1. Planning for Retirement Needs The Retirement Field Chapter 2

2. Chapter 2: Overview Getting a feeling for the pension business ­ Laws ­ Regulators ­ Professionals and organizations ­ Sources of information

3. ERISA Title I- Amends the labor law to ensure the employee’s right to collect promised benefits, reporting and disclosure requirements Title II - Amends the Internal Revenue Code to condition tax benefits on meeting minimum standards (funding, vesting eligibility) 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. Post ERISA Legislative Trends Eliminate special tax treatment –Special averaging treatment –Estate tax exemptions IRAs –No clear trend over the years –Recently many improvements Maximum deductible contributions –Reduction in limits in 1980’s –Increase in limits recently to encourage new plans

5. Post ERISA Legislative Trends Limiting tax deferral –Required minimum distributions 401(a)(9) Parity –Eliminate differences between Keogh (self- employed and corporate plans) Small businesses –Concern for abuses (1980’s) top-heavy requirements –Recently creating incentives to adopt plans

6. Post ERISA Legislative Trends Affiliation requirements—concern that coverage rules were being avoided Funding—require more accelerated funding of DB plans to limit PBGC exposure ESOPs—eliminate some (but not all) tax incentives for ESOPs Simplification—encourage small businesses to establish plans –SIMPLE –Simplified 401(k) requirements

7. IRS Initial qualification (voluntary) Auditing (Form 5500) Interpretation –Regulations –Revenue Rulings –Private Letter Rulings

8. 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

9. PBGC Insures defined-benefit plans –excludes professional services organizations with fewer than 25 employees Oversees fund solvency –voluntary termination –involuntary termination Legal interpretation

10. 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

11. Vocabulary Employee Retirement Income Security Act (ERISA) final regulations proposed regulations temporary regulations revenue rulings private letter rulings fiduciary Pension Benefit Guaranty Corporation (PBGC) third-party administrators (TPAs) master and prototype plans primary sources blue book

12. True/False Questions 1. Title I of ERISA protects participants by allowing them to sue fiduciaries in order to collect promised benefits. 2. Disqualifying a qualified plan can have negative tax implications for the employer but not for the participants. 3. ERISA established the top-heavy requirements. 4. Many of the special rules concerning income tax and estate tax treatment have been repealed since ERISA. 5. The Pension Protection Act of 2006 made significant changes to the funding rules that apply to defined-benefit plans. 6. An individual or corporation that has discretionary authority or responsibility over the administration of the plan is a fiduciary. 7. The PBGC issues advance determination letters regarding the qualified status of plans.

13. True/False Questions 8.All defined-benefit pension plans are covered under the insurance program of the Pension Benefit Guaranty Corporation (PBGC). 9.The Internal Revenue Service polices the investment of plan assets. 10. The Internal Revenue Service is responsible for enforcing the fiduciary rules that apply to those who manage plan assets. 11. Many plan sponsors farm out the administrative process to third- party administrators. 12. The Pension Answer Book is an example of a primary reference source. 13. Unfortunately, the IRS and Department of Labor publications are arcane and difficult to read, and are of little use to the financial services practitioner.

14. Chapter 2 Review 4 Titles of ERISA –Labor –Tax rules –Divide regulation –PBGC Role of IRS Role of DOL Role of PBGC Post ERISA changes –Simplification –Remove some tax advantages –Pension limits –Top heavy –Controlled group –Funding standards