Category: Benefits

The Street.com has a very informative article discussing problem areas in the 401(k) industry: “The Seven Deadly Sins of 401(k) Plans.”

Today’s Wall Street Journal has a very good article on a growing trend of companies offering debit/credit cards for their flexible spending account and health reimbursement arrangements: “Employers Offer New Pretax Perk: Debit Cards Allow Instant Access to Accounts for Medical Fees and Commuting Expenses.” (Subscription required.) The article reports that “[c]urrently, less than 400,000 people have flexible spending accounts with debit cards” but that the “Consumer Driven Market Report, a newsletter covering health-care financing, predicts that number will jump to 1.5 million by next April.” As you may recall, the IRS issued Revenue Ruling 2003-43 back in May sanctioning these types of arrangements.

Quote of Note: “But employers have a good reason to encourage workers to set up flexible spending accounts. The accounts reduce the taxable income of employees, which reduces the amount of money employers have to lay out in payroll taxes to fund Social Security and Medicare. Evolution Benefits Inc., Avon, Conn., which markets a debit card called the “Benny” card, reports that one of its customers generated more than $225,000 in additional tax savings during its first year of offering employees the debit card.”

Read more about these types of plans in previous posts at Benefitsblog which you can access here and in this post–“From My Notes: Harry Beker and Kevin Knopf Speak on FSAs and HRAs at the Mid-Atlantic Area Employee Benefits Conference.”

You can read Trucker Huss’s analysis of the IBM and Xerox cash balance plan decisions handed down this summer in this article: “Recent Court Cases on Cash Balance Plans.” The cases have been discussed in previous posts at Benefitsblog which you can access here and here.

Today is the official 401(k) Day.

Albert B. Crenshaw for today’s Washington Post writes: “Business Pushing Pension Change: Firms Seek to Avoid Making Large Payments to Funds.” The article reports that as Congress returns to work from its August recess, lobbyists will be pressing for a quick overhaul of the pension funding system. According to the article, Rep. John A. Boehner (R-Ohio), chairman of the House Committee on Education and the Workforce, has scheduled a hearing on this and other pension issues for Thursday.

Also regarding pensions, the Philadelphia Inquirer has this article: “Pension plans see modest increases: Managers of public-worker investments try to find the right mix of index funds and active money advisers.” The article reports that, under the direction of Alan Van Noord, chief investment officer for the Pennsylvania Public School Employees’ Retirement System, the “$42 billion-asset fund has moved $1 billion away from private money managers into low-cost accounts tied to Standard & Poor’s stock indexes since last summer.”

“Construction unions fund new development with pension money“: the St. Louis-Post Dispatch reports. The article states that, over the past decade, “organized laborers have directed hundreds of millions of dollars in pension funds to new construction and renovation in the St. Louis region.”

The Washington Times ran this op-ed by James Klein on Labor Day: “Uniting to repair pensions.” The article urges Congress to act immediately “to fix the interest rate dilemma by passing the bipartisan Pension Preservation and Savings Expansion Act introduced by Reps. Rob Portman, Ohio Republican, and Ben Cardin, Maryland Democrat” and urges the U.S. Treasury Department to “finalize rules establishing the legitimacy of cash balance and other hybrid plans.”

Finally, Robert Kuttner for Business Week has this op-ed: “The Great American Pension-Fund Robbery.” Mr. Kuttner accuses companies of employing “favorite gimmicks for creative theft of pension assets.”

The IRS’s plan amendment deadline for employers with Master and Prototype or Volume Submitter plans amending to comply with GUST is September 30, 2003. The IRS recently issued Revenue Procedure 2003-72 extending the deadline for filing an application for a favorable determination letter in order to retain the benefits of an extended remedial amendment period. The Revenue Procedure provides that, as long as an employer adopts plan amendments by the September 30, 2003 deadline, the employer will have until January 31, 2004 to file the amended plan with the IRS for a favorable determination letter.

However, all is not lost for employers who fail to adopt their amendments by September 30, 2003. For those who do not amend by September 30, 2003, they will still be in compliance and retain the extended remedial amendment period as long as the amendments are adopted and filed with the IRS by January 31, 2004, along with payment to the IRS of an extra $250 compliance fee. (This is in addition to a user fee.)

Please note that to meet the requirement that the employer adopt plan amendments by the September 30, 2003 deadline, the amendments must represent “a bona fide effort to comply with the requirements of GUST” and must be adopted and not “in proposed form.”

In addition, the Revenue Procedure also extends the time by which defined contribution plans must be amended to comply with final and temporary regulations under section 401(a)(9) of the Internal Revenue Code, relating to required minimum distributions. Under Rev. Proc. 2002-29 (as modified by Rev. Proc. 2003-10), employers had until the end of the first plan year beginning on or after January 1, 2003 to adopt amendments to defined contribution plans that are necessary to comply with section 401(a)(9) regulations. However, Rev. Proc. 2003-72 extends that deadline to the later of the last day of the first plan year beginning on or after January 1, 2003, or the end of the GUST remedial amendment period.

The Revenue Procedure gives an example of how these extended deadlines will work: Suppose an employer with a prototype plan adopts its GUST amendments before September 30, 2003 and then files a determination letter application by January 31, 2004 in accordance with this new Revenue Procedure. The GUST remedial amendment period would be extended through the 91st day following the issuance of a favorable determination letter and the employer would have until then to adopt section 401(a)(9) amendments.

Comment:As you may recall, Revenue Procedure 2003-10 provided that section 401(a)(9) amendments for defined benefit plans were to be postponed until the end of the EGTRRA remedial amendment period with the requirement to amend pre-approved defined benefit plans being postponed indefinitely until further notice.

Additional comment: For those who do not know, “GUST” refers to the following: the Uruguay Round Agreements Act (“GATT”), the Uniformed Services Employment and Reemployment Rights Act (“USERRA”), the Small Business Job Protection Act of 1996 (“SBJPA”), the Taxpayer Relief Act of 1997, the Internal Revenue Service Restructuring and Reform Act of 1998, and the Community Renewal Tax Relief Act of 2000.

(Links via Benefitslink.com.)

USA Today provides this report on Elaine Chao, Secretary of Labor: “For Chao, it’s a labor of love as she initiates big changes.”

The U.S. Department of Labor today brought suit against the trustees of seven union-sponsored pension and health plans in Ohio and Minnesota, alleging violations under ERISA for imprudently investing plan assets in risky private placement investments with Capital Consultants LLC. The DOL is alleging:

• That between 1995 and 2000, the trustees allegedly authorized increasing investments of plan assets in private placement investments, despite warnings by the plans’ investment advisors about the illiquid nature, unacceptable collateral and risks associated with the investments.
• That for two of the plans, the trustees failed to adequately monitor or to retain experts qualified to monitor investments made in the private investments by CCL.

The department is seeking court orders to require that defendants restore to the plans any losses and illegal gratuities received by them and to institute new plan procedures and controls relating to plan investments

The Wall Street Journal has an interesting article about how a well-respected investment professional, Peter Bernstein, is suggesting that the long-standing philosophy of investing for the long-term may no longer be the wisest investment course to follow in today’s market: “Bernstein’s Shocking Words:Market Timing: Prominent Investment Strategist Hints It’s, Ahem, Time to ‘Time.'” (Subscription required.) The article quotes Allan Bufferd, treasurer for the Massachusetts Institute of Technology, as saying that before the bursting of the technology-stock bubble, “you could just about lock and load a portfolio and go home and go to sleep” but that after the stock market’s implosion “we found out in a variety of ways that much more flexibility was necessary.”

EBIA Weekly has posted some comments apparently made by Mr. Harry Beker regarding various FSA and HRA issues at the Employer’s Council on Flexible Compensation 16th Annual Cafeteria Plan Symposium in this article: “IRS Official Comments on Hot Cafeteria Plan Issues.” The article reports that the IRS will be issuing guidance on “whether non-prescription drugs (e.g., aspirin) can be reimbursed by health FSAs, HRAs and other self-insured insured medical reimbursement plans under Code Section 105.” Another area for future guidance, according to the article, is whether and how debit cards can be used for qualified transportation plans.

PlanSponsor.com‘s report on Mr. Beker’s comments at the Symposium was the subject of a previous post here.

The IRS has issued corrections to the final section 457 regulations governing deferred compensation plans of state and local governments and tax-exempt entities. The IRS states that the final regulations which were published in July (which you can access here) contained “errors that may prove to be misleading and are in need of clarification.”