due date for plans’
quarterly contributions. [May 2004] Workforce Realities, Not Cost, Drive Hybrid Plan Conversions
A decade ago, employers began converting their traditional pension plans to hybrid plans, such as cash balance and pension equity plans (PEPs). [May 2004] Pension Funding Debate to Involve Broad Review
Even as Congress struggled to enact temporary interest rate reform, lawmakers were setting the stage for more fundamental reform of the rules that govern defined benefit funding. [May 2004] Phased Retirement: A Retention Strategy Whose Time Has Come
The concept of retirement is taking on an entirely new meaning. Rather than stopping work altogether, many retirement-age workers today would prefer to simply shift into a lower gear. Some are even beginning new careers. [April 2004] IRS Proposes Section 411(d)(6) Regulations on Eliminating Optional Forms of Benefits
The IRS has proposed regulations on when a plan sponsor may amend a plan to eliminate or reduce an early retirement benefit, a retirement-type subsidy or an optional form of benefit (Code section 411(d)(6)(B) protected benefits), without having to grandfather the previously existing benefit. [April 2004] IRS Issues Ruling on Plans Charging Expenses to Former Employees Where Employer Pays Current Employees’ Share
In Revenue Ruling 2004-10, the IRS has ruled that, in a defined contribution plan, charging plan administrative expenses to former employees’ accounts but not to current employees’ accounts does not violate the rules concerning participant consent to a distribution. [April 2004] IRS Provides Guidance, Seeks Comments on Merger & Acquisition Testing Rules
In Rev. Rul. 2004-11, the IRS provides guidance on the grace period for coverage and
nondiscrimination testing after a change in the controlled group. [April 2004] A Mixed Bag: Treasury's Proposed Cash Balance and Pension Equity Plan Legislation
Treasury’s proposed legislative solution to end the current limbo status of hybrid plans has some
aspects that are very good and others that are worse than we expected. [February 2004] President's Budget Proposal Includes Benefits Provisions
President Bush submitted his Fiscal Year 2005 budget proposal to Congress on February 2, 2004.
It proposes new savings vehicles and expanded access to health insurance and long-term care
insurance, and addresses other employment-related issues. [February 2004] Administration Proposes Cash Balance Conversion Requirements
In its budget proposal for Fiscal Year 2005, the Bush administration tackles conversions to cash
balance and other hybrid plans. The proposal would establish more restrictive transition rules for
plan conversions and would change the calculations used to determine lump-sum distributions
from hybrid plans. [February 2004] Economic Forecast for an Aging World
The world is getting older. And, of course, no one knows exactly what life will be like in tomorrow’s
older societies. But we do know that age dependency ratios — the ratio of retirees to workers —
will be much higher than we see today. [February 2004] Rate Reform Moves Forward But Road to Final Passage Remains Bumpy
In late January, Congress inched closer to establishing a new temporary pension interest rate when
the Senate approved the Pension Stability Act (H.R.3108). But controversy over some of the act’s
provisions is holding up the works. [February 2004] Rate Reform Still on Hold
Congress did not enact pension interest rate reform before wrapping up its 2003 legislative session.
As a result, the temporary relief enacted in 2002 by the Job Creation and Worker Assistance Act
will expire at the end of employers'' 2003 plan year. [January 2004] Cash Balance Debate Continues in Congress and the Courts
The controversy over cash balance plans continues to play out. The first appellate court to consider
whether the plan design violates federal age discrimination laws has ruled in favor of the plans. [January 2004] Litigation Against Enron Goes Forward
After the Enron accounting scandal and bankruptcy, participants in the company’s retirement plans filed lawsuits charging alleged fiduciaries with liability for the plans’ investment losses. [November 2003] Interest Rate Discussions Take on Broader Context
In the continuing deliberations on replacing the current liability interest rate, two new proposals emerged in September. [October 2003] Court Rules That Cash Balance Plan and PEP Are Age Discriminatory
A federal district court recently ruled that IBM's cash balance plan and pension equity plan violate age discrimation law. [September 2003] An Issue of Fairness
In the end, it comes back to the question of fairness. After all the newspaper articles, the legal maneuvering and the congressional clamor, the core question remains: Are hybrid pension plans unfair to older workers? [September 2003] Reflections on the Cash Balance Media
It's always disturbing when the news media confuse opinion with fact or make unsubstantiated generalizations. And when the issue at hand affects countless organizations and potentially millions of workers, the confusion cries out for clarification. [September 2003] Pensions in Crisis
It is difficult these days to pick up a newspaper or business magazine or to watch a national news broadcast without seeing a story about pensions. [September 2003] Financial Economics — Call to Arms or Siren Song?
A spate of recent articles in various publications has prompted a debate among actuaries, academics and other professionals in pension plan finance about how financial economics tenets apply to pension plans. [September 2003] Defined Benefit vs. 401(k) Returns: An Updated Analysis
The gradual shift away from defined benefit plans and toward 401(k) plans has several consequences, one of which is to essentially reassign responsibility for ensuring adequate retirement income from plan trustees to individual participants. [September 2003] IRS Issues Final Regs on Retroactive Payments from Defined Benefit Plans
The IRS recently issued final retroactive annuity starting date election regulations, which describe the required procedures for distributing qualified joint survivor annuity explanations to participants and spouses after the annuity starting date. [September 2003] IRS Releases 2003-2004 Guidance Priority List
The 2003-2004 Guidance Priority List is out, reflecting the IRS’s regulatory intentions for the next year, although the agency may release other guidance as well. After a dramatic decrease in the number of employee benefit plan projects last year, this year's number is higher, increasing from 40 to 47. [September 2003] Congress Continues Talks on Interest Rate Reform
The U.S. Treasury Department released a controversial proposal to measure pension liabilities using a yield curve, and the Ways and Means Committee approved legislation that would temporarily use a corporate bond rate. [August 2003] FASB Considers Different Rules for Different Types of Cash Balance Plans
At its May 15 meeting, the Emerging Issues Task Force concluded that a cash balance plan should be considered a defined benefit plan for accounting purposes and that the traditional unit credit (TUC) actuarial cost method should be used in accounting for cash balance plans. [August 2003] Update on FASB Project on Revised Pension Disclosures
The FASB has tentatively decided to make some changes to FAS 132 pension disclosures. [August 2003] IRS Reverses Position on Excess Asset Transfers to Replacement DC Plans
Revenue Ruling 2003-85 concerns the tax treatment of transfers that exceed 25 percent of excess assets from a terminating defined benefit plan to a replacement defined contribution plan. [August 2003] IRS Releases Revenue Ruling on Pension Distributions and Cafeteria Plan Benefits
In Revenue Ruling 2003-62, the IRS provides definitive, final guidance on the tax consequences of using distributions from a qualified retirement plan to pay for benefits offered under a cafeteria plan. [August 2003] IRS Finalizes Catch-Up Contributions Regulations
The IRS has issued final regulations on catch-up contributions, which allow workers age 50 and older to defer more money to retirement plans that accept elective deferrals. [August 2003] Pension Plan Sponsors Looking for Funding Relief from “Perfect Storm” Conditions
Over the last few years, the investment climate has been marked by the equivalent of a perfect storm, leaving many defined benefit plan sponsors with underfunded plans. Unless we see
extraordinarily healthy investment performance very soon, plan sponsors will have to make
significant contributions to their pension plans over the next few years. [July 2003] DOL Provides Flexibility on Plan Expenses
In Field Assistance Bulletin (FAB) 2003-3, the U.S. Department of Labor (DOL) gives plan
sponsors and fiduciaries considerable flexibility to determine — as a matter of plan design or administration — how to allocate defined contribution plan expenses among participants and beneficiaries. For the purposes of this guidance, the DOL assumes that the expenses are proper plan (not settlor) expenses and are reasonable amounts. The guidance does not address issues that could arise under IRS rules. [July 2003] Pension Security Act Moves Through House
On May 14, the House approved the Pension Security Act by a vote of 271-157. Prompted by the Enron scandal, the bill is similar to legislation approved by the House in April 2002. [June 2003] DOL Gives Relief on Plan Loans to Executives and Directors
In Field Assistance Bulletin 2003-1, the U.S. Department of Labor provides some resolution to the potential conflict between the Sarbanes-Oxley Act of 2002 and ERISA. [June 2003] Ratification of U.S.-U.K. Tax Treaty Is Good News for Expatriate Employees
The United States and United Kingdom have finally ratified their 2001 tax treaty, providing
significant relief for expatriate employees in both countries, but particularly for U.S. participants in British “approved pension schemes.” [June 2003] FASB Withdraws Observation Concerning Cash Balance Discount Rate
The Financial Accounting Standards Board (FASB) staff met on May 28, 2003 to consider the consensus reached by the Emerging Issues Task Force (EITF) on May 15, 2003 regarding issues related to cash balance accounting. [May 2003] Cash Balance Debate Continues With Hearing, Legislation
Since their release in December, the proposed age discrimination regulations have been a source of controversy. [May 2003] New Portman/Cardin Bill Includes Defined Benefit Funding
On April 11, Representatives Rob Portman (R-Ohio) and Ben Cardin (D-Maryland) introduced the Pension Preservation and Savings Expansion Act (H.R.1776), which proposes a wide range of retirement savings and pension reforms. [May 2003] Congress Continues Talks on Interest Rate Reform
On April 30, the House Ways and Means Select Revenue Measures Subcommittee held a hearing on funding issues facing defined benefit plans. [May 2003] Joint Tax Committee Recommends Pension, Compensation Changes
Following Enron’s collapse, the media and the 2002 congressional session focused considerable attention on the fallout — on Enron’s 401(k) plan participants in particular and on employer stock in 401(k) plans and other 401(k) issues more generally. [April 2003] FASB and EITF Tackle Stock and Pension Accounting
On March 12 the Financial Accounting Standards Board (FASB) decided to open a major project on accounting for stock-based compensation. First on the agenda will be stock options and whether they should have a compensation expense. [April 2003] Court of Appeals Affirms Wear-Away Does Not Violate ERISA
The First Circuit Court of Appeals has affirmed the decision in Campbell v. BankBoston, becoming the first appellate court to consider age discrimination claims against a cash balance plan. [April 2003] Pension Security Act Passes House, Again
In the wake of the Enron scandal, the House approved the Pension Security Act in April 2002. The legislation was intended to give employees more control over investments in their 401(k) plans and broader access to investment information and advice. [April 2003] Declining Funded Status of U.S. Pensions
The funded status of U.S. pension plans has declined sharply since 2000, and more employers will be required to make contributions for the 2002 plan year, according to Watson Wyatt’s 2002 Survey of Actuarial Assumptions and Funding.
[March 2003] Watson Wyatt’s Position on the Recently Proposed U.S. Retirement Plan Age Discrimination Regulations
The IRS and U.S. Treasury Department released proposed regulations concerning age discrimination in employer-sponsored retirement plans in December 2002. [February 2003] IRS Releases Proposed Age Discrimination Regulations
In December, the IRS published proposed regulations explaining how cash balance plans can demonstrate compliance with age discrimination laws and general nondiscrimination tests. The draft regulations are primarily age discrimination rules that apply to all employer-sponsored retirement plans, with specific attention paid to cash balance plans. [January 2003] Payment of Expenses From Multiemployer Plan Assets
The U.S. Department of Labor’s Pension and Welfare Benefits Administration has released Field Assistance Bulletin 2002-2, describing circumstances under which multiemployer trustees may be acting in a settlor — rather than a fiduciary — capacity. [January 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] Watson Wyatt Suggests Changes in Pension Funding Rules
The federal government's decision to stop issuing 30-year Treasury bonds drove interest rates nearly two percentage points below other conservative long-term bond rates. [October 2002] Cash Balance Returns to Congress’ Radar Screen
The congressional spotlight has recently been focused on corporate governance, and retirement plans, including 401(k), cash balance and other qualified plans, have become part of that focus. [September 2002] Corporate Accountability Law Affects Retirement Plans, Executive Compensation
On July 30, President Bush signed the Sarbanes-Oxley Act of 2002 — a corporate accountability and accounting reform law prompted by the business scandals of recent months. [August 2002] Privacy Legislation May Affect Benefits Administration
The easy flow of information between individuals, businesses and governments has legislators and consumers worried about the security and confidentiality of personal information, especially
medical records, financial information, Social Security numbers and other sensitive data. Congress and the states have been busy enacting privacy protections. [July 2002] Cash Balance Report Suggests Lax Enforcement; New Court Decision Indicates Whipsaw Calculation Generally Not Required
The DOL Office of Inspector General (OIG) has released a report reviewing the enforcement activity of the DOL Pension and Welfare Benefits Administration (PWBA) with respect to cash balance plan conversions. [July 2002] The United Kingdom: Pension Reform in a Majoritarian Democracy
Over the past two decades, efforts to reform public pensions in the U.K. have focused on shifting the financial burden from the state to the individual. This movement was launched when the Conservative Party came to power under Prime Minister Margaret Thatcher in 1979, and has continued since then — even under the current Labour Party government. [July 2002] IRS Releases Plan Amendment Disclosure Regulations
The IRS has proposed new regulations on the participant notice requirements for plan amendments that reduce the rate of future benefit accrual. The notice requirements were revised by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). [June 2002] House Approves Pension Security Act
On April 11, the House approved the Pension Security Act by a vote of 255-163. The act would expand diversification rights for participants in defined contribution plans; require employers to provide participants with benefit statements, information about investing wisely and notification of planned blackout periods; and increase access to retirement education and advice. [May 2002] Pension Plans and Interest Rates: Short-Term Relief, Long-Term Uncertainty
In February, after a three-year buyback program for 30-year Treasury bonds that drove rates nearly two percentage points below other conservative long-term bond rates, the federal government stopped issuing these bonds altogether. [May 2002] DOL Okays Bundled Investment Advice Service
In DOL Advisory Opinion Letter 2001-09A, the Department of Labor permits a regulated financial services company specializing in retirement savings products to team up with an independent financial expert to offer personalized investment advice to plan participants. [February 2002] EGTRRA and Nonconforming States
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) included several retirement provisions increasing benefit, contribution and compensation limits and liberalizing the rules for rollovers. [February 2002] Benefits Issues on 2002 Agenda
The 2002 legislative session is underway, and a variety of benefits-related issues are on the table. The approaching elections will affect discussions of key issues — patients’ rights, Medicare reform and other health care areas that are particularly sensitive during campaign season. [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 Extends GUST Remedial Amendment Period
The IRS is giving employers more time to amend their retirement plans to comply with the GUST amendments. While plans have been required to operate in accordance with the new laws for some time, the IRS had repeatedly extended the deadline for adopting the related plan amendments. [December 2001] Cash Balance Whipsaw Upheld, Again
Ruling against a cash balance plan’s method of determining lump sums, another federal court has held that lump sum distributions cannot be determined simply by reference to the cash balance account. [September 2001] New U.S.-U.K. Tax Treaty Affects Cross-Border Pension Treatment
A new tax treaty between the United States and the United Kingdom provides significant relief in the pension treatment of employees transferred between the two countries. After the treaty''s ratification by the U.K. Parliament and the U.S. Senate, pension rules will be more favorable to expatriate employees in both countries. [September 2001] The New Pension Environment: Now That the Glass Is Half Full, Why Does It Feel Half Empty?
The Economic Growth and Tax Relief Reconciliation Act has passed, providing welcome relief from some of the laws working against retirement plans and retirement savings. Study after study confirms that, as a whole, our aging population is not financially prepared for retirement, and something must be done—soon. [August 2001] Pension Reform Provisions: What, When and How Much?
President Bush signed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) on June 7, 2001. The $1.35 trillion tax cut—the centerpiece of the president's agenda—includes retirement security and pension reform provisions that have been the focus of the business and benefits communities for more than four years. [July 2001] Transition to Lower Tax Rates Enhances Deferral Opportunities
Tax rate reductions are the heart of the Economic Growth and Tax Relief Reconciliation Act. The law creates a new 10 percent tax bracket and eventually reduces most of the other tax brackets by at least three percentage points. The new 10 percent rate is retroactive to the beginning of 2001, and applies to some income that was previously taxed at 15 percent. [July 2001] Benefits Legislation in the "New" Senate
In late May, Senator James Jeffords of Vermont announced his intention to leave the Republican Party, becoming an Independent instead. This switch gave Democrats a one-seat majority, putting them in control of the Senate's floor schedule and committees. [July 2001] Watson Wyatt Suggests Whipsaw Fix
Legislative and legal developments have created an uncertain climate for employers who sponsor hybrid pension plans. Much of this uncertainty involves "whipsaw"—the way lump sum distributions are calculated in cash balance plans. Eric Lofgren, Watson Wyatt's Global Director of Benefits Consulting, took this opportunity to write key lawmakers to discuss the problem and suggest simple solutions. [June 2001] Congress Passes Pension Reform
As this issue of the Watson Wyatt Insider went to press, bipartisan pension reform awaited President Bush's signature. The legislation moved forward this spring, when the House and Senate included the retirement security legislation in President Bush's tax package. [June 2001] ''Whipsaw'' Issue in Cash Balance Plans
The "whipsaw" issue penalizes our nation's more generous cash balance plan sponsors, ultimately undermining the retirement benefits of American workers. Eric Lofgren, Watson Wyatt's Global Director of Benefits Consulting, submitted a letter to key lawmakers to discuss the problem and suggest simple solutions. [May 2001] Moving Toward Pension Reform
Senate Finance Committee chair Chuck Grassley (R-Iowa) and Finance ranking member Max Baucus (D-Montana) introduced the Retirement Security and Savings Act (S.742) last month. Their bill shares many goals and provisions with the Comprehensive Retirement Security and Pension Reform Act (H.R.10), introduced by Representatives Rob Portman (R-Ohio) and Ben Cardin (D-Maryland) in March. [May 2001] Nondiscrimination Rules and Declining Pension Participation: Cause and Effect?
Employer-provided pension plans receive preferential tax treatment in exchange for their greater good: increasing both the proportion of workers participating in a pension plan and their eventual retirement income. [May 2001] Changes in Treasury Bills Vex Pension Sponsors
As the federal government pays down the national debt, the process is yielding an unintended consequence for qualified retirement plans: lowered returns on 30-year Treasury bills, especially in comparison with other benchmark indices. Since the 30-year Treasury bill rate is used to calculate pension funding and lump sum distributions, today's lower rate is costing employers money, inflating both minimum pension funding contributions and lump sum distributions. [April 2001] Portman/Cardin Pension Reform Returns
Representatives Rob Portman (R-Ohio) and Ben Cardin (D-Maryland) have introduced their Comprehensive Retirement Security and Pension Reform Act—again. Since its first introduction in 1998, the bill has gained widespread bipartisan support and has become the key retirement savings bill in Congress.
[April 2001] Bankruptcy Reform | 
