Retirement Plan Blog

The funded status (or lack thereof) of public employee pension plans doesn't get a whole lot of coverage by the mainstream media.

That's unfortunate because it's an important public policy issue with extremely significant long-term financial implications for all of us taxpayers. But leave it to cartoonist Scott Adams to weigh in on the topic via his Dilbert strip for August 8, 2008:

But via the internet, it is an area that is covered by several knowledgeable bloggers.Two who I follow regularly via my RSS reader are John Bury and Jack Dean.

John Bury's blog is NJ Voices. John's one of us. That is, he's in the retirement plan business. He's an Enrolled Actuary with his own firm in Montclair, New Jersey. He's also a community activist who writes regularly about state, county and local government including the New Jersey state pension plan. And if you read his posts, he is - with all due respect - an actuary with attitude. And, in my opinion, that's a good thing.

Jack Dean is on the other side of the country in California. He edits Pension Watch. He also edits PensionTsunami.com, a project of FACT -- the Fullerton Association of Concerned Taxpayers. FACT's primary focus is on California's public employee pensions and the state's funding issues.

Hat tip to Mr. Dean for his post about Dilbert, Unfunny Pension Issue Hits the Funnies. 

Posted In Pension Plans , Public Employee Plans
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Retirement is not about the proverbial gold watch any more. Today, our focus is on retirement security, and the newly created National Institute on Retirement Security (NIRS) is adding to the dialogue. The NIRS was established in in 2007 by the Council of Institutional Investors (CII), the National Association of State Retirement Administrators (NASRA), and the National Council on Teacher Retirement (NCTR).

Their goal was to create an organization "dedicated to fostering a deep understanding of the traditional pension system in the U.S.", and they're off to a quick start. The NIRS has just launched their new website, nirsonline.org, and issued their first Research Brief, Retirement Readiness: What Difference Does A Pension Make?

The Brief written by Beth Almeida, NIRS' first Executive Director, 

... reviews the evidence on the role DB pensions play in ensuring that older Americans have the resources they need to be self-sufficient in retirement. It examines recent trends in pension coverage and discusses the effect these trends have had on the state of retirement readiness among American workers. Finally, it points in the direction of areas worthy of exploration for policymakers seeking to address specific retirement security goals.

You can download the Brief here (PDF).

Posted In Pension Plans , Public Employee Plans
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It was 1982, and many of today’s baby boomers were listening to the song, “Should I Stay or Should I Go” that was on The Clash’s album, Combat Rock. According to NME, Mick Jones, the lead guitar on the song, wrote it about singer Ellen Foley, who sang the backing vocals on Meatloaf's Bat Out Of Hell LP. The lyrics seemed to reflect the ups and downs of their relationship and whether to stick with it or end it.

Now let’s fast forward some 25 years later. Many of those boomers are asking the same question, “Should I stay or should I go?” But the relationship in question is with their employers. Should they continue to work or should they retire?

Watson Wyatt, the international consulting firm, provides insight on this important matter affecting not only employees but also their employers in the firm’s recently published Technical and Policy Paper, Predictive Factors for Retirement Timing. Here are the key findings:

• Increases in all categories of wealth accumulation (e.g., retirement plan, housing equity and other financial wealth) increase the probability of retiring while good earnings prospects, implying high opportunity cost for retirement, induce continued employment.

• The type of retirement plan available to workers has a significant impact on when they retire. Workers entitled to traditional DB plan benefits are more likely to retire than those who are not, while workers with significant assets from DC plans tend to significantly delay their retirement.

• New evidence supports the hypothesis that business cycles (stock market booms and busts) increase the probability - and thus timing - of retirement for DC plan participants.

• Health insurance (HI) has a large effect on the retirement decision. HI, if conditional on employment, strongly discourages retirement, while alternative sources of health insurance, such as employer-sponsored retiree HI, spouse’s HI or public HI, facilitate or encourage labor force exit.

• The retirement behavior of older workers is significantly linked to Social Security policy. The ongoing increase in the normal retirement age for Social Security and the cohort-specific actuarial adjustment of SS benefits, as defined by the law, will encourage younger cohorts to work longer.

Here is a link to the page to download Watson Wyatt’s Paper (PDF, free registration required).

Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , 403(b) Plans , Employee Stock Ownership Plans , Public Employee Plans
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Lost in the mass media focus on the Baby Boomers retiring is Generation X, the generation that follows. Depending on how they are defined, it's the people born between 1965 and 1985 (age 23 to 43). I've written about them before, Not my generation that nobody seems to want. The "nobody" referred to are financial advisers who don't seem to want them as clients.

And like the Boomers, Gen Xers also worry about their retirement prospects. But a new survey suggests Generation X is even more pessimistic. According to the survey published by Scottrade and BetterInvesting, over two-thirds of Americans aged aged 27 to 42 don't think they will ever be able to stop working. This is in contrast to more than the 64% of respondents aged 55 to 64 who said they could retire and not worry, even though this group is much closer to retirement age.

Michael Rubin, a CPA and CFP, comments upon this survey on his blog, Beyond Paycheck to Paycheck, in his post, Retirement for Gen X: Black Hole or Perfect Storm?   The analogies are those of Chris X. Moloney, Scottrade’s chief marketing officer, who commented upon the study when he said

Gen X is in the middle of a 'retirement perfect storm' of very high expectations, low retirement savings and massive concern about the future of Social Security. It's a black hole to them.

Mr. Rubin is an optimist. He says

I like the black hole analogy. But I’m glad we know about it now, when we can still do something about it.

Rachel is another optimist. She describes herself as "27 and working towards extremely early retirement".  Writing on her blog, Working for Rachel, she discusses the differences in the workplace causing The Financial Generation Gap. She writes

I've painted a grim picture here, but I'm not complaining--I think I've accepted all of the facts above without resentment. I haven't ever known the world to be any other way. I'm still a cockeyed optimist. I believe that younger people still have a good chance of getting out of debt, buying real estate, retiring comfortably, and even retiring early. But for our generation, financial security requires total independence and total responsibility. We are the only ones we can count on when it comes to our financial futures.

Youth isn't wasted on the young.

Picture credit: Generation X, acrylic on linen, 30"x40" from Temple's TangleWave Art Gallery.







Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts , 403(b) Plans , Employee Stock Ownership Plans , Public Employee Plans
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If you're familiar with Chicago and Boston, then you'll know that the CTA is the Chicago Transit Authority and the MBTA (also known as the "T") is the Massachusetts Bay Transportation Authority. But I never really thought about whose retirement plan was the richest in America until I saw this story carried by the BostonHerald.com, Critics blast MBTA's costly pension plan.

So being a proud Chicagoan, my competitive nature kicked in when the story quoted Michael Widmer, president of the Massachusetts Taxpayer Foundation, as saying

It appears to be the richest retirement program in America. There's no way we can afford the pension and health care benefits.

It seems that T employees can retire after only 23 years of service, with full health insurance. And then work for the state with no restrictions. Most state employees, said the article, can't retire until they are 65 and are limited to where they can work afterwards.

But with all due respect to Mr. Widmer, let me invoke some civic pride here. Our CTA pension plan offers retirees premium-free health insurance, and allows some employees to retire at full pension in their 40s, after 25 years of service. The agency has tightened the requirements for those hired in 2002 and later, who must be 55 to retire.

Can these benefits be afforded? In 1993 the CTA pension plan was 99% funded, meaning it had funds available to pay nearly all of its projected expenses, according to the agency's annual pension plan reports. Now the CTA's pension funding ratio is the 34%, the lowest for any agency in the state.

And the fix? A tax increase, of course. As the result of protracted and contentious negotiations between the state legislators and the Governor, a funding package was passed earlier this year which included an increase in the sales tax that prevented massive service cuts. Part of the deal included a separate real estate transfer tax that will be used to help the CTA bail out its pension liabilities.

The tax, which used to be paid by buyers and now by sellers, will increase from $7.50 to $10.50 per $1,000 of sales price. Doesn't sound like much? Let me do the math. Someone selling a home in a Chicago neighborhood with an average price of $262, 268 would pay $2,360 under the current tax rate. After the increase, they would pay $3,147 -  a 40% increase in a recessionary economy seeing falling real estate prices.

And so while we can match Boston's costly transit retirement plan, I'll concede that Boston does have it over Chicago in at least one respect. Boston's transit system (which used to be called the MTA) - not Chicago's - has a man named Charlie. Take a look.





Posted In Pension Plans , Public Employee Plans
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I've got that queasy feeling again in my stomach.

The recent collapse of Bear Stearns gave me flashbacks to the 1990s during which we struggled with insolvency issues affecting ERISA plans.

If you were around back then, you’ll remember the insurance companies that failed or were seized by insurance regulators as a result of failed investments in real estate or junk bonds. And it was not just these companies. The financial stability of the rest were called into question in 1991 by the four insurance company rating services that downgraded their ratings on the claims paying ability of virtually every life insurance company in the country.

And you may also remember the insolvencies of Mutual Benefit Life Insurance Company and the infamous Executive Life Insurance Company whose GICs and annuities had been used to fund retirement plans - and what was involved to get these issues resolved for plan participants.

But that was then and this is now. Or is it? The recent volatility in the credit markets reminds fiduciaries yet again of the need to be proactive in protecting the assets of plan participants. This time around potential insolvency issues involve plan assets held by brokers, custodial banks, and financial contracts such as repos, swaps, securities lending, etc.

James Stewart writing in the Wall Street Journal after the Bear Stearns collapse tells us no worries because Safety Nets Protect Brokerage Accounts.

But with all due respect to Mr. Stewart, if you’re a fiduciary out there, you need to have more than a "feel good moment" after reading his article. A good starting point is to read the K&L│Gates law firm's recent Financial Services Alert, "Key Insolvency Issues for Broker-Dealers, Custodial Banks and Counterparties to Repos, Swaps and Other Financial Contracts." Here is what they say about evaluating whether assets are sufficiently protected.

A key to evaluating whether your assets and financial contracts with a broker, custodial bank or counterparty are sufficiently protected is to know your contractual and statutory remedies. As shown above, these vary with:

• The type of broker: U.S. or offshore;
• The type of security-holding arrangement: “customer name” or street name;
• The amount of leverage on a securities account: fully paid or on margin;
• The existence of other contracts with a broker and its affiliates, which might be cross-collateralized by the same assets;
• The type of assets covered: securities or other types (commodities, currency, etc.);
• The type of contract: securities brokerage or other types (repos, swaps, etc.);
• Whether the broker carries “excess SIPC” insurance, and if so the coverage limits;
• Whether assets and cash at a bank are held in a trust or fiduciary capacity;
• Whether a financial contract is the type that qualifies for the “safe harbors” from the automatic stay in a bankruptcy or an FDIC receivership or conservatorship;
• Whether your institution is the type that qualifies for exercising termination remedies under the “safe harbors” from the bankruptcy stay.

This list illustrates that the degree of exposure for financial arrangements with brokers, custodial banks and counterparties can vary widely. Some assets and contracts will be entitled to greater protection, in terms of distribution priorities, account insurance and termination remedies. Others may be more vulnerable and risk a lower percentage recovery in the event of an insolvency. Each asset and contract must be evaluated separately to determine where it lies on that continuum.

Here is a link to the complete K&L│Gates Financial Services Alert.
Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts , 403(b) Plans , Employee Stock Ownership Plans , Public Employee Plans
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“Decumulation”, in definitional terms, means the conversion of pension assets accumulated during an employee’s working life into pension income to be spent during retired life. But in practical terms, decumulation embodies a significant new risk for the record number of future retirees moving from the accumulation phase of their lives to the distribution phase. The actuaries call it “longevity risk”. But those of us in the financial service industry simply call it “running out of money”.

It will require a major change in thinking for them. Away from concepts which have been discussed as part of most 401(k) providers investment education programs: asset allocation, dollar cost averaging, and the cost of waiting. But rather requiring them to think about having to make a whole new set of decisions such as:

• Whether to continue to work
• When to apply for Social Security benefits
• What to do, if anything, about housing
• What choices to make about insurance and health care
• How financial assets should be invested
• What distribution options to take from employer retirement plans and IRAs

So you'll be hearing more about "decumulation" as it becomes a major focus of future research, public policy, and financial services.


Picture credit: Water Secrets Blog.


Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts , 403(b) Plans , Employee Stock Ownership Plans , Public Employee Plans
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The table below indicates the newly released 2008 retirement plan limits for 2008.

                            



Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Employee Stock Ownership Plans , Public Employee Plans
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That's what Evelyn Venable who voiced the Blue Fairy told Pinocchio about liars getting caught. But that was in the Disney classic. Now it's a little more high tech. The newest method is Voice Stress Analysis (VSA), a technology with the same objective as the polygraph: to determine whether the subject being tested is lying. It's currently being used in the U.S. by law enforcement, and you may even have seen it on CSI (take your pick, Las Vegas, New York, or Miami).

But VSA is being used in the U.K., for a different purpose: to root out benefit cheats. There's a big media buzz about it in the U.K. The Deception Blog’s post, Using Voice Analysis to Detect Benefit Cheats, discusses the media coverage of a pilot project there to use VSA on benefit applicants. The buzz is not about whether benefit claimants should be forced to take lie detector tests, but about the claim that the pilot project is a success.

The technology is being tested on people claiming local housing or council tax benefits. An early review exposed 126 benefit cheats in just three months, saving one local authority £110,000 or approximately $221,000. The government claims the technology also improves services.

And, of course, there are two obvious questions:

First, does it work? It depends on who you ask, but like polygraph examinations, VSI is not admissable in court as evidence.

Second, is it coming to a call center here soon?

Posted In 401(k) Plans , Pension Plans , Public Employee Plans
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"What was the number of mortgage foreclosures in July?"

As reported,by Investment News citing Realty Trac, a marketplace for foreclosure properties. Foreclosure filing in the country increased by 9% between June and July and rose precipitously by 93% compared to the same period last year.

Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Public Employee Plans
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I’ve written about retirement plan data security – or lack thereof – in the past, but always in the context of employee data on laptops that had been stolen. But as I read about a recent study cited by AccountingWeb.com, Pogo’s famous words came to mind, “We have met the enemy, and he is us.”

Are we our own worst enemy when it comes to protecting employee and benefit plan data? Consider the results of the study which was carried out at last spring's Infosecurity Exhibition Europe as part of an annual survey into "Trust, Security and Passwords”. It revealed the extent to which Information Technology (IT) employees snoop at the confidential information of other employees. By using the special administrative passwords that give IT workers privileged and anonymous access to virtually any system:

• One-third admitted to snooping through company systems and peeking at confidential information such as private files, wage data, personal e-mails, and HR background.
• More than 1/3 admitted they could still access their company's network once they'd left their current job, with no one to stop them.

The big security risk is not just hackers, but companies mismanaging the storage and access to administrative passwords.

And IT folks are just like everyone else. Post-It Notes are the favorate way of storing passwords.

Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Employee Stock Ownership Plans , Public Employee Plans
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I recently wrote about retirees moving to Tibet, a metaphor for retirees moving from the “land of accumulation” to the “land of accumulation” and the new financial culture with which they will have to master. The “tour guides”, the financial industry, will have to solve the “annuity puzzle”, the investment industry term for the disconnect between the economic arguments of annuitizing and the investor’s aversion to annuitizing. It’s a difficult puzzle to solve according to a July 2007 Fidelity Research Institute study which indicated  that retirees and pre-retirees are signicantly underestimating how long they need to make their retirement savings last.

Retirees believe they will need to make their retirement savings last until an average of age 85; for pre-retirees, the average estimate is even younger at age 83. These estimates highlight how many pre-retirees underestimate their life spans, and therefore risk outliving their assets, given the likelihood of living to at least 90 for men (24%) and women (35%) who have reached age 65.

While there are a myriad of barriers to adoption of annuities – some based on emotion and some on logic – the study found that each is potentially solvable by improved investor education. Here is the link to the the Fidelity study, Structuring Income for Retirement: Addressing America’s Guaranteed Income “Gap” (24 pages, PDF).
Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Employee Stock Ownership Plans , Public Employee Plans
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In volatile markets, investment managers go to cash. That's happening right now because of the prime mortgage meltdown. But not all money market funds are the same. Just as there are enhanced index funds, there are also enhanced money market funds.  "Enhanced" meaning the fund manager seeks higher returns by taking slightly more risk. And in the case of enhanced money market funds trying to get extra basis points, this may mean investing in asset-based securities like mortgage-linked bonds. According to HedgeWorld.com, some supposedly safe money market funds have shut down, while others are having problems meeting redemptions.

Do you know where your cash is?
Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Public Employee Plans
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They're called "vulture funds". They're financial organizations that specialize in buying securities in distressed environments, such as high-yield bonds in or near default, or equities that are in or near bankruptcy.

Take for example, Argentina whose external public debt was  bought up in substantial measure by vulture funds at   very low prices. Or in this country, K-Mart,  where the real estate held by the company was the anticipated payout for investors who bought stock during their bankruptcy proceedings.

And now, reports Investment News, money managers are finding lots of opportunities in the subprime mortgage fallout. Investment managers are starting new funds to buy distressed securities tied to the subprime mortgage market or buy asset-based securities that been devalued by the ratings agencies.

The "blame game" has included predatory lending practices of subprime lenders and the lack of effective government oversight, mortgage brokers with steering borrowers to unaffordable loans, appraisers with inflating housing values, and Wall Street investors with backing subprime mortgage securities without verifying the strength of the portfolios.

But regardless of fault, there have been a record number of foreclosures, and now I'm curious to see whether any of the retirement plans espousing socially responsible investments will be investing with the so-called vulture funds.





Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Public Employee Plans
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Attorney Rush Nigot blogging about Document Retention and Electronic Discovery on his new Blog, Rush on Business, tells us that in today’s business environment, organizations need to respond to an increasing number of document requests, from regulatory compliance issues to internal investigations to full-scale litigation.

And there’s certainly an ERISA component to that. So in a brief Q and A format, here is some basic information about document retention for ERISA plans.

What are the legal requirements?

In the addition to the reporting and disclosure obligations that fiduciaries have, ERISA also requires that plan sponsors retain the records that support the information included in the 5500 filing and other reports.

The short answer is that all plan-related materials should be kept for a period of at least six years after the date of filing of an ERISA-related return or report, and the materials should be preserved in a manner and format (electronic or otherwise) that permits ready retrieval. All records that support the plan’s annual reporting and disclosure should be retained.

Who is responsible for retaining plan records?

While it is fairly common for a plan sponsor to contract with outside service providers, such as our firm, who provide certain reports and prepare the 5500 filing, the plan administrator remains ultimately responsible for retaining adequate records that support these reports and filings. In addition, the Department of Labor (DOL) requires employers to maintain records sufficient to determine the amount of benefits accrued by each employee participant.

What are best practices?

As noted above, generally, these documents should be kept for a period of six years after the date of the filing to which they relate. However, best practices would be to keep certain records for the life of the plan. This would include all plan documents dating from the plan’s inception. The thicker the paper trail, the easier it will be for the plan to respond to an inquiry from a governmental agency or a request for information from a plan participant. Most recently, the Internal Revenue Service (IRS) requested specific employee records from a client going back 10 years during a plan termination process. Fortunately, the employer was able to provide it.

But don't consider this a boring subject. The IRS or the DOL can require the plan administrator to recreate plan records.

Posted In 401(k) Plans , Pension Plans , Employee Stock Ownership Plans , Public Employee Plans
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A few months ago, I wrote about the possibility that a class action law suit might be filed against the National Education Association (NEA). Well, now it's happened. The law suit claims that the NEA accepted payments from the 403(b) providers to endorse those retirement plans, and  that the fees and expenses charged by the provider were far higher than those charged by comparable and better-performing plans available on the market.

One of the interesting arguments the plaintiff attorneys is making is that the NEA’s active endorsement of the annuity products made it a plan sponsor and subject to ERISA’s fiduciary standards. As I understand ERISA (and I’m not an attorney) Title I which includes the fiduciary requirements applies to "employee benefit pension plans" which do not include Section 403(b) salary reduction plans.

Steve Rosenberg in his article, High Cost Investments, Payments to Sponsors, and the National Education Association, on his ERISA and Insurance Litigation Blog comments on the ERISA argument:

With regard to this problem, concerning the plaintiffs’ need to figure out the best manner to structure their lawsuit, what you are really seeing is the problem of forcing a square peg into a round hole. I have argued in other posts that, as we move decisively from a defined benefit plan world to a defined contribution world, and thereby make plan participants the bearers of all the risks of their retirement investments, we need to simultaneously provide those plan participants with the legal protections and tools to manage those risks, including the types of risks alleged in this case, of misleading investment recommendations, undisclosed payments, and excessive costs.

Steve further goes on to say:

I hope to keep an eye on this case going forward, as it may provide an excellent window on the question of whether, and if so how, the law can evolve to deal with these changes in the real world environment in which people now must prepare for retirement.

It's an important social issue with an estimated $650 billion in 403(b) plans. The legal evolution that Steve discusses may take a while. But the regulatory evolution is about to happen January 1, 2008 when proposed IRS 403(b) regulations become effective. This evolution includes a new regulatory requirement that employers create a plan document that includes the plan’s rules. And maybe the evolution will become a revolution if employers are made responsible for managing and operating the plans. Round peg in a round hole?

Posted In Pension Plans , 403(b) Plans , Public Employee Plans
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Yesterday, I discussed the first of two big changes ahead for 403(b) plans that would make 403(b) plans resemble 401(k) plans, proposed IRS regulations that would be effective in 2008. Here is the second big change, the IRS Universal Availability Project. The IRS is sending out letters and questionnaires to public school districts regarding their 403(b) arrangements to determine their compliance with the Universal Availability requirement for 403(b) plans. The project was initially directed to districts in three states but has now been expanded to cover all 50 states and slated to last through 2008.

The Universal Availability requirement is similar to the eligibility requirement for 401(k) plans under which all eligible employees must be given the opportunity to make elective salary deferrals. The Director of the IRS Employee Plans division has indicated that the data collected so far has revealed "fairly widespread noncompliance by schools with the universal availability requirement for 403(b) plans."

Responding to the inquiry is voluntary, but the IRS has indicated that a failure to respond could lead to an IRS audit. If a school district's plan does meet the requirement, it could result in loss of 403(b) tax-favored status, i.e., employee contributions to the 403(b) plan and earnings could be immediately subject to income tax. The IRS does, however, provide at least two methods of self-correction which are more favorable than using the other voluntary correction programs.

Regardless of whether school districts receive an IRS letter, all school districts should be concerned about whether they satisfy the Universal Availability requirement in their 403(b) plans and the proposed 403(b) regulations slated to be effective at the end of the year . Accordingly, it may be prudent for a school district to conduct an internal compliance review to determine the level of compliance of its plan... and to get ready for the regulations.
Posted In 401(k) Plans , 403(b) Plans , Public Employee Plans
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Major changes are on the way for 403(b) plans. Named after Section 403(b) of the Internal Revenue Code enacted in 1958, 403(b) plans are retirement annuity contracts, mutual fund custodial accounts for employees of certain tax-exempt organizations, public educational organizations, and retirement income accounts established by churches or church-affiliated organizations.

The Internal Revenue Service is now putting these plans under the most scrutiny in over 40 years. And there are a lot of dollars in these plans. According to Cerulli Associates, a Boston-based consulting firm, there are approximately $650 billion in 403(b) plans.

The IRS' objective? To have 403(b) plans look like, sound like, and act like 401(k) plans. In other words, 403(b) plan sponsors will now have to take responsibility for plan monitoring in contrast to the current practice of letting the employees interact directly with the mutual fund or insurance company. The increased IRS involvement is coming in two areas.

1. Proposed regulations scheduled to be effective in 2008.
2. An outreach program to ensure public schools comply with the Universal Availability rule, i.e., offering the plan to all eligible employees.

Here are some of the rules covered in the IRS regulation:

• A new requirement that there be a written plan document.
• Rules that govern the return of excess employee deferrals.
• New required employer communication and transfer rules.
• Rules governing the timing of depositing employee contributions.
• Coordination of catch-up limits.
• Availability of Roth contributions
• Restrictions on life insurance.
• Ability to terminate the plan.

These are all matter s that 401(k) plan sponsors have been dealing with since the beginning. But for many 403(b) plan sponsors who will be assuming administrative responsibility for these plans for the first time, it’s going to be a difficult process.


Tomorrow, I'll discuss the IRS compliance initiative.

Posted In 401(k) Plans , 403(b) Plans , Public Employee Plans
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Gone scrambling. Back in two weeks. Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Employee Stock Ownership Plans , Pension Protection Act of 2006 , Public Employee Plans , Publications , Seminars and Speaking Engagements
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That’s obviously a twist on the old joke. But it’s not a joke. This country faces new and difficult challenges, and we need the best and the brightest more than ever to work for the federal government. Two organizations, the Partnership for Public Service and American University’s Institute for the Study of Public Policy Implementation (ISPPI) have teamed up to help make that happen. They produce the The Best Places to Work rankings — the most comprehensive and authoritative rating of employee engagement in the federal government.

Agencies and subcomponents are ranked on a Best Places to Work index score, which measures overall employee engagement. The agencies and subcomponents are scored in 10 workplace environment (“best in class”) categories such as effective leadership, employee skills/mission match and work/life balance.

There is also the Overall Index Scores for Employee Satisfaction and Engagement which measures the performance of agencies and agency subcomponents related to employee satisfaction and engagement. And the winners are:

• Large Agencies: Nuclear Regulatory Commission

• Small Agencies: Federal Mediation and Conciliation Service

• Agency Subcomponents: Office of Inspector General (Treasury)

Here is a link to the complete rankings.
Posted In Public Employee Plans
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Public employee retirement plans are wholly underfunded. Some states like Kansas with over $5 billion in unfunded liabilities are trying to deal with it by increasing its contributions and issuing pension obligation bonds. Kansas is going one step further. Kansas Senate Bill No. 362 creates a two-tier retirement benefit system so that some public employees are more equal than others. The Bill increases the retirement age and employee contribution rate in the Kansas Public Employees Retirement System for employees hired after July 1, 2009.

Sound like a plan? The flip side is that future workers who retire under what has been called a reform plan will receive an automatic 2 percent cost-of-living increase every year starting at age 65. Maybe part of the cost will come from a recently passed casino gambling bill which allows Kansas to become the first state to officially own gambling facilities.

Are we still in Kansas, Dorothy?

Hat tip to Nancy at RetirementThink. Posted In Public Employee Plans
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Why tax payers get upset. A California water agency added benefits to the contract of its general manager, including a $20,000 life insurance policy, about 13 hours after his death according to a story in the San Diego News. It hasn't been confirmed that the Board members knew that general manager was dead when they voted for benefits that included medical coverage. The employee's widow received the life insurance benefit but is not receiving health benefits. The County district attorney's public integrity unit is investigating.

Posted In Public Employee Plans
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Last month a group of more than 60 institutional investors and asset managers with collective assets totaling more than $4 trillion, and leading publicly traded corporations, issued a climate policy call to action requesting Congress and the Federal government to take prompt action on global climate change. The coalition, called Investors and Business for U.S. Climate Action, is the first group of leading U.S. investors to issue a statement of this kind, and the first to outline the business and economic rationale for climate action.

It calls for U.S. government actions that are needed to enable the business and investment communities to reduce climate-related business uncertainty and risks and capture climate-related opportunities. The four-page statement, coordinated by Ceres and the Investor Network on Climate Risk (INCR), differs in several key ways from similar statements issued earlier this year by the U.S. Climate Action Partnership (USCAP) and the Global Roundtable on Climate Change (GroCC).

And the response to date? Not much. Ceres reports that to date there has been no response from any of the letters concerning the climate Policy Call to Action sent to President Bush, and the SEC. Against overwhelming evidence, the current government has yet to substantively address climate change risks. Every member of Congress also received a letter and so far only one has made a formal response. Massachusetts Rep. Edward Markey, Chairman of the House Select Committee on Energy Independence and Global Warming, released a press release applauding the Climate Policy Call to Action. 

Here is a link to Ceres' press release.

Posted In 401(k) Plans , Pension Plans , Public Employee Plans
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Just one week after reports that the largest investor in Bell Canada was putting together a consortium to take the company over, BCE, Bell Canada’s parent, announced that it was talking about going private with another investor group.

BCE, which is widely held, has a market value of about US$26.5 billion. A buyout of the 127-year-old company would be the largest ever attempted in Canada and could cost about $US45 billion.

What makes this situation so interesting is that the rival investor groups are led by public employee retirement plans. On one side is the Ontario Teachers’ Pension Fund, the largest investor in Bell Canada, which owns 5.3%. The Fund has been openly critical of BCE's management. On the other side is a group led by The Canada Pension Plan board which manages the funds held by Canada's national public pension program wants a friendly takeover.

The latest negotiations may not mark the end of bidding for BCE. The Ontario Teachers’ fund said that it was still considering "leading an alternative Canadian consortium." This could include several other large Canadian funds, including one that invests for municipal workers in Ontario.

Posted In Pension Plans , Public Employee Plans
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Keller Rohrback, a Seattle-based law firm and one of the leaders in 401(k) class action law suits, has now turned its attention to 403(b) plans. The firm, whose website is named ERISAfraud,com, announced its investigation into ithe National Education Association (“NEA”) Valuebuilder 403(b) variable annuity plan. As background, the NEA has 3.2 million members who work in public education, and it sponsors a 403(b) plan for them. 403(b) plans are named for that section of the Internal Revenue Code which permits employees of tax-exempt organizations under Section 501(c)(3) of the Code and certain educational insitutions to set aside money for retirement on a pre-tax basis - much like 401(k) plans.

The law firm is investigating whether the NEA is endorsing the program limited only to one vendor because of the revenue it receives, or whether it made a prudent decision to endorse the product because it was in the best interest of its members. While there is no certainty that a class action law suit will be filed, don't expect the fee issue involving the underlying funding method of 403(b) plans, variable annuities, to go away soon.


Posted In 401(k) Plans , 403(b) Plans , Public Employee Plans
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My very first client was a municipality whose retirement plans covered uniformed police and firefighters with collectively bargained benefits and the civilian employees covered by civil service rules. Somewhere along the line, we drifted away from public employee retirement plans, but now some years later here we are again - working with benefit plans in the public sector. So I opened up a new blog topic, Public Employee Plans, as the archive for the posts about this very challenging and unique benefit area.

Challenging and unique for a number of different reasons. First, these plans are subject to quite a different regulatory scheme than plans in the private section. Then add to the mix the collectively bargained element, the political area in which these plans operate, and funding issues which impact taxpayers, and it’s certainly not dull work. Stay tuned. Posted In Pension Plans , Public Employee Plans
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I am honored to be a guest speaker at the 2007 Annual V3 Users Conference which is taking place in Palm Coast, Florida on June 6 - 8, 2007. The conference is being sponsored by Vitech Systems Group , a provider of public retirement and multi-employer benefit administration software for users of their V3 Benefits Administration System, an enterprise software solution designed specifically for the needs of public retirement systems.

The title of my presentation is:

THE PENSION PROTECTION ACT OF 2006:
New Challenges and Opportunities for Plan Sponsors, Their Employees, and the Administrators Who Make Their Benefit Programs Work

Vitech expects approximately 120 Fund Administrators, Trustees, heads of IT, and other users of the software. I look forward to this opportunity to meet people who are involved with this rapidly changing part of the benefits world.


Posted In Public Employee Plans , Seminars and Speaking Engagements
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New Jersey Gov. Jon S. Corzine has his eyes on the state’s toll roads as a new source of revenue to pay debt, reduce property taxes and fund unmet needs. The Governor’s idea was to turn over toll roads including the New Jersey Turnpike and the Garden State Parkway to private investors in a sale or lease. State lawmakers who don't like the idea of losing control of the toll roads have come up with a creative alternative. The state pension fund with over $70 billion in assets would buy it as a pension plan investment, and receive the tolls as investment income.

State Senator Raymond J. Lesniak, who introduced a bill last month to authorize the state to negotiate a lease deal with private investors, endorsed the idea of letting the pension fund take over the toll roads. Sen. Lesniak said that it is:

consistent with the fiduciary responsibility of the pension fund to make investments that help New Jersey's economy by reducing debt through a solid long-term investment, and contributing to the overall economic health of New Jersey.

If it  happens, then it better pay off. New Jersey's deficit for its largest public employee pension system grew to $7.2 billion last fiscal year, a $2.7 billion increase from the previous year.

Oh! Before you ask. Public employee pension plans are generally not subject to ERISA’s funding, vesting, disclosure and fiduciary rules

Posted In Public Employee Plans
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More and more, retirees are finding that it pays to have worked for the government instead of the private sector. That’s the headline of a recent article in USA Today reporting that retired government workers are twice as likely to get a pension as their counterparts in the private sector with a benefit more generous. Much has been written about the cost of these public sector plans and the decline in private sector pension plans. Two sides, of course, to the issue. Is it because of the decline in corporate pension plans or because of what public employee unions have been able to achieve? Or maybe both?


Posted In Pension Plans , Public Employee Plans
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Back in the day, pre-ERISA day, many retirement plans had “bad boy” clauses. That is, a provision in the plan under which a participant could forfeit all benefits for being a “bad boy.” That usually meant among other misdeeds criminal conduct. Well, they’re back - at least as far as Congress is concerned. Last November, a diverse coalition of 23 citizen groups led by the 350,000-member National Taxpayers Union (NTU) sent a letter to House Speaker-Elect Nancy Pelosi and Senate Majority Leader-Elect Harry Reid urging them to support a bill that would eliminate the practice of allowing convicted lawmakers to draw taxpayer-subsidized retirement benefits.

At that time, no member of Congress was required to forfeit a pension unless convicted of crimes related to treason and espionage. The NTU noted that as a result, over the past 25 years at least 20 lawmakers guilty of other serious offenses have enjoyed Congressional retirement payments. The NTU also noted that congressional pension benefits are two to three times more generous than those normally offered to similarly paid private-sector workers, and even exceed the standard for most federal executives. There is also a lucrative, supplemental 401(k)-style plan.

The bill never passed. Now new Congress, new politics. Today by a vote of 431-0 the House of Representatives passed a bill that lawmakers convicted of crimes such as bribery, fraud and perjury will be stripped of their congressional pensions. The bill must be reconciled with the Senate bill approved last week as part of larger ethics and lobbying reform before the measure can be signed into law. Only minor differences exist between the House and Senate versions.

And what about those 20 lawmakers referred to above who were convicted of crimes and may be collecting benefits? They’re exempt because both versions of the bill are not retroactive. Surprised? Posted In 401(k) Plans , Pension Plans , Public Employee Plans
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