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October 24, 2012          Get Health & Welfare News  |  Advertise  |  Unsubscribe
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Hey Service-Provider -- Are You a Fiduciary or Not?
"Well? Are you a fiduciary or not! ... [C]overed service providers have engaged in childish games that take obfuscation to unprecedented levels with their answers. The first childish game is the 'silent treatment.' ... The second childish game is 'send the fool a little further.' ... The third childish game is 'baffle them.' ... You might think these childish games were imagined, but you would be wrong. They are present in MOST of the disclosures that we have reviewed since July 1, 2012!" (Dalbar, Inc.)


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Proposal Games: How Service Providers That Are Not Revenue Neutral Can Make Themselves Appear Less Expensive (PDF)
"It is common in the retirement plan industry for service providers ... to collect and keep revenue sharing from underlying investment managers and to generate additional revenue through proprietary investment options. In this fashion the providers are not 'revenue neutral,' as they stand to benefit more from one investment option being chosen over another. This revenue bias creates inherent conflicts of interest, and it also allows the provider to strategically illustrate lower-revenue investments at the point of proposal to make its service look less expensive." (Securian Retirement)

What Austerity Looks Like in Bankrupt San Bernardino
"San Bernardino's austerity plan leaves an atrophied city government, but essential functions remain in place.... Businesses will be even more skeptical about moving to a city where the government can't afford to fill potholes or respond quickly to crimes ... Much of the city's deficit reduction is in deferred payments that have recently earned the ire of [CalPERS] and the [SEC] ... San Bernardino can balance its budget only by boosting revenues, which requires more businesses, not fewer. It's not clear how long the city can continue on this unsustainable path." (City Journal)

If House Has Its Way, No Public Pension Trustees Will Be Treated As Muni Advisers By SEC
"In September, without opposition, the U.S. House of Representatives passed legislation that would exempt all public pension trustees, including those who were appointed to their position or not otherwise elected by the citizens of their plan's governmental sponsor, from being treated as 'municipal advisers' by the [SEC]. The House action would reverse a proposed SEC rule that would treat such trustees differently from elected or ex officio board members." (National Council on Teacher Retirement)

A Look at the States with Most Rapidly Sinking Pensions
"In 2010, only Wisconsin's pension funds were fully funded. Nine states, meanwhile, were 60% funded or less -- this would mean that at least 40% of the amount the state owes current and future retirees is not in the state's coffers. In Illinois, just 45% of the state's pension liabilities were funded. In some of these states, the gap between the outstanding liability and the amount funded was in the tens of billions of dollars." (MSN Money)

Consequences of Failure to Furnish Sponsor Fee Disclosure for Both Plan Sponsor and Covered Service Provider (PDF)
"The arrangement between the plan and the [Covered Service Provider, or 'CSP'] will not be treated as 'reasonable', and hence will be a prohibited transaction, if a CSP fails to furnish the required disclosures, or if the CSP furnishes incomplete or inaccurate disclosures. This has consequences for both the responsible plan fiduciary and the CSP.... Relief is available for the responsible plan fiduciary if [certain] conditions are met[.]" (ING)

What's Really Jeopardizing Your Retirement?
"[E]mployees have become increasingly interested in retirement planning, but this interest has not always translated into better saving behavior.... [F]ewer employees report contributing enough to their employer's plan to get the full match or having an emergency fund while more report taking loans or hardship withdrawals from their employer's retirement plan. As a result, long-term retirement planning for many employees could be jeopardized by a failure in short-term money management." (Forbes)

Pension Funding Scare Won't Frighten All States
"The dominant view is that large state and local pension gaps are universal across the country, that they are caused largely by assuming too high a discount rate in assessing future liabilities, and that intransigent unions are to blame for the biggest gaps.... In states that have behaved well in the past -- such as Delaware -- the burden of pension plans will increase in future years only modestly if at all. In contrast, a state such as Illinois, which has perhaps the worst record of avoiding necessary funding even while expanding benefits, will have to increase its pension contributions sharply if it is to meet its obligations." (Bloomberg)

Increased Limitation Numbers: A Reminder from the IRS That Retirement Savers Should Not Ignore
"The IRS announced a $500 cost-of-living increase for the maximum tax-qualified contributions for 2013: $17,500 for 401(k) accounts and $5,500 for IRAs. Most retirement savers are not contributing anywhere near those limits.... [E]ven among workers with gross income above $100,000, the average deferral rate was just 8.2 percent last year." (Reuters)

The Path Forward: Importing Winning DB Strategies into DC Plans (PDF)
"To improve retirement outcomes for plan participants, leading defined contribution plan sponsors are importing time-tested principles used by defined benefit plans and other institutional investors. The economic and market uncertainty that exists today is motivating plan sponsors to undertake initiatives in establishing a DC framework that will provide their participants with the essential components to more successfully invest for retirement." (Northern Trust)

Age Greater Factor Than Tax Rates in Determining Benefits of Retirement Plan Contributions
"Individuals' ages are typically more important than their marginal tax rates in determining how much they benefit from the deferred taxation of compensation contributed to employer-provided retirement plans, according to a [recent] study ... [I]n realistic simulations for a variety of investments, the tax benefits from a one-time $1 contribution to a retirement plan are greater for a 45-year-old with a 15% marginal tax rate than for a 60-year-old in the 35% tax bracket." (Wolters Kluwer Law & Business)

Melbourne Mercer Global Pension Index 2012
"The Melbourne Mercer Global Pension Index compares retirement income systems around the world and rates them based on their adequacy, sustainability and integrity. The provision of financial security in retirement is critical for both individuals and societies as most countries grapple with the social and economic effects of ageing populations. There is no perfect system that can be applied universally around the world. Indeed, even comparing the diversity of retirement income systems is certain to be controversial as every system is different and has arisen from each country's particular economic, social, cultural, political and historical circumstances. However there are certain features and characteristics of retirement systems that are likely to lead to improved benefits, an increased likelihood of future sustainability of the system, and a greater level of confidence and trust within the community." (Mercer)

Middle Class Americans Teeter on Edge of Retirement Cliff -- More than a Third Could Live At or Near Poverty in Retirement
"Over half of pre-retired Americans (53%) say they are not confident they will have saved enough for the life they want in retirement, up from 42% percent in 2011. One third (30%) of Americans say they will need to 'work until at least 80,' in order to live comfortably in their retirement years, up from 25% a year ago. Yet, 73% of Americans said their employer would not want them to work in their 80s. Similar to 2011, 70% of middle class Americans say they'll work in retirement, with 39% saying they'll work out of financial necessity." (Wells Fargo)

The Impact of Equities in Pension Investing: It's Not Just Return
"Most pension plans implementing a liability-driven investment (LDI) strategy consider portfolio duration based only on fixed income duration. However, the vast majority of pension plans maintain a large allocation to equities because of stocks' higher return expectations. As a result, it's important to consider the impact of the relationship between stocks and interest rates on portfolio duration in an LDI portfolio. This paper reviews issues with estimating duration, approaches to measuring duration, and how to incorporate duration into a pension plan investment strategy." (The Vanguard Group, Inc.)

It's National Save For Retirement Week! Today's Topic: Company Benefit Plans
"One of the best ways to save for retirement is through your company's benefits plan.... [E]mployers often match a percentage of your contribution to your accounts. If you don't contribute at least enough to get the full match, it's like leaving money on the table!... A typical benefits package is worth a lot, often as much as 25% of an employee's income. It is up to you to know what your employer provides and to take advantage of those opportunities to help protect your future." (Women's Institute for a Secure Retirement (WISER))

U.K. Pension Schemes See Increasing Longevity As Biggest Risk To Funding Levels
"When respondents were asked to rank a series of risks according to their impact on the pension scheme, longevity ranked as the biggest, while falling equity markets and rising inflation ranked second and third respectively." (SEI)

[Opinion]

Determination Will Win the Fiduciary Race
"When anyone is in the business of providing investment advice, [the authors] believe they should be willing to assume a fiduciary role and be legally bound to putting the client's interest first. [The authors] have and continue to support a regulation that would extend the fiduciary standard to all who provide investment advice to retail investors and an expanded DOL fiduciary definition.... While those would both be faster fixes, both have been stalled repeatedly ... [The authors] continue to see slow, steady progress forward." (fi360 Blog)

[Opinion]

Pension Head-Fake in Illinois
"The Illinois Constitution needs a fix that would enable reforms to public pensions statewide. Unfortunately, the proposed pension amendment on the Nov. 6 ballot is a misleading gesture -- essentially worthless." (Chicago Tribune; free registration required)

[Opinion]

San Bernardino Showdown Between State Pension Plan Trustees and Creditors?
"Should CalPERS be treated like other creditors when it comes to municipal bankruptcy? That is the key question, pitting labor vs. capital. Unions will argue that pensions are sacred and must be guaranteed under the law while creditors will argue that under municipal bankruptcy, all parties must be treated equally. Keep an eye on this case because it could mark an important turning point for all US public pension plans." (Pension Pulse)

Benefits in General; Executive Compensation

Deadline for Compliance with Section 409A is December 31
"Once the plan or agreement has been amended pursuant to the correction procedures in Notice 2010-80, the company must comply with certain information and reporting requirements regarding the correction. Specifically, the company is required to file an information statement regarding the correction with its federal income tax returns for the year in which the amendment was made." (Mintz Levin)

Realizable Pay and the ISS
"If ISS does add 'realizable pay' to its final policies (which are expected near the end of November), it may be advisable for every company to make this a calculation for the CEO (using the precise ISS definitions) as a part of its proxy preparation and good governance, even if the company is not a large cap company that ISS has identified as high concern. Companies also should explain this matter to their Compensation Committee (if they have not already done so) and mention it in their proxy statement." (Winston & Strawn LLP)

The Top Ten Best Practices for Equity Grants
"Recommended administrative best practices for grants include the following: (1) Make sure terms and conditions of each award (set forth in the award agreement and/or grant notice) are consistent with the plan document. (2) Have equity grants approved before communicating grants to employees. (3) Do not backdate any grants. [and six more]." (Nelson Mullins Riley & Scarborough LLP)

Institutional Shareholder Services Releases 2013 Draft Policies for Comment
"The draft policy [on management say-on-pay proposals] adds, as a new factor in the qualitative evaluation of pay-for-performance alignment, a comparison of realizable pay to grant date pay. Finally, the draft policy on say-on-pay proposals adds pledging of shares by executive officers and directors as a new factor that may lead to negative recommendations on say-on-pay votes.... The draft policy on golden parachute proposals: Includes existing change-in-control arrangements that are maintained with named executive officers [and more] closely scrutinizes multiple legacy problematic features in change-in-control agreements." (Practical Law Company)

Fewer Upper-Middle-Income Americans Express Concerns About Retirement and Health Care Costs (PDF)
"Bank of America's Merrill Edge Report is a semi-annual study that offers an in-depth look at the financial concerns, priorities and behaviors of mass affluent consumers, defined as people with $50,000-$250,000 in total household investable assets ... which consists of approximately 28 million house-holds in the United States ... Seventy-three percent of mass affluent fear that their retirement assets will not last throughout their lifetime, down from 83 percent in April 2012, and 84 percent of this group are concerned about the rising cost of health care, also down from 89 percent in the same time period." (Bank of America Merrill Lynch)

Quality Stores Update: DOJ Files Petition for Rehearing En Banc on Important Severance Pay FICA Case
"On October 18, the Department of Justice (DOJ) filed a petition for rehearing en banc in United States v. Quality Stores, Inc., No. 10-1563 (6th Cir. Sept. 7, 2012) ... [T]he Sixth Circuit [decision being appealed] held that severance payments paid to former employees pursuant to an involuntary reduction in force were SUB-Pay and not taxable 'wages' for FICA tax purposes[.]" (Morgan, Lewis & Bockius LLP via Bloomberg BNA)

Press Releases

Local Government Pension Valuation Reports Available Online Beginning November
CalPERS (California Public Employees' Retirement System)



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