DoL Data Book Reflects Boost in Cash Balance
Offerings
April 13, 2007 (PLANSPONSOR.com) - A new U.S.
Department of Labor (DoL) publication of 2004 pension data
shows a continued decline in the overall number of plans for
the fourth year in a row, but a 30% leap in the roster of
cash balance programs.
According to the bulletin, which includes the
latest available data, the total number of pension plans
lost ground in 2004 by 2.4%, to 683,000 plans. The cash
balance plan increase was mostly due to a rise in the
number of small plans.
The DoL data also reflects the now-well documented
shift away from defined benefit and toward defined
contribution plans, with a doubling of the amount of DC
contributions made by employees since 1978 when
401(k)-type accounts were authorized. Workers put in 29%
of the DC contributions then, but financed nearly 60% in
2004.
401(k) plans continued to grow in number in 2004,
increasing from 404,000 to 419,000. The number of active
participants grew slightly from 43.6 million to 44.4
million.
Highlights of the data report also included,
according to the DoL:
DB plans increased by 1%, while DC plans fell
by 2.7%. The decline in DC plans was led by a 30%
giveback in the number of money purchase
arrangements, which follows a 34% decrease in
2003.
Between 2003 and 2004, the total active
participant count decreased slightly for the second
year, from 73.1 million to 72.7 million. The number
of active participants in DB plans decreased for the
fifth year, by 3.3% in 2004.
Total pension plan assets reached $4.7 trillion
in 2004, besting the previous high of $4.4 trillion
in 1999. DB plan assets grew by 8.5% to $2.1
trillion, while DC plan assets decreased by 12.2% to
$2.6 trillion. 401(k) plans grew 14% to a total of
$2.2 trillion.
In 2004, pension plans disbursed $333.3 billion
for payment of benefits, with $140.4 billion being
disbursed from DB plans and $192.9 from DC
arrangements.
The DoL’s
Private Pension Plan Bulletin – Abstract of 2004 Form 5500
Annual Reports, published by the DoL’s Employee Benefits
Security Administration (EBSA), was developed using data
from 2004 Form 5500 annual plan filings.
Final 409A Regs Include Important Modifications,
Clarifications
April 12, 2007 (PLANSPONSOR.com) - As many in the
benefits community continue slogging through the 398-page
release of the final 409A regulations, one analysis suggested
it did not depart from the basic design and approach
regulators took in the regulations' preliminary
form.
However,
the analysis
by The Benefits Group of the Washington, D.C. law
firm Davis and Harman, LLP for the American Benefits
Council (ABC), also pointed out that the final
regulations
contain numerous modifications, clarifications and more
detailed rules.
In terms of the basic approach used in the
preliminary versus final regulations, the law firm
pointed out that all non-qualified deferred compensation
(NQDC) plans, including elective plans, nonelective
plans, and defined benefit SERPs, must meet the timing of
deferral rules and must include a specified payment date
that meets the 409A standards.
The Davis and Harman analysis also specified a
number of items in the final regulations it said “are
likely to have broad application to employers and
service-providers.”
Regulators issued the final regulations on
Tuesday (See
IRS Issues Final Regulations for NQDC Plans).
According to the Davis and Harman analysis, the
final regulations:
continue the requirement that the exercise
price of an option or stock appreciation right (SAR)
that is not subject to 409A be no less than the fair
market value on the date of the grant. The final
regulations reject the adoption of the
"incentive stock option (ISO)" rule, which
would provide for any "good faith"
valuation method.
continue to treat deferred dividend payments as
separate arrangements from the underlying option or
SAR, which must either separately meet the 409A rules
or satisfy one of the 409A exceptions.
adopt many of the comments requesting that an
extension of the exercise period not be treated as a
modification of the option or SAR. The final
regulations provide this relief as long as the
extension does not exceed the end of the original
option period (not to exceed 10 years).
retain the helpful s
hort-term deferral (e.g., "vest and pay")
rule exception but make clear that it only applies
where, by the terms and the operation of the
arrangement, payments are always due in the calendar
year or no later that 2-1/2 months following the
vesting event. The exception does not apply to
"coincidental" payments upon vesting.
include a number of changes that are relevant
both to the "separation pay" exceptions from 409A and
the application of the short-term deferral exception to
amounts paid upon a separation. The final regulations
clarify that the exception from 409A for certain
separation pay upon on an involuntary termination (or a
window program) applies
to the extent that amounts do not exceed two times pay
(up to twice the 401(a)(17) limit).
respond to requests for guidance on the types of
"good reason" provisions that may result in separation
pay being subject to a substantial risk of forfeiture.
The final regulations define good reason under a facts
and circumstances test and also provide a safe harbor
for payments meeting certain criteria (
e.g., payments triggered by a material diminution in
duties, compensation, or authority) that are made no
later than one year following the "good reason" and
that are made under the terms of an arrangement where
the service
recipient has the opportunity to remedy the good
reason condition after it is declared by the
employee.
clarify that the special timing rules for
deferral elections on performance-based compensation
must be made prior to the date that the amount is
"readily ascertainable," as opposed to the
"substantially uncertain" standard used in the
proposed regulations. Nonetheless, the final
regulations indicate that if some but not all the
performance-based compensation becomes readily
ascertainable because satisfaction of the goal is
substantially certain then, as to those ascertainable
amounts, the deferral election must be made at an
earlier date when the standard can be met.
expand the definition of commissions to include
investment commission income, which generally can be
deferred under an election filed prior the year in
which such commission arises.
provide clarification on when a payment
schedule meets the 409A standards and expand the
rules for payments on a specified date to include
payments based upon both a specified age and years of
service (as determined under the plan). The final
regulations also respond to comments by allowing the
timing of NQDC payments to be based upon an objective
formula, such as profits, and the collection of the
employer's accounts receivable, provided that
certain anti-abuse rules are met.
modify and generally liberalize the proposed
regulations' presumptive rules for determining
when a reduction in services is a separation from
employment. In general, the proposed regulations
treat both employee and independent contractor
service providers as being subject to the same
rules.
provide that a contractor may be treated as
having separated from service under 409A where the
level of service is reduced to a level that is
expected to be no more than 20% of the level of
services for the prior 36-month period.
allow an employer to define the controlled
group to include entities in which there is as little
as a 20% ownership, provided that the there is
legitimate non-tax reason for doing so under 409A.
The final regulations also allow an employer to treat
an employee whose employer leaves the controlled
group but who continues working at the "same desk" in
an asset sale to be treated as having not separated
from service even though the employee is no longer
working for an employer in the controlled
group.
The exception from 409A for accelerated NQDC
payments to avoid ethics violations generally is expanded
to include any federal, state or local law.
The final regulations are effective as of January
1, 2008.