Retirement Plans Newsletter

October 23, 2014

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Webcasts and Conferences

Investments in Daily Valued Plans
RECORDED
(ASPPA [American Society of Pension Professionals & Actuaries])

Mergers and Plan Terminations
RECORDED
(ASPPA [American Society of Pension Professionals & Actuaries])

Outsourcing Actuarial Services – Ethical Issues
RECORDED
(ASPPA [American Society of Pension Professionals & Actuaries])

Transitional Relief & Non-Calendar Year Plans
October 28, 2014 WEBCAST
(National Association of Professional Employer Organizations [NAPEO])

Understanding Accounting for ESOPs: What Every CPA, CFO and Banker Should Know
October 29, 2014 WEBCAST
(Beyster Institute)

ERISA: Handling Deferrals on Irregular Compensation
November 10, 2014 WEBCAST
(SunGard Relius)

ERISA: Fiduciary Implications of the Duty to Collect
November 13, 2014 WEBCAST
(SunGard Relius)

Non-Calendar-Year Plans and Health Care Reform: Understanding the Special Rules and Exceptions
November 20, 2014 WEBCAST
(Thomson Reuters / EBIA)

Q3 Energy M&A Update: Recent Trends and the Impacts of the Affordable Care Act on M&A
November 30, 2014 WEBCAST
(PricewaterhouseCoopers LLP)

Responsibilities of Internal ESOP Fiduciaries
January 7, 2015 WEBCAST
(Beyster Institute)

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[Official Guidance]

Text of IRS Information Release 2014-99: 2015 Pension Plan Limitations (PDF)
"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 $17,500 to $18,000. The catch-up contribution limit for employees aged 50 and over ... is increased from $5,500 to $6,000. The limit on annual contributions to an [IRA] remains unchanged at $5,500.... [T]he limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $ 210,000.... The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2015 from $52,000 to $53,000." (Internal Revenue Service [IRS])  


[Advert.]

ASPPA Annual Conference on October 26-29 in Washington DC

Sponsored by ASPPA

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[Guidance Overview]

Longevity Insurance in DC Plans: Paving the Way for QLACs (PDF)
"Treasury's QLAC regulations are a step in the right direction toward helping individuals better manage longevity risk. Deferred income annuities like the QLAC offer an efficient way to target longevity exposure by guaranteeing income in the later years of an individual's life. Plan sponsors may want to consider QLACs as an option when they review available retirement income solutions. In the long term, these regulations likely will spur innovation and potentially may create a more diverse marketplace with broader solutions for plan sponsor consideration. In the short term, sponsors will need to carefully review alternatives and may have limited available choices." (Aon Hewitt)  

Verizon Wins Challenge to Pension Transfer; Fifth Circuit Says Investment Guidelines Need Not Be Disclosed
"The court rejected claims that a Verizon spinoff ... violated [ERISA] by failing to turn over its pension plan's investment guidelines. Instead, the court found that these documents weren't binding on the plan and therefore didn't qualify as formal plan instruments subject to ERISA's mandatory disclosure requirement. The court's ruling specifically left open the possibility that binding investment guidelines could be subject to mandatory disclosure in another case." [Murphy v. Verizon Communications, Inc., No. 13-11117 (5th Cir. Oct. 15, 2014) (unpublished)] (Bloomberg BNA)  

IRS Simplifies Rules for Participants in Canadian Plans -- or Does It?
"IRS has simplified the rules for those who filed U.S. tax returns, even if they failed to attach Form 8891. Under the new procedures, the deferral will be available for those who filed U.S. income tax returns and didn't include earnings on the accounts in income, and for those in this situation in the future.... What about those who were eligible to defer the tax on their accounts but did not file income tax returns for every year? The new rules seem to leave them in limbo. Even worse, they may become subject to a $10,000 penalty for not filing a form reporting participation in Canadian plans." (Osler, Hoskin & Harcourt LLP)  

Shades of Green: Key Questions for Multiemployer Plans to Ask About Being in the Green Zone
"[B]ecause being in the green zone on a particular measurement date just means not being in the red zone (critical status) or the yellow zone (endangered status), it is not a measure of a plan's long-term financial well-being. In essence, there are many shades of green. The variance in hue only emerges as additional projections of the zone criteria are performed. Understanding shades of green is an important part of plan stewardship. An increasingly positive trend indicates a continuously stable, and perhaps improving, financial condition. A downward trend may signal a need for preemptive board action, particularly when a more modest present action mitigates the likelihood of more drastic future actions." (Segal Consulting)  

October's Volatile Markets Hit Pension Plan Funding
"On October 1 alone, the representative plan funded status fell more than 1%. By October 10th, it was down to 81.1%. It dipped below 80% the following week before closing October 17th at 80.7%. Volatile funded status can, of course, be the result of volatile asset values or the result of volatile liability values. In this case, it's been the liability values that have been the bigger factor, something that may be a little surprising given the big movements in the equity market so far this month." (Russell Investments)  

Borrowing Money to Reduce PBGC Premiums (PDF)
"Factors to consider when borrowing funds include: ... Method of borrowing: Two primary options are a direct loan from a financial institution or issuing bonds. Plan sponsors should consider whether accounting treatment may vary depending upon the method of borrowing.... [A]mortizing payments like a mortgage or issuing a bond with periodic interest payments and full principal repayment at maturity ... What is the interest rate on the debt? ... What is the plan sponsor's marginal tax rate?" (Milliman)  

How to Maximize Value of Your DC Plan -- Consider These (Non-Decumulation) Strategies (Part IV)
"Any strategy aimed at maximizing DC plan value should be sensitive to the particular needs and circumstances of plan stakeholders.... [W]here, as is most often the case, the majority of an employer's workforce are not sophisticated investors, pooled, administrator-managed DC investments may be seen as a considerable value-add, increasing DC benefit security. By contrast, this strategy may be viewed as overly 'paternalistic' to participants in an institutional investors' DC plan." (Osler, Hoskin & Harcourt LLP)  

The State of U.S. Employee Retirement Preparedness (PDF)
15 pages. "Twenty-eight percent of employees reporting $100,000 or more in household income are confident they are on track to achieve their income-replacement goals, up from 23% in 2012. All other income cohorts experienced little or no change in retirement confidence. Seventeen percent of women are confident they are on track to achieve their income-replacement goals, up from 13% in 2012. However, women are still trailing men in this area, as 26% of men reported being on track[.]" (Financial Finesse)  

Retirement Savings Flows and Financial Advice: Should You Roll Over Your 401(k) Distribution? (PDF)
"Pension rollovers are an important source of revenue for money managers.... [As] well as addressing an issue of personal finance and the quality of financial advice that individuals receive, this article addresses the issue of the limits of the effects of inertia.... It then considers a behavioral economics explanation for why rollovers have occurred. It considers advertising and advice on rollovers as part of that explanation and examines reasons why participants may not be considering fees in their decision." (Benefits Quarterly, published by the International Society of Certified Employee Benefit Specialists [ISCEBS])  

Knowledge of Annuities Boosts Ownership
"Peace of mind, stable income and lessening the risk of running out of money in retirement were cited as the top three reasons to create a guaranteed lifetime income among households that owned annuities, as well as those that did not. Among annuity owners, 4 out of 5 said they are a 'good fit' for their financial needs and 70 percent are willing to recommend annuities to friends and family members." (LIMRA Secure Retirement Institute)  

Your Roth IRA Calculator May Be Lying to You
"How many people, after running such a calculation and determining it was advisable to opt for the traditional IRA, actually put aside the amount of money they would have used to pay the tax on the conversion and invest it in a similar manner? Would/do you? Each and every year?" (Slott Report)  

Updated GAO Report: Preliminary Information on IRA Balances Accumulated as of 2011
"In 2014, the federal government will forgo an estimated $17.5 billion in tax revenue from IRAs. Congress limited annual contributions to IRAs to prevent the tax-favored accumulation of unduly large balances, but concerns have been raised that tax benefits accrue primarily for higher income individuals. This statement provides preliminary observations based on ongoing work on information on IRA balances in terms of reported fair market value aggregated by taxpayers. GAO analyzed 2011 IRS statistical data." [Originally released Sept. 16, 2014; reissued Oct. 22, 2014.] (U.S. Government Accountability Office [GAO])  

Americans Make Hard Choices on Social Security: A Survey with Trade-Off Analysis (PDF)
72 pages. "[R]ather than maintain the status quo, 71% of respondents would prefer a package of changes ... The preferred package would: [1] Gradually, over 10 years, eliminate the cap on earnings that are taxed for Social Security.... [2] Gradually, over 20 years, raise the Social Security tax rate that workers and employers each pay from 6.2% of earnings to 7.2%.... [3] Increase Social Security's cost-of-living adjustment (COLA) ... [4] Raise Social Security's minimum benefit so that a worker who pays into Social Security for 30 years can retire at 62 or later and have benefits above the federal poverty line ... These four changes together would eliminate 113% of Social Security's projected long-term financing gap[.]" (National Academy of Social Insurance [NASI])  

[Opinion]

Edison International Case Highlights a Needed Reform: Share Class Restrictions in 401(k) Plans
"Fund companies use the different share classes to provide varying levels of compensation to intermediaries, such as financial advisors and recordkeepers. The underlying investment management is the same, the only difference between share classes is the amount of additional fees that are charged to shareholders. This 'revenue sharing' shifts costs to plan participants and creates a layer of complexity in plan fees that sponsors and participants find confusing. Because these fees are included in the fund expense ratio and deducted before calculating net returns, these fees can be easily overlooked when evaluating total fees." (Employee Fiduciary)  

Benefits in General; Executive Compensation

Social Security Benefits to Increase in 2015 (PDF)
"The Social Security taxable wage base will increase in 2015 to $118,500, up from $117,000 in 2014. The Medicare payroll tax rate of 1.45% will continue to apply on all wages in 2015.... The average of total wages for 2013 (the most recent year) is $44,888.16.... For 2015, the primary Social Security monthly benefit formula will be 90% of the first $826 of [Average Indexed Monthly Earnings], plus 32% of the next $4,154, plus 15% of any excess over $4,980." (Buck Consultants at Xerox)  

Millennials Prioritizing Retirement and Health Saving Through Workplace Benefits
"Health savings account (HSA) usage grew 33 percent during the first six months of the year, with more than 384,000 workers now utilizing these tax-advantaged vehicles to prepare for qualified near- and long-term medical expenses. While Baby Boomers (38 percent) and Gen Xers (39 percent) make up the majority of account holders, Millennials (23 percent) are also using HSAs early in their careers. Millennials are also taking positive retirement savings actions. Nearly 40,000 of these younger workers enrolled in their employer's 401(k) plan for the first time during the first half of the year -- a 55 percent increase from the same six-month period last year. Across all generations, the report found a 37 percent increase among first-time contributors." (Merrill Lynch)  

ISS Seeks Comments on Proposed Changes to Proxy Voting Guidelines
"Two of the proposed changes are applicable to U.S. companies -- one to revise the methodology used when evaluating shareholder proposals to require an independent board chair, and one to implement an 'Equity Plan Scorecard' for evaluating equity plans. The comment period is open until 6 p.m. EDT on October 29, 2014." (Schiff Hardin)  

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