NEWS FROM BP&S

TECHNICAL ISSUES

We received the following information from our client, Chip Hardy and his partner, Chip Hunt, the owners of PrimeTRUST Advisors. We thought this was very interesting and, with their permission, are passing it along to you.

As the year draws to a close we reflect upon the many changes occurring within the retirement plans arena, we can not help but be impressed by the magnitude of the wide-scale adoption of plan design changes occurring in response to recent legislative, regulatory and legal activities. Whatever the motivation, across the country, plan sponsors are making appropriate adjustments to help their employees better prepare for retirement – and protect themselves as fiduciaries in the process. PrimeTRUST Advisors is available to assist in this endeavor if you have any questions about the appropriate steps you should take on any of the observations we have outlined.

The following is our condensed summary of the findings from multiple surveys, white papers and industry announcements. In aggregate, the plans surveyed have over three million participants and over three billion dollars in retirement plan assets.

• Income replacement at retirement is now being used to define a retirement plan’s success; more so than participation and deferral rates, this lends itself to increased monitoring of overall participant behaviors and decisions.

• Approximately 50% of employers offer immediate eligibility to participate in the 401 (k) plans.

• Almost one-third of employers use some form of safe harbor plan design to eliminate testing.

• Employers are putting more money into 401 (k) plans. This is coming from pension reductions and more match money relating to automatic features.

• Anywhere from 35% - 60% employers are automatically enrolling employees into the 401 (k) plan, with 3%-5% as the most common default contribution rate. Two-thirds auto-enroll new hires only and one-third auto-enroll all employees.

• One-third of plans use automatic deferral increases to boost participation and savings, and 35% offer automatic rebalancing of participant accounts to help accomplish long-term goals and fit risk profiles.

• A majority of plans now default into pre-mixed investments with target date funds being the primary choice and life style funds being secondary. Eighty percent of plans offer one or both of these types of investment choices.

• The most common employer non-safe harbor match remains $0.50 per $1.00 up to 6%.

• Seventy-five percent of plans have an investment policy statement and 10% intend on adding one in 2008.

• Over one-third of the companies have a retirement committee to select/monitor plan investments, most meet quarterly.

• Sixty-nine percent of Plan Sponsors use an outside investment management consultant.

• Almost two-thirds of employers are openly concerned about plan expenses and hidden fees. Some have analyzed their current fee structure and others intend to in 2008.

• Investment flexibility (open architecture) is the preferred structure; less than 15% of plans offer investment choices from only one fund family.

Improved financial literacy and trust among participants increases participation and appreciation which should reduce those who opt-out of the automatic features and therefore increase the chances of having a truly successful retirement benefit plan.

We hope this synopsis of changes we see taking place in our industry is as impressive to you as it is for us. Thanks for letting us stay in touch so we can all know what is going on in our local markets. Thank you and best wishes for a prosperous 2008.

AMT Patch

The Tax Increase Prevention Act of 2007 (H.R. 3996) has been signed into law, increasing the 2007 AMT exemption amount to $66,250 for married taxpayers and $44,350 for unmarried taxpayers (up from $62,550 and $42,500 respectively in 2006). The Act also extends AMT relief to nonrefundable personal credits for 2007.

This act will prevent 19 million individual taxpayers from being subject to the AMT and reduce some of the burden on the 4.2 million who would still pay the AMT in 2007. Without the patch, the exemption would have dropped to $45,000 for married taxpayers and $33,750 for singles.
The IRS has announced that the upcoming filing season will start on time for everyone except those using the following five forms:

• Form 8863, Education Credits

• Form 5695, Residential Energy Credits

• Form 1040A, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers

• Form 8396, Mortgage Interest Credit

• Form 8859, District of Columbia First Time Homebuyer Credit

The IRS will not begin accepting these forms until February 11, 2008, affecting approximately 13.5 million taxpayers. The February date allows the IRS enough time to update and test its systems to accommodate the AMT changes without major disruptions to other operations related to the tax season. As the IRS has said previously, it will take approximately seven weeks after the AMT patch was approved to update IRS processing systems completely.

The IRS has promised to promptly post to its website the dozens of forms affected by the change. We will keep you informed of the Service’s progress.

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