issue is there a “roth 401(k) or 403(b)” in your future?

Congressional Outreach....... 3

Hybrid Pension Plans........... 4

Cash Balance Br ief ing........ 5

IRS “Best Practices” Memo ... 6

Interprofessional Activities ... 8

New ASPA Board Members ..... 15

DOL Bluepr int...................... 29

Membership Survey............ 30

Focus on CE.......................... 31

Focus on ASPA PERF........ 32

Focus on E&E....................... 33

Calendar of Events............. 35

PIX Digest ............................. 36

WASHINGTON UPDATE

Continued on page 27

IN THIS ISSUE

March

Madnessby Brian H. Graff, Esq.

Actuaries, Consultants, Administrators and Other Benefits Professionals

Is There A “Roth 401(k)

Or 403(b)” In Your

Future?by Steven Oberndorf, Esq. and Richard Hochman, APM, Esq.

Vol. XXIX, Number 2 March-April 1999

Other Highlights of the “Retirement Savings

Opportunity Act of 1999”

Other changes that the Senator from Delaware would like to seeinclude:

• increased annual pre-tax contribution limits for 401(k) plans,403(b) plans, SIMPLE plans, and IRAs;

Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) is hard at work again. The father of the

popular Roth IRA and proponent of increased saving forretirement wants to give individuals the option of payingtaxes on their contributions to 401(k) plans. In return forpaying taxes up front on the contributions, the 401(k) planwould resemble a Roth IRA. This results in earnings being

sheltered from current taxation and being withdrawntax-free upon distribution. Tax-sheltered 403(b) ar-rangements also will be eligible to take advantage ofthe Senator’s proposal that he titled the “RetirementSavings Opportunity Act of 1999” (another hard topronounce acronym – RSOA ‘99).

The phrase doesn’t just apply tocollege basketball. Now that the im-peachment trial is over, Members ofCongress from both sides of the aisleare chomping at the bit to introduce leg-islation affecting pensions. In addition,the Federal agencies are soon expectedto release a flurry of important guidance.There is a lot going on, and you can be

2 ■■■■■ THE PENSION ACTUARY ■■■■■ MARCH-APRIL 1999

American Society of Pension Actuaries, Suite 820, 4350 North Fairfax Drive, Arlington, Virginia 22203-1619Phone: (703) 516-9300, Fax: (703) 516-9308, E-mail: [email protected], World-Wide Web: http://www.aspa.org

The Pension Actuary is produced by the executive director and Pension Actuary Com-mittee. Statements of fact and opinion in this publication, including editorials and letters tothe editor, are the sole responsibility of the authors and do not necessarily represent theposition of ASPA or the editors of The Pension Actuary.

The purpose of ASPA is to educate pension actuaries, consultants, administrators, andother benefits professionals, and to preserve and enhance the private pension system as partof the development of a cohesive and coherent national retirement income policy.

Editor in ChiefBrian H. Graff, Esq.

Pension Actuary Committee ChairStephanie D. Katz, CPC, QPA

Pension Actuary CommitteeDonald MackanosChristine Stroud, MSPADaphne M. Weitzel, QPA

Managing EditorStephanie D. Katz, CPC, QPA

Associate EditorJane S. Grimm

Technical Review BoardLawrence Deutsch, MSPAKevin J. Donovan, APMDavid R. Levin, APMMarjorie R. Martin, MSPADuane L. Mayer, MSPANicholas L. Saakvitne, Esq.Mark Wincek, Esq.

Layout and DesignChip Chabot and Alicia Hood

Copy EditorAmy E. Emery

ASPA Officers

PresidentCarol R. Sears, FSPA, CPC

President-electJohn P. Parks, MSPA

Vice PresidentsCraig P. Hoffman, APMScott D. Miller, FSPA, CPCGeorge J. Taylor, MSPA

SecretaryGwen S. O’Connell, CPC, QPA

TreasurerCynthia A. Groszkiewicz, MSPA, QPA

Immediate Past PresidentKaren A. Jordan, CPC, QPA


• catch-up contributions to qualifiedplans and IRAs for older Ameri-cans;

• elimination of the 415(c) 25%compensation limit for definedcontribution plans;

• liberalization of the Roth IRA eli-gibility and promotion of IRAcontributions to employer plans;and

• increase of the full funding limitfor defined benefit plans.

Thrift Plans with a Twist: TheRoth 401(k) and Roth 403(b)?

The Senator’s description of the“Retirement Savings OpportunityAct of 1999” provides that employ-ers would have the option to let par-ticipants in employer-sponsored401(k) and 403(b) plans decidewhether they want to make their con-tributions on a before or after-taxbasis. If the decision is to allow af-ter-tax contributions, the plan wouldoperate much like an old-fashionedthrift plan but with a new twist. (Re-member, many of the earliest 401(k)

plans had their roots as after-tax thriftplans.) Taxes on earnings would notmerely be deferred until distribution,but they would never be taxed. Thiseffectively creates a “Super” RothIRA, because the higher qualifiedplan limit ($10,000 in 1999), insteadof the IRA annual limit ($2,000), de-termines the maximum annual con-tribution the individual personallymay make.

Unlike a Roth IRA, however, thequalified plan rules will continue toapply to these plans, and this raisesmore questions of how to administerthe plan than it answers. [See “Wash-ington Update” for answers to someof these questions.] For example, thebill’s summary notes that the mini-mum required distribution rules willcontinue to apply to the Roth 401(k)and 403(b) plans, but does not givedetails about which other qualifiedplan rules also will continue to ap-ply. These rules may prevent employ-ees from making their maximumemployee contribution for a givenyear, unless the antidiscriminationrules are adjusted for the shift from

pre-tax to after-tax contributions.Other questions, such as the follow-ing, need to be answered: Will theADP and ACP tests, as currently ap-plied, continue to limit how muchhighly compensated participants willbe able to defer? Will testing provi-sions and procedures be modified toaccommodate significant shifts ofcontributions from the ADP to theACP test? While the proposal infersthat existing plan distribution ruleswill continue to apply, can this be thecase? In profit-sharing plans after-tax money may be withdrawn with-out a holding period. Does this meanthat the after-tax 401(k) contributionswill be immediately eligible for with-drawal, or will a holding period simi-lar to a Roth IRA ultimately berequired? May participants completea Roth 401(k) “conversion” of cur-rent elective deferrals and earnings?If so, how can this be effected withinthe context of a qualified plan? (Thismay prove an especially thorny is-sue to quantify because of the meth-

MARCH-APRIL 1999 ■■■■■ THE PENSION ACTUARY ■■■■■ 3


FOCUS ON GAC

Developing a

Relationship with a

Congressional

Memberby Sarah E. Simoneaux, CPC


Before I spoke to Michelle, Iasked Brian to give me some politi-cal background on Breaux. As a reg-istered Republican with conservativeleanings, I wanted to make sure thatI did not alienate Senator Breaux, amoderate Democrat, or his staffer.Brian noted that Senator Breaux wassupported by unions, lower to middleincome families, public employeesand women.

I then asked Brian for informa-tion on what Michelle might want toknow and how I should representASPA’s position. He gave me theGAC summary of the differencesbetween SAFE and SMART and saidthat I should emphasize qualifiedplans over IRAs, repeal of top-heavyand the 25% limit, and SAFE as asmall plan DB alternative.

In my first conversation withMichelle, I told her about the localbusinesses, which I represented, and

that I “worked with small businessretirement plans”. I tried to avoidjargon, and even such words as “pen-sions” or “qualified plans”. We alsospoke about where she came from inLouisiana and how my husband andI fit into Louisiana, to try to developa personal tie, so that she would re-member me the next time she called.

I then asked if she had any spe-cific questions about retirement is-sues being raised by the commissionand Senator Breaux. She admittedthat she was new to the area, but hadread up on qualified plans. Shewanted to know about how “we” (notmeaning ASPA specifically, but re-ally small businesses in Louisiana)felt about adding “catch up” provi-sions to qualified plans and “giantIRAs” instead of expanding qualifiedthrough SAFE/SMART or 401(k)modifications.

Over one year ago, Senator John Breaux (D-Louisi- ana), a member of the Senate Finance Committee,

was appointed to a bipartisan commission studying retire-ment issues. He designated one of his newer staffers, MichellePrejean, to be responsible for the qualified plan issues raisedby the commission. Brian Graff called and asked me to speakwith Michelle about qualified plans in general and ASPA’spoint of view specifically.

Marching to

the Hillby Edward H. Thomson, III,MSPA, QPA

It is that time of year again. TheOctober 15 deadline haspassed and(hopefully) all the December 31,1997 cases have been shipped out thedoor to the plan sponsors for signa-tures. And, yes, it’s ASPA time. Thismeans two things - it is time for ourannual conference and time for thehearty few to march to the Hill tospeak with their respective Memberof Congress. I have been fortunateto have had the opportunity to be apart of the last four or five trips tothe Hill and have found them to be atthe least, interesting, and at best, alot of fun.

The first question is “What’s thepoint?” To start with, the “Point” isto begin a relationship with the Mem-ber. Whether it’s your Representa-tive or Senator, you want to havesomeone to contact when importantpension issues arise. All of the Mem-bers have a staff person assigned toemployee benefit issues. You aremost likely to meet with that personwhen you go to the Hill. “Why isthe staffer important?” Without thestaffer, you go nowhere. With all thepeople that are vying for theMember’s time, as well as all of theissues he must review and consider,the most important person to knowis the staffer assigned to your issue.The staffer is the filter through whichall information flows. The easiestway to get your issue to the top ofthe pile is through your relationshipwith that staffer. The Member isprobably not going to be in Wash-ington when we are there for our con-ference. He is usually back in his


Trends in Pensions –

Hybrid Pension Plansby Raymond J. Lee, MAAA and William P. Bishop, MSPA, CPC, QPA, FCA

Today, it has been reported thatmore than 300 large employers haveswitched from a traditional definedbenefit plan to a hybrid design.Among the more recent converts areBell Atlantic and the California StateTeachers Retirement System.• What exactly is a hybrid pension

plan?

• Which employers are the best can-didates for these types of plans?

• Do hybrid plans make sense forsmaller employers?

This article answers these ques-tions, and discusses potential prob-lems that may be encountered whentransitioning from a traditional planto the hybrid design.

What are Hybrid

Pension Plans?

Simply put, a hybrid pension

plan is a defined benefit pension planthat defines a single sum cash bal-ance instead of a monthly benefitpayable at retirement. By changingthe nature of the promise, or obliga-tion, hybrid plans take on the lookand feel of a defined contributionplan to plan participants. However,the investment risk remains with theplan sponsor, and there are no indi-vidual accounts.

When we discuss hybrid plan de-sign, we are referring to either a CashBalance or Pension Equity plan.

A cash balance plan is analogousto a career-average defined benefit plan– each year, it provides participantswith a specified percentage of pay (or,in some cases, a specified dollaramount), together with an annual in-vestment return on the existing “ac-count balance.” The annual accrual canvary based on age, service or both.

ExampleThe ABC Company’s cash

balance plan provides each par-ticipant with an annual benefitaccrual equal to 4.0% of pay. Inaddition, the plan provides aguaranteed investment return of5.0% per year.

On January 1, 1998, Mary, aparticipant in the ABC Plan, hasan account balance of $10,000,and she earns $35,000 during1998. In accordance with theterms of the plan, Mary’s ac-count balance is credited with$1,900 (a $1,400 accrual, plusan earnings credit of $500).Thus, as of December 31, 1998,Mary’s account balance is equalto $11,900.

The cash balance plan was firstintroduced in the mid-1980s, andmany of its supporters hailed the newdesign as the savior of the definedbenefit plan. Since its initial debut,the basic cash balance design has un-dergone several generations ofchange, primarily in response toregulatory concerns and the chang-ing needs of plan sponsors.

The pension equity plan worksmore like a final pay plan, and wasconceived in response to problemsfaced by some employers in convert-

The current generation of hybrid pension plans offersmany defined benefit plan sponsors the opportunity to

successfully redesign their current retirement program with-out terminating their defined benefit plan. Many benefitsprofessionals have touted these new plan designs as thebiggest development in the pension world in years, whileothers have characterized them as a veiled attempt to recoupexcess plan assets without terminating the plan.


ing their final pay plans to accountbalance defined benefit plans. Ingeneral, a pension equity plan defineseach participant’s account balance asthe product of points earned duringthe participant’s career and a speci-fied percentage of his or her finalaverage pay at termination. Like acash balance plan, the points earnedunder a pension equity plan can varybased on age, service or both.

ExampleUnder the XYZ Company’s

pension equity plan, eachparticipant’s account balance isdefined as 10% of high five-yearaverage pay, multiplied by thepoints accumulated in accor-dance with the following sched-ule:

1 point per year of service up to10, plus

2.5 points for each year of ser-vice in excess of 10.

John, a participant in theXYZ Plan, has 18 years of ser-vice and final average pay of$35,000. His account balanceis equal to $105,000.

Target Market

Initially, the adoption of hybridplan designs was limited to large em-ployers in the finance and health careindustries. However, as the hybriddesign has matured and become moremainstream, its target market hasbecome defined more by the goalsand objectives of the individual spon-sor rather than by industry or plansize. Today, aside from the obviousemployer goals to attract and retainemployees, we believe there are sev-eral compelling reasons to introducethis concept to smaller employers –even those with 100 or fewer employ-ees.

Desire to manage interest rate riskWe are all well aware of the as-

set growth experienced by most re-

tirement plans due to the excellentreturns in the equity markets over thepast several years. During this pe-riod, however, defined benefit planliabilities have also increased sub-stantially due to falling interestrates1. Some plans that providesingle sum distributions have beenfaced with restrictions on these dis-tributions to restricted employees,while others have had to face unex-pected increases in their minimumcash contribution as a result of thedeficit reduction contribution re-quirements. Most plans have in-curred higher PBGC premiums.

For the typical rank-and-file em-ployee, the significant drop in inter-est rates has been an unappreciatedwindfall. Most employees are noteven aware of how valuable theirpension benefit is or how its valuechanges until they actually leaveemployment and apply for benefits.Compare this indifference with theattention paid to 401(k) plans.

The predictable response fromemployers is “Why bother with the fi-nancial uncertainties of maintaining adefined benefit plan when no one paysmuch attention to it anyway?”

The hybrid plan design allowsplan sponsors to mitigate the inter-est rate risk inherent in traditionalplans by defining the single sumamount rather than the monthly an-nuity. The hybrid design also lendsitself to easier communication of thebenefit to participants.

Desire to eliminate earlyretirement subsidies

Another example would be theemployer that originally establishedits plan with significant early retire-ment subsidies, perhaps with thefounders of the company in mind oras a means to turn the workforce overwithout forcing out the older, longservice employees. Times havechanged. Retirements are being post-


Cash Balance

Briefing on

Capitol HillBy Lisa Bleier, Esq.

On February 16, 1999 ASPAjointly hosted a briefing on CapitolHill to explain the basic workings ofa cash balance plan in response to sev-eral unfavorable articles in the press.Carol Sears, President of ASPA, spokeabout the benefits of a cash balanceplan option for small businesses. (Acopy of her speech is provided onpage 26.) Also speaking to the Con-gressional staffers were RonaldGebhardtsbauer and other experts.

Some Senators and Representa-tives are contemplating legislationwhich would require enhanced dis-closure in the case of a plan amend-ment reducing future benefit accrualsunder a defined benefit or moneypurchase plan, including conversionsto a cash balance plan. One optioncurrently being considered would beto amend ERISA section 204(h) torequire the employer to provide eachaffected employee with an individualstatement showing specifically howhis or her benefits would be affected.A second option being consideredwould be to require illustrative ex-amples of how various employees atdifferent ages and with varying yearsof service with the employer wouldbe affected by the plan amendment.

A second part of the legislationbeing considered would be to adjustthe timing of the advance notice be-fore a plan amendment reducing fu-ture benefit accruals takes effect.Currently, an employer need onlyprovide 15-day advance written no-tice to employees. Senators and Rep-resentatives are contemplatingincreasing the notice period to 30, orpossibly even to 60 days.

The Government Affairs Com-mittee is continuing to work with



IRS “Best Practices” Memo

Provides Guidance on EPCRSby C. Frederick Reish, APM, Bruce L. Ashton, APM, and Nicholas J. White, APM

Plan Document Failures UnderWalk-in CAP

The memo states that, in the caseof a plan document failure, if the plansponsor corrects the violation by theadoption of a model amendment or astandardized master or prototypeplan, the plan sponsor is not requiredto apply for a determination letterruling. However, if the plan docu-ment failure cannot or is not cor-rected by a model amendment orstandardized document, the plansponsor must submit a determinationletter application with the appropri-ate user fee. This means that the de-termination letter application should

not be filed in Cincinnati, as is theusual case. The determination letterapplication will be processed by thelocal Walk-in CAP Coordinator orthe local Revenue Agent who handlesthe Walk-in CAP application. At theconclusion of the case, the closingagreement and the favorable deter-mination letter will be issued to-gether.

Under ordinary circumstances, aplan is not required to obtain a fa-vorable determination letter from theIRS in order to be a qualified plan.The memo’s requirement of a deter-mination letter runs contrary to thisrule and effectively conditions relief

from plan disqualification underWalk-in CAP on applying for a de-termination letter (unless a modelamendment or standardized docu-ment is used).

These procedures will becomeincreasingly important as plans arereviewed and amended for the pro-visions of GATT, USERRA, SBJPAand TRA ‘97 (“GUST”). Presum-ably, non-amenders will be discov-ered in the course of preparing theGUST amendments. Under the newprocedures, in order to correct theplan document failure, the sponsors ofsuch plans will have to submit filingsfor Walk-in CAP, and those filings willneed to include determination letterapplications — unless the failure canbe corrected by adopting modelamendments or an approved proto-type plan document.

Plan Document FailuresDiscovered During TheDetermination Letter Process

The IRS memo also discussesthe situation where a plan documentfailure, for which no Walk-in CAPrequest has been filed, is discoveredduring the course of a determinationletter review. The memo instructsRevenue Agents that the proceduresto be used in this case depend on whodiscovers the failure.

If the IRS discovers the failure,it will be resolved under Audit CAP;therefore, the sanction structure in

The IRS formally established the Employee Plans Com-pliance Resolutions System (EPCRS), by consolidat-

ing APRSC, VCR, Walk-in CAP and Audit CAP as inte-grated programs in March 1998 (Rev. Proc. 98-22). InDecember 1998, the IRS issued a “best practices” memo asadditional informal guidance on: (1) plan document failuresunder Walk-in CAP (i.e., the failure of plan documents tocomply with current qualification requirements—also knownas “nonamenders”); (2) plan document qualification failuresdiscovered during the determination letter process; (3) IRSexaminations of plans submitted under Walk-in CAP; and (4)treatment of certain excise taxes under Walk-in and AuditCAP. (A copy of the IRS best practices memo may beobtained from the authors’ website at http://www.benefitslink.com/reish.)


Plan sponsors who havefiled determination letterapplications can resolvea later-discovered qualifi-cation failure under Walk-in CAP.


Section 15 of Revenue Procedure 98-22 will apply (that is, a negotiatedsanction based, at least partially, onthe taxes due if the plan were dis-qualified). This is not new. What isnew, however, is a previously unrec-ognized type of plan document fail-ure—a “minor” failure and theamount of the sanction for a “minor”failure. The memo states that, if theplan document failure is “minor,”there will be a ceiling on theamount of the Audit CAP sanctionof “no higher than the presump-tive amount that would apply if theWalk-in CAP Compliance Correc-tion fees were applied.” Thus, for“minor” violations, the sanctionwill be limited to a relatively smallamount, depending on the size ofthe plan. (For a plan, which cov-ers no more than 10 participants,the maximum sanction would be$2,000.)

Unfortunately, the memo fails todefine or give examples of a “minor”defect. Based on our experience, webelieve that a failure to timely amenda plan which has been updated forTRA ’86, but not for UCA ’92 orOBRA ’93, would be treated as mi-nor. This belief is based on informalconversations with IRS officials.

If the plan sponsor discovers theplan document failure and voluntar-ily discloses it to the IRS (i.e., to theRevenue Agent reviewing the deter-mination letter application), the casewill be handled under Walk-in CAP.Section 11.01(2) of Revenue Proce-dure 98-22 states the general rule thata submission under Walk-in CAP“may not be made as part of a deter-mination letter application.” Thememo changes this rule to allow theplan sponsor to “perfect” the deter-mination letter application into aWalk-in CAP submission by follow-ing the procedures set forth in Sec-tion 12 of Revenue Procedure 98-22.(The memo is not entirely clear aboutwhere the Walk-in CAP application

is to be filed; however, it would ap-pear to be with the Revenue Agentwho is reviewing the determinationletter application.) This is a signifi-cant departure from prior practice,since it permits, on a voluntary ba-sis, the immediate disclosure ofqualification failures during the de-termination letter process withoutfirst filing a Walk-in CAP submis-sion – although, of course, a Walk-in

CAP application must thereafter besubmitted.

This change makes it possible forplan sponsors who have filed deter-mination letter applications to re-solve a later-discovered qualificationfailure under Walk-in CAP, wherethey can take advantage of the re-duced Compliance Correction Fees.As part of this, the memo places apremium on careful review of theplan document—even after filing adetermination letter application—inorder to identify and correct qualifi-cation failures. Not doing so mayresult in the IRS discovering thequalification failure, and imposing asubstantial sanction under AuditCAP.

Audit Matters Under EPCRSWith respect to plan audits, the

memo instructs Revenue Agents that“neither a full nor limited scope ex-amination should be conducted onWalk-in CAP cases.” This instruc-tion is significant, because we areaware of cases in the past where planswhich had filed a Walk-in CAP ap-plication were subjected to audits as

part of the application process. Thiswas particularly likely to occur in theIRS’ Northeast District (Brooklyn).The memo now precludes this prac-tice and specifically acknowledgesthat “routine examinations of Walk-in CAP cases would have a negativeimpact on voluntary compliance.”

The memo does advise RevenueAgents to “review” (not examine)Forms 5500 to “confirm that there are

no additional significant prob-lems not identified in the submis-sion (e.g., a violation of thecoverage requirements).” Andthe memo gives two examples of“limited circumstances” in whichaudits under Walk-in CAP shouldbe made. These are: (1) wherethe IRS finds “an unrelated quali-fication failure from the face ofthe Form 5500 submitted with the

application”; and (2) where the IRSand “the plan sponsor cannot reachagreement with respect to the correc-tion of any [qualification] failure(s)or the amount of the compliance cor-rection fee.” Initiating an audit un-der these circumstances is not new;it is consistent with existing IRSpractice.

Finally, the memo discusses thedisclosure of compliance audit re-ports during an IRS audit. These re-ports are internal audit documents,generally prepared for larger plans ormultiemployer plans, where a law-yer, accountant, consultant or thirdparty administrator has reviewed thedocumentation and operation of theplan for compliance with the quali-fication rules. The IRS memo in-structs Revenue Agents to “notrequest copies of a plan sponsor’scompliance audit report.” (Appar-ently, in some IRS field offices, Rev-enue Agents have been routinelyrequesting copies of any complianceaudit report.)


ASPA’s Interprofessional

Activities –

Are They Worth It?by Karen A. Jordan, CPC, QPA

If you are neither an actuary noron ASPA’s board of directors, youmight not even be aware of the ex-tent that ASPA is involved in theseactivities. You could begin by open-ing up your latest Yearbook and re-viewing the following sections:

• ASPA Representatives onIntersocietal Groups

• Council of Presidents

• Code of Professional Conductfor Actuaries

• Working Agreement

The first thing you should lookat is the Working Agreement, whichis located toward the end of the Year-book. This document sets forth thecooperative goals of the NorthAmerican actuarial organizations. Asexplained in its preamble, the Work-ing Agreement is intended to facili-tate the participating organizations’efforts to increase the quality and

variety of educational and profes-sional opportunities available toNorth American actuaries. Its otherpurpose is to eliminate unnecessaryduplication of activity between thevarious organizations, thereby mak-ing more efficient use of the partici-pating organizations’ resources.

The Working Agreement also ex-plains the role and makeup of theCouncil of Presidents. By the way,this organization is often referred toas COP/COPE because it includesthe presidents-elect of each organi-zation, as well as the respective presi-dents. If you review the section onthe Council of Presidents in theASPA Yearbook, you will see a shortdescription of each organization thatis included in the Working Agree-ment. You might be rather amazed tosee that there are, in fact, nine actu-arial organizations in North America.Five of them are in the United States.

Besides the commitments thatare defined by the Working Agree-ment, ASPA is also directly involvedwith the American Academy of Ac-tuaries (AAA). Each ASPA presidentand president-elect (along with thecounterparts of the other U.S. actu-arial organizations) sits on the boardof the AAA, as Special Directors.Furthermore, each actuarial organi-zation has certain AAA committeeslots that the organization is expected(or encouraged) to fill. If you lookin the Yearbook section titled “ASPARepresentatives of IntersocietalGroups,” you will see which commit-tees ASPA is currently staffing. TheASPA president appoints some ofthese positions, and the chair of therespective committee appoints oth-ers, usually with input from ASPA’spresident. If you are interested inlearning more about the various AAAcommittees, the best place to gain in-formation is to locate an AAA Year-book. If you want even moreinformation, you should feel free tocontact the ASPA committee repre-sentative listed in our Yearbook.

Also, as a result of our involve-ment with the AAA, there is usuallyat least one ASPA member servingon the Actuarial Board for Counsel-ing and Discipline (ABCD) and onthe Actuarial Standards Board(ASB). The presidents and presi-dents-elect of the participating orga-

ASPA devotes a significant amount of its resources (both monetary and human) to its interprofessional

activities with the other North American actuarial organiza-tions. The purpose of this article is to explain what ASPA’sinterprofessional activities entail, and to hopefully demon-strate how this time, effort and money benefit the ASPAmembership. As you read this article, keep in mind that thisis from the perspective of a non-actuary and represents onlyone person’s opinion.


nizations appoint these board mem-bers. ASPA always lists memberswho are on these two boards and whoalso are members of ASPA. So, if youhave questions about the ABCD orthe ASB, you could contact these in-dividuals.

ASPA’s commitment to theseinterprofessional activities is signifi-cant in both financial resources andhuman resources. In fact, there havebeen critics of our involvementwho feel that a major drawbackis the amount of time that ASPAleaders have to spend on these ac-tivities. These critics argue that thisinvolvement draws our leadersaway from other activities thatwould be more beneficial to ASPA.It is also argued that the financialcommitment (that is, paying the ex-penses of committee members whohave been asked to serve on behalfof ASPA) is too large. I have beenasked countless times by actuaries,as well as non-actuaries, if I felt thatit is worth this expenditure of ourlimited resources.

After my two years of participat-ing in Academy board meetings andtwo years of COP/COPE meetings,my opinion is that this involvementis extremely valuable for ASPA’s ac-tuarial members. I also believe thatthis involvement has brought valueto the organization as a whole, whichindirectly benefits ASPA’s non-actu-arial members. But, I also feel verystrongly that the leaders of ASPAmust continue to be vigilant in moni-toring the accompanying costs ofthese commitments and continuouslywork to keep the costs reasonable.

OK, so what value does all of thisbring to ASPA and its members?

For our actuaries, it brings sig-nificant value, such as:

• Involvement with the develop-ment and maintenance of theActuarial Code of ProfessionalConduct.

• Valuable input into the work-ings of the ABCD and the ASB.

• A way to demonstrate the valueof our organization to the actu-arial profession.

• Participation in the public re-lations efforts on the part of theactuarial profession.

• Coordination with the AAA inthe pension public policy area.

• Improved relations with theSOA in our shared duties withrespect to the Enrolled Actuar-ies examinations and the JointBoard.

• Input into the formation of Ac-tuarial Qualification Standards.

• International representationthrough the International Actu-arial Association.

• Methods to resolve cross-bor-der disciplinary actions.

However, as I stated above, thebenefits are not just for our actuarialmembers. The COP/COPE meetingsact very much like our own BusinessLeadership Conference, in that they aregreat forums to share information onhow to run successful professional so-cieties. I found the meetings to beextremely valuable in helping us makeASPA a better society. These meet-ings included comparing and sharinginformation about:

• computer software,

• administrative systems,

• education activities,

• strategic planning, and

• investing reserves.

But, there are other benefits too.The COP/COPE meetings also in-clude the executive directors of thevarious societies, and they havefound the time they have been ableto spend together to work on theircommon problems as very helpful.

We also have discovered areas ofmutual cooperation that havehelped us with various educationand examination issues. Finally,ASPA has been able to gain firsthand experience with the work-ings of the ABCD and the ASB,through our members who haveserved on these boards and ourleaders’ involvement on the AAAboard of directors. I believe thiswill be invaluable as we explorewhether we, as a society, are ready

to venture into the area of profes-sional standards for non-actuarialbenefits work, and the resulting dis-cipline process.

So, is it worth the time and ex-pense? Well, each person looking atthis issue will come up with a differ-ent answer I’m sure, but no one candeny that there are both benefits andcosts to this commitment. How valu-able are the benefits, in relation tothe costs? I would equate this analy-sis to trying to decide if public rela-tions efforts are “worth it.” Theanswer cannot be made on a purelyobjective basis, but I sincerely feelthat without this involvement, ASPAwould not be as good a society as itis and the cost has been minimal incomparison.

Karen A. Jordan, QPA, CPC, is theimmediate past president of ASPAand is co-owner of Alaska PensionServices, Ltd., of Anchorage, Alaska.

I sincerely feel that with-out this interprofes-sional involvement,ASPA would not be asgood a society as it is,and the cost has beenminimal in comparison.


Instead of getting into specificson SAFE/SMART or 401(k)s, I firsttalked about how IRAs are used byhigher income taxpayers and rarelyused by lower income constituents,especially by single mothers andworking women. I also spoke abouthow unions and public employeescontinue to support qualified plansover IRAs, viewing IRAs as notfavorable for rank and file mem-bers. I then spoke about the mostimportant issue for us and forBreaux: expanding retirement cov-erage among lower income work-ers and women, especially thosewho leave the workforce for a timeor are single parents. I explainedthat qualified plans, especiallyDB-type employer-paid plans likeSAFE, are great for lower incomeworkers and women who need to“catch up” after leaving theworkforce to raise children or takecare of aging parents. “Catch up”provisions are part of SAFE and arealso a reason for getting rid of the25% limit. I explained that the 25%of pay limit also hurt part-time work-ers and second income, lower paidworkers (i.e., women).

Had I been talking to a conserva-tive Republican member’s staffer, Iwould have emphasized how SAFEwas good for small business ownersand the necessity to preserve the quali-fied plan tax deduction for small busi-nesses. I would also have noted the

unfairness of the top-heavy rules andthe need for more simplification (i.e.,get rid of the multiple use test, althoughI would not have used those words) inthe overall qualified plan rules.

Michelle was extremely gratefulfor my input and has since called me

regularly when qualified plan issuescome up. Since she often would needinformation as Senator Breaux washeading to a meeting, I gave her myhome and cell phone numbers, aswell as my e-mail address, and en-couraged her to call me any time. Iwas always willing to drop whateverI was doing to talk to her and thatgave me a good deal of influence. Iftime permitted, I would call Brian toget the ASPA viewpoint before Icalled Michelle.

During every call, I wouldalso bring her up-to-date on localhappenings to cement the personalside of the relationship and alwaystried to give Breaux’s constituentviewpoint on a particular issue.She agreed to try to see me if shegot to New Orleans, and I plannedto visit her in Washington, DC.I recently spoke to Michelle, atBrian’s request, about the poten-tial DOL regulation requiring in-stitutional trustees for smallplans. I explained that ASPA haddrafted a letter to the DOL fromCongressional members, and Iwould like Breaux’s support andhis signature on the letter. Be-

fore I even had a chance to outlinethe issue, she said, “If you tell methat Senator Breaux needs to sign thisletter, just send it over and I will havehim sign it.” The relationship that Ihad developed with her meant she

C O N T I N U E D F R O M P A G E 3

Developing a Relationship with a

Congressional Member

Qualified plans, espe-cially DB-type em-ployer-paid plans likeSAFE, are great forlower income workersand women who needto "catch up" after leav-ing the workforce toraise children or takecare of aging parents.

Be sure to check the web site for the recent letter sent from ASPAregarding our comments on the issuance of Notice 98-52. This no-tice contained guidance on safe harbor 401(k) plans. The ASPA let-ter sent to Roger Kuehnle of the Employee Plans Division of the IRSproposes several changes to the guidance, including the flexibilityto choose the safe harbor option annually, a more simplified noticeto plan participants, the removal of the 4% cap on discretionarymatching contributions, and several other provisions.

ASPA GAC Issues a Comment Letter on IRS Notice 98-52


Technical Term Political Term

plan sponsor small business

qualified plan retirement savings

non-HCEs low to middle income workers

HCEs small business owners

top-heavy rules that discriminate againstsmall business and family members

415 or annual additions contribution or benefit limits

multiple use test complex, duplicative 401(k)requirement

ADP/ACP 401(k) plan nondiscrimination test

past service credit catch-up provisions

full funding limit arbitrary pension funding limits

415(e) duplicative combined plan limits

plan participation retirement plan coverage

defined benefit traditional retirement plan

Democrat: employer-paid; no costto lower paid

Republican: allows older smallbusiness owners to save the same forretirement as younger employees

401(k) 401(k)

401(a)(17) arbitrary pension compensation lim-it that duplicates the reasonable com-pensation rules in the Internal Rev-enue Code

didn’t need details; she trustedASPA’s viewpoint dovetailed withSenator Breaux’s.

To summarize:

1. Establish a personal relationshipbased on common ground locally.Talk about local people, busi-nesses or local events.

2. Give a brief background on whoyou represent locally; numbers ofparticipants in the plans you ad-minister is always impressive.

3. Make sure you know the politicalinterests of your Member so you canemphasize those interests as they re-late to ASPA qualified plan issues.

4. Get background from the GACCongressional Outreach Commit-tee or the ASPA office on ASPA’s

positions; it is important that werepresent ASPA members andtheir clients.

5. Talk simply. Try not to ever useCode section numbers. Some sug-gested “translations” are in thebox below.

Sarah E. Simoneaux, CPC, is VicePresident of Actuarial Systems Cor-poration, an employee benefits soft-ware firm. She currently serves onthe ASPA Board of Directors, is anex-officio member of the ExecutiveCommittee, and also is a member ofthe Congressional Outreach Com-mittee and the Membership and Ad-missions Committee.

Bringing ASPA to you! TheAmerican Society of Pension Actuar-ies and its ASPA Benefits Councils(ABCs) located in Philadelphia, Cleve-land, and Atlanta are proud to cospon-sor six 401(k) Workshops around thecountry.

Janice M. Wegesin, CPC, QPA,ASPA’s 1998 Educator’s Award winner,will be the featured speaker at each work-shop. At each location, she will be ac-companied by a local speaker. Some ofthe topics to be covered include: Safe-Harbor Plans; Testing 401(k) Plans; Par-ticipant Loans; and Tricky Eligibility andCompensation Issues.

These one-day workshops offer upto seven ASPA continuing education(CE) credit hours, and up to seven non-core JBEA credit hours. These interme-diate workshops are designed forpension and retirement benefits profes-sionals with two or more years of expe-rience.

Six locations to choose from:

Philadelphia, PA April 19Adam’s Mark Hotel

Houston, TX May 14Crowne Plaza-Galleria

Cleveland, OH June 10Cleveland South Hilton

Atlanta, GA June 21Hilton Atlanta and Towers

Boston, MA July 16The Seaport Hotel

Seattle, WA July 28Crowne Plaza Hotel - Seattle

For ASPA members, ABC mem-bers, and co-operating sponsors, in-cluding, AAA, CCA, NIPA, SOA, andWEB, the “early” registration fee is$200. The “early” nonmember fee is$250. The “early” registration dead-lines are approximately three weeksprior to each workshop. For more de-tails, call Ken Morton, ASPA MeetingsDepartment, at (703) 516-9300 or e-mail: [email protected] to request abrochure.

Dates and LocationsDates and LocationsDates and LocationsDates and LocationsDates and LocationsFinalized fFinalized fFinalized fFinalized fFinalized for 401(k)or 401(k)or 401(k)or 401(k)or 401(k)

WWWWWorkshops!orkshops!orkshops!orkshops!orkshops!



Is There A “Roth 401(k) Or 403(b)” In

Your Future?

Senator Roth proposesto remove the Section415(c) 25% limit, leavingonly the $30,000 limit.

ods for calculating basis recovery un-der Code Section 72(e). An even big-ger issue is how the taxes will be paid.Will the participant be allowed to pay

the taxes with assets outside the trustthus allowing the participant to pre-serve more assets within the retirementtrust?) How much additional cost andrelated administrative burdens will becreated for employers and service pro-viders by the addition of Roth 401(k)and 403(b) accounts?

A potential Achilles heel is therevenue loss the Roth 401(k) maycreate for the Federal government infuture years. Although participantswill pay taxes currently, the govern-ment will forego a potentially muchlarger “cut” at the time distributionsoccur. Imposing taxes at the front-endinstead of at distribution requires acomplete reversal of 90 years of fed-eral retirement and income tax policyassumptions. Another important, butunanswered, administrative question ishow to coordinate reporting of distri-butions that include contributionsmade under both the old and new rules.This may become extremely compli-cated when the minimum required dis-tribution rules also come into play.

Increased Contribution Limitsfor 401(k)s, 403(b)s, andSIMPLEsFor those who still prefer pre-taxcontributions to 401(k) and 403(b)plans, the bill increases the annual

limit on elective deferrals and salaryreduction contributions from $10,000to $15,000. Individuals over age 55who took time off to raise children

get an even better deal be-cause they would be allowedto contribute up to $22,500annually. This latter proposi-tion is not new, and it mayreceive significant supportfrom individuals who lost

years of savings opportunities be-cause of family priorities. The Uni-formed Services Employment andReemployment Act of 1994 providesample precedent for such catch-upcontributions, and the potential lob-bying group is certainly larger in thisinstance.

Contributors to SIMPLE IRAsand SIMPLE 401(k)s also get higherannual contribution limits to preservethe differential between the contri-bution limits that apply to qualifiedplans and the SIMPLE plans. Theannual limit on contributions to anySIMPLE would increase from $6,000to $10,000 under the proposal.

The chief resistance to higher an-nual contribution limits again will bebased on revenue considerations anda perception that only the highlycompensated will be able to take fulladvantage of the increase. However,the secondary family wage earnermight have an incentive to increaseretirement saving contributions un-der the plan. Existing 401(k) plansmay see a decrease in elective defer-rals and ADP testing failures with-out revision of the antidiscriminationrules because of a shift to after-taxcontributions. This result may beunavoidable unless plans adopt safeharbor contribution formulas.

Elimination of the Section 415(c)25% of Compensation Limit

The maximum amount that maybe contributed to a defined contribu-tion plan in a limitation year is thelesser of 25% of compensation or$30,000. The $30,000 limit is subjectto a cost-of-living increase in multiplesof $5,000. In reality, the $30,000 limitapplies to highly compensated employ-ees but does not affect nonhighly com-pensated employees. Instead, the 25%of compensation limit has a dramaticimpact on the lower paid. The 25%usually results in lower employee andemployer contributions for these indi-viduals. The Senator would removethe 25% limit, leaving only the $30,000limit. The $30,000 limit would con-tinue to be adjustable for inflation.

There has been support for therepeal of the 25% limit in the past.Repeal may allow some lower paidparticipants to maximize electivedeferrals and employer contributions.Since the beginning of the 1998 planyear, compensation for this purposeincludes elective contributions madeby the individual to 401(k), 403(b),457, and Section 125 cafeteria plans.However, repeal does not resolve theinherent conflict created by theCode’s definition of compensationfor annual additions as gross com-pensation and definition of compen-sation for employer deductions ascompensation net of elective contri-butions. In order for this change tohave its desired result, the definitionof compensation for deductions un-der Code Section 404 will need to bechanged. Otherwise, the employermay not be able to deduct all theemployee elective deferrals and willbe reluctant to provide them.

IRA ImprovementsIRA owners get to keep pace,

too. Senator Roth noted that the$2,000 maximum annual contribu-tion limit has never been adjusted forinflation since IRAs were created in


1975. If the law had provided forindexing, the current annual limitwould be $4,930 or $2,970 more thanthe current limit. The bill would ad-dress this perceived inequity by al-lowing annual contributions of up to$5,000. To make up for the lack ofcost-of-living adjustments, workersage 50 and over get an increased con-tribution limit of up to $7,500. Inaddition, all income limits that pre-vent individuals covered under anemployer’s plan to make a full con-tribution to a traditional IRA or limittheir eligibility to have a Roth IRAwould be abolished. To encouragemore Roth IRA conversions, the billdramatically raises the current$100,000 adjusted gross incomelimit. As modified, any individualwith adjusted gross income of lessthan $1 million would be allowed toconvert an existing traditional IRAto a Roth IRA.

As a means of encouraging em-ployee saving, Senator Roth’s pro-posal authorizes employer plans toaccept IRA contributions to em-ployer plans, and encourages em-ployers to establish payroll deductionprograms for these contributions.The Clinton Administration hasmade similar proposals in the past.The rationale for including this in thebill is that employees would benefitfrom economies of scale and loweradministrative costs by investingtheir funds through their employer’splan. This coincidentally revives theconcept of the qualified voluntaryemployee contribution, a type of con-tribution repealed by TRA ’86.

These provisions are particularlyvulnerable to the critics’ argumentsthat they give too much to upper-in-come Americans at too high a rev-enue cost. This is because theproposal essentially destroys most ofthe current income limits on IRA eli-gibility. One reason given in 1986for placing income limits on the abil-

ity to have deductible IRAs was abelief by some members of Congressthat the IRA was mostly a “tool forthe wealthy.” Is this really a validconcern? A revenue loss may not infact occur since theoretically the in-dividual doing the conversion is in ahigher tax bracket at the time of theconversion than he or she will be atthe time of distribution. Thus, UncleSam realizes more tax revenuesooner, with a higher present value.

More troubling to some practi-tioners, however, may be the blurringof the lines between qualified plansand IRAs. This could be counterpro-ductive, as employers would be moreapt to accelerate the trend of shiftingadministrative costs to the accountsof participants. Ironically, those forwhom this reform is intended mayreap the reward of lower returns.

Full Funding Limit for DefinedBenefit Plans

Currently, employers maintain-ing defined benefit plans have limi-tations on what they deduct ascontributions to such plans. Contri-butions may not be deducted if theyexceed 150% of the plan’s currentliability. The bill would remove the150% limit because it fails to takeinto account the plan’s projected pen-sion benefits.

This change would have the ef-fect of reintroducing stability to thefunding of defined benefit plans.However, since the 150% limit basi-cally was imposed as a way to limitdeductions, resistance can be ex-pected from those who believe thatthe government would forego toomuch tax revenue.

Roth’s Other Idea: PersonalRetirement Accounts

In addition, Senator Roth has re-newed his call for using a portion ofthe budget surplus to create personalretirement accounts. The Senatorintroduced legislation in the last Con-

gress to create these accounts, andreintroduced it this year as the “Per-sonal Retirement Accounts Act of1999.”

Under this proposal, Americanswho have earned a minimum of fourquarters of Social Security coveragewould receive a minimum of $250annually over the next five years(2000 to 2004). This contributionwould be used to fund individually-owned personal retirement accounts.The amount received will vary basedupon the amount of payroll taxes paidby the individual. The monies dedi-cated for this program could not beused for any purpose other than re-tirement benefits and associated ad-ministrative expenses. Although thepersonal retirement accounts wouldexist apart from the Social SecuritySystem, it is envisioned that they arethe first step in the process of creat-ing permanent private Social Secu-rity Accounts.

The Senator describes this pro-posal as a means to rebate regressivepayroll taxes to workers. For ex-ample, an individual earning the cur-rent minimum wage ($12,980 in1999) would have, over the life of theprogram, $1,853 or 35% of his or herpayroll taxes deposited into the per-sonal retirement account. An aver-age wage earner (approximately$28,840 in 1999) would see an ef-fective rebate of $2,589 or 22%. Aworker earning more than the SocialSecurity taxable wage base ($72,600in 1999) would see an effective re-bate of $4,561 or 16% during thesame period. Assuming a 7.5% re-turn, by 2039 these hypothetical ac-counts are projected to grow on atax-deferred basis to $26,930,$37,537, and $65,980, respectively.

The accounts created under thisbill are modeled after those providedunder the Federal Thrift SavingsPlan. An independent board ap-pointed by the President and Con-


gressional leaders, subject to Senateconfirmation, would oversee the pro-gram. The members of the boardwould be subject to prudent fiduciaryrules similar to those contained inERISA. Initially, three investmentchoices would be provided, but ex-panding the list of permissible invest-ment funds would be an option. Theinitial investment funds include astock index fund, a fund investing incorporate bonds and other fixed in-come investments, and a fund thatinvests exclusively in US Treasurybonds. The account owner woulddirect how much of his or her accountwill be invested in the available in-vestment choices. To insulate equityinvestments from political concerns,the stock fund would be managed byprivate sector managers who wouldhave the exclusive authority to voteproxies. Benefits, which are fullytaxable, become payable at the timethe individual begins to collect So-cial Security payments. The indi-vidual may choose to receive benefitseither as an annuity or as an annualpayment based upon life expectancy.

The major difference betweenthe Roth proposal and similar initia-tives launched by the Administrationis the greater reliance on the indi-vidual making investment decisionsrather than the government. The useof an independent board to adminis-ter the program and limiting theavailable investment funds may al-low it to serve as an attractive middleway between those demanding com-plete privatization of the Social Se-curity system and those rejecting anyprivatization of the system. How-ever, based on the history of certaininvestments made by state retirementfunds, it would be very interesting towatch how investment decisions andproxy votes are made when electionseason draws near.

ConclusionBecause of the potential negative

impact on future government rev-enues and assertions that theSenator’s proposal disproportion-ately favors wealthier Americans, itis not certain that either of theSenator’s proposals will become law.However, Senator Roth is a deter-mined proponent of retirement sav-ings by individuals. For example,when President Clinton entered of-fice in 1993, who actually believedthat the Roth IRA had a reasonablechance of enactment? Republicansand Democrats certainly pay atten-tion to the Senator, and have beenknown to borrow an idea or two.Witness this year’s State of the UnionAddress where President Clintonproposed dedicating $15 billion ofthe budget surplus as seed money for

creating voluntary retirement savingsaccounts, albeit with considerablymore governmental control. Perhapsthe best thing about the Senator’sproposals is that it may at last pro-voke serious discussion and selectionof a rational retirement policy for thenext century. Apparently, the “pow-ers that be” in Washington are finallystarting to take note of the need todo something about the Social Secu-rity shortfall.

Steven R. Oberndorf, Esq., is an At-torney with McKay Hochman Com-pany, Inc., and Richard Hochman,APM, Esq., is President of McKayHochman Company, Inc., a Butler,New Jersey, employee benefits con-sulting firm.

DB workshops will be offered inthree cities in 1999.

• Newark, New Jersey – May 11Early registration deadline:April 18

• Dallas, Texas – May 24Early registration deadline:May 3

• San Francisco, California – July 10(preceding ASPA’s new SummerConference)Early registration deadline:June 21

The Defined Benefits Workshopswill cover topics on safe harbor plandesign; aggregating DB and DCplans for testing; actuarial cost meth-ods and funding, and a lot more. TheWorkshops will also offer five casestudies in designing a new plan, and

strategies for dealing withoverfunded DB plans.

Learn from two experienced andknowledgeable speakers: Joan A.Gucciardi, MSPA, CPC, President,Gucciardi Benefit Resources, Inc.;and Norman Levinrand, FSPA, CPC,President, Summit Benefits & Actu-arial Services, Inc.

The “early” registration fee is $250for ASPA members and $320 fornonmembers. More details are out-lined in the brochure that you willreceive in the mail in the middle ofMarch.

For more information, call JanetKamvar, Meetings Coordinator, at(703) 516-9300, or [email protected].

DEFINED BENEFITS WORKSHOPS IN 1999

MARK YOUR CALENDAR!!MARK YOUR CALENDAR!!MARK YOUR CALENDAR!!MARK YOUR CALENDAR!!MARK YOUR CALENDAR!!THE DEFINED BENEFITS WTHE DEFINED BENEFITS WTHE DEFINED BENEFITS WTHE DEFINED BENEFITS WTHE DEFINED BENEFITS WORKSHOPS ARE COMING SOON !!ORKSHOPS ARE COMING SOON !!ORKSHOPS ARE COMING SOON !!ORKSHOPS ARE COMING SOON !!ORKSHOPS ARE COMING SOON !!

Newark - Dallas - San Francisco


Deutsch,

Haslauer, and

Rosen Elected to

ASPA’s Board of

Directors

Lawrence Deutsch, MSPA, Beverly B. Haslauer, CPC,QPA, and Stephen H. Rosen, MSPA, CPC have been

elected to serve on ASPA’s Board of Directors for the 1999-2001 term.

Larry Deutsch, MSPA is an En-rolled Actuary and a member of theAmerican Academy of Actuaries. Hehas been practicing as an actuarysince 1976. Larryis chair of ASPA’sStandards Com-mittee and cur-rently serves onASPA’s Govern-ment AffairsCommittee and thePrinciples, Practices and Risk Manage-ment Committee. Also, he is a techni-cal reviewer for The Pension Actuary.He is a frequent author for technicalarticles in professional journals and afrequent speaker at professional meet-ings.

As president of Larry DeutschEnterprises, of North Hills, CA, Larryis responsible for running the corpo-ration and for maintaining the actuarialprograms that are used by his clients.In addition, he provides consulting ser-vices to clients on both actuarial andpension matters. Larry has a bachelor’sdegree in mathematics from the Uni-versity of California at Irvine.

Bev Haslauer, CPC, QPA is thepresident of Haslauer, Husley & Hall,Inc., a retirement plan consulting and

administration firm in Metairie,Louisiana. In addition to serving asan ASPA Board member, Bev is thechairman of theP u b l i c a t i o n sCommittee of theEducation andE x a m i n a t i o nCommittee and amember of the An-nual ConferenceCommittee. She is a past president ofthe Association of Employee BenefitPlanners of New Orleans, a past presi-dent of the Women’s ProfessionalCouncil, and a member of the NewOrleans Estate Planning Council. Bevis a frequent speaker at conferences andseminars, has published many articleson the subject of qualified retirementplans, and is a co-author of the Life In-surance Answer Book.

Bev was raised in New Orleans,Louisiana. She has been married forover 21 years and has three childrenbetween the ages of 11 and 26. Sheand her husband will become grand-parents for the first time this summer.Bev is vice president of the ClearyPlayground Booster Club and has beena coach there from time to time.

Steve Rosen, MSPA, CPC is anindependent consulting actuaryspecializing in the design andimplementation of employee benefitplans. His firm,Stephen H. Rosenand Associates,Inc., is located inHaddonfield, NewJersey. Steve is anEnrolled Actuary(EA) as well as a member of the Ameri-can Academy of Actuaries. He servesas chair of the ABC Committee, vicechair of ASPA PERF and as a regionalcoordinator on GAC's CongressionalOutreach Committee. Also, he hasserved as program co-chair for theAnnual Conference and co-chair fortwo Eastern regional conferences.

Mr. Rosen is a past president andcurrent board member of the ASPABenefits Council of the DelawareValley. Steve co-authored a book onthe Tax Reform Act of 1984 and pub-lished articles in Taxation for Ac-countants and the Pennsylvania CPAJournal on the 1986 Tax Reform Act.In addition, Steve served on the fac-ulty at The Institute of EmployeeBenefits in Pennsylvania and is co-author of Accountants Guide to Em-ployee Benefit Plans. Steve is alsoco-founder of The Haddon StrategicAlliances (HSA), a Haddonfield firmthat forms alliances with insurancecompanies and mutual fund familiesto provide daily valuation capabili-ties to retirement plans. HSA bringsto its clients the ability to have “stateof the art” benefit programs whilebenefiting from a local investmentadvisor, with coordinated administra-tive services provided by Stephen H.Rosen and Associates, Inc.

Steve was raised in Camden,New Jersey. He has a wife, Mary Jo,and 5 children ranging from 7 to 20years of age. Steve coaches soccerin his spare time and also enjoys theseashore.


To All Prospective Attendees:

The Business Lead-ership Conference isan incredible oppor-tunity to spend fourvalue-packed dayshelping your busi-ness. This confer-

ence offers you the opportunity tohear nationally recognized speakersas well as to network with a group ofyour peers. I have the honor of chair-ing the 11th annual Business Lead-ership Conference, the “BLC.” TheBLC is much more than a confer-ence, it has become a valuable re-source to our businesses. It is aresource that has spawned new busi-ness relationships, helped initiatenew lines of business, and providedsupport when businesses reallyneeded it.

This year’s conference theme isSkills and Strategies for the New Mil-lennium. With the theme in mind,an excellent line-up of speakers andfacilitators have been gathered to pre-pare conferees for the coming busi-ness challenges the new millenniumwill bring.

This conference is designed tobenefit retirement and pension pro-fessionals who have attained a posi-tion in their organization where theirdecisions impact their business’ life-blood, including presidents, princi-pals, owners, vice presidents, and keymanagers.

New for 1999: Previously openonly to ASPA members, the BLC isavailable to members of cooperatingsponsor organizations, including theAmerican Academy of Actuaries, theConference of Consulting Actuaries,and the Society of Actuaries.

The BLC is divided among In-teractive Workshops, Peer Net-working Groups, and FeaturedSpeakers. Our outside speakers willaddress a variety of topics from ser-vice issues (Malcolm BaldridgeImplementation), to the changingskyline of our industry (Alliances,Mergers, and Acquisitions), and fi-nally to the lifeblood of running ourbusinesses (Strategic Planning).

The Interactive Workshops wereexpanded this year so that attendeeswill have a forum to ask about spe-cific issues rather than hearing howto handle general problems. Someof the current topics include HumanResource Issues such as attraction,retention, and motivation of employ-ees. They will also address officeautomation including software andhardware; revenue sharing and dis-closure; and on-going daily and bal-ance forward issues.

Add Peer Networking Groups tothis dynamic mix, and you will un-derstand why this conference has be-come so special to attendees. I hopeto see you in Boca for the 1999 BLC.

Sincerely,Bryan J. Smith1999 BLC Chair

Conference Dates:May 2 - 5, 1999

Conference Location:Boca Raton Resort & Club501 East Camino RealBoca Raton, FL 33431-0825Hotel Reservations:(561) 447-3000

There are five types of rooms tochoose from:

Villa Room $180Cloister Room $215

Addison Court $215

Tower Room $270

Boca Beach Club $330Oceanfront

Hotel Reservation Cut-Off Date:April 2, 1999

Continuing Education Information:The BLC is worth 10 ASPA CE credithours.

For CPAs in Arkansas, Iowa,Kansas, Minnesota, Missouri, Ne-braska, North Dakota, Oklahoma,South Dakota, Texas, and Wisconsin:ASPA is registered with the NationalAssociation of State Boards of Ac-countancy as a sponsor of continu-ing education on the NationalRegistry of CPE sponsors. In accor-dance with the standards of the Na-tional Registry of CPE sponsors, CPEcredits will be granted on a 50 minutehour. ASPA recommends up to 20CPE credits for this conference. Onthis basis, state boards of accoun-tancy have the final authority on theacceptance of courses. Complaintsregarding registered sponsors may beaddressed to NASBA, 150 FourthAvenue North, Suite 700, Nashville,TN 37219, (615) 880-4200. Nocourse information may be obtainedat this number.

ASPA is willing to apply forother types of credit if the applica-tion and fee are not prohibitive.Please call ASPA and request a “Con-tinuing Education Checklist.”

What Are YWhat Are YWhat Are YWhat Are YWhat Are YouououououMissing?Missing?Missing?Missing?Missing?


home state either campaigning forhimself, or helping one of his col-leagues.

The next question is “What do Ido when I get there?” Don’t be ner-vous. Staffers are usually young andeager to learn from you about the pri-vate pension system. The better jobyou do of educating, the bigger friendyou will make. Remember, you aremaking this person a star in the eyesof their boss. If you should get anolder staffer, they are a delight to talkwith. They have been around the track

a few times and will make your meet-ing very relaxed. And, they are veryinterested in retirement. You will havefifteen to thirty minutes, so be brief,to the point, and know what you wantto cover while you are there. Sinceyou will most likely have folks withyou, share the presentation; andSOMEONE should take notes of anyquestions asked and follow-up on anyinformation to be sent.

The last question is “What do Ido when it’s over?” Start by leaving.Make sure to thank him for his timeand get his card. Someone should doa follow-up letter thanking him again,indicating any information that is ei-ther enclosed or will be forth comingand noting that you will be contact-ing him from time to time. You alsoshould make it part of your follow-up

to continue to contact the Member’sstaff in case a staffer should leave.You want to know who took theplace of the departing staffer. (Lifeexpectancy of a staffer is aboutthree to six years.)

Given that this past year was anelection year and Congress was notin session during the ASPA annualconference, our marchers met withtheir representative’s legislativestaffer. The 30 appointments, whichencompassed about twenty states,included 13 Representatives and 17

Senators. I would like to sum upthe “Hill Experience” withsome of the feed back com-ments from this year’s march.

Our New York group, AlanNahoum, Roger Ramsay,Michael Hoffman and TaraDonovan who met with Sena-tor Moynihan’s staffer StanFendley, reported:

“He was very interested inthe National Retirement Policy.He was puzzled at the reason

for the decline in pension cov-erage. He was knowledgeableand attentively taking notes. Bythe way, he was age 50 and isactively saving for retirement.”

Paul Donovan of Pennsylvania,who met with staffer MichelleKitchen from Senator RickSantorum’s office, said:

“The staffer seemed well re-ceptive to our meeting. In fact,she took extensive notes and hadeven prepared questions for dis-cussion.”

Calvin Nystrom of Florida whomet with Caroline Berver and RussellSullivan, staffers for Senator BobGraham, reports:

“This is an interesting and

enjoyable experience. I metRussell at our Florida retire-ment summit, and we hit it offwell. They are eager to learnfrom us (ASPA), and it is en-couraging to be listened to.”

Finally my group, which con-sisted of Gerry Gebauer, SheilaHickey, Sandi Thomson and I, metwith staffer Matt Tenellan, fromSenator Bob Torricelli’s office. I’lljust share one of our member’s clos-ing comments which sums up our en-counter perfectly:

“We shortened our presen-tation somewhat to prevent thestaffer from sinking into acoma!!”

Don’t let my latest experiencediscourage you. I have had manymore good than bad experiences, allequally important. Relationships donot happen over night. It takes all ofus, year after year, to go back up tothe Hill to fight for the private pen-sion system. I see the tide starting toturn in our favor. My closing com-ment to my staffer did wake him up....

“Do you realize that therewill be more people retiringover the next 15 to 20 years asa percentage of the U.S. popu-lation, than there ever has beenin the history of our country?By the way, without private pen-sions who’s paying for it???You are !!!”

Edward H. Thomson, III, MSPA,QPA is the President of E.H.Thomson & Co., Inc., of Sea Girt,New Jersey. He is also the ViceChair of GAC’s CongressionalOutreach Committee. Mr. Thomsonis a Trustee of the Public EmployeeRetirement System of New Jerseyand a member of the Actuarial Se-lection Committee for the PensionSystem of the State of New Jersey.


Marching to the Hill

Relationships do nothappen over night. Ittakes all of us, year af-ter year, to go back upto the Hill to fight forthe private pensionsystem.


In moving to a hybrid de-sign, the organization needsto decide if they wish to pro-vide a benefit based on fi-nal or career average pay.


Hybrid Pension Plans

poned, and many employees nowview early retirement subsidies as“penalties” for retiring early. Manyemployers are also finding that thereplacement workforce is not alwaysavailable, and question whether afully trained workforce will be avail-able in the 21st century. As a result,we have seen a trend away frompermanent early retirementsubsidies in favor of strategicincentives (early retirementwindows).

A properly designed hy-brid plan can, over time, effec-tively eliminate the earlyretirement subsidy, yet keepthe availability of an early re-tirement incentive program withinthe plan.

Desire to provide supplementalexecutive benefits

Another instance where a hybridplan may be attractive to smalleremployers is where they are lookingto maximize the benefits payable toa select group of employees throughthe qualified plan. Think of a hybriddefined benefit plan as a defined con-tribution plan without the $30,000annual addition limitation. In thislight, we have found hybrid plans tobe a very attractive means of provid-ing benefits to older, highly compen-sated employees.

These are just a few instanceswhere a hybrid plan design mightsatisfy an employer’s needs and ob-jectives. However, it represents amajor change in benefit delivery.Thus, one should proceed with cau-tion when discussing the concept andperhaps avoid introducing the con-cept to an employer that already hasa plan that is working well.

Establishing the Basic Plan

The starting point in moving toa hybrid plan design is to decide ifthe organization wishes to provide abenefit based on final average pay(pension equity) or career averagepay (cash balance). Certainly, all elsebeing equal, the pension equity plan

will be a higher cost plan. If theycurrently sponsor a final pay plan, itwill be easier to move to a pensionequity plan. But if their goals andobjectives are to reduce costs, thecash balance plan would be theproper choice.

Once the basic plan design issettled upon, then they must decidewhat benefit level will be providedto employees who are career employ-ees, and if the ultimate cost of theplan will be within their budget. Ananalysis of the benefit provided bythe plan throughout a “typical”employee’s career will illustrate theadequacy of the benefit – one maywant to compare the accruals underthe current plan and the proposedplan to allow the plan sponsor to bet-ter understand this concept. Astraight valuation of the normal costof the hybrid plan, using the currentpopulation, will provide the sponsorwith the ultimate cost of the plan –assuming that the employee demo-graphics will not change over time.

When considering a formula thatincreases with age and/or years ofservice, one has to test the accrualpattern to be certain that the formulais not back loaded (should look topass the 1331/

3% test). Although this

is a relatively easy test to pass, it isalso just as easy to overlook. Sincethe interest accumulation factorsneed to be included in the accrual ratetest, one should have wide latitudewithin the accrual rate. For example,if you are looking to offer a 2% ac-

crual rate before age 30 and a4% annual interest accrual rate,you can provide an accrual rateof 12½% at age 60 and stillmeet the accrual rules. Re-member that the Age Discrimi-nation in Employment Act(ADEA) will not allow you toreduce the accrual rates at spe-cific ages. Therefore, if theaccrual rates grow too high as

the employee population attains re-tirement age, it may be difficult toget them to retire.

We often recommend that the hy-brid plan offer a single sum paymentoption at termination and/or retire-ment. However, there may be indi-vidual instances when the sponsorwill not want to pay benefits at ei-ther point; for example, the employermay view single sums as too costly,or single sums conflict with theplan’s sponsor paternalistic nature.Of course, benefits must be providedin the form of a qualified joint andsurvivor annuity for all participantswho are offered payment options,and options must be offered to allemployees with a lump sum value inexcess of $5,000.

Grandfathering

Provisions

Once the basic plan is estab-lished, one will want to demonstratethe effect the plan will have on theplan sponsor’s current employee


group. We refer to this as the “win-ners vs. losers” analysis. This analy-sis compares the benefits eachemployee would receive at retirementunder a given set of assumptions un-der both the current plan and the pro-posed plan. If costs are to remainconstant and some participants willbe better off under the hybrid plan(short service employees), some par-ticipants will not fare as well. Weuse this demonstration to assist thesponsor with deciding which groupand how many employees can be pro-tected from a cutback in benefitswithin the sponsor’s cost parameters.This protected group is the“grandfathered group” under theplan.

We have seen some sponsorswho have grandfathered all currentemployees in the existing plan, whileothers have grandfathered no one. Ofcourse, the key question is where todraw the line. Generally, those mostnegatively impacted by the planchange are those who fall just shortof the protected group. We con-stantly have to remind our clients thatthere is no free lunch, and that as theyextend the grandfathered groupdeeper and deeper into the employeepopulation, the short-term cost of theplan will continue to grow. Thegrandfathering provision also adds acertain cost to administering the plan.

There are a number of ways tomitigate the need to grandfather ben-efits under the current plan. If thecurrent plan is well funded, the spon-sor can use some of the surplus as-sets to provide an enhanced cashbalance at transition. Of course, thisalternative leaves the plan sponsoropen to the risk of granting windfallsto participants who terminate soonafter the plan is converted. Our fa-vorite option is to provide a “kickerbenefit” to all current employees whohave attained a specific age and ser-vice level. This allows the sponsor

to provide greater benefits to a man-ageable group of employees whilekeeping the same general plan design– you should never lose focus of try-ing to keep the plan design as clearand concise as possible.

Communication and

Recordkeeping

Though not often uttered fromthe mouths of actuaries, we muststress that communicating the planafter if has been designed is most im-portant. If the plan remains misun-derstood, the employees will have nogreater appreciation of this plan thanthe old plan.

We also feel that the plan spon-sor should be up front with the par-ticipants. Glossy charts and graphs,if done well, can convey a wealth ofinformation. But, if they are mislead-ing, the employees will eventuallyview the entire program with skepti-cism. If the employer must reducethe costs of the defined benefit planto remain competitive, or to affordan increase in the match to a 401(k)plan, let the employees know thetruth. Employers must be counseledthat if they attempt to hide some-thing, their employees will find out,and the plan may become the sub-ject of a lead story in a local or na-tional newspaper.

Keep in mind that any hybridplan will require more recordkeepingand administration than a traditionalfinal pay plan. Whether maintain-ing a hypothetical account balancethroughout employees’ careers (in-cluding special awards and interestcompounding) or counting pointsbased on age and/or service, the or-ganization probably will not beequipped to handle the task. Wenever go into a hybrid plan designassignment without being preparedto offer our client either anoutsourcing solution to recordkeeping

Ideas? Comments? Questions?Want to write an article?

The Pension Actuary welcomes your views!Send to:

The Pension ActuaryASPA, Suite 8204350 North Fairfax DriveArlington, VA 22203-1619(703) 516-9300

or e-mail to [email protected]

or fax to (703) 516-9308

or software that allows them to admin-ister the plan in-house. Mid-size andsmaller clients (under 1,500 activelives) can be easily administered us-ing spreadsheet technology (e.g., Ex-cel or Lotus 123). However, largerclients may require more robust data-bases. If a selling point of the plan isits similarity to a 401(k) plan, then theclient should be ready to provide an-nual or quarterly statements as timelyas 401(k) statements are produced.

Endnotes1 This is due to the fact that the

benefits promised by tradi-tional plans behave like bonds:as interest rates fall, the valueof the obligations increase, andvice versa).

Raymond J. Lee, MAAA, is a VicePresident and Chief Technical Actu-ary with The Savitz Organization inPhiladelphia, PA. Mr. Lee has over 20years of experience in the pension field,and has assisted clients in analyzingthe benefits of hybrid pension planssince 1987. William P. Bishop, MSPA,CPC, QPA, FCA, is the President ofthe Savitz Organization. Mr. Bishophas over 15 years of experience in thepension field. He provides actuarialand consulting services to both singleemployer and multiemployer groupsand is a frequent speaker on employeebenefits topics at both regional andnational seminars and conferences.



IRS “Best Practices” Memo

Provides Guidance on EPCRS

The best practices memois an important and help-ful document, since itclarifies some of the pro-cedures for handlingqualification failures,while making certainchanges under EPCRS.

Although Revenue Agents can-not ask to see the compliance auditreport, there may be circum-stances under which it would beadvantageous for the plan spon-sor to voluntarily provide it tothe IRS, such as, for example,if the information contained inthe compliance audit report canbe used by the plan sponsor asan equity to reduce the sanctionunder Audit CAP, or to estab-lish that the plan had in place“practices and procedures” as re-quired under APRSC. In theseinstances, the plan sponsor shouldseriously consider sharing all or partof the report with the Revenue Agent.However, plan sponsors should recog-nize that providing the IRS with thecompliance audit report may expandthe audit beyond the initial scope ofreview. Therefore, care should betaken in determining the extent towhich the report should be disclosedto the IRS.

Excise Tax IssuesSection 6.04 of Revenue Proce-

dure 98-22 indicates that EPCRS isonly available to correct plan quali-fication failures; therefore, it cannotbe used to resolve other problems,such as excise taxes. However, forseveral years, the Western Key Dis-trict of the IRS has allowed certainexcise taxes to be compromised un-der a procedure similar to Walk-inCAP, known as Delegation Order 97.(Delegation Order 97 is an internalIRS memorandum under which theCommissioner of Internal Revenuehas delegated authority to officials inthe Key Districts to enter into agree-ments to resolve tax issues.) Undera “DO 97” closing agreement, the

IRS would collect an amount equalto 75% of the excise tax due on a pro-

hibited transaction, funding violationor other matter for which an excisetax is reportable on Form 5330. Allinterest and penalties were effec-tively waived.

The “best practices” memoeliminates the use of the DO 97 pro-gram for excise taxes. It states thatthe excise taxes reported on Form5330 cannot be resolved as part of aclosing agreement and should be paidin full, including all accrued inter-est. However, the penalties for latefiling and late payment can bewaived. The memo instructs the Rev-enue Agent handling a Walk-in orAudit CAP case to obtain all Forms5330 and then forward them to theappropriate Service Center with a rec-ommendation on whether to waive anyapplicable penalties. The memo spe-cifically states that the recommenda-tion to waive penalties is at theRevenue Agent’s discretion. There-fore, plan sponsors and practitionersshould be certain to fully discuss withthe Revenue Agent any arguments theymay have in support of waiving the

penalties, before the Forms 5330 areforwarded to the Service Center.

The memo’s elimination of theWestern Region’s DO 97 program isunfortunate because plan sponsorshave lost an opportunity to come for-ward and resolve excise taxes underfavorable circumstances; this mayhave a negative impact on voluntary

compliance. At the same time,the memo makes a welcomechange concerning the 50% ex-cise tax imposed under Code sec-tion 4974 for failing to make aminimum required distribution(MRD). The failure to distributeMRDs is an “operational” quali-fication failure which can be cor-rected under the StandardizedVCR Procedure (SVP), VCR andAudit CAP; if there is also a plandocument or demographic failure,it may be corrected under Walk-in

CAP. The memo provides that, wherea voluntary correction program hasbeen used to correct the MRD failure,Revenue Agents “should routinely rec-ommend waiver” of the section 4974excise tax, except for those failures in-volving an owner-employee. And, evenin the case of an owner-employee, theRevenue Agent still has the discretionto recommend that the Service Centernot assess the excise tax.

ConclusionThe best practices memo is an

important and helpful document,since it clarifies some of the proce-dures for handling qualification fail-ures, while making certain changesunder EPCRS designed to promoteself-audit and voluntary compliance.The new procedures for handlingplan document failures under Walk-in CAP (especially those failures dis-covered during the determinationletter process) will become increas-ingly significant as plan sponsors re-view their plans, amend them forGUST, and file with the IRS for de-termination letter rulings. The creation


of the new “minor” qualification fail-ure concept will be helpful whensmall plan document failures are dis-covered by the IRS during the deter-mination letter process.

It is unfortunate that the IRSchose to eliminate, rather than ex-pand, the use of DO 97 to resolveexcise tax matters (which had beenurged by the ASPA Government Af-fairs Committee). At the same time,it comes as good news that the IRSis predisposed to grant a waiver ofthe 50% excise tax under Code sec-tion 4974 for those cases in whichthe MRD failure is corrected using avoluntary program.

Finally, the memo protects a plansponsor’s compliance audit reportunder all of the EPCRS correctionprograms by prohibiting RevenueAgents from requesting to see it.However, plan sponsors may want toprovide the report on a voluntary ba-sis to establish either an equity, which

Enrolled Actuaries are advised that:

1. An enrolled actuary is not per-mitted to use the new (in this case99-) prefix until such time as he/she has been officially notified inwriting by the Joint Board of his/her entitlement to do so. See theinstructions of Schedule B.

2. An enrolled actuary who has notyet received official notificationfrom the Joint Board should use the96- prefix if he/she signs a Sched-ule B in the first three months of1999. The IRS Service Center willnot reject the 96- prefix for a sig-nature date during this three-monthperiod. The 96- prefix will be re-jected for a Schedule B where thesignature date is April 1, 1999 orlater.

The renewal forms (sometimes re-ferred to as the #5434-A) are cur-rently being mailed. You should bereceiving yours shortly. If you havehad a change of address and have notinformed the JBEA directly, youmust do that. A change of addresswith ASPA or the SOA will not up-date the JBEA records. Inquiriesshould be directed to Darryl Carterat (202) 694-1854 to do this.

Patrick W. McDonough, Esq., hasbeen appointed the executive direc-tor of the Joint Board. The JointBoard’s address is JBEA, InternalRevenue Service, Attention:C:AP:DOP, 1111 Constitution Av-enue, N.W., Washington, DC 20224.The phone number is (202) 694-1891 and fax (202) 694-1804.

Attention EAs! Updated Information!Notice from the Joint Board for the Enrollment of Actuaries

would reduce the sanction underAudit CAP or “practices and proce-dures” as required under APRSC.

C. Frederick Reish, APM, is a founderof and partner with the Los Angeleslaw firm Reish & Luftman. He is aformer cochair of ASPA’s Govern-ment Affairs Committee and currentlychairs the GAC Long Range Plan-ning Committee. Bruce L. Ashton,APM, a partner with Reish &Luftman, is cochair of the Govern-ment Affairs Committee and serveson the ASPA Board of Directors.Nicholas J. White, APM, specializesin all aspects of employee benefitslaw. Before joining Reish & Luftman,Mr. White served as a Tax Law Spe-cialist for the Western Key DistrictOffice of the Employee Plans andExempt Organizations Division ofthe Internal Revenue Service.

The actuarial profession estab-lished the Actuarial Board for Coun-seling and Discipline (“ABCD”)through Article X of the Bylaws of theAmerican Academy of Actuaries, ef-fective January 1992. Amendment ofArticle X, which also delineates ABCDresponsibilities, is by Academy mem-bership vote. The Academy exposedto the profession in 1997 a proposedamendment of Article X. The ABCDconsidered comments that the profes-sion submitted regarding the draft andproposed a revised Article X amend-ment to the Academy in January 1998,which, in turn, submitted the proposalto ASPA as well as the Casualty Actu-arial Society, the Conference of Con-sulting Actuaries, and the Society ofActuaries.

From September 1 through No-vember 15, 1998, Academy member-ship voted on and passed the proposedArticle X amendment. In accordancewith Academy Bylaws, the approvedamendment took effect 10 days follow-ing the vote deadline, i.e., on Novem-ber 25, 1998.

Pursuant to Article X, the ABCDis responsible for establishing Rules ofProcedure. In January 1998, theABCD presented proposed revisedrules of procedure through the Acad-emy to the participating membershiporganizations. The ABCD consideredcomments submitted to it, made fur-ther revisions, and formally exposedto the profession proposed rules revi-sions September 1 through November15, 1998. In December 1998, theABCD adopted revised Rules of Pro-cedure, effective January 1, 1999.

Both Article X and the revisedrules are available via the ABCD’s Webpage (with Acrobat Reader) at http:/www.abcdboard.org. A printedbooklet of the rules is also availableupon request.

New ABCD Bylaw

and Rules Adopted


Don’t miss the premier educationalconference on benefits issues in theMidwest! The annual Midstates Ben-efits Conference, jointly sponsoredby ASPA and the Internal RevenueService, consistently receives ravereviews from attendees for its unsur-passed combination of timely topics,expert speakers, and convenient lo-cation.

Our featured luncheon speakers in-clude Scott F. Turow, an attorney andbest selling author, and David M.Strauss, Executive Director of thePBGC. Other topics and speakersinclude: IRS Regulatory and Legis-lative Update with RichardWickersham; Leased Employees andthe Independent Contractor withDerrin Watson; 401(k) Plan Designand Compliance with Joan A.Gucciardi and Richard Nelson; IRSand DOL Litigation Review withSherwin Kaplan; Major Changes tothe 1999 Form 5500 with Janice M.

Wegesin; IRS Voluntary CompliancePrograms with Joyce Kahn; andPaperless Communications-The NewWave of Employee Disclosures withFrank Roque, plus many more.

The conference provides 16 hours ofASPA continuing education (CE)credit, and it is designed to offer en-rolled actuaries up to 16 CE hours.In addition, continuing educationcredit will be available for attorneysand certified public accountants(CPAs).

The early registration fee is $375.Early registrations must be receivedby April 7th. The late fee for regis-trations received April 8th and lateris $475.

For more information or to receive abrochure please call Piper J. Deuschl,CMP, in ASPA’s meetings depart-ment or visit our website atwww.aspa.org.

REGISTER NOW TO SAVE!

April 29-30, 1999

Midstates Benefits ConferenceChicago, IL

The Harry T. Eidson FoundersAward recognizes exceptional ac-complishments that contribute toASPA, the private pension system, orboth. The award is given in honor ofASPA’s late founder, Harry T. Eidson,FSPA, CPC.

The following criteria are usedto determine the nominee:

The contribution must be consis-tent with the ASPA mission statementand should have a lasting, positive in-

Nominations Open for 1999

Harry T. Eidson Founders Award

fluence on ASPA or the private pen-sion system.

The contribution may be current,one that spanned many years, or onemade years ago which ASPA or theprivate pension system benefit fromtoday.

The contribution should be a re-sult of time devoted above and be-yond reasonable expectations, not aresult of time spent primarily for per-sonal gain.

The contribution may be one rec-ognized on a national basis or onemore local in nature. Publicity is nota criterion.

ASPA’s Membership Committeewill make the recommendation forthe award after considering a broadbase of nominations drawn from therange of ASPA’s membership. If youknow someone you believe meets thecriteria, please fill out the nomina-tion form enclosed with this issue andreturn it to ASPA.

The recipient need not be an ASPAmember. If no deserving candidate isfound, no award will be given.

The award is presented at theASPA Annual Conference and thewinner’s name is engraved on aplaque in the ASPA office.

Previous winners: Andrew J. Fair,APM in 1998, Chester J. Salkind in1997, John N. Erlenborn in 1996, andEdward E. Burrows, MSPA, in 1995.

Nominations will be accepteduntil May 14.

ASPA is pleased to announce thateffective immediately we will beoffering the ASPA ASAP via e-mail.

If you are currently subscrib-ing to the ASPAASAP and would liketo begin receivingthis publication at youre-mail address, pleasesend a request, along with your e-mail address, to [email protected].

If you begin receiving the ASAPvia e-mail, you will no longer re-ceive it via facsimile. There willbe no change in the cost of theASPA ASAP.


W E L C O M E N E W

M E M B E R S

Welcome and congratulations to

ASPA’s new members and recent

designees. January-February 1999.

MSPAMichael R. Greenstein

Dane C. MitchellMichael Mojzak

Martin Weiss

CPCThomas D. Borkowski

Margaret E. CoxAlicia M. Wiley

QPARichard L. AndersonKimberly K. BoyleTimothy R. CinalliMary Ann CrosseyLisa A. DesMoineBarbara I. ElbertDaniel E. FisherAllen F. GipsonJames E. Hawk

Cynthia L. KamufRobert J. Kent

Michael J. KingJohn E. Larem

Kerry L. OettingScott A. Pemberton

Laura L. SmallJohn T. Wickline

Robert G. Williams

APMJames Patrick Ingold

Jack LawlessWilliam F. Lee

Lorence WheelerGeorge T. Wilcox

AffiliateRichard A. AndersonMichael W. Beecher

Raymond T. FarabaughSusan E. Goetzinger

Donna GrenonConnie M. Knox

Karen M. KozminskiPamela A. Margenau

Ann SandeferPeggy Jo VonSeggern

YYYYYou’re Invited...to ASPou’re Invited...to ASPou’re Invited...to ASPou’re Invited...to ASPou’re Invited...to ASPAAAAA’’’’’s First Evers First Evers First Evers First Evers First EverSummer ConfSummer ConfSummer ConfSummer ConfSummer Conference!erence!erence!erence!erence!

Make your plans now to attendASPA’s first Summer Conference-Education for the Millennium to beheld in San Francisco at the FairmontHotel from July 11-14, 1999.

The conference begins Sunday,July 11, with an informative GACand DOL update to bring you up-to-date on legislative matters. SalTripodi, APM, one of ASPA’s most

popular speakers, will close the con-ference on Wednesday with his ses-sion, Keeping Current. Theconference offers three concurrentsessions covering topics such asCross-Tested Plans from Design toDocument to Administration; Con-sulting: Building Loyalty and Prof-its by Giving Clients Ideas; ESOPsfor Subchapter S Corporations;EPCRS for the TPA; QDROs and theTPA; and much more. Earn up to 20hours of continuing education credit.It won’t be all work and noplay...Enjoy the Pension ComedyHour with popular speaker and au-thor Derrin S. Watson, APM, and at-tend the welcome reception Sundayevening, July 11, for a taste of Cali-fornia cuisine.

The new Summer Conference alsooffers exhibits. Get a sneak peak atwhat’s new from your software ven-dor! Learn about the new financialproducts from insurance and invest-ment firms and see the latest tools that

will help you do your job more effi-ciently and better satisfy your clients.Education and Relaxation

Surely San Francisco is one ofthe world’s most exciting and enter-taining cities. From the clang of thebright red cable cars to the sightsand sounds of Chinatown andFishermans’ Wharf; San Franciscooffers a bounty of sightseeing, din-

ing, and museums. Visit the land-mark Golden Gate Bridge, motorboat across the bay to intriguingAlcatraz prison, or exploreSausalito - the quaint artists’colony. Bring your family and hitthe Exploratorium, where the ex-hibits are built so children canexperience science “hands-on.”Or schedule a trip into nearbywine country or travel to historic

Gold Rush Country. The City by theBay has something to offer everyone!

Register Early and SaveSave $50 by registering for the

conference prior to June 11, 1999.The cost to attend the conference isonly $550 for ASPA members (be-fore June 11). The second registrantfrom the same firm, same location,pays only $500. For more informa-tion about attending or exhibiting atASPA’s first ever Summer Confer-ence, contact Piper Deuschl, CMP,at [email protected] or visit ASPA’sweb page: www.aspa.org.

See you in San Francisco!

YYYYYou’re Invited...to ASPou’re Invited...to ASPou’re Invited...to ASPou’re Invited...to ASPou’re Invited...to ASPAAAAA’’’’’s First Evers First Evers First Evers First Evers First EverSummer ConfSummer ConfSummer ConfSummer ConfSummer Conference!erence!erence!erence!erence!


also upgraded the audio/visual ar-rangements for the conference.

More IRS Q&A: The IRS Q&A hasbeen expanded to 200 minutes,scheduled before and after lunch onMonday. Conferees will be able toask IRS representatives questions di-rectly to help them understand theIRS’s regulatory interpretations.Look for your advance Q&A formin the July/August issue of The Pen-sion Actuary and use it to submit yourquestions.

Extended Tuesday Reception: Con-ferees were having so much fun lastyear that the Tuesday Reception hasbeen extended until 12:00 midnight!You will have more time to networkwith your peers and/or dance thenight away.

Hotel arrangements: The GrandHyatt Washington’s rates for 1999 are$180/single and $195/double. Pleasecall the hotel directly to make yourhotel reservations (202)797-1234.The Grand Hyatt typically sells outthree to four weeks prior to the cut-off date, which is Friday, September24.

You will receive a 1999 ASPA An-nual Conference brochure, completewith all the details, early this sum-mer, but can check out the prelimi-nary information on the ASPA website now -- www.aspa.org.

1999 ASPA Annual Conference --

It’s Educational, It’s Fun, and YouShould Attend

December 1998 ASPA Exam Results Posted Online

Exam results for the December 1998 C-1, C-2(DB), C-2(DC), C-3, C-4, and A-4 exams are now postedalphabetically by name at www.aspa.org/aspaedu.htm. A list of candidates who earned the PensionAdministrators Certificate effective August 31, 1998 is also available at the site.

Preparations are being made for the1999 ASPA Annual Conference to beheld in Washington, D.C., October24-27, at the Grand Hyatt Hotel.

Conference Theme Selected: Con-gratulations to Cynthia Barker,FSPA, CPC, QPA, for suggesting thetheme for the 1999 ASPA AnnualConference. The Annual ConferencePlanning Committee selectedCindy’s theme to acknowledge the25th anniversary of ERISA. ERISA- The First 25 Years and Into the NewMillennium won Cindy a free regis-tration to the 1999 ASPA AnnualConference. We thank Cindy for hercreativity.

Expanded Exhibit Hall: The Ex-hibit Hall will be expanded to bringyou more providers of products andservices that will help you succeedthroughout the next millennium.With this expansion, more work-shops will be held nearby at theMarriott Metro Center, located acrossthe street from the Grand Hyatt. Ifyou want a change of pace, try theMarriott Metro Center for your sleep-ing accommodations (202) 737-2200. The rate is $173 for both singleor double occupancy.

Embracing Technological Innova-tions: Conference materials will beprovided to all conference attendeeson CD-ROM as part of the confer-ence registration package, in additionto the binders of materials. We have

Drawing Winners!

Everyone who responded to the1998 Membership Survey was eli-gible for our free conference regis-tration drawing. The MembershipCommittee would like to congratu-late our two winners! The luckyASPA members are Tom Gatenby,of Greenwood & Associates, Inc.in Fayetteville, Arkansas and John(‘Jack’) J. Wade, QPA of RehmannRobson in Grand Rapids, Michi-gan. Tom and Jack have won a freeregistration to either the 1999ASPA Summer Conference or the1999 ASPA Annual Conference.Please join us in congratulating ourwinners!

Join other ASPA mem-bers as they march onCapitol Hill to discussthe latest pensionproposals with theirSenators and Repre-sentatives as part ofthe annual conferencein October! Moredetails to come later!

ASPA’s March onthe Hill Rides

in Style!


Get your copy of ThePension Actuaryearly... before it iseven mailed out!How?Download it from the Mem-bers Only section atwww.aspa.org!

wwwwwwwwwwwwwww.aspa.org.aspa.org.aspa.org.aspa.org.aspa.org

Third Annual Northeast

Key District Employee

Benefits Conference

Iselin, New Jersey

May 20-21, 1999

The Northeast Key District Em-ployee Benefits Conference is co-sponsored by:The Northeast Key District of theInternal Revenue Service and its Pen-sion Liaison Group, and ASPA.

• 2-Day Conference

• New Location

• More Workshops

• More CE Credits - Earn Up To 14CE Credits

• More Networking Opportunities

Plan to attend!! The Northeast KeyDistrict Employee Benefits Confer-ence will cover topics such as distri-bution planning; fiduciary concerns;employee plans compliance resolu-tion system; changes in welfare ben-efits plans; IRS, DOL, PBGCupdates; and a lot more.

This year the conference will be heldat the Sheraton Woodbridge Place,located at 515 Route 1 South, Iselin,NJ 08830. To make reservations andget the special conference rate of$136 plus tax, call the hotel directlyat (732) 634-3600 and mention theconference. To receive this specialrate, contact the hotel by April 29.After that, registrations will be madeif space is available, but the rate isnot guaranteed.

Plan to register before April 26 andtake advantage of the “early” regis-tration fee of $325. Late registration(after April 26) is $405. For moreinformation call Janet Kamvar, Meet-ings Coordinator, at (703) 516-9300,or e-mail [email protected].

ASPA is teaming up with the In-ternal Revenue Service to offer threeworkshops that will take six topicsfrom the IRS/ASPA Midstates BenefitsConference and present them in Kan-sas City, Mo.; Minneapolis, Minn.; andMilwaukee, Wisc. The workshops aretentatively scheduled for the last twoweeks in July.

The topics covered at the 1999Workshops include:

1. Plan Amendments and Restate-ments During the RemedialAmendment Period

2. 401(k) Plan Design and Compli-ance - Emphasis on 401(k) SafeHarbor Plans

3. Fiduciary Responsibilities, Prohib-ited Transactions, Plan Expenses

4. IRS Voluntary Compliance Programs

5. Cross Testing Your Defined Contri-bution Plans

6. A session with local members of theIRS.

These interactive workshops usepension professionals from these ar-eas to provide a local flavor to eachtopic. If time and budget concernsmake it impossible to attend theMidstates Benefits Conference, this isa workshop you do not want to miss!The best topics are presented to you inan inexpensive, one day format.

Look for the brochure to arrive inyour mailbox in mid-May.

For more information, contactKen Morton, ASPA Meetings Coor-dinator at (703) 516-9300 or [email protected].

ASPASPASPASPASPA and IRS to OffA and IRS to OffA and IRS to OffA and IRS to OffA and IRS to Offer Best of Midstates Wer Best of Midstates Wer Best of Midstates Wer Best of Midstates Wer Best of Midstates Workshopsorkshopsorkshopsorkshopsorkshopsfffffor a Second Yor a Second Yor a Second Yor a Second Yor a Second Yearearearearear

Check out the Meetings Webpage todownload information, brochures andregistration forms on the upcomingconferences, including the Midstates andthe Business Leadership Conferences.


Capitol Hill and will keep you in-formed of future proposals.

Lisa J. Bleier, Esq., is the Govern-ment Affairs Manager at ASPA. Agraduate of the University of Pitts-burgh School of Law, she has mostrecently worked for CongresswomanMarge Roukema (R-NJ) as her legalcounsel and legislative assistant forall issues arising from the Educationand the Workforce Committee, in-cluding ERISA.

Carol’s Speech

My name is Carol Ruth Sears. Iam president of the American Soci-ety of Pension Actuaries, an EnrolledActuary, a Fellow in the AmericanSociety of Pension Actuaries, a Cer-tified Pension Consultant, and a VicePresident of a third party administra-tive, recordkeeper and actuarial firmin Peoria, Illinois that serves prima-rily small and medium business pen-sion plans. We provide professionalservice to over 1,100 private pensionplans covering about 100,000 partici-pants.

There are advantages of CashBalance even to small businesses be-cause they are DB Plans. These in-clude:

• Market volatility is spread over thegroup and over time.

• Benefit adequacy for early retir-ees, employees hired late in theircareers, and employers who estab-lish a plan after investing yearsinto building and solidifying theirbusiness can be accommodatedvia past service credit and finalbenefits based on current averagepay.

• Employers are concerned thatemployees may misuse regularDC plan account balances—earlywithdrawal, lump sum expendi-tures rather than continued sav-ings, improper investmentchoices, etc. There tends to besome employee perception thatDC plans are savings plans forspending and not for lifetime in-come needs.

• There is funding flexibility—DBfunding can anticipate turnover,amortize gains/losses, provide acontribution range, and generallyachieve a level percent of payrollcost to be budgeted and managed.

• Maximum Section 415 limits arebased on ultimate benefits and aremore appropriate, economic andinflation based limits, as a result.

• Can provide opportunity for “win-dow”, disability, enhanced death,and other benefit enhancements.

• Forfeitures are spread over futurecontributions—again, allowingfor more contribution predictabil-ity into the future.

• Encourage annuity benefit op-tions, which eliminate risk of out-living retirement assets.

• Provides PBGC protection.

• Has minimum funding obligationbased on future benefit expecta-tions.

• Creates environment for use moreoften of professional investmentmanagement which has beenshown to out perform marketplacemore often than individuals whodirect their own retirement assets.

The Cash Balance DB Plan candeliver an easy-to-understand, par-


Cash Balance Briefing on

Capitol Hill

ticipant friendly “account balance”program while enjoying all the ad-vantages mentioned above. A CashBalance Plan can also embrace thestrengths of a DC Plan. Some ofthese strengths include the following:

• flatter benefit accrual rather thanback loaded accrual

• participant appreciation and com-prehension even in the early,young years of service

• frequent benefit statements whichmaintain visibility and participantappreciation

• more portability

Such a concept does “play inPeoria”. With our agricultural andmanufacturing industries in particu-

lar, there are scores of tag-along startup small businesses to receiveoutsource business from the manu-facturers and farmers. Examples are:

• Implement Dealers

• Metal Fabricators

• Mortgage Brokers

• Seed Distributors

• Fertilizer Companies

• Specialty Engineering Consult-ants

• Trucking Firms

• And more

Economic, weather, demo-graphic, and international vagariesplay a huge part in the sustenance ofthese unique firms. Their immedi-ate concern over the first severalyears of their company is to invest inthe company’s future. Only if they

There are advantagesof Cash Balance evento small businessesbecause they are DBplans.


successfully find and secure a toe-hold in their niche, do they add anybenefit programs at all.

A Cash Balance Plan is a conve-nient way to have a single plan (orperhaps a single Company plan witha companion salary deferral 401(k)plan) which both rewards the staffthat invested in the company’s future,while working “plan-less”, and alsoattracting new employees who aremore often comfortable with accountbalances than deferred monthly ben-efits. Even small business likes thisplan option because:

• Use of a single plan keeps planupkeep costs lower

• There is great appeal to be able togive employees a statement of ac-count balance based on safe, rea-sonable interest accumulations.

• The fiduciary onus to select fundchoices that are secure and defen-sible to every participant, everyday, regardless of the participant’sfinancial comprehension levelgoes away.

• The fiduciary onus of either aparticipant declaration of inad-equate investment manage-ment education or not enough,not the correct and too manyfund choices goes away. Thatis, the investment return expec-tations are communicated inadvance, guaranteed, and can-not be fodder for participantdisillusionment.

In small business, where ev-eryone knows, works, lives, in thesame community as everyone else,it is extremely important to have anatmosphere of trust and loyalty toeach other.

There is incentive to utilize pro-fessional investment managers.These professionals would tell youthat they could outperform the mar-ket more often than not. The em-ployer incentive to outperform the

market to support interest credit toparticipant accounts fosters partici-pant account or benefit protection.The overperformance creates em-ployer contribution reduction.Underperformance leads to extraemployer contribution obligation.This risk leads to plan protection andsecurity.

The use of floor benefits, whichconsiders past service and finalaverage pay permits benefits appro-priate to long-term employee com-

sure that ASPA’s Government AffairsCommittee is right in the middle of it.• Roth 401(k) and 403(b) plans –

As described in the accompany-ing article on page one, SenatorRoth (R-DE), Chairman of theSenate Finance Committee, is in-troducing legislation allowing

401(k) plan participants to elect atax treatment for their deferralssimilar to Roth IRA contributions.This is an exciting new proposal,which will make 401(k) plansmore competitive with IRAs. Fol-lowing are some details. In re-sponse to an ASPA GAC sugges-tion, in order to avoid nondis-crimination testing problems, af-ter-tax Roth 401(k) contributionswill be tested along with pre-tax

deferrals as part of the ADP test,not with other after-tax deferralsand matching contributions whichwill still be tested under the ACPtest. Under the proposal, the402(g) limit would still apply tothe combined amount of pre-taxand after-tax Roth 401(k) contri-butions. However, Senator Roth’sbill would increase the 402(g)limit to $15,000. Because of theirspecial tax treatment (i.e., distri-butions, including earnings, ex-empt from tax), Roth 401(k) con-tributions, and allocable earnings,would have to be accounted forseparately. Further, like RothIRAs, in order to receive such spe-cial tax treatment, a 5-year hold-ing period would apply. In otherwords, the special tax treatmentapplies if five years have elapsedsince the participant first madeRoth 401(k) contributions. In re-sponse to another ASPA GAC sug-gestion, Roth 401(k) amounts canbe rolled over to a Roth IRA. Theproposal currently has no provi-sion allowing for conversion ofexisting 401(k) amounts to Roth401(k) contributions.

• Modifications to top-heavy rules– Groups of Republicans and

mitment and to the economy at thetime of retirement.

Believe me, a small business willutilize Cash Balance Plans more andmore if the fuzzy parts become clear.It is an idea whose time has come.

Carol R. Sears, FSPA, CPC, EA,MAAA, is the current president ofASPA. Ms. Sears served on the Edu-cation and Examination Committeefor 12 years, most recently as theGeneral Chair during 1996 and 1997.


Washington Update

In order to avoid non-discrimination testingproblems, ASPA GACsuggested testing Roth401(k) contributions withpre-tax deferrals as partof the ADP test.


Democrats in both the House andthe Senate are working on legis-lation, which ASPA GAC helpedto develop, to significantly relaxthe top-heavy rules.

1. Definition of key employee –The definition would be modi-fied to: (1) eliminate the 4-yearlook-back rule; (2) change theincome threshold for officers to$80,000; and (3) delete the top-10 owner rule.

2. Repeal family attribution –Family members would not bedeemed key employeessolely because of stock at-tribution.

3. Exclude elective deferralsfrom top-heavy rules – Atthe election of the employer,elective deferrals and allo-cable earnings could be ex-cluded in determiningwhether a plan is top-heavy(i.e., the 60% test), and elec-tive deferrals made by a keyemployee would not triggertop-heavy minimum contribu-tions.

4. Matching contributions counttoward top-heavy minimum –Employer matching contribu-tions would count toward satis-fying top-heavy minimum con-tribution requirements.

5. 401(k) safe harbors exemptfrom top-heavy – A 401(k)plan adopting the matchingcontribution safe harbor for-mula would be deemed to sat-isfy the top-heavy rules, justlike those plans utilizing the3% nonelective contributionsafe harbor formula.

6. Revise 60% test - The 60% testwould be based only on currentyear contributors rather thantotal plan assets.

7. Repeal 5-year look back rule– Previous distributions made

to key employees would nolonger have to be considered indetermining whether a plan istop-heavy.

8. Eliminate minimum accrualsfor frozen DB plans – FrozenDB plans would no longer haveto make top-heavy minimumaccruals for non-key employ-ees.

ASPA GAC would appreciateyour input since we may need to pri-oritize these proposals. Please votefor your favorite top-heavy proposal

at the government affairs section ofour web site at www. aspa.org.

• Increasing Various Limits –There are bills in both the Houseand Senate to increase qualifiedplan limits in varying degrees.Following are some examples:

1. Increases in 415 limits – Inlegislation introduced by Reps.Portman (R-OH) and Cardin(D-MD) (“House bipartisanbill”), the DB dollar limit wouldbe increased to $180,000, and theDC dollar limit would be in-creased $45, 000.

2. Repeal 415(c) 25% of com-pensation limitation – Almostall of the major bills in theHouse and Senate include thisprovision. In addition, the pro-vision is accompanied by a pro-vision excluding elective defer-rals from the section 404 de-duction limitation.

3. Increase elective deferral lim-its – The House bipartisan bill

and the Roth bill would in-crease the 402(g) limit to$15,000. A bipartisan group ofSenators, including SenatorsGraham (D-FL), Grassley (R-IO), Baucus (D-MT), Jeffords(R-VT), Breaux (D-LA), andHatch (R-UT), presently work-ing on a pension reform pack-age, are considering a moremodest increase to $12,000.

4. Increase compensation limit– The House bipartisan bill in-creases the section 401(a)(17)to $235,000. So far, no othermembers are considering suchan increase.

5.Catch-up contributions – TheHouse bipartisan bill and theRoth bill both include provi-sions which increase the 402(g)elective deferral limit for per-sons age 50 and over. TheHouse bill increases the limitby $5,000, and the Roth billincreases the limit by 50%. So,if both the increase in the402(g) limit and the catch-upcontribution provisions in theHouse bill and Roth bill wereenacted, the total elective de-ferral limit for persons age 50and older would be $20,000under the House bill and$22,500 in the Roth bill. Un-der the Roth bill, the extracatch-up contribution (i.e., theextra $7,500) would be exemptfrom nondiscrimination test-ing. Under the House bill alldeferrals would be subject tonondiscrimination testing, al-though the 401(k) safe harborswould still be available.

IRS guidance – As of the date ofthis writing, we are still waitingfor the guidance governing theGUST amendment process. How-ever, recent statements by highlevel government officials suggestthat because of this delay it ap-

ASPA GAC helped todevelop legislation tosignificantly relax thetop-heavy rules. Vote foryour favorite proposal.


pears more likely that plan amend-ments will not have to be made byDecember 31, 1999. ASPA GAChas been arguing for such an ex-tension, and hopefully by the timeyou are reading this, the officialguidance will be available. We arealso waiting for section 415(e)guidance, which should also be re-leased shortly.

• DOL guidance – As you know,the DOL is working on revisingthe small plan reporting rules. Thegood news is that in a separate let-ter to concerned Members of Con-gress and to ASPA as well, theDOL has promised not to requirea financial institution trustee orcustodian in order to avoid a fullscope audit. DOL appears to beleaning toward requiring thatplans obtain a statement—like atrust account statement—from aregulated financial institution (i.e.,bank, insurance company, broker-dealer, mutual fund company) an-nually verifying the existence andvalue of total plan assets. Otherthan for plans invested in “hard-to-value” assets (e.g., deeds of trust,limited partnership interests), suchstatements should be readily avail-able at little cost. Those plans withhard-to-value assets may be subjectto a full scope audit, however. Wewill continue to work with DOL onless costly alternatives such as anincreased ERISA bond requirementor perhaps a qualified independentappraisal in lieu of an audit.

There is actually much more go-ing on, but these are the highlights.As always, we will keep you postedthrough ASPA ASAPs with any late-breaking developments.

Brian H. Graff, Esq., is executivedirector of ASPA. Before joiningASPA, Mr. Graff was legislationcounsel to the U.S. Congress JointCommittee on Taxation.

During the Western Practitioner’sConference last fall, one of the Depart-ment of Labor speakers mentioned thatthe Arizona Carpenters Pension TrustFund case contained the “blueprint”that the DOL would use in determin-ing whether a fiduciary breach hasoccurred in the selection and monitor-ing of investment managers.

ERISA requires that fund manag-ers sufficiently diversify fund portfo-lios in order to avoid large losses,which could occur from a suddendownturn in any particular market.The DOL looks closely at funds thatconcentrate assets in real estate-relatedinvestments.

In 1994, the DOL announced thatmore that $93 million would be re-stored to four Arizona-based pensionand health benefit plans covering31,000 workers under settlement of acase brought by the U.S. Labor De-partment and plan trustees. The casehad been the largest recovery of its typein which the Department had been aparty. The funds had been heavily in-vested in real estate and were neitherdiversified enough nor closely enoughmonitored to satisfy legal requirementsof ERISA.

In addition to the financial settle-ment, it was required that the fundsreduce their real estate holdings andfollow departmental guidance on se-curing and monitoring the services ofall of the funds’ investment managers.DOL suggested procedures for select-ing and monitoring investment man-agers is provided below.

Note: The Editors would like to thankE. William Berke, APM for providingthis information and suggesting that itappear in The Pension Actuary.

Department of Labor Suggested

Procedures for Selecting

Investment Managers

In selecting any Investment Man-ager for the Plans, the Plans, throughtheir Trustees, shall perform, at a mini-mum, the following procedures:

1. For each Investment Manager posi-tion to be filled, proposed investmentguidelines shall be established and/oran investment style shall be identified,for that portion of the Plan’s assets tobe committed to such InvestmentManager’s discretion; provided, how-ever, that investment guidelines shallbe established for any InvestmentManager ultimately retained.

2. A range of candidates whose exper-tise is consistent with the proposedinvestment guidelines established and/or investment style identified for theInvestment Manager position in ques-tion, shall be identified. The processby which such candidates are identi-fied shall be documented.

3. Information necessary for the prudentselection of an investment managershall be obtained from each of the can-didates. That information shall include,but not necessarily be limited to, thetypes of information described belowand, insofar as appropriate, supportingdocumentation:

• whether the candidate qualifies as aninvestment manager pursuant toERISA §3(38);

• the business structure and affiliationsof the candidate;

• financial condition and capitalizationof the candidate;

• a description of the investment styleproposed by the candidate;

• a description of the investment pro-cess to be followed by the candidate;

• the identity, experience and qualifica-tion of the professional who will beinvolved in handling the Plan’s ac-count;

• whether any relevant litigation or en-forcement actions have been initiatedwithin a reasonably relevant period oftime against the candidate, thecandidate’s officers or directors, or thecandidate’s investment professionalswho will have responsibility for thePlan’s account;

DOL Blueprint for Investment Managers



RespondentsNot only did we have an out-

standing response rate, but respon-dents almost perfectly represent thetotal population of ASPA members.ASPA membership can be describedas follows: 30% QPAs; 29% Affili-ates; 21% FSPAs and MSPAs; 13%CPCs; and 7% APMs. By compari-son, survey respondents are as fol-lows: 31% QPAs; 24% Affiliates;22% FSPAs and MSPAs; 16% CPCs;and 7% APMs. We could hardly askfor a more representative sample!

Reason for Joining ASPABy far the primary reason our

members join ASPA is for profes-sional recognition and/or to obtain aprofessional designation. Govern-ment Affairs efforts, employer sug-gestions, discounts, and publicationsare all secondary factors in the deci-sion to join.

Programs and ServicesIn terms of our programs and ser-

vices, ASPA members are the most

satisfied with our publications, ThePension Actuary and the ASPA ASAP.Most of our members also respondedthat they are satisfied with our Gov-ernment Affairs, Conferences, andEducation & Examination programs.Our membership discounts are a lesssignificant source of satisfaction, andit appears that many of our membershad not yet visited ASPA’s websitewhen the survey was distributed.

Name ChangeASPA members appear to be di-

vided in their opinions about chang-ing ASPA’s name. There was nosignificant difference between per-sonal reactions and the effect ourmembers think changing our namewould have on ASPA as an organi-zation. About 45% of our respond-ing members had a positive reactionto the possibility of a name change,30% are undecided, and 25% re-sponded negatively.

We also broke the responsesdown by actuarial and nonactuarialmembers. 50% of nonactuaries re-

sponded positively to the possibilityof a name change, 30% are unde-cided, and 20% responded nega-tively. On the other hand, about 20%of actuaries responded positively,30% are undecided, and 50% re-sponded negatively. There are no sig-nificant differences in the opinionsof Affiliates, CPCs, QPAs, or APMsabout changing ASPA’s name.

The Pension ActuaryMost of our members read The

Pension Actuary for technical infor-mation. Government Affairs issuesare secondary in importance, andvery few read The Pension Actuaryas a source of general informationabout ASPA.

Sponsorship and AdvertisingMost ASPA members who re-

sponded to the survey approve of out-side sponsorship and advertising atconferences. While a majority of ourmembers either approve or have neu-tral opinions about advertising on thewebsite and in The Pension Actuary,there is a higher rate of disapprovalof advertising in these venues.

Internet/WebsiteAlmost 70% of our members

who responded to the survey are in-terested in seeing Internet-based edu-cation, but only 40% have a favorableopinion about offering the Yearbookon the ASPA website rather than inprinted form.

March on the Hill45% of our members who re-

sponded to our survey respondedpositively to setting time aside at theconference for the March on the Hill.40% have a neutral opinion, andabout 15% responded negatively tothis idea.

Board of DirectorsIn terms of the effectiveness of

ASPA’s Board of Directors in repre-

1998

Membership

Survey

ASPA would like to thank all of our members who responded to the 1998 Membership Survey. Your

feedback is greatly appreciated and will assist the Society inplanning for the future. We are proud to say that we had aresponse rate of over 50%—an indication of the high degreeof interest and concern of ASPA members! The following isa summary of the survey results.



FOCUS ON CEIt Is Never Too Early to Startby Cathy M. Green, CPC, QPA

In 1990, the ASPA Board of Di-rectors adopted a mandatory programof continuing education (CE). Thisprogram affects all designated indi-viduals, (FSPA, MSPA, CPC, QPA,APM) admitted to membership or re-ceiving an additional designation af-ter December 31, 1990, includingreinstatements. Credentialed membersadmitted prior to 1991 are subject tothe program on a voluntary basis andare strongly encouraged to participate.

All individuals admitted or rein-stated to credentialed ASPA member-ship, or approved to receive anadditional designation after Decem-ber 31, 1990, must satisfy continu-ing education requirements to retaintheir post-1990 ASPA designation(s).The current cycle began on January1, 1999 and will end on December31, 2000. Each credentialed mem-ber is required to earn 40 continuingeducation credits in each continuingeducation cycle. For the initial CEcycle in which the post-1990 des-ignation is granted, the number ofCE credits required will be pro-rated based on the date of admit-tance or designation within thetwo-year CE cycle according tothe schedule appearing in the box.

The mandatory continuingeducation requirements are not ap-plicable to noncredentialed or non-voting members admitted in thecategory of affiliate.

If a credentialed member admit-ted, reinstated, or newly designatedafter December 31, 1990, does notearn sufficient CE credits during anyCE cycle, the use of the designationearned or reinstated after 1990 is sus-pended.

Credentialed members who arenot subject to the mandatory programare strongly encouraged to meetthese requirements on a voluntarybasis. Those who do so are noted inthe Yearbook as satisfying the con-tinuing education requirements.

These topics are among the ac-ceptable subject matter which ASPAallows:

Accounting for Retirement Plans

Actuarial Science

Auditing Retirement Plans

Business Practices of a Pension/Actuarial Firm

Computer Systems for RetirementPlans

Employee Benefit Planning

Estate Planning

Financial Planning

Funding of Pension Programs(Annuities, Investments, Insur-ance)

Health and Welfare Benefit Plans

IRAs and SEPs

Laws and Regulations Related toRetirement Plans

Nonqualified Retirement Plans

Pension and Profit Sharing Plans

Retirement Plan Design

Taxation of Distributions

If you have any questions per-taining to the ASPA CE program,please contact the ASPA office.

Cathy M. Green, CPC, QPA, is VicePresident of CMC in Glendale, Calif.She is the chair of the ContinuingEducation Committee. Ms. Green, amember of ASPA’s Board of Direc-tors, also serves on the Conference

Committee and ischair of the 1999ASPA SummerConference. Sheis also a memberof the Ed PolicyCommittee.

The 1999-2000 CE cycle began on January 1, 1999.Plan now on how you will earn the CE credits required

to keep your designation current. If you start now and paceyourself, the next filing deadline, January 8, 2001, will beeasy to meet!

Required Credits

If you have joined ASPA within:

first six months of the cycle 30 CE creditssecond six months of the cycle 20 CE creditsthird six months of the cycle 10 CE creditslast six months of the cycle no CE requirement


FOCUS ON ASPA PERF

Mathematical Olympiad

Revisitedby Scott D. Miller, FSPA, CPC

The ASPA Pension Education and Research Founda-tion, Inc., or APSA PERF, was chartered in the District

of Columbia in 1976 as a nonprofit charitable foundationunder Internal Revenue Code Section 501(c)(3).

have been possible without the sup-port of the American Society of Pen-sion Actuaries and the othersponsoring organizations.

I have been fortunate to have theopportunity to attend the Mathemati-cal Olympiad Summer Program forthe past three summers. The train-ing camp for the International Math-ematical Olympiad has been anincredible experience for me eachsummer. For me, the best thing aboutthe camp is the chance to spend timewith other students who are as inter-ested in math as I am. Those threesummer experiences have been thebest times of my life.

I would also like to thank you forthe gifts the American Society of Pen-sion Actuaries gave me as a winner ofthe United States of America Math-ematical Olympiad. Receiving the giftsfrom the sponsoring organizations wasa very special part of the award cer-emonies in Washington, D. C., and Iwill always have wonderful memoriesof that time.

I am looking forward to the startof the American Mathematics Com-petitions this year. Thank you formaking those competitions possible.

Sincerely,Sasha Schwartz

ASPA PERF is one of 11 orga-nizations which sponsored the 1998USA Mathematical Olympiad, cov-ered in the July-August 1998 issueof The Pension Actuary. The Olym-piad organizes a series of competi-tions among high school studentsaround the country and culminates inthe selection of a team that representsthe United States in the internationalcompetition.

The following is a letter from agrateful 1998 representative to theOlympiad, Sasha Swartz. Your gen-erous support of ASPA PERF makesthis event possible.

February, 1999

Ms. Carol Sears, PresidentAmerican Society of PensionActuaries4350 North Fairfax Drive, Ste. 820Arlington, VA 22203

Dear Ms. Sears,

I would like to thank you for yourorganization’s sponsorship of theAmerican Mathematics Competi-tions. It was an honor for me to be amember of the United States teamcompeting in the International Math-ematical Olympiad in Taiwan lastsummer. I know that trip would not

The purpose of the foundationis to foster excellence in pensioneducation and to promote scholarlyresearch in the pension field. Toaccomplish these aims, the foun-dation provides endowments toeducational institutions for thegranting of scholarships to quali-fied students majoring in actuarialscience who are seeking assistancewith tuition and expenses. It alsosponsors the development of edu-cational materials and texts as wellas research by making grants offunds for approved projects.

Members of the board include:Scott D. Miller, Chair, Stephen H.Rosen, Vice Chair, Curtis E. Hun-tington, Secretary/Treasurer, andBrian H. Graff, Executive Director.

Inquiries should be addressed to,and contributions will be gratefullyreceived by, the ASPA Pension Edu-cation and Research Foundation,4350 North Fairfax Drive, Suite 820,Arlington, Virginia, 22203. Contri-butions are, of course, tax deductible.

Scott D. Miller, FSPA, CPC, is presi-dent of Actuarial Consulting GroupInc. in South Salem, N.Y. Mr. Milleris chairman of ASPA PERF, one ofASPA’s vice presidents, and serveson ASPA’s Board of Directors andExecutive Committee.


FOCUS ON E&EASPA Courses Take a

New Directionby Gwen S. O’Connell, CPC, QPA

These methods of instruction arequality-assured, as the instructors arelong-time ASPA members with priorteaching experience. They areequally accessible to all ASPA examcandidates. These types of instructionhelp ASPA to avoid problems of se-mester-long classes such as scheduleconstraints for both instructors andstudents, the unavailability of suchclasses in areas of low demand, andthe absence of feasible methods ofquality assurance. For these reasonscombined with excellent feedback onweekend and virtual study methodsof instruction, ASPA courses are tak-ing a new direction. The ASPA E&ECommittee has been greatly pleasedwith the consistent increase of enroll-ment in weekend classes, and thevolume of responses and registra-tions we have received for the Vir-tual Study Groups since their releasehas well-exceeded our expectations.We have decided to focus on thesemethods of course delivery.

The Education and Examination Committee (E&E) isexploring new ways to assist candidates in preparing

for ASPA's rigorous exam program. For the past severalyears, as the tendency for individual firms to hold in-houseclasses has consistently increased, the enrollment for ASPA-sponsored semester classes has decreased. The E&E Committeerealizes that many candidates already have access to localsemester and weekend courses, so we are exploring andimplementing methods of delivering quality instruction toour candidates, which would be otherwise unavailable.We are concentrating our efforts on ASPA weekend courses,and the newest edition to the ASPA education program, theC-2(DB) and C-2(DC) Pilot Virtual Study Groups.

Again this May, on the first andsecond, ASPA will hold C-2(DB), C-2(DC), C-3, and C-4 courses in Den-ver, Colorado. The courses provideintensive review and are scheduledfor a month prior to the exams. Theinstructors for these courses are “ex-perts” and include David B. Farber,Consulting Actuary, MSPA, EA,ASA, Soquel, California; Thomas J.Finnegan, MSPA, CPC, QPA, SeniorVice President, The Savitz Organi-zation, Philadelphia, Pennsylvania;William G. Karbon, MSPA, CPC,QPA, National Retirement Planning,Inc., Jamison, Pennsylvania;Rebecca C. Kester, CPC, QPA, VicePresident, Retirement ServicesGroup for Summit Bank,Hackensack, New Jersey; andNorman Levinrad, FSPA, CPC,President, Summit Benefit & Actu-arial Service, Inc., Eugene, Oregon.

The classes are held on a Satur-day and Sunday to minimize timeaway from the office and to give stu-

dents an environment that allowsthem to focus on their studies. Tu-ition for the classes is $450 for ASPAmembers and $550 for nonmembers.

This spring, ASPA is pilotingtwo Virtual Study Groups (VSG).The VSGs will be for students pre-paring for the C-2(DB) and C-2(DC) exams. They will begin inmid-March and will be facilitatedby two top instructors, LorraineDorsa, MSPA, Lorraine Dorsa &Associates, Jacksonville Beach,Florida, and Norman Levinrad,FSPA, CPC, President, SummitBenefit & Actuarial Service, Inc.,Eugene, Oregon.

The VSGs will be conductedvia e-mail. Each VSG will have itsown group, will receive “home-work” via e-mail, will transmit itto the facilitator via e-mail, andwill have the benefit of viewingother registrants’ questions andsolutions to problems.

The very special “pilot” courseprice is $125 for the 10-week course.

Registration and course informa-tion for either the weekend coursesor the VSG may be requested by e-mailing [email protected], callingthe ASPA office at (703) 516-9300,or by accessing the ASPA web siteat www.aspa.org.

Looking to the future, the E&ECommittee foresees expanded use ofthe Internet and other technologiessuch as CD-ROMs, on-line examssuch as the PA-1 and the RecordKeepers Course, and faster results forour “C” exams.

Gwen S. O’Connell, CPC, QPA, isPrincipal of Summit Benefit & Actu-arial Services, Inc. in Eugene, Or-egon. Ms. O’Connell currently serveson ASPA’s Executive Committee asits secretary, is a member of the Boardof Directors, and is the general chairof the Education and ExaminationCommittee.


Date Location Event

ASPA Benefits Councils Calendar of

Upcoming Events

March 25 Philadelphia Breakfast Meeting: DocumentAmendments

Speaker: Bob Bildersee, Esq.

March 31 New York Breakfast Meeting: DocumentUpdating; New Rev. Proc. on GUSTAmendments; 401(k) Safe HarborGuidance; IRS Notice 98-52

Speaker: Craig P. Hoffman, APM, Esq., Corbel

April 8 Cleveland Members Only Breakfast

April 29 Atlanta Breakfast/Workshop: Fee DisclosureSpeaker: Jackie DiGiovanni, ManuLife

May 11 Orlando Case Studies and Discussion: EthicalIssues in Employee Benefit Practices

Speaker: Amy Mashburn, Esq., Professor of Ethics

For more information or for the name of a local contact, please call the ASPA office at (703) 516-9300.

senting our members’ interests, 66%of the survey respondents said thatthe Board is either effective or veryeffective. 31% have no opinion, andonly 3% think that the board is inef-fective or very ineffective in repre-

senting members’i n t e r e s t s .Furthermore,many (39%)respondentsagree thatthey have ar e a s o n -able op-portunityto move

into posi-tions of influence within

ASPA. However, a significant num-ber (46%) have no opinion on thisquestion, and 15% disagree with thisstatement.

Overall OpinionOverall, ASPA members have

very positive opinions about ASPA.In fact, 95% of those who returned asurvey responded that their generalattitude toward ASPA is either favor-able or very favorable. 4% have aneutral opinion, and less than 1%responded that they have an unfavor-able or very unfavorable opinion.

ConclusionThe 1998 Membership Survey

resulted in valuable informationabout how we are doing, what ourmembers like most about us, andwhat we can improve upon. In orderto give each ASPA member the op-portunity to contribute their viewsand ideas, we will be conductingmore surveys in the future.

We know that you appreciatebeing asked about your opinions, andwe value your continued support!

C O N T I N U E D F R O M

PA G E 3 0

1998 Survey Results• a description of the experience and

performance record over an appro-priate period of time of the candi-date and its investment profession-als, including experience managingother employee benefit plan assets;

• whether the candidate has andwould propose to utilize the servicesof an affiliated broker/dealer and, ifso, the types of transactions forwhich such affiliates would be usedand the financial arrangement withthe broker/dealer;

• the procedures to be employed bythe candidate to comply withERISA’s prohibited transaction re-strictions, including whether thecandidate is a Qualified Profes-sional Asset Manager;

• whether the candidate has the bond-ing required by ERISA;

• whether the candidate had fiduciaryliability or other insurance thatwould protect the interests of the

Plans in the event of a breach of fidu-ciary duty;

• the proposed fee structure;

• the identity of client references;

• the total amount of assets under thecontrol of the candidate; and

• any other appropriate and relevant in-formation.

4. Where appropriate, the informationprovided by the candidate shall be veri-fied with reliable sources independentof the candidate.

5. The information provided by thecandidate and information obtainedby independent verification shallbe reviewed and (an) investmentmanager(s) shall be selected basedupon this information and any otherrelevant information.

6. For Investment Managers currentlyengaged by the Plans, the Trusteesshall obtain the information set forthabove in order to ensure that an ap-propriately qualified Investment Man-ager has been retained. The Trusteesshall be required to comply with theprocedures set forth in this documentupon the expiration or renewal of any

C O N T I N U E D F R O M

PA G E 2 9

DOL Blueprint


* Exam candidates earn 20 hours of ASPA continuing education credit forpassing exams, 15 hours of credit for failing an exam with a score of 5 or6, and no credit for failing with a score lower than 5.

† ASPA offers these courses as an educational service for students whowish to sit for examinations which ASPA cosponsors with the Society ofActuaries and the Joint Board for the Enrollment of Actuaries. In orderto preserve the integrity of the examination process, measures are takenby ASPA to prevent the course instructors from having any access toinformation which is not available to the general public. Accordingly, thestudents should understand that there is no advantage to participation inthese courses by reason that they are offered by a cosponsor of theexaminations.

ASPA

CE Credit

1 9 9 9 C A L E N D A R O F E V E N T S

April 9-10 EA-1A classes, Chicago, IL † 1511-12 EA-1B classes, Chicago, IL † 15

April 15 Early registration deadline for ASPA June examinations

April 16-17 EA-1A classes, Los Angeles, CA † 1518-19 EA-1B classes, Los Angeles, CA † 15

April 19 401(k) Workshop, Philadelphia, PA 7

April 24-25 EA-1A classes, Washington, DC † 1526-27 EA-1B classes, Washington, DC † 15

April 29-30 Midstates Benefits Conference, Chicago, IL 16

May 1 Final registration deadline for ASPA June examinations

May 1-2 ASPA Weekend Courses, Denver, Colorado 15C-2(DB), C-2(DC), C-3, and C-4

May 2-5 Business Leadership Conference, Boca Raton, FL 10

May 11 Defined Benefits Workshop, Newark, NJ 7

May 14 401(k) Workshop, Houston, TX 7

May 17 EA-1A and B examinations †

May 20 - 21 Northeast Key District Benefits Conference, Iselin, NJ 14

May 24 Defined Benefits Workshop, Dallas, TX 7

June 2 C-1, C-3, and C-4 examinations *

June 3 C-2(DC) examination *

June 4 C-2(DB) examination *

June 10 401(k) Workshop, Cleveland, OH 7

June 21 401(k) Workshop, Atlanta, GA 7

presently existing Investment Man-agement retention agreements.

Department of Labor Suggested

Procedures for Monitoring

Investment Managers

In monitoring any Investment Man-ager for the Plans, the Plans, through theirTrustees, shall perform, at a minimum,the following procedures:

1. Review, at least quarterly, the port-folio of each Investment Managerfor compliance with its investmentguidelines, including any guidelinesset forth in the Consent Order andSettlement Agreement.

2. Review, at least quarterly, each In-vestment Manager’s quarterly reportand generally compare that report inmaterial respects with informationprovided by the Plan’s custodialtrustee, including the custodialtrustee’s statement of transactions.

3. Review, at least quarterly, the basis onwhich the Plan’s assets under eachInvestment Manager’s control are val-ued.

4. Compute, on a quarterly basis, the rateof return for each Investment Man-ager on an overall basis, by asset classand, where investments are in morethan one sector, by sector.

5. Compare, at least quarterly, the invest-ment results of each Investment Man-ager with appropriate indices orbenchmarks.

6. Verify, at least quarterly, each Invest-ment Manager’s fee computation.

7. Meet with each Investment Manager,at least annually, and review the In-vestment Manager’s investment per-formance and any significant changesin corporate or capital structure, in-vestment style, brokerage affiliationor practices, investment process andprofessional staff.

8. Establish, and review at least annu-ally, procedures for communicatinginformation regarding investmentsand investment managers among theTrustees, each Plan’s staff, and eachPlan’s service providers (including butnot limited to each Plan’s attorneys,actuaries, and custodial trustees).


PIX DIGEST

Operational Error

& Hardship

Distributions[Thread 71633]

401(k) plans continue to distin-guish themselves as being especiallyprone to operational errors. The lackof perfect coordination and commu-nication between the plan consultant,employer and payroll functions leadto the common error discussed in thisthread. A plan participant took ahardship distribution pursuant to thehardship safe harbor rules, but wasallowed to continue making 401(k)deferral contributions to the plan inviolation of the 12-month suspensionrule.

This thread discussed some ofthe possible methods of correctingthis error and the application ofAPRSC. Possible "corrections" in-cluded suspending the participant'sdeferrals for the remainder of the 12month period immediately, suspend-ing deferrals for the remaining 12months and distributing the imper-missible deferrals and applicableearnings to the participant, or start-ing a full 12-month suspension pe-riod immediately. Several usersagreed that a full 12-month suspen-sion beginning right away would beappropriate, and one user recom-mended excluding the impermissibledeferrals from the ADP test.

Another user pointed out that ifthe hardship distribution could bepermitted on a non-safe harbor ba-sis, the 12-month suspension rule

would not apply. The thread thencontinued as users discussed the prosand cons of a plan allowing non-safeharbor distributions. The degree towhich an employer may rely on aparticipant's representations forevaluating the hardship need was alsodiscussed.

To read the entire thread, Hard-ship Goof Up, download the filehrdship2.fsg.

Incorrect Plan Provision,

Correction and

Reformation CAP

[Thread 71350]The thread started because a user

took over a plan and found that thepermitted disparity level used in thebenefit formula in the prior valua-tions slightly exceeded the maximumpermissible level. Further investiga-tion found that all prior valuations,the summary plan description, and allbenefit computations had been doneusing 0.50% of excess compensation.Unfortunately, the plan document it-self specified 0.050% of excess com-pensation. While this was apparentlya typographical error, it had not beencorrected since the plan was restated,and it was submitted to the IRS for adetermination letter on that basis.

Since the actual permitted dis-parity level in the plan is just one-tenth of that in the valuation, from acompliance standpoint the plan is

fine, in that it easily falls within the401(l) permitted disparity limits.However, this is clearly not the for-mula the client intended to use andin fact has not been using it. A usersuggested that the client can chooseto live with the formula as it appearsin the plan document, redoing valu-ations and benefit calculations, ormay consider the IRS "ReformationCAP" program. The IRS APRSCprogram does not permit operationalerrors to be corrected by changing theplan document. However, an appli-cation can be made to the Service viathe CAP program to correct by ret-roactive plan amendment. In the casediscussed in this thread, ReformationCAP might be the best approach.Revising the benefit calculationswould undoubtedly result in signifi-cant benefit reductions for some par-ticipants.

To read this thread, Incorrect In-tegrated Formula for 1998, downloadthe thread badform2.fsg.

New 1999 Amortization

Periods Discussed

[Thread 70856]This thread discusses the appli-

cation of Code Section 412(b)(2)(E).This section was added by TRA '97and modifies the amortization periodfor credits to the funding standard ac-count arising out of application of thecurrent liability full funding limit.While no specific guidance has beenissued by the IRS, this thread sum-marizes the change to a 20 year am-ortization period for new bases, themodification of the amortization pe-riod for existing bases, and discusseswhat to do when using a fundingmethod that does not normally havebases. The discussion cites the codeand committee reports.

To read the entire thread, Amor-tization Period Question, downloadthe file 99bases2.fsg.

issue is there a “roth 401(k) or 403(b)” in your future?

Documents