Category: Benefits

The Center for Retirement Research at Boston College (CRR) posts this study: “How Has the Shift to 401(k)s Affected the Retirement Age?” The study, authored by Alicia Munnell, Kevin Cahill, and Natalia Jivan, all of the CRR, explores how work incentives differ by type of pension plan. The authors find that a typical worker with a 401(k) plan would be expected to retire fifteen months later than a worker with traditional pension coverage. A press release summarizes why this is so:

401(k)s may lead to later retirement for three reasons. First, 401(k)s do not have the explicit early retirement incentives that are typically embedded in traditional plans. Traditional plans often pay more in lifetime benefits to individuals who retire at age 55 or 60 than to those who retire at 65, a provision originally developed to encourage workers to retire as their productivity declines. Second, benefits in 401(k) plans are typically paid out as a lump sum rather than as a lifelong stream of monthly payments. Individuals may behave differently when receiving lump sums, tending to spend more slowly to avoid running out of money. If so, they may prefer to compensate by working longer to build up a larger lump sum. Finally, individuals may consider 401(k) benefits less reliable than traditional pension benefits due to investment risk. This source of uncertainty may make workers more cautious about leaving the labor force.

Regarding the battle over disclosure of performance returns of private-equity investments by public funds, the Wall Street Journal today reports: “University Loses
Battle to Stop Data Disclosure: California Court Lets Stand Ruling Requiring Release Of Investment Information.” Quote of Note: “The California Supreme Court let stand a lower-court ruling that required the data be released. The ruling is a setback for public pension funds and venture capitalists that have resisted increasing demands to release the data under public-records requests; they have argued that doing so would put them at a competitive disadvantage.” Also from the Mercury News: “UC appeal rejected by court: Investment Data Must Be Disclosed.” The latter article reports California Judge James Richman as also ruling that “minutes of UC Regents investment meetings should be disclosed.”

Also, from the Wall Street Journal: “Fees Jump on College-Savings Plans Commissions for Brokers Are Raised by Fund Firms As Record Amounts Pour In.” The article discusses how fees incurred for 529 college-savings plans have increased sharply and notes that “sales commissions on broker-sold plans are often waived or reduced when you buy them through your employer.”

Other articles of importance from the Wall Street Journal:

• “Lucent’s Former CEO To Defend Cuts to Retirees.”
• “Wal-Mart Cost-Cutting Finds Big Target in Health Benefits Restrictions, Tough Stance on Basic Claims Keep Its Outlays Below the U.S. Average”

A press release has been issued by Watson Wyatt regarding a report entitled “Pensions in Crises“: “Pension Underfunding Remains Widespread But Represents Just 4 Percent of Corporate Assets: Corporate Pension Fund Contributions Set to Double Without Regulatory Fix.” Quote of Note: “Relative to total corporate assets, the unfunded pension liabilities of most large companies are not excessive,” says Sylvester Schieber, director of research at Watson Wyatt. “Unfunded liabilities should always be monitored. But the real problem with the pension system is a regulatory environment that actively discourages not only the full funding of future liabilities but the very idea of pension plan sponsorship at all.”

Scott Burns for the Houston Chronicle has this: “Switching 401(k) to index funds OK for big balances.”

I have added the following resources as links over on the right:

Pension and Benefit Power: Alvin D. Lurie is the Editor in Chief
Leimberg Information Services, Inc.: A monthly subscription service for financial services professionals. You do not need a subscription, however, to access some of the materials in the Employee Benefits and Retirement Newsletter Archives. Also, Leimberg Information Services, Inc. has some great employee benefits resources listed here. (Thanks to Leimberg Information Services, Inc. for listing Benefitsblog as a resource.)

The Small Business Survival Committee (SBSC) released its eight annual rankings of the states according to their respective policy climates for small business and entrepreneurship in the “Small Business Survival Index 2003.” You can access the actual report here. Pennsylvania is 17th, Utah is 26th, Oklahoma 27th, and Kansas 32nd. (States I have lived in.) Thanks to the Tax Guru-Ker$tetter Letter for the link.

Also, check out this great cartoon, also from the Tax Guru-Ker$tetter Letter.

If you have been a regular reader here, you know of my concerns that we are losing so many jobs overseas. The following article by Cole Gunther provides some very interesting food for thought on the subject: “Job Destruction: Where Did All the Jobs Go?” Quote of Note: “Offshoring is the latest rage in which American jobs are outsourced or contracted out, way out, offshore to a foreign country. American jobs by the millions are being swallowed up, disappearing into countries with third-world economies. With a straight face, government economists calmly report that, when these jobs leave the country, they are gone forever.”

Additional Quote of Note: “The first war is being fought over loss of jobs to foreign citizens brought to the U.S. on non-immigrant visas. For years, American corporations have been obtaining visas for foreign citizens and hiring them to replace American employees.”

Please note this article at CNN.com: “U.S. to sharply cut number of high-tech visas.” The article quotes a Human Resources Attorney for Intel Corporation as making this astounding statement: “We expect that we will continue to sponsor H-1B employees in the future for the simple reason that we cannot find enough U.S. workers with the advanced education, skills, and expertise we need.” What about all of the high-tech individuals out of work in this country due to overseas outsourcing?

Barry Woods for Voice of America News writes: “US Executive Pay Issue Stirs Controversy Following NYSE Chairman’s Resignation.”

Reuters reports: “Martha Stewart offers to swap options for stock.”

“Jobs May Become Battle of the Ages, Studies Say“: the Boston Herald reports via the Daily News for the International Foundation of Employee Benefits Plans. According to the article, as older workers stay in the workforce to recoup their retirement plan losses and obtain health care benefits, many will compete with younger workers for jobs.

“Accounting regulators to start testing options-expensing program“: SFGate.com reports that “several high-profile public companies Thursday volunteered to join a “road-testing” program the Financial Accounting Standards Board expects to kick off soon to determine how best to value employee stock options.”

The Philadelphia Inquirer today has this discouraging news: “Economy grows, workforce shrinks.”

The CorporateCounselnet Blog has a very interesting post on the Top 10 Surprises of SOX from an accountant’s perspective. (No permalink.)

Quote of Note: “There’s new caution in mergers and acquisitions, as public companies fret over uncertain financial liability for the private companies they acquire. Due diligence is costing more and taking longer for both sides in a deal, and some deals aren’t getting done or even being considered because of it. And the law is unclear on whether the public company’s executives will be held accountable for the private company’s history. Deals are taking months instead of weeks.”

Additional Quote of Note: “Talk about trickle-down. The law was designed to make top executives take personal responsibility, but many are reportedly strong-arming middle-level and lower-level managers to sign off on their reports before sending them upstairs.”

Milliman USA has posted a great article discussing the basics of pension funding as well as some “strategic actions for plan sponsors in today’s environment”: “How Fit is your Funding Policy?“

A previous post at Benefitsblog discusses DOL Advisory Opinion 2003-11A which provides that a mutual fund profile may qualify as a prospectus for purposes of section 404(c) of ERISA. I am adding the DOL Advisory Opinion to the “Recent Hot Topics” section over on the right along with the following articles discussing the opinion:

• McGuire Woods LLP: “DOL Permits Use of Simplified Prospectus for Section 404(c)”
• Seyfarth Shaw LLP: “Mutual Fund Summary May Satisfy ERISA Section 404(c)”
• EBIA Weekly: “DOL Approves Use of a Mutual Fund Profile to Comply With ERISA Section 404(c)”
• Deloitte & Touche: “DOL Says Plans Can Provide Profiles Instead of Prospectuses in Most Cases Under ERISA 404(c)”
• Faegre & Benson LLP: “Recent DOL Guidance Allows Profiles to be Provided to Participants in Lieu of Prospectuses“

Tax Professor Maureen B. Cavanaugh of Washington and Lee University – School of Law; Florida State University – College of Law, has posted this article: “Tax as Gatekeeper: Why Company Stock is Not Worth the Money.” Here is what the article is about:

This Article argues that company stock is not worth the money and individual ignorance of basic principles of prudent investing has been incorrectly identified as the problem. In fact, individuals who invest in company stock are acting predictably according to behavioral economics (whether because of simplifying heuristics or excessive extrapolation). This article identifies the real problem: tax incentives that encourage employers to contribute non-transferable company stock to these plans thereby providing endorsement for company stock. Current tax rules allow corporations tax benefits far in excess of that realized by individual employees whose adequate savings at retirement is putatively the goal of this very expensive tax subsidy.