April 25, 2002 - 11,721 subscribers

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Rev. Proc. 2002-21 Provides Safe Harbor for DC Plans Maintained by PEOs (PDF)
Excerpt: "With regard to [Professional Employer Organization, or PEO] Retirement Plans established prior to May 13, 2002, if the requirements of section 5 are met, the Service will not disqualify the PEO Retirement Plan solely on account of an exclusive benefit rule violation under § 401(a)(2) for a plan year beginning before the Compliance Date if that violation results from the PEO Retirement Plan benefiting Worksite Employees who are not the PEO's employees." (Internal Revenue Service)

News Release: IRS Provides Relief From Disqualification of DC Plans Maintained by PEOs (PDF)
Excerpt: "In recognition of the complexity involved in determining whether workers are common law employees of a PEO or its clients, the IRS is providing limited relief. This relief provides ... some certainty that defined contribution plans that are currently being maintained by PEOs will not be treated as violating, or as having violated, the exclusive benefit rule solely because the plan provides benefits to workers performing services for clients." (Internal Revenue Service)

A Commentary on Revenue Procedure 2002-21
Excerpt: "Revenue Procedure 2002-21 provides staffing firms who are sponsoring plans as a single employer with important relief from potential exclusive benefit rule problems. The relief comes with a price tag and a serious threat for those who don't comply. This article explains the Revenue Procedure in detail and comments on some of the questions it raises." (S. Derrin Watson, Esq.)

Another Question is Answered in the Who's the Employer Q&A Column
What's the effect of Rev. Proc. 2002-21 on staffing firms? (BenefitsLink.com)

President Selects New Members of PBGC Advisory Committee
Press release. Excerpt: "President Bush has selected George M. Kraw of San Jose, Calif., Judith F. Mazo, of Washington, D.C., and Melody L. McDonald of San Francisco, for appointment to the Advisory Committee of the Pension Benefit Guaranty Corporation (PBGC)." (Pension Benefit Guaranty Corporation)

State of Hawaii Sued for Allegedly Diverting Funds from State Pension Plan
Excerpt: "In a class-action lawsuit filed Tuesday, Hawaii's Organization of Police Officers asked the court to find that legislation reducing the state's contributions to the Employees Retirement System is unconstitutional." (AP via Lycos)

Public Employees' Union in Florida Urges Workers to Avoid New DC Plan Alternative
Excerpt: "Florida offers a traditional pension plan that guarantees workers a certain income after they retire. Starting July 1, the state will let -- but won't force -- the 600,000 members of the pension plan switch to a defined contribution plan that lets workers choose their investments but makes no guarantees about how much they'll have when they retire." (Palm Beach Post)

The Role of Information and Social Interactions in Retirement Plan Decisions
Excerpt: "This paper analyzes a randomized experiment to shed light on the role of information and social interactions in employees' decisions to enroll in a Tax Deferred Account (TDA) retirement plan within a large university. The experiment encouraged a random sample of employees in a subset of departments to attend a benefits information fair organized by the university, by promising a monetary reward for attendance." (National Bureau of Economic Research)

Plan Loan Interest Rates Capped at 6% During Military Service (PDF)
Excerpt: "The DOL's pronouncements indicate that the [Soldiers' and Sailors Civil Relief Act of 1940] interest rate cap automatically applies to participant loans from pension plans." (Trucker Huss)

Overview: IRS Issues Proposed Regulations on 204(h) Notices for Certain Plan Amendments (PDF)
Excerpt: "[I]f an amendment is adopted to effect a plan merger or transfer of assets and liabilities in connection with a business transaction and the amendment reduces an early retirement benefit or retirement-type subsidy, but does not significantly reduce the rate of future accruals, 204(h) notice need only be given within 30 days after the effective date of the amendment." (Sutherland, Asbill & Brennan LLP)

If a Company Has a SIMPLE IRA and Adopts a Qualified Plan, What Happens?
Excerpt: "The SIMPLE is invalidated. The contributions would have to be returned by the due date of the employees' tax return (see 408(d)(4)). The 25% penalty would not apply." (Reish Luftman McDaniel & Reicher)

Junior Must Pay: Pricing the Implicit Put in Privatizing Social Security
Working paper available from ssrn.com for $5. Excerpt: "Proposals that portion of the Social Security Trust Fund assets be invested in equities entail the possibility that a severe decline in equity prices renders the Fund assets insufficient ... In this event, existing taxpayers may be compelled to act as insurers of last resort. The cost to taxpayers of such an implicit commitment equals the value of a put option with payoff equal to the benefit's shortfall." (National Bureau of Economic Research)

White Paper: the Trust Fund, the Surplus, and the Real Social Security Problem
Excerpt: "In reality, the Social Security Trust Fund is an accounting measure, not an accumulation of real assets that can be used to pay future benefits. That means current discussions of Social Security 'lock boxes,' or whether the Social Security 'surplus' is being 'raided,' are essentially irrelevant to the program's future." (The Cato Institute Project on Social Security Privatization)

Opinion: We're United in Denial, But Our Society is Aging
Excerpt: "We should stop referring to Social Security and Medicare as 'social insurance' -- an inoffensive term -- and call these programs what they are: welfare. Social Security and Medicare do not differ much from food stamps. One group of people pays taxes to improve the welfare of another." (Washington Post)

Strengthening Employment-Based Pensions in Japan
Working paper available from ssrn.com for $5. Excerpt: "We investigate how the Japanese pension market for funded employment-based pensions is changing and how it might be strengthened in order to better serve one of the most rapidly aging populations in the world.... [W]e indicate lessons gleaned from recent changes in US pension plans." (National Bureau of Economic Research)

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

Bid To Split Pension Gain From Verizon Executive Pay Defeated
Excerpt: "Verizon shareholders voted against a proposal to exclude pension gains from calculating executive compensation at the annual shareholder meeting Wednesday, but the margin of defeat narrowed considerably from last year." (Dow Jones Newswires via Yahoo! News)

Raytheon Shareholders Reject Initiative to Exclude Pension Income in Determining Stock Option Awards
Excerpt: "The rejected stockowner-submitted resolution called upon Raytheon to exclude pension income from the operating results it uses to calculate executive stock option awards.... It was defeated, with 245 million shares voted in opposition and 35 million shares voted in favor." (Boston Globe)

Overview: Final DOL Rules on Electronic Disclosure and Recordkeeping (PDF)
Excerpt: "[I]ndividual benefit statements, investment-related information, 404(c) notices, QDRO/QMCSOs notifications, plan loan information, COBRA notices, and HIPAA certificates of health care coverage may be furnished electronically." (Milliman USA)

California's New Law Restricting the use of Social Security Numbers (PDF)
Excerpt: "SB 168 prohibits ... requiring a person to transmit his or her Social Security number over the Internet unless the connection is secure or the Social Security number encrypted, ... requiring a person to enter his or her Social Security number to log onto an Internet site unless used in combination with a password or PIN, and ... printing Social Security numbers on materials (other than on applications or forms) mailed to a person unless required by law." (Trucker Huss)

CEOs Cash In After Tenure
Excerpt: "When it comes to executive compensation, the good times often linger on. And on. Scores of former CEOs continue to pull in fat retainers and lavish perks-- some long after retiring-- as consultants to their companies." (USA Today)

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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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