[Guidance Overview]
An ERISA Lesson Learned the Hard Way: Tussey v. ABB, Inc.
"Recent ERISA fee litigation, the new Department of Labor service provider and participant disclosure rules and the development of new revenue sharing and fee allocation models within plans are all resulting in a new focus on: the amount of recordkeeping fees impacting participants' accounts; the allocation of those fees (and their analog, revenue sharing) to participants' accounts; and the way those things are understood by the plan sponsor and communicated to participants."
(Warner Norcross & Judd LLP)
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Assistant Labor Secretary Responds to Concerns About Brokerage Window Guidance
Excerpt: The Department of Labor is working on a second set of frequently-asked-questions and answers regarding its fee disclosure regime, but the industry should not expect it out before July 1, Phyllis C. Borzi, assistant secretary of labor for DOL's Employee Benefits Security Administration, said ... Borzi recognized that the department has not been very clear as to fiduciaries' duties with regard to brokerage windows. Because of that, DOL has been speaking with retirement industry representatives about how they interpret their duty to participants when offering a brokerage window. "People will come to us and say, 'Well, this was new. We had no idea that we had to monitor brokerage accounts.' I would say to them, "Well, what did you think your fiduciary duty was: Set it and forget it?"'
(Bloomberg BNA)
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Phyllis Borzi Says Critics 'Overreacting' to New Rules for 401(k) Brokerage Accounts
"Assistant Labor Secretary Phyllis Borzi fired back at retirement plan industry members who claim the agency's attempt to clarify fee-disclosure rules on 401(k) options amounts to formulating new rules for brokerage windows.... Ms. Borzi ... said that while brokerage accounts aren't considered designated investment alternatives, plan sponsors shouldn't be surprised that they still have responsibility over the options available."
(Investment News)
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Investment Advisors Wary of Potentially Dueling Fiduciary Standards from SEC, DOL
"[Assistant Labor Secretary] Phyllis Borzi ... said on Monday that Labor and the SEC operate under separate statutes. Securities law fiduciary duty concentrates on disclosure while retirement-law fiduciary duty prohibits conflicts of interest. 'I absolutely will not promise anybody there will be a single fiduciary standard because that's impossible,' Ms. Borzi [said]. 'Compliance with one of the standards won't put you out of compliance with the other standard. It doesn't mean a single standard; it does mean a compatible standard.'"
(Investment News)
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Is the Fiduciary Standard the 'New Normal' for Financial Advisors?
Highlights from a survey of investment advisors that is described in the linked article: "97% say investors don't understand the differences between brokers and investment advisers. 85% say the gap in professional knowledge between investors and advisors makes fiduciary advice much more important for ordinary investors. Almost two-thirds of all participants report to have a fiduciary relationship with their clients. 71% say a uniform fiduciary standard 'no less stringent' than what is currently required of registered investment advisers would raise the credibility of financial service providers. Nearly three-quarters do not believe that advisors are adequately knowledgeable and trained to practice under the fiduciary standard."
(fi360 Blog)
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DOL FAQS on Brokerage Windows Mean More Work on Investment Fee Disclosures
"The original investment fee disclosure requirements applied largely to 'designated investment alternatives.' Many [self-directed retirement] plans include an opportunity for participants to leave the designated investment menu and select individual investments through brokerage accounts. Most observers believed that the investment specific disclosure requirements did not apply to these brokerage windows. The DOL turned these assumptions on their head in a series of Questions and Answers issued on May 5, 2012. Q&A 13 requires a general disclosure of basic information regarding the brokerage window—how the window works, to whom to give investment instructions, any account balance requirements, trading restrictions and whom to contact with questions."
(Warner Norcross & Judd LLP)
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Pew Report Finds Benefits Funding Gap Continues to Widen; Only 5% of Retiree Health is Funded
"The gap between what states owe their retirees and what they've set aside to pay them [in combined pension and health benefits] has grown to at least $1.38 tril.lion, according to the latest study from the Pew Center on the States. The report, based on data from the 2010 fiscal year, shows the gap is up about 9 percent compared to FY 2009 data and up 38 percent compared to data from FY 2008.... The report finds that state pension plans have $2.31 tril.lion set aside to cover $3.07 tril.lion in obligations, leaving a gap of about $757 bil.lion. States have set aside only about 5 percent of the $660 bil.lion in non-pension benefits—namely retiree health care—leaving a $627 bil.lion gap in that pool."
(Governing)
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Snapshot of the 10 States With Largest Pension Shortfalls
"Few states have enough money in their retirement systems to cover all the pensions they're required to pay in coming decades. Economic problems have decreased the value of their investments, and many states have simply failed to contribute their full share to retirement systems."
(The New York Times; free registration required)
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Two-Decade Pension Funding Holiday Leaves Costs Mounting for University of California
Campuses, employees and the state did not contribute any money toward pensions for nearly two decades. Pension costs are expected to climb for 56,000 current retirees and another 116,000 employees nearing retirement. As of May, there were 2,129 UC retirees drawing annual pensions of more than $100,000, 57 with pensions exceeding $200,000 and three with pensions greater than $300,000.
(The New York Times; free registration required)
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GM Seen Fueling Pension Deals as Employers Face 'Greece-Sized' Funding Gap
"[I]nsurers that expect the GM deal to encourage more corporations to offload plans. Pension liabilities exceed assets by more than $435 bil.lion, according to [Bloomberg] ... Greece, facing demands for austerity measures in exchange for rescue funds, had total debt of about $450 bil.lion at the end of 2011.... 'The pension world will forever remember this transaction as the beginning of the era of pension de-risking,' said [the] head of pension risk transfer at Prudential [the insurer that will provide annuities for the GM plan]."
(Bloomberg)
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Pensions Could Pinch Illinois Schools In Same Way They're Pinching Municipalities
"Suburban [Illinois] mayors have seen their budgets drained over the past several years by rising pension costs for police officers and firefighters but are unable to cut retirement benefits because state lawmakers control the rules. Now, suburban school officials say they eventually could end up in a similar spot—if not in a worse budget position—if the state passes teachers' pension costs on to local school districts."
(Chicago Daily Herald)
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Ford Salaried Staff in England Goes on Strike Over Discontinuance of Pension Plan for New Hires
"White-collar members of Britain's Unite union began the strike Monday morning in response to the automaker's proposal to lower pay rates and close its defined-benefit pension plan to new employees. Hourly workers have agreed to a package that includes changes to defined benefit pensions and new hire rates, the company said.... Ford, which faces a $15.4 bil.lion gap in its global pension funding, is taking its lead from the private sector. Close to 80 percent of private firms in Britain have closed their defined-benefit pension funds to new hires[.]"
(The Detroit News)
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Public Pension Reforms Have Their Day In Court
"Nevertheless, in developing their rule on public-pension benefits, California courts have never even tried to justify their position based on the legislature's intent to create a contract. Although a contract can be implied from the offer and from acceptance of employment with certain pension benefits, such a contract would cover only benefits that had already been earned for service performed. The implied contract would protect pension benefits to be earned in the future only if there was evidence of such a promise on the part of the state. But California courts have found a legal right to future pension accruals without ever providing evidence supporting the creation of that right."
(Bloomberg)
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Target Date Funds and Do-It-Yourselfers in Self-Directed Retirement Plan Both Beat Brokers' Advice
"A new study of university employees participating in a 401(k)-like plan, finds that over a decade, those who got advice from commission-earning brokers made riskier investments—and achieved significantly lower after-investment-expense returns—than those directing their own investments. Moreover, both sets of workers earned less than they would have simply by plopping their money in a Fidelity Investments target date fund, although workers who managed their own accounts took on less investment risk (and owned less stock) than did the target funds."
(Forbes)
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Retirement Savings Shortfalls for Gen Xers: The Impact of Eligibility for Participation in a 401(k) Plan (PDF)
"The dollar value of retirement savings shortfalls for Gen Xers varies considerably with the number of future years of eligibility for 401(k) plans, particularly for those in the highest severity category (simulated to have a shortfall of $200,000 or more): 13 percent of those with no future years of 401(k) eligibility have shortfalls in this range vs. only 3 percent for those with 20 or more years."
(Employee Benefits Research Institute)
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ERISA Advisory Council Hears Testimony on Beneficiary Designation Safe Harbor
"Practitioners encouraged the Department of Labor June 14 to adopt a safe harbor standard that offers liability protection to plan fiduciaries with respect to beneficiary determinations. Witnesses testified during an ERISA Advisory Council meeting on current challenges and best practices concerning beneficiary designations in retirement and life insur.ance plans."
(Bloomberg BNA)
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Service Provider Contracts Demand Employers' Attention
"The new DOL rules, coupled with a recent surge in participant lawsuits against employers for failing to monitor plan service providers, raise and further highlight the risks of not having a reasonable contract. It is essential to have a contract that complies with the new rules and protects the interests of the plan and employer."
(Warner Norcross & Judd LLP)
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Proskauer ERISA Litigation Newsletter, June 2012
"This [newsletter] examines the state of the law on two important areas of ERISA litigation—contractual vesting of retiree medical claims and the exhaustion requirement. First, we examine the evolution of the Sixth Circuit's 'inference,' as articulated in Auto Workers v. Yard-Man, Inc., that an employer intended to provide retirees with lifetime benefits unless the language of the collective bargaining agreement provides otherwise. The case law over the past several years suggests a desire by at least some judges in the Sixth Circuit to find ways to pare back the application of this inference. Next, we discuss how the Supreme Court's decision in Conkright v. Frommert may provide a basis for moving the law in a helpful direction for plans seeking to rely on the exhaustion defense."
(Proskauer Rose LLP)
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A Practical Guide for Evaluating Terminal Funding Annuity Placement Providers
"The skill and expertise of the annuity placement provider are an essential component of ensuring that plan liabilities are settled in a manner that is timely, accurate, and which minimizes expense. Fiduciaries who undertake the process of terminating a pension program will want to carefully consider which service providers they choose to partner with. Included within this paper are specific provider evaluation questions which we recommend plan fiduciaries consider as they discuss and think about the terminal funding annuity placement process."
(Dietrich & Associates)
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Failure to Comply with Davis-Bacon Act Results in Executives' Personal Liability to 401(k) Plan for $570,000
"The U.S. Department of Labor has reached an agreement with the former president and CEO of Aliso Viejo-based Journey Electrical Technologies Inc., a defunct electrical contractor, to restore $570,983 to the company's 401(k) plan. According to a partial consent judgment and order, Mark Dell Donne of San Clemente has agreed to restore $472,235 to the plan. Dell Donne, who served as a fiduciary of the plan, already has restored $98,748 to the plan's accounts."
(U.S. Department of Labor)
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[Opinion]
Pathetic State of State Pension Funds—But What to Do About It?
"Years of neglect and poor governance have now come home to roost, forcing state legislators to enact difficult pension reforms. While [the author] agrees with some reforms like raising the retirement age and cutting cost of living adjustments, [he is] dead set against anything that cuts defined-benefit pension plans to new or existing public sector employees."
(Pension Pulse)
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[Opinion]
ASPPA Urges Congress To Protect Retirement Incentives
"Recommendations from the Bipartisan Policy Center's Debt Reduction Task Force advocate slashing the 401(k) plan contribution limits to the lesser of 20% of pay or $20,000. This so-called '20/20' proposal shows a real misunderstanding of how employer-sponsored retirement plans actually work. Proponents of these kind of cuts claim very few savers would be affected, but in real life many workers would see employer contributions to their 401(k) plans reduced or even eliminated."
(American Society of Pension Professionals & Actuaries)
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Benefits in General; Executive Compensation
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States Are $1.38 Tril.lion Short in Employee Benefits Plan Funding
"States continue to lose ground in their efforts to cover the long-term costs of their employees' pensions and retiree health care.... [S]tate pension plans represented more than half of [the $1.38 tril.lion] shortfall, with $2.31 tril.lion set aside to cover $3.07 tril.lion in long-term liabilities -- leaving about a $757 bil.lion gap. Retiree health care and other non-pension benefits accounted for the remaining $627 bil.lion. States have amassed $660 bil.lion in non-pension liabilities but saved just $33.1 bil.lion to pay for them—slightly less than 5 percent of the total cost.... Over the last three years, the majority of states put reforms in place to better manage their retirement bills, but there is more work to be done to get back on solid fiscal footing."
(Pew Center on the States)
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Press Releases
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