Benefits August 8, 2006

Job Changers and Retirees Seek Advice for Plan Distributions

August 8, 2006 (PLANSPONSOR.com) - Most job changers and retirees consulted at least one individual when making decisions regarding retirement plan distributions, according to findings of a study from LIMRA International.
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Only 20% of job changers and 11% of retirees surveyed by LIMRA said they consulted no one about their decisions. Family members, friends and associates were consulted by 41% of job changers and 36% of retirees, according to the study report. Financial professionals as a group, including financial planners, investment advisors and full-service stock brokers, were consulted by 44% of job changers and 64% of retirees.

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One-third of job changers said that family members, friends and associates had the greatest influence on their plan distribution decisions, while financial planners were the most influential for about 30% of retirees.

Employer-provided consultants, such as HR representatives, outplacement counselors, and call center representatives from the plan provider, tend to have the greatest influence among those choosing to leave their money in their retirement plan or among retirees choosing to annuitize their assets, the study found. Financial professionals had the greatest influence among those who rolled their money to IRAs.

Nearly all job changers and retirees surveyed sought information from one or more sources in order to help them reach distribution decisions, with former employers cited as the most common supplier of this information. Employer-provided benefits booklets were used by 46% of job changers and 57% of retirees, while other written materials from employers were used by 34% of job changers and 47% of retirees. Face-to-face meetings with financial planners or investment advisors were used by 32% of job changers and 50% of retirees to aid them in their benefits decisions.

Survey respondents tended to use a limited number of information sources – on average, job changers used two of the 17 information sources listed by LIMRA and retirees used three.

When asked whether they felt they had received sufficient financial advice before making their decisions, 84% of job changers and 92% of retirees indicated they had. Additionally, more than 80% of job changers and 90% of retirees would make the same decisions regarding the money in their retirement plans if they had to repeat the process.

More information can be found at www.limra.com .

Compliance August 7, 2006

IBM Cash Balance Discrimination Ruling Reversed

August 7, 2006 (PLANSPONSOR.com) - The 7th U.S. Circuit Court of Appeals has overturned a district court's decision that IBM discriminated against older workers when it converted from a defined benefit plan to a cash balance plan.
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The appellate court’s decision focused on the term “benefit accrual” used in the Employee Retirement Income Security Act (ERISA) when determining if a plan satisfies discriminatory requirements. In its decision, the appellate court pointed out that “benefit accrual” has a different meaning than the term “accrued benefit,” which the district used in its determination (See Murphy’s Law: IBM Loses Cash Balance Ruling ).

According to the court, “benefit accrual” refers to the amount IBM puts into the plan for each employee and “accrued benefit” refers to the final amount from which plan participants can withdraw when they retire. “All terms of IBM’s plan are age-neutral. Every covered employee receives the same 5% pay credit and the same interest credit per annum,” the opinion said.

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ERISA provides that employers cannot stop making allocations to participant accounts or change their accrual rate due to age, which the court noted the IBM plan did not do.

The appellate court rejected the plaintiffs’ argument that a previous decision by the 9th U.S. Circuit Court of Appeals against Xerox Corporation upholds their claim, pointing out that the Xerox case concerned calculations of final benefit payouts and not additions to participants’ accounts (See Xerox Loses Another Retiree Benefit Challenge ).

Offering another perspective on the issue, the court conceded that traditional defined benefit plans tend to benefit older employees with longer years of service, but said, “Replacing a plan that discriminates against the young with one that is age-neutral does not discriminate against the old.”

In its opinion, the court concluded that employers are “free to move from one legal plan to another legal plan” and that “the decision may… be made freely, governed by private choice rather than legal constraint.”

The decision in Cooper, et al. v. IBM Personal Pension Plan is  here .

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