From the Dow Jones Newswire via Morningstar.com: “IRS Increasing Audits Of Largest U.S. Pension Plans“:
The agency [IRS] is stepping up a new program of intensive audits it will conduct on 60 or so of the largest pensions each year, from traditional retirement plans to 401(k)s. Designed to probe whether companies and endowments are administering these tax-exempt vehicles properly, the scrutiny is directed at funding levels, vesting, benefit payments and other aspects of plans. Big plans are the focus. The Internal Revenue Service is looking at pensions with 2,500 or more participants, as well as employers with multiple plans that together cover 2,500 or more.
In recent weeks, a House bill that would block a new rule by the Financial Accounting Standards Board to count options as an expense has picked up key support from the Republican and Democratic leadership. House Speaker J. Dennis Hastert (R-Ill.) and Minority Leader Nancy Pelosi (D-Calif.) have signed on as co-sponsors, according to aides and lobbyists. The FASB is expected to release a draft of the rule for comment tomorrow, giving companies a choice on how to value options.
The Supreme Court, taking up a police pay dispute in Jackson, Miss., will try to resolve whether a class of older workers can use a federal law barring workplace age discrimination to fight job policies favoring younger workers. . . The lawsuit [argues] the 1967 Age Discrimination in Employment Act allowed them to bring a “disparate impact” claim alleging the department’s pay policy discriminated against them as a class. . . The issue has vexed federal appeals courts, which have issued conflicting decisions. The Supreme Court tried to resolve the conflict two years ago, but dismissed the appeal before issuing an opinion.”
At ABA TechShow, the keynote had Louis Andreozzi, president and chief executive officer of LexisNexis North American Legal Markets, and Mike Wilens, president of West, square off in a joint presentation in which they were slated to share their visions of the future role of legal technology. . . As to the future, the more compelling comments came from Wilens. He predicted that certain “disruptive technologies” will play ever more central roles in law practice over the next few years. He expressly mentioned blogs and instant messaging as two of the most important.
(Hmm, “disruptive technologies” . . . )
And, by the way, Canada joins the U.S. today in the corporate governance arena with its own version of Sarbanes-Oxley. I suppose Canadians will soon be singing their own rendition of this. (Thanks to Mike O’Sullivan at Corp Law Blog, words to the song can be found here.)
Even though the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (which includes new tax provisions allowing the establishment of Health Savings Accounts (“HSAs”) starting in 2004) was only signed into law on December 8, 2003, the Treasury and IRS have already so far issued a fairly good round of guidance pertaining to the new HSAs. As you may recall, the first guidance that was issued regarding HSAs was Notice 2004-2. As predicted, the Treasury and IRS have issued some additional guidance pertaining to HSAs today. The Treasury Department has issued its press release regarding the guidance here. You can read Secretary of Treasury John Snow’s prepared remarks regarding HSAs here in which he states:
An individual can only make a contribution to a HSA if the individual is covered by a High Deductible Health Plan and no other coverage. Generally a High Deductible Health Plan only pays for benefits after the deductible is met. Our guidance states that this deductible applies to prescription drug coverage as well as other types of health coverage. Therefore, a plan that provides first-dollar benefit coverage for prescription drugs by either a flat dollar amount or percentage co payment for all prescription drug expenses, even those underneath the deductible will not be considered a high deductible plan and a person covered by such a plan could not make a contribution to an HSA.
However, we understand that some have been selling such policies to individuals thinking that the individuals could make contributions to an HSA. We have provided transition relief so that those people who purchase a high deductible health plan with a separate lower deductible prescription drug policy will be able to contribute to contribute to an HSA in 2004 and 2005. We do not want to penalize those people who bought products thinking that they could contribute to an HSA.
The guidance issued by the Treasury and the IRS is as follows:
- Notice 2004-23: HSAs can only be established by eligible individuals, who must have coverage by a high deductible health plan (“HDHP”). Generally, an HDHP cannot provide benefits before the deductible is satisfied, but there is an exception for benefits for preventive care. The guidance provides a safe harbor list of benefits that can be provided by an HDHP, generally clarifying that traditional preventive care benefits – such as annual physicals, immunizations and screening services – are preventive care for purposes of HSAs, as well as routine prenatal and well-child care, tobacco cessation programs and obesity weight-loss programs. The guidance also clarifies that preventive care generally does not include treatment of existing conditions.
- Notice 2004-25: Prior guidance provided that HSAs may only reimburse medical expenses incurred after the HSA is established. However, many individuals eligible to establish HSAs have been unable to locate trustees or custodians will and able to open HSAs at this time. The guidance provides that for 2004, an HSA established by an eligible individual on or before April 15, 2005 may reimburse expenses incurred on or after the later of January 1, 2004 or the first day of the first month that the individual became an eligible individual.
- Revenue Ruling 2004-38: Prior guidance noted that an eligible individual must be covered by an HDHP and generally no other health plan that is not an HDHP. This guidance clarifies that individuals covered by a health plan that provides prescription drug benefits before the minimum annual deductible of an HDHP has been satisfied may not make contributions to an HSA.
- Revenue Procedure 2004-22: The guidance provides transition relief to those individuals covered by both an HDHP and by a separate health plan or rider that provides prescription drug benefits before the deductible of the HDHP is satisfied. Under the relief, such individuals continue to be eligible to contribute to HSAs before 2006.
For those with questions regarding HSAs, the IRS has set up an e-mail address – firstname.lastname@example.org – as well as a voice mailbox at 202-622-4HSA. You can also access information on their website regarding HSAs here.
(Access an earlier post regarding HSAs here.)
You will recall DOL proposed regulations issued earlier this month providing guidance and establishing a safe harbor pursuant to which a fiduciary of a pension plan subject to Title I of ERISA will be deemed to have satisfied his or her fiduciary responsibilities in connection with the automatic rollover provisions. You can access a previous post on the subject here.
Please note the following law firm publications providing analysis and discussion of the regulations as follows:
- Davis Wright Tremaine LLP: “Automatic Rollover Safe Harbor Guidance: DOL Rolls Out New Proposed Regulation.”
- Oppenheimer Wolff & Donnelly LLP: “Fiduciary Safe Harbor for Automatic Rollovers of Forced Distributions.”
- Seyfarth Shaw LLP: “Automatic Rollovers: DOL Proposes Safe Harbor.”
A good article from Cooley Godward LLP on a different subject–”Reduction or Cancellation of “Underwater” Note Results in Income to Employee.”
Inspired by their success at Walt Disney Co., activist shareholders have jolted corporate America with a flurry of challenges led by increasingly aggressive institutional investors. In the most recent uprising, a group of large public pension funds in effect declared war on Safeway Inc., announcing their goal of overhauling the board, getting rid of the chief executive and setting the company on a drastically new course.
Tensions are rising among couples in which the husband retires and the wife continues to work. A Cornell University study of 534 retirement-age men and women found that working women whose husbands were retired or disabled were the least happy with their marriage. Working men whose wives stayed home were the most happy.
When you ask your financial adviser–”How much will I need to retire?”–the chances are you’ll get a wrong answer. The problem is that financial planning has become a moving target largely because funding for Social Security, Medicare and employee retirement and health benefits are in doubt.
Happy 30th birthday to the Individual Retirement Account Created by Congress in 1974, the IRA has become a useful tool for workers to save for retirement, especially those who don’t have company-sponsored plans.
(Comment: The article mentions a helpful tool on Fidelity’s website which is a calculator to determine whether a traditional IRA or a Roth would be better. It is called the IRA Evaluator and you can access it here. )
Most companies that converted to cash balance and other hybrid pension plans in recent years saw total retirement plan costs increase – not decrease, as hybrid plan critics argue – according to a comprehensive new study by Watson Wyatt Worldwide. In addition, the vast majority of companies provided generous transition benefits to protect workers during conversions.
American Lawyer Media has started a great new website devoted to items of interest pertaining to solos and small firms. The site entitled “Small Firm Business” also features a listing of blawgs. Many thanks to American Lawyer Media for recognizing blawgs as an important resource and for listing Benefitsblog.
Senate Democrats blocked legislation that would overturn a U.S. export tax break that Europeans have protested, opting to let retaliatory tariffs pile up on American goods rather than surrender to Republicans in the fight over new overtime-pay rules. . . [I]n recent weeks, Democratic leaders decided to use the tax package, widely considered one of the few must-pass bills this year, to resurrect a debate about overtime rules. At issue is a proposed amendment to the tax bill that would block pending Labor Department overtime regulations.
On the health care front, another interesting article from the Wall Street Journal today discusses a new trend in health care: “Doctor ‘Scorecards’ Are Proposed In a Health-Care Quality Drive“:
In one of the most ambitious efforts yet to provide health-care quality ratings for consumers, 28 large employers, including Sprint Corp., Lowe’s Cos., BellSouth Corp., J.C. Penney Co. and Morgan Stanley are teaming up to develop “scorecards” to help employees choose doctors based on how well they care for patients — and how cost-efficient they are. . . . Care Focused Purchasing, as the scorecard effort is called, marks the latest entry by big employers in the growing pay-for-quality movement in health care, which includes rewarding doctors and hospitals for providing higher-quality care at a reasonable price, and offering patients financial incentives to use more cost-efficient providers. And it comes as consumers are asked to dig deeper into their own pockets for health care and take on more decision-making about doctors and treatments.
The Wall Street Journal (subscription required) in this article–”Mutual Funds’ Pricing Flaw: Use of ‘Fair Value’ Is Elusive Despite the SEC’s Concerns“–reports important SEC findings regarding mutual fund pricing:
To help offset market-timing, which particularly affects U.S. funds holding foreign stocks and bonds, the SEC has required funds to have procedures in place to perform “fair-valuation” pricing to estimate updated values for their portfolio securities when accurate market prices aren’t “readily available.”
Releasing its findings for the first time, the SEC said this week that nearly a third of the more than 960 funds surveyed hadn’t done any fair-value pricing in the volatile 20 months ended in September, when the SEC mailed out its questionnaire. . . Because they didn’t update their portfolio values, the SEC estimated that investors in about 15% of the funds surveyed saw their assets reduced by 2% or more through market-timing. Another 10% had losses, or “dilution,” at the hands of market-timers amounting to between 1% and 2% of their holdings, according to the SEC.
The Treasury Department and the IRS have issued proposed regulations that would permit employers to make changes to their retirement plan distribution options while protecting the rights of plan participants pursuant to secton 411(d)(6) of the Internal Revenue Code and section 204(g) of ERISA. You can access the press release here which provides as follows:
The regulations are based on suggestions received in response to a solicitation of comments published by the IRS in 2002 and 2003. Under the proposed regulations, an employer could eliminate an optional form of benefit if the plan retains a similar form with the same value or if the plan permits participants to select among a specified group of core options that have the same value as the eliminated form. The regulations would allow plan sponsors with many different payment options to simplify the number available; however, they generally do not permit elimination of a lump sum payment option.
More on this later . . .