ASC Summer 2006 Newsletter
In this issue:

Pension Protection Act & ASC’s DB System

In light of the new pension legislation, ASC will be making many changes to the defined benefit system over the next year or so. A number of changes will be made to the plan specifications, employee information, calculations and reports. Because of the new requirement for 3 tiered interest rates for calculating Minimum Required and Maximum Deductible amounts, we will add interest rate fields to the Current Liability assumptions. Since the PBGC variable rate premium will be based on the deficiency of the assets compared with the Target Amount, tiered rates may also be added for this calculation. We do not anticipate removing the current Funding Methods & Funding Assumptions options, however we may add a 3-tiered interest rate option for funding assumptions. In many cases where small plans are being valued using the Individual Aggregate funding method, we anticipate that the Normal Cost derived from this method will fall within the range of the minimum required & maximum deductible amounts under the new law. The Funding Standard Account will no longer have a direct relationship to the Funding Method being used for the Sponsor’s Funding Policy. Changes will need to be made to calculations & reports because contributions made after the end of the year will now need an interest adjustment. We will also develop reports that are structured in such a way as to clearly illustrate how contribution amounts are arrived at. We anticipate adding Amortization bases calculations for the new Minimum Required Contribution & revamping the existing bases calculations to make them optional, and to allow the selection of amortization periods. The Funded Status for the current year & previous years will be stored. The Current Liability calculations will also be redone to match the calculation of the Targeted Normal Cost as defined in the law. Some questions about exactly how this calculation will be done will have to wait for IRS guidance, for example how is the calculation done when salary decreases or when an individual is at the 415 limit. Since the Maximum Deductible contribution will have a component of 150% times CL we will probably use the old OBRA multiplier field for this calculation. We also anticipate adding a spec that allows the user to tell the system if the plan is covered by PBGC or not. Effective with 2008 valuations the Maximum Deductible will include the Targeted Normal Cost plus 150% of Current Liability Plus a future pay/benefit increase credit less assets and, if the plan is covered by the PBGC this calculation can include assumptions of projected increases in the 401(a)(17) and the 415(b) limits. We will add specs fields for these assumptions. We may also add specs to illustrate the pre-funding balance and carryover balance as defined by the new law. Effective in 2007, in service distributions will be allowed for participants past age 61 even if they have not reached Normal Retirement Age. We will probably need guidance from the IRS before we decide exactly how to handle participants in this situation for valuation purposes. According to the new law, effective in 2007 benefit statements are required at least every 3 years. The Department of Labor is required to issue model benefit statements. We will either add or replace a Defined Benefit statement once the DOL has issued it’s model statement. We will develop descriptions of how permitted disparity and/or floor offsets affect benefits based on the coding of plan specs where appropriate. Effective in 2010, the new law allows for plans of sponsors with < 500 employees to have a “DBk” plan. Since this is still somewhat in the future we will have time to decide what changes need to be made to the database structure to handle these plans. We are already working on a utility to allow transfer of census information between DB and DC plans. For “at risk” plans with more than 500 participants the new law requires using the assumption that employees within 10 years of Retirement retire immediately when calculating the funded status. We may add a spec in the future that asks if the plan is at risk and then use the Early Retirement Date & Benefit in the calculation for people within 10 years of normal retirement. This programming will not have high priority. A few additional law changes are worthy of notice even though they do not directly require program changes. Beginning of year valuations will now be required for plans with more than 100 participants and a maximum of 2 years smoothing of assets will be allowed. Plans with less than 100 lives will not be required to make quarterly contributions. Three year cliff vesting will be required for Cash Balance plans. Lastly, since the Composite Bond rate has now been extended, any beginning of year valuations that have already been completed using the 30 Year Treasury 4 year weighted average rate for 1/1/2006 and later will need to be redone. In order to remain current on these developments, ASC has an actuary on the Defined Benefit subcommittee of ASPPA’s Government Affairs Committee who will be reviewing technical corrections and regulations relating to the new law. As can be seen from the above, ASC remains committed to maintaining and improving the Defined Benefit system well into the future.

Pension Protection Act 401(k) Provisions and the ASC System

The recently passed Pension Protection Act made sweeping changes to defined benefit plans. However, there are a few key provisions that affect 401(k) plans. ASC’s compliance team has already reviewed the new 401k provisions, and we are working on changes to the system to accommodate the new rules. We have included a summary of our current thinking in this article. (For a detailed description of the new law, visit ASPPA’s website EGTRRA permanency One of the major surprises in this legislation was the last-minute agreement to include a provision that makes the EGTRRA pension provisions a permanent part of pension law. Over the last few months, both House and Senate representatives had concerns about the lost tax revenue (over twenty billion, according to the Joint Tax Committee) generated by EGTRRA’s expansion of many of the qualified plan limits, as well as the Roth 401k option. ASPPA’s government affairs committee pointed out that this tax revenue is not actually lost, but merely delayed until participants begin withdrawing their monies after retirement. The committee made this their primary lobbying objective over the last year, and their hard work paid off. EGTRRA permanency has no direct effect on the ASC system, other than to make permanent the need for our Roth 401k programming and for the EGTRRA limits built into the system’s limits tables. You can find documentation on Roth 401k’s in ASC on our website under “Roth Quick Start Guide” and “Roth 401k Accounts in ASC”. Automatic enrollment safe harbor Two major viewpoints led to the final provision you see in this legislation: Legislators’ desire to increase retirement plan savings and practitioners’ desire to extend the 3/15 401k excess deferral return deadline. Recognizing the practitioners can often drive plan sponsors to adopt provisions that make for simpler and more efficient plan administration, the legislative drafters tied automatic enrollment to being eligible for the extension of 3/15 to 6/30. Although ASPPA asked for a de-coupling of these two rules, they were not successful. The new rules will affect two areas within the system: source expansion and additional reporting. Fortunately, expansion of system sources to twenty is already planned for this year, and the new rules may need two of those additional planned source buckets. Because the automatic enrollment deferrals can be limited to newly eligible 401k employees (although it is permissible to include existing employees if the employer chooses to do so), and because they can be withdrawn within the first three months of automatic enrollment, it may be advantageous to track them in a separate deferral source. Likewise, there is a new safe harbor match on deferrals subject to two-year 100% vesting that may need its own source as well. We anticipate clients will need reports to determine who is eligible for automatic enrollment, and possibly reports to show the employees’ expected levels of contributions, since they scale up annually over four years from 3% to 6%. Because the automatic enrollment levels are also tied to a safe harbor match, an anticipated match cost column could also be included. Certainly both of these provisions would be added to our ADP/ACP testing projection routine. Effective dates and user input The 401k rules are effective for plan years beginning after 2007. Because we have some time to implement program changes, we welcome your input. According to a recent survey, 19% of 401k plans had some kind of automatic enrollment provision. However, this provision was mostly seen in larger plans. We are interested to know how widespread the adoption of automatic enrollment will be in small to medium size plans, and how best the system can help you to administer and test these plans in 2008.

ASC User Group Meeting — Highlights of DC/401k Presentations

ASC held an extremely productive user group meeting in July, 2006 in conjunction with the ASPPA/WPBC Summer Conference in Las Vegas. Over 50 users attended the meeting, along with ASC’s senior support staff and ASC’s owners Alan Gould and Alan Cohen. After an overview of where ASC has been—including noting that it is our 25th anniversary—Alan Gould talked about the future of the company. He pointed out that our emphasis on the highest level of pension technical customer service continues with the formation of the ASC Institute (ASCi), the continuing support and improvement of ASC’s comprehensive compliance testing system, and a daily valuation and recordkeeping system built for what TPA’s actually do. The software continues to move to .NET platforms, as evidenced by the daily valuation Gemini system and the ASCi plan document system. Although the software will take advantage of new technology, the company’s main focus will always be on providing a comprehensive, high-level product to its customers. Claire May followed Alan with a detailed presentation on common system support issues and their solutions. This led to a lively discussion on various eligibility and vesting problems encountered by clients, many of which Claire and other users were able to solve. Watch for a couple of new vesting options in this fall’s update that the group agreed would be helpful. Sheryl Stucky followed Claire with a “tips and tricks” session on the system’s budget routine, including plans whose demographics will not work in a cross-tested design, gateway coding and dealing with safe harbor contributions. She pointed out that the budget documentation on the ASC website is a comprehensive description of all plan types and employer structures that are supported by the system. Brad Watson reviewed some of the newer features of the grid and reporter reports. Another good discussion among the group ensued about their favorite uses of the grid, including exporting formats to Excel and importing back into ASC. Sarah Simoneaux covered compliance testing, including the importance of data checks, backing up contributions, and the order of running various tests to correctly reflect catchup contributions. She also pointed out that system menu navigation changes are a high priority this year, and that will help with running tests in a specific order. Lastly, she reviewed the 401k changes in the new law pension legislation. Everyone agreed that both the presentations and the interaction with other users was especially helpful. Clients also enjoyed meeting ASC’s staff, many of whom they met face to face for the first time. As a result, we will be holding another user group meeting in conjunction with ASPPA’s annual fall conference in Washington D.C. in 2007. We look forward to your comments about how to make this meeting even more useful to you and your staff.

ASC Demos Document Management System!

Click here to view the videos. In January 2006 ASC launched the DGEM System (Document Generation & Management System). Now TPAs can create documents, amendments & forms in œ the time or less AND manage them! That means DGEM gives you a way to create, track and store all your plans’ docs and amendments. Our clients tell us that creating amendments now takes half the time or less! View the Amendment Wizard video* (4 minutes) and the DGEM Demo by Charles*!

Success Story of ASC Client Fred Lee

Fred Lee Success Story by ASC Client Fred Lee* “ We think we can add 100 more plans without hiring another administrator.” says Fred Lee at the ASC Users Meeting. Find out in this video* how Fred and his team have increased efficiency and profitability by adding DV direct, in-house daily to their mix of offerings. *these videos are no longer available