Constant legislative and regulatory "tinkering" has become commonplace in Congress' approach to employee benefit plans.  Major legislative initiatives since 1994 (we know them as the "GUST" and "EGTRRA" amendments) were designed to foster employer-sponsored plans, and promote employee savings, while protecting retirement income.  With the ink barely dry on the GUST/EGTRRA changes, The Pension Preservation and Savings Expansion Act of 2003 (H.R. 1776), introduced by Representatives Portman (R-OH) and Cardin (D-MD) on April 11, 2003, represents a new wave of benefit plan incentives.  There are both "looseners" (expanding savings opportunities coupled with lessening employer administrative burdens) and "fasteners" (reining in certain benefit rules) in this Act to keep consultants and plan sponsors busy hashing through them for months.  Undoubtedly, some of the changes may soon become the law of the land.  Here is just a glimpse of some reforms offered under the Act:

• Revitalize Defined Benefit Plans by using interest rate benchmarks ensuring greater stability in funding, PBGC premiums, and lump sum distribution values.
  

• Permit employee pre-tax contributions in pension plans.

• Make permanent all plan changes under EGTRRA (increased contribution/benefit limits, etc.), which would have otherwise expired in 2010.
  

• Provide faster vesting schedules for employer non-matching contributions.

• Accelerate dollar limits for IRA contributions and elective deferral limit increases in 401(k).
  

• Move the required benefit distribution beginning date from age 70 to age 75.

• Provide a tax incentive for taking retirement benefits as annuity payments vs. lump sum distributions (up to $2000 per year in annuity payments excluded from taxation).
  

• Institute new diversification rights for participants holding employer stock in 401(k) accounts.
  

• Permit rollovers of death proceeds by non-spouse beneficiaries.

• Permit transfers of assets and mergers between 401(a) and 403(b) plans.

• Allow up to $500 rollover to following plan year for unused Health FSA account balances, which will greatly enhance cafeteria plan participation.
  

• Extend the ADP/ACP excess contribution corrective distribution period to six months after the end of the plan year.
  

So, with such a "bevy" of pension enhancement provisions looming on the horizon, it's important for all plan sponsors to "stay tuned" for the next round of legislative changes.  At least they are predominately aimed at increasing plan benefits for employees and easing an employer's administrative burdens.

For more information on the Portman/Cardin Bill, or its effect on your particular retirement or cafeteria plan, please contact Steve Mueller at 1-800-444-1311.

Now the DOL in its infinite wisdom has explained in the 2003 bulletin it may have had it all wrong and that a closer reading of ERISA apparently no longer compels such a conclusion.  The DOL has provided specific examples of expenses which could be charged to an individual participant's account including:

• Hardship withdrawal processing.

• Benefit distribution option calculations (e.g. showing lump sum or annuity payouts).

• Benefit distribution charges (e.g. monthly check writing expenses).

• Accounts of separated participants - Under the new DOL guidance, an employer could now charge administrative fees to separated participant's accounts while not charging active participants.
  

• Qualified Domestic Relations Orders (QDROS) - An employer could elect to pass through reasonable expenses associated with QDRO determinations to the account of the participant.
  

With this new DOL guidance in place, a defined contribution plan sponsor, in order to avail itself of these expense allocation rules, will need to review its current practices, plan document and summary plan description to see what changes and written procedures may be required to permit allocation of the expenses at the individual participant level.

If you'd like to examine these new rules further and application of the DOL guidance to your plan, please call Steve Mueller at 1-800-444-1311.

• Faster diversity after 3 years of participation and no forced investment in company stock.

• Enhanced access to investment advice on choosing investments and diversification. Fiduciary and disclosure safe guards would be required to protect participants' interests.
  

• Clarify employer fiduciary responsibility during investment blackout periods.

• Require improved quarterly statements about 401(k) amounts including information on portfolio diversification.  Defined benefit plans would be required to show total accrued benefits, non-forfeitable benefits, and date benefits for a participant become non-forfeitable.
  

Employers sponsoring plans including employee stock offerings as a match or an investment option to the participant should keep close watch on developments in this area.  Faster diversification and improved access to information on employer stock have been kingpins in the debate on participant security in stock-dominated plans.  Fiduciaries with regard to the plans should continually examine the prudence of any investment option in a 401(k) plan and document the selection, monitoring, and replacement of any investment offering.

If you still aren't certain when you should submit your deferrals to your 401(k) plan, please call Hand Consulting for further information.

As the popularity of cafeteria plan medical spending accounts flourishes, many employers are turning to the use of debit cards to facilitate employees' payments for deductible medical expenses.  The greatest holdback on card usage has been the "claims substantiation" requirements under the cafeteria plan rules which generally required submitting written documentation from a third party to verify the expense, and participant verification that the claim was an "eligible" expense not reimbursable from some other insurance plan.

In a great big boom, the IRS released Revenue Ruling 2003-43 addressing the claims substantiation issues in using electronic payment cards.  The ruling, while upholding current claims substantiation rules, clarifies that certification, substantiation, and claims adjudication can occur electronically in certain circumstances.  The Revenue Ruling would require the participant (debit card user) to:

• Certify on enrollment that the debit card will only be used for eligible medical expenses.

• Certify that the participant will not seek reimbursement for the expense from any other source (which can be satisfied by language on the card) and;
  

• Maintain sufficient documentation for incurred expenses for audit purposes.

Automatic adjudication (meaning no paper claim follow-up) can be accomplished through use of the card at pre-approved medical providers where there is correlation between the amount of the expense to a specific dollar amount (e.g. office co-pay) or to previously approved recurring medical expenses (e.g. a prescription refill) at the same provider.  "Real time" substantiation at point of purchase with an independent third party adjudicator would also satisfy the electronic payment and adjudication rules.

The ruling specifically provides that current adjudication techniques which do not review (either electronically or manually) all claims incurred is not an acceptable practice.  Evidently, some providers have been "sampling" claims for compliance, which will not satisfy the rules.

If payments are made that do not meet the automatic adjudication requirements, then erroneously paid claims will require the employee to repay the plan, offset the bad payment against otherwise valid claims of the employee, and may result in use of the card being cancelled.

The ruling further provides that an employer must report payments paid to a provider directly on form 1099.  This particular requirement will probably have further guidelines issued so plan sponsors and health FSA's understand the reporting requirements and will be in compliance.

Sonia Rodriquez, Processor
John McCleskey, IT Director
Pat Burk, Vice President Consulting
Victoria Rodriguez, Records Management

• Congratulations to Brenda Ortiz for accepting the position of Trust Administrator.
• Congratulations to Dave Corbin for accepting the position of Senior Accountant.
• Congratulations to Lisa Kottler for passing her Series 7 exam and QKA designation.
• Congratulations to Jesus Herrera for passing his Series 7 exam.
• Congratulations to Mary Leong for receiving her QKA and QPA designations.
• Congratulations to Matt Manis for passing his Series 27 exam.

We have several employees preparing for various exams to gain additional designations, and we want to wish them all the best of luck.

Recognizing that double-digit returns are not guaranteed, investors are now facing reality—to grow their retirement accounts over the long-term, they must revert to the tried and true method of diversification.  Unfortunately, many 401(k) participants do not have the time, knowledge or investment sophistication to build their own retirement portfolios.

Hand Benefits &Trust (HBT) has developed an effective yet simple method for participants to diversify their retirement accounts.  We offer a series of lifestyle funds for participants to facilitate proper asset allocation.  However, unlike pro-viders focusing mainly on fixed time horizons (e.g., a 2030 Fund is for those investors who will retire in the year 2030), we have developed a more comprehensive methodology for selecting a lifestyle fund.

In addition to time horizon, we believe the more important criteria in determining the proper mix of money market, bonds and stocks is "risk tolerance."  Even though a long-term investor has the time to be an aggressive investor, he may not have the risk tolerance to be so heavily weighted in equities.  What if an investor is going to lose sleep at night knowing that he has over 70% of his retirement portfolio in the stock market?  Or maybe the long-term investor has other financial needs to consider, such as college tuition for his children or long-term care costs for his parents.  These are important factors to consider when determining a diversification strategy.

HBT has developed an effective tool, a Risk Tolerance Questionnaire, designed to uncover these important factors, and to help participants determine what type of investor they truly are--conservative, moderate or aggressive.  Our risk tolerance questionnaire can help participants build their own investment strategy, or guide them into the most appropriate SMART Fund®.

HBT's SMART Funds® are considered a "fund of funds," meaning that the assets of each fund are invested in a combination of retail mutual funds and institutional funds across a broad range of asset classes.  These funds refrain from market timing and instead adhere to a strict asset allocation strategy that is predicated on risk-adjusted returns.  Rebalanced regularly, our professionally managed SMART Funds® give participants a professional alternative to develop their own investment strategy.  By selecting a SMART Fund® that most suits their time horizon and risk tolerance, participants take the guesswork out of investing and can rest assured that they are properly allocated for the long-term.

Participants have been drawn to the SMART Funds® for ease of use and for their dynamic asset allocation structure.  SMART Funds® is a registered trademark of Hand Benefits & Trust Company Member company of Hand Benefits & Trust, Inc.