February 1999 Issue



By Larry B. Wattenberg, ASA, EA, Geller & Wind, Ltd.

The Pension Benefit Guaranty Corporation (PBGC) issued final rules in 1997 with respect to filing, distribution, and post-distribution certification deadlines associated with standard terminations of single-employer defined benefit plans.

The rules describe the procedures a plan sponsor must undertake to terminate a qualified defined benefit plan as a standard termination (one in which plan assets are sufficient to satisfy all benefit liabilities).

The deadline to file a PBGC Form 500 Plan Termination Notice has been increased from 120 days to 180 days after the proposed termination date. The distribution deadline remains the same at 61 to 240 days after PBGC receives the plan termination notice. However, if a request for a favorable termination letter from the IRS is filed not later than the date the plan termination notice is submitted to PBGC, then the distribution deadline is extended to 120 days (formerly 60 days) after the determination letter is issued by the IRS. In addition, the requirement to notify PBGC of the need for this extension has been eliminated.

Under ERISA, a post-distribution certification is required to be filed with PBGC no later than 30 days after the date of the final distribution of assets. However, under its own rules, PBGC will assess a penalty for the late filing of a post-distribution certification only to the extent that the certification is filed more than 90 days after the distribution deadline.

To simplify the termination process, PBGC developed a model Notice of Intent to Terminate that plan administrators may use to inform plan participants of the proposed plan termination. Under the new rule, the Notice of Plan Benefits must inform plan participants of the mortality and interest assumptions that will be used to determine the lump sum distributions.

The changes in the final rules will generally be effective for plan terminations for which a Notice of Intent to Terminate is distributed to plan participants after December 31, 1997. *


By J. Michael Bermensolo, Esq., Geller & Wind, Ltd.

The IRC provides for dollar limitations on benefits and contributions under retirement plans. It also requires an annual adjustment of these limits for cost-of-living (COLA) increases.

Under the General Agreement on Tariffs and Trade (GATT)(P.L.103-465), the COLA adjusted amounts are determined as of September 30th rather than December 31st of each year so that the amounts are available before the beginning of the calendar year to which they apply. The COLA adjustments also reflect the new rounding rules under GATT. GATT provides that, in adjusting the limit on benefits under a defined benefit pension plan and on annual additions under a defined contribution plan, COLAs are to be rounded down to the next lowest multiple of $5,000 if the increase in the limits is not a multiple of $5,000.

As a result of this rounding method, even though the price indices reflect an increase most of the limitations are unchanged for 1999 from 1998. A table of those changes was presented in the News & Views section of the January issue of The CPA Journal. *


By Edward P. Abramowitz and Walter B. Taylor

Legislation promoted by Gov. George E. Pataki that allows employers to channel their employees into Preferred Provider Organizations for workers' compensation injuries has been effective since January 1, 1997. The practical value of the legislation is that PPOs have negotiated reductions in rates with the physicians in their networks who treat workers' compensation claims. These discounts reduce the cost of medical claims under workers' compensation. In addition, they may eventually reduce the cost of outstanding reserves set for medical costs. This is only one of the benefits this legislation provides.

The typical workers' compensation contract is driven by three costs:

* Size of payroll

* Nature of the insureds business

* The employer's loss history measured by incurred claims.

The biggest variable in the rating process is the setting of reserves. Reserves are approximate figures set for open claims. Reserves are calculated into the employer's experience modifier and create either a surcharge or discount. If the employer's experience modification is inflated because reserves are set too high, the employer's premium will be higher than the actual exposure. Reserves ultimately determine what an employer will pay.

Governor Pataki's legislation has already started to bear fruit. Reserves set in a PPO are lower, thereby reducing premiums. Accurate reserve setting increases operating income and cash flow. PPOs save on premiums because the costs associated with the open claim are reduced through case management. Case management offers utilization review, bill review, fraud audits, and employee education. Taken collectively, these cost control measures substantially reduce the waste that sometimes occurs when no one is looking.

In 1993 medical claims for workers' compensation were approximately $17.4 billion. Industry analyst Conning & Company projects that by the year 2000 medical claims for workers' compensation will nearly double in this seven-year period to $34.1 billion. *

Edward P. Abramowitz is with CB Planning Services Corporation in Great Neck, N.Y., and Walter B. Taylor is with the Hamilton Wharton Group, Inc., in New York City.

Sheldon M. Geller, Esq.
Geller & Wind, Ltd.

Michael D. Schulman, CPA
Schulman & Company

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