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October 18, 2012          Get Health & Welfare News  |  Advertise  |  Unsubscribe
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Employee Benefits Jobs

DB Systems Analyst
for Milliman in TX

Pension Administrator
for Thompson Pension Employee Plans Inc, in NY

401(k) Recordkeeper
for Guidant Financial in WA

Senior Defined Contribution Plan Administrator
for Strategic Pension Services, Inc. in CA

Benefits Analyst
for Northwestern Benefit Corporation of Georgia in GA

Financial Services Account Manager
for Schuster Driscoll, LLC in CT

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Webcasts and Conferences

Rebroadcast: Form W-2 and Employer Health Coverage: Web Seminar Rebroadcast and Q/A Session With Speakers
Nationwide on November 8, 2012 presented by Thomson Reuters / EBIA

HSAs, HRAs, and Health FSAs: Understanding the Differences to Find the Best Fit
Nationwide on November 15, 2012 presented by Thomson Reuters / EBIA


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[Official Guidance]

IRS Announces 2013 Pension Plan Limitations; Taxpayers May Contribute up to $17,500 to their 401(k) plans in 2013 (PDF)
"In general, many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment. Highlights include: The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased from $17,000 to $17,500. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $5,500." (Internal Revenue Service)


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[Guidance Overview]

What is Publicly Traded Stock?
"In a recent private letter ruling, the IRS considered the situation of a company that had a class of preferred stock traded on the over-the-counter bulletin board. The IRS ruled that this stock was not publicly traded because the regulations under Section 401(a)(35) require that the employer security be traded on an exchange registered under Section 6(a) of the Securities Exchange Act of 1934 or under certain foreign exchanges.... Therefore ... the shares were not treated as 'publicly traded' and the plan was not required to meet the diversification requirements of Section 401(a)(35)." (BenefitsNotes by Leonard, Street and Deinard)

[Guidance Overview]

GASB's New Pension Standards: Setting the Record Straight
"[Q]uestions and answers that should help clarify common misperceptions about the new pension Statements [for public employee pensions]. (1) Do the new GASB Statements establish requirements for how governments should fund their pensions?... (2) Will governments have to pay more each year for pensions because of the GASB's new Statements?... (4) Do the GASB's standards allow governments to make their liabilities look smaller by using a discount rate based on unrealistically high expected rates of investment return?... (7) Has the GASB determined that state and local government pension plans are underfunded by $3 trillion?" (Governmental Accounting Standards Board)

Risks Threatening DC Plan Success
"Amid market volatility, the changing role of defined contribution (DC) retirement plans, a shrinking work force and longer life expectancy, plan sponsors must tackle more issues threatening plan success. Three risks exist for DC plans in the current retirement environment: yesterday's risk, or the growing risk of low risk; today's risk, that qualified default investment alternatives (QDIAs) need to be better understood; and tomorrow's risk, or the issue of retirement income[.]" (PLANADVISER.com)

Russia's Private Pension Rollback Dismays Investors
"A Russian government plan to slash compulsory retirement savings threatens to cripple the nascent asset management industry without fixing a hole in the state pensions budget, industry players and economic experts warn. Progress on pension reform is being closely watched, as Russia grapples with a huge shortfall in its overburdened state pension system.... The plan now under discussion in Russia would reduce the rate for mandatory contributions - paid by employers on behalf of their staff through a payroll tax -- to 2 percent from 6 percent, with the excess diverted to the state pension fund." (Reuters)


[Advert.]

SWBA / IRS Employee Benefits Conference for Practitioners and Plan Sponsors

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A New Retirement Withdrawal Strategy -- Brought to You by the Internal Revenue Code
"The success of the [Required Minimum Distribution, or 'RMD'] strategy lies in its simplicity and the fact that it reduces the temptation to chase down dividend ... However, its use of actuarial data is also a factor: The IRS intended IRAs -- at least at the very beginning -- to help people save for and live in retirement, and not for savers to turn the accounts into estate-planning vehicles, according to Eric Smith, a spokesman for the IRS." (Investment News; free registration required)

Cypen & Cypen Newsletter for October 18, 2012
Covers employee benefit developments with an emphasis on governmental plans. Topics in this issue include: Eliminating "Double-dipping" Would Be Costly; Individual Account Retirement Plans -- an Analysis of the 2010 Survey of Consumer Finances; ICMA-RC/Center for State and Local Government Excellence Brief Identifies Public Sector Retirement Plan Changes; the Guardian Workplace Benefits Study; Federal Agencies Should Collect Data and Coordinate Oversight of Multiple Employer Plans. (Cypen & Cypen)

Proposed Changes to Social Security's Cost-of-Living Adjustment: What Would They Mean for Beneficiaries? (PDF)
"A new cost of living measure (chained-CPI), which grows more slowly than the current calculation (CPI-W), would reduce spending on Social Security as well as other federally administered programs such as Supplemental Security Income and pensions for veterans....Small reductions to the annual COLA will accumulate over time so that the largest reductions in benefits will be on the oldest beneficiaries and the long-term disabled." (AARP)

Should the PBGC Have Control Over Distressed Pensions' Investing?
"[A] financial economist ...[argues] that defined benefit plan sponsors become overly aggressive with pension portfolios when those funds enter distressed territory, because the PBGC's backing creates a moral hazard. In normal, non-distressed times ... the same corporate pension portfolio fulfills both stockholders' and members' best interests. When things get rocky, however, taking on more risk is optimal for shareholders, because even if the gamble fails, the plan is backstopped by the PBGC. Thus, moral hazard." (aiCIO)

Optimal Corporate Pension Policy for Defined Benefit Plans in the Presence of PBGC Insurance
"In normal, non-distressed times, the optimal pension portfolio rule from the equityholders' perspective is acceptable to both the participants and PBGC. However, this is no longer the case when the firm approaches financial distress. The PBGC put then emerges in the consolidated balance sheet, and the firm's optimal portfolio behavior becomes more aggressive. [The author] recommend[s] that the PBGC obtain a control right on pension decisions made by sponsoring companies near distress." (Katarzyna Romaniuk, Universidad de Santiago de Chile)

Florida Pension Stress Test Foretells Tough Decisions on Investment Return Assumptions
"In early 2011, the Florida Retirement System asked its actuary to value its pension liabilities using a range of discount rates -- from 7.5 percent all the way down to 3% (the state uses 7.75% in its reporting).... Moving the discount rate down 250 basis points increased the actuarial liability by $4.4 billion. Moving it to 5% increased it by $63 billion. And at 3%, or the de facto risk-free discount rate preferred by 95 percent of economists, the liability figure jumped by $137 billion." (Truth in Pensions)

Lawyers Writing About Actuarial Topics -- Badly
"Judge Richard Posner of the US Seventh Circuit Court of Appeals recently bemoaned the problems created by some appellate lawyers who could not communicate pension and actuarial concepts clearly to lay judges.... After quoting from both parties' briefs to provide an example of what he was talking about, Judge Posner wrote: 'All this was terribly opaque to us because the parties failed to provide context -- failed to explain what exactly the pools are, why interest rates are important to withdrawal liability, what the "funding interest assumption" is, [and more].' ... There's an important lesson here for those of us who work at the intersection of legal and actuarial work. We need to step back from all the jargon." (Reinhart Boerner Van Deuren s.c.)

What Can U.S. DC Plans Learn from the Rolling Stones?
"When it comes to constructing the perfect defined contribution (DC) plan, sponsors and participants both might benefit by taking a page from the Rolling Stones? famous line: 'You can't always get what you want, but -- you get what you need.' ... More than three-fourths (77%) of plan sponsors are keenly interested in increasing plan participation, according to our research. And most participants (67%) said the single most important feature they want from their DC plan is a steady income stream in retirement. How do we get there?" (Alliance Bernstein)

Have Target-Date Funds Failed? Are Income Guarantees the Answer? (PDF)
"Although 2008 was a painful year, one potential silver lining is that the heightened scrutiny is likely to lead to an increased recognition of TDF design differences, a better understanding of the reasoning behind the differences, and, ultimately, an improvement in the quality of TDF designs and communications. It is also likely to lead to healthy reflection and discussion concerning the long-term objectives of DC plans as a whole -- and whether innovation is required to provide better retirement security for workers." (Alliance Bernstein)

Verizon Moves $7.5 Billion in Pension Assets to Prudential Annuity Contract
"Verizon Communications Inc. is transferring about $7.5 billion in pension obligations, or one- fourth of the total, to Prudential Financial Inc. in a drive to remove risk from its balance sheet.... The Verizon transaction is expected to be the second- largest insured annuity settlement in U.S. history, trailing only the GM deal[.]" (Bloomberg)

Conflicted Investors Fear Both Retirement and Taking on Risk
"It's a conflicted time for American investors who are both worried about their preparedness for retirement but also terrifically gun shy about taking on new risk to help pay for it, according to a new study [which] found that 71% of respondents said volatility has eroded their confidence in the markets, while nearly 80% (77%) said they are concerned about outliving their assets when they are older. Rounding out this cautionary picture, 58% said they will sacrifice investment returns in order to minimum risk and 57% said they won't be reducing the cash holdings in their portfolio." (Financial Planning)

Postal Service May Be Overfunding Pensions
"The U.S. Postal Service is overpaying into its Federal Employee Reserve System because its employees' circumstances differ from that of typical federal workers, according to a new report. The audit, conducted by an actuarial firm contracted by the USPS inspector general, found that while the Office of Personnel Management assumed the average USPS salary increased by 4.11 percent from 2002-2010, it actually rose by only 2.77 percent to 3.41 percent, depending on the employee's union." (GovExec.com)

Raising Default Rate on 401(k) Contributions Would Increase Retirement Security Success
"EBRI evaluated the impact of raising the default contribution rate on younger workers (with 31-40 years of simulated 401(k) eligibility) to see how many would be likely to achieve a total income real replacement rate of 80% at retirement -- within the typical range of replacement rates suggested by many financial consultants.... [M]ore than a quarter (25.6%) of those in the lowest-income quartile who had previously not been modeled to have a financially successful retirement (under the actual default contribution rates) would be successful as a result of the increase in the starting deferral rate to 6% of compensation." (Wolters Kluwer Law & Business)

Supreme Court Allows Moench Presumption to Continue
"The United States Department of Labor has long argued in amicus briefs that the presumption is an evidentiary presumption which cannot be considered in regards to a motion to dismiss, an argument the Second Circuit expressly rejected. Following the Citigroup and McGraw-Hill appellate decisions, but before the Supreme Court's denial of certiorari, the Sixth Circuit ... concluded that the Moench presumption could not be applied at the pleadings stage. In so doing, the Sixth Circuit expressly rejected the Second Circuit's reasoning in Citigroup and McGraw-Hill. Thus, the Supreme Court's action leaves the question of applicability of the presumption to motions to dismiss in flux." (Schiff Hardin LLP)

Verizon Announces Major Pension Settlement Actions
"Verizon Communications Inc. announced a multi-billion dollar annuity purchase to settle pension liabilities for management retirees and beneficiaries. The transaction, expected to close in December of 2012, involves the purchase of a group annuity contract from Prudential Insurance Company of America (Prudential) to cover approximately 41,000 retirees and beneficiaries. The Projected Benefit Obligation (PBO) currently carried on Verizon's balance sheet for these obligations is $7.5 billion." (Aon Hewitt)

Create Your Own Paycheck: Generating Income During Retirement
"[T]he average monthly Social Security benefit of $1,2301 isn't going to provide enough income to meet expenses.... [P]rospective retirees consider these six pieces of advice when creating their retirement plans: Time your retirement carefully.... Don't over rely on safe, income-producing investments.... Adjust your withdrawal rate to your needs.... Don't be afraid to spend capital from a retirement portfolio.... Understand your tax obligations.... Spending matters more than investments." (Certified Financial Planner Board of Standards)

[Opinion]

California Public Employees' Pension Reform Act of 2013 Is Deeply Flawed Legislation (PDF)
"All but one significant provision affects only new employees. It will take 15 years to produce noticeable improvement. It does next to nothing to prevent significant deterioration of local and state finances until then. PEPRA's fatal flaw is most government Pension Funds are underfunded (many severely so) and it does nothing about it." (YourPublicMoney.com)

[Opinion]

Pension Risk Transfers: A Boon for Insurers?
"[P]ension risk transfer agreements will be cropping up everywhere as companies shut down defined-benefit plans and offload risk of existing plans to insurance companies who are going to make a killing off these agreements as rates rise and pension assets soar. They pay a low rate on annuities and are going to make a huge spread. It's money in the bank for insurance companies which is why top funds have been loading up on their shares over the past year." (Pension Pulse)

[Opinion]

Time to Address the Retirement Savings Crisis
"This is definitely not to say that the retirement savings system is so broken that it must be replaced. The fact is that the existing 401(k)/IRA system provides a solid foundation for retirement security. The growth of such features as automatic enrollment and automatic escalation has made it easier for millions more to participate and make appropriate investment choices. But the system does need significant reforms so that all Americans can have the opportunity to participate, be assured that they will have a comfortable retirement, and have the information they need to avoid nasty surprises." (The Heritage Foundation)

[Opinion]

The Case For ETFs in 401(k) Plans
"Since ETFs carry bundled fees or revenue sharing, 'they are already aligned with the new requirements on fee disclosure. With ETFs, you always know what you own and what you paid for it. So, as far as your late-October account statements -- no surprises' [said Sean Kelly, a registered representative of ALPS Distributors]." (NASDAQ)

[Opinion]

Proposal for 408(b)(2) Voluntary Correction Program Submitted to DOL
"The major features of the proposal include: (1) Service providers would pay a fee to apply for correction to the Labor Department -- the program would not be available to service providers under investigation by DOL or IRS. (2) The application would explain the error or omission, and how it would be or has been corrected. DOL would review the information and approve or deny the application. (3) Service providers could apply for a systemic failure (the same mistake made in disclosures to many plans) or individual errors (a mistake related only to one plan). (4) In order to encourage use, service providers could apply anonymously. (5) Approval would result in a 'no action' letter indicating that there will be no further investigation, no additional penalties, exemption from excise tax under the Code, and no corrective action in the form of refund of reasonable compensation." (Drinker Biddle)

Benefits in General; Executive Compensation

[Guidance Overview]

NYSE And NASDAQ Propose New Compensation Committee Listing Standards
"The NYSE and NASDAQ have now proposed amendments to their respective listing standards relating to compensation committees of listed companies pursuant to Rule 10C-1.... The SEC will accept comments for a 21-day period, after which the SEC will decide whether to approve the listing standards as proposed or require the exchanges to make changes. There are differences between the two proposals, so the SEC also may ask the exchanges to sync up their approaches in some respects." (DrinkerBiddle)

ISS Releases 2013 Draft Policies for Comment
"Institutional Shareholder Services (ISS) released certain 2013 draft proxy voting policies for public comment. The draft voting policies for US companies address: Board response to majority-supported shareholder proposals.... Management say-on-pay proposals.... Say on golden parachute proposals.... Environmental and social non-financial performance compensation-related proposals." (Practical Law Company)

Social Security Yearly Income Cap Will Rise in 2013: Impact on Stock Compensation and Nonqualified Deferred Compensation
"If your compensation for the year has already surpassed the taxable maximum for Social Security and you want to exercise nonqualified stock options, you can do so without paying Social Security tax on the income recognized at exercise. Alternatively, if your income for the year is under the taxable maximum, then exercising NQSOs before the end of 2012 will let you benefit from the current 2% rate cut before the rate almost certainly goes back up to 6.2% in 2013." (myStockOptions.com)

Non-Employee Director Compensation Across Industries and Size, 2012 Edition (PDF)
"[D]irector compensation levels vary primarily based on company size, while the structure of compensation is influenced by both company size and industry.... The financial services sector pays the highest portion of total compensation for board service in cash (56% of total compensation), while technology companies pay the lowest portion in cash (34% of total compensation).... Equity compensation continues to shift toward full-value stock awards determined under annual fixed-dollar formulas, and away from options and fixed-share grants." (Frederic W. Cook & Co., Inc.)

Press Releases

PBGC New Management Hires
Pension Benefit Guaranty Corporation (PBGC)



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