The Magnitude of Pension Deficits Compared With Firm Value Likely to Increase by Year-End
Plan sponsors and others are concerned about the business risks posed by pension plans, particularly in today’s unpredictable market conditions. In this case, “risk” refers to a company’s exposure arising from pension deficits. At the end of 2007, the ratio of pension plan deficits to market capitalizations (current risk) for FORTUNE 1000 firms was small due to the rise in funding levels. |
IRS Releases Benefit Limits for 2009
The IRS has announced the annual cost-of-living and statutory adjustments of various dollar limits for employee benefit plans. House Prices, Financial Markets, Government Intervention and the U.S. Economic Outlook
When he made his urgent request on Sept. 19 to Congress for the federal government to buy distressed assets, Treasury Secretary Henry Paulson stated that “[t]he underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. … These troubled loans are now parked, or frozen, on the balance sheets of banks and other financial institutions, preventing them from financing productive loans. The inability to determine their worth has fostered uncertainty about mortgage assets and even about the financial condition of the institutions that own them.” Year-End Pension Accounting Declines Might Be Milder Than Expected
Unsurprisingly, the value of pension plan assets has dropped sharply so far this year, and under Financial Accounting Standard (FAS) 158, funded status for 2008 will decline for most pension plans. However, today’s higher discount rates will soften the drop considerably. Despite the dramatic drops in the stock market during early October, we project only a moderate decline in average funding status — from 96 percent in 2007 to 88 percent in 2008. Employers May Allow Qualified Reservist Distributions of Unused Amounts From Health FSAs
In Notice 2008-82, the IRS clarifies a new rule under which employers may allow reservists to cash out unused funds from their health flexible spending arrangements (FSAs) after being called to active military duty. The new rule is part of the Heroes Earnings Assistance and Relief Tax Act of 2008, which was enacted June 17. Ordinarily, distributions from health FSAs are allowed only to reimburse substantiated medical expenses, and the participant forfeits any funds remaining at the end of the plan year. Emergency Economic Stabilization Act Has Broad Reach
On Oct. 3, 2008, President Bush signed the Emergency Economic Stabilization Act (EESA) of 2008 into law. The act is aimed at stabilizing the nation’s turbulent financial and credit markets by authorizing the secretary of the Treasury to purchase troubled mortgages, mortgage-backed securities and other assets from financial institutions, including pension plans. EESA Allows Bicycle Commuter Fringe Benefits
In an effort to encourage fuel-free commuting, the recently enacted Emergency Economic Stabilization Act (EESA) includes a provision allowing fringe benefits for bicycle commuters. Under the act, employers may provide tax-free reimbursement of up to $20 a month to employees for qualified bicycle commuting expenses. New Law Helps Sick Students Keep Health Coverage
President Bush signed “Michelle’s Law” on Oct. 9. Under the new law, health plans must allow college students who take a leave of absence or reduce their class load because of illness to retain their dependent status under their parents’ health plan for up to one year. The act takes effect for medically necessary leaves of absence that begin in plan years beginning on or after Oct. 9, 2009 (Jan. 1, 2010, for calendar-year plans). Adoption Act Amends Tax Code Definition of Qualifying Child
On Oct. 7, President Bush signed the Fostering Connections to Success and Increasing Adoptions Act of 2008 (H.R.6893). The act focuses primarily on promoting adoption, but it also amends the definition of a qualifying child in the Internal Revenue Code. The definition is used to determine eligibility for certain tax benefits, such as the dependency exemption, the child tax credit, the earned income tax credit and the dependent care tax credit. In addition, it is referenced by many employer-sponsored health care and dependent care plans. IRS Addresses Tax-Dependent Status of Children of Divorced Parents
In Revenue Procedure 2008-48, the IRS announces some exceptions to its usual policy regarding children of divorced or separated parents. Claims Denial Faces Stricter Review Because Sponsor Failed to Meet DOL Electronic Delivery Requirements
A ruling by the 9th U.S. Circuit Court of Appeals emphasizes the importance of compliance with the U.S. Department of Labor’s regulations on delivering plan documents electronically. In Gertjejansen v. Kemper Insurance Companies, Inc., the court applied a stricter standard of review to a claims denial because the employer’s delivery of the summary plan description (SPD) did not meet DOL requirements. Onsite Health Facilities: Watch Out for Regulatory Pitfalls
By 2009, roughly 30 percent of large employers will have an onsite health care facility, according to research performed jointly by Watson Wyatt and the National Business Group on Health. While these employer-provided onsite facilities serve a useful purpose, many employers and vendors are unaware of the welfare benefit implications they entail. IRS Delays Effective Date for Smart Card Requirements
The IRS has delayed – again – the effective date of Revenue Ruling 2006-57, which confirmed that employers could use debit, credit or smart cards to deliver qualified transportation fringe benefits and outlined the required procedures for doing so. The ruling was supposed to take effect Jan. 1, 2008, but was delayed for a year to give transit systems more time to implement the required technology. Apparently some transit systems are still not ready. The revenue ruling is now slated to take effect Jan. 1, 2009, but employers and employees may rely on the ruling in the meantime. SEC Proposes to Adopt International Accounting Standards
On Aug. 27, the Securities and Exchange Commission (SEC) voted unanimously to propose a road map for shifting U.S. companies from U.S. Generally Accepted Accounting Principles (U.S. GAAP) to International Financial Reporting Standards (IFRS). The move to a global accounting language is intended to improve the comparability and transparency of financial reporting worldwide. It will also have important implications for U.S. employers in how they account for employee benefit and stock plans. Is the Bailout Package a Template for Future Executive Compensation Regulation?
In the world of executive compensation, Congress has an inglorious history of passing laws to restrict compensation that achieve the opposite effect. Commentators often cite the million-dollar pay cap (in tax code section 162(m)) and the golden parachute excise tax (in section 280G) to prove the point. Rather than reducing executive compensation, companies simply shifted to stock option compensation in the 1990s (which is not subject to the million-dollar pay cap), and hefty golden parachute payments (many that include tax gross-ups) remain de rigueur.
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