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5500 Preparer's Manual for 2012 Plan Years

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.


Retirement groups urge change in method of estimating revenue effects of legislative proposals

A group consisting of ten retirement advocacy organizations, including the American Society of Pension Professionals & Actuaries (ASPPA), the Profit Sharing/401k Council of America (PSCA), the ESOP Association, the American Benefits Council and the ERISA Industry Committee (ERIC), has issued a research report which advocates the use of present-value accounting instead of cash-flow accounting when estimating the revenue cost of proposed legislative changes affecting retirement policy. The report contends that current federal budget scorekeeping rules, under which revenue effects are reflected on a cash-flow basis using a ten-year budget window rather than on a present-value basis, distort the economic costs of tax deferrals, thereby overstating the true costs of retirement savings proposals and inhibiting their legislative enactment.

Cash-flow estimates less suited for proposals involving tax deferrals

The report, Revenue Estimates and Retirement Policy: The Need to Consider Present-Value Estimates of Changes in Tax Policy, notes that budget scorekeeping conventions generally require that changes in revenues be measured on a cash-flow basis (cash-flow accounting) and that the cash-flow analysis be provided for a 10-year budget period. Cash-flow accounting works well for retirement plan proposals which provide a current-year tax deduction not offset by a future tax liability, the report states. However, the report contends, cash-flow estimates overstate the true revenue cost of retirement plan proposals which provide a current-year tax deferral recovered in a future year which may be beyond the 10-year budget window and which include income in the tax-deferred withdrawals. While the revenue effect of a deduction proposal and a deferral proposal might show an equivalent revenue loss in one year of the budget period, the report continues, the deferral proposal will have a lower total revenue loss because of the subsequent income inclusion.

The report recommends that the revenue costs for retirement plan proposals be calculated on a present-value basis. The report notes that federal credit programs already use present-value estimates to estimate outlay effects, and that tax expenditure estimates in the President’s budget also provide present-value estimates to provide an alternative picture of the revenue effects of various existing tax incentives. A present-value analysis of deferral proposals, the report concludes, would provide policy-makers with a more accurate measure of the long-term revenue costs attributable to these retirement policy changes.