INSIDER

President Obama’s Budget Includes Health And Retirement Proposals
President Obama’s budget proposal for fiscal year 2010 would establish a reserve fund and guiding principles for health care reform. The retirement proposals emerged during the president’s campaign: to establish automatic workplace pensions and expand the Saver’s tax credit. To bring in revenue, the president proposes to means-test Medicare Part D premiums, tax carried interest as ordinary income and "reform deferrals and other tax reform policies."  [March 2009]

The German Pension System in Brief
Germany has built its retirement system on three pillars: Social Security, occupational pensions and individual retirement investments. In this article, we focus on the first two pillars; the third pillar is still relatively small in Germany.  [January 2009]

Employers May Allow Qualified Reservist Distributions of Unused Amounts From Health FSAs
In Notice 2008-82, the IRS clarifies a new rule under which employers may allow reservists to cash out unused funds from their health flexible spending arrangements (FSAs) after being called to active military duty. The new rule is part of the Heroes Earnings Assistance and Relief Tax Act of 2008, which was enacted June 17. Ordinarily, distributions from health FSAs are allowed only to reimburse substantiated medical expenses, and the participant forfeits any funds remaining at the end of the plan year.  [November 2008]

Social Security in Mexico: Employer Plans Could Plug Gaps in Future Retirement Security of Workers
Mexico is subject to the same demographic winds that have driven pension reforms around the world. In 1997, Mexico established mandatory individual accounts to (eventually) replace its traditional social security program. Under the new system, private-sector workers choose an investment vehicle from funds offered by approved investment vendors. Contributions are automatically deducted from their paychecks. [November 2008]

President Bush Signs Heroes Act Into Law
President Bush signed the Heroes Earnings Assistance and Tax Relief Act (H.R.6081) into law on June 17, 2008. The act eases withdrawals from retirement accounts and health flexible spending accounts (FSAs), and protects survivor and disability benefits for men and women in the military and their survivors. It also addresses the treatment of differential wage payments, imposes new tax and withholding requirements on the property of some expatriating individuals and extends the Mental Health Parity Act. The effective dates vary by provision — some are retroactive or take effect immediately and will require immediate attention from plan sponsors. [June 2008]

Who Prefers Annuities? Observations About Retirement Decisions
As baby boomers retire, they must decide how to receive payouts from their defined benefit (DB) plans, defined contribution (DC) plans and personal savings. Many pension experts believe that life annuities are the best way for retirees to ensure that they don’t run out of money. But most people do not choose annuities, and experts are wondering why. To find out, Watson Wyatt Worldwide asked a national panel of older workers and recent retirees about their payout and risk preferences, retirement decisions and related issues.  [April 2008]

President Bush Releases Fiscal 2009 Budget Proposal
President Bush has proposed a budget for fiscal year 2009. Many of the budget’s health care and retirement proposals appeared in earlier budget submissions, such as replacing the tax exclusion for employer-provided health insurance with a standard tax deduction, and establishing a new retirement savings plan to replace existing defined contribution plans. These proposals failed to gain legislative traction in earlier years and are unlikely to do so this year either.  [March 2008]

Partially Prefunding the Canadian Public Pension Plans: Lessons for the United States?
During the 1990s, both Canada and the United States were facing many of the same challenges to their Social Security programs. But while the United States has continued on the same course, with no changes made – despite continued projections of severe shortfalls ahead – Canada began partially prefunding its public pension plans with real assets in 1998. Would a similar approach be possible or appropriate for the financially challenged Social Security program in the United States? [February 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]

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]

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]

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]

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]

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 Requests Comments on In-Service Distributions at 62
The IRS is asking for comments on allowing 62-year-old employees to collect in-service distributions from their pension plans, which was part of the Pension Protection Act of 2006 (PPA).  [February 2007]

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. [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]

FASB Issues Final Statement on Accounting Reform for Postretirement Benefits
On September 29, 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. The two biggest changes for sponsors are the requirements to: (1) put the net financial status of their pensions and other retirement benefits on the balance sheet, and (2) measure assets and liabilities as of the end of the fiscal year. The changes are intended to make reported financial information more complete, useful and transparent.  [November 2006]

IBM Plaintiffs’ Request for Rehearing Denied
The request of plaintiffs in the Cooper v. IBM case for a rehearing by the entire Seventh Circuit Court of Appeals has been denied. (The appeals court recently ruled that hybrid plans are not inherently age-discriminatory; see Watson Wyatt Insider, August/September 2006.) In a one-page order, the court noted that all three of the judges who heard the case voted to deny rehearing, and none of the other judges on the circuit requested a vote on the petition. [October 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]

FASB to Implement Postretirement Benefit Accounting Reform in 2006
The FASB 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. The funded status will be the difference between the fair value of plan assets (FVA) and the projected benefit obligation (PBO) for defined benefit plans. [August 2006]

Congress Approves Legislation to Clarify Source Tax Law
The source tax law enacted in 1996 prohibits states from taxing the retirement income of former residents. However, at least one state held that the 1996 law did not apply to former partners. So, the House and the Senate approved legislation clarifying that the law does apply to the retirement income of former partners. [July 2006]

FASB Asks Companies to Comment on Proposed Effective Dates for Postretirement Benefit Accounting Changes
The Financial Accounting Standards Board (FASB), which is expected to release draft rules March 31, 2006, on accounting for postretirement benefits, decided at its most recent meeting to ask companies to comment on the proposed effective dates of the new rules and to explain the obstacles they will face in meeting them.  [March 2006]

IRS Proposes Roth 401(k) Regulations
The IRS has issued Roth 401(k) proposed regulations, which are in addition to the regulations that were finalized by the agency last month. The final regulations dealt primarily with plan qualification issues. These proposed regulations address the taxation of distributions and other related issues. [February 2006]

IRS Finalizes Roth 401(k) Regulations
The IRS has finalized the Roth 401(k) regulations that were proposed last year. Although the final regulations generally follow the proposed regulations, the IRS made some changes. [January 2006]

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]

IRS Permits 401(k) Deferrals Only From Certain Compensation Paid After Severance
The proposed section 415 regulations clarify that terminated employees may make elective deferrals only from specified forms of post-severance compensation. [July 2005]

News in Brief
IRS Proposes Comprehensive Section 415 Regulations [July 2005]

President Bush Addresses the Projected Social Security Shortfall
On April 28, 2005, President Bush unveiled another piece of his plan for Social Security, addressing the criticism that his proposal for individual accounts ignores the projected long-term insolvency.  [June 2005]

Court Enjoins EEOC Rule Allowing Coordination of Retiree Health Benefits With Medicare
Prompted by a lawsuit filed by AARP, a federal court in Pennsylvania has prohibited the Equal Employment Opportunity Commission (EEOC) from issuing its final rule on coordinating retiree medical benefits with Medicare.  [June 2005]

IRS Issues New Guidance on HRA Contributions and Distributions
In Revenue Ruling 2005–24, the IRS authorizes tax-free employer contributions of accumulated unused vacation and sick leave to health reimbursement arrangements (HRAs) for retirees.  [June 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]

IRAs Held Exempt From Bankruptcy
In Rousey v. Jacoway, the U.S. Supreme Court exempted IRAs from the bankruptcy estate, so that assets held in IRAs cannot be reached by creditors when an IRA owner files for bankruptcy. [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]

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]

IRS Finalizes 401(k) and 401(m) Regulations
The IRS has finalized the 401(k) and (m) regulations that were proposed in 2003. [February 2005]

IRS Issues Automatic Rollover Guidance
In Notice 2005-5, the IRS provides guidance on the automatic rollover rules for qualified retirement plans, section 403(b) plans and section 457 plans. [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]

FASB Issues Revised Statement on Share-Based Plans: Option Expensing to Begin in Mid-2005
On December 16, 2004, the Financial Accounting Standards Board (FASB) published FASB Statement No. 123 (revised 2004), Share-Based Payment. Statement 123(R) provides comprehensive guidance on how to recognize the compensation cost of share-based payment transactions on company financial statements. [January 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]

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]

Plans Must Soon Comply With Automatic Default Rollover Rule
The U.S. Department of Labor has released final safe harbor regulations for automatic rollovers of mandatory distributions to IRAs. [November 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]

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]

Plans Must Soon Comply With Automatic Default Rollover Rule
The U.S. Department of Labor (DOL) has released final safe harbor regulations for automatic rollovers of mandatory distributions to IRAs.  [October 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]

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]

FASB Releases Exposure Draft to End Favorable Stock Compensation Accounting
On March 31, the Financial Accounting Standards Board (FASB) released Share-Based Payment, its exposure draft (ED) on share-based payment transactions. [April 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]

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]

Last Call for Preferable Stock Option Accounting
Absent any last-minutes surprises, 2004 will be the final year of no accounting expense for stock options. The Financial Accounting Standards Board’s tentative decision is for the new standard to become effective for fiscal years beginning after December 15, 2004. [January 2004]

Final Regulations on Disclosure of Optional Forms of Benefit Require Revisions to QJSA and QPSA Explanations
The IRS’ final regulations on disclosing optional forms of benefit govern the content of Qualified Joint and Survivor Annuity and Qualified Preretirement Survivor Annuity notices, and specify requirements for disclosing the relative values of optional forms of benefit. [January 2004]

Medicare Reform: What Will It Mean?
Congress has enacted the most sweeping changes ever made to Medicare by passing the Medicare Prescription Drug, Improvement and Modernization Act, which was signed into law December 8, 2003. The act provides a prescription drug benefit for Medicare beneficiaries and enacts reforms intended to encourage more private health plans to offer integrated benefits to seniors. [December 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]

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]

IRS Proposes 401(k) and 401(m) Regulations
The IRS has proposed new comprehensive regulations for CODAs under Internal Revenue Code section 401(k) and for matching contributions and employee contributions under section 401(m). [August 2003]

EEOC Proposes ADEA Exemption for Coordinating Retiree Health Plans With Medicare
The EEOC has issued a proposed exemption to the ADEA that would allow employers to alter, reduce or eliminate employer-sponsored retiree health benefits when retirees become eligible for Medicare or a state-sponsored retiree health benefits program.  [August 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]

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]

FASB Makes Early, Critical Decision to Expense
In the Financial Accounting Standards Board’s (FASB) first meeting on the stock-based compensation project on April 22, the Board reached a key tentative conclusion that stock-based compensation (SBC) should be recognized as an expense and that the stock grants should be recorded at their fair value as measured on the grant date.  [May 2003]

Defined Benefit Funding Under Active Discussion
Issues surrounding defined benefit plan funding and the demise of the 30-year Treasury bond are being discussed in Washington, D.C. [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]

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]

Budget Proposal Addresses Employee Benefits and Compensation
In early February, President Bush sent Congress his budget proposal for fiscal year 2004. It includes benefit and compensation provisions, Medicare reform and proposals to help the uninsured gain health care coverage. [March 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]

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]

New Rollover Rules Preserve Retirement Savings
In Revenue Procedure 2003-16, the IRS explains how taxpayers can apply for a waiver of the 60-day rollover requirement and describes circumstances in which a waiver is automatic. [March 2003]

DOL Releases Blackout Notice Guidelines
The U.S. Department of Labor (DOL) has released requirements for blackout notices to 401(k) plan participants as required by the Sarbanes-Oxley Act enacted earlier this year. [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]

Executive Compensation and Nonqualified Plans: What's Ahead?
Executive compensation is facing intense scrutiny today from all quarters: political, media, corporate boards and even executives themselves.  [October 2002]

Retiree Health Benefits: Time to Resuscitate?
Today’s trend away from employer-provided retiree health benefits is certain to continue, thanks to rising health care costs, growing retiree populations, uncertain business profitability and federal regulations that discourage employers from prefunding retiree medical benefits.  [September 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]

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]

IRS Requests Comments on Phased Retirement, Eliminating Optional Forms of Distribution
The IRS has separately requested comments on issues relating to phased retirement under qualified defined benefit plans and on eliminating optional forms of distribution from defined benefit plans. [August 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]

Behind the Headlines on COLI
Those who have been following the recent press coverage of corporate-owned life insurance, most notably in the Wall Street Journal, may be asking: “What’s the problem with COLI?”  [July 2002]

ADEA and Retirees: Settlement Reached in Erie County
The parties in Erie County Retirees Assoc. v. County of Erie, Pennsylvania recently settled their case out of court, bringing to a close their three-year court battle over how the ADEA affects retirees. [June 2002]

Italy and Poland Also Take NDC Route to Social Security Reform
If one were to consider likely candidates for significant social security reform, Italy would not immediately spring to mind. Yet, Italy, like Sweden, managed to push through significant reforms, relying heavily on a negotiated approach. [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]

Congress Debates 401(k) Reform
Legislation to reform 401(k) plans began the long trek through Congress when the House Ways and Means Committee approved a bill on March 14, 2002.  [April 2002]

IRS Fine-Tunes Golden Parachute Regulations
The IRS proposed new golden parachute regulations in February. The original pro-posed regulations — issued in 1989 — have clearly withstood the test of time very well. Other than a narrower definition of disqualified individuals and more guidance on the valuation of stock options, changes and clarifications in the new proposed regulations are relatively few and minor.  [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]

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]

EITF Continues Accounting Assault on Stock Compensation Accounting
Shortly after the Financial Accounting Standards Board (FASB) released Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (FIN 44), the Emerging Issues Task Force (EITF) began to consider a myriad of stock compensation accounting issues relating to APB 25, Accounting for Stock Issued to Employees, and FIN 44. So far, the EITF has addressed approximately 40 open questions, with one of the most important being accounting for repricings. [January 2002]

Defined Benefit vs. 401(k) Returns: The Surprising Results
The widespread shift toward 401(k) plans and away from defined benefit plans has prompted a corresponding shift in investment responsibilities — from plan trustees to employees. To analyze how that shift is affecting the potential retirement income and security of today’s workers, Watson Wyatt authored an ongoing series, "Can Your Employees Afford to Direct Their Own Retirement Plan Investments?" [January 2002]

Employers’ Report on Early Retirement Windows:
In today’s slowing economy, many companies are looking for ways to trim their labor costs without resorting to layoffs. For some employers, one answer is encouraging more workers to retire early. An early retirement window offers workers extra retirement incentives for a limited period of time. A recent Watson Wyatt survey found that 17 percent of U.S. companies have offered early retirement windows over the past three years. [December 2001]

IRS Proposes Catch-up Contribution Guidance
The IRS has proposed regulations for the new catch-up contribution provision enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Intended to help older workers boost their retirement savings, the new law allows all workers age 50 and older to defer more money to retirement plans that accept elective deferrals. [November 2001]

Retirement Advice Act Advances
The Retirement Security Advice Act (H.R.2269) moved forward again on October 3 when it cleared the House Education and the Workforce Committee. Sponsored by Education and the Workforce Committee chair John Boehner (R-Ohio), the bill would give employees access to specific investment advice. [November 2001]

IRS Releases Guidance on Benefit Limit Increase
The IRS has released guidance on the higher maximum benefits from qualified plans enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). [November 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 Notice Requirements Could Have Unintended - and Unfavorable - Consequences for Defined Benefit Plans
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) imposed new disclosure requirements for pension plan sponsors when a plan amendment significantly reduces the rate of future benefit accrual. [September 2001]

Retirement Advice Act Returns
The Retirement Security Advice Act (H.R.2269) is back and on the move. Introduced by Education and the Workforce Committee chair John Boehner (R-Ohio), the legislation would provide employees with broader access to specific investment advice. [September 2001]

EEOC to Rethink ADEA's Application to Retirees
The Equal Employment Opportunity Commission (EEOC) has backed off from its previous position that reducing or eliminating retiree medical benefits on the basis of age or Medicare-eligibility violates the Age Discrimination in Employment Act (ADEA). [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]

IRS Finalizes New Comparability Regulations
Recently finalized regulations describe how "new comparability" defined contribution plans can demonstrate compliance with nondiscrimination requirements based on plan benefits rather than plan contributions. The final regulations are essentially identical to last year's proposed regulations (see Watson Wyatt Insider, November 2000), with one exception: the addition of a cap on the potential contribution required to test a defined benefit plan aggregated with a defined contribution plan on the basis of plan benefits. [August 2001]

EGTRRA: The Plan Amendment Process
The IRS recently issued guidance to help plan sponsors amend their plans to reflect changes made by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). The basic principle behind the detailed guidance in IRS Notice 2001-42 is that plan terms must reflect the plan's actual operation for this round of legislative changes, and plan sponsors must make good-faith efforts to amend their plans accordingly. [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]

Court Ruling Threatens Employer-Sponsored Retiree Medical Benefits
Without much fanfare—but with potentially significant implications for retiree medical plans—the District Court for the Western District of Pennsylvania ruled in Erie County Retirees Assoc. v. County of Erie, Pennsylvania, that the county's retiree medical plan failed the equal benefit/equal cost safe harbor under the Age Discrimination in Employment Act (ADEA). This is the first court to apply the equal benefit/equal cost safe harbor under the ADEA. [June 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]

IRS Proposes Cost Maintenance Requirements for Excess Asset Transfers for Retiree Health Accounts
The IRS released proposed regulations dealing with the requirement that employers that transfer defined benefit excess assets to a §401(h) account pursuant to §420 must provide retiree health benefits that satisfy the minimum cost requirement for a five-year period after the transfer. [February 2001]

Phased Retirement: A Work in Progress
Traditionally, retirement has been viewed as a one-time, take-it-or leave-it act that signifies the end of one's working life. In many organizations today, however, retirement is evolving from an abrupt act into a gradual process of easing out of a full-time work schedule. Phased retirement is, so to speak, a work in progress.  [January 2001]

Putting 401(k) Plans to the Test
In 2000, Watson Wyatt conducted its third annual 401(k) Value Index survey, surveying nearly 300 U.S. employers representing nearly 2.5 million full-time and part-time employees, and all major industry sectors. Watson Wyatt's 401(k) Value Index™ enables plan sponsors to measure how well their 401(k) plan is meeting its goals and delivering value to participants.  [January 2001]

Appeals Court Holds That ADEA Applies to Retiree Health Plan
In Erie County Retirees Assoc. v. County of Erie, Pennsylvania, the Third Circuit Court of Appeals held that the Age Discrimination in Employment Act applies to retirees and retiree health plans. This holding is contrary to the view of most employers, and if the decision stands, many of them could find themselves in violation of the ADEA. [October 2000]

Cash Balance Legislation Moving as Congress Nears End of Session
Pension issues were on Congress' end-of-the-session agenda, and much of the discussion focused on cash balance conversion issues, such as new disclosure requirements and proposals to ban wear-away.  [October 2000]

New Strategies for an Aging World
From Tokyo to Paris to Warsaw to Washington, global aging is already generating similar newspaper headlines on roughly the same fiscal, family and health issues. Beneath these headlines, and beneath even the daunting fiscal projections, lies a longer-term economic, social and cultural dynamic whose workings we are only just beginning to understand. What will it be like to live in societies that are much older than any we have ever known or imagined? [August 2000]

Responding to the Hype about Lump Sum Payments
An article in the May 4, 2000 edition of The Wall Street Journal ("Treasury Takes Serious Look at Whether Workers Get Enough Details on Pension Payouts") creates some misconceptions about lump-sum payments and Watson Wyatt's Single Payment Optimizer Tool (SPOT).  [May 2000]

Communicating Cash Balance Plans
While cash balance plan design has been making the papers, cash balance communications have not received the same attention. Generally overlooked by the media is the impact of good communication in rolling out a cash balance plan, and, conversely, the even more dramatic impact of poor communication. [April 2000]

PREpare!™ Your Employees to Manage Their Retirement Finances
Employees often don't understand the value of their pension benefit, and thus are less likely to appreciate you, the employer, for offering such a benefit.  [December 1999]

Phased Retirement: Reshaping the End of Work
Having implemented such alternative work arrangements as job-sharing, work-at-home and flexible scheduling, employers are now considering alternative retirement arrangements. Watson Wyatt’s survey of phased retirement arrangements reveals that among a significant number of employers, flexibility is coming to retirement.  [September 1999]

Limiting Early Retirement Windows: Watch Your Step
It is not uncommon for plan sponsors offering an early retirement window to want to limit the number of "takers." But based on a recent court ruling, these sponsors need to exercise caution. [June 1999]

Congress Focuses (Again) on Retirement Security
Retirement security is expected to be a key issue for the 106th Congress — and lawmakers have wasted no time getting down to business. [May 1999]

Benefit Adequacy in the Age of 401(k)
According to reasonable estimates, more than half — perhaps as much as 60 to 65 percent — of all contributions to employer-sponsored qualified retirement plans in 1999 will be to 401(k) plans. Employers have steadily increased the portion of retirement dollars going into 401(k) plans since their introduction back in the 1980s. [April 1999]

Stock Options: Shareholder Gain or Loss?
Employee stock option plans have become increasingly controversial. Stock options motivate executives and other employees, but they also pose a significant potential dilution problem to existing shareholders. As options are exercised, the shares are issued and counted as outstanding. [January 1999]

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]

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]

Reconsidering Retiree Medical Funding
Large employers currently face high costs and increasing liability for their retiree health care benefits. Many of these employers have already exhausted their ability to reduce benefits.  [April 1998]

Choosey Employees Choose Lump Sums!
As part of our ongoing research into retirement plan participant behavior, Watson Wyatt Worldwide recently studied characteristics of terminating employees who chose lump-sum distributions rather than immediate or deferred annuity payments.  [April 1998]

IASC to Finalize Accounting Standard for Employee Benefits
The International Accounting Standards Committee (IASC) has approved revised International Accounting Standard (IAS) 19, Employee Benefits.* The key revision to the 1996 exposure draft is a change to the proposed method for amortization of actuarial gains and losses, which would have caused excessive volatility. [March 1998]

FASB Changes Pension and Other Postretirement Benefits Disclosure Rules
The Financial Accounting Standards Board (FASB) released FAS 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The statement simplifies some disclosure requirements and eliminates others. [March 1998]

Retirement Income Adequacy—Assessing How Much Is Enough
This is the last of a three-part series about a new Watson Wyatt model for assessing retirement income targets. This third Insider installment highlights key implications for plan sponsors.  [February 1998]

SAVER Act Latest in Retirement Security Efforts
President Clinton signed the Savings Are Vital for Everyone's Retirement (SAVER) Act on November 19, 1997. The act is intended to promote public understanding of retirement savings and "its critical importance to the future well-being of American workers and their families," and to educate employers and employees about current retirement savings options.  [January 1998]

Retirement Income Adequacy—Assessing How Much Is Enough
This is the second of a three-part series about a new Watson Wyatt model for assessing retirement income targets. The first article (Watson Wyatt Insider, December 1997) discussed the philosophical basis for the model—workers need to save enough during their working years to meet their retirement income needs, and target employee savings and expected retirement age are key variables in the equation.  [January 1998]