“Fog lights” now available for terminating 403(b) plans

By Jerry Kalish on Posted in 403(b) Crunch Time Series, 403(b) Plans

In November, 2008, we published a series of blog posts called, 403(b) Crunch Time Series. The purpose of which was to help 403(b) plan sponsors get ready for the January 1, 2009 deadline for new IRS 403(b) regulations.

It was the first time in over 40 years that the IRS provided comprehensive guidance for 403(b) plans who now had to deal with such issues as:

  • Requirement for a plan document
  • Rigorous application of the non-discrimination rules
  • Employer responsibility for complying with contribution limits
  • Timing of contributions.
  • Transfers to other 403(b) contracts
  • Employer responsibility for coordinating and tracking loans
  • Plan termination

Most recently the IRS addressed the last issue, plan termination, in recently released Revenue Ruling 2011-7. 

Attorney Bob Toth who joined me in the afore-mentioned 403(b) Crunch Time Series and now has his own blog, The Business of Benefits, discusses what’s been clarified and what hasn’t in his recent post, 403(b) Terminations Under Revenue Ruling 2011-7: Establishing the Base. 

Terminating a 403(b) plan is not just one of those technical tax issues. It involves one of those basic retirement tax planning objectives, tax deferral. 

Because if a 403(b) plan hasn’t been "terminated", then there is no been no distributable event. And if there has been no distributable event, then any participant who had his account transferred to an IRA or another retirement plan would find himself or herself with a tax liability. Hardly, the desired outcome.

So while Bob Toth and the other 403(b) experts are starting to lift the fog, 403(b) sponsors still should step carefully before "terminating" the plan and distributing the benefits. The law of unintended consequences may apply. 

IRS announces 50% fee discount to “fix” plans not timely amended for EGTRRA

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans, EGTRRA Restatement Series

 Retirement plans can get get pretty complicated also, but "fixing" one doesn’t necessarily have to be.

That’s the focus of the recent IRS announcement reaching out to employers who did not timely amend their Plans for EGTRRA. Here’s the background.

Most retirement plans had to be amended and restated no later than April 30, 2010 to comply with the 2001 tax law, The Economic Growth and Tax Relief and Reconciliation Act. That law “acronymized” to EGTRRA made significant changes to the Internal Revenue Code as it affected retirement plans.

(See our EGTRRA Restatement Series and last year’s Benefit Briefing, Why a Law Passed in 2001 Is So Important To Plan Sponsors in 2010).

Why was meeting the April 30, 2010 deadline so important? A Plan can lose its tax qualified status if the plan sponsor fails to make required plan amendments on a timely basis.

If April 30, 2010 has come and gone for those employers who didn’t timely amend, the IRS has the Voluntary Correction Program through which employers can correct this plan document failure. The IRS is encouraging employers to take advantage of this program by offering a discounted fee of 50% but only until April 30, 2011.

For the details, here is a link to the IRS Voluntary Correction Submission Program for plan sponsors who missed the April 30, 2010 EGTRRA restatement details. 

How Am I EVER Going to Retire? (Book Review)

By Jerry Kalish on Posted in 401(k) Plans, 403(b) Plans, Book Reviews

That’s Bob Walker on the cover of his new book, How Am I EVER Going to Retire?

If you’re in the investment business and have had – or have – to pass the Series 6, 7, 63, 65, or 66, you may know who Bob is.

He’s the owner of Pass The Test, Inc., the Chicago-based company who produces books, practice exams, and audio CD’s to help pass these tests.

And he does so in the most effective matter possible – in plain English. A result, no doubt, of his background as a teacher with a Fine Arts Masters Degree in Creative Writing from the University of Oregon.

Bob has now turned his attention beyond the investment industry. His book, How Am I EVER Going to Retire?, available in a Kindle edition from Amazon, is directed towards the individual who has either not started investing yet, or is a participant in his company’s 401(k) plan that he doesn’t understand or may not even participate in.

In an understandable, easy to read manner, Bob explains the essentials:

  1. Types of Investments
  2. Mutual Funds
  3. Types of Accounts
  4. Annuities
  5. Investment Approaches
  6. The Investment Industry
  7. The Regulators
  8. Don’t Get Took
  9. More Types of Investments
  10. Defense Wins the Game

It may be the best $5.99 investment someone who needs to get started saving for retirement can make.

New DB(k) plan two sides of the same retirement plan

By Jerry Kalish on Posted in 401(k) Plans, Cash Balance Plans, DB(k) Plans, Defined Benefit Pension Plans

There’s a new retirement plan design available, and it’s called a DB(k) Plan. What exactly is it?

As the name and visual metaphor suggest, it’s a combination retirement plan that allows an employer to provide both 401(k) benefits and pension benefits (traditional defined benefit or Cash Balance).

DB(k) Plans were added to the Pension Protection Act of 2006 which added Section 414(x) to the Internal Revenue Code. While these plans were made effective on and after January 1, 2010, there hasn’t been any guidance from the Internal Revenue Service until recently.

Last month the IRS issued guidance for DB(k) Determination Letters as part of Revenue Procedure 2011-6. Now you’ll be hearing a lot more about these unique retirement plans in this blog space so stay tuned. 

Picture credit: Two Sides of the Same Coin by Paul H. 

2010 Tax Planning: In-Plan Roth Rollovers

By Jerry Kalish on Posted in 401(k) Plans, Individual Retirement Accounts

The Small Business Jobs Act of 2010 permits in-plan rollovers to a Roth account effective for all distributions made after Sept. 27, 2010. Prior to this law, Participants had to roll money out of their retirement plan to a Roth IRA to invest after-tax.

In 2010 only, a one-time special tax rule allows a rollover from a taxable account to a Roth Account completed in 2010 can be included in income in 2011 and 2012.

Because of this unique opportunity, it was necessary for the IRS to release some guidance on questions that were not answered in the Small Business Jobs Act.

Notice 2010-84 (issued Friday November 26th) clarifies a number of issues regarding in-plan conversions to a Roth account (in-plan Roth rollovers) including:

  • Clarifying that 401(k) and 403(b) plans may retroactively amend plans for in-plan Roth rollovers;
  • 402(f) notices need to be modified to add in-plan Roth rollover information (although safe harbor notices do not require modification for 2010 and 2011); and
  • Clarifying several taxation and distribution issues.

What Can Be Rolled Over

Any taxable, eligible rollover distribution can be rolled over (in-service or after termination distributions). The plan may also provide that in-plan Roth rollovers are allowed for any permissible distribution under the Code while the plan may have more restrictive distribution requirements.

For example: plans may be amended to provide that in-service distributions are permitted at age 59-1/2 for in-plan Roth rollovers while the plan provides for no in-service distributions at a specified age.

Plans need to consider whether in-plan Roth rollovers will be allowed for any distribution under the plan (in-service and after termination distributions) or whether additional options will be available for purposes of in-plan Roth rollovers. Note that in-plan Roth rollovers are only permissible if the distribution is an eligible rollover distribution.

What Must be Done Before an In-plan Roth Rollover May Occur

The written plan must provide for 401(k)/403(b) elective deferrals. The plan can retroactively amend to provide for Roth deferrals but participants must be notified that they may begin making Roth elective deferrals. In-plan Roth rollovers made in 2010 will be includible in gross income in 2011 and 2012 unless the participants elect to have the income included in 2010.

Click here for the IRS Rollover Chart that has been updated to include the new in-plan Roth rollover option that is now in effect. 

Participant procrastination perils proper pension planning

By Jerry Kalish on Posted in 401(k) Plans, Automatic Enrollment, Behavioral Finance

I’ve seen it first hand with many employees eligible to participate in 401(k) plans. That is, employees who choose not to save for retirement. Sometimes, there’s a logical and personal reason. But sometimes, it’s just … procrastination.

And that part of it, I could never understand. But I now have a little more insight thanks to an article written by Steve Martin in the November 9, 2010 issue of Inside Influence Report. Mr. Martin alliteratively writes about the persuasive pull of procrastination.

Mr. Martin looks at recent research that explains why many people find it easy to come up with excuses that put off things for some time in the future. Not just unpleasant tasks, mind you, but things like saving money.

The research he cites is the article Procrastination of Enjoyable Experiences, Journal of Marketing Research (2010 in press), written by Suzanne Shu from the Anderson School of Management at UCLA and Ayelet Gneezy from the University of California in San Diego.

Here’s what their study was about. They offered participants a gift certificate good for coffee and cake at a high-end local bakery. Some participants were offered gift certificates that would expire in three weeks and another that would expire in two months.

When asked when they would use the gift certificates, more participants in the two-month group said they would use the certificate than did the three-week group (68% vs. 50%). The reality was quite different. About a third of the three-week group redeemed theirs, but only 6% of the two-month certificate redeemed theirs.

But how do we know that the results of the study were caused by procrastination and not something else. Mr. Martin tells us:

In order to ensure that the results of the study were attributable principally to procrastination and not another factor or reason, a series of follow up surveys were completed. Those who did redeem the certificates reported an enjoyable and worthwhile experience. Those that didn’t redeem them conveyed their regret and were most likely to agree with  statements such as “I got too busy and ran out of time” or “I kept thinking that I would do it a bit later.” There was a much lower agreement to statements such as “I forgot” and “I don’t like pastries” or “It seemed like too much effort.”

So lets relate this study to 401(k) procrastination. Are there employees who think the same way? Particularly, “I kept thinking that I would do it a bit later.” or “It seemed like too much effort.” You bet there are. 

This is exactly what automatic enrollment addresses, or as I said a while back, 401(k) automatic enrollment or how to overcome employee inertia.  

Picture credit: Kevin’s Practical Hacks blog post, 6 Simple Steps To Conquer Procrastination. 

403(b) and 457 Seminar at John Marshall Law School

By Jerry Kalish on Posted in 403(b) Plans, Events, Seminars and Speaking Engagements

Last month, I participated in a seminar at the John Marshall Law School, “New Rules for Non-Traditional Retirement Plans”, as part of the Law School’s LLM Program in Employee Benefits.

The seminar was led by attorney Bob Toth with whom I collaborated in our 403(b) Crunch Time Series. Bob is considered one of the leading experts on 403(b) plans, 457 plans, and the annuitization of 401(k) Plans. He blogs at his firm’sBusiness of Benefits blog.

The seminar was first given in October, 2009, my presentation slides for which are posted here. Here’s my 2010 presentation which discussed the new 403(b) rules one year later.

Jerry Kalish for John Marshall Law School 403(b) Course-Oct2010

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Key dollar limits on contributions and benefits remain unchanged for 2011

By Jerry Kalish on Posted in 401(k) Plans, 403(b) Plans, Cash Balance Plans, Defined Benefit Pension Plans

Every year the Internal Revenue Service announces the cost-of-living adjustments applicable to qualified retirement plans for the following year. The limits will remain unchanged for the second consecutive year. 

 Following are the key retirement plan limits for 2011 recently announced by the Internal Revenue Service:

  • 401(k) and 403(b) Deferrals: $16,500
  • Catch-Up for Age 50 and older: $5,500
  • Defined Contribution Maximum Allocation: $49,000
  • Defined Benefit Maximum Annual Benefit:$195,000
  • Maximum Compensation for Retirement Plan Purposes: $245,000
  • Highly Compensated Employee (HCE) Threshold: $110,000

Click here to download our chart for a list of all the retirement plan limits for 2011 compared to 2010. 

Similarly, the Social Security Administration announced that for the second year in a row, there will be no automatic increase in Social Security and SSI benefits or the taxable wage base ($106,800) because there was no increase in the cost of living.

But what about Medicare premiums and deductibles? Here’s an excellent explanation in Sibson Consulting’s Capital Checkup website:

The standard monthly Part B premium and deductible will both increase by slightly more than 4 percent. This is less than the 14 percent increase between 2009 and 2010. The dollar amounts are shown in the first two rows of the table below. However, most Medicare beneficiaries will continue to pay the same $96.40 premium they paid in 2010 because of a "hold-harmless provision" in the law.2 (Because Social Security benefits will not increase in 2011, as announced by the Social Security Administration, certain beneficiaries will not pay the 2011 Part B premium rate.)

About a quarter of Medicare beneficiaries cannot take advantage of the hold-harmless provision because either they do not have their Part B premiums withheld from Social Security, they have their Part B premiums paid on their behalf by Medicaid, they are subject to the income-related additional premium amount discussed below, or they are new enrollees. These individuals will pay the higher 2011 premium rate.

I’ll refrain from any political commentary, but you can read Sibson’s entire article, 2011 Medicare Premiums, Deductibles, and Co-Insurance, for a complete explanation of the Medicare changes for 2011. 

Navigating the New 403(b) Rules One Year Later: John Marshall Law School Presentation

By Jerry Kalish on Posted in 403(b) Plans, Audio/Visuals

On October 8 and 9, 2010, I participated in a seminar at the John Marshall Law School, "New Rules for Non-Traditional Retirement Plans", as part of the Law School’s LLM Program in Employee Benefits.

The seminar was led by attorney Bob Toth with whom I collaborated in our 403(b) Crunch Time Series. Bob is considered one of the leading experts on 403(b) plans, 457 plans, and the annuitization of 401(k) Plans. He blogs at his firm’s Business of Benefits blog.

The seminar was first given in October, 2009, my presentation slides for which are posted here. Here’s my 2010 presentation which discussed the new 403(b) rules one year later.  

Jerry Kalish for John Marshall Law School 403(b) Course-Oct2010

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403(b) and 457 “Lunch and Learn” at John Marshall Law School

By Jerry Kalish on Posted in 403(b) Plans, Audio/Visuals, Events, Seminars and Speaking Engagements

Today I presented a “Lunch and Learn” about 403(b) and 457 retirement plan for the students at John Marshall Law School. It was a preview to the two day seminar on October 8 and 9, 2010 in which I will be participating. It’s called “New Rules for Non-Traditional Retirement Plans”, as part of the Law School’s LLM Program in Employee Benefits.

I’ll post the seminar presentation later, but in the meantime, here is today’s effort.

John Marshall Law School “Lunch and “Learn” 403(b)

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