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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
There is a "need for fundamental reform" of the pension system, Assistant Treasury Secretary for Economic Policy Mark J. Warshawsky told practitioners at a March 7, 2006, D.C. Bar program. The current system does not ensure adequate funding for defined benefit plans, Warshawsky said. The Pension Benefit Guaranty Corporation's (PBGC's) current deficit of $23 billion represents "a serious and ongoing threat to the benefits of American workers protected by the insurance system." The administration's proposals would increase current funding of DB plans, improve plan disclosure and change the pension insurance system to ensure the system's solvency, according to Warshawsky.
While the Bush administration is pleased that the House and Senate have each passed pension legislation, the administration wants a better bill than adopted so far, Warshawsky indicated. Reforms in the current bills are inadequate to protect employees from losing benefits, he said. The proposed legislation is significantly different from the administration's proposals, Warshawsky charged, in allowing for: overly long phase-in periods, inaccurate measurement of pension assets and liabilities, and mortality tables that do not reflect increased life spans. The bills should have a "robust" funding measure for at-risk plans and should not provide targeted relief for specific industries, such as airlines. Warshawsky also spoke against the transition rules in the bills. He said that a January 1, 2007, effective date and a seven-year amortization period should be adequate.
For defined contribution plans, the administration supports automatic enrollment of employees. Warshawsky said that this feature increases plan participation and is beneficial for short-term and lower paid employees. The administration is concerned that the automatic rate of contributions is low and that this may induce other participants to reduce their contributions. Any vesting period should be shorter than the two-year period in the current proposals. The administration supports provisions that preempt state laws prohibiting automatic enrollment and that authorize the Department of Labor to issue guidance on default investments.
Janice Gregory of The ERISA Industry Committee (ERIC), which represents major employers that sponsor retirement plans, said that ERIC prefers the House bill (the Pension Protection Bill of 2005 (HR 2830)), to the Senate bill (the Pension Security and Transparency Bill of 2005 (S. 1783)). She said that the current legislation on the Hill combines four different areas: EGTRRA (Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16)) permanence, miscellaneous pension reform, hybrid plans, and pension funding. ERIC supports permanent adoption of EGTRRA provisions, such as higher contribution limits, Roth 401(k) plans, three-year vesting, rollover provisions, simplification and employer stock ownership plan (ESOP) reinvestment. Employers believe that the provisions on automatic enrollment and default investments are critical to allow investments for long-term growth.
Employers want laws that encourage strong funding of DB plans and that invite employers to set up such plans, Gregory said. She added that DB plans are not extinct. Laws should focus on what is needed to have "good plans."
Gregory commented that the status of the PBGC should be kept in perspective. The private sector pays $120 billion in pension benefits annually, while the PBGC paid $3 billion in 2004. Forty-four million participants will receive benefits from DB plans, while 1.06 million participants received benefits from the PBGC. She said that the PBGC did not have a cash crunch for 2004, indicating that the PBGC's deficit is no greater than historical deficits. Furthermore, not every employer with economic problems files for bankruptcy and gets rid of its plan.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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