The ASPA Journal - September/October 2003 · 2017-11-02 · THE ASPA JOURNAL SEPTEMBER–OCTOBER 2003 4 Meet Your Colleagues at the Top! 2004 401(k) Sales Summit February 22–24,

Sep–Oct 2003Vol 33, No 5

Contents

ASPA’s Bi-monthly Newsletter for Actuaries, Consultants, Administrators, and Other Retirement Plan Professionals

THE ASPA JOURNAL

WASHINGTON UPDATE

© 2002 PhotoDisc, Inc.

© 2001 B

ill Petros

Bruce L. Ashton ElectedASPA President

Bruce’s law practice focuses on all aspects of em-ployee benefits issues, including representingplans and their sponsors in controversies beforethe IRS and EBSA, negotiating the resolution ofplan qualification issues under EPCRS, advisingand defending fiduciaries on their obligations andliability under ERISA, and structuring qualifiedplans and non-qualified deferred compensationarrangements. Combining his employee benefits

and transactional expertise, Bruce is also active inthe installation and funding of employee stockownership plans.

Bruce received his BA degree from Rice Universityin 1967 and his JD from Southern Methodist Uni-versity in 1970, where he was a member of the Or-der of the Coif, Phi Alpha Delta, and was a Roy R.

Continued on page 7

Introducingthe “RMBA”

NO, IT IS NOT THE LATEST DANCE CRAZE IN WASHINGTON. RATHER, IT IS A LEGISLATIVE INITIATIVE SUPPORTED BYASPA AND OTHER ORGANIZATIONS INTENDED TO MAKE QUALIFIED RETIREMENT PLANS MORE ATTRACTIVE RELATIVE TONON-PLAN INVESTMENTS. AS YOU KNOW, PRESIDENT BUSH’S TAX BILL, ENACTED THIS PAST SPRING, PROVIDES FOR A15 PERCENT TAX RATE ON DIVIDENDS AND CAPITAL GAINS ON INVESTMENTS HELD OUTSIDE A QUALIFIED RETIREMENTPLAN. ON A RELATIVE BASIS, THIS TAX RATE MAKES INVESTMENTS WITHIN A QUALIFIED RETIREMENT PLAN LESSATTRACTIVE. GIVEN THE IMPORTANCE OF PROMOTING SAVINGS WITHIN QUALIFIED RETIREMENT PLANS FROM A SOCI-ETAL STANDPOINT, ASPA’S GOVERNMENT AFFAIRS COMMITTEE HAS BEEN THINKING ABOUT WAYS TO MAKE QUALIFIEDRETIREMENT PLANS MORE ATTRACTIVE TO BOTH PLAN SPONSORS AND PARTICIPANTS. THE RMBA, WHICH APPEARS TOBE GARNERING SIGNIFICANT CONGRESSIONAL INTEREST, IS AN EXAMPLE OF THIS EFFORT.

by Brian H. Graff, Esq.

Continued on page 5

by Troy L. Cornett

BRUCE L. ASHTON, APM, HAS BEEN ELECTED ASPA PRESIDENT FOR THE 2003–2004 TERM, WHICH BEGINS AT THE CLOSEOF THE 2003 ASPA ANNUAL CONFERENCE. BRUCE IS A PARTNER IN THE LOS ANGELES, CA, LAW FIRM OF REISH LUFTMAN& REICHER AND, WITH OVER THIRTY YEARS OF LEGAL EXPERIENCE, IS AN ASSOCIATED PROFESSIONAL MEMBER OF ASPA.BRUCE HAS BEEN AN ASPA MEMBER SINCE 1991 AND HAS SERVED ON THE EXECUTIVE COMMITTEE, AS A MEMBER OF THEBOARD OF DIRECTORS, AS CO-CHAIR OF THE GOVERNMENT AFFAIRS COMMITTEE, AND ON THE STEERING AND EXECUTIVECOMMITTEES OF THE LOS ANGELES BENEFITS CONFERENCE COMMITTEE. BRUCE WAS ALSO AN ORIGINAL MEMBER OF THEHEALTH AND WELFARE COMMITTEE OF E&E AND HAS BEEN INVOLVED IN MANY OTHER ASPA ACTIVITIES.

So what is the RMBA? “RMBA” stands for Re-tiree Medical Benefit Accounts. The proposalarose in the context of the current congressionaldebate over Medicare and prescription drugs.Lawmakers are increasingly hearing concerns fromconstituents, particularly baby boomers, abouthaving sufficient funds to pay for health care costsduring retirement. Some experts predict that an

average baby boomer couple will need at least$160,000 to cover retiree health care costs. Pro-posed Medicare reforms will likely add furthereconomic burdens to retirees. Most workingAmericans are not sufficiently prepared to meetthese requirements.

Get Involved andVolunteer Today!

Check Out ThisIssue’s ASPAVolunteerApplicationInsert!

■

■

■

■

■

■

■

■

■

■

■

■

■

■

■

■

3 From the Editor

8 Retirees Are MovingYour Cheese: Adaptingto the New $250 BillionDistribution PlanningMarket

11 Issues with 412(i) Plans

13 Embracing the Evolutionof Defined ContributionRecordkeeping

14 ASPA on the Go

15 Focus on ContinuingEducation

16 Focus on E&E

18 ASPA SummerConference 2003

20 Thanks to ASPA’sSummer ConferenceSpeakers and Exhibitors

28 Welcome New Members

30 Gwen S. O’Connell, CPC,QPA, Named as Recipientof the 2003 Educator’sAward

31 Robert D. Lebenson,MSPA, Selected as the2003 Harry T. EidsonFounders AwardRecipient

32 Focus on ABCs

33 ABC Calendar of Events

34 FUN-da-MENTALs

36 Calendar of Events

From the Editor

by Chris L. Stroud, MSPA

THE ASPA JOURNAL

SEPTEMBER–OCTOBER 20033

ASPA4245 North Fairfax Drive

Suite 750

Arlington, Virginia 22203

Phone: (703) 516-9300Fax: (703) 516-9308

E-mail: [email protected]

Web: www.aspa.org

The ASPA Journal is produced by The ASPA Journal Committee andthe Executive Director of ASPA. Statements of fact and opinion inthis publication, including editorials and letters to the editor, arethe sole responsibility of the authors and do not necessarily repre-sent the position of ASPA or the editors of The ASPA Journal.

The purpose of ASPA is to educate pension actuaries, consult-ants, administrators, and other benefits professionals, and topreserve and enhance the private pension system as part of thedevelopment of a cohesive and coherent national retirementincome policy.

ASPA members are retirement plan professionals in a highly diversi-fied, technical, and regulated industry. ASPA is made up of indi-viduals who have chosen to be among the most dedicated practicingin the profession, and who view retirement plan work as a career.

© ASPA 2003. All rights reserved. ASPA is a non-profit profes-sional society. The materials contained herein are intended forinstruction only and are not a substitute for professional advice.ISSN 1544-9769

To submit comments or suggestions, send an e-mail [email protected].

THE ASPAJOURNAL

Editor in ChiefBrian H. Graff, Esq.

The ASPA JournalCommitteeRobert M. Richter, APM, ChairAmy L. Cavanaugh, CPC, QPA,

QKAJack M. Doyle, MSPAConstance E. King, CPC, QPABarry Kozak, MSPASheila L. Parker, QPAErin D. Patton, QPA, QKAChris L. Stroud, MSPAKim L. Szatkowski, CPC, QPA,

QKA

EditorsChris L. Stroud, MSPAJane S. Grimm

Associate EditorsJolynne M. FloresTroy L. Cornett

Technical Review BoardLawrence Deutsch, MSPABarry Kozak, MSPAMarjorie R. Martin, MSPADuane L. Mayer, MSPANicholas L. Saakvitne, APM

ASPAOFFICERS

PresidentScott D. Miller, FSPA, CPC

President-ElectBruce L. Ashton, APM

Vice PresidentsCathy M. Green, CPC, QPACurtis E. Huntington, APMSarah E. Simoneaux, CPC

SecretaryChris L. Stroud, MSPA

TreasurerStephen H. Rosen, MSPA, CPC

Immediate Past PresidentCraig P. Hoffman, APM

Ex Officio Membersof the ExecutiveCommitteeMichael L. Bain, MSPAR. Bradford Huss, APM

What If Retirement Never Comes?

WE HAVE BEEN TRAINED TO PLAN FOR OUR RETIREMENT AND TAKE PRECAUTIONS TO PROTECT OUR HARD-EARNEDRETIREMENT INVESTMENTS. AFTER ALL, MOST OF YOU READING THIS EDITORIAL ARE IN THE BUSINESS OF HELPINGPEOPLE PLAN FOR THEIR OWN RETIREMENT. AS A RESULT, THESE THOUGHTS COME NATURALLY TO YOU AND ARE LIKELYOFTEN ON YOUR MINDS. I AM SURE MANY OF US ALSO SPEND TIME DREAMING ABOUT TAKING EXTENDED TRIPS WHENWE RETIRE AND HAVING MORE TIME FOR HOBBIES. I WOULD GUESS THAT MOST OF US, HOWEVER, DO NOT SPENDENOUGH TIME PONDERING THE QUESTION—WHAT IF RETIREMENT NEVER COMES?

In this issue, there is an excellent article on pageeight, “Retirees Are Moving Your Cheese.” Thearticle focuses on the need for planning beyondthe simple accumulation of retirement assets. Itaddresses planning stages needed for variousphases of life and for certain transitions in life.This type of “life” planning, as opposed to simple“retirement” planning, offers great value to an in-dividual. It helps provide a “roadmap” to be usedup to, and after, the big event—retirement. Whatif, however, life does not proceed as planned—anddeath arrives unexpectedly before retirement?

Much emphasis today is placed on the actual accu-mulation of assets, investment diversification, port-folio rebalancing, and market conditions, etc. Whilewe typically pay close attention to these things, wesometimes lose focus of other issues that are equallyimportant. Just as we make time personally for tripsto the dentist or annual checkups with our doctors,we should also take the time to periodically askourselves: “What if retirement never comes?” “Ismy will up to date?” “Do my beneficiary designa-tions reflect my current circumstances?” “If I die,are my affairs in order and will someone have a rela-tively easy time determining where my assets are tohelp settle my estate?” Dealing with these ques-tions now can provide additional roadmaps to helpyour loved ones in the future.

Sending reminders to participants to update ben-eficiary forms, especially when a marital status

change is reported, is one way to encourage oth-ers to revisit these questions.

As I write this article, I am saddened by the fact thatthis evening I will be attending the memorial ser-vice of a dear friend who died unexpectedly at theage of 53. Today, the above questions weigh heavyon my mind. My friend leaves behind a mother anda sister; he had no children. He leaves behind hisloving girlfriend with whom he shared his home forthe past six years. There is also an ex-wife fromyears past. Unfortunately, the one thing he did notleave behind is a will. He did not ask himself manyof the above questions and now it is too late. Henever updated his beneficiary designations after hisdivorce, and he never took the time to either addhis girlfriend’s name to the deed for the house or tocreate a will that would take care of her upon hisdeath, even though he often said those were hiswishes. His estate will most likely not be settled inthe manner he had really wanted, simply becausehe never took the time to make some simple changesto a few very important documents.

It is not uncommon for battles over money andproperty to devastate a family just as much as thedeath of a loved one does. We should never un-derestimate the importance of proper planning forall phases of our lives. Although planning fordeath is not particularly fun, it is necessary. Per-haps part of the legacy my friend leaves behind isan increased awareness of this importance. ▲

THE ASPA JOURNAL


Meet Your Colleagues at the Top!2004 401(k) Sales SummitFebruary 22–24, 2004Orlando World Center MarriottOrlando, FL

You cannot afford to miss the 2004 401(k) Sales Summit if:

■ You are a seasoned 401(k) expert looking to learn new sales strategies.

■ You want to network with the best in the business.

■ You want to expand your business!

The 401(k) Sales Summit is a one-of-a-kind conference guaranteed to bring your business to new heights. Learnabout unique prospecting insights and approaches that will help you grow your retirement plan business.

Learn new sales techniques to grow your assets under management. Participate in sessions focused on maximiz-ing your 401(k) cross-selling opportunities, turning retirement trends into opportunities, prospecting techniques,and investment and market perspectives.

Scheduled workshops and breakout sessions are guaranteed to improve your marketing efforts and to increaseyour overall sales production! More than 75 companies will be on hand in the exhibit hall to show the latest inproducts and technology in the retirement field.

Watch for more information coming soon. To learn more, visit our Web site at www.aspa.org or contact theMeetings Department at (703) 516-9300 or [email protected].

Mark Your Calendar Today!

THE ASPA JOURNAL


Continued from page 1

Washington Update

The RMBA is designed as an optionaladd-on account to existing salaryreduction plans, giving workingAmericans an easy method to savefor retiree health costs.

Working Americans typically save through em-ployer-sponsored retirement savings vehicles[e.g., 401(k), 403(b), and governmental 457plans]. More than any other savings device, thesevehicles have been incredibly effective at gettingmiddle-income Americans to save. Rather thancreate an entirely new tax-favored savings ve-hicle, which would be unfamiliar and likely con-fusing to the average American, the RMBA buildson the existing success of the employer-spon-sored retirement plan system. Specifically, theRMBA is designed as an optional add-on accountto existing salary reduction plans, giving work-ing Americans an easy method to save for retireehealth costs.

So how does it work? Following is a summary ofthe current proposal:

• Plan sponsors could, at their option, permit par-ticipants in employer-sponsored defined con-tribution plans to annually elect to have a por-tion of their employee pre-tax contributions (ona payroll deduction basis) and employer match-ing or profit sharing contributions allocated toa separate Retiree Medical Benefits Account(RMBA) within the retirement plan. Employeeor employer contributions made to a RMBAwould be subject to all existing contribution lim-its and nondiscrimination rules that apply to theunderlying plan.

• An individual not covered by an employer-sponsored plan could elect to have a portion ofhis or her IRA contributions made to an IRARetiree Medical Benefits Account (IRA RMBA).Contributions to the IRA RMBA would countagainst the individual’s IRA contribution limitfor the year. Any otherwise applicable AdjustedGross Income (AGI) limits (e.g., the AGI limitsthat apply to an active participant in an em-ployer-sponsored plan) would apply to anindividual’s ability to contribute to an IRARMBA.

• Individuals age 50 and above could make addi-tional pre-tax contributions to a RMBA or IRARMBA. These additional contributions wouldbe structured similar to “catch-up” contribu-tions. For example, these individuals could con-tribute an additional $2,000 per year.

• It is important to note that the current proposalonly applies to prospective RMBA contribu-tions, not to existing savings amounts. A chief

reason for this element of the proposal is rev-enue cost. Applying the proposal to prospec-tive contributions greatly reduces the revenuecost in the 10-year budget window. A variationto the proposal might be considered, such as al-lowing a conversion of a limited amount of ex-isting retirement savings amounts into a RMBAfor participants above a certain age, like age 50.This variation would make the entire proposalmuch more attractive politically but would re-sult in a much higher revenue cost.

• Distributions from a RMBA or IRA RMBAwould be tax-free and penalty-free if they are:(1) made after age 65, and (2) used for “medi-cal care” [as defined in the Sec. 213(d) of theInternal Revenue Code under itemized deduc-tion rules]. Distributions before age 65, or forpurposes other than “medical care,” would be

includible in income (except to the extent of ba-sis) and subject to an additional tax of 15%,except no penalty tax would apply to distribu-tions made on account of death, disability, orfinancial hardship. The proposed definition of“medical care” is fairly broad and would includeinsurance premiums.

• RMBAs and IRA RMBAs would be completelyportable. Individuals would be permitted to rollover RMBA balances to a RMBA in anotheremployer’s plan (provided it accepts such con-tributions) or to an IRA RMBA. Similarly, indi-viduals could roll over IRA RMBA balances toanother IRA RMBA or to a RMBA in anemployer-sponsored plan.

THE ASPA JOURNAL


• Upon death of a RMBA holder, a survivingspouse could roll over the RMBA balance to thespouse’s own RMBA or treat an IRA RMBA ashis or her own. Other beneficiaries could re-ceive a taxable distribution equal to the valueof the RMBA or IRA RMBA balance.

As of this Update, the current fate of the RMBAproposal is uncertain. The version of Medicarereform passed by the House prior to the Augustrecess contains a significant expansion of Medi-cal Saving Accounts (MSAs), which would now becalled Health Savings Accounts (HSAs) and HealthSavings Security Accounts (HSSAs). Generally,these new tax-favored accounts (separate from anyexisting savings vehicles) would be connected tohigh deductible health insurance plans, withdeductibles ranging from $500 to $5,000, depend-ing on the coverage. These proposals are fairlycontroversial, particularly in the Senate. (Remem-ber the controversy surrounding the original MSAlegislation in 1996?) Preliminary revenue esti-mates indicate they will cost $175 billion over 10years. Given the lack of appetite in the Senate forfurther tax cuts, particularly controversial ones,these proposals are unlikely to get very far. TheRMBA proposal is being touted in the Senate, in-cluding by Senate Majority Leader Frist (R-TN),as a possible less controversial, lower cost alter-native. Right now, it is hard to see how the Houseand Senate will resolve their very real differencesover Medicare and prescription drugs, putting

aside the competing health care saving proposals.However, Medicare reform and prescription drugcoverage remain a top priority for the Presidentand he could force a deal this fall. Whether or nota deal is made, and whether or not it includes theRMBA, it would seem that the RMBA has enoughlegs to be considered in future years.

As Congress considers this proposal, now or inthe future, its fine details will obviously change.However, its centerpiece—namely tax-free retire-ment plan distributions used for retiree health ex-penses—is unlikely to be modified measurably.This proposal is significant, given that it wouldclearly make investments in qualified definedcontribution plans relatively more attractive. Infact, as baby boomers move ever closer to retire-ment age, I would not be surprised to see compa-rable proposals that relax the taxation of somequalified retirement plan benefits. For example,the most recent Portman-Cardin pension reformbill (H.R. 1776) reduces the tax rate on certainannuity distributions from qualified retirementplans. Naturally, the excessive revenue cost ofany such proposals will be restrictive, but as theretiree population becomes a larger and largercritical voting block, the pressure to ease theirtax burden will be intense. ▲

Brian H. Graff, Esq., is Executive Director of ASPA.Before joining ASPA, Brian was legislation counsel tothe US Congress Joint Committee on Taxation.

Missed a recent ASPA webcast? Need two extra ASPA CE credits? Check out thelist of webcast recordings that are available on ASPA’s Web site at http://www.aspa.org/webcast/. These archives are available for accessing at your conve-nience, any day, any time. Each webcast runs approximately 100 minutes in length.Visit the Web page identified above to find out more!

The following webcasts are currently available:

Deemed IRAsCharles J. Close, FSPA, CPCAvailable until August 30, 2004

IRS Voluntary Correction—Easier,More Flexible, AND Lower FeesJames C. Paul, APMJoyce KahnAvailable until July 30, 2004

How Much is That Required MinimumThis Year?Richard Hochman, APMAvailable until July 30, 2004

401(k) Fiduciary Issues andOpportunities for FinancialConsultantsFred Reish, APMAvailable until June 30, 2004

2002 Form 5500 and RelatedCompliance IssuesValeri L. Stevens, APMAvailable until April 30, 2004

IRS/ASPA Washington UpdateBrian H. Graff, Esq., et al.Available until March 31, 2004

Available Webcast Recordings

Participant LoansJane E. ArmstrongAvailable until March 31, 2004

Top 15 Pitfalls in PlanAdministrationIlene H. Ferenczy, CPCAvailable until November 30, 2003

Cost: $125 for Members, $225 for Non-members

THE ASPA JOURNAL


Ray Scholar. He was a recipient of the Johnson,Bromberg, Leeds & Riggs Award, and the ArthurStedley Hansen Consulting Actuaries of DallasAward. He was a member (1968-1970), note andcomment editor (1969-1970), and acting index edi-tor (1970) of the Journal of Air Law & Commerce.Bruce was admitted to the California Bar in 1971.

Bruce is the author of numerous publications andarticles. He co-authored (with his partner, FredReish, APM) the Participant Directed InvestmentsAnswer Book, 3rd Edition and the Plan CorrectionAnswer Book, both published by Aspen Publish-ing. He also authored Actuarial Audits: A Legaland Tactical Analysis, published by ASPA, and hasbeen a frequent speaker on employee benefits is-sues ranging from fiduciary responsibility to em-ployee stock ownership plans (ESOPs). He speaksregularly at the ASPA Annual Conference, theWestern Pension & Benefits Conference, and vari-ous other organizations’ events. For those of youwho attended ASPA’s 1999 Summer Conference,you’ll remember him as a rapper-extraordinaire.

The other members of ASPA’s 2003–2004 Execu-tive Committee include:

Bruce L. Ashton Elected ASPA PresidentContinued from page 1

PRESIDENT-ELECTStephen H. Rosen, MSPA, CPC

VICE PRESIDENTSStephen L. Dobrow, CPC, QPA, QKAChris L. Stroud, MSPASal L. Tripodi, APM

SECRETARYCathy M. Green, CPC, QPA

TREASURERSarah E. Simoneaux, CPC

IMMEDIATE PAST PRESIDENTScott D. Miller, FSPA, CPC

EX-OFFICIO MEMBER OF THE EXECUTIVE COMMITTEEJoan A. Gucciardi, MSPA, CPC ▲

Troy L. Cornett is the Office Manager for ASPA and anAssociate Editor of The ASPA Journal. Troy has beenan ASPA employee since July 2000. In his time awayfrom the National Office, Troy enjoys seeing the latestmovie releases, driving his new VW bug, and sippingcoffee lattes with his friends at Starbucks.

Save America’s401(k)Participate in ASPA’s 2003 Visit to Capitol Hill

All members of Congress need to understand the detrimental ef-fects the President’s LSA/RSA/ERSA proposals would have on theretirement plan system. Help effectuate the power of ASPA’s mes-sage. Participate in ASPA’s Visit to Capitol Hill on Tuesday,October 28, during the Annual Conference.

ASPA will make all appointments and provide you with the infor-mation needed to discuss these important issues with your memberof Congress.

Register online at:

http://www.aspa.org/archivepages/conferences/2003/annual/hillvisit.htm.

For further information contact:Jolynne M. Flores, Gov’t Affairs [email protected](703) 516-9300

CORRECTION

On page 1 of thesupplement en-titled “SummaryComparison ofQualified Plans,IRAs, and TSAs,” which was in-cluded with the January–February2003 issue of The ASPA Journal,the explanation under the “SIMPLE401(k)” plans column, “Contribu-tion Limits—Employer” row, erro-neously states “...nonelectivecontribution of 2% on first$2000,000.” It should read “...non-elective contribution of 2% on first$200,000.” We apologize for theerror.

THE ASPA JOURNAL


Retirees Are Moving Your Cheese:Adapting to the New $250 BillionDistribution Planning Market

by Delores R. Freitag

IN HIS BUSINESS BESTSELLER, WHO MOVED MY CHEESE?, SPENCER JOHNSON, MD, TELLS A FABLE ABOUT HOW TO DEALWITH CHANGE. IN HIS STORY, TWO LITTLE PEOPLE, HEM AND HAW, SUFFER BECAUSE SOMEONE MOVED THE CHEESE INTHEIR MAZE. YET HEM AND HAW KEEP LOOKING IN ALL THE OLD PLACES. OUR HEROES, MICE NAMED SNIFF ANDSCURRY, LEARN TO ADAPT AND FIND THE NEW LOCATION OF THEIR SUSTENANCE.

The situation is similar for today’s retirementplan professionals: The location of much ofthe need for financial advice is moving.

For decades, many agents, advisors,enrollers, and TPAs made their living bylocating and serving people who needed to

accumulate wealth and invest wisely for retire-ment. Today there’s less of that source of busi-ness, but there’s a large and fast-growing locationof “cheese” elsewhere for those willing to adaptto change.

As I write this article, I find myself reflecting onthe messages repeated over and over by industryexperts at recent conferences. “The industry isstruggling.” “It’s all about relationships.” “Edu-cation is the problem.” “It’s no longer about theplan sponsor—it’s all about the employee.” How-ever, others will turn that last statement upsidedown and say “It is all about the plan sponsor,because they perceive no value added service tothemselves or their employees!”

Most of the researchers do agree that the marketplaceis changing and what is needed is a new approach toan old story. Yes, people need to save for retirement,but more importantly now is learning how to man-age what they have saved so they can live the lifethey have envisioned. Smart investing during theaccumulation years is only half the battle. What planparticipants need to learn is how to retire comfort-ably, how to realize the lifestyle they envisionedwhen they were working, and how to enjoy life bymaking sure they never run out of money. This se-curity is the added value that the retirement planningindustry has often failed to deliver.

SEEING THE OPPORTUNITYMoney is on the move. Each year, three to four mil-lion people become eligible for a lump-sum pay-ment from employer-sponsored retirement plansas they change jobs, retire, or leave the workforce.Today, these assets equal approximately $250 bil-lion and are poised for record growth. Plan par-ticipants need to protect this money and the TPA,

insurance agent, and pension consultant are wellpositioned to serve these participants. In so doing,they better serve the plan sponsor as well.

Let me start by reminding you of the value of whatyou do. Many of you came into the business andbuilt your success on helping people plan for asecure retirement by enrolling them in qualifiedplans. You taught the value of long-term investingand how to allocate assets to accumulate wealth.You taught the plan participant how to save, save,save. Indeed the baby boomer generation had, 10years ago, just entered their peak savings years.They were well poised for this message!

But now, all of that has changed. Much of this mar-ket is moving rapidly toward the very thing wehelped them save for—retirement—and we seem-ingly have lost our reason to educate them.

A LONG AND WINDING ROADThe road to retirement is long. Your wisdom, ad-vice, and counsel to plan participants only beginswith getting them into the plan. Consider the fourstages that employees pass through as they planfor retirement. Each stage requires a greater levelof planning expertise and a greater need for edu-cation. Each stage also creates many opportuni-ties to deepen existing relationships.

1. During the first stage, Developing Savers, peopleget involved for the first time in defined contri-bution plans. Employers make a great deal ofeffort to encourage young workers to enroll intheir plans early in order to accelerate the long-term benefits of saving. Additionally, individu-als are encouraged, through the media and peoplethey meet, to set up retirement accounts.

From the sales perspective, Developing Saversare primed for your counsel. They know that get-ting involved in the plan should be considered,but they are overwhelmed with the transition andin need of guidance. It is an easy approach.

2. In the next stage, Becoming Investors, plan par-ticipants generally take a more active role in

THE ASPA JOURNAL


trying to understand the market and make somesense of what is contained in their plan. Our in-dustry has done an excellent job of educatingthe public on investment selection, asset allo-cation, and time horizons through worksite edu-cation and printed materials.

From a sales perspective, Becoming Investorsmay become unnerved—particularly during un-certain markets. They know that long-term in-vesting is the name of the game, but they see theirbalance dropping. Some of them feel the need tobe proactive, to do something, and they needongoing guidance to stay the course. BecomingInvestors need to stay focused on the long-termgoal of living on this money for an unknown timehorizon that extends beyond the retirement date.They, too, need your educational services.

3. Once the retirement date draws closer, your par-ticipants will become increasingly focused, bothfinancially and personally, on Making the Tran-sition into retirement. This event turns attentionaway from accumulating assets and toward pro-tecting those assets for an undetermined periodof time.

The “transition” stage can also be triggered byother life events that cause separation from theemployer, including termination or a voluntaryjob change.

Many questions come up at this time. What aremy distribution options? What is the best optionfor me? How can I make this money last? Whatkind of lifestyle do I want to have? What aboutunforeseen circumstances that may arise? Planparticipants face a whole new set of decisionsand will need a new plan for distributing assets.

4. The last stage of retirement planning focuses onManaging Retirement Assets according to thenew plan for distributing assets. It is character-ized by creating ongoing income streams, con-tinuing to grow assets through wise investing,and protecting assets through risk management.

From a sales perspective, there is enormouscross-selling opportunity at this stage—yet of-ten the agent and advisor who initially signed onthe participant have all but forgotten him or herby this time. Isn’t this the reason you sign par-ticipants up in the first place? So much of yourwisdom, guidance, and advice are needed hereonce the employee begins living in retirement!

PROVIDE THE MISSING VALUEWhile our industry has done a good job educatingclients through the first two stages, information,guidance, and advice at payout time is scarce. Therehas been very little talk or material written abouthow to distribute portfolios effectively. According

to one institutional intermediary, the situation fordeparting plan participants, whether they are jobchangers or retirees, is “pretty much abandon-ment.” (Source: LIMRA International, “PensionRollover: The Intermediaries View,” 2001). Thistrend signals a unique market opportunity for thosewho embrace new knowledge about retirement dis-tribution planning and continually educate em-ployees across stages. You can differentiate yourselffrom the competition by providing the value addedservice that is missing.

THE NEW ALLOCATION PLAN—DISTRIBUTIONPLANNINGIn some respects, retirement distribution planningis the next level of asset allocation for many rep-resentatives. In the 1980s, representatives learnedportfolio theory and strategies to determine themost appropriate asset allocation to meet their cli-ents’ accumulation goals. Today, they are learn-ing a new approach to asset allocation that will helpthem meet their clients’ conservation goals.

What plan participants need to learnis how to retire comfortably, how torealize the lifestyle they envisionedwhen they were working, and how toenjoy life by making sure they neverrun out of money.

Distribution planning is not about accumulatinglarge sums of money. It is about creating an in-come stream to make the mortgage and car pay-ments, pay the insurance premiums, or pay thecountry club dues for an undetermined period oftime, and, it is hoped, distributing the remainderof the money to loved ones. “Making it last” isretiring employees’ top concern. And so the dis-tribution plan will allocate assets over three pri-mary goals:

• Creating Income Streams

• Continued Asset Growth

• Risk Management

Continued on page 21

THE ASPA JOURNAL


THE ASPA JOURNAL


Issues with 412(i) Plansby Lawrence Deutsch, MSPA, and Raymond G. Ankner, MSPA

WHAT IS NEW IS OLD AND WHAT IS OLD IS NEW. THIS STATEMENT IS AS TRUE OF THE EMPLOYEE BENEFIT PROFESSIONAS IT IS WITH ANY ASPECT OF LIFE. ONE HOT, NEW TOPIC IN THE EMPLOYEE BENEFIT ARENA IS AN OLD SECTION OF THEINTERNAL REVENUE CODE—SECTION 412(i). THIS SECTION OF THE CODE SETS FORTH THE DESIGN AND OPERATIONCRITERIA FOR A FULLY-INSURED, DEFINED BENEFIT PENSION PLAN THAT IS EXEMPT FROM THE NORMAL FUNDINGREQUIREMENTS OF THE CODE. THIS EXEMPTION ALLOWS PLANS, IN CERTAIN INSTANCES, TO DO SOME THINGS THATNON-412(i) PLANS CANNOT DO. HOWEVER, SOME PRACTITIONERS HAVE SUGGESTED DESIGNS THAT THE LAW DOES NOTALLOW. THIS ARTICLE WILL DISCUSS THE DESIGN REQUIREMENTS OF A FULLY-INSURED, DEFINED BENEFIT PENSIONPLAN UNDER SECTION 412(i) OF THE CODE, AS WELL AS SOME OF THE ABUSES EXISTING IN THE MARKETPLACE. THISARTICLE WILL NOT DISCUSS THE ISSUES INVOLVED IN WHY A PLAN SPONSOR MAY OR MAY NOT CONSIDER A 412(i)PLAN AS THE MEANS OF PROVIDING RETIREMENT BENEFITS TO ITS EMPLOYEES.

DESIGN REQUIREMENTS412(i) Plan Characteristics

Section 412 of the Code contains the funding re-quirements for pension plans that are qualified un-der Section 401(a) [profit sharing plans, including401(k) plans, are not subject to these requirements].Failure to comply with the funding requirements ofSection 412 can lead to excise tax penalties. How-ever, Code Section 412(h) provides several exemp-tions from these funding requirements. One of thoseexemptions is for plans funded exclusively withinsurance contracts, which replace the general re-quirements of Code Section 412 with the require-ments as described in Section 412(i).

In order to be a plan described in Code Section412(i) [a “412(i) Plan”], the plan must have thefollowing characteristics:

1) The plan must be funded solely with individualinsurance or annuity contracts;

2) The contracts must have level premiums fromthe issue date of the policy to a date not laterthan the individual’s Normal Retirement;

3) Benefits under the plan must “equal” the guar-anteed benefits under the policies (assuming allpremiums paid to Normal Retirement);

4) All premiums must be paid promptly to avoidpolicy lapses;

5) No policy may be used as collateral to secure aloan; and

6) There can be no policy loans at any time.

There are minor exceptions to some of the aboverules. For example, it is possible for a policy tolapse provided it is reinstated before year-end.Also, a loan is permitted provided it is for the pur-pose of paying a premium and it is repaid beforethe end of the year. In addition, a 412(i) Plan maybe funded with group insurance or annuity

contracts, if the group contracts have the samecharacteristics as set forth above.

If a 412(i) Plan is top-heavy, as described in CodeSection 416, it may be necessary to maintain anauxiliary fund to meet those top-heavy minimumbenefits not met by the insurance or annuity con-tracts. This requirement is described at Treas. Reg.1.416-1 Q&A M 17. If an auxiliary fund is required,a funding standard account must be maintained,and each Form 5500 filing must include a com-pleted Schedule B.

QUALIFICATION REQUIREMENTSA 412(i) Plan is considered a defined benefit pen-sion plan and, as such, must satisfy all the require-ments of defined benefit pension plans to be aqualified plan under the Code. In order to consti-tute a qualified plan, a plan must comply with,among others, the requirements of Code Sections401(a)(4), 401(a)(26), and 410(b). As will be seenbelow, a plan with only one employee who meetsthe age and service requirements of the plan willalways satisfy these provisions. Therefore, muchof this article is concerned primarily with plans oftwo or more participants.

CODE SECTION 401(a)(26)—THE “50/40 TEST”Code Section 401(a)(26) is the easiest of the threesections to deal with. Section 401(a)(26) imposesminimum participation requirements on a quali-fied defined benefit plan. Defined contributionplans are no longer subject to the requirements ofSection 401(a)(26). It requires that a plan benefitthe lesser of 50 employees or 40% of all employ-ees who meet the plan’s age and service require-ments (but no less than two employees, unless, asstated above, the employer only has one employeewho meets the age and service requirement). Un-like Code Sections 401(a)(4) and 410(b), discussed

§412

(i)

THE ASPA JOURNAL


below, multiple plans of an employer may not beaggregated to satisfy the requirements of Section401(a)(26).

Example 1: To illustrate the application of Section401(a)(26), consider a company with five ownersand 15 staff. Assume that all 20 employees meetthe plan’s age and service requirements. A plancovering only the owners would fail to comply withSection 401(a)(26). The plan covers five employ-ees (which is less than 50) and the plan covers only25% of the employees (which is less than 40%). Inorder to comply with Section 401(a)(26), the planwould have to cover, at a minimum, eight employ-ees (40% of 20), requiring the inclusion of at leastthree non-owners in the plan. (Fractions shouldalways be rounded up. In other words, if there are21 employees, 8.4 should be rounded up to nineemployees.)

CODE SECTION 410(b)—MINIMUM COVERAGEREQUIREMENTSCode Section 410(b) is the next easiest of thethree aforementioned sections to deal with. Sec-tion 410(b) requires that a plan either satisfy the70% Ratio Percentage Test or that the plan com-ply with the Nondiscriminatory ClassificationTest. (Definitions of the terms used in explainingthe minimum coverage and non-discrimination re-quirements are contained in the Endnotes to thisarticle.)

The 70% Ratio Percentage Test simply requires thatthe ratio percentage of the plan be at least 70%.

The Non-Discriminatory Classification Test re-quires that the plan satisfy three requirements:

1) The ABP must be at least 70%;

2) The ratio percentage must be at least as high asthe amount from a table based on the concen-tration of HCEs in the organization (from a highof 50% required, to a low of 20%); and

3) The plan must cover a Reasonable Classifica-tion of employees.

CODE SECTION 401(a)(4)—NON-DISCRIMINATIONREQUIREMENTSCode Section 401(a)(4) is the third section listedabove and the most difficult to satisfy. Section401(a)(4) contains the non-discrimination require-ments for qualified plans. This section requires thatbenefits provided under a plan not discriminate infavor of HCEs. Treas. Reg. 1.401(a)(4)-1(b) pro-vides two methods for a defined benefit plan todemonstrate compliance with Code Section401(a)(4). The first is by use of a safe harbor[1.401(a)(4)-3(b)], and the second is by use of theso-called General Test [1.401(a)(4)-3(c)]. In ad-dition, Treas. Reg. 1.401(a)(4)-4 requires that all

benefits, rights, and features of a plan be avail-able on a non-discriminatory basis and Treas. Reg.1.401(a)(4)-5 prohibits a plan amendment if thetiming of such amendment has a discriminatoryeffect. [Generally, this last one is not an issue witha 412(i) Plan and will not be discussed.]

Safe Harbors: There is a special safe harbor for412(i) Plans. This safe harbor requires, among otherthings, that the plan formula meet one of the re-quirements for a safe harbor formula using frac-tional accrual, assuming that benefits under the412(i) Plan accrued fractionally over all years ofparticipation in the plan, premium payments arelevel to normal retirement age, and all gains, in-cluding dividends and forfeitures, may only beused to reduce future premium payments [Treas.Reg. 1.401(a)(4)-3(b)(5)].

For a defined benefit plan to satisfy the safe har-bor rules under 1.401(a)(4)-3(b) [other than thespecial safe harbor for 412(i) Plans], the planwould have to conform to an accrual rule providedin Code Section 411. These accrual rules are in-consistent with a fully insured plan. [While it istheoretically possible for a 412(i) Plan to complywith the accrual rules of Section 411, as a practi-cal matter, it would require the cash values to bemuch higher in the earlier years than is typical inany insurance product used for 412(i) Plans.][Treas. Reg. sections 1.401(a)(4)-2(b)(3)(i)(A) and1.401(a)(4)-2(b)(4)(i)(A)]

General Test: If a 412(i) Plan does not satisfy thesafe harbor rules, then it must demonstrate compli-ance with Code Section 401(a)(4) by using the Gen-eral Test. The General Test requires that the plan’sEBARs be determined. A defined benefit plan actu-ally has two EBARs. The first is the normal EBAR,and the second is the most valuable EBAR [Treas.Reg. sections 1.401(a)(4)-3(d)(i) and 1.401(a)(4)-3(d)(ii)]. A plan’s Normal EBAR is a function ofthe accrued benefit [Treas. Reg. 1.401(a)(4)-3(d)(i)].The most valuable EBAR is a function of the ben-efit that would be paid in the form of a qualifiedjoint and survivor annuity commencing at each agebetween the current age and the retirement age,based on no future service credited under the plan[Treas. Reg. 1.401(a)(4)-3(d)(ii)].

In a 412(i) Plan, the accrued benefit equals the cashvalue of the policies [Code Section 411(b)(1)(F)].The accrued benefit must then be expressed in theform of a life only annuity commencing at the nor-mal retirement age, determined using the terms ofthe plan (i.e., the guaranteed terms of the policy)[Code Section 411(a)(7)(A)(i)]. It is only reason-able to assume that the determination is made with


§412

(i)

THE ASPA JOURNAL


Embracing the Evolution of DefinedContribution Recordkeeping

by Robert Long, APM

SUCCESSFUL PENSION ADMINISTRATION FIRMS HAVE BUILT AND DEVELOPED ADMINISTRATION AND CONSULTING SER-VICES BY BEING EDUCATED, REPUTABLE, AND COMPETITIVE, AND BY DELIVERING HIGH QUALITY SERVICES TO THEIRCLIENTS. THEY HAVE ALSO ENJOYED PROFITABILITY, AS WELL AS OPPORTUNITIES TO DEVELOP BUSINESS RELATION-SHIPS AND FURTHER THEIR BUSINESS GOALS. IN SHORT, THEIR BUSINESS MODEL HAS BEEN A SUCCESS.

Changes in the marketplace are inevitable, how-ever, whether due to technology, legislation, or cli-ent expectations. Service expectations continue toevolve whereby plan sponsors and participants nowexpect faster service, quicker turnaround times, bet-ter access to their accounts, and more information.Deteriorating balances due to poor market condi-tions have raised awareness of the need for edu-cation and guidance, and have prompted manyto question the merits of participant directed in-vestments. At the same time, there is pressure tomaintain or even reduce costs associated with ad-ministering plans, making efficient service deliv-ery and execution paramount to stayingcompetitive. In short, clients are demanding farmore for less.

The key question for today’s pension administra-tion firm is “How do I meet my clients’ increasedquality and service expectations, improve thespeed and manner of delivery, while continuing toadd value to my relationships? And, at the sametime, maintain or improve profitability?”

Within the context of existing business models,many will look for ways to improve productivityby streamlining existing processes and searchingfor ways to cut costs. Relationships with financialinstitutions and advisors will be examined, butmany administration firms will continue tooutsource the recordkeeping of larger plans dueto the services they demand. Some will spendmoney on new technology. But will all of this beenough? Does the execution and delivery of ser-vices need to fundamentally change?

NEW COMPETITION HAS ARRIVED

Here is a taste of the progressive services beingoffered to defined contribution plans today. At-tributes include flexibility, real-time access to in-formation, and a full range of enhanced servicesto meet comprehensive client needs. Thus, for pur-poses of this article, I will refer to the following asenhanced services:

• Instant plan sponsor and participant access toaccount information and investment educationwith sponsor update and download capabilities;

• Access to virtually any mutual fund available;

• Late day/same day trading for all contributions,transfers, rebalancing, and investment model-ing in and between different fund families;

• Explicit participation in revenue sharing;

• Paperless loans and online statements withgraphics;

• Self-directed and managed accounts;

• The ability to work through a broker of choice;

• Alternative funding via the most reputable fi-nancial institutions in the country;

• Complete distribution and rollover services; and

• Comprehensive plan design and complianceservices.

All of these features are offered with local one-on-one service and at a cost lower than what many firmsare charging today (including outsourcing partners).

Some firms already provide a portion or all of theseenhanced services through a number of differentavenues. Others may not have realized the needquite yet. But, as these services become more uni-versal, administration firms must find ways to pro-vide them while reducing unit costs, improvingproductivity, and increasing revenue and profit-ability if they expect to remain competitive. Theymust also continue to find ways to differentiatethemselves from their competitors.

Before we explore various ways to provide en-hanced services, there are two basic truths that needto be understood:

1. Enhanced services can only be provided if a planis valued daily. Keep in mind that daily valua-tion is only a recordkeeping method—it is notan end in and of itself. Daily is the means bywhich these services are provided. Further, un-derstand that traditional balance forward

THE ASPA JOURNAL


recordkeeping is becoming somewhat antiquated.

2. Many administration firms will need to funda-mentally change the way services are delivered.It may be a slow transition or possibly a radicaltransformation. But change is inevitable and isgood, once it is accepted and embraced.

OUTSOURCING OPTIONSLet us start by examining the options available foroutsourcing the delivery of enhanced services. Ina recent ASPA survey on daily valuation tradingpractices, of those providing enhanced services,57% primarily outsource to other entities. Further,58% of those appear to be highly satisfied withtheir outsourced relationships. Thus, this well es-tablished approach remains popular as the statusquo with many pension administration firms.

Outsourcing, as the name implies, is an arrangementwhere another entity is actually providing tradingplatforms and day-to-day recordkeeping services.It is an easy way to provide enhanced services. Sincefirms are in effect paying someone else to do thework, the most important consideration is whether

the outsourcing entity can do it more cost-effec-tively than the administration firm and deliverquality service at a competitive price. There are anumber of outsourcing opportunities that are vi-able and attractive.

GROUP ANNUITY PRODUCTSMany enhanced services are commonly providedthrough insurance company group annuity con-tracts. These options have existed for many yearsand are a great way to offer competitive services.Group annuity contracts will continue to be an ef-fective tool to meet the needs of many plans. Inparticular, those that embrace and pursue NAV-type products should enjoy continued success.

As plans grow in size and assets, and as sponsorsgrow in their knowledge and sophistication, spon-sors may desire a fund selection not availablewithin the annuity contract. Complex expensestructures with implicit costs will be questionedby savvy plan administrators and trustees (thus theimportance of NAV products). Continued controlmay also become an issue, as well as relationshipchanges with certain insurers that may create po-tential conflicts.

If annuity contracts are the only outsourcing op-tion offered, can an administration firm competeagainst others offering enhanced services? Arethese clients truly captive clients? Where do theirloyalties genuinely lie?

A NEW BREED OF VENDOR EMERGESNew technologies and Internet development havegiven rise to an array of outsourcing vendors, an-other popular method of delivering enhanced ser-vices. These vendors are similar to insurancecompanies in that they provide trading andrecordkeeping services. (That is, they do a lot ofthe work for you). Their investment platforms typi-cally offer a wider array of investment choices. Ven-dors vary considerably, differing in how they pricetheir services, the extent to which firms participatein revenue sharing, the technologies employed, andhow relationships with mutual clients are structured.

There are a number of strong, viable providerstoday that offer good, competitive options. Simi-lar to working with insurance companies, this ap-proach will work very well to satisfy client needsfor a period of time. As this block of businessgrows, however, the same questions arise: Howwell can administration firms compete againstothers offering enhanced services if these are theonly outsourcing options offered? Are these cli-ents truly captive clients? Where do their loyal-ties genuinely lie?

As you may have already heard, ASPA has recentlyrestructured its education program. Effective Janu-ary 1, 2004, study material will be presented insmaller segments in a more logical, easier-to-under-stand way. The major changes occurred in the QKAand QPA programs, particularly the C-1 and C-2(DC)courses. These two courses have been combined, re-organized, and broken into three smaller segments:DC-1, DC-2, and DC-3.

What does this mean for those who are only part-way through the program? If you have passed C-1 orC-2(DC), you will get credit for DC-1 or DC-2 respec-tively. And, if you have passed both the C-1 and theC-2(DC) exams, you will get credit for DC-1, DC-2,AND DC-3.

If you have not already passed both the C-1 and C-2(DC), you get a one-time opportunity this fall examcycle (November 1–December 15) to pass whicheverexam you have not already passed and receive creditfor all three new exams during the transition.

For more information on the restructured program anddesignation changes, visit http://www.aspa.org/edu/restructure.htm.


THE ASPA JOURNAL


Focus on Continuing Education

CE Bargains Close To Homeby Cynthia A. Groszkiewicz, MSPA, QPA

ARE YOU LOOKING FOR A COST EFFECTIVE, CONVENIENT WAY FOR YOU AND YOUR EMPLOYEES TO EARN CONTINUINGEDUCATION CREDITS? ASPA OFFERS NUMEROUS LIVE AND ON-DEMAND PRE-RECORDED WEBCAST PRESENTATIONS EACHYEAR THAT ALLOW YOU TO EARN CE WITHOUT EVER LEAVING THE OFFICE. WEBCASTS RUN APPROXIMATELY 100 MIN-UTES AND PARTICIPANTS EARN TWO ASPA CE CREDITS FOR EACH PRESENTATION.

That’s just the beginning. You can also use thematerial from the webcasts for in-house trainingor study groups. Those who did not have an op-portunity to participate in the webcast can still usethe program to accumulate credits. It is a greatopportunity to train your employees and allowsthem to earn CE credit at the same time!

How does it work? After listening to the webcast,set up a discussion group and designate someonewho watched the webcast as the facilitator ortrainer. Prepare an outline based on the informa-tion provided in the webcast and distribute this tothe group of attendees. All program attendees canreceive one credit per 50 minutes of group activ-ity/discussion. Keep an outline with topic, date, andtime information, as well as an attendance list asbackup documentation. A credentialed ASPA mem-ber must be present at the program, and the em-ployer or a credentialed ASPA member must signthe attendance form verifying attendance.

All that is needed to view the live webcasts are aphone and a modem connection for Internet ac-cess. The cost is usually $125 for ASPA membersand $225 for nonmembers. For a schedule of

upcoming live webcasts, descriptions from our li-brary of pre-recorded presentations, and webcastregistration details, see page 6 or visit our Website at www.aspa.org/webcast/info.htm or contactthe ASPA office at (703) 516-9300. To learn moreabout other ways you can meet ASPA’s continu-ing education requirements, check out our CEWeb page at www.aspa.org/faq/conted.htm, orcontact the ASPA Membership Department.

Look for ASPA’s new exam study Web courses be-ginning this fall. For more information visit:www.aspa.org/edu. ▲

Cynthia A. Groszkiewicz, MSPA, QPA, is the director ofEmployee Benefits with Greenberg Traurig, LLP, inAtlanta, GA. Cynthia has over 30 years of experiencein benefit plan administration, consulting, plan de-sign, and IRS and DOL audit representation. She is alsoan Associate of the Society of Actuaries, a Member ofthe American Academy of Actuaries, and an actuaryenrolled by the Joint Board. She currently serves onthe ASPA Board of Directors, is a former Editor-in-Chieffor The Pension Actuary, and was the founder of theASPA Benefits Council of Atlanta.

THE ASPA JOURNAL


Focus on E&E

E&E Provides a Roadmap to Learningby Michael L. Bain, MSPA

IT IS TIME TO START THINKING ABOUT 2004! YOU HAVE HEARD A LOT ABOUT CHANGES IN THE EDUCATION & EXAMI-NATION (E&E) PROGRAM AND OPPORTUNITIES TO MAXIMIZE YOUR TRANSITION CREDITS. NOW IT IS TIME TO LOOK ATTHE MANY BENEFITS THAT THE NEW PROGRAM BRINGS TO THE TABLE. THE CHANGES ARE MUCH MORE SIGNIFICANTTHAN SIMPLY REPLACING C1 AND C2-DC WITH A THREE PART SERIES.

We started from the beginning and built a programdesigned to significantly improve the educationprocess and present the core material in a moremanageable and logical manner.

After developing the logical training sequence, webegan an analysis of the level of detail needed oneach topic. While this task may sound easy, it wasthe most challenging part of the transition. Theentire 35 member committee has spent a year de-veloping learning objectives for all of our exams!

The E&E Committee holds a training session eachyear. In the past, the sessions have covered a vari-ety of topics, such as training on writing clear andconcise exam questions, writing ethics questionson professional exams, using statistics to reviewexam question quality, and other topics needed toensure the excellence of ASPA’s education pro-gram. This summer, the training session concen-trated on learning objectives. Each of thecommittees revised their objectives based on whatthey learned during the session. Our thanks go toASPA member, Nancy Michael, who provided alively and excellent training session on this cru-cial topic.

Why is this effort important to ASPA’s membersand candidates in the education program? Learn-ing objectives provide a framework and structurefor the study guides, textbooks, Web and othercourses (like the “cram sessions” offered at thesummer and annual conferences), and the examsthemselves. As opposed to a syllabus, which liststopics that will be covered, learning objectivesdetail what the candidate should know and beable to accomplish for successful completion ofthe exam.

Take a look for yourself. The learning objectivesfor each ASPA course can be found on the ASPAWeb site at http://www.aspa.org/edu. These objec-tives are the framework for the newly restructurededucation program. (See The ASPA Journal, May-June 2003, Vol. 33, No. 3, or http://www.aspa.org/edu/restructure.htm for more information.)

Whether you have completed your designationrequirements or are continuing your pursuit ofadditional professional education, here are a num-ber of upcoming dates to keep in mind:

October 31—Final registration deadline for thefall exams for C-1, C-2(DB), C-2(DC), C-3,C-4, and A-4

November 1–December 15—Fall exam windowfor C-1, C-2(DB), and C-2(DC) exams

December 3—C-3, C-4, and A-4 exams

December 15—PA-1 (parts A and B) and DailyValuation paper exams must be received by theASPA office

December 31—PA-1A online course and onlinesubmissions for the PA-1 (parts A and B) andthe Daily Valuation courses must be completed.

January 1—You’ve heard about it already! Thenewly restructured ASPA education programrolls out. For more information, visit the ASPAWeb site at http://www.aspa.org/edu.

There are three exam windows in 2004.

May 1–May 31: DC-1, DC-2, DB

Aug. 1–Aug. 31: DC-1, DC-2, DC-3, DB

Nov. 1–Dec. 15: DC-1, DC-2, DC-3, DB

A complete calendar of all ASPA programs, events,and services, including up-to-the-minute andnewly-developing information, can be found onthe Web site at www.aspa.org. ▲

Michael L. Bain, MSPA, is president of CMC inGlendale, CA. Mike is General Chair of ASPA’s Educa-tion and Examination Committee and a member ofthe Technology Committee. He is also a member ofASPA’s Executive Committee and serves on the Boardof Directors.

THE ASPA JOURNAL


After two years of research, analysis, and

planning, ASPA’s Education Program has

been newly restructured. Now, study material

will be presented in smaller segments, in a

more logical, easier-to-understand way.

ASPA’s newly restructured education

program debuts January 1, 2004. But the

same high educational standards for which

ASPA is known won’t change.

The More Things Change…

The More They Stay the

ASPA’s newly restructured education program:

PA-1: An introduction to qualified retirement plansand pension plan administration practices, with afocus on the annual administrative cycle

PA-2: An introduction to qualified retirement plansand pension plan administration practices, with afocus on event processing

PA-3: Daily Valuation terminology, concepts, and procedures

DC-1: Defined Contribution Basic Concepts

DC-2: Defined Contribution Compliance Issues

DC-3: Defined Contribution Advanced Topics

R E G I S T E R N O W !PA-1, PA-2, PA-3 take-home exams: Available any time beginning January 1, 2004

DC-1, DC-2, DC-3 computerized exams: Offered in May, August, and November

For questions, contact ASPA at:(703) 516-9300 or email: [email protected]/edu

Same.

THE ASPA JOURNAL


ASPA Summer Conference 2003The 2003 ASPA Summer Conference attendees took time offfrom learning the latest news and trends in the retirementplan business to pay a visit to Mickey’s California home.

Thanks to ASPA’s National Office staff for their help in making the conference run smoothly and efficiently. Staff members on site included:Brian Graff, Esq., Executive Director; Jane Grimm, Managing Director; Christy Bell, Data Services Assistant; Denise Calvert, Director of Membership;Chip Chabot, Webmaster/Multimedia Manager; Jolynne Flores, Government Affairs Manager; Blake Grimm, Data Services Coordinator; JoanneLawrence Smith, CMP, Director of Meetings; Brian Lawrence; Janet McFadden, CMP, Meetings Coordinator; Jamie Pilot, CMP, Director of EducationServices; and Jonathan Watson, Exhibit and Advertising Sales Manager.

Jonathan Watson, ASPA’s Exhibit and Advertising SalesManager, made sure the exhibit hall ran smoothly.

Michelle Chabot, Chip’s daughter, greeted attendees with abig smile and was the ASPA staff’s tiniest ambassador offriendliness.

Jamie Pilot, CMP, ASPA’s Director of Education Services,answered many questions about the education program’srestructuring. For more information, visit the Web site athttp://www.aspa.org/edu/restructure.htm.

Joanne LawrenceSmith, CMP,Director ofMeetings, andJanet McFadden,CMP, MeetingsCoordinator,share a rare quietmoment. TheSummerConference wasJanet’s last ASPAmeeting. We willmiss her andwish her the bestof luck in herfuture endeavors.

THE ASPA JOURNAL


Brad Huss, APM, Member of the ExecutiveCommittee and GAC Co-Chair, updated the attendeeson the Government Affairs Committee’s activities andinitiatives.

The exhibit hall was a very popular place where theattendees could see the latest products and services tokeep their businesses on the cutting edge.

President-Elect Bruce Ashton, APM, caught up with oldfriends and met new ones at the opening reception.

Attendees were able toaccess their e-mail andthe Internet quicklyand conveniently bytaking advantage ofthe Cyber Cafe.

Former Educator’s Award recipient, Chuck Klose,FSPA, CPC, taught one of the very popular ASPAexam “cram” sessions.

Martin Heming, APM, told session attendees theSecrets of Successfully Managing an EBSAInvestigation.

The southern California weather beckoned the attendees toenjoy the outdoors during the breaks between sessions.

Ilene Ferenczy, CPC; Rajean Bosier, CPC, QPA, QKA;and Craig Hoffman, APM, served as contestants duringthe ERISA Game Show.

THE ASPA JOURNAL


Thanks to ASPA’s Summer Conference Speakers

Neff McGhie, MSPA,well-known for hiscontributions to theASPA ASAP, spoke

about the waysdifferent business

entities affectcompensation forqualified plans.

Alane AllmanBruce L. Ashton, APMMichael L. Bain, MSPATodd J. Berghuis, APMAvaneesh K. BhagatRajean M. Bosier, CPC, QPA, QKAAlex M. Brucker, APMEdward E. Burrows, MSPAJeffrey C. Chang, APMMarianne G. DavisMark A. DavisLawrence Deutsch, MSPAMichael DoranLorraine Dorsa, MSPAElizabeth DrigotasDavid B. Farber, MSPAIlene H. Ferenczy, CPCThomas J. Finnegan, MSPA, CPC, QPA

Mike GouldinBrian H. Graff, Esq.Cynthia A. Groszkiewicz, MSPA, QPAJoan A. Gucciardi, MSPA, CPCBeverly B. Haslauer, CPC, QPAMartin M. Heming, APMRichard A. Hochman, APM

Craig P. Hoffman, APMJames E. Holland, Jr.R. Bradford Huss, APMRobert M. Kaplan, CPC, QPAWilliam G. Karbon, MSPA, CPC, QPANewell W. KimlinCharles J. Klose, FSPA, CPCRoger Kuehnle

Norman Levinrad, FSPA, CPCKevin MasushigeG. Neff McGhie, III, MSPA

Scott D. Miller, FSPA, CPCCraig Moore

Linda R. MorraKurt F. Piper, MSPAMichael B. Preston, MSPAAlice J. PullinFredrick C. Reish, APMRobert W. RidleyStephen H. Rosen, MSPA, CPCLawrence C. Starr, CPCGeorge J. Taylor, MSPASal L. Tripodi, APM

William L. Warburton, APMS. Derrin WatsonJanice M. Wegesin, CPC, QPA

Gold SponsorManulife Financial

Silver SponsorNewkirk

Bronze SponsorsCal-SuranceLincoln Retirement

Financial Services

ExhibitorsAccudraftActuarial Systems

CorporationCal-SuranceCharles Schwab Corporate

ServicesColonial Surety CompanyDatair Employee Benefit

Systems, Inc.The HartfordINGInternal Revenue Service—

TE/GEInvestLink

Lincoln Retirement FinancialServices

Lynchval Systems Worldwide,Inc.

Manulife FinancialNewkirkPenChecks, Inc.QDRO Pros, Inc.SunGard CorbelTransamerica Financial

ServicesTravelers Life and AnnuityUS Department of Labor—

EBSA

Thanks to ASPA’s Summer Conference Sponsors

2003 ASPASummer

ConferenceCommittee

Nicholas J. White,APM, Chair,

Los Angeles, CA

Alex M. Brucker,APM,

Los Angeles, CA

Elizabeth A.Deutsch, CPC,

QPA,Fallbrook, CA

Patricia L.Marquis, QPA,Antioch, CA

William J.Sheffler, MSPA,San Diego, CA

ASPA

Sum

mer

Conf

eren

ce 2

003

THE ASPA JOURNAL


EDUCATION IS KEYIt was education that drove the baby boomers tosave, save, save. It will continue to be educationand the quality of your relationships that fill theadded value void. But the educational focus mustchange and move into the new market reality. Andyou may need to change your approach and per-haps acquire some new skills.

• Change Your Mindset—Are you an enroller ora plan provider whose mission is to get peopleinto the plan? Or are you a valuable advisorhelping people secure a life stage that may lastmany years after they leave their employer? Ifyou are the latter, you will need to add to your“save and accumulate” message educationalsessions focused on how to distribute and pro-tect life savings. Adding value requires a moveaway from the singular focus on accumulatingwealth toward a more holistic approach to theemployee and his or her life vision.

• Shift Your Paradigms—Educational effortsmust expand into the new reality. In the old world,“allocate assets” meant “create a strategy for yourinvestment portfolio.” In the new world, it means“create a withdrawal strategy that serves multiplegoals (income, growth, risk management, etc.)”.In the old paradigm, the time horizon was a fixed

point in time—retirement. In the new paradigm,planning for life beyond retirement, the time ho-rizon is a major unknown that people fear and forwhich they also fear they will have no plan. Inthe old world, your practice was retirement plan-ning. Today, value-added retirement plan special-ists practice life planning and are managing $250billion of assets.

Many retail financial advisors are moving in to cap-ture this lucrative market. They have read the num-bers and have seen that the percent of populationover age 55 will double, totaling approximately 100million by 2025, and that population will have savednearly $10 trillion in retirement assets.

Let’s learn from the successful mice, Sniff and Scurry,in Dr. Johnson’s book. Recognize that the retirementplanning world has drastically changed and that someof the best opportunities are in a new location—dis-tribution planning. Sniff out the change and scurryinto action. ▲

Delores R. Freitag is a senior consultant with LIMRAInternational’s training and development staff and thecreator of a new training program for financial advi-sors—LIMRAs Retirement and Distribution PlanningCourse. [email protected]

Retirees Are Moving Your Cheese:Adapting to the New $250 Billion DistributionPlanning Market


THE ASPA JOURNAL


future guaranteed interest accumulation but with-out any future death benefit charges under thepolicy and no future premium payments. This de-termination would cause the accrued benefits, rela-tive to the formula, to be very low in the first year.This depressed accrued benefit would cause theformula for new rank and file employees to tendto be higher than a safe harbor formula, in orderfor a plan to pass nondiscrimination testing. Un-like a non-412(i) Plan, where accruals can be front-end loaded, the 412(i) Plan accrues benefits at anaccelerating rate for the first several years, andthen decreases somewhat in the later years (be-cause of the level premium requirements). For thisreason, reliance on general testing is almost neverfeasible in 412(i) Plans.

Example 2: To illustrate the problem with the Gen-eral Test, consider a plan where the accrued ben-efit pattern might be 2%, 4.5%, 7.5%, 12% (or anaverage of 3% per year in the fourth year). Assumethat in the fourth year of the plan, there is one HCEin his/her fourth year of participation and oneNHCE in his/her first year of participation. TheGeneral Test would require that the NHCE have apolicy with a formula equal to approximately 150%of the HCE’s formula in order for the EBAR in theNHCE’s first year to match up with the EBAR forthe HCE. While this may be possible, it would gen-erally seem to be counterproductive because theNHCE would have a higher benefit than in a safeharbor plan. The benefit for the NHCE could notbe subsequently lowered without violating thelevel premium requirement [or alternatively, the1.401(a)(4)-5 requirement].

MISCONCEPTIONS IN THE MARKETPLACEAggregating Plans for Compliance Testing DoesNot Work

When testing a plan for compliance with eitherCode Section 401(a)(4) or Section 410(b), the planmay be aggregated with other plans [Treas. Reg.sections 1.410(b)-7(d) and 1.401(a)(4)-13]. How-ever, if a plan is aggregated with another plan todemonstrate compliance with one section, then itmust also be aggregated with that plan to demon-strate compliance with the other section. For ex-ample, if two plans are aggregated to pass Section410(b) of the Code, then the plans must be aggre-gated for purposes of determining whether theplans satisfy Section 401(a)(4) of the Code. Thereare certain restrictions on aggregations of plans[for example, the other plan cannot be a 401(k)

plan or an ESOP], which are not relevant to thisarticle [Treas. Reg. 1.410(b)-7(c)].

Example 3: Assume that an employer has 20 em-ployees, five of whom are HCEs. The plan spon-sor has two plans, a defined benefit plan (DB) anda profit sharing plan (DC). The DB plan covers thefive HCEs and five of the NHCEs. The DC plancovers the remaining 10 NHCEs. The DB plan sat-isfies Section 401(a)(26), because it covers 50%of the employees. However, the DB plan fails the70% Ratio Percentage Test, because the Ratio Per-centage is 33.33% [(5/15)/(5/5)]. In addition, as-sume the DB plan fails the NondiscriminatoryClassification Test. If the DB plan is combined withthe DC plan, the aggregated plans now have a Ra-tio Percentage of 100% [(15/15)/(5/5)] and passthe 70% Ratio Percentage Test.

There are no restrictions in Code Section 410(b)that prohibit the aggregation of plans where oneof the plans is a 412(i) Plan. Therefore, it is clearthat a 412(i) Plan could be aggregated with a non-412(i) Plan, including a profit sharing plan, in or-der to demonstrate compliance with 410(b).

However, aggregating a 412(i) Plan with a non-412(i) Plan creates problems under Section401(a)(4). In order for a plan to satisfy the401(a)(4) safe harbor, the same formula must ap-ply to all employees in the aggregated plans [Treas.Reg. 1.401(a)(4)-3(b)(2)]. But, where one plan isa 412(i) Plan and the other plan is a non-412(i)Plan, the plans will not share a common formulaand, thus, cannot satisfy the safe harbor. There-fore, either a 412(i) Plan must be able to pass theSection 410(b) test without aggregation with an-other plan, or the aggregated plans must pass theGeneral Test.

When a plan is tested for compliance with Sec-tion 401(a)(4), all of the plan’s benefits, includ-ing ancillary benefits, such as life insurance, aresubject to testing [Treas. Reg. 1.401(a)(4)-4(a)].If an ancillary benefit is available on differentterms to different employees, then each level ofavailability must be tested separately [Treas. Reg.1.401(a)(4)-4(e)(2)]. This is taken so far that theactual policy series and other terms of the policyare considered a benefit, right, or feature [Treas.Reg. 1.401(a)(4)-3(b)(5)(vii)]. (In other words,the use of a different policy series could be acause for discrimination.) If a 412(i) Plan is com-bined with a defined contribution plan, there isno way to provide the death benefit in the defined

Issues with 412(i) PlansContinued from page 12

§412

(i)

§4

12(i

)

THE ASPA JOURNAL


contribution plan on the same terms as in the412(i) Plan. More specifically, in the 412(i) Plan,the death benefit is in addition to the benefit oth-erwise provided. In the defined contribution plan,the account would be reduced by the cost of thedeath benefit. This was the position stated byJames Holland of the IRS at the 2003 Los Ange-les Benefits Conference. Each level of benefit,right, and feature must be currently available toa group of employees that satisfies Section 410(b)[Treas. Reg. 1.401(a)(4)-4(b)] and must be effec-tively available to a group of employees that doesnot substantially favor HCEs [Treas. Reg.1.401(a)(4)-4(c)]. In essence, the 412(i) portionof the aggregated plan would have to satisfy therules on a stand-alone basis, because it is basi-cally impossible to combine a 412(i) Plan with anon-412(i) Plan and satisfy Treas. Reg.1.401(a)(4)-4. Ultimately this leads to the con-clusion that, while a 412(i) plan could be aggre-gated with another plan to satisfy Section 410(b),that aggregation would cause the plan to fail Sec-tion 401(a)(4).

Another instance of violation of this rule wouldbe purchasing whole life insurance (or some other,more favorable insurance contract) for one groupof employees, which consists of primarily own-ers, and term insurance (or some other less fa-vorable contract) for the balance of theemployees. Even if this difference was justifiedbased on a threshold level of insurance, or a ser-vice requirement such as five years of service toreceive the whole life insurance, this policy dif-ference would be subject to testing under1.401(a)(4)-4. The concentration of owners in thebetter benefit would inevitably cause the plan tofail to be qualified.

A 412(i) PLAN CANNOT BE FUNDED SOLELY WITHLIFE INSURANCEIn addition to Code Sections 401(a)(4),401(a)(26), and 410(b), there are other rules thatall qualified plans, including 412(i) Plans, mustsatisfy. One such rule is that a qualified pensionplan must exist primarily for the payment of ben-efits after retirement [Treas. Reg. 1.401-1(b)(1)(i)]. A qualified pension plan is notprohibited from providing certain other benefits,known as ancillary benefits, prior to retirement.However, the types and levels of ancillary ben-efits are limited. A pre-retirement death benefitis an ancillary benefit that can be provided by aqualified pension plan.

A typical 412(i) Plan is funded with a combina-tion of life insurance and annuity contracts. In aseries of revenue rulings, the IRS has providedrules for determining how much life insurance a

qualified pension plan can provide, with the lifeinsurance benefit still being ancillary. This rule issometimes called the “incidental death benefitrule.” The incidental death benefit rule is summa-rized in Revenue Ruling 74-307, which generallyprovides that no more than 25% of the total costof the plan’s benefits for a participant can be usedto purchase life insurance.

There are three ways in which Revenue Ruling 74-307 indicates that a defined benefit plan (wherethe only ancillary benefit is a pre-retirement deathbenefit) can comply with the incidental death ben-efit rule:

1. If the plan purchases term insurance, the costof insurance can be up to 1/3 of the cost of theplan’s retirement benefit, without regard to theancillary death benefit, because then the costof the ancillary benefit would be less than 25%of the total cost;

2. The death benefit, provided by the insurance,can be equal to 100 times the anticipatedmonthly retirement benefit provided by the planat retirement (even if insurance premiums forvarious participants exceed the 25% rule); or

3. If the plan purchases whole life insurance, thecost of insurance can be 2/3 of the cost of theplan’s retirement benefit, without regard to theancillary benefit, and still be considered to beless than 25% of the total cost. This calculationis based upon the presumption that, during theperiod of funding the plan, one-half of the costof the policy goes to building cash value to fundthe retirement benefit and one-half goes to thecost of the death benefit. Since ½ of the totalpremium is the cost of the death benefit, ½ of2/3 equals 1/3, which, as stated in paragraph 1above, satisfies the 25% rule. For this purpose,an interest sensitive policy, such as universallife, would not be considered to be a whole lifeinsurance policy, and thus would be subject to1 or 2 above.

On a number of occasions, the IRS has stated thata plan funded solely with life insurance is not aqualified plan, because the death benefit will ex-ceed the incidental death benefit rule (see, in par-ticular, Rev. Rul. 81-162). In addition, Section401(a)(2) of the Code requires that the assets of aqualified plan be held for the exclusive benefit ofthe employees. However, a 412(i) Plan funded ex-clusively with life insurance could easily have as-sets, on the death of a participant, in excess of theamount required to provide the Plan’s retirementbenefits for the remaining participants (particu-larly if there are no other participants). Since ex-cess assets would be for other than providing the

§412

(i)

THE ASPA JOURNAL


benefits under the plan (for example, they may re-vert to the employer or be transferred to anotherplan) a 412(i) Plan funded exclusively with lifeinsurance will violate the exclusive benefit rule.

Notwithstanding the foregoing, some have arguedthat there are circumstances under which a plancan justify the purchase of excess life insuranceand still qualify under Code Section 401(a). How-ever, the plan must have a legitimate reason forpurchasing such excess insurance. For example,if the plan realized a savings (because of bandingrules), or, if the plan had a legitimate insurable risk,it might be able to justify the purchase of addi-tional insurance.

However, it does not seem likely that a one-per-son plan could justify that excess insurance isneeded to provide benefits to participants. Insur-ance on the life of the lone participant in the planwould provide funds in excess of the participant’sbenefit under the plan. Since there are no otherparticipants to receive the funds, the additionaldeath benefit would not be related to providingretirement benefits under the plan.

If there is more than one participant in the plan, itmight be possible to make an argument that, uponthe death of a principal, there is a risk that the ben-efits of other participants will not be funded. Insuch a case, it would seem that at an absolute out-side, the maximum amount at risk is the cost offunding the benefits for the remaining participants.More likely, the limit is the amount of the unfundedaccrued benefits. Of course, in a 412(i) Plan, bydefinition there are no unfunded accrued benefitsbecause, under Section 411(b)(1)(F) of the Code,the accrued benefits in a 412(i) Plan are the cashvalue of the contracts.

To take the issue one step further, assume that thepurchase of additional insurance could be justi-fied in a plan with multiple participants. What hap-pens if the insured participant does not die? If theintent is to allow the participant to take the policyfrom the plan, in any form, then that right to con-vert is a benefit, right, and feature of the plan un-der Treas. Reg. 1.401(a)(4)-4(b)(1). As pointed outabove, that regulation requires that any benefit,right, or feature of a qualified plan be provided toa group of employees that satisfies, among otherrequirements, Code Section 410(b). Therefore, thesame right (i.e., the conversion of a policy in ex-cess of the maximum allowable death benefit) mustbe provided to a sufficient number of rank and fileemployees. In order to provide that right, the planmust also purchase excess insurance for the rankand file employees. But, a plan probably cannotjustify the purchase of excess insurance on therank and file. Therefore, while a plan with NHCEs

may justify the purchase of excess insurance on aparticular participant, it would not be possible forthat participant to receive any of the death benefitor to take (directly or indirectly) the policy fromthe plan.

SPRINGING CASH VALUES AND OTHER SIMILARPOLICIESNow assume that a plan purchases life insurancewith the intent to distribute the policy to a partici-pant after five years. Assume further that the cashvalue of the policy significantly increases shortlyafter the participant takes the policy from the plan.The purpose of this transaction is to transfer valuefrom the plan to the participant, with a large por-tion of the value of the policy escaping taxation.Understanding this transaction requires the discus-sion of two issues. The first is the value of thepolicy and the second is the transfer of an assetfrom a qualified plan to a participant.

Under Code Section 402(a) [Treas. Reg. 1.402(a)-1(a)(iii)], the transfer of a policy from a qualifiedplan to a participant is a taxable event and the valueof the transaction should reflect the market valueof the policy. For years, it was assumed that thecash value of the policy represented the value ofthe transaction to the participant. But, in Notice89-25 (Q&A 10), the IRS questioned whether thetrue value of a policy might be something otherthan the cash value of the policy. In Notice 89-25,the IRS described, as an example, a policy wherethe reserves of the policy exceeded the policy’scash value at the point of distribution. The IRS saidthat as a result, the reserves should be used as thevalue of that policy rather than the cash value.

Notice 89-25 gave rise to the term “springing cashvalue.” The example in Notice 89-25 was not meantto be exhaustive. The IRS reserved the right to useother measures of the value of a life insurancepolicy. The IRS has suggested that the value, insome instances, should reflect the cost of a singlepremium policy similar to the distributed policy,which should be about equal to the sum of the pre-miums paid. [See IRS examination guideline355(3)(e) as published in IRS Announcement 94-101.] The important point is that it is no longersafe to rely on cash value as a measure of fair valuejust because cash values happen to parallel “re-serves.” “Springing reserves” are just as suspectas “springing cash values.”

Example 4: In a more pure sense, consider apolicy with a premium of $100,000 for each ofthe first five years of the plan. Further assumethat, in year five, the policy’s reserve is $150,000.Finally, assume that in year eight, the policy (withno additional premiums after the fifth year) has acash value of $400,000. While the question of the

§412

(i)

THE ASPA JOURNAL


value of the policy may be complicated, it is dif-ficult to argue in today’s investment environmentthat a policy guaranteed to have a value in yeareight of $400,000 could have a value in year fiveof less than $350,000. This scenario would meana guaranteed rate of return of 4.55%. Yet, in thisexample, the year-five value is not $350,000, buta mere $150,000.

DISTRIBUTING A LIFE INSURANCE POLICY FROM APENSION PLANAnother issue, in addition to the proper valuationof the policy, is simply the distribution of a lifeinsurance policy from a qualified plan. Distribu-tions may occur either while the participation isongoing or after a “distributable event,” such astermination of service, termination of the plan, orattainment of retirement age. If the plan is ongo-ing, the transfer of a policy for less than an accu-rate “market value” creates serious problems.Prohibited Transaction Exemption 92-6, issued bythe Department of Labor, provides the rules for thesale of certain plan assets to a participant. PTE 92-6one line requires that the plan be in the same cashposition after the sale as it was before the sale. Inaddition, it says that the ERISA fiduciary standardsapply. If a plan sells an asset, guaranteed to beworth $400,000 in three years, for $150,000, theplan is not in the same cash position after the trans-action as before. In addition, this transaction wouldbe a clear violation of ERISA’s fiduciary rules.ERISA’s fiduciary rules require that transactionsbetween a plan and a party-in-interest, such as theshareholder/employee of the plan sponsor, be at“arms length”—in other words, in a similar man-ner as if the transaction were with an unrelatedparty. However, it is unlikely that an unrelated party

could purchase an asset guaranteed to be worth$400,000 in three years, for only $150,000. Fur-thermore, one of the conditions of PTE 92-6 is thatthe contract would, but for the sale, have been sur-rendered by the plan. It seems ludicrous to sug-gest that it would be prudent to surrender, for$150,000, a contract scheduled to increase in valueto $400,000 in just three years without further pre-mium payment.

If a policy is “purchased” from a 412(i) Plan, theplan may no longer qualify under Section 412(i).This raises the issue of the conversion of a 412(i)Plan into a non-412(i) Plan. Such a conversion istreated as a plan amendment subject to Code Sec-tion 411(d)(6). Under Section 411(d)(6), benefitsmay not be reduced as a result of a plan amend-ment. The IRS has made it clear that a participant’saccrued benefit includes all future benefit pay-ments that the participant would be entitled to, ifthe participant were credited with no additionalservice other than vesting service. Prior to theamendment, the participant was entitled to thepolicy’s cash value of $400,000 in three years.Thus, the accrued benefit after the amendmentwould have to account for this amount, plus allother guaranteed benefits in the combination ofpolicies prior to the amendment. To avoid “back-loading” in the accruals, the accrued benefit afterthe conversion may have to be raised. In turn, thisrise in accrued benefit may cause issues under401(a)(4), in particular 1.401(a)(4)-5.

In Notice 89-25, the IRS stated that if the marketvalue of a distributed policy exceeds the consid-eration paid for the policy, the excess would betreated as a distribution. If there was no distribut-able event, any amount of excess could cause plan

§412

(i)

THE ASPA JOURNAL


disqualification. In addition, if the sum of the ben-efit after the conversion, plus the value of the dis-tribution (i.e., the excess of the true value over thevalue used) exceeded the limits of Code Section415, this circumstance could also trigger plan dis-qualification.

If there is a “distributable event,” such as plan ter-mination, then distribution of a policy can be putin a completely different light. First, the conver-sion issue is moot since there is no conversion. Thefiduciary issues also appear to be moot, becausethe “value” of the benefit to be paid from the planwould equal the “value” of the policy. An argu-ment could be made that the law simply indicatesthat the accrued benefit is the “cash value” of thepolicy, and, by distributing a policy with a current“value” exceeding the current “cash value,” thedistribution was too high. But the counter argu-ment that was apparently the congressional intentwas that whatever the policy provided would bewhat the participant was entitled to—and the IRSposition on the definition of accrued benefit—andthat the accrued benefit would include the futurehigher cash value, seems more persuasive.

Therefore, in the case of a “distributable event,”the issues seem to be narrowed to those in Notice89-25. In particular, how much should the par-ticipant include as income and does the distribu-tion exceed the 415 limits? The issue of theamount taken into income is basically the cor-rect value of the policy, and this issue has alreadybeen examined. The issue of the 415 limits canbe very fact dependent. Consider the situationwhere the participant is at retirement when thepolicy is distributed. In this event, an argumentcould be made that, since the value of the policyat distribution is exactly equal to (or less than)the amount necessary to provide the 415 limit,the participant is free and clear after the distri-bution. But, under Treas. Reg. 1.415-3(a), if thepolicy, at any time, could (directly, or indirectly)provide a benefit in excess of the 415 limit, thenthe distribution of the policy would exceed suchlimits. Therefore, in order to distribute the policy,the policy must prohibit the payment of anyamounts in excess of the 415 limit, which in turnwould prohibit the participant from receiving (di-rectly or indirectly) the benefit of the jump in cashvalue (assuming the value before the jump wasat the 415 limit). It is also important to rememberthat the 415 limit is reduced for years of partici-pation less than 10 and for payments prior to age62. In addition, all of the plan sponsor’s definedbenefit plans (including, most notably, prior pay-ments under prior plans) are aggregated for pur-poses of determining the benefit for 415 purposes.

Of course, installing a plan with the intent of ter-minating in five years can have its own set of prob-lems. Under Treas. Reg. 1.401-1(b)(2), a plan mustbe intended to be permanent in nature. UnderTreas. Reg. 1.401-1(b)(3), a plan that was intendedto last only five years could be at risk of retroac-tive disqualification for violation of this rule.

FLOOR OFFSET PLANSAnother topic of interest is whether a 412(i) Plancan be part of a “floor offset” plan. In a floor off-set plan, the benefits provided by the combinationof a defined benefit plan and a defined contribu-tion plan are the better of the defined benefit planformula and the defined contribution plan benefits.To accomplish this, the benefits in the defined ben-efit plan are reduced by the actuarial equivalentof the defined contribution account balance.

Example 5: Assume a defined benefit plan pro-vides a benefit of 2% of pay per year of serviceand a defined contribution plan provides an allo-cation of 5% of pay. When the benefit from thedefined benefit plan is paid, the benefit is the 2%of pay benefit reduced by the actuarial equivalentof the defined contribution account balance. Thus,if the defined contribution benefits are larger, thenthe participant will receive only those benefits. Ifthe defined benefit benefits are larger, then thedefined benefit plan will provide the additionalbenefit, so that the sum of the benefits under thedefined contribution plan and the defined benefitplan equals the defined benefit formula, prior tothe offset.

In a 412(i) Plan, this becomes very problematic.The accrued benefit before the offset is the cashbalance of the policy. But what policy? Whatwould have to be done is that a hypothetical policyis issued. The cash value of this hypothetical policyis determined. The accrued benefit is then the dif-ference between the hypothetical policy and theaccount balance. An actual policy would then haveto be found that has a level premium, but a cashvalue that follows the correct pattern. An argumentcould be made (but it is probably not a good one)that the premiums could be adjusted to reflect theups and downs of the investment earnings in thedefined contribution account. If the participantchooses not to take a distribution upon termina-tion, this would require continued adjustments inthe policy after termination.

The illustration on page 27 is based upon a policywith no loads, no death benefit (other than the cashvalue), and an internal rate of return of 3%. The prob-lem mathematically is that since the pattern of thegrowth on the real and the hypothetical policy mustbe the same, then so must the increase in the ac-count balance. Since this will not occur, the plan

§412

(i)

THE ASPA JOURNAL


either will not conform to the requirement for theaccrued benefit to equal the cash value, or it willnot conform to the requirement for the premium tobe level. This problem gets much worse when deathbenefit charges and policy loads are added to thepolicy. This scenario would also still have the ben-efits, rights, and features problem discussed earlier.

CONCLUSIONThe requirements for qualification under Section412(i) are strict, and failure to adhere to these re-quirements can have adverse consequences forboth the professional and his or her client. Thereare promoters in the marketplace who aggressivelystretch the limits of Code Section 412(i) to thebreaking point. The prudent advisor will designplans that conform to the Internal Revenue Codeand the regulations thereunder.

Representatives of the Internal Revenue Servicehave indicated, informally, that they are aware ofthe egregious practices currently taking place.They state that they plan to take action to bringthese practices to an end. Further guidance shouldbe available soon, possibly even available al-ready as you are reading this article. Practitio-ners need to be aware of the issues and advisetheir clients accordingly.

ENDNOTESExcludable Employee: An Excludable Employeeis defined in Treas. Reg. 1.410-b(6) generally aseither an employee who does not meet the plan’sage and service requirements, who terminated withless than 500 hours (and didn’t benefit from theplan), or is a union employee.

Non-excludable Employee: An employee who isnot an Excludable Employee.

EBAR: Benefit Rates (EBAR) are used in variouscalculations [Treas. Regs. 1.401(a)(4)-2(c),1.401(a)(4)-3(d), 1.401(a)(4)-8(b), 1.401(a)(4)-8(c), 1.401(a)(4)-9(b), and 1.410(b)-5]. The EBARis generally the employee’s benefit, expressed asa percentage of pay, determined on either a ben-efit or allocation basis.

Ratio Percentage: Ratio Percentage is the ratio(as a percentage) of the percentage of non-exclud-able NHCEs benefiting under the plan to the per-centage of non-excludable HCEs benefiting underthe plan [Treas. Reg. 1.410(b)-9].

ABP: The Average Benefit Percentage (ABP)is the ratio (as a percentage) of the average ofthe EBARs for all non-excludable NHCEs to theaverage of the EBARs for all non-excludableHCEs. ▲

Lawrence Deutsch, MSPA, EA, MAAA, has been prac-ticing as an actuary since 1976. Larry is a frequentauthor for technical articles in professional journalsand a frequent speaker at professional meetings. Aspresident of Larry Deutsch Enterprises, Larry is respon-sible for the running of the corporation, maintainingthe actuarial programs that are used by his clients,and providing actuarial and pension consulting ser-vices to clients.

Raymond G. Ankner, MSPA, president and CEO of CJAand Associates, is a member of ASPA and of theAcademy of Actuaries. He has been active in thepension business for 30 years.

The Mathematics of the Policy

1 2,879 2,879 1,200 1,200 1,679 1,562 1,562 2 2,879 5,844 1,200 2,460 3,384 1,562 3,171 3 2,879 8,897 1,200 3,783 5,114 1,562 4,828 4 2,879 12,043 1,200 5,172 6,871 1,562 6,535 5 2,879 15,283 1,200 6,631 8,652 1,562 8,293 6 2,879 18,620 1,200 8,162 10,458 1,562 10,104 7 2,879 22,057 1,200 9,770 12,287 1,562 11,969 8 2,879 25,598 1,200 11,459 14,139 1,562 13,890 9 2,879 29,244 1,200 13,232 16,012 1,562 15,868 10 2,879 33,000 1,200 15,093 17,907 1,562 17,907

Defined Defined RequiredYear Hypothetical Hypothetical Contribution Contribution Cash Required Real Cash

Premium Cash Value Allocation Account Value Premium Value

THE ASPA JOURNAL


Welcome New MembersWelcome and congratulations to ASPA’s

new members and recent designees.

FSPA

Edwin L. McNamara Jr.

MSPA

Peter D. AustinCarol A. Caruthers

Jack C. ChinScott R. McHenry

CPC

Todd J. BramhallJill S. Dennis

Michael G. IbrahimGregg S. IngersollLuann JohnsonLori L. Larson

Edwin L. McNamara Jr.Erin D. Patton

Richard M. PerlinMelissa D. SandbergBarbara A. Wuertz

QPA

Mitchell A. BelowTodd J. Bramhall

John R. CottermanAndrew T. DiciaccioCarol A. EdelsteinJames V. EspositoJennifer A. GarrelsBrian A. Gordon

Lihong GuoLynn S. Harden

Trevor A. KnisbeckLeigh A. Lewis

Alana R. McClenathanTony D. Redding

Kimberly A. RobertsAmy R. Rochford

Thomas E. RogowskiBarbara RozyckiGlenn SchweitzerDaniel J. Stoltz

Joseph E. TabellaGrace B. Zontini

QKA

Amy J. AllenJefferson S. BrownJeffrey M. Burdick

C. Kurt CoxSusan D. DavidsonJoan C. DawsonJohn R. Dean

Thomas E. DewittAndrew T. DiciaccioDorothy J. DittonMargaret M. EckleyPamela G. Frazzitta

Mark C. GardnerKaren K. GarnerChristine M. Hall

Jennifer M. HarrisonLeslie B. HartCarl T. Helton

Jessica A. HenricksenJamie D. Hobbs

William A. Hoefling IVWendy A. HugeSheri A.M. Iseri

Annemarie C. KeehnTrevor A. KnisbeckJason R. Koenings

Barry Max LevyJamie L. Miller

Robert K. ParmelyBarbara J. PlutaNathlie S. Ray

Donato ReginaRachel M. Ripp

Amy R. RochfordStacy-Lee M. Rodenkirch

Halcy M. RodneyJoel B. SchumacherGlenn SchweitzerShawn M. ScottRuss A. Sherman

Richard S. Slagle Jr.Jack E. StewartEric J. Strand

Kimberley M. SturgesKristine L. Thomas

Victoria K. TrumbeticJennifer L. WaagJudy L. Walder

Christian A. WalmerDouglas M. Williams

APM

Tracy AhrBradley K. Arends

Margaret R. BernardinWilliam G. EdwardsFletcher C. LarsonElbert R. Nester

Mary Elizabeth SchaafWilliam L. Warburton

Affiliate

Blair T. AlexanderIan H. Altman

Caroline C. AragonNorma BanuelosCarol A. Bielenda

William H. Black Jr.Michael L. Breymaier

Linda K. BrightPreshia I. Broadway

Donna J. BrownTheodore W. Caldwell

Dianne M. ClarkNancy J. Clark-Smith

Linda J. CroninNoelle Marie Daley

Chuck DobrowAndrew W. FergusonLeonard L. Garofolo

Phyllis D. GhioJennifer S. GoldbossSilas I. HarringtonMark J. Ivcevich

Tyler S. LangCarol Lloyd

Catherine L. MarshallDana N. Mattiza

Kathy B. MessingaleElizabeth A. Mikkelson

Alicia K. MorrisonMargot Myers

Thomas J. PancheriRichard H. Peeples

Robert RyeAmy M. Rypins

Melodie G. SchauerThomas G. SchendtSandra R. SchodtGary T. Schutte

Johan SeoKevin P. SimesDevon D. Venti

Mitchell D. Waters

THE ASPA JOURNAL


IN-HOUSE SERVICE DELIVERYAnother alternative in offering enhanced servicesis to maintain the recordkeeping and investmenttrading platform in-house rather than, or inaddition to, outsourcing (e.g., providing daily valu-ation services in-house). Interestingly, in ASPA’srecent survey on daily valuation practices, therewas not a clear single reason as to why many ser-vice providers avoid in-house daily valuation.Most sited complexity, cost, and potential tradingliability as their primary reason, as well as satis-faction with outsourcing vendor relationships.

In the not too distant past, in-house daily record-keeping was in fact expensive and labor intensive.Premises-based solutions were the only ones avail-able, and it was difficult to make money. Thank-fully, this has changed dramatically!

Today’s technology now allows providers to offerthe same daily services as larger market players, butat an affordable cost. Automation developmentsmake daily trading an easy proposition with toolsto minimize trading liability. There are a number ofgood daily software products available that offer awide variety of automated trading platforms.An administration firm can typically begin offer-ing daily services with premises-based software foras little as $50,000. Full first-year costs will be morein the $70,000 and up range, but that should includetraining, implementation, and maintenance. Costswill vary considerably depending upon the softwareemployed, existing infrastructure and/or hardwareneeds, the implementation approach used, staffingneeds, and, of course, each individual situation.

ASP—REINVENTING TIMESHAREDelivering enhanced services in-house no longerrequires maintaining premises-based software. Asa result of new technology and the Internet, ASP(Application Service Provider) options are nowavailable. ASP is basically an updated version ofthe old time-sharing model. This approach enablesa user to access and operate software via theInternet that resides on a server somewhere else,without requiring the end user to maintain it. TheASP approach could be used for all applicationsor just some (e.g., plan sponsor and participantaccess may be provided via an ASP with therecordkeeping software maintained in-house).

Today, the ASP model is attractive to those whoare in the process of changing their service deliv-ery (i.e., getting their feet wet) or those who do

not expect much growth. Costs are generally loweras a result of the absence of up-front fixed costsand variable costs that are based on volume. Aswith time-sharing, costs will increase with volume.As a certain critical mass is attained, scalable pre-mises-based solutions may offer greater controland cost effectiveness to support growth.

The most important aspect of in-house delivery isreaching critical mass with regard to assets andplans—the break-even point, where amortized set-up costs and ongoing costs are being covered. Pastthat point, leveraging the technology will enable arecordkeeping firm to increase plans and assetswhile improving profitability by reducing unit costsand increasing revenue. In-house delivery also givesthe provider the intangible benefit of being per-ceived as a bona fide administration firm who hasthe ability to perform and deliver enhanced services.The real challenge is identifying what critical massmeans, as it will differ from firm to firm.

THE NEW BUSINESS MODELFor a moment, think about this: What if it was easyto efficiently and cost-effectively provide en-hanced services in-house? A typical businessmodel might look like this:

• Focus on the most important valued-added ser-vice provided: relationships with clients andkeeping their plans in compliance.

• Create a highly automated technological andprocessing infrastructure that enables efficientexecution and delivery of services to plan spon-sors and participants.

• Offer multiple trading partners, all of whom pro-vide same day trading, access to virtually allmutual funds, revenue sharing, and competitivepricing.

• Diversify by offering outsourcing options tocomplement the in-house delivery system.Outsourcing options are important to round outproduct and service offerings and will be moreappropriate in certain circumstances.

• Develop and maintain relationships with finan-cial advisors and brokers, further adding valueto the services offered.

A critical aspect of this model is capturing avail-able revenue on the assets of all plans from fundcompanies that are more than willing to do so. This

Embracing the Evolution of DefinedContribution Recordkeeping


THE ASPA JOURNAL


logic holds true whether the assets are participantor trustee directed, and applies regardless of theplan type. For example, on a simple trustee di-rected profit sharing plan that has little activity:why not capture revenue sharing on the assets?This additional revenue is commonly used to covertrading costs and help reduce client fees.

In ASPA’s survey on daily valuation trading prac-tices, only 24% said they are trading trustee di-rected plans through their daily trading platform.However, there was a clear correlation in that all24% were high asset respondents. This draws oneto conclude that higher asset administration firmshave figured out the value in receiving revenueon assets from all plans.

In a 2000 McHenry Consulting Group survey la-beled “A Survey of Third Party Retirement Ad-ministrators,” 36% of respondents indicated thatsmall case revenue sharing has had an extremelypositive impact on their business activities, 31%reported a somewhat positive impact, and 30%reported a neutral impact (only 3% reported anytype of negative impact). Why miss out on thisopportunity?

Services will vary, but in a different manner thanthey do today. Some examples include:

• Online statements, on-demand, periodic paperstatements, or a combination, which may varyparticipant-to-participant, plan-by-plan. Meth-ods of delivery will vary as well.

• The degree of investment education that is avail-able may vary, and may include individual par-ticipant consulting.

• Investment education may not be emphasizedwhen assets are trustee directed, but some levelof participant access is still provided, and alltrustee investment direction and changes areperformed by the trustee via the Internet.

• All transactional activity is automated—no pa-per requests.

• Coordination with other services your firm mayprovide (additional plans, documents, rolloverservices, etc.) as well as services from financialadvisors.

• And yes, balance-forward recordkeeping hasbeen completely phased out. Daily valuationrecordkeeping supports all of your servicesand enhances the timeliness of compliancetesting results.

“Ah…so the point of this article is to promote dailyvaluation, right?” No, not at all. All assets underthis new business model will be valued daily, re-gardless of trustee/participant direction. As refer-enced earlier, ‘daily’ is nothing more than arecordkeeping method, just one small componentleading to a much broader strategic goal. The con-cept is far beyond daily valuation. It is adaptingcurrent business models by:

• Implementing and leveraging technology to fullyautomate day-to-day recordkeeping tasks—theroutine aspects of what happens every day. And,having one way of performing those tasks forall DC plans. Separate daily and balance forwardunits are counterproductive and inefficient;

• Diversifying product and service offerings tobest meet client needs, offering in-house and

Gwen S. O’Connell, CPC, QPA, Named as theRecipient of the 2003 Educator’s AwardThe ASPA Education and Examination (E&E) Committee’s divisional chairs selected Gwen S. O’Connell,CPC, QPA, as the recipient of the 2003 Educator’s Award. Gwen has been a consultant and administrator of

qualified plans for over 24 years. She was a member of ASPA’s E&E Committee formany years, most recently serving four years as General Chair. She is currently onthe ASPA Conference and Membership Committees. Gwen is a member of the Na-tional Association of Actuaries and Consultants, Inc. She is a frequent speaker onpension topics and is an authorized instructor for ASPA and the American College.

On the basis of her dedication to education, ASPA is proud to honor and present Gwenwith the 2003 Educator’s Award. Gwen will receive her award on Sunday, October 26,during the Business Meeting at the 2003 ASPA Annual Conference.

Past recipients of the Educator’s Award include Charles J. Klose, FSPA, CPC; JaniceWegesin, CPC, QPA; David B. Farber, MSPA; Cheryl Morgan, CPC; Sal L. Tripodi,APM; and Joan Gucciardi, MSPA, CPC. ▲

THE ASPA JOURNAL


outsourced DC options (let us not forget DBoptions as well!);

• Maintaining the potential to receive availablerevenue sharing on an entire asset base and work-ing with financial advisors and brokers; and

• Focusing on the quality of client relationshipsand the expertise brought to the table to keeptheir plans in compliance.

The result of this new model is improved produc-tivity, cost effectiveness, increased revenue, andemphasizing high quality personalized service,which ultimately leads to client retention and sat-isfaction. Quite simply, doing more for less, whichis exactly what clients are looking for. A win-winproposition any way you look at it.

Many firms are moving towards this new model.They are choosing to answer the question, “Howdo we deliver—and do it profitably?” rather than“Can it be done?” However, many larger compa-nies (e.g., insurance companies) have encoun-tered a fundamental problem they have yet toovercome: the cost of their infrastructure and lay-ers of management. So far, many remain competi-tive, but many are dropping out, unable to breakthrough their cost structure. This dilemma givessmart, smaller, and nimble companies an incred-ible advantage—if they are willing to change andembrace a different business model.

SUMMARYProgressive, forward-thinking pension administra-tion firms have already embraced the new evolu-tion of defined contribution recordkeeping—a newbusiness model that supports enhanced servicesthrough in-house delivery, complimented byoutsourcing options. Not surprisingly, they are ex-periencing success and profitability, albeit notwithout a learning curve and some growing pains.Yet, they are demonstrating technological prow-ess, flexibility, the ability to competitively adaptand meet client needs, and the wisdom to focus onwhat they do best—service their client relation-ships. Never abandon the values and integrity thatbusiness success is built on. Fundamentally chang-ing the way services are delivered, however, canassure continued success. ▲

Robert Long, APM, CLU, ChFC, is currently a productmanager for ASC. With over 25 years in the industry,Bob’s expertise in the daily valuation area includessoftware systems, support, training, and implemen-tation. Bob is a member of ASPA’s E&E Committee(Daily Val/PA-3 committee), a member of ASPA’sMarketing Committee, and he has spoken at ASPA’sSummer Conference.

Robert D. Lebenson,MSPA, Selected as the2003 Henry T. Eidson

Founders Award RecipientRobert D. Lebenson, MSPA, was recently selected as thisyear’s recipient of the Eidson Award. Bob was selected forthis prestigious award based on the significant role he hasplayed in advancing ASPA’s interests and those of the pri-vate pension system.

Please join us in recognizing this exceptional individual atthe awards presentation being held on Sunday, October 26,at 3:15 p.m., at the Washington Hilton & Towers. The awardsceremony is held in conjunction with the 2003 ASPA AnnualConference.

In 1995, ASPA established the Harry T. Eidson FoundersAward to honor the memory of ASPA founder Harry T. Eidson,FSPA, CPC. Eidson was the initial inspiration behind the for-mation of ASPA in 1966. He firmly believed in the impor-tance of a private pension system for the United States andwas committed to building an organization dedicated to pre-serving and enhancing such a system. The Harry T. EidsonFounders Award recognizes exceptional accomplishmentsthat contribute to ASPA, the private pension system, or both.

Previous recipients include: Curtis D. Hamilton, MSPA,CPC, in 2002; Ruth F. Frew, FSPA, CPC, in 2001; Leslie S.Shapiro, J.D., in 2000; Howard J. Johnson, MSPA, in 1999;Andrew J. Fair, APM, in 1998; Chester J. Salkind in 1997;John N. Erlenborn in 1996; and Edward E. Burrows, MSPA,in 1995. ▲

THE ASPA JOURNAL


Focus on ABCs

THE ASPA BENEFITS COUNCIL OF NEW YORK HAD AN EXCITING START THIS YEAR WITH A FILLED-TO-CAPACITY ROUNDTABLEMEETING IN FEBRUARY. THE TOPIC WAS FULLY INSURED [SECTION 412(i)] DEFINED BENEFIT PENSION PLANS. WE HAD TWOINDUSTRY EXPERTS LEADING THE DISCUSSION, BUT THE EXPERIENCED ACTUARIES AND ADMINISTRATORS AROUND THE TABLEADDED ALL THE FIREWORKS! WE ARE HOPING TO REPRISE THIS TOPIC ONCE THE IRS ISSUES ITS PROMISED REGULATIONS.

At our half-day regular seminar meeting in April, wewere fortunate to have Brian Graff, Esq., ExecutiveDirector of ASPA, address the group. The topics in-cluded proposed pension legislation, as well as newlaws and regulations currently taking effect. Consid-ering some of the changes being promoted by the Bushadministration, we all realized how important it is foreveryone at ASPA to get involved with governmentaffairs and support the great lobbying efforts that Brianspearheads.

Our next half-day meeting took place on Septem-ber 23, 2003. Seymour Goldberg, Esq. (noted au-thor and lecturer on retirement distributions) andLeonard Whitman, Esq. (frequent and popularASPA lecturer on estate planning and post-death dis-tributions) headed the panel. As always, there will be

ample time set aside for questions from the attend-ees.

The Board of the ABC of New York has been suc-cessful in recruiting new members recently. Whilemany of the Board members have been loyallyserving since the chapter began several years ago,it is refreshing to have some new insights intoour planning strategies. The current board mem-bers are:

ChairHarvey M. Katz

Meeting Chair/PresidentCathy G. Waxenberg, APM

Co-Membership ChairSteven Greenbaum

Co-Membership ChairSteven Halpern

Co-Continuing Education ChairLeslie M. Laiken, APM

Co-Continuing Education ChairNick Barnwell

Co-Continuing Education ChairMark Badami

SecretaryRachael Salsano-Mazza, CPC

TreasurerJudy A. Lynch, QPA

Events CoordinatorAdam Cantor

For more information about the ASPA BenefitsCouncil of New York, membership registration, andupcoming events, contact Board Chair Harvey M.Katz at (212) 704-0100. ▲

Cathy G. Waxenberg, APM, is on the Board of Directorsof the ASPA Benefits Council of New York. She is anattorney and co-owner/president of Laiken Associ-ates, Inc. in New York City, an employee benefits andactuarial consulting firm. She has practiced in theemployee benefits field as an attorney and consultantfor more than 20 years, specializing in plan design,compliance, and administration.

New York ABC is Active and Growingby Cathy G. Waxenberg, APM

THE ASPA JOURNAL


ASPA Benefits Councils Calendar of Events

Date Location Event Speakers

November 11 Texas Gulf Coast Washington Update Brian H. Graff, Esq.

November 12 Dallas/Ft. Worth Full Day ERISA Workshop Charles Lockwood

November 13 Dallas/Ft. Worth Keeping Current Sal Tripodi, APM

Northern Indiana ABC Reaches Outby Robert J. Toth, Jr.

THE NORTHERN INDIANA ABC WAS FORMED BY A COLLECTION OF FORT WAYNE, INDIANA–BASED BENEFIT PROFESSION-ALS WHO HAD, TWO DECADES AGO, FORMED THEIR OWN LOCAL GROUP CALLED THE ERISA DISCUSSION GROUP. NOWIN OUR THIRD YEAR OF OPERATION AS AN ABC, WE HAVE HAD TWO SUCCESSFUL SAL TRIPODI SEMINARS, SUPPORTEDAND PROVIDED SPEAKERS FOR TWO OF THE INDIANAPOLIS BEST OF GREAT LAKES, HELD TWO REGIONAL TWO-DAY CETRAINING SEMINARS BASED ON THE ANNUAL MEETING TAPES, CONVENED TWO ANNUAL DINNERS/MEETINGS, AND HELDA NUMBER OF SMALLER EDUCATIONAL GET-TOGETHERS WHERE OUR MEMBERS PRODUCED PAPERS FOR ONE ANOTHER ONHOT TOPICS. OUR TRIPODI SEMINARS HAVE BEEN PARTICULARLY SUCCESSFUL, EACH DRAWING OVER 100 PARTICI-PANTS FROM INDIANA, ILLINOIS, MICHIGAN, OHIO, AND KENTUCKY.

Focus on ABCs

We are now seeking to expand our partici-pation further. In an effort to encouragemembership beyond our Fort Wayne roots,we will be holding our next educationallunch approximately 75 miles down theroad in Warsaw, Indiana. Those sessionswill be presented by professionals fromthe northeast Indiana area. Our membersalso continue to actively participate inASPA committees.

The ABC system has been a boon to thebenefit professionals in this area, who uti-lize us as a cost effective way to keep uptheir ASPA CE requirements, and as a fun,local way to keep abreast of happeningsat the national level. We look forward toyears of fruitful association with ASPA. ▲

Robert Toth is the current president of theNorthern Indiana ABC. He is associate generalcounsel of Lincoln National Life in Fort Wayne,Indiana; a member of ASPA’s 403(b) and GreatLakes committees; the Pension Committee ofthe American Council of Life Insurers; theCommittee of Annuity Insurers; the AmericanBar Association’s Tax Section; and the Michi-gan and Indiana Bar Associations.

A Special InvitationABC Cocktail Party

Have you ever wondered what the ABCs are? Have you thoughtabout the role they play in ASPA? Have you ever thought aboutbecoming involved in an ABC or perhaps even starting one in yourown area? The Annual ABC Cocktail Party Reception being heldon Monday evening, October 27, during the 2003 ASPA Annual

Conference in Washington,DC, is a wonderful opportu-nity to meet and mingle withactive ABC leaders andmembers to learn the manybenefits reaped from theABCs. The ABCs serve as anexcellent resource for localnetworking, continuing edu-cation, and professional de-velopment. Come join us tofind out how you can be-come involved!

THE ASPA JOURNAL


Unscramble these four puzzles—one letter to each space—toreveal four pension-related words. Answers will be posted onASPA’s Web site at https://router.aspa.org. Once you have loggedin, place your cursor over the Membership tab in the navigationdropdown menu. Move to Membership Benefits, then click onThe ASPA Journal. The answers are located near the bottom ofthe page.

WORD SCRAMBLE

34

SIDE F

UN

FUN-da-MENTALsQuotable QuotesTo do is to be. — Descartes

To be is to do. — Voltaire

Do be do be do. — Frank Sinatra

If pro is the opposite of con, then what is theopposite of progress? Congress!

—Author Unknown

○

○

○

○

○

○

○

○

○

EmoticonsIn this day and age of email, people with toomuch time on their hands have created“emoticons” to express emotions or to representevents or people. Here are a few that we thought,given the nature of our industry, you might beable to use!

=:-) = Bad hair day

C=:-) = Chez Actuarie

?:-) = Confused

<:-) = Dunce hat

?-( = Sorry, I don’t know what wentwrong

%-) = Stared too long at the monitor

=[:-)= = Uncle Sam

X:-) = Unconscious

BONUS: Arrange the circled letters to form the Mystery Answeras suggested by the cartoon.

Mystery Answer:

To avoid “� � � � � � � � � � � � � � � � �”

PER ALE __ � __ � � �

GET TINS __ � � � __ __ �

GAVE CORE � � � � __ __ __ __

TAN IN FOIL � � __ __ __ � � __ �

THE ASPA JOURNAL


Calendar of EventsASPA CE

Credit

Did You Know?

Conferences

2003

Oct 26–29 Annual Conference 20Washington, DC

Oct 31 Final Registration Deadlinefor Fall Examinations

Nov 1 Registration Deadlinefor Fall Weekend Courses

Nov 1–Dec 15 C-1, C-2(DB), and C-2(DC)Fall Examination Window

Nov 8–9 C Exam Weekend Courses 15Chicago, IL

Nov 21 C-3, C-4, A-4 Postponement Deadlinefor Fall Exams

Dec 1 C-1, C-2(DB), C-2(DC) PostponementDeadline for Fall Exams

Dec 1 Deadline for 2003 Edition PaperExaminations for PA-1 (Parts A and B)and Daily Valuation ($80 grading fee)

Dec 3 C-3, C-4, and A-4 Examinations

Dec 15 Deadline for 2003 Edition PaperExaminations for PA-1 (Parts A and B)and Daily Valuation ($100 grading fee)

Dec 31 Deadline for 2003 PA-1A Online Courseand Online Examination Submission forPA-1 and Daily Valuation

2004

Jan 29–30 Los Angeles Benefits Conference 16Los Angeles, CA

Feb 22–24 401(k) Sales Summit 15Orlando, FL

Did you know that the IRS announced tax relief onAugust 15, 2003, for those hit by the power black-out in the Northeastern United States? The IRS willconsider as timely any tax returns or payments duefrom Friday, August 15, through Friday, August 22,if they were completed by August 22, 2003. Thelaw does not, however, allow the agency to abateinterest on any overdue taxes during this period.

While the IRS cannot extend the time for makingemployment and excise tax deposits, it will waivepenalties on such deposits due during this periodfor affected taxpayers due to reasonable cause, ifthe deposits were made by August 22, 2003. Toqualify for this relief, affected taxpayers should put“NORTHEAST BLACKOUT” in red ink at the top of thereturn relying on this relief.

The full IRS notice is located on ASPA’s Web site athttp://www.aspa.org/archivepages/gac/2003/081503-blackout.htm.

Education

Jan 29–30, 2004 Los Angeles Benefits

ConferenceLos Angeles, CA

February 22-24, 2004401(k) Sales Summit

Orlando, FL

Investment AdvisorSought

ASPA is considering changing investment advisors to invest ASPA’sreserves according to the Investment Policy Statement adoptedby ASPA’s Board of Directors.

If you or your company is interested in responding to a Requestfor Proposal, visit the Web site at www.aspa.org or contact MarcRaffel, Controller, at [email protected].

December 3

C-3, C-4, and A-4Examinations

October 31

Final RegistrationDeadline for Fall

Examinations

December 31Deadline for 2003 PA-1AOnline Course and OnlineExamination Submission forPA-1 and Daily Valuation

November 1–December 15C-1, C-2(DB),and C-2(DC)Fall Examination Window

Instructors NeededASPA is looking for instructors who have taught ASPA courses andactively use PowerPoint in their presentations. The E&E Commit-tee is developing recorded Web courses as an educational trainingtool. It is anticipated that there will be five to eight 100-minuterecorded sessions for each exam that will be available at any timeon the Internet. The instructor will use an E&E PowerPoint tem-plate and work with the exam committee to ensure that coursefollows the exam topics.

Remuneration will be a 15% royalty based on the fees collected forWeb courses DC-1–DC-3 and $1,300 per 100-minute recording forDB, C-3 and C-4 exams.

For more information, visit the Web site at www.aspa.org/edu orcontact [email protected].

Documents

The ASPA Journal - September/October 2003 · 2017-11-02 · THE ASPA JOURNAL SEPTEMBER–OCTOBER 2003 4 Meet Your Colleagues at the Top! 2004 401(k) Sales Summit February 22–24,