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California Employers Face Pension Plan Mandate
"If the program moves forward, companies that have five or more employees and do not offer their own retirement plan would be required to deduct 3% of participating employees' wages and deposit the funds into government-run investment accounts. Employees would be automatically enrolled in the program, unless they opt out of participating. It is far from clear that the program described in the bills would meet tax qualification requirements and other standards set under ERISA."
(Bloomberg BNA)
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The Age of Reasonableness—'The Future Ain't What It Used to Be' for Plan Fiduciaries (PDF)
"After the distraction of formatting and distributing the 404(a)(5) disclosures to employees, it is now time to turn our attention back to the required evaluation of reasonableness of services and fees. In the final regulations alone, the Department of Labor used the word 'reasonable' 41 times specifically referring to fees, compensation, contracts and arrangements. But what is 'reasonable'?"
(Flaute Hare Davis)
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What You Need to Know About ERISA 403(b) Plans in 2012 (PDF)
"408(b)(2), 404(a)(5) and Fiduciary Responsibility takes center stage.... The disclosures and guidance provided in 2012 will most likely result in more changes in how ERISA 403(b) plans are governed, evaluated and judged than in any year since 1986."
(Flaute Hare Davis)
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10 States Where the Public Pension Fight Is Fierce
"Many are dealing with big pension bills by reducing retirement benefits. Here's a look at 10 states that have taken steps to address unfunded pension liabilities ... California, Unfunded liability: $165 billion ... Illinois, $85 billion ... Kansas, $9.2 billion ... Kentucky, $30 billion ... Louisiana, $18 billion ... New Hampshire, $4.26 billion ... New Jersey, $41.7 billion ... New York, $9 billion ... Oklahoma, $10.6 billion ... Rhode Island, $4 billion; was $7 billion before recent changes."
(The New York Times; free registration required)
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Maryland's Other Pension Problem: Underfunding by County Governments
"With two-thirds of its state employee pension/benefit system unfunded, Maryland's retirement system is in serious trouble. But according to a new study by the Maryland Public Policy Institute, the situation at the county level is even worse. On average, Maryland's 24 counties are funding only half of what's needed to provide promised post-employment pension, health and insurance benefits to their aging work forces."
(The Examiner)
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California Pension Reform Aims to Hammer Down 'Spiking'
"The reform bill takes several steps to curb 'spiking' by boosting the pay on which pensions are based ... These changes only apply to new hires ... But the reform bill also has two provisions aimed at current workers in the 20 county systems operating under a 1937 act. The independent systems, among them Contra Costa, would be the untamed Wild West of spiking, except much of it is court ordered."
(CalPensions)
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Retirement Planning 2.0: Retrain Your Brain for Financial Success
"Dismal market returns haven't exactly created a tailwind for 401(k) and IRA portfolios over the last decade or so, but an equally pernicious—and more entrenched—problem is that our brains are messing with our retirement plans. ... 'Invest $5,000 in your IRA for a retirement that is 10, 20, 30 years away? Or spend the $5,000 for a vacation to the Bahamas?' All too often, the Bahamas wins out."
(Bloomberg)
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$1.4T in States' Pension Fights Foreshadowed in RI
"Cities and states around the country are shoring up battered retirement plans by reducing promised benefits to public workers and retirees.... Nowhere have the changes been as sweeping as in Rhode Island, where public sector unions are suing to block an overhaul passed last year.... The court case foreshadows likely battles elsewhere as states grapple with their own pension problems. In the past two years, 10 states suspended or cut retiree pension increases; 13 states now offer hybrid retirement plants that combine pensions with 401(k)-like plans."
(The New York Times; free registration required)
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Do Plan Advisers Understand Their Risks?
"New federal regulations mandating fee and compensation disclosure are the latest reminder to plan advisers and fiduciaries of the perils of providing services to ERISA-regulated benefit plans. Many investment advisers are unaware of how recent rule changes affect their duties as fiduciaries."
(Investment News; free registration required)
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The Most and Least Prepared for Retirement
"Workers in Washington, D.C. are the most unprepared for retirement, according to a survey of consumers in 30 metro areas ... while Hartford-New Haven ranked as best prepared."
(Physicians' Money Digest)
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Understanding Inherited IRAs Can Save You Money on Taxes
"With traditional IRAs, your heirs will owe income taxes when they take money out of the account. With Roth IRAs, the money comes tax-free. In either case, the best strategy for heirs is to leave as much money as possible in the account. The tax-sheltered growth of those investments could continue for years, even decades."
(AARP)
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Pension Rights Advocates Urge Caution In Altering Rules on Deferred Vested Benefits (PDF)
"Focusing on language in the proposed regulation ... that would permit a circumvention of traditional rulemaking procedures, the Pension Rights Center, in a Sept. 24 comment letter, said 'rules that could materially affect information given to participants and beneficiaries should be considered through a formal regulatory proceeding under the Administrative Procedure Act' and not be published through less formal procedures without notice and opportunity for public comment."
(Bloomberg BNA)
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Let's Be Reasonable: 408(b)(2) Fee and Service Evaluations
"One of the primary duties of a plan fiduciary as defined by the Department of Labor is to pay only reasonable plan expenses. There is not an option to ignore this requirement. In the final 408(b)(2) regulations alone, the Department of Labor used the word 'reasonable' 93 total times. Of these, 41 uses specifically referred to fees, compensation, contracts and arrangements. However, this concept of plan and service 'reasonableness' has not been defined."
(Fiduciary Plan Governance, LLC)
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Government Accountability Office Releases Report on Multiple Employer Plans
"The report is an interesting read because it does a good job summarizing the MEP industry at this point in time, and discusses the issues caused by lack of coordination between the IRS and the Dept. of Labor in regulating MEPs, including how the DOL issued two recent advisory opinions finding that open MEPs are not single employer benefit plans under Title I of ERISA, while the IRS has found at least one open MEP, operating since 2003, qualified for preferential tax treatment."
(The Pension Protection Act Blog)
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[Opinion]
Russia's Prime Minister Signs a Disastrous Pension Reform
"The strategy signed by Mr. Medvedev calls for the funded component to decrease from 6% to 2% of the overall pension system.... Virtually all Russia's best economists ... have warned against cutting the funded pillar.... The only way forward, argue nearly all experts, is to raise Russia's low pension age of 55 for women and 60 for men."
(Business Insider)
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[Opinion]
Politics Driving CalSTRS Pension Investments
"CalSTRS investments in solar power were driven not by desire to earn the greatest return for the system's retiree, but to advance the political cause of renewable energy. Indeed, the pension dollars CalSTRS is risking on the solar-power plants near Sactown almost certainly would earn more over the over the short, medium and long term if it simply was invested in Chevron, the 'supermajor' oil company based in San Ramon, Calif."
(Cal Watchdog)
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Benefits in General; Executive Compensation
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[Guidance Overview]
NYSE and NASDAQ Propose New Rules for Compensation Committees Under Dodd-Frank (PDF)
"Notably, NASDAQ is proposing that compensation committee members be prevented from accepting, directly or indirectly, any consulting, advisory or other compensatory fee from the issuer or any subsidiary. This independence standard already applies to audit committee members under both U.S. and Canadian rules, but by contrast, the NYSE is not proposing to extend the prohibition to compensation committee members."
(Torys LLP)
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Shareholder Activism Brings Changes to Executive Compensation
"Today, the speed of public comment and reaction means that company pay policies, which were defined according to criteria which may have been valid a year—or even months—before, might now attract intense public scrutiny and criticism. Legislators and companies are being forced to improve their responsiveness."
(Mercer)
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NYSE and NASDAQ Issue Proposed Listing Standards to Implement Exchange Act Rule 10C-1 Relating to Independence of Compensation Committees and Their Advisers (PDF)
"Under the proposed [NYSE] rules, in affirmatively determining the independence of any director who will serve on the compensation committee, the board must consider all factors specifically relevant to determining whether a director has a relationship to the issuer that is material to that director's ability to be independent from management in connection with the duties of a compensation committee member ... In a new turn of events, NASDAQ-listed companies would be required to have a compensation committee consisting of at least two independent directors. Companies would no longer be permitted to have a majority of independent directors determine executive compensation."
(Alston + Bird LLP)
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401(k) Participants with Health Savings Accounts Continue to Outpace Average 401(K) Savings Levels
"The average 401(k) balance for participants earning $40,000 to $60,000 per year and saving in both their workplace savings plan and an HSA was $63,600. In contrast, those in the same income bracket who saved only in a 401(k) had an average balance of $46,100, 28 percent less. Similarly, those earning $100,000 to $150,000 per year and saved in both vehicles had an average 401(k) balance of $226,800. But for those saving in a 401(k) alone, the average balance was $174,200, 23 percent less."
(Fidelity via BusinessWire)
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Planning for Health Care Costs in Retirement
"It's not news that health care costs are increasing. Yet several recent studies show that few people factor those rising costs into their retirement plans.... For a 65-year-old couple retiring this year, the cost of health care in retirement will be $240,000, 6 percent more than that same couple retiring in 2011 would pay."
(The New York Times; free registration required)
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2012 Corporate Governance of Global Employee Benefits Study
"Key Findings: (1) Execution of global benefits strategy to achieve desired outcomes, such as reduced financial and operational costs and risks, was noted as the single largest benefits governance challenge. (2) The most common reason by far for sponsoring employee benefit plans is to be competitive in local markets. (3) Financial costs and risks due to employee benefits are driving corporate involvement in local country benefits decisions more so than other factors, including centralisation trends and operational risks."
(Aon Hewitt)
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Employee Education Subsidies: Tax Implications
"Educational reimbursement programs are a common employee benefit among health care organizations. Programs can be established to assist employees in paying for tuition, books and fees in the pursuit of continuing education while on the job. If your organization sponsors such an arrangement, is it getting the best bang for its buck? If structured correctly, these arrangements can provide tax-favored benefits from both an employee and employer perspective."
(Holland & Hart)
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Press Releases
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