Benefits June 14, 2006

Survey: 403(b) Sponsors will Seek Outside Advice for New Regs

June 14, 2006 (PLANSPONSOR.com) - A new study from the Spectrem Group reveals that 403(b) plan sponsors would rather reduce the number of vendors they use for their plans than take on the additional work that will be required under proposed new regulations themselves.
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Sixty-three percent of plan sponsors surveyed said they would rather reduce the number of plan providers, while 37% said they will take on the additional work or costs caused by the new regulations, according to the Spectrem report.

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Under the proposed regulations, the Internal Revenue Service (IRS) wants all 403(b) plans to have written guidelines including product providers, loan provisions and other details – similar to those of 401(k) plans (See Report: Permanent 403(b) Regs Could be out by Summer ).

In spite of preferring not to take on the additional work/costs, 36% of sponsors said that they were extremely likely to keep their current program as is and handle the added administration and compliance work in-house. Fifty-seven percent reported they were not at all likely to use a single provider to handle the additional work or hire a third party administrator or benefit consultant.

When considering a plan provider to use, quality in service delivery (85%) and assistance in compliance with new regulations (90%) were rated the most important factors.

Overall, half of the respondents said they currently have a plan document that “defines all terms, including eligibility, benefits, applicable time limits and the like, as well as optional provisions such as hardship withdrawals, loans and the acceptance of rollovers into the plan,” the report said.

Those who say they do not have a plan document at present, cite a variety of sources they will seek assistance from to develop a document, including current plan providers (27%), the school district attorney (21%), a third-party administrator/TPA (17%), and a fee-paid outside consultant (12%).

The survey found that, overall, three-quarters of plan sponsors said they have received information from their current providers regarding the new regulations. The technical expertise in plan management in the K-12 market is currently low, with many plans being administered by a “business manager” for the school system. Only one-quarter of school districts said they currently use an outside consultant.

Three-quarters of respondents said that it is very or somewhat important to get advice from a source other than one of their current plan providers. Over half name the attorney serving the school district as the source they will turn to for advice in complying with any new regulations.

A total of 100 telephone interviews were conducted during May 2006 for the Spectrem Study. The sample was stratified to ensure representation across three size segments based on total student enrollment: 1,000-1,499 students, 2,500-9,999 students and 10,000 or more students.

A copy of the Spectrum report can be purchased via the firm’s Web site at www.spectrem.com .

Benefits June 13, 2006

EBRI: Soc. Sec. Cutbacks Won't Push Scores of Americans into Poverty

June 13, 2006 (PLANSPONSOR.com) - Lawmakers could cut Americans' Social Security benefits without pushing large numbers of beneficiaries below the poverty line, a new research report has concluded.
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A news release from the Employee Benefit Research Institute (EBRI) said researchers asserted that future political debate will concentrate on more than just how to bring the Social Security fund back into balance.

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“Consequently, some cuts in the projected (Social Security) benefits could occur while still leaving the proportion of beneficiaries with benefits below poverty at the same level or at a lower level,” researchers wrote.” The political discussion is likely to be not just about cutting benefits, but also at what benefit level a cut is acceptable and what magnitude of a cut above that level is acceptable.”

After studying the financial effects of four proposed Social Security benefits changes, EBRI reported that extent and effects of across-the-board benefits cuts are different for each of the four scenarios:

  • a gradual reduction in benefits (GRB),
  • an increase in the normal retirement age (INRA),
  • aprogressive price indexing scheme (PPI), and
  • a combination of the progressive price indexing scheme and an increase in the normal retirementage (PPI/INRA).

“The most significant result of this study is that an across-the-board cut in benefits (such as those under GRB) clearly has a significantly different distributional effect than that under PPI,” the study said. “While the PPI/INRA alternative improves the financial soundness of the Social Security program by an amount similar to the projected elimination of the funding deficit under GRB, PPI/INRA obtains most of its savings from cuts in benefits to beneficiaries whose benefits are 125% of poverty.”

The study also examines the effects of Social Security benefit changes on five groups:

  • those about to retire,
  • those who are middle-aged,
  • those not yet born,
  • workers across birth years, and
  • workers starting out.

The research report is here .

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