Defined benefit pension plans: going, going, … redux

By Jerry Kalish on Posted in Defined Benefit Pension Plans

In an earlier post with the same headline, I cited the decline in the number of defined benefit pension plans from 1985 to 2005: from approximately 112,000 to 29,000.

I’m certainly not the only one who has commented on the passing of defined benefit pension plans. Today Robert Pozen, Chairman of MFS Investment Management, in a speech to the Society of Professional Recordkeepers and Administrators in Palm Beach, Florida predicted the demise of defined benefit pension plans. Precipitated, he said, by law changes, new accounting rules, and funding shortfalls.

But Mr. Pozen expressed the situation in a manner to which we could all better relate. Where will retirement income come from:

  • In 1974, 56% of retirement income came from Social Security and defined benefit plans.
  • By 2030, only 24% of retirement income will come from Social Security and defined benefit plans.

Starting saving Gen X!

Source: Investment News, November 6, 2006.

IRA is not a kid anymore

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans, Individual Retirement Accounts, Pension Protection Act of 2006

From its humble beginning in 1974 as part of the Employee Retirement Income Security Act of (ERISA), the Individual Retirement Account along with cousins Roth, SEP, and SIMPLE, has grown up. It’s now an increasingly important investment vehicle for retirement savings and tax planning. And it will become even more so as the Boomers start retiring.

In just 5 short years since the passage of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) in 2001, we have seen some significant – and positive – changes in the tax laws that affect IRAs with more to take effect between now and 2010. These include:

  • Portability between IRAs and qualified retirement plans.
  • Increased IRA contribution limits including the addition of a catch-up.
  • Roth 401(k) option starting in 2006.
  • IRA distribution to charity for donors over age 70½ for 2006 and 2007.
  • Rollover to an IRA from a qualified retirement plan by a non-spouse beneficiary beginning in 2007.
  • Direct transfer of tax refund to an IRA starting in 2007.
  • Direct rollover to a Roth IRA from a qualified retirement plan beginning in 2008.
  • Elimination of the Roth IRA income restriction for converting a traditional IRA to a Roth IRA starting in 2010.

You’ve come a long way IRA.

For an excellent history of the IRA, download a copy of The Individual Retirement Account at Age 30: A Retrospective (24 pages PDF) published in 2005 by the Investment Company Institute, the national association of the U.S. investment company industry, i.e, mutual fund companies.

Retirement plan pitfalls for plan sponsors to avoid

By Jerry Kalish on Posted in 401(k) Plans, Fiduciary Matters

Most of the retirement plan coverage in the mass media is about bad things happening to employees or some aspect of the Pension Protection Act of 2006. So it’s always good when a writer points out to plan sponsors that they have certain obligations in managing their retirement plans and the problems to avoid.

Marc Miller does exactly that in his article, Business Owners Beware of Retirement Plan Pitfalls, that appeared recently in the Oroville California Mercury Register.  Mr. Miller cautions business owners to:

  • Retain plan records
  • Distribute employee notices
  • Make prudent investment choices
  • Make timely salary deferral deposits

All basic, of course, and I am sure not intended to be all-inclusive. So in light of increased compliance activity by the regulatory agencies, here are a few other areas to which plan sponsors should pay special attention.

The Department of Labor which oversees fiduciary, reporting, and disclosure aspects of retirement plans has a special focus on these two areas:

  • Timely salary deferral deposits. No, not a word processing glitch, but to emphasize again the importance of remitting employee contributions to 401(k) providers as soon as possible.
  • Fees paid by a retirement plan.

The Internal Revenue Services which oversees the tax aspects of retirement plans has a special focus on these four areas:

  • Discrimination testing.
  • Plan loans.
  • Vesting.
  • Military leave issues.

And one issue becoming increasing important – security of retirement plan data.

It’s 10:00 in the evening. Do you know where your 401(k) plan is?

By Jerry Kalish on Posted in 401(k) Plans

It could be on someone’s laptop computer.

And it could have been your 401(k) plan’s employee information and financial data as it was for one company whose 401(k) information was on a laptop owned by a Savannah accounting firm that was stolen earlier this month.

In fact, more than 600,000 laptops are stolen every year, totaling about $720 million in hardware losses, according to 2003 figures from computer insurer Safeware, The Insurance Agency Inc. And the FBI says that 97% of stolen laptops are never recovered.

But the damage is not just the hardware losses. It’s the potential for identity theft. 401(k) records generally have it all: employee names, addresses, dates of birth, dates of hire, Social Security number, and account balances.

And who has access to those records? It could be anyone at the plan sponsor or the service providers that "touch" the 401(k) plan.

Plan sponsors and other fiduciaries have a lot to be concerned about these days. Add one more item to the list.

Tom Fragala’s article on his Truston Identity Theft Blog, "Top 10 Ways To Protect Yourself From Laptop Theft" may help. 

Ice Age descends on Pensionland

By Jerry Kalish on Posted in Defined Benefit Pension Plans, Pension Protection Act of 2006

Right after the Pension Protection Act of 2006 was passed, I read comments that the new Act would help employees by removing uncertainty about funding, and it would avoid pension plan terminations and freezes.

Not!

A Quick Poll recently released by SEI revealed that almost a third (29%) of the employers polled said that they will either close, freeze or terminate their pensions by the end of 2007. If that were to occur, 52% of all US and Canadian plans polled will be closed, frozen or terminated by the end of 2007.

We can expect to see freezes become much more common in the last quarter of 2006 as employers prepare to comply with new accounting rules that put pension obligations directly on their balance sheets.

The emergence of pension plan freezes (a cessation of future benefit accruals in an existing pension plan) apparently engendered the Pension Villain’s Elegy on the Pensions & Benefits Weblog.

The risk’s not worth the burden. Time to freeze.
But not to worry: we have a great 401(k)!
This cut will benefit our employees.

FAS 158 gives our balance sheet the squeeze
While our cash projections wobble from PPA.
The risk’s not worth the burden. Time to freeze.

Our workers need to be their own trustees.
Just educate them; they’ll learn to find their way.
So this cut will benefit our employees.

Our old plan’s tangled up in legalese.
The DB pension system’s seen its day.
The risk’s not worth the burden. Time to freeze.

Our competition’s boosted their DCs,
And what works for Wall Street’s good for the U.S.A.
This cut will benefit our employees.

We know you thought we promised more, but please,
Eventually as a hybrid plan we may.
The risk’s not worth the burden. Time to freeze,
And this cut will benefit our employees.

Should we benefit people start using the term 401(k)world instead of Pensionland?

401(k)s for B.A.s?

By Jerry Kalish on Posted in 401(k) Plans

Maybe yes, maybe not quite yet.

On the yes side, Joseph Kenney in a post makes a compelling argument for recent college grads to immediately start contributing to their employers’ 401(k) plans on their first job.

On the not quite yet side, Liz Pulliam Weston, a columnist for MSN Money, says first things first. Pay off that student loan and any outstanding credit card debt.

Obviously, there is no one right answer. It just depends.

Here are the links to the two articles.

Joseph Kenney on Retirement Planning for Recent College Grads.

Liz Pulliam Weston on How to Blitz Your College Debts.

IRS announces 2007 benefit and contribution limits

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

The IRS today announced 2007 cost-of-living adjustments to dollar limitations for qualified retirement plans. Here are the highlights:

Highly Compensated Employee Definition $100,000
Annual Compensation Limit $225,000
401(k) Contribution Limit   $15,500
Annual Defined Contribution Limit   $45,000
Annual Defined Benefit Limit $180,000

Click here for  the full IRS announcment.

Solo 401(k) for the self-employed

By Jerry Kalish on Posted in 401(k) Plans

Walter Updegrave, a financial columnist, for CNN Money.com writes about the Solo 401(k) for self-employed individuals. Combined with a profit sharing component, this type of defined contribution plan can produce the largest contribution compared to other defined contribution plans. Mr. Updegrave makes this point by comparing the Solo 401(k) to a SEP using the example of a self-employed individual, age 50, who has $50,000 in earned income.

A $20,000 difference as shown below:

Maximum Profit Sharing $10,000
Maximum 401(k) $15,000
Maximum 401(k) Catch Up $  5,000
Maximum Solo(k) $30,000
Maximum SEP $10,000

Here  is the link to Mr. Updegrave’s article.

Pension Protection Act Seminar

By Jerry Kalish on Posted in Events, Pension Protection Act of 2006, Seminars and Speaking Engagements

"GUARDIAN UNIVERSITY�"
Tuesday, November 7, 2006

Lanny D. Levin Agency, Inc,
presents

Pension Protection Act of 2006�:
Challenges and Opportunities
(3 hours CE credit applied for)

Speakers:
Jerry Kalish, National Benefit Services, Inc.
Lanny D. Levin, CLU, ChFC, LANNY D. LEVIN AGENCY, Inc.

Some of the topics:

  • Extension of EGTRRA Provisions
  • Retirement Plan Provisions
  • Long Term Care Provisions
  • New 401(k) Safe Harbors
  • New Rules on Taxation of Employer-Owned Life Insurance
  • Charitable Rollover Rules
  • New Distribution Rules for Non-Spousal Beneficiaries

Coffee & Rolls at 8:00 a.m.
Class begins promptly at 8:30 a.m. (ends at 11:30 a.m.)
Oakton College Business Conference Center, Golf Road, Des Plaines (just west of I-294)

Here is the link to the registration form (PDF), or
Call Phyllis Scholnick (847) 266-2243 or Email phyllis_scholnick@levinagency.com

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