1. Copyright © 2006, The American College. All rights reserved. Used with permission. Planning for Retirement Needs The Retirement Field Chapter 2

2. Copyright © 2006, The American College. All rights reserved. Used with permission. Chapter 2: Overview Getting a feeling for the pension business ­ Laws ­ Regulators ­ Professionals and organizations ­ Sources of information

3. Copyright © 2006, The American College. All rights reserved. Used with permission. ERISA Title I - Amends the labor law to ensure the employee’s right to collect promised benefits Title II - Amends the Internal Revenue Code to condition tax benefits on meeting minimum standards Title III - Creates a regulatory framework for ongoing implementation, dividing responsibilities between the DOL and the IRS Title IV - Establishes the Pension Benefit Guarantee Corporation to insure benefit payments from defined-benefit pension plans

4. Copyright © 2006, The American College. All rights reserved. Used with permission. Legislative Changes Taxation of benefits IRAs Maximum deductible contributions Limiting tax deferral Parity Small businesses Affiliation requirements Funding ESOPs Simplification

5. Copyright © 2006, The American College. All rights reserved. Used with permission. Pension Protection Act of 2006 Focus on funding defined benefit plans –Revises minimum funding requirements for 2008 –Creates consequences for seriously underfunded plans –More reporting and disclosure to participants Protect plan participants –DC benefits more portable by more accelerated vesting –DC plans with publicly traded employer securities must give participants opportunity to diversify investments Makes permanent current contribution limits Improve pension system –Validating the cash balance design –Encourage automatic enrollment in 401(k) plans –Mechanism for participant investment advice

6. Copyright © 2006, The American College. All rights reserved. Used with permission. IRS Initial qualification (voluntary) Auditing (Form 5500) Interpretation –Regulations –Revenue Rulings –Private Letter Rulings

7. Copyright © 2006, The American College. All rights reserved. Used with permission. DOL Enforces reporting and disclosure rules (distribution of SPD and SAR) Polices investments –avoid prohibited transactions –prudent –exclusive benefit rule Polices fiduciaries Also interprets legislation

8. Copyright © 2006, The American College. All rights reserved. Used with permission. PBGC Insures defined-benefit plans –excludes professional services organizations with fewer than 25 employees Oversees fund solvency –voluntary termination –involuntary termination Legal interpretation

9. Copyright © 2006, The American College. All rights reserved. Used with permission. Additional Comments Market of private employers includes –corporations –sole proprietors (Keogh plans) –partnerships –nonprofit organizations Master and prototype plan documents Note marketing lists in the text Skim resources materials

10. Copyright © 2006, The American College. All rights reserved. Used with permission. True/False Questions 1. Title I of ERISA protects participants by allowing them to sue fiduciaries in order to collect promised benefits. [2-1] true 2. Disqualifying a qualified plan can have negative tax implications for the employer but not for the participants. [2-2] false 3. ERISA established the top-heavy requirements. [2-1] false 4. The Pension Protection Act of 2006 made significant changes to the funding rules that apply to defined-benefit plans. [2-1] true 5. An individual or corporation that has discretionary authority or responsibility over the administration of the plan is a fiduciary. [2-2] true 6. The PBGC issues advance determination letters regarding the qualified status of plans. [2-2] false

11. Copyright © 2006, The American College. All rights reserved. Used with permission. True/False Questions 7. All defined-benefit pension plans are covered under the insurance program of the Pension Benefit Guaranty Corporation (PBGC). [2-2] false 8. The Internal Revenue Service polices the investment of plan assets. [2-2] false 9. The Internal Revenue Service is responsible for enforcing the fiduciary rules that apply to those who manage plan assets. [2-2] false 10. Many plan sponsors farm out the administrative process to third- party administrators. [2-3] true 11. The Pension Answer Book is an example of a primary reference source. [2-2] false 12. Unfortunately, the IRS and Department of Labor publications are arcane and difficult to read, and are of little use to the financial services practitioner. [2-2] false