Investing June 11, 2002

Small and Mid Caps Rule through May

June 11, 2002 (PLANSPONSOR.com) - The bulls have been running in small and mid-cap value funds so far this year, but the bears were frolicking in the rest of the domestic equity fund market, Standard & Poor's reported.
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The star performers among domestic-equity categories were small-cap value, which is up 6.62% year-to-date while mid-cap value was up 3.68% during the period.

According to S&P, in 2002, small and mid-cap stocks and the funds that hold them have outperformed the S&P 500 as they did in 2000 and 2001.

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In addition, these companies have avoided the accounting and management scandals, the regulatory scrutiny, and the strong-dollar issues that have hurt larger-company funds, S&P said.

On a year-to-date basis, S&P said that seven of the nine remaining broad equity categories were in negative territory with large-cap growth being the chief laggard at -10.63%.

The average domestic equity fund is down 5.16% through the end of May, while the S&P 500 is off 6.66%.

The category performance data on a year-to-date basis through May were:

  • Large-Cap Growth Average, -10.63%
  • Large-Cap Value Average, -2.36%
  • Large-Cap Blend Average, -6.62%
  • Mid-Cap Growth Average, -7.54%
  • Mid-Cap Value Average, +3.68%
  • Mid-Cap Blend Average, -3.33%
  • Small-Cap Growth Average, -8.96%
  • Small-Cap Value Average, +6.62%
  • Small-Cap Blend Average, -0.83%
  • Domestic Equity Funds, -5.16%
  • S&P 500, -6.66%

Total returns are in US dollars and include reinvested dividends.

Compliance June 10, 2002

IRS Says Ignore Sunset on 415 Limit Calculations

October 18, 2001 (PLANSPONSOR.com) ? Defined benefit plan administrators should assume that the liberalized dollar limit under Section 415 remains in effect for plan years after December 31, 2010, Internal Revenue Service officials said this week.
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As a result, when figuring projected defined benefit amounts, plan sponsors should ignore a sunset provision enacted this summer as part of tax-cut legislation that calls for a return to earlier laws as of 2011, the IRS said in Revenue Ruling 2001-51.

Tax code Section 404(j) provides that benefits or contributions in excess of Section 415 limitations are not taken into account in computing allowable deductions under Section 404(a).

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“Until further guidance is provided, a participant’s benefit will be tested for the satisfaction of the Section 415 limitations using the limits currently in effect and applicable to the participant,” IRS said.

The sunset provision has caused controversy in the employee benefits industry because many defined benefit plan calculations have a scope of several years and professionals have been uncertain how to treat the sudden law change in 2011.

The Economic Growth and Tax Relief Recovery Act of 2001 increased under tax code Section 415 the maximum defined benefit from $90,000 to $160,000, indexed for inflation.

It also upped annual contributions to a defined benefit plan from $35,000 or 25 percent of compensation in 2001 to $40,000 or 100 percent of compensation beginning in 2002.

For purposes of nondiscrimination testing, increased benefits provided to an employee under a defined benefit plan as a result of Section 415 increase must be included as increases in the employee’s accrued benefit and most valuable optional form of payment, and in the computation of both the normal and most valuable accrual rates for any measurement period that includes the year of the increase.

Increased contributions to defined contribution plans must be taken into account for the plan year for which the increased allocations are made or purposes of nondiscrimination testing, IRS said.

 

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