Rollovers Part Deux

By Jerry Kalish on Posted in 401(k) Plans

Yesterday’s post on missing the 60-day rollover deadline should have included an IRS provided one-page rollover chart (pdf) summarizing the rules with the usual caveat that it is not a substitute for professional tax advice. Sorry for the omission.

This chart illustrates the portability of benefits that has resulted from recent tax law changes. While the rollover focus is usually on the "roll from" side, individuals now participating in a new employer’s qualified retirement plan should consider the "roll to" possibilities. Specifically, a direct rollover to the new employer’s plan from a prior IRA, SEP IRA, SIMPLE IRA (after two years), 457(b) plan, 403(b), or qualified plan.

Depending on the provisions of the new employer’s qualified retirement plan and, if permitted, it may be beneficial to do a direct rollover from a prior plan if:

  • It could be the basis for a loan.
  • It could be used to purchase life insurance in the case of a profit sharing plan.
  • The new employer’s plan has a better investment program.
  • In-kind assets, e.g., individual securities, could be transferred to a directed brokerage account.

In-kind assets, by the way, can include a loan from the prior employer’s qualified retirement plan if, of course, permitted by the Trustees of each plan. The advantage? A participant with an outstanding loan balance can avoid a taxable distribution or having to pay off the loan on the way out and can continue to make loan payments to the new plan.

It’s not over until the IRS says it’s over

By Jerry Kalish on Posted in 401(k) Plans

Recent rulings by the Internal Revenue Service make it easier for individuals who have missed the 60-day tax-free rollover deadline for individual retirement accounts and other tax-advantaged retirement plans to obtain a waiver and successfully complete the rollover.

Generally, there are two conditions under which the IRS may grant a waiver:

  • An automatic extension due to error by the financial institution, or
  • A request for a waiver based on taxpayer circumstances.

Click here for a set of IRS Q&As which provides the details.

Sweet Home Chicago: “Big Box” wage and benefit bill passes

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

Here is today’s Chicago Tribune article on the ordinance that passed the Chicago City Council today requiring "big box" retailers, i.e., Target and Wal-Mart, to pay workers more than the minimum wage including benefits.

Time to move on.

Sweet Home Chicago, Part 2

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

Pardon me for being a Homer but as a Chicago resident and business owner, I have a vested interest in the proposed "living wage" city ordinace I mentioned in my last post. The ordinance, of course, is being compared, correctly or incorrectly, with the recently struck down Maryland law that attempted to impose health care requirements on large retailers, i.e., Wal-Mart.

In that post, I linked to a Chicago Tribune editorial that was in opposition. Now here is the other side. Two legal scholars from the University of Illinois and New York University have concluded in their two analyses that the proposed ordinance was legal and likely to be upheld by state and federal courts.

Click here to read the press release issued by the Brennan Center for Justice that provides an overview of the two studies.

Sweet Home Chicago?

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

While I don’t cover health care benefits in this blog (not even a topic listed on the left side of the masthead), here’s a health care benefit issue I can’t let pass by.

This Wednesday our Chicago City Council is expected to vote on an ordinance that would require large retailers in the city to pay a "living wage" that would rise to at least $13 an hour in salary and benefits in 2010. This follows in the wake of last week’s decision by a federal judge that struck down Maryland’s effort to force Wal-Mart to to pay more for health care benefits for its employees in the state.

Today’s editorial in the Chicago Tribune says, Chicago, take a look at Maryland.

Roger, that!

Investing 101

By Jerry Kalish on Posted in 401(k) Plans

Picking an index fund is easy, right? It’s generally considered to be a commodity, and so the one with the lowest cost is it.

Apparently, it’s not even close to easy for the subjects of a recent study conducted by professors at Yale. In the best case scenario, 80% of the subjects failed to pick the lowest cost index fund. The subjects of the study? Wharton MBA and Harvard College students.

If you are a proud parent of a son or daughter at Wharton or Harvard, don’t feel pessimistic about their ability to manage their future 401(k) and 403(b) accounts. Help is supposed to be on the way. The new "pension protection" bill that could pass as early as next week may include a provision that allows 401(k) plan service providers to provide investment advise to plan participants. Good deal or bad deal for plan participants? The devil, as they say, is in the details. Let’s wait and read the fine print.

For more about the Yale study, here is a link to The Capital Spectator’s post which describes the study in more detail and includes a click through to a copy of it.

Au Contraire

By Jerry Kalish on Posted in 401(k) Plans

A recent article about late 401(k) deposits in the on-line edition of the Los Angeles Times reports, or rather editorializes, that “investment losses from late deposits can add up, but the rules are vague and enforcement is lax.”

The first part is correct. Investment losses can add up, but the rules are not vague, and enforcement is not lax.

Under Department of Labor (DOL) regulations, 401(k) contributions must be deposited by the earliest date on which those contributions can reasonably be segregated from the employer’s general assets, but no later than the 15th day of the month following the month of withholding.

The DOL does, in fact, continue to pay significant attention to the enforcement of this deadline, and has taken the position in their audits that the deadline under this standard almost always occurs prior to the 15th day of the month following withholding. The deadline in almost every case has turned out to no more than one to two weeks following withholding and, in many cases, to be no more than a few days following withholding depending on the employer’s individual facts and circumstances, i.e., the manner in which payroll taxes are withheld.

Form 5500 asks if the employer failed to transmit to the plan any participant contributions within the required time period. If the employer has answered "no" , then it should not be surprised if there is a knock on the door.

Click here to read the article.

The dust has settled

By Jerry Kalish on Posted in 401(k) Plans

In recent years financially troubled companies have begot financially troubled retirement plans which have begot ERISA lawsuits. The resolution of these lawsuits teaches important lessons for plan fiduciaries. The law firm of Gardner Carton & Douglas comments on these lessons in their July 2006 HR  Law/Employee Benefits Client Memorandum and reminds plan fiduciaries that:

  • Executives can also be fiduciaries.
  • Oversight responsibility means monitoring and, if necessary, replacing service providers.
  • There must be proper and adequate communications with participants.
  • There is a duty to disclose potential plan changes.
  • Procedure prudence is the key.

The Memorandum in PDF format can be downloaded here.

They call it “Pension Reform”

By Jerry Kalish on Posted in Defined Benefit Pension Plans

Susan Mangiero in her Pension Risk Matters blog writes about a recently introduced bill in California that would  prohibit a company from paying out dividends or buying back shares until all required defined benefit plan payments have been made. The proposed bill – and the politics behind it – conveniently ignores the massive unfunded pension liabilities in California, e.g, the California State Teachers’ Retirement System faces a $24 billion unfunded pension liability.

But we got them beat in my home state of Illinois which at $35 billion has the largest unfunded pension obligation in the country. The Fitch Rating service released a “negative outlook” for Illinois finances – one of only three negative outlooks issued by the rating service in its review of the states. The other two? Louisiana dealing with the aftermath of Hurricanes Katrina and Rita and Michigan dealing with massive problems in the automobile industry.

Um! Should there should be a law that no more salary increases for state legislators until pension liabilities are met?


LexBlog