MILLENNIU ISSUE Pension Actuary...dedicated practicing in the profession, and who view retirement...

Actuaries, Consultants, Administrators and Other Benefits Professionals

PensionActuaryTH

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A publication of the American Society of Pension Actuaries Vol. XXX, Number 1 January-February 2000

EFAST: A New Acronym to Remember 3 • Requ i red Min imum Dis t r ibut ionTrans i t iona l Ru les 4 • ASPA ASAPs Cont inue To In form 5 • Hardsh ip

Withdrawals 6 • IRS Re leases GUST Restatement Procedure For PrototypePlans 8 • New Members 11 • E idson Nominat ions 13 • 401(k ) Hardsh ipWithdrawals Check l is t 18 • ABCD’s Commitment to H igh Standards 22

Focus on ABCs 23 • ASPA Then and Now 26 • Ref lect ions of a PastPres ident 27 • Midstates Benef i ts Conference 28 • Bus iness Leadersh ip

Conference 28 • Nor theast Key Conference 28 • Workshops 29

Focus on E&E 30 • Ca lendar o f Events 31 • PIX D igest 32Continued on page 10

IN THIS ISSUE

More Debate on

Cash Balance

Plansby Brian H. Graff, Esq.

Congress went on recess over theholidays. Unfortunately, the firestormover cash balance plans continued torage on. Congressional staffers andinterested groups, including ASPA,continued to have meetings to discussissues surrounding the cash balanceplan controversy throughout Decem-ber and January. In addition, ASPAworked with the Academy of Actuar-ies to develop an ad for Capitol Hillnewspapers responding to criticism re-ceived by the actuarial profession forits role in the development of cash bal-ance plans and clarifying that the pro-fession supports full and meaningfuldisclosure to all participants. A copyof this ad is reproduced at the end ofthis article.

Frankly, from a substantive stand-point, disclosure is just the beginningof the story. In my view, any pensionlegislation enacted this year wouldhave to contain a package of provi-sions addressing the cash balance con-troversy. At this point, it is almost takenfor granted that the package will in-clude a provision significantly enhanc-ing the notice requirements undersection 204(h) of ERISA. As variousversions of these disclosure bills have

WASHINGTON UPDATE

MILLENNIUM ISSUE

Retirement Plans, Then

and Now, You and ASPAby John P. Parks, MSPA

Held together by cellophane tape and often stretchingupwards of six feet, those green twelve column Account-

ing Work Sheets were symbolic of the actuarial valuation ofDefined Benefit Plans of thirty-something years ago. (I’ll not betoo specific here.) They required days of manual calculations.Those same calculations are now done in a fraction of a secondon my laptop computer which probably represents more comput-ing power than existed in the entire world at that time. Then,annual statements for profit sharing plans, typically were deliv-ered three to six months following the plan year end. Now daily-valued 401(k) plans provide, most typically, quarterly hardcopy statements sent to the participant’s home within a fewbusiness days of the quarter end; these plans often also allowparticipants to optionally create their own statement every-day via access to their account information over the Internet.

Technology and the financial in-dustry have revolutionized the basisupon which this country accumulatesreserves for retirement. Over thirty

years ago, Pensions 101 taught usthat the ultimate in an employer re-tirement program was a simple De-fined Benefit Plan providing

MILLENNIUM FEATURE

2 ▲▲▲▲▲ THE PENSION ACTUARY ▲ ▲ ▲ ▲ ▲ JANUARY -FEBRUARY 2000

The Pension Actuary is produced by the executive director and Pension Actuary Committee.Statements of fact and opinion in this publication, including editorials and letters to the editor,are the sole responsibility of the authors and do not necessarily represent the position of ASPAor the editors of The Pension Actuary.

The purpose of ASPA is to educate pension actuaries, consultants, administrators, and otherbenefits professionals, and to preserve and enhance the private pension system as part of thedevelopment of a cohesive and coherent national retirement income policy.

ASPA members are retirement plan professionals in a highly diversified, technical, andregulated industry. ASPA is made up of individuals who have chosen to be among the mostdedicated practicing in the profession, and who view retirement plan work as a career.

Editor in Chief

Brian H. Graff, Esq.

Pension Actuary Committee Chair

Chris Stroud, MSPA

Pension Actuary Committee

Amy L. Cavanaugh, QPAConstance E. King, CPC, QPARobert M. Richter, APMDaphne M. Weitzel, QPA

Managing Editor

Chris Stroud, MSPA

ASPA Officers

President

John P. Parks, MSPA

President-elect

George J. Taylor, MSPA

Vice Presidents

Joan A. Gucciardi, MSPA, CPCCraig P. Hoffman, APMScott D. Miller, FSPA, CPC

Secretary

Gwen S. O’Connell, CPC, QPA

Treasurer

Cynthia A. Groszkiewicz, MSPA, QPA

Immediate Past President

Carol R. Sears, FSPA, CPC

Ex Officio Member of the EC

Sarah E. Simoneaux, CPC

American Society of Pension Actuaries, 4245 North Fairfax Drive, Suite 750, Arlington, Virginia 22203Phone: (703) 516-9300, Fax: (703) 516-9308, E-mail: [email protected], World-Wide Web: http://www.aspa.org

© ASPA 2000. All rights reserved. ASPA is a non-profit professional society. The materials containedherein are intended for instruction only and are not a substitute for professional advice.

ASPA NEEDS YOUR HELP

The DOL Committee, an ASPA Government Affairs Committee,needs to talk with anyone who has received a subpoena of its records

as part of a DOL service provider audit within the last five years.

As soon as possible, please contactMarty Heming, APM, Esq., at Reish and Luftman

Phone: 310-478-5656 x263Fax: 310-478-5831

E-mail: [email protected]

guaranteed benefits. Upon that wassuperimposed a profit sharing planproviding additional opportunitiesstemming from company successesand investment gains. For the past 10years, Defined Benefit Plans havebeen replaced at an alarming rate byDefined Contribution Plans, espe-cially the 401(k) variety. And in manycases plans simply have not been es-tablished. On the surface, this trendmay not appear to be a scenario ofgreat concern. It has made businessmore competitive; it now gives em-ployees more control over their re-tirement destiny, and there is anatural euphoria when looking at anaccount balance statement that hasshown the kind of investment resultwe have seen for the past 10 years.The problems are, on the other hand,that: (1) The market will make down-ward-adjustments, that is certain, it’sjust a matter of when. (2) Accumu-lations under 401(k) plans are tooreadily available to the participantsprior to retirement – loans, hardship

withdrawals, distributions upon ter-mination of employment, etc. (3) ForBaby Boomers (those born during theyears 1947 to 1965), the accumula-tions may just be too small to pro-duce that standard replacement ratioof 70% to 80% of pre-retirement in-come. In a Chicago Tribune InternetAddition article on January 12th byMelanie Trottman, it was pointed outthat “Very few Boomers have savedenough to pay for a regular span ofretirement, much less a far longerone. The result is that the old three-legged stool of retirement-income

planning – Social Security, pensionsand savings – has been replaced bya new, four-legged model. The fourthleg: work.” The longer span of re-tirement referred to results from in-creasing longevity due to thetremendous recent medical ad-vances.

I believe there are multiple reasonsto question the viability of the fourthleg as an effective solution. One is,will we really retire as late as wethink? If we take a look at The NinthAnnual Retirement Conference

Continued on page 24

TPA Consultant

Stephanie D. Katz, CPC, QPA

Associate Editors

Jane S. Grimm and Amy E. Emery

Technical Review Board

Lawrence Deutsch, MSPAKevin J. Donovan, APMDavid R. Levin, APMDuane L. Mayer, MSPANicholas L. Saakvitne, Esq.

Layout and Design

Chip Chabot and Alicia Hood

JANUARY -FEBRUARY 2000 ▲▲▲▲▲ THE PENSION ACTUARY ▲▲▲▲▲ 3

EFAST: A New Acronym

to Rememberby Gary R. Saake, VP/Systems DATAIR Employee Benefit Systems, Inc.

Question: What do you get when you combine thetransfer of the 5500 program from the IRS to DOL,

outsourcing the project to a private sector contractor, and thensubcontracting it to seven other vendors?

Answer #1: The ERISA Filing Acceptance System, a.k.a.“EFAST.”

Answer #2: A lot of confusion.

Background…

As John Helms, the DOL’s EFASTProject Director, put it, “For 24 yearsthe IRS has been trying to fit the 5500program into a system designed tohandle 1040s, and it just didn’t workvery well.” So, in 1993, the DOL be-gan the campaign to take over respon-sibility for the 5500 program from theIRS. After a false start or two, the DOLis now in control, beginning with 1999plan year filings.

Rather than design, publish, andprocess the forms internally, the DOLdecided to outsource the process to theprivate sector and held a competitivebidding process where two companies,National Computer Systems, Inc.(NCS) and Wang Federal Systems, re-ceived contracts to create mock-upproof-of-concept systems. The win-ner of that competition was NCS, who

was then awarded a contract to pro-vide forms and processing services forthe next 5 years.

While NCS is the primary contrac-tor, they have subcontracted it to sevenadditional companies; the most notablebeing Nelco, Inc., which is responsiblefor form design, and development oftools, specifications, and proceduresfor electronic filing and marketing ofthe EFAST program.

Two types of forms…

Because of the desire for highly au-tomated processing, there will be twodifferent types of forms created eachyear, hand-print and machine-print.

Hand Print (HP) Forms:These are forms that will be com-

pleted by a manual process such as pen,pencil, or typewriter. They are printedwith blue drop-out ink so that they can

be optically scanned. Only originalforms may be used. No photocopiesor downloaded forms may be used be-cause of the blue ink. The DOL is ex-pected to mail the filing packages withthe hand-print forms to plan sponsorsin mid-February 2000.

Machine Print (MP) Forms:These are forms that are completed

by special computer software, such asDATAIR’s Pension Reporter/Windowsand Peak 1’s Hyperprep Windows soft-ware. These forms include a two-di-mensional barcode that contains all ofthe data on the forms. Rather than theactual letters and numbers printed onthe form being read, the data are readby scanning the barcode. In tests, NCShas found that the accuracy of readingthe barcode is virtually 100%. Thatreally matters as they are processing1.2 million 5500 returns, consisting ofover 20 million pages each year. TheDOL released the first phase of speci-fications in mid-January to softwaredevelopers. They expect to deliver thebalance of the specifications betweennow and early April 2000.

Two ways to file…

In addition to the traditional pa-per form filing, the NCS is also


ASPA incorporates as non-profit corporationunder the statutes of the State of Texas. Col.Harry T. Eidson, CLU, is founding Presidentof ASPA. First ASPA office opens in Ft.Worth, Texas.

Harry T. Eidson writes ASPA’s first publica-tion, Actuarial Calculations of the AuxiliaryFund in Pension Plans Utilizing Whole LifeInsurance, and donates it to ASPA.

Eidson’s 1967 publication receives copyrightand is mailed to members, colleges and uni-versities, which starts the process of manypeople seriously studying to become pensionactuaries.

1966 1967 1968

MILLENNIUM FEATURE TIMELINE


Required Minimum Distribution

Transitional Rulesby Warren T. Marshall, J.D., LL.M.

SBJPA modified the definition of the “required beginningdate” (“RBD”) by which a plan participant must com-

mence qualified retirement plan distributions.1 After 1996, for aparticipant other than a “5% owner” (see discussion below) of theemployer, the RBD is the April 1 of the calendar year followingthe calendar year in which occurs the later of separation fromservice or attainment of age 70½. A plan which the sponsoringemployer has not updated for the SBJPA law changes still maycontain the pre-1997 RBD definition. Under the pre-1997 RBDdefinition, the plan had to commence distributions no later thanApril 1 following the calendar year in which an employeeattained age 70½, even if the employee continued working for theemployer. During the “GUST” remedial amendment period forSBJPA and other law changes, an employer has some flexibilitywith respect to the timing of commencement of distributionsafter age 70½ but before the “new” post-1996 RBD. Theremedial amendment period currently ends for most employerson the last day of the 2000 plan year.2 An employer does not needto amend its plan before the end of the remedial amendmentperiod to reflect the post-1996 RBD definition. However, if theemployer wishes to limit distribution options to post-age 70½employees, the employer may want to amend the plan before theend of the remedial amendment period. Practitioners have con-tinued to raise questions regarding the application of the post-1996 RBD definition. This article discusses several options anemployer has with respect to distributions after a participantattains age 70½.

Postponing commencement ofdistributions until an employee’s“new” RBD

An employer may apply opera-tionally the post-1996 RBD defini-tion to employees (other than 5%owners) who attain age 70½ after1995 and have not retired, notwith-standing that the plan’s terms cur-rently require distributions tocommence no later than the April 1of the calendar year following theemployee’s attaining age 70½.3 Theemployer maintains the plan’s quali-fied status by operating the plan inaccordance with the new RBD defi-nition and ignoring the plan’s morerestrictive mandatory distributionprovision, and then amending theplan no later than the last day of theremedial amendment period to incor-porate the new RBD definition.

Example #1. Corporation Xmaintains a qualified 401(k)plan. X has not amended the planfor SBJPA law changes, includ-ing the change in the RBD defi-nition. X wishes to permitemployees who continue em-ployment past age 70½ the flex-ibility to delay commencementof plan distributions as long aspossible. X need not amend itsplan before the last day of the re-medial amendment period, andmay apply operationally the new


James (Kirk) Kirkpatrick is appointed the firstChairman of ASPA’s Educational Committee.ASPA holds its first annual conference atPurdue University with approximately 39 at-tendees. The United States puts the first manon the moon. The Intel Corporation is formed.

ASPA’s membership reaches approximately280 members. Computer-to-computer com-munication expands as Dept. of Defense es-tablishes four nodes on the ARPANET, pavingthe way for development of the Internet.

ASPA authorizes the use of the standardizedabbreviations to appear after the name ofMember (MSPA) or Fellow (FSPA). Inteldevelops first microprocessor; IBM team in-vents the first 8 inch floppy disk.

1969 1970 1971


ASPA ASAPs Continue

To Informby Kevin J. Donovan, APM, CPA

As we enter the year 2000, we enter the 5th year of theASPA ASAP service. As 1999 came to a close so did

another successful year for the program. Our intent is to keepyou up-to-date with late breaking pension developments. Myintent here is to summarize the ASAPs that were producedduring 1999 and to thank the authors for their time and effortsin making the service one of the best information services onthe market today. The following is a discussion of the 1999ASAPs.

1999-1, authored by Fred Reishand Bruce Ashton, was a discussionof the “Best Practices” Memo forWalk-in CAP issued by the IRS;

1999-2, authored by ASPA’s Ex-ecutive Director Brian Graff, was anupdate on the DOL activity in thearea of small plan reporting require-ments;

1999-3, authored by Cheryl Mor-gan, discussed Notice 99-5, theService’s transition rule for hardshipdistributions’ status as eligiblerollover distributions;

1999-4 contained Brian Graff’ssynopsis of the pension provisionscontained in the President’s fiscalyear 2000 budget proposal;

1999-5, authored by TheresaLensander, was a discussion of Rev-enue Procedure 99-13, which in-

cluded an enhancement of the TVCprogram for 403(b) plans;

1999-6, by Kathryn Smith, dis-cussed the court case of Sea RayEmployees’ Stock Ownership andProfit Sharing Plan et. al. v. DanielRobinson, et. al., a case involvinga potential partial termination;

1999-7, authored by Brian Graff,summarized the proposed pension re-form legislation known as thePortman-Cardin bill;

1999-8 was our quarterly ratechart. Each quarter our subscribersreceive a chart showing relevantPBGC and IRS rates for the preced-ing 15 months;

1999-9 was authored by yourstruly and summarized the restructur-ing of the EA exams as set forth inAnnouncement 99-25;

1999-10 was authored by RobertRichter and contained an analysis ofRevenue Procedure 99-23, in whichthe IRS extended the GUST reme-dial amendment period to the last dayof the 2000 plan year;

1999-11, authored by Brian Graff,was an explanation of the USA Ac-count proposal as announced byPresident Clinton (see ASAP 2000-3announcing the death of this pro-posal);

1999-12, authored by the Reish-Ashton team, summarized variousactivities at the DOL, including de-posits of 401(k) deferrals and 401(k)fees;

1999-13 was our rate chart for thesecond quarter;

1999-14, again by TheresaLensander, explained the 403(b) au-dit guidelines as published in theEmployee Plans Examination Guide-lines Handbook;

1999-15, authored by Brian Graff,served as an update on pension reform;

1999-16 by Derrin Watson, dis-cussed the latest in the Microsoft tem-porary/leased employee cases;

1999-17, again by Brian Graff,contained a summary of the pension


ASPA’s membership reaches approximately640. First 5 FSPA designations are earned.The first e-mail message is sent via theARPANET, utilizing @ for addresses.

Original ASPA logo design (central theme ofan abacus) is registered with Patent Office.This abacus logo contains the imbedded nu-meric solution to ASPA’s first “one question”exam problem originally developed to obtainmembership into ASPA.

ERISA. The actuarial certification processand the “Enrolled Actuary” status are created.ASPA’s annual conference at the MayflowerHotel in Washington, DC is attended by ap-proximately 800 people; the conferencetheme: “ERISA – A Whole New Ballgame!”

1972 1973 1974


Hardship

Withdrawalsby Richard Levesque, Milliman & Robertson

The IRS Restructuring and Reform Act of 1998 (RRA ‘98)modified certain aspects of the rules regarding hard-

ship distributions from 401(k) plans. As a result, hardshipwithdrawals of elective contributions from a 401(k) or 403(b)arrangement will no longer be considered an eligible rolloverdistribution. Therefore, they are no longer eligible forrollover into an IRA, and they are exempt from the 20%mandatory withholding tax that applies to eligible rolloverdistributions. The primary reason for this change was toprevent participants from avoiding the 10% early withdrawalpenalty tax by rolling over their hardship distributions into anIRA. The change became effective for any hardship distribu-tion made after December 31, 1998; however, subsequent tothe change in the law, the IRS released Notice 99-5, whichprovided transition relief until January 1, 2000. As a result ofNotice 99-5, sponsors and recordkeepers had the option toprocess hardship distributions during 1999 using either theold or the new rules. This was to give practitioners sufficienttime to update their procedures and systems.

It is important to note that thechange in the law applies to electivecontributions to 401(k) and 403(b)plans only. Any hardship distribu-tions of employer nonelective con-tributions under a profit sharing planor stock bonus plan (including anyemployer match) are still consideredeligible rollover distributions and, asa result, are subject to mandatory

withholding and are eligible to berolled over to an IRA. [Note: Thereis an exception for qualified nonelec-tive contributions (QNECs) andqualified matching contributions(QMACs).]

Since RRA ‘98 has brought ourattention to the administratively bur-densome task of processing hardshipwithdrawals, it may be a good time

to review the hardship rules in gen-eral.

The first consideration when pro-cessing a hardship withdrawal iswhether the participant qualifies fora hardship distribution. This deter-mination is made based on both thespecific terms of the plan and anywritten hardship procedure, as wellas the regulations in this area. Withrespect to hardship withdrawals ofelective amounts, the regulations pro-vide that a distribution may be madeprovided it satisfies the followingfactors:

1. The withdrawal must be on ac-count of a participant’s immedi-ate and heavy financial need.

2. The withdrawal must be necessaryto satisfy the need.

When determining if these stan-dards are met, the regulations [TreasReg 1.401(k)-1(d)(2)] offer two ac-ceptable determinations. Either ofthe following methods can be appliedto each of the two standards. The ac-ceptable determinations are:

• Relevant facts and circumstancestest and

• The safe harbor test.

Under the facts and circum-stances test, the determination ofthe immediate and heavy financialneed is based on all relevant factsand circumstances being consid-ered. A plan that uses this methodshould establish guidelines as abasis for what they would consideran acceptable hardship. The crite-ria for determining whether a hard-ship request is an immediate andheavy financial need should be pre-cise, nondiscriminatory, and in

ASPA moves its office from Fort Worth,Texas to Washington, DC. Joseph P. Leary,Esq., serves as the first Executive Director ofASPA. ASPA’s CPC curriculum is developedand the CPC program begins. Bill Gates andPaul Allen form Microsoft.

ASPA’s membership reaches 1,350. TheUnited States celebrates the “Bicentennial.”The first computerized word processor is in-troduced by Wang Laboratories – price:$30,000.

ASPA offers the first Business Techniquesseminar.

1975 1976 1977


writing. The regulations specifi-cally note that the need to purchasematerial objects such as a boatwould not meet this standard.

When applying the facts and cir-cumstances determination, whetherthe withdrawal is necessary to sat-isfy the need is also determined byconsidering all relevant facts andcircumstances. When making thisdetermination, all financial re-sources available to the employeeshould be considered. This wouldinclude financial resources from aspouse and/or children, as long asthey are readily available to theemployee. A determination wouldneed to be made that the need can-not be satisfied from these sources.Since this determination would in-volve personal insight into theemployee’s finances, the regula-tions allow for a written statementfrom the employee as an acceptablealternative. The written statementshould state that the need could notbe satisfied through any of the fol-lowing means:

1. Reimbursement or compensa-tion by insurance or otherwise;

2. Liquidation of the participant’sassets;

3. Ceasing of elective and/or vol-untary contributions under theplan;

4. Other distributions or nontax-able loans from the plans inwhich the employee partici-pates; or

5. Borrowing from commercialsources on reasonable commer-cial terms.

Under the safe harbor test, thedetermination of the immediateand heavy financial need can onlybe satisfied if the hardship is as aresult of one of the following rea-sons:

1. Payment of medical expenses in-curred by the participant, theparticipant’s spouse, or any ofthe participant’s dependents, aswell as expenses incurred in ob-taining medical care;

2. Costs related to the purchase ofthe participant’s principal resi-dence (excluding mortgage pay-ments);

3. Payment of tuition, related edu-cational fees, and room andboard expenses for the next 12months of postsecondary educa-tion for the participant or theparticipant’s spouse, children, ordependents; or

4. Payment of amounts necessaryto prevent the eviction of the par-ticipant from the participant’sprincipal residence or foreclo-sure on the mortgage of theparticipant’s principal residence.

When testing the necessity stan-dard under the safe harbor test, thestandard is satisfied only if all ofthe following requirements are met:

1. Amount of distribution does notexceed the amount necessary torelieve the financial need;

2. All other distributions availableto the participant, including non-taxable loans from all plansmaintained by the employerhave been made;

3. All plans maintained by the em-ployer provide that the maxi-

mum amount of elective defer-rals the participant may make inthe taxable year following thetaxable year in which a hardshipoccurred is reduced by theamount of elective contributionsmade in the taxable year inwhich the hardship occurred;and

4. The participant is suspendedfrom making elective contribu-tions and/or voluntary contribu-tions to all plans of deferredcompensation, whether or notqualified, maintained by the em-ployer for at least 12 months af-ter the hardship occurred.

If a participant is suspendedfrom making elective contributionsas described above, they would stillbe considered an eligible employeefor purposes of the actual deferralpercentage (ADP) test if theywould be eligible to defer if thesuspension were not in place[Treas. Reg. 1.401(k)-1(g)(4)(i)].

The plan sponsor may adopt ei-ther methodology for either test.For example, if the plan sponsorwants flexibility in stating theavailable guidelines for hardshipsbut wants to avoid a personal re-view of the employee’s finances,the plan should adopt the facts andcircumstances test for the determi-nation standard and the safe harbortest for necessity standard.

Unlike money purchase pensionand defined benefit plans, profitsharing plans and stock bonus planscan allow for hardship distribu-tions. However, non-401(k) hard-ship distr ibutions (includingdistributions of matching amounts

Employee Benefit Research Institute (EBRI)is established as a non-profit, non-partisanorganization committed to economic securityand employee benefits. The 5 ¼ inch floppydisk becomes the standard medium for per-sonal computer software.

After several Executive Directors have servedASPA for short terms, ASPA hires Chester(Chet) J. Salkind, Esq., bringing stability tothe office. VISICALC software hits the mar-ket to automate spreadsheet calculation andsells over 10,000 copies in one year.

ASPA hosts its annual conference in NewOrleans; this is the last year the annual con-ference is held at a site other than Washing-ton, DC. Seagate Technology creates the firsthard drive for microcomputers.

1978 1979 1980



IRS Releases GUST

Restatement Procedure For

Prototype Plansby John P. Griffin, J.D., LL.M. and Charles D. Lockwood, J.D., LL.M.

The wait is over! The Internal Revenue Service finallyhas issued the much-anticipated procedure for the

submission of prototype retirement plans for all GUST lawchanges. Revenue Procedure 2000-20 also addresses theopening of the volume submitter program. While Rev. Proc.2000-20 does not specifically address the submission ofindividually-designed plans, it indicates that the IRS willopen the determination letter program “in the near future.”

The highlight of the procedure isthe special extension of the remedialamendment period that IRS providesto employers that use prototype andvolume submitter plans for theirGUST restatements. This extensionis discussed in detail later in this ar-ticle.

New “Unified” PrototypeApproach

Rev. Proc. 2000-20 consolidatesthe national prototype program andthe regional prototype program intoa single “unified” program.1 Any or-ganization (a financial institution, alaw firm, an accounting firm, an ac-tuarial firm, a third party administra-tor, etc.) that wishes to sponsor aprototype plan for use by its clientswill use the procedures outlined inRev. Proc. 2000-20. The IRS will ad-

minister the unified program out ofits national office in Washington, DC.

The unified prototype programgenerally will utilize the terminologyfrom the old national prototype pro-gram. For example, all prototypesponsors will receive “opinion let-ters” (rather than “notification let-ters” previously issued to regionalprototype sponsors) on their ap-proved plans. IRS will refer to enti-ties that sponsor prototype plans as“M&P sponsors.”2

“Best of both worlds” approachThe unified procedure generally

incorporates the best features of theprior national and regional prototypeprocedures. For example, employ-ers will have the ability under anynonstandardized prototype plan toamend certain trust provisions relat-ing to the plan. Also, the ability to

“pair” a standardized defined benefitplan together with a standardizeddefined contribution plan is availablefor all M&P sponsors.

The procedure retains the prior for-mat for M&P plans. Thus, an M&Pplan will consist of a basic plan docu-ment and associated adoption agree-ments. The basic plan documentcontains the non-elective provisions ofthe plan, while the adoption agreementprovides for the employer electionswith respect to specific plan options.Adoption agreements may be de-signed in the form of standardized,nonstandardized or nonstandardizedsafe harbor agreements.

M&P document requirementsThe revenue procedure outlines in

detail document requirements forM&P plans. Among these require-ments are:

• Uniformity requirement.

Generally, all allocation and benefitformulas in an M&P plan, includ-ing a nonstandardized plan, must beuniform for all participants. Excep-tions are provided for Davis-Baconplans, top-heavy provisions, anduniform points plans. One conse-quence of this requirement is thatan M&P plan cannot provide for a“cross-tested” allocation formula,

1981 1982 1983

ERTA. IBM introduces first PC, utilizing MSDOS as the operating system.

TEFRA drastically changes the small planmarket. Concept of “top-heavy” is intro-duced. ASPA offers Business Techniqueseminars on both East and West coasts forthe first time.

The Internet is born, as ARPANET is splitinto military and civilian sections.


including a “new comparability”or age-weighted formula.3 Spon-sors wishing to utilize a cross-tested formula for their clients willbe required to sponsor a volumesubmitter plan or draft individu-ally-designed cross-tested plans.

• GUST operational complianceprovisions.

An M&P plan must include pro-visions that allow an employer tospecify the method of operationalcompliance during the GUST re-medial amendment period. Theseprovisions can take the form of a“snap-off” section of the adoptionagreement. The entire GUST op-erational section of the adoptionagreement may be “snapped off”for employers that do not need torestate retroactively for the GUSTlaw changes.

• Same testing method in 401(k)M&P plans.

Prospectively, all 401(k) M&Pplans must use either the currentyear testing method or the prioryear testing method for both theADP and the ACP tests. However,throughout the GUST remedialamendment period, an adopter ofan M&P plan need not have beenconsistent with its ADP and ACPtesting methods. (For example, forany plan year within the GUST re-medial amendment period, an em-ployer using an M&P plan couldhave used the prior year methodfor ADP testing, but the currentyear method for ACP testing, orvice versa.) The GUST restate-ment will need to reflect the spe-cific testing methods used duringthe remedial amendment period.

• Safe harbor 401(k) M&P plans.

An M&P plan may allow the adop-tion of safe harbor 401(k) features,which generally allow employers toavoid some or all ADP and ACPtesting. A nonstandardized planmay allow an employer to make thesafe harbor contribution in anotherplan. However, a standardized planmay allow the employer to make thesafe harbor contribution in anotherplan only if it is a “paired plan.”

• No application of family aggrega-tion or Code §415(e) limitation.

An M&P plan may not allow thecontinued application of family ag-gregation or the Code §415(e) limi-tation. However, special accommo-dation is made for plan operationduring the GUST remedial amend-ment period.

• Special rule for standardized plansin merger and acquisition situations.

Generally, a standardized plan mustcover all “nonexcludable” employ-ees of an employer. Now, standard-ized plans may utilize the specialtransition rule under Code§410(b)(6)(C) and avoid possibleplan disqualification for failure tocover all nonexcludable employeesfollowing certain mergers and ac-quisitions.

Timing of Plan Submissions tothe IRS

IRS will begin accepting M&Pplans for review of all GUST provi-sions after a “blackout” period. “Masssubmitters” may submit plans for opin-ion letters beginning on April 7, 2000.Non-mass submitter M&P sponsorsmay submit plans for opinion lettersbeginning May 7, 2000. Volume sub-

mitter plan sponsors may submit speci-men plans for advisory letters begin-ning on March 8, 2000.4

A mass submitter is an organization(CORBEL, McKay Hochman, Univer-sal Pensions, etc.) that markets plansfor use by M&P sponsors (banks, in-surance companies, law firms, thirdparty administrators, etc.). M&P spon-sors that utilize a mass submitter planneed not have any minimum numberof employers that will adopt the plans.However, an M&P sponsor that doesnot use a mass submitter documentmust represent to the IRS that one ofthe sponsor’s basic plan documentswill be adopted by at least 30 employ-ers.

For M&P sponsors that use a masssubmitter plan, the mass submittermust submit applications for opin-ion letters on behalf of the M&Psponsor. This includes “minor modi-fiers” of a mass submitter’s plan.Mass submitters will likely contactcurrent clients in the near future toexplain the submission process.

A practitioner that wishes to takeadvantage of the lower user fees underthe volume submitter program mustcertify at the time of filing its speci-men plan for an IRS advisory letter thatat least 30 employers will adopt plansthat are substantially similar to thespecimen plan. A volume submitterplan may use an adoption agreementformat.

Extension of GUST RemedialAmendment Period for AdoptingEmployers

The GUST remedial amendmentperiod is scheduled to expire onthe last day of the 2000 plan year

REA. ASPA establishes initial consultingagreement with John Erlenborn, who willbecome one of ASPA’s spokesmen for legis-lative and regulatory issues. Microsoft shipsWindows 1.0; Novell introduces Netware; the3 ½” diskette wins widespread acceptance.

ASPA is first organization to begin formal con-tinuing education program for its actuaries.ASPA establishes the Washington Office Com-mittee to begin automating the ASPA officeand to work together with the Long RangePlanning Committee to develop a staffing plan.

TRA’86. Microsoft becomes a public cor-poration.

1984 1985 1986



1987 1988 1989

OBRA’87. Current liability calculations areestablished. ASPA hosts first Business Own-ers Conference. ASPA presents its first na-tional telecast to over 500 viewers. ASPA isasked to join the Task Force on Strengthen-ing the Actuarial Profession.

TAMRA’88. ASPA’s program for QPA des-ignation is completed. ASPA is asked to joinCouncil of Presidents (COP) for NorthAmerican actuarial organizations. The first“worm” is sent through the Internet, disabling6,000 of the 60,000 hosts on the network.

OBRA’89. 2,000 actuaries gather in Wash-ington, DC in June to attend the CentennialCelebration of the North American actuarialprofession. Microsoft ships Word for Win-dows.

C O N T I N U E D F R O M P A G E 1

Washington Updatebeen developed, ASPA’s GovernmentAffairs Committee (GAC) has expressedconcern about the potential impact on al-ready stressed small business defined ben-efit plans. Fortunately, we have beensuccessful in persuading the authors ofthe major disclosure bills to apply themost burdensome disclosure require-ments only on plans with more than 100participants. Nonetheless, all plans re-gardless of size will surely have some in-creased notice requirements underERISA section 204(h) when such plansare amended to significantly reduce fu-ture benefit accruals. These plans willlikely be required to provide affected par-ticipants with a general summary of theplan amendment providing more detailon the impact of the amendment than thelimited notice required under current law.Under these proposals, plans with morethan 100 participants will have to pro-vide even greater disclosures to partici-pants, potentially including individualbenefit statements showing the impact ofthe amendment on the individual partici-pant over a certain number of years us-ing appropriate assumptions. Under aproposal introduced by both Democratsand Republicans in the House and Sen-ate, which is supported by Treasury, theassumptions used in preparing these state-ments would have to be approved by anEnrolled Actuary. ASPA GAC will con-tinue to work with Congressional staff tomake these disclosure proposals as ef-fective and workable as possible.

Beyond disclosure, members of Con-gress and their staff are seriously review-ing the issue of “wearaway.” As you

know, “wearaway” is a common methodof prospectively applying a plan amend-ment. However, when a traditional de-fined benefit plan is converted to a cashbalance plan, “wearaway” can effectivelyresult in certain longer service employ-ees not accruing new benefits under theplan for a certain period of time. A num-ber of members of Congress have ex-pressed concern about this phenomenon,and the Equal Employment OpportunityCommission is investigating whether agediscrimination issues under the Age Dis-crimination in Employment Act areraised. Proposals are presently being dis-cussed to eliminate the use of“wearaway.” (In case you are wonder-ing, Congress does not seem to care aboutthe fact that “wearaway” was used to ap-ply reductions in limits (e.g., the reduc-tion in the section 401(a)(17)) previouslyenacted by Congress – trust me, I havetried.) Under most of these proposals,any plan amendment significantly reduc-ing future benefit accruals would have tobe applied under a so-called “A plus Bformula.” Under such a formula, the “A”component of a participant’s benefit con-sists of the old plan benefit (which, in thecase of a cash balance plan, can be ex-pressed in the form of a lump sum calcu-lation using 417(e) rates) plus ”B”— thebenefit earned under the newly amendedplan.

ASPA GAC has had some successconvincing policymakers that the elimi-nation of “wearaway” should only applyto cash balance plan conversions so asnot to harm traditional defined benefitplans. However, this issue is still being

hotly debated. If ASPA members areaware of situations where eliminating“wearaway” in regular defined benefitplans could actually hurt participants,please let me know at [email protected].

In addition, the impact of these amend-ments on early retirement subsidies isbeing reviewed. Issues and proposalsbeing considered include:

• Whether it would be mandated thatearly retirement subsidies must attachto benefits earned under the newlyamended plan despite the amendmentprospectively eliminating the subsidy.This would in effect prohibit plansponsors from eliminating early retire-ment subsidies.

• Whether the previously earned earlyretirement subsidy needs to be avail-able in the form of a lump sum underthe new cash balance plan even thoughthe previous subsidy was only avail-able when an annuity form of benefitwas elected.

• A more stringent version of the previ-ous concept would require that aparticipant’s opening account balancein the cash balance plan reflect anypreviously accrued early retirementsubsidy regardless of whether the par-ticipant has grown into the subsidy.

A related proposal also currently be-ing discussed would adjust the old planbenefit (the “A” component) upon ter-mination to reflect final pay. It has notyet been determined whether this ad-justment would only be available if theparticipant elected to receive the “A”component of his or her benefit in theform of an annuity. A more extremeversion of this idea would not only re-quire that the lump sum opening cashbalance account be recalculated on ter-mination to reflect final pay, but would


1990 1991 1992

ASPA’s membership reaches approximately3,000. Over 1,200 people attend ASPA’s an-nual conference. ASPA promotes use of com-puterized bulletin board. ASPA signs aWorking Agreement with 5 other actuarial or-ganizations of North America.

ASPA Task Force recommends a “tag line”(subsequently adopted) to clarify the nature ofthe membership – “Actuaries, Consultants,Administrators and other Benefits Profession-als.” ASPA changes the name of the BusinessTechniques seminar to the Regional seminar.

UCA’92. IRS creates VCR program, largelyas a result of ASPA’s comments concerningthe harshness of CAP program. ASPA’s E&ECommittee prepares restructured educationprogram. Actuarial Board for Counseling andDiscipline (ABCD) is established.

also require the “B” component of aparticipant’s benefit (i.e., namely theinterest and pay credits under the cashbalance plan) to be recalculated to takeinto account the now higher openingaccount balance.

Needless to say, the debate on cashbalance issues is extremely dynamic,and new ideas are constantly being de-veloped. Because of the potential im-pact of this debate on traditionaldefined benefit plans, ASPA GAC willcontinue to stay actively involved. ▲

Brian H. Graff, Esq., is executive di-rector of ASPA. Before joining ASPA,Mr. Graff was legislation counsel tothe U.S. Congress Joint Committeeon Taxation.

MSPA

Francis M. ConwayLamberto de la Cruz

Barry KozakJohn Parkinson

CPC

Antonio BlasiniJohn A. Feldt

Michael J. GardyaszKathryn E. Hill

Pamela A. JohnsonRobert J. Kent

Scott A. KeswickMichael A. LauhonRobert L. McNultyKerry L. Oetting

Sandra A. Vallinino

W E L C O M E N E W M E M B E R S

Welcome and congratulations to ASPA’s new members and recent designees.

QPA

Christopher W. BelcherEllen G. BlockLaura J. Brauer

James K. Bryson, Jr.Sean M. BuckJoelle Calandra

Ning-Hsing ChangYa Ling Sandra ChaoColleen D. Chiavaras

Ann M. ChristianKimberly J. CochraneNancy A. CunninghamMargaret Ann Eliason

Scott J. FisherRebecca L. Fleming

Lisa R. GilesWilliam R. Hackler

Margaret M. HeffernanBrian S. Hermann

Christine HinsonBrian D. LehmerRonald P. LewisMarco Marangio

Kimberly A. MusickMary Ann PhelanKevin P. Rettler

Adrienne L. RobertsonKim L. Robertson

Heidi L. RouthKevin T. RuschHilary S. Shaw

Rita M. SzymanskiStephen Z. White

Donna M. WoernerLinda M. WolffScott G. Young

APM

Larry F. BoordLawrence J. Eisenberg

Alan B. GoldenSteven Greenbaum

Ralph PaladinoDebe Pennington

Kimberly S. PennyTheodore G. Reeder, IIIRichard A. Rogers, Jr.

Donald Whitmire

Affiliate

Dee BirschelMatthew Brown

Tracy BrownDavid M. Carmichael

Xiaohong ChenKristine J. CreightonJames De Rubertis

Edith DorseyStephen S. Evans

Brant J. GriffinKaren Harbour

Jeanne M. HarringtonRebecca Harris

Charley KennedyStephen R. Kern

Maryann KlimezekLorinda B. Madison

Erick MarkeyPeter J. Marriott

Erin D. McCrary-PattonNancy A. MurphyJames E. Slater, IIRobin L. SnyderMona Van CleefLeon J. Wessels

Christopher L. WildenhausBarbara A. Wuertz

This ad was a collaboration between the American Academy of Actuaries, AmericanSociety of Pension Actuaries, Casualty Actuarial Society, Conference of ConsultingActuaries, and Society of Actuaries.


developing an entirely revamped elec-tronic filing system that allows the re-turn to be electronically filed througha modem-to-modem connection,internet File Transfer Protocol (FTP),or various diskette and tape magneticmedia formats. The IRS also accepted5500s electronically, but if you evertried to use that antiquated system, youquickly learned it was a futile effortsince the paper forms still had to befiled because of the legal requirementthat the filings be signed.

Electronic filing is the one areathat’s probably the least well-definedat this point in time. There will be anEFAST-1 form that will need to becompleted to receive PIN numbers andencryption codes that will be used toelectronically “sign” the filing. Un-fortunately, the form is still in internaldevelopment and will have to be pub-lished in the Federal Register and un-dergo a 60 day public comment period.This means that it’s unlikely to be avail-able before April or May. Nelco is alsodeveloping tools that software devel-opers will use to encrypt and transmitthe files, however, they aren’t expectedto be available until April. Since it willtake time for the PIN applications tobe processed, and there are test filingsthat need to be done, it’s really unlikelythat this will get off the ground for 1999filings in my estimation.

There’s also a user guide in devel-opment that’s aimed at everyone fromplan sponsors to developers that con-tains information on the electronic fil-ing process, application, testing, and

specifications. Unfortunately, it’s notexpected to be available until April 4th.

The contractor receives a bonus foreach plan filed electronically, and it isless-costly to process electronic sub-missions, so there is a big push in thisdirection. Although no one has said itdirectly, look for this to be the only wayyou can file in a few years.

In addition to the EFAST-1 prob-lem, there are also some security andlogistical hurdles to jump so that mul-tiple parties at different locations cansign their part of the filing (plan ad-ministrator, sponsor, and actuary) us-ing their unique PIN numbers, yet havea third party file the 5500 without be-ing able to alter the data or obtain thePIN. The contractors and the DOL arestill on a learning curve when it comesto understanding what happens outsideWashington DC, so it’s going to taketime for them to learn the ropes. Hope-fully, they’ll develop a system asfriendly as the IRS’s 1099 electronicfiling process in the end.

Notice of errors…

For electronic filing, the filing willgo through a preliminary check, andgross errors will be reported directlyto the transmitter (i.e., the TPA). Bylaw, content errors for any type of fil-ing have to be directed to the PlanSponsor, Plan Administrator, and any-one who has an active 2848 on file forthe plan. The IRS will continue to pro-cess 2848s but will send a weekly tapeto NCS with an updated list of 2848sthat are active. If a TPA wants to be

notified of errors on the forms they filefor their clients, they must have a 2848on file at least one or two weeks priorto filing the 5500. (Get your 2848s innow!!!)

Points of interest…

When using the machine-printforms, note that it will no longer bepossible for the TPA to send a partiallycompleted form to the plan sponsor forthem to complete the missing data andfile the form. Data not included in thebarcode when the form is printed willbe seen as missing data. Thus, it isimperative that TPAs request all datathat will be necessary to complete theforms in their anniversary data re-quests.

It should also be noted that it isno longer acceptable to place noteson the forms in other than the pro-vided data entry fields. Because bothtypes of forms are scanned and dataare entered into a database, anythingoutside of the expected fields is ig-nored. All notes must be in the formof attachments, which will be sepa-rately processed.

The DOL also stressed at theASPA Annual Conference, and againat the EFAST Developer’s Confer-ence, that it wants filers to file ontime, even if necessary informationis missing, such as the Accountant’sReport, to avoid late filing penalties.They will notify you within 30 daysof anything that was missing and giveyou a period of time to file the miss-ing items. Now, your mind may bespinning the way mine did whenhearing this initially, but I wouldn’tpush it to the extreme and file blankforms just to beat the filing date.There are still those laws about


EFAST: A New Acronym to Remember

1993 1994 1995

OBRA’93. ASPA offers One Day 401(k)workshops. Microsoft ships Windows NT.

RPA’94. USERRA. Edward E. Burrows, MSPA, receives ASPA’sfirst Harry T. Eidson award. GAC establishesASPA’s ASAP service. Microsoft ships Win-dows 95.


SBJPA’96. SIMPLE plans introduced. At-lanta establishes first ASPA Benefits Coun-cil (ABC). Brian H. Graff, Esq., succeedsChester (Chet) Salkind as Executive Direc-tor of ASPA. The web site www.aspa.org isborn.

TRA’97. Uruguay Round Agreements Act’97 (GATT). Roth IRAs are established.

RRA ‘98. ASPA’s Political Action Commit-tee (PAC) is formed. IRS established Em-ployee Plans Compliance Resolutions System(EPCRS), consolidating APRS, VCR, Walk-in CAP and Audit CAP. ASPA introducesnew Internet-based e-mail system.

1996 1997 1998

knowingly submitting frivolous fil-ings.

Another point that might be of in-terest is that, at least currently, theywill accept mixed hand print and ma-chine print filings, but will not ac-cept mixed electronic and paperfilings. However, it’s something theyhadn’t considered originally, andmay prohibit mixed filings in the fu-ture.

Marketing…

Some would wonder why a govern-ment program to file tax returns needsmarketing, but the contract with NCSdictates a marketing program. Nelcois responsible for marketing EFASTand will attend trade shows, work withbenefits organizations, place ads, anddo direct mailings. They will also op-erate the EFAST web site (tentativelyhttp://www.efast.dol.gov), whichshould be operational in April.

What’s ahead?…

Software vendors began receivingspecifications for the final forms inmid-January, and the DOL contractorshave promised delivery of the tools tocreate the two-dimensional barcodesno later than April 1. Software ven-dors such as ourselves are now work-ing feverishly to incorporate the almost50 pages of forms into their govern-ment forms packages as quickly aspossible. Once the forms are incorpo-rated into the systems, along with the2D barcode, vendors will be requiredto undergo acceptance testing throughthe DOL to make sure they are com-pliant with their requirements. Whileit’s difficult to project exactly whenvendors will be able to deliver their5500 forms packages, one thing is cer-tain… it will be a lot later than it hasbeen over the past few years, and thatwill hurt a lot of TPAs who bill theirclients upon completion of the 5500.

There has been no mention ofextending the filing deadline, al-though we’ve suggested that theDOL entertain that possibility iftheir schedules continue to slide.ASPA is also keeping on top of this,so be sure to voice your concernsso that they can keep up the pres-sure on the DOL to keep the pro-cess on track.

It’s pretty evident at this stagethat we’ll all end up with a prettyuser-friendly 5500 filing programin the end… but it’s going to be abit “sporting” for the 1999 filingseason. ▲

Gary Saake is Vice President of Sys-tems for DATAIR Employee BenefitSystems, Inc. where he oversees prod-uct design, development, technicalsupport, and operations. Mr. Saakehas been with DATAIR for 11 years,and is an affiliate member of ASPA.

Attention All Designated ASPA Members! Eidson Nominations Now Open!

Nominations are now open for the2000 Harry T. Eidson Founders Award.

The Harry T. Eidson Founders Awardrecognizes exceptional accomplishmentsthat contribute to ASPA, the private pen-sion system, or both. The award is givenin honor of ASPA’s late founder, Harry T.Eidson, FSPA, CPC.

The following criteria are used to de-termine the nominee:

• The contribution must be consistentwith the ASPA mission statement andshould have a lasting, positive influ-ence on ASPA or the private pensionsystem.

• The contribution may be current, onethat spanned many years, or one made

years ago from which ASPA or theprivate pension system benefit today.

• The contribution should be a result oftime devoted above and beyond rea-sonable expectations, not a result oftime spent primarily for personal gain.

• The contribution may be one recog-nized on a national basis or one morelocal in nature. Publicity is not a crite-rion.

ASPA’s Membership Committee willmake the recommendation for the awardafter considering a broad base of nomi-nations drawn from the range of ASPA’smembership. If you are a voting mem-ber of ASPA and know someone youbelieve meets the criteria, please fill out

the enclosed nomination form and returnit to ASPA.

The recipient need not be an ASPAmember. If no deserving candidate isfound, no award will be given.

The award is presented at the ASPAAnnual Conference, and the winner’sname is engraved on a plaque at the ASPAoffice.

Previous winners: Howard J. Johnson,MSPA, in 1999, Andrew J. Fair, APM, in1998, Chester J. Salkind in 1997, JohnN. Erlenborn in 1996, and Edward E. Bur-rows, MSPA, in 1995.

Nominations will be accepted untilMay 15. You will find a nomination formin this issue of The Pension Actuary.


1999 2000

ASPA’s theme for annual conference is: “ERISA – The First 25 Yearsand Into the New Millennium.” First CD ROM is offered for ASPA’sannual conference materials. ASPA’s E&E Committee offers VirtualStudy Groups (VSGs) for exams with online and live review ses-sions. ASPA combines Eastern and Western Regional Seminars intofirst larger Summer Conference in San Francisco.

ASPA’s membership exceeds 3,800. ASPA offers the new Daily Valu-ation course. Rev Proc. 2000-20 is issued, outlining opening of GUSTamendment/restatement program submissions for prototypes andvolume submitter plans. The world celebrates the dawn of the newmillennium (although many ASPA members know it’s really nextyear!). The fear of Y2K subsides...

RBD definition. When Xamends its plan, the planamendment must be consistentwith the plan’s operation. Theamendment must be effectiveretroactively to the date X be-gan applying the new RBD defi-nition.

Eliminating the option ofpost-age 70½ in-servicedistributions

The pre-1997 RBD definition cur-rently in most plan documents cre-ates an in-service distribution optionfor participants who continue work-ing beyond the pre-1997 RBD (i.e.,April 1 following the calendar yearin which the employee attains age70½). The SBJPA transitional rulesfor required minimum distributionspermit an employer to eliminate thisin-service distribution option for par-ticipants other than 5% owners, pro-vided the employer satisfies certainconditions (discussed below). Anemployer that considers restrictingplan distributions to distributions re-quired under the post-1996 RBDdefinition must take into accountother distribution features currentlyin the employer’s plan. For example,many defined contribution plans pro-vide for an in-service distribution atnormal retirement age or at someother stated age such as 59½. Sincethis in-service option already permitsdistributions earlier than the distri-bution date under the pre-1997 RBD

definition, the employer with such anin-service distribution option wouldnot amend its plan to eliminate thepost-age 70½ in-service distributionoption. However, the sponsor of adefined benefit plan may not wish toprovide for an in-service distributionoption. The employer only mayeliminate the post-age 70½ in-servicedistribution option by a plan amend-ment which does not violate theanticutback rule.

The anticutback rule generallyprohibits an employer from eliminat-ing an optional form of benefit withrespect to accrued benefits existingon the later of the adoption date orthe effective date of the amendment.However, the Revenue Service hasauthority to permit, by regulations,amendments to eliminate an optionalform of benefit without violating theanticutback rule.4 An amendment toeliminate an existing post-age 70½in-service distribution option will notviolate the anticutback rule, pro-vided: (1) the amendment only ap-plies to benefits with respect toemployees who attain age 70½ in orafter a calendar year, specified in theamendment, that begins after the laterof December 31, 1998, or the adop-tion date of the amendment; (2) theplan preserves the same optionalforms of benefit (e.g., lump sum, in-stallments, etc.) the employee wouldbe able to receive if the employee hadretired in the calendar year in whichthe employee attained age 70½; and

(3) the employer adopts the amend-ment no later than the last day of theremedial amendment period.5

Example #2. Corporation Y hasmaintained a qualified definedbenefit plan since 1992. Theplan generally permits distribu-tions only after separation fromservice, but includes the pre-1997 RBD definition. The pre-1997 RBD definition creates anin-service distribution option inpost-1996 years. Y has permit-ted employees who attained age70½ during 1997, 1998, and1999 to receive in-service dis-tributions. During November1999, Y decides to eliminate theoption to receive in-service dis-tributions and to apply prospec-tively the post-1996 RBDdefinition. Y amends the planduring December 1999 to elimi-nate post-age 70½ in-servicedistributions for employees(other than 5% owners) who at-tain age 70½ after December31, 1999. The amendment isvalid, provided the plan pre-serves the distribution optionsavailable to any employee whowould have retired during theemployee’s age 70½ year.

Example #3. Assume in Ex-ample #2, employee B, a non-owner, attains age 70½ duringthe year 2000 but continues em-ployment with Y until 2003. TheDecember 1999 amendment tothe Y plan prevents B from re-ceiving a distribution before hernew RBD, unless she separatesfrom service with Y. However,when B reaches her RBD, Bmust be eligible for the same


Required Minimum DistributionTransitional Rules


optional forms of benefit shewould be able to elect had sheretired during her age 70½ year,except for the difference in thetiming of commencement ofdistributions.

Normally, the amendment de-scribed in Example #2 would violatethe anticutback rule with respect tothe benefits accrued as of the later ofthe adoption date or the effective dateof the amendment. As Example #3illustrates, the permissible amend-ment takes from B the option to be-gin distributions at age 70½, since Bcontinues employment. However, theamendment may not eliminate anydistribution options B would havebeen able to receive if B had retiredin 2000, the calendar year B attainedage 70½.

Commencing distributions underthe plan’s pre-1997 terms

In lieu of applying the post-1996RBD definition, the employer maycontinue to apply the pre-1997 RBDdefinition, requiring each employeeto begin distributions on the April 1of the calendar year following theattainment of age 70½ even if the em-ployee is still working for the em-ployer.6 To adopt this approach, theemployer simply continues to followthe plan’s pre-1997 age 70½ distri-bution provision, and then incorpo-rates the same pre-1997 RBDlanguage into its plan restatementduring the remedial amendment pe-riod. If the employer adopts this ap-proach, the plan determines both theemployee’s designated beneficiaryand whether the employee will ap-ply recalculation of life expectancybased on any election in effect on theplan’s required distribution date andwithout regard to the post-1996 RBDdefinition. Furthermore, if the em-ployee dies after the plan’s requiredbeginning date, the plan must treatthe employee as dying after the re-quired beginning date for purposes

of applying the “death distribution”rules. An employer will not choosethis approach if it wishes to providemaximum flexibility to employeesregarding the timing of distributions.

Example #4. Corporation Xmaintains a qualified 401(k)plan. X decided during 1996 tocontinue to apply the plan’s re-quirement to commence distri-butions to all employees no laterthan the April 1 of the calendaryear following the calendar yearin which an employee attainsage 70½. The plan permits anemployee to elect, not later thanthe plan’s required beginningdate, whether to recalculate thelife expectancy of the employeeand of a spousal beneficiary, ifany. Employee C is not anowner of X and has named herhusband as her designated ben-eficiary. C attains age 70½ onDecember 1, 1999, but contin-ues employment with X. Theplan, under the plan’s requireddistribution provision, mustcommence distributions to C nolater than April 1, 2000, not-withstanding C’s continuedemployment with X. C mustelect, not later than April 1,2000, whether to recalculate herand her husband’s life expect-ancies.

Permitting an employee whocommenced requireddistributions under the pre-1997RBD definition to discontinuedistributions

An employer may permit an em-ployee who attained age 70½ before1997 but did not retire before Janu-ary 1, 1997, to discontinue the dis-tributions at any time until theemployee’s new RBD. Theemployee’s election to stop and re-commence distributions is subject tothe joint and survivor requirementsif the plan otherwise is subject to the

joint and survivor requirements, andis subject to the terms of any appli-cable QDRO.7 Presumably, an em-ployer that has continued to makedistributions under the plan’s pre-1997 provisions may decide duringthe remedial amendment period, forexample during 2000, to permit anyemployee to discontinue distribu-tions.

A special transition rule appliedto a plan that failed to make requireddistributions between August 20,1996 (the enactment date of SBJPA),and December 31, 1997, to an em-ployee who attained age 70½ during1996 and who did not retire by theend of 1996. This transition rule re-quired, not later than December 31,1997, either make up distributions orthe employee’s election to defer dis-tributions.8

Rollover eligibility of post-age70½ distributions

A plan distribution is eligible forrollover unless the distribution fallswithin one of a few exception cat-egories.9 One of the exception cat-egories is a required minimumdistribution after an employeereaches his/her RBD. For purposesof determining whether a distributionto an employee who did not retirebefore January 1, 1997, is a requiredminimum distribution, the plan ap-plies the post-1996 RBD defini-tion.10 Therefore, even if the plancontinues to apply the pre-1997 RBDdefinition, distributions before theemployee’s RBD under the post-1996 RBD definition are not requiredminimum distributions. However,post-age 70½ distributions to an em-ployee who has not retired still maynot be eligible for rollover. A distri-bution is not an eligible rollover dis-tribution if the distribution is one ofsubstantially equal periodic pay-ments made at least annually for aperiod of at least ten years, or forthe life or life expectancy of the


employee, or for the joint lives orjoint life expectancies of the em-ployee and a designated beneficiary.For example, life expectancy distri-butions to an employee, other than a5% owner, who attains age 70½, butwho has not retired from employ-ment with the employer, are not eli-gible for rollover, even though thedistributions are not required mini-mum distributions.

Five percent owner ruleThe SBJPA change in the RBD

definition does not apply to a 5%owner of the employer.11 An em-ployee is a 5% owner if the employeehas the required ownership intereston any day during the plan year end-ing in the calendar year in which theemployee attains age 70½. The re-quired ownership interest is morethan 5% of the outstanding stock orof the total voting power of all stockof a corporation (taking into accountthe ownership attribution rules ofCode §318) or more than 5% of ei-ther the capital interest or the profitsinterest in a partnership.12 Therefore,an employee who is a 5% owner ofthe employer before or after, but notduring the applicable plan year, is nota 5% owner for purposes of the re-quired distribution rules. However, ifan employee is a 5% owner under thedefinition described in this para-graph, distributions to the employeemust continue even if the employeeceases to be a 5% owner in a subse-quent year. Also note that the five-year lookback rule for determiningkey employee status does not applyfor this purpose.

Example #5. During 1996, M,the founder of corporation Y,sold 100% of the corporation Ystock to an unrelated corpora-tion when M was age 68. M at-tained age 70½ during 1998 butremains a Y employee and a par-ticipant in Y’s calendar yearprofit sharing plan. The Y plan

applies the post-1996 RBD defi-nition. M has not reached hisRBD. The 5% owner rule doesnot apply to M because he wasnot a 5% owner during the 1998plan year, the plan year endingin M’s age 70½ calendar year.M need not commence distribu-tions prior to separation fromservice.

No change in IRA requireddistribution rules

The SBJPA change in the RBDdefinition does not have any effecton required distributions from an in-dividual retirement account (“IRA”).An individual’s RBD with respect tohis/her IRAs remains April 1 of thecalendar following the calendar yearin which the individual attains age70½.13 Employment with any em-ployer does not affect the RBD withrespect to an IRA. Therefore, an in-dividual must begin taking requiredIRA minimum distributions even ifthe individual has not reached his/herRBD with respect to an employer’splan.

ConclusionSBJPA liberalized the required

distribution rules by eliminating therequirement for an employee, otherthan a 5% owner, to begin distribu-tions from a qualified plan prior toretirement. Since most plans cur-rently include the pre-1997 RBDdefinition, requiring distributions tocommence no later than the April 1of the calendar year following anemployee’s attaining age 70½, anemployer by now should have cho-sen whether to retain the pre-1997rules or to apply the more flexiblepost-1996 RBD definition. If theemployer wishes to eliminate in-ser-vice distributions for post-age 70½employees who are not 5% owners,the employer still may do so, but onlyprospectively. When the employer re-states its plan for SBJPA and other

law changes during the “GUST” re-medial amendment period, the plan’sprovisions must reflect the plan’soperation. ▲

Warren T. Marshall, J.D., LL.M., isan attorney with Pension Publica-tions of Denver, a division of COR-BEL. Mr. Marshall is a PPD ERISAseminar presenter and is a contribut-ing author to the PPD Pension Li-brary.1 Code §401(a)(9). The minimum dis-

tribution requirements also apply toa 403(b) plan (see Code §403(b)(10))and to a 457 plan (see Code§457(d)).

2 See Rev. Procs. 97-41 and 99-23.3 Announcement 97-24.4 Code §411(d)(6)(B)(ii), flush lan-

guage.5 Treas. Reg. §1.411(d)-4, Q&A-10. A

special adoption date applies in thecase of an electively-bargainedplan. See Treas. Reg. §1.411(d)-4,Q&A-10(b)(3)(ii).

6 Notice 97-75, Q&A-10.7 See Notice 97-75, Q&A-7.8 See Announcement 97-70.9 Code §402(c)(4).10 Notice 97-75, Q&A-9.11 Code §401(a)(9)(C)(ii)(I).12 Code §401(a)(9)(C)(ii)(I) and

416(I)(1)(D)(i)(I).13 Code §401(a)(9)(C)(ii)(II).

Notice

ASPA is currently solicitingbids from firms interested indeveloping a mult imediacourse for the PA-1 exam.Anyone interested should con-tact Kevin Scott, ASPA's Di-rector of Education Services,at (703) 516-9300 and ask fora Request for Proposal.


legislation that was included in theHouse of Representative’s Tax Bill;

1999-18, authored by Sal Tripodi,summarized several positions theIRS had publicly taken regarding401(k) plans and safe harbor 401(k)plans. Many of these issues wereclarified in Notice 2000-3 (see ASAP2000-1);

1999-19, by the Reish-Ashton,team discussed the DOL’s release ondisclosure requirements for 401(k)fees;

1999-20 was Brian Graff’s discus-sion of pension reform legislation inthe Senate Finance Committee, and1999-21 was a discussion of whatmade it into the conference bill;

1999-22 discussed Revenue Pro-cedure 99-31, the Service’s longawaited correction examples underEPCRS;

1999-23, by J. Michael Pruett,analyzed PLR 199931047 regardingcertain issues revolving around thetermination of a 401(k) plan and theability to make distributions;

1999-24, by Kurt Piper, explainedNotice 99-44, the Service’s long

awaited guidance on the repeal ofSection 415(e);

1999-25, by Bruce Ashton and Jo-seph Faucher, discussed the DOL’sattempt to label a TPA a fiduciarywhere the TPA operated a voice au-tomated telephone system for 401(k)participants;

1999-26 contained our 3rd quarterrate chart;

1999-27, written by yours truly,announced the cost-of-living adjust-ments contained in IRS News Re-lease 99-80 and clarified a couple ofquestions in connection with suchCOLAs;

1999-28, by Craig Hoffman, dis-cussed the status of the GUST up-dating procedure after statementsfrom government officials at ASPA’sannual conference;

1999-29, by ASAP Committeemember G. Neff McGhie, explainedRevenue Procedure 99-45, theService’s modification of the require-ments for funding method changes;

1999-30, by R. Bradford Huss,was an explanation of the proposedDOL regulations for small plans, in-


ASPA ASAPs Continue To Inform

cluding the new requirements forwaiver of plan audit;

1999-31 was our rate chart for the4th quarter;

1999-32 was our annual 10-YearCOLA Summary; and

1999-33, by Fred Reish and JoeFaucher, examined the DOL’s caseagainst Time-Warner for allegedmisclassification of employees.

All of the above for only $55. De-livered to your fax machine or e-mailaddress “as soon as possible.” Again,I’d like to thank each of the authorsabove, the ASPA staff, and my fellowcommittee members: Neff McGhie,Larry Starr, Bill Taylor, Ed Snyder andChris Trapatsos. ▲

Kevin J. Donovan, APM, CPA, isChairman of the ASPA ASAP Com-mittee. Mr. Donovan owns and oper-ates Tucson Pension Consultations, apension consulting firm in Tucson, Ari-zona. He is a member of ASPA’s Boardof Directors, a member of the SIMPLE/401(k) subcommittee of the Govern-ment Affairs Committee, and is Asst.Chair of the 2000 Summer Conferencein San Francisco. Mr. Donovan is afrequent speaker at ASPA events, andserves on the Technical Review Boardfor The Pension Actuary.

from a 401(k) plan) are not subjectto the same restrictions that apply toelective deferrals. By law underRegulation 1.401-1(b)(1)(ii), therules governing non-elective contri-butions are not as restrictive, how-ever, many plans apply the samestandards as are applied to 401(k) andor 403(b) amounts for administrativeease. In general, Revenue Ruling 71-224 provides that a plan (other thana pension plan) may distribute all ora portion of a participant’s vested ac-

count balance provided the follow-ing three standards are met:

1. Hardship is defined in the plan;

2. Uniform and nondiscriminatoryrules are followed in determiningwhether a hardship exists, and theamount of the distribution is nec-essary to alleviate the hardship;

3. The amount of the hardship dis-tribution does not exceed theparticipant’s vested interest underthe plan.

Note, however, that any qualifiednonelective contributions (QNECs)and qualified matching contributions(QMACs) are not eligible for hardshipdistribution under a plan. An excep-tion does exist, however, if the planallows for any QNECs and/or QMACs(plus earnings) that were used to sat-isfy the ADP and ACP tests as of De-cember 31, 1988 or the end of the lastplan year ending before July 1, 1989.

Determining the exact amountavailable for hardship presents an ad-ministrative challenge to the sponsorsof 401(k) plans. Not only do they needto maintain the participant’s currentaccount balance, but they also need to


Hardship Withdrawals


keep track of the elective deferrals(net of earnings) as well as any addi-tional permissible amounts (i.e., pre-1988 elective deferral earnings andto the extent the plan provides, pre-1988 QNECs and/or QMACs (in-cluding earnings)). It may be a goodidea to review recordkeeping proce-dures to determine if the hardshipbasis is being adequately tracked.

In general, the amount distrib-uted must not exceed the amount ofneed. However, the distribution maybe grossed up by amounts necessaryto pay federal, state, or local incometaxes as well as any penalties result-ing from the distribution [Treas. Reg.1.401(k)-1(d)(2)(iv)(b)(1)]. This isthe case even though under the newrules, there is no longer immediatewithholding. Remember, these dis-tributions are still subject to the 10%early withdrawal tax in most cases.

In light of these new rules, a planmay need to maintain more than oneset of hardship distribution forms, orclarify that certain aspects do not ap-

ply to certain amounts. For example,because these distributions are nolonger eligible for rollover, the spon-sor is not required to provide the par-ticipant with a special tax noticeregarding plan payments. However,this notice is applicable to non-401(k) hardship withdrawals even ifthe more restrictive 401(k) rules arebeing applied to determine the valid-ity of the request. Non-401(k) hard-ship withdrawals are still consideredeligible rollover distributions. There-fore, they are subject to the 20%mandatory withholding if not rolledover into an IRA.

As a result of the remedial amend-ment period, a plan may have conflict-ing language with respect to hardshipdistributions. If applicable, plans mustadopt the new rule under the GUSTremedial amendment period, pursuantto section VI of Notice 99-5 and Rev.Proc. 99-23. Notice 99-5 refers to theremedial amendment period ending onDecember 31, 1999. However, Rev.Proc. 99-23 extends this deadline to the

401(k) Hardship Withdrawals Checklist

Participant Name __________________________Reason for Hardship ________________________Has written documentation verifying reason for hard-ship been obtained? ❑ Yes ❑ No (If yes, proceed;if no, request it)

Step 1: Immediate and Heavy Financial NeedSelect and complete the method the Plan uses to de-termine a hardship’s Immediate and Heavy FinancialNeed:

❑ Safe HarborDoes the reason stated above qualify under the safeharbor test? [Medical Expenses (participant,spouse, or dependant); Principal residence (exclud-ing mortgage payments) (participant); Tuition, fees& boarding expenses for the next 12 months ofpostsecondary education (participant, spouse, chil-dren, or dependents); or Eviction or foreclosure(participant)] ❑ Yes ❑ No (If yes, proceed toStep 2. If no, refuse request.)

❑ Facts and CircumstancesDoes the reason stated above qualify under the factsand circumstances test? [Qualifies under the plan’swritten guidelines (considering all relevant fact andcircumstances) for determining an immediate andheavy financial need] ❑ Yes ❑ No (If yes,proceed to Step 2. If no, refuse request.)

Step 2: Necessary to Satisfy the NeedSelect and complete the method the Plan uses to de-termine if a hardship is Necessary to Satisfy the Need:

❑ Safe HarborIn order to qualify under the Safe Harbor Method,all of the following must be satisfied:

❑ Distribution is not in excess of the amount ofneed (including amounts necessary to pay taxes&/or penalties);

❑ All possible plan distributions from all partici-pating plans have been made;

last day of the 2000 plan year. (Note:The recent Rev. Proc. 2000-20 ex-tended this deadline again.) The ef-fective date of the amendment must beretroactive to the later of January 1,1999 or the first day the plan operatesunder the new rules.

Although the regulations regard-ing hardship distributions are com-plex, allowing for the availability ofhardships in plans is an attractive fea-ture when trying to encourage non-highly compensated employees toparticipate. With well-documentedprocedures and guidelines such asthose described above, plan sponsorsshould feel confident that this planfeature is being administered in com-pliance with the regulations and atthe same time should be well under-stood by the participants. ▲

Richard Levesque is a senior planadministrator with the actuarial andconsulting firm of Milliman &Robertson in Albany, New York.


❑ All nontaxable loans from all participating planshave been made;

❑ All participating plans maintained by the em-ployer provide that the maximum amount of elec-tive deferrals in the taxable year following thetaxable year in which a hardship occurred is re-duced by the amount of elective contributionsmade in the taxable year in which the hardshipoccurred; and

❑ Participant is suspended from making electivecontributions and/or voluntary contributions toall plans maintained by the employer for at least12 months after the hardship occurred.

Does the need qualify as necessary under the safeharbor test? ❑ Yes ❑ No (If yes, proceed toStep 3. If no, refuse request.)

❑ Facts and CircumstancesSelect and complete the method the Plan used todetermine the facts and circumstances test:

❑ Financial Evaluation

❑ Financial resources available to the employeeincluding resources from their spouse and/orchildren (if readily available to the employee)cannot satisfy the need;

Does the need qualify as necessary under the factsand circumstances test? ❑ Yes ❑ No (If yes,proceed to Step 3. If no, refuse request.)

❑ Written Statement – states that the need couldnot be satisfied by any of the following means:

❑ Reimbursement or compensation by insuranceor otherwise;

❑ Liquidation of the participant’s assets;

❑ Ceasing of elective and/or voluntary contribu-tions under the plan;

❑ All possible plan distributions from all partici-pating plans have been made;

❑ All nontaxable loans from all participating planshave been made;

❑ Borrowing from commercial sources.

Does the need qualify as necessary under the factsand circumstances test? ❑ Yes ❑ No (If yes,proceed to Step 3. If no, refuse request.)

Step 3: Amount Available for HardshipThe amount of hardship withdrawal must not ex-ceed the amount of need plus any amounts neededto pay federal, state, or local income taxes and pen-alties.

Amount Needed $ _______

Other distribution and loan offset:

Less other forms of distributions(as required under Step 2) $ _______Less any loans(as required under Step 2) $_______

A. Balance qualifying for hardship $ _______Amount of elective deferrals availablefor hardship withdrawal:

Cumulative elective deferral contributions(net earnings) (post-1988) $ _______

Plus elective deferral account(including earnings) (pre-1989) $ _______

Plus applicable QNECs or QMACS(including earnings) (pre-1989 only)$ _______

Total $ _______

Other sources available for hardship withdrawal:

Matching Contributions $ _______

Profit Sharing orStock Bonus amount $ _______

Rollover $ _______

Total $ _______

B. Grand Total available for hardship $ _______Amount of Hardship Withdrawal(greater of A or B) $ _______

Step 4: Distribution and Taxation ofHardship WithdrawalAmount ineligible for Rollover:

Total elective deferrals(stated in Step 3) $ _______

Tax – no 20% withholding required

Amount available for Rollover:

Total other sources (stated in Step 3)$ _______

Tax – 20% withholding applies to all amountsnot distributed as a rollover distribution

Form of Distribution(i.e., lump sum, rollover, etc.): ________________

Qualified Joint and Survivor:

Does plan provide for qualified joint and survivorannuities? ❑ Yes ❑ No (If yes, proceed.)

❑ Waiver received if distribution is elected inan alternative form

❑ Spousal consent received if distribution iselected in an alternative form



IRS Releases GUST RestatementProcedure For Prototype Plans(e.g., December 31, 2000 for calen-dar year plans). However, pursuant toRev. Proc. 2000-20, employers thatwish to use an M&P plan for theirGUST restatement will be given a spe-cial extension of the time to amendtheir plans and file for determinationletters, if necessary. For employers us-ing M&P plans, the GUST remedialamendment period will be extendeduntil the end of the 12th month fol-lowing the issuance of the M&Psponsor’s opinion letter.5 Employ-ers using volume submitter plans willreceive the same 12-month extensionfrom the date of the advisory letter. Atthis time, the IRS has not provided anyadditional extension of the remedialamendment period beyond the end ofthe 2000 plan year for individually-designed plans.

In order to receive the special ex-tension of the remedial amendmentperiod, an M&P sponsor must file forits GUST opinion letter by December31, 2000. In addition, an adoptingemployer must: (1) adopt an M&P planby the end of the 2000 plan year, or (2)execute with the M&P sponsor a writ-ten certification that it will adopt thatsponsor’s M&P plan by the end of the2000 plan year. Option (1) includesan employer currently using a pre-GUST national or regional prototypeplan. This means that employers whocurrently use a pre-GUST national orregional prototype plan generally willnot need to take any action by the endof their remedial amendment period toreceive the 12-month extension. Op-tion (2) will normally be used by anemployer wishing to convert its indi-vidually-designed plan to an M&Pplan for the GUST restatement.

If an employer adopts an M&P planby the end of the 2000 plan year, but

later decides to switch to the M&P planof a different M&P sponsor, the 12-month period will run with referenceto the date of the opinion letter of theoriginal M&P sponsor. Alternatively,the employer could execute a certifi-cation with the different M&P spon-sor by the end of the 2000 plan year.

If an employer has amended its pro-totype plan into an individually-de-signed plan during the GUST remedialamendment period, the employer stillwill receive the 12-month extension,provided the employer adopts a GUSTdocument by the end of the extendedremedial amendment period. (SeeExample 5 below.)

While the 12-month extension pro-vides welcomed relief, practitionersmust carefully assess the situation forparticular clients. Failure to amendtimely could result in plan disqualifi-cation or the need to use the walk-inCAP correction procedure. The fol-lowing examples illustrate the special12-month extension of the remedialamendment period.

Example 1. ABC Corporation,an employer, maintains a pre-GUST nonstandardized regionalprototype plan sponsored by Con-sulting Firm, a third party admin-istration firm. ABC Corporation’splan has a calendar plan year.The normal GUST remedialamendment period would endDecember 31, 2000. Under Rev.Proc. 2000-20, Consulting Firm’sregional prototype plan is now anM&P plan. In July, 2000, Con-sulting Firm submits its GUSTM&P plan for an IRS opinion let-ter. The IRS issues the opinionletter for the M&P plan in Octo-ber 2000. Because the ABC Cor-poration had adopted an M&P

plan by December 31, 2000, theremedial amendment period forthe ABC Corporation plan is ex-tended under the special 12-month extension until October31, 2001.

Example 2. Assume in Example1 that Consulting Firm purchasedits pre-GUST regional prototypeplan from Mass Submitter X.Consulting Firm’s GUST M&Pplan was purchased from MassSubmitter Y. ABC Corporationstill is entitled to the 12-month ex-tension because, by the end of its2000 plan year, it had adoptedConsulting Firm’s pre-GUSTdocument. The fact that Consult-ing Firm has changed mass sub-mitter providers is irrelevant.

Example 3. Assume in Example1 that ABC Corporation decidesto make its GUST restatement byadopting the M&P plan of BankY. Until the adoption of Bank Y’sM&P plan, ABC Corporationcontinues to maintain the pre-GUST document of ConsultingFirm. Under the 12-month rule,ABC Corporation may restate itsplan to comply with GUST byadopting Bank Y’s GUST docu-ment after the end of the 2000plan year. However, the 12-month period is determined withrespect to the date of ConsultingFirm’s opinion letter, not the dateof Bank Y’s opinion letter. IfABC Corporation signs a certifi-cation with Bank Y by the end ofthe 2000 plan year, the 12-monthextension would be measuredfrom the date of Bank Y’s opin-ion letter.

Example 4. Assume XYZ Com-pany maintains a pre-GUST in-dividually-designed plan (with acalendar plan year) drafted byLaw Firm. Law Firm is a spon-sor of a pre-GUST regional pro-totype plan. Law Firm submitsits GUST M&P plan for an IRS


opinion letter in June 2000 andreceives its opinion letter in No-vember 2000. If XYZ Companyexecutes a written certification byDecember 31, 2000 that it intendsto adopt the Law Firm’s M&Pplan for its GUST restatement,then XYZ Company will haveuntil November 30, 2001 to for-mally adopt its GUST restate-ment.

Example 5. Suppose one of LawFirm’s clients, Medical Practice,originally had adopted the LawFirm’s regional prototype plan in1995, but modified the plan to in-corporate a “cross-tested” for-mula in 1998. This amendmentcaused Medical Practice’s plan tobecome an individually-designedplan in 1998. However, underRev. Proc. 2000-20, the plan isstill treated as an M&P plan forpurposes of the 12-month exten-sion. Therefore, Medical Prac-tice has until November 30, 2001to formally adopt its GUST re-statement. Assuming MedicalPractice will continue to use thecross-tested formula, it will needeither to adopt an individually-designed plan or a volume sub-mitter plan that accommodates itsformula.

Expanded Reliance on OpinionLetter for Standardized Plans

Under the prior procedures, anadopting employer could rely on theopinion letter issued for a standardizedplan (and not submit the plan for anIRS determination letter), if the em-ployer did not at any time maintainanother plan (except for a “pairedplan”). Rev. Proc 2000-20 expandsthe reliance on standardized plan opin-ion letters. An employer that adoptsan approved standardized M&P planmay rely on the plan’s opinion letter,even though the employer maintaineda prior defined contribution plan or aprior defined benefit plan,6 provided

(1) the prior plan was terminated be-fore the effective date of the newstandardized plan; (2) in the case ofa defined contribution plan, no an-nual additions were allocated to thatprior plan during a limitation year ofthe new standardized plan; and (3)in the case of a defined benefit plan,the new standardized defined contri-bution plan must be effective after therepeal of Code §415(e).

Rev. Proc 2000-20 clarifies thatthe restatement of an existing planusing a standardized plan is nottreated as the maintenance of a priorplan, provided the plan being restatedis the same type (i.e., profit sharingplan being restated into a profit shar-ing plan).

M&P Sponsor DutiesRev. Proc. 2000-20 sets forth more

specifically the duties of an M&Psponsor. Among the duties are:

• An M&P sponsor must maintaina list of all employers that haveadopted its plan. The list must in-clude the employer’s name, busi-ness address, and taxpayer identi-fication number. The sponsor isrequired to provide this list to theIRS upon request. The sponsoris NOT required to provide anannual notice to adopting employ-ers that the sponsor continues tomaintain the M&P plan.

• If the M&P sponsor believes thatan adopting employer’s plan is nolonger a qualified plan, the spon-sor must notify the employer ofthis concern, advise the employerof the adverse tax consequencesthat may result, and inform theemployer about the availability ofthe IRS correction programs.

• An M&P sponsor’s adoptionagreements must include thesponsor’s address and telephonenumber for inquiries from adopt-ing employers regarding the adop-tion of the plan, the meaning of

plan provisions, and the effect ofthe opinion letter.

• The M&P sponsor must provideeach adopting employer with cop-ies of the approved plan, any sub-sequent amendments, and themost recently issued opinion let-ter.

• The M&P sponsor must notify theIRS if the sponsor changes itsname.

• An M&P sponsor is required tomake reasonable and diligent ef-forts to ensure that each adoptingemployer amends its M&P planwhen necessary.

• An M&P sponsor must notify theIRS in writing of an approvedM&P plan that is no longer usedby any employer and which thesponsor no longer intends to offerfor adoption.

• An M&P sponsor must notifyadopting employers if the sponsorintends to abandon the plan andinform the adopting employers ofthe consequences of this action.

ConclusionNow that the IRS has issued the

procedure for M&P and volume sub-mitter plans, practitioners can startto gear up for the GUST restatementprocess. Our understanding is thatthe IRS will issue another revenueprocedure dealing with the determi-nation letter process shortly. Surely,the review process at the IRS willtake time, and it is likely opinion let-ters on M&P and volume submitterplans will not be issued until sum-mer or fall. In the meantime, legis-lation affecting qualified plans ispending on Capitol Hill. If enacted,the impact on the GUST restatementprocess is uncertain. Unfortunately,it is difficult to plan with this uncer-tain future. IRS has informally in-dicated that passage of new pensionlegislation could (but may not) cause


The ABCD’s Commitmentto High Standards

Note: An edited version of the following letter was published November 26by the Wall Street Journal. The letter, from Henry K. Knowlton, vicechairperson of the Actuarial Board of Counseling and Discipline (ABCD),responded to the newspaper’s October 29 article reporting that the La-bor Department planned to examine actuarial firms’ roles in helping em-ployers convert to cash balance pension plans from traditional plans.The article reported that from its 1992 inception through 1998, the ABCDhad disciplined “only” seven actuaries.

November 18, 1999

Dear Sir:

In her October 29 article in the Wall Street Journal, Ellen Schultz madereference to the Actuarial Board for Counseling and Discipline. As amember and former chairperson of the ABCD, I was more than disap-pointed by the dismissive tone of Ms. Schultz’s comments.

The ABCD is a volunteer board that takes its responsibilities to theactuarial profession and the public very seriously. The number of actuar-ies who have been disciplined may seem relatively small in the abstract,but it must be remembered that the actuarial profession itself is minus-cule compared to other professions. There are fewer than 18,000 actuar-ies in the entire United States. By contrast, there are more than 40,000lawyers admitted to practice law in the District of Columbia alone.

Ms. Schultz’s article fails to report that, from its inception, the ABCDhas considered more than 150 cases that could have resulted in disciplin-ary action. Where the complaints were without merit, the ABCD dis-missed them. In many cases, however, the ABCD offered specificguidance directing actuaries to improve their practices. Ms. Schultz alsoignores the more than 100 instances where conscientious actuaries havevoluntarily contracted the ABCD requesting guidance on how to dealwith thorny professional issues.

The ABCD is committed to maintaining the high standards of con-duct, practice, and qualification of the actuarial profession. I would urgeMs. Schultz not to be so quick to dismiss the valuable service that theABCD provides to the actuarial profession and the public.

Sincerely,

Henry K. Knowlton, Vice ChairpersonActuarial Board for Counseling and Discipline

an extension of the GUST remedialamendment period. However, IRSrealizes the operational and compli-ance problems that will be caused foremployers and M&P sponsors shouldthe GUST restatement process be de-layed. Only time will tell. ▲

John P. Griffin, J.D., LL.M., andCharles D. Lockwood, J.D.,LL.M., are partners with GlobalBenefit Advisors, LLC in Englewood,Colorado. Each has over 15 yearsexperience in the employee benefitsarea. Their practice specializes inqualified plan drafting, employeebenefit seminars and complianceconsulting. They are currentlydrafting a new mass submitter M&Pplan for FDP Corp. (now affiliatedwith CORBEL). The authors wish toexpress their appreciation to SalTripodi, APM, of TRI Pension Servicesfor his assistance with this article.1 Rev. Proc. 2000-20 replaces Rev.

Proc. 89-9 relating to the nationalprototype program and Rev. Proc.89-13 relating to the regional pro-totype program.

2 The M&P stands for master and pro-totype. In a master plan, the assetsof all adopting employers are in-vested in a single funding medium(such as a master trust). In a proto-type plan, the assets of each adopt-ing employer are invested in a sepa-rate funding medium. Prototypeplans are more common. This articleuses the term M&P plan to describeboth master and prototype plans.

3 The government’s internal discus-sions of whether to allow cross-tested M&P plans apparently wasa reason for the delay in the issu-ance of the procedure. IRS had in-dicated informally that it plannedto allow for cross-tested M&Pplans. However, the final versionof Rev. Proc. 2000-20 clearly prohib-its cross-tested M&P plans. Thisoutcome is unfortunate for M&Psponsors since they will now needto take an alternative approach fortheir many cross-tested plans.

4 Mass submitters and non-masssubmitter M&P sponsors will mail

applications to: Internal RevenueService, Employee Plans Rulingsand Agreements, Attention:T:EP:RA:T:ICU, P.O. 14073, BenFranklin Station, Washington, DC20044. Volume submitters will mailapplications to: Internal RevenueService, P.O. Box 2508, Cincinnati,

OH 45201, Attention: VSC Coordina-tor, Room 4106.

5 The IRS may approve an extensionof the 12-month period in specificcircumstances.

6 Assume the prior plans were not“paired plans.”


FOCUS ON ABCS

Chicago and Delaware Valleyby Rachel G. Veltman, Chicago and Jonathan S. Corle, CPC, Delaware Valley

Winds of Change in Chicago

A fter building a solid foundation of membership andprogram interest, the original officers of the ASPA

Benefits Council of Chicago (ABCC) took on new roles inthe organization and welcomed new members to the Advi-sory Board. The new Board will carry on the tradition ofproviding informative programs in a forum conducive tonetworking with individuals representing a variety of inter-ested professions.

In keeping with this goal, the De-cember 2, 1999 program “Year-EndPlanning Opportunities” featuredAaron Venouziou, MSPA (Presidentof DATAIR Employee Benefit Sys-tems) addressing the implicationsthat the repeal of Code Section415(e) has for professionals as wellas for our clients. Upcoming pro-grams are still in the planning stage,but they will continue to be held atthe East Bank Club, feature speak-ers on timely topics, and concludewith the opportunity to greet andmeet over cocktails and horsd’oeuvres.

The new ABCC President is MarkA. Yahoudy of American ExpressPension Consulting Services. Othernew appointments include: Rachel G.Veltman of Profit Planners, Inc.,Vice- President; Terri R. Michelsen,CPC, QPA, of American ExpressPension Consulting Services, Secre-tary; Gerald P. Cleary, Jr. of North-ern Trust Company, Treasurer; BenNeiburger of Baker & McKenzie,Membership Chair; and Valerie L.Miller of Hewitt Associates, BoardMember. Past President Leslie A.Klein, APM, of Sonnenschein, Nath

& Rosenthal is remaining active onthe Board as the Government Rela-tions Chair. Past Vice-PresidentMaureen M. Thomas, APM, ofMaureen M. Thomas, Ltd. is now theASPA Liaison and Janet S.Eisenberg, MSPA, of Eisenberg As-sociates, Ltd. is Chair of ContinuingEducation.

For information about upcomingABCC meetings, please contact Meet-ings/Committees Chair Lori AnneWard at [email protected] or(312) 876-2574.

Strong Finish/Strong Start inDelaware Valley

Under the leadership of its secondpresident, Marcia Hoover, QPA, ofPNC Bank, the Delaware Valley ABCin Philadelphia had a banner year.During 1999 ABC membership andfinancial resources grew beyond ex-pectation to provide a solid founda-tion for programs in the Year 2000.

The Council’s first president,Stephen H. Rosen, MSPA, CPC, re-mains active as the ASPA Liaison onthe Delaware Valley Board.

A series of well-received programswere presented in 1999. These in-

cluded nationally known speakerssuch as Bob Bildersee, Esq., and EdBurrows, MSPA, as well as local ex-perts. The Council’s August meetingfeaturing William Sweetnam, Esq.,Benefit Tax Counsel for the U.S. Sen-ate Finance Committee, was verywell attended. Accompanying Mr.Sweetnam was ASPA’s own Execu-tive Director, Brian Graff, Esq. Billand Brian presented a WashingtonUpdate on pending pension reformfollowed by a lively question andanswer discussion. This informativeprogram was also covered by the lo-cal press.

At our first meeting of this year,scheduled for February 28, a panelof local experts will cover the new5500 Form. Additional programs arein the planning stages. For more in-formation on upcoming events,please contact Promotions Chair JonCorle at [email protected] or(610) 251-0670. ▲

Rachel G. Veltman is a consultantwith Profit Planners, Inc., a pensionbenefits consulting firm in Chicago,Illinois and the Vice President of theASPA Benefits Council of Chicago.Jonathan S. Corle, CPC, is presidentof TYCOR Benefit Administrators,Inc., a pension and employee benefitconsulting firm he founded in 1980.Mr. Corle was a founding member ofthe ABC of the Delaware Valley andcurrently serves as an ABC boardmember and publicity chair. He alsoreceived his CPC designation fromASPA in 1983.


that is where you as a plan practi-tioner come in. First, you must fillthe gap with creative solutions.There’s a new board game calledTribond where you are asked ques-tions of the type “What do the fol-lowing three things have incommon?” Example: What do a car,a tree and an elephant have in com-mon? (Answer: to be found later inthis article). Well, what do a DefinedBenefit Plan, a Profit Sharing Planand a Money Purchase Plan have incommon? The answers here are nu-merous and easy, but take it a stepfurther. If there are so many simi-larities, why should they be separateplans? Why not one plan documentand trust singularly containing theappropriate characteristics and pro-visions to provide the solution forthat plan sponsor, covering their en-tire range of goals and objectives inone vehicle? Vehicles that are under-stood, efficient to administer, and arecapable of providing adequate retire-ment income to a cross section of par-ticipants are a must. Impractical,maybe or maybe not, but the pointis, we must be creative in our searchto find effective solutions. Why notinvoke the concepts of a Disney Jour-ney Into Your Imagination to the re-tirement plan challenge of our era?It might even be fun.

This challenge is also where ASPAcomes in. ASPA has served the re-tirement plan community in a fo-cused and distinguished manner forover thirty years. We have adaptedto the changes that have come fastand furious and have met the wordsof our statement of purpose: The pur-pose of the American Society of Pen-sion Actuaries is to educate pensionactuaries, consultants, administra-tors, and other benefits profession-als, and to preserve and enhance theprivate pension system as part of thedevelopment of a cohesive and co-herent national retirement incomepolicy.


Retirement Plans, Then and Now

For many retirees, this earlier re-tirement was not by design – morethan 4-in-10 of today’s retirees saythey retired earlier than planned (43percent). The youngest retirees –those born in 1933 or later – areespecially likely to report retiringbefore age 60 or retiring earlierthan expected.

The shift from Defined Benefitto Defined Contribution plans anda general lag in the adoption of newplans of any kind has been most no-table in the small plan area. Ac-cording to the Pension BenefitGuaranty Corporation Pension In-surance Data Book 1998, the num-ber of Defined Benefit Planspeaked in 1985 at about 112,000.Since then, there has been a sharpdecline to about 42,000 plans in1998. Of special significance to theASPA practitioner is that the reduc-tion has not been proportionalacross all plan sizes. Plans withfewer than 100 participants haveshown the most marked decline,

from about 90,000 in 1985 to about27,000 in 1998. There also has beena sharp decline for plans with be-tween 100 and 999 participants. In1985, there were more than 18,000plans in this size range but, by1998, only about 11,000 were op-

erating, a reduction of about 40percent. Technology, investmentsizzle, competition, governmentregulation, and employee apprecia-tion (or lack of appreciation forDefined Benefit plans) all playeda role. One might postulate thatthere are an equal number of De-fined Benefit plans that were neverestablished for the same reasons.This has left us with the challengethat the retirement plans of today,considering both coverage of par-ticipants and benefit levels, are in-adequate for the needs of thefuture. There are 10,000,000Americans today who do not havehealth insurance, but they are to beprovided health care by virtue offederal mandate. Beyond SocialSecurity, there is no parallel in theretirement plan arena. If your em-ployer does not have a retirementplan, you receive no retirement in-come.

Within that challenge also con-spicuously lurks opportunity, and

The Ninth Annual Retirement Conference Survey

Expected and Actual Retirement Age

Expected (% of workers) Actual (% of retirees)

Age 54 or younger 5% 20%Age 55 to 59 13 16Age 60 13 6Age 61 to 64 13 29Age 65 30 14Age 66 or older 17 12Never retire 5 n/a

Survey (RCS)*, we see that nearlyhalf of today’s workers expect to re-tire at age 65 or later, and 5 percentexpect they will never retire. In con-trast to these expectations, however,most retirees report actual retirementages younger than age 65.


I would like to personally thank ASPA’s past presidents for the invaluable contributions they have madeto our success and for paving the way to the future. They are:

Past Presidents of the Society

Carol R. Sears, FSPA, CPC 1999 A. David Degann, FSPA 1984

Karen A. Jordan, CPC, QPA 1998 Curtis Hamilton, MSPA, CPC 1983

Richard D. Pearce, FSPA, CPC 1997 Gerald D. Facciani, MSPA 1982

Michael E. Callahan, FSPA, CPC 1996 Charles W. Leggette, FSPA 1981

Stephen R. Kern, MSPA, CPC 1995 Brendan O’Farrell, Jr., FSPA, CPC 1980

Paul S. Polapink, MSPA 1994 Brian W. Kruse, FSPA, CPC 1979

Robert E. Guarnera, MSPA, CPC 1993 J. William Cloer, FSPA 1978

Ruth F. Frew, FSPA, CPC 1992 William C. Spencer, MSPA, CPC 1977

G. Patrick Byrnes, MSPA 1991 James L. Kirkpatrick, FSPA* 1976

Alan J. Stonewall, FSPA 1990 Howard J. Johnson, MSPA 1975

Howard M. Phillips, MSPA 1989 Fred R. Kissling, Jr., MSPA 1974

Eric L. Kranke, FSPA, CPC 1988 William W. Hand, FSPA* 1973

R. William Dozier, Jr., FSPA, CPC 1987 Samuel J. Savitz, MSPA, CPC 1972

Edward E. Burrows, MSPA 1986 Carl I. Duncan, FSPA* 1971

Robert D. Lebenson, MSPA 1985 Harry T. Eidson, FSPA, CPC* 1966-1970

*Deceased

Thank you each and all for guid-ing us though these times.

We have met the challenges ofthe past, and I know we will con-tinue to meet those of the future.

Oh, by the way, the answer to thequestion, what do a car, a tree and anelephant have in common is a trunk.I’m sure you surmised that! ▲

*The 1999 RCS gauges theviews and attitudes of working andretired Americans regarding retire-ment, their preparations for retire-ment, their confidence with regardto various aspects of retirement,and related issues. The RCS is co-sponsored by the Employee BenefitResearch Institute (EBRI), a pri-vate, nonprofit, nonpartisan pub-lic policy research organization,and the American Savings Educa-tion Council (ASEC).

John P. Parks, EA, MSPA, is presi-dent of MMC&P Retirement Ben-efit Services in Pittsburgh, Penn-sylvania. Mr. Parks also serves as

a client consultant and is an En-rolled Actuary with 34 years ofexperience in the actuarial and em-ployee benefit field. He is cur-rently serving as ASPA's president.He has also served as ASPA's trea-

ATTENTION ASPA MEMBERS!

Are you or your company interestedin purchasing new computer equipmentat a great price?

Dell Computer Corporation has estab-lished a discounted purchase plan on com-puters and peripherals exclusively forASPA members!

For more information, call Dell at (800) 822-6069, ask for ASPA’s repre-

sentative, Tiffany Leland, and identifyyourself as an ASPA member.

Tiffany will answer your ques-tions and place your order.

surer and was chairman of the Com-munications & Technology Com-mittee when the new web site(www.aspa.org) was designed andimplemented.


ASPA Then

and Nowby G. Patrick Byrnes, MSPA

In case you’re interested in trivia, my year as president(1991) was the shortest in ASPA’s history. We moved the

presidential term off the calendar year and onto an annualmeeting year. Nevertheless, the brewing issues of the day didnot seem trivial at the time.

In the year 1991, we added the tagline, “Actuaries, Consultants, Admin-istrators and other Benefits Profes-sionals,” to the ASPA logo. Thischange came about for two reasons.First, ASPA was seeking to brand itsidentity and become better repre-sented in the pension world. Second,the change was made in response toheavy criticism from one of themember organizations of the Coun-cil of Presidents that wanted ASPAto change its name.

We joined the Council of Presi-dents in 1989. In 1990, as president-elect, I served on the first “WorkingAgreement Task Force” that waschartered to unify the actuarial pro-fession of North America. The Coun-cil of Presidents formed the ActuarialBoard for Counseling and Discipline(ABCD), which thrives to this day.ASPA signed onto the ABCD at thefinal 1991 Board Meeting. This ac-tion provided the impetus for ourcode of conduct for actuaries and therevision of the general code for non-actuaries.

During my year as president, wealso began to develop a formal struc-ture for the Government AffairsCommittee. Today the Committeeplays a vital role in ASPA by moni-toring and proactively addressing vir-tually any pension-related activityoccurring in the governmental arena.

Our future, while yet to be writ-ten, will undoubtedly involve enor-mous change. The pension industry,which itself is a growing segment ofthe financial services industry, hasbeen fragmented into many parts. Inour early years, the pension industrywas primarily the domain of serviceproviders and consultants, and wetended to view the “product” peopleas the enemy. However, over the lastdecade, we’ve seen a major shift inthe pension industry. Consultantsand money managers have become,in many instances, strategic partners.With only a few notable exceptions,we have learned to peacefully coex-ist, and in some cases, to prosper to-gether through alliances. In manyrespects, ASPA members now findthemselves sleeping with the enemy(or what we used to view as the en-emy). I think we had better get usedto this, because I believe our indus-try will continue to fragment andexpand. Those who we now view asthreats to our businesses will prob-ably force us to continue to changeand grow. We should keep in mind,though, the lessons of the past—theseperceived “enemies” may eventuallybecome our partners. Either way, Iview this fragmentation as a positiveforce. It requires us to change theway we look at our businesses, themarket we serve, and even ourselves

as pension professionals. In the end,I believe both we and our clients ben-efit from this continued fragmenta-tion.

I hope that ASPA will continue toplay an advocacy role with govern-mental agencies, continue to providestellar educational services, and con-tinue to execute our programs flaw-lessly. I also hope that we will focusmore closely on the forces changingboth our society and the financial ser-vices industry in which we compete.

ASPA will need to not only chal-lenge the government to do the rightthing, but also challenge its membersto do the right thing. Our advocacyshould be to preserve and enhancethe private pension system – that isASPA’s job, and we must not losesight of it, even if this creates con-troversy among our membership.

Finally, we need to build the in-frastructure necessary to accomplishour goals, and to build for the future.We can’t be afraid to spend money,take risks, and keep our eyes open.

New Millennium – Here comesASPA! ▲

Pat Byrnes, MSPA, is founder andpresident of Actuarial Consultants, Inc.,an employee benefits consulting firmin Torrance, California, and a pastpresident of ASPA. While president,Mr. Byrnes was instrumental in spear-heading the organization’s involve-ment in the IRS small plan audit pro-gram. He has testified before the IRSon Treasury Regulations and contin-ues to work with ASPA’s GovernmentAffairs Committee. He is a foundingco-chair of the Los Angeles BenefitsConference, which is held annuallyand is sponsored by ASPA, the IRS,and more than 20 employee benefits-oriented organizations. An enrolledactuary since 1976, Pat earned hisbachelor’s degree from the Universityof Santa Clara and his MBA from theWharton School of Finance.

MILLENNIUM FEATURE


Reflections of a

Past Presidentby Howard M. Phillips, MSPA, FSA, MAAA,Enrolled Actuary

It is hard to believe that more than a decade has passed sincemy year as president of ASPA – 1989. I thought it might be

important, and of interest to the readers, to reflect on thefollowing:

Much of my presidency in 1989 wasoccupied with ASPA’s entry into theintersocietal affairs of the actuarial pro-fession. Notwithstanding a legitimateresistance by some of ASPA’s member-ship, ASPA was warmly accepted by theother societies and over the past decadehas achieved a respected position amongthe member organizations. Even now,as I represent ASPA in many of my postpresidential-appointed positions in theintersocietal community, I enjoy a re-spect as the “ASPA representative,” not-withstanding my credentials in othersocieties.

In my travel as a professional, twohighlights come to mind:

1. My heavy involvement with definedbenefit Keogh plans (created byERISA), leading to my publishedtext, All You Need to Know About De-fined Benefit Keogh Plans, and

2. The development, refinement, andutilization of the age-weighted allo-cation design strategy in defined con-tribution plans. That creativity in de-sign for retirement programs not onlyrevitalized the pension business, butalso did something very special andvery meaningful for plan sponsorsand plan members utilizing it.

With respect to the future, severalthings come to mind:

• The extrapolation of the age-weighted defined contribution designinto an environment, which combines

it with cash balance pension de-signs, to be utilized by small busi-ness. All of this is embodied in whatI call the “universal pension plan de-sign” (which contains up to fivedeposit buckets):

a. The pre-tax salary reductiondeposit level (401(k)).

b. The discretionary matchingdeposit level.

c. The percentage of pay, across-the-board deposit level.

d. The supplemental depositwithin the defined contribu-tion plan reflecting the newcomparability deposit level.

e. Supplemental deposits in thecash balance plan, which ex-ceed the defined contributionplan individual limits.

• State-of-the-art electronic adminis-tration of plans, including, but notlimited to, internet investing in401(k) plans; electronic bankcardaccess to participant loans in 401(k)and 403(b) plans; and a more rapid,efficient, and timely benefit infor-mational access for participants.

• The profession’s working closelywith the government to assist a ris-ing number of retirees who haveserious questions about their retire-ment plans and the calculation ofsame as well as the payout optiondecisions that must be made.

• My own distribution planning, as Inear the time when I, too, will needmy services. ▲

Howard M. Phillips, MSPA, wasASPA’s President in 1989. Mr. Phillipsis the past president of Consulting Ac-tuaries, Inc., in Fairfield, New Jersey.He served on the board of the Acad-emy, and currently serves on the boardof the Actuarial Board for Counselingand Discipline. He is the author of onebook and a multitude of articles in theemployee benefit arena. He continuesto lecture extensively on subjects inactuarial science and employee ben-efits.

ASPA Exam Results

Posted Online

Exam results for the June 1999C-1, C-2(DB), C-2(DC), C-3,and C-4 exams are now postedby candidate name atwww.aspa.org/aspaedu.htm.A list of candidates who earned thePension Administrator’s Certifi-cate effective August 31, 1999 isalso available on the site.

MILLENNIUM FEATURE


Midstates Benefits Conference – Join Us in the Windy CityMay 8-9, 2000 – The Fairmont at Grant Park, Chicago, Illinois

The Northeast Key

Conference Coming to

White Plains!

Holiday Inn Crowne Plaza,White Plains, New York

June 16, 2000

In May, ASPA and the MidstatesKey District of the Internal RevenueService will once again team up topresent the 2000 Midstates BenefitsConference. Chicago is the place tobe May 8-9, 2000 for pension pro-fessionals looking to exchange infor-mation, advance knowledge, andfoster sound principles, procedures,and practices in the industry. Thetwo-day conference will provide thelatest information on the IRS restruc-turing and how it will affect you andyour business. Additional topics tobe covered include:

• 401(k) Plan Design• IRS Voluntary Compliance

Programs• Cash Balance Plans

The 2000 Business LeadershipConference will focus on the future ofthe pension industry and will featurepresentations by several key serviceproviders in the industry. Slated tospeak are Don Mackanos, President ofCORBEL, on How Our Industry is Ad-dressing the Future; David Shah, Presi-dent of Pyramid Digital Solutions, onIntegration of Technology Services;and Kraig W. Kramers, President andCEO of Corporate Partners, Inc., whowill describe the CEO Toolbox.

Interactive workshop sessions in-clude Running a Pension Operation,presented by Cheryl Morgan, CPC,with Pension Edunet; Revenue Shar-ing presented by DCC&S; and OfficeAutomation presented by IKON OfficeSolutions. The agenda for the four-dayprogram also allows for networking insmaller groups and discussion on top-ics of importance to business leaderstoday.

This is the BLC’s 12th year, and eachconference gets better. The program isdesigned for decision-making person-nel including presidents, principals, own-ers, vice presidents, and key managers.Brochures can be accessed on our websiteat www.aspa.org. Make it a point thisyear to join your fellow business leadersin this important conference and help de-termine the future of our industry.

The conference is scheduled forMay 7-10, 2000 at the Hotel DelCoronado on beautiful Coronado Is-land adjacent to San Diego. In addi-tion to general sessions, networkinggroups, and interactive workshops, theagenda allows for some down timewhen you can relax and enjoy the beau-tiful setting and do some informal net-working with your colleagues. ASPAhas also arranged area tours for yourguests to attend during the day, and tworeceptions and a dinner in the eveningsfor both attendees and guests.

2000 ASPA BLC – Shaping Our FutureHotel Del Coronado, San Diego, California May 7-10, 2000

• Daily Valuation Issues• Mergers & Acquisitions and

their Effect on DB and DC Plans• IRS Regulatory and Legislative

Update• 415(e) Repeal• New Form 5500

The conference will be held at:

The Fairmont Hotel at Grant Park200 N. Columbus DriveChicago, IL 60601Tel: (312) 565-8000 or

(800) 526-2008Fax: (312) 856-1032

In March, watch your mail for theconference brochure or log onto ourweb site, www.aspa.org, for more in-formation. We look forward to yourparticipation in the conference.

Plan to attend the fourth North-east Key District Employee Ben-efits Conference cosponsored byASPA, the Northeast Key Districtof the Internal Revenue Service,and its Pension Liaison Group.The conference will be held at theHoliday Inn Crowne Plaza Hotelin White Plains, New York on June16, 2000.

This is a great opportunity to meetand discuss employee benefit is-sues with colleagues and govern-ment representatives from the IRSand DOL.

You will learn what’s new in thepension field, and will hear first-hand from industry experts every-thing you need to know on currentregulatory, legislative, administra-tive, and actuarial issues.

You can earn seven ASPA creditsand up to seven JBEA credits byattending this conference.

Hotel Information:Holiday Inn Crowne Plaza66 Hale AvenueWhite Plains, NY 10601Tel:(800) 2-CROWNE or(914) 682-0050

A brochure will be in your mail-box this spring. Plan to registerbefore May 22 and take advantageof the early registration fee of$175. For more information callASPA’s meetings department, at(703)516-9300 or visit our website at www.aspa.org.


ASPA Workshops in 2000

For the 2000 calendar year,ASPA has scheduled twelve one-day workshops on two diverse top-ics of importance to the pensionindustry – Defined Benefit and401(k) Daily Valuation. Bothworkshops are designed for retire-ment and benefits professionalswith two or more years of experi-ence in the industry. Attendees

may earn up to seven ASPA credithours. In addition, the 401(k)Daily Valuation Workshop offersseven non-core JBEA credit hoursand the Defined Benefit Workshopoffers seven core JBEA credithours.

The 401(k) Daily ValuationWorkshop will cover a number ofpertinent topics including: under-

standing daily valued plans; updateon safe harbor 401(k) plans; latestguidelines on remedial amendmentperiod; administrative issues withself-directed brokerage accounts;exploring participant loans andnew 5500 forms. The workshop istaught by Janice M. Wegesin, CPC,QPA, President of JMW Consult-ing, Inc. and Carol R. Sears, FSPA,CPC, a partner with the ActuarialConsulting Group, Inc.

The Defined Benefit Workshopwill cover: repeal of IRC Section415(e); plan termination alterna-tives; cash balance issues; dualplan design; and floor/offset plans.The workshop will be taught byJoan R. Gucciardi, MSPA, CPC, anenrolled actuary and President ofGucciardi Benefit Resources, Inc.and Norman Levinrad, FSPA, CPC,President of Summit Benefit &Actuarial Services, Inc.

In four cities, Boston, India-napolis, Los Angeles, and Philadel-phia, the workshops will be held inthe same location on consecutivedays. ASPA will offer a $100 dis-count to attendees who register forboth workshops. Please see theschedule on this page to make yourplans to attend these educationalworkshops. For more information,watch your mail for the workshopbrochure or check the ASPAwebsite at www.aspa.org.

ATTEND BOTH AND SAVE!

Attend both workshops and savemoney! If you register for both a401(k) Daily Valuation workshopand a Defined Benefit workshop,the registration fee is reduced by$100! Register today; Seating islimited! Registration forms are ac-cepted on a first-come, first-servedbasis.

Workshop Defined Benefit 401(k) Daily ValuationLocations Workshop Workshop

Austin, Texas FridaySheraton Four Points Hotel April 14

Denver, Colorado MondayEmbassy Suites Downtown April 17

Boston, Massachusetts Monday TuesdaySheraton Commander May 1 May 2Cambridge

Indianapolis, Indiana Monday TuesdayHyatt Regency Indianapolis May 22 May 23

Los Angeles, California Tuesday MondayHilton Los Angeles Airport June 20 June 19

Philadelphia, Pennsylvania Monday TuesdayRenaissance Philadelphia July 10 July 11Airport

Atlanta, Georgia FridayCrowne Plaza Ravinia August 25

Orlando, Florida MondayWyndham Palace Resort August 28& Spa

wwwwwwwwwwwwwww.aspa.org.aspa.org.aspa.org.aspa.org.aspa.orgCheck out theMeetings Webpageto downloadinformation,brochures, andregistration formsfor upcomingconferences.


FOCUS ON E&E

Exams On-Demand:

Coming in 2001by Gwen O’Connell, CPC, QPA

ASPA examinations initially were given exclusively atpaper and pencil sites. Countless hours were spent

lining up proctors and examination sites a few weeks andsometimes days before the examination dates in June andDecember. The process was difficult to manage.

As the number of candidates in-creased, ASPA found it impossibleto continue administering examina-tions at individual paper and pencilsites exclusively. The E&E Commit-tee selected Sylvan to deliver exami-nations. Though the initial intentionwas to deliver all examinations atSylvan, it was soon discovered thatSylvan was not able to administer es-say examinations, but the C-1,C-2(DB), and C-2(DC) examinationswere quite successful.

With the implementation of com-puterized testing, candidates are oftenunder the impression that because theexamination is being offered in an elec-tronic format that the passing resultsshould be available immediately.Though numerous articles and expla-nations have been provided to candi-dates about the pass mark process, inour electronic world, this is not meet-ing our candidates’ needs. The candi-dates want faster, immediate results.

Beginning in the year 2001, ASPAwill offer the C-1, C-2(DC), and C-2(DB)

examinations on-demand. Beginning,hopefully, in February 2001, examswill be offered throughout the yearwith black-out periods in January andthree other times. The purpose of theblack-out periods is to give time foruploading the new examinations andto retool examinations at specificpoints during the year.

The question base will be developedon a per-chapter or unit basis. Thiswill ensure that the exams follow theblue-printing to test each chapter/unitsufficiently. The questions for eachexam will be randomly selected anddelivered within the units. No two ex-aminations will be exactly the same.

Under the on-demand structure notonly do candidates get to schedule ex-aminations for times that work betterfor them, but also they will be giventheir results upon completion of theexam. A candidate who does not passan exam can retake the exam after abrief waiting period.

In February 2000, a task force in-cluding our Technical Education

Consultant, Carol Sears, FSPA,CPC; the E&E Quality ControlChair, Curtis Huntington, APM;ASPA’s Education Services Direc-tor, Kevin Scott; and ASPA’s Direc-tor of Administration, Jane Grimm,will meet with Sylvan to discuss theconversion to on-demand exams.

Watch for further progress on thisinitiative through articles in The Can-didate Connection and in this columnof The Pension Actuary. ▲

Gwen S. O’Connell, CPC, QPA, is Prin-cipal of Summit Benefit & ActuarialServices, Inc. in Eugene, Oregon. Ms.O’Connell currently serves on ASPA’sExecutive Committee as its secretary, isa member of the Board of Directors, andis the general chair of the Educationand Examination Committee.

Ideas? Comments? Questions?Want to write an article?

The Pension Actuary welcomes your views!Send to:

The Pension ActuaryASPA, Suite 7504245 North Fairfax DriveArlington, VA 22203(703) 516-9300

or fax (703) 516-9308

or e-mail [email protected]


who had met the 21/1 criteria as ofthe first day of the year would beparticipants in the plan, even if theyterminated prior to June 30. Theseemployees could easily be over-looked in the first year of a plan. Toread the entire thread, downloadfirst2.fsg.

Section 125 Plans

Deferral Deposit Date

[Thread 83267]A user questioned whether Section

125 plan contributions must be depos-ited in the same manner as 401(k) de-ferrals. Several users pointed out thatthis would depend on whether the planheld the benefits in trust, or paid themfrom general employer assets. If a trustis used, then the deposit rules do ap-ply, as they become "plan assets." Asan aside, another user pointed out thatthe Department of Labor relief that per-mits 125 plans to operate without atrust does not extend to after-tax em-ployee contributions, such as COBRApremiums paid by an employee. If thisis the case, COBRA payments couldnecessitate a trust for a 125 plan. Toread the entire thread, download125cont2.fsg. ▲

* Exam candidates earn 20 hours of ASPA continuing education credit for passing exams,15 hours of credit for failing an exam with a score of 5 or 6, and no credit for failing witha score lower than 5.

** PA-1A and B exams earn 5 ASPA continuing education credits each for a passing grade.

† ASPA offers these courses as an educational service for students who wish to sit forexaminations which ASPA cosponsors with the Society of Actuaries and the Joint Boardfor the Enrollment of Actuaries. In order to preserve the integrity of the examinationprocess, measures are taken by ASPA to prevent the course instructors from having anyaccess to information which is not available to the general public. Accordingly, the studentsshould understand that there is no advantage to participation in these courses by reason thatthey are offered by a cosponsor of the examinations.

2 0 0 0 C A L E N D A R O F E V E N T S

April 7-8 EA-1(A) class, Denver, CO† 109-10 EA-1(B) class, Denver, CO† 10

April 14 401(k) Daily Valuation Workshop, Austin, TX 7

April 14-15 EA-1(A) class, Washington, DC† 1016-17 EA-1(B) class, Washington, DC† 10

April 17 Defined Benefit Workshop, Denver, CO 7

April 28-29 EA-1(A) class, Chicago, IL† 10April 30-May 1 EA-1(B) class, Chicago, IL† 10

May 1 Defined Benefit Workshop, Boston, MA 7

May 2 401(k) Daily Valuation Workshop, Boston, MA 7

May 7-10 Business Leadership Conference, San Diego, CA 10

May 8-9 Midstates Benefits Conference, Chicago, IL 15

May 13-14 ASPA Weekend Courses, Denver, CO 15C-1, C-2(DB), C-2(DC), C-3, and C-4

May 22 Defined Benefit Workshop, Indianapolis, IN 7

May 23 401(k) Daily Valuation Workshop, Indianapolis, IN 7

May 31 C-1, C-3, and C-4 exams *

June 1 C-2(DC) exam *

June 2 C-2(DB) exam *

June 19 401(k) Daily Valuation Workshop, Los Angeles, CA 7

June 20 Defined Benefit Workshop, Los Angeles, CA 7

July 10 Defined Benefit Workshop, Philadelphia, PA 7

July 11 401(k) Daily Valuation Workshop, Philadelphia, PA 7

July 16-19 ASPA Summer Conference, San Francisco, CA 20

August 31 PA-1(A) and PA-1(B) exam submission deadline **

ASPA

CE Credit

PIX is now on the

Internet!

The current version of the PIXmessage software, WOD, hasbeen updated to incorporateinternet access to the PIX mes-sage board. No more long dis-tance phone calls to PIX. ContactPIX today at 805-683-4334 to joinor get your updated software!

C O N T I N U E D F R O M

PA G E 3 2

Pix Digest


PIX DIGEST

What Constitutes

an Hour of Service?

When is someone working?When are they not working? Somuch of pension administration de-pends on an employee's hours of ser-vice, but what exactly is an hour ofservice? What if someone is on call?What if someone is working a 24hour shift, but assumed to sleep forpart of the shift? These and otherquestions were raised in several dif-ferent threads recently.

The first of these threads discussedthe case of a home health care agencythat has employees who providehealth care and assistance to personsin their homes. The agency main-tains a plan that specifies actual hoursworked are to be used for plan pur-poses. Shifts of 24 hours are com-mon, eight hours of sleep time isassumed, and the employees are paidfor the 24 hour shift on the basis of16 working hours. Several PIX us-ers responded that they would con-sider this to be 24 hours of service.Another user posted excerpts from acourt case where nurses were deniedovertime pay for such hours, and ex-cerpts from regulations under the FairLabor Standards Act that provide thatan employer and employee mayagree on the amount of time excludedfrom pay for personal time.

The next question concernedtracking of hours for the sales staff

at an automobile dealership. Theobvious answer is to use one of thehours equivalency definitions in theplan. The user was further concernedthat using such a definition for thesales staff (which might includehighly compensated employees) andactual hours for the rest of the em-ployees could be discriminatory.Here the regulations provide littlecomfort. Part 2530.200b-3(c)(3)states "(3) Notwithstanding para-graphs (c) (1) and (2) of this section,the use of a permissible equivalencyfor some, but not all, purposes or theuse of a permissible equivalency forsome, but not all, employees may,under certain circumstances, result indiscrimination prohibited under sec-tion 401(a) of the Code, even thoughit is permitted under this section."

Since the equivalency definitionsare generally far more generous thanactual hours worked, using them fora group of mostly highly compen-sated employees could be discrimi-natory.

The next question considered aphysician who is paid to be on call.A user posted Labor regulations thatstated that just being available to becontacted, but not required to remainon the premises, is not consideredworking. However, in the case be-ing discussed in this thread, the phy-

sician is in fact being paid for callduty. Another user pointed out thatsince there is actual payment, thereis a good argument to be made thatthe physician is in fact "working"while on call.

The last question that arose abouthours of service concerned employ-ees paid on a piecework basis, andthe employer does not want to coverthese employees in the plan. Again,hours equivalencies were discussed.However, at 10 hours per day or 45hours per week if any service is per-formed, the hours add up quickly. Ofcourse, if these employees are nevercredited with 1,000 hours, even us-ing these equivalencies, then exclud-ing them is not a problem.

These threads provide good ex-amples of various employment ar-rangements that do not lendthemselves to actual hoursrecordkeeping. Practitioners shouldconsult with their clients regardingthe nature of their work and the wayemployees’ hours of service aretracked. To read these threads in theirentirety, download the filehours2.fsg.

First Day of Plan Year

Entry Date

[Thread 83339]This thread started with a user

questioning what entry dates couldbe used in a plan with no waitingperiod for eligibility. Another userpointed out that 410(a)(4) providesthat an employee must enter the planno later than the earlier of either thefirst day of the plan year or 6 monthsafter completing a Year of Serviceand attaining age 21.

Another user brought up a situa-tion where a plan is set up at yearend, retroactive to the first day of theyear, with June 30 and December 31entry dates. Because of the first dayrequirement of 410(a)(4), employees


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