March 11, 2002 - 12,334 subscribers

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Bush Signs Economic Stimulus Bill Including Pension Rate Relief, EGTRRA Technical Corrections
Excerpt: "When funding their plans, employers must determine funding targets and contributions using an interest rate no greater than 105% of a four-year weighted average of 30-year Treasury bonds ... It is expanded by the new law to a range of 90% and 120% for this year and next under the stimulus bill, broadening a plan's assumptive options." (PLANSPONSOR.com; free registration required)

Technical Explanation of the Job Creation and Worker Assistance Act of 2002 (PDF)
79 pages. Includes explanation of section on 'Interest Rate Used in Determining Additional Required Contributions to Defined Benefit Plans and PBGC Variable Rate Premiums (sec. 405 of the bill, sec. 412 of the Code, and secs. 302 and 4006 of ERISA)'; 'Tax Technical Corrections (secs. 411-418 of the bill)'; and 'Extension of Archer Medical Savings Accounts ('MSAs') (sec. 612 of the bill and sec. 220 of the Code)." (Joint Committee on Taxation)

Analysis: Temporary Funding Relief for Large DB Plans Enacted
Excerpt: "Small plans (i.e., plans with no more than 100 participants on each day of the prior plan year) are exempt from the deficit reduction contribution [that has been modified by the economic stimulus bill. T]he present value determination under IRC §417(e) and the calculation of the permissible IRC §415(b) limit for lump sum distributions are not affected by this legislation." (TRI Pension Services)

Analysis: Rollovers May Be Disregarded When Determining Whether a QJSA Benefit May Be Cashed Out
Excerpt: "EGTRRA amended IRC section 411(a)(11) to allow the $5,000 threshold for involuntary cash-outs to be determined without regard to rollover contributions. However, EGTRRA did not make corresponding amendments to IRC section 417.... The economic stimulus legislation ... extends the rule to plans that are subject to the QJSA requirements." (TRI Pension Services)

Analysis: SEP Contribution Limit Increased to 25% Under Economic Stimulus Legislation
Excerpt: "The employee's annual exclusion limit under IRC §402(h) for SEP contributions is increased from 15% to 25% of compensation, under technical corrections to EGTRRA that were enacted as part of the economic stimulus legislation ... EGTRRA had raised the employer's deduction limit to 25%, but not this exclusion limit." (TRI Pension Services)

Analysis: Employer Now Can Eliminate Automatic Benefit Increases Resulting from EGTRRA
Excerpt: "The EGTRRA increase in the dollar limit under IRC section 415(b)(1)(A) occurred automatically in a plan which incorporates the limit by reference.... [T]his caused some benefits to 'pop up' before the employer was able to take action to freeze the accrued benefit to the pre-EGTRRA level.... The economic stimulus legislation ... adds an anti-cutback exception, which allows the employer to amend the plan to reduce benefits ..." (TRI Pension Services)

Updated Chart Comparing Pending Pension Investment Reform Bills (PDF)
Excerpt: "The [American Benefits] Council has now made available an updated version of the chart comparing current law and the various retirement plan reform bills introduced in recent weeks. Compiled by the law firm of Davis and Harman, this chart may help to sort out the many pension reform proposals that have been introduced in the wake of the Enron controversy." (American Benefits Council)

State Tax Conformity Update
In states that have not modified their tax law to reflect EGTRRA, a contribution or rollover that is tax-deferred for federal tax purposes may still be subject to state income taxes. The latest update: 5 states originally believed to be out of conformity are in conformity. 10 states are out of conformity, but are considering conformity legislation. 4 states have not introduced conformity legislation. At least 2 states probably will not enact conformity legislation. (American Benefits Council)

Update on 30-Year Treasury Bond Interest Rates: February Rate Still Not Available
Excerpt: "We spoke with the chief actuary at the Treasury Department and he said that he hopes the February rate will be released within the next two weeks. Until then, he advises that plan actuaries and consultants should 'sit tight' and not make calculations in the absence of an official rate." (American Society of Pension Actuaries)

Commentary: Business Digs In Against Attempts to Change Pension Rules
Excerpt: "Business groups are hardening their position on pension overhaul, forcefully opposing all but tiny changes to existing rules.... Given this year's short congressional session, businesses could thus delay the process-- and with it any changes to pension law that are being pushed in the aftermath of the Enron Corp. collapse." (Wall Street Journal via MSNBC.com)

Opinion: Mutual Fund Performance Measurements Should Be Improved
Excerpt: "While many studies have demonstrated that past performance does not guarantee future returns, mutual-fund companies persist in advertising 'performance.' The question is: How accurate are mutual-fund performance measures? ... To accurately reflect the impact of fund performance on all shareholders, a dollar-weighted rate-of-return calculation should be made available to the public." (National Review Online)

CalPERS to Vote Against H-P/Compaq Merger
Excerpt: "[T]he California Public Employees' Retirement System said Friday it would vote its 7.6 million shares against Hewlett-Packard's acquisition of Compaq Computer. The influential pension fund is the first of H-P's large investors to go against the recommendation of proxy-advisement company Institutional Shareholder Services ..." (CBS Marketwatch)

Studebaker Left Workers in Lurch Long Before Enron
Excerpt: "South Bend, Indiana - Here on the banks of the St. Joseph River, old-timers know all too well what it's like to learn, after decades of hard work, that they have nothing to retire on.... Workers who had already retired, or were at retirement age, got their pensions. Most, however, got small, lump-sum payouts, or nothing. Some committed suicide." (Washington Post)

Opinion: Social Security Still Beats President's Plan
Excerpt: "The president believes that the stock market will continue to pay 7.52 percent annually, while Social Security will pay only a meager 2 percent. Unfortunately, his numbers do not include the cost of brokerage commissions and the costs of purchasing the disability, survivor and income-security insurance policies of Social Security." (The Hartford Courant)

(Following items are in both editions of the BenefitsLink Newsletter)

Stock Options Are Faulted by Investor Warren Buffett
Excerpt: "Warren E. Buffett, using the forum that the Berkshire Hathaway annual report provides, has renewed his attack against the widespread use of stock options and at the ways corporations assure that executives will profit from options even if the company's share price declines." (New York Times; free registration required)

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Copyright 2002 BenefitsLink.com, Inc., but you may freely distribute this email newsletter in whole. This newsletter is edited by David Rhett Baker, J.D.

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