Article Abstract:
Defined benefit pension plans have been significantly affected by legislation and have lost favor with many corporate executives, possibly placing in jeopardy the ability of many Americans to retire with adequate financial security. Legislation having an impact on the plans include the Tax Reform Act of 1986, affecting coverage, participation, and social security integration; the Omnibus Budget Reconciliation Act of 1986, affecting employees working beyond their normal retirement date; and the Omnibus Budget Reconciliation Act of 1987, affecting funding limits, contribution requirements, and tax penalties. Corporations moved away from defined benefit plans in the 1980s in favor of defined contribution plans. Although defined contribution plans have some good features, they may not provide retirees with adequate benefits. The positive aspects of defined benefit plans include that they are an efficient way of providing eligible employees with long-term retirement security, Pension Benefit Guarantee Corp insurance premiums are a very small percentage of plan costs, and several defined benefit plans do not require cash contributions.
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Article Abstract:
The number of administrative procedures required to run many salary-reduction employee savings plans properly have often caused employer costs to triple and have motivated many plan managers to consider if they are managing the plans efficiently. The primary forces changing plans include competitive pressures to offer better benefit plans, and federal tax and labor regulations. The key demands on plan managers include maintaining the accuracy and timeliness of employee records; remaining flexible in the face of trends in benefit design; and complying with federal tax and labor regulations. The duties that comprise plan administration include services to employees, record keeping, and plan investment management.
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Article Abstract:
Shadow 401(k) plans are becoming more popular as the cap on employee elective deferrals under qualified 401(k) plans has increased. Shadow 401(k) plans are one type of deferred compensation plan for officers and highly compensated employees. The most attractive funding option for shadow 401(k) plans is a rabbi trust, but employers should be aware of problems, such as replicating the underlying investment alternatives and returns of qualified 401(k) plans. Non-qualified shadow plans do not have any vesting requirements, and employers have several alternatives in structuring a vesting vehicle.
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