Retirement Plans Newsletter

January 23, 2015

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Webcasts and Conferences



[Guidance Overview]

Possible Window for Delivery of Participant Fee Disclosures (PDF)
"On January 9, the DOL submitted to the OMB a direct final amendment to their disclosure regulation that would make a technical adjustment to the timing requirement for annual disclosure by adding a window period for delivery. The amendment would provide plan administrators with flexibility in furnishing annual fee disclosures to participants and beneficiaries. The change is considered noncontroversial and therefore it likely will be approved and become effective shortly thereafter." (Buck Consultants at Xerox)  


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[Guidance Overview]

Will the Illinois Payroll Deduction IRA Plan Be Pre-empted by ERISA?
"[T]here is an open question whether a state law requiring employers to participate in a state-run payroll deduction IRA program is preempted by Section 514(a) of ERISA, which generally overrides state laws that 'relate' to employee benefit plans.... Section 95 of the Act requires the board to request in writing an opinion or ruling from the DOL regarding the applicability of ERISA.... [P]ayroll deduction IRAs established by employers under the program may fall under a regulatory safe harbor that applies to certain individual account plans in which an employer's participation is minimal.... There is a substantial question whether employers who establish payroll deduction IRAs in compliance with the Act can also satisfy the requirements of the Safe Harbor and thereby avoid the application of ERISA.... The Act contains some internal inconsistencies and ambiguities." (Steptoe & Johnson LLP)  

[Guidance Overview]

The New Illinois Secure Choice Savings Program: Considerations for Employers
"[T]he Program's treatment of contributions to a Roth IRA as a payroll deduction implicates federal income and payroll tax obligations with respect to those funds. Contributions to Program accounts, when combined with an employee's IRA contributions outside of the Program, may not exceed the Tax Code's annual limit. The extent of an employer's responsibility, if any, in connection with an employee's compliance in this context, remains to be developed." (Epstein Becker Green)  

Illinois District Court Holds That a Plan Maintained by a Religiously Affiliated Organization Is Not a Church Plan
"[T]he Stapleton court rejected Advocate Health Care's reading of the exception in [ERISA, codified at 29 U.S.C. section 1022(33)(C)(i),] to expand the definition of church plans to include plans that were not established by a church so long as an otherwise qualifying organization simply maintained the plan. The court reasoned that Advocate Health Care's reading would render meaningless the requirement that a church plan needed to be established by a church as spelled out in 33(A).... As Advocate Health Care's plan was not established by a church (but by Advocate Health Care), it was not exempt from ERISA and the court denied the motion to dismiss." [Stapleton v. Advocate Health Care Network and Subsidiaries, No. 14-C-01873 (N.D. Ill. Dec. 31, 2014)] (Wilson Elser)  

2014 International Pension Plan Survey Report
"This report outlines the results of the 2014 International Pension Plan (IPP) survey, ... focusing on specific plan design aspects, eligibility and membership criteria, as well as investment features for IPPs and International Savings Plans (ISPs).... [T]here was a 67% increase in new IPPs and ISPs reported as having been established compared to 2013, a clear reversal in the declining numbers seen in recent times.... This year the IPP Survey contains a feature article on 'The many uses for an International Pension Plan (IPP) or an International Savings Plan (ISP)' which describes the variety of employee groups employers are including within their IPP/ISPs." (Towers Watson)  


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Cost of Retirement Income Jumped in 2014
"A sharp rise in lifetime income costs means many workers in their 50s and early 60s are less financially prepared for retirement than they were 12 months ago, despite 11% gains in equity markets over the same time period. Even a strong 14% return for the average 55-year-old retirement investor examined by BlackRock couldn't keep pace with the relative increase in lifetime income costs." (PLANSPONSOR)  

Advisors Are Missing Out by Overlooking Millennials
"Millennials who are already wealthy think differently.... Wealthy millennials want many communications options.... Definitions of 'financial success' vary.... Less-wealthy millennials are more optimistic.... Hard work and smart investments are top priorities.... Top retirement concerns are consistent." (On Wall Street)  

West Virginia School Employees Suing 403(b) Plan Provider
"The lawsuit claims VALIC, a part of AIG, allegedly misled thousands of participants to invest heavily or entirely in its low-interest rate annuities in the early 1990s ... VALIC's attorneys argue the company guaranteed only a 4.5% annual return, but some employees allege they were led to believe they would receive returns of 8% or higher." (PLANSPONSOR)  

Illinois Supreme Court Keeps Pension Case on Fast Track
"[T]he Illinois Supreme Court denied a request from outside groups and individuals to file briefs in the case, saying the additional filings could put the court's plan to hear the case during its March term in jeopardy.... A spokeswoman for Attorney General Lisa Madigan, who is defending the law, said the move was disappointing.... The next key date in the case comes Feb. 16 when attorneys for the retirees file their briefs in the case. Madigan's office will respond by Feb. 27." (The Southern Illinoisan)  

Pension Plan Funded Status Decreases Due to Decline in Assets in Q4 2014 (PDF)
"During the fourth quarter of 2014 (Q4 2014), the funded status of the model pension plan examined in each issue of Prism decreased by 3 percentage points: from 91 percent to 88 percent. This decrease was driven by a liability increase of 4 percent and an asset return of 1 percent. The Q4 change in the funded status of the model pension plan does not reflect new mortality assumptions, which typically would decrease the funded status by 6 to 8 percent." (Sibson Consulting)  

[Opinion]

Another Freedom Endangered: Threat of Pension Mandate Looms with Proposed 'USA Retirement Funds Act' (PDF)
"The life insurance companies and the Federal Government would control asset management, benefit payments, and other plan functions traditionally under the control of the private pension system.... The proposed USA Funds would continue to deplete employers' ability to control their compensation and benefits programs at a very high cost to both employers and their employees.... Some private pension plans are not cost effective because the employer's management ceded its investment and administrative responsibilities to Third Party Administrators and insurance companies that portend the inefficiencies of the proposed USA Funds ... . [The author believes] the ultimate effect of a USA Funds would be a 3.0% to 6.0% in crease in employers' direct compensation costs to maintain employee relationships. Once in place, Congress could easily make employer contributions to the USA Funds mandatory." (H.C. Foster & Company)  

Benefits in General; Executive Compensation

Plaintiffs' Lawyers Continue to Press New Theories in Executive Compensation Litigation -- with Some Success
"What seemed to win the executive compensation case for J&J was the investigation and report of special outside counsel appointed by the Board's special litigation committee. Obviously, boards of directors frequently create a special committee to investigate potential malfeasance or study the merits of and respond to litigation. Boards now may consider this approach for executive compensation matters as well. However, it will be unfortunate and costly if litigation developments begin to force companies facing this kind of litigation to protect themselves by retaining special executive compensation counsel." [George Leon Family Trust v. Johnson & Johnson, No. 12-cv-4401 (D.N.J. 2014)] (Winston & Strawn LLP)  

Court Holds Employer Responsible under ERISA for FICA Withholding Errors
"The Davidson case raises the specter that any failure to properly apply tax rules to a nonqualified deferred compensation plan that then results in additional tax liability to a participant may expose the employer to an ERISA benefit claim.... [A] participant might argue that other types of tax liabilities he or she incurred as a result of the employer's failure to operate the plan in accordance with applicable tax laws impermissibly reduced the benefits he or she was entitled to receive under the plan. Of particular concern are the complex requirements imposed under Code Section 409A which, if violated, can result in significant penalties to affected employees, such as immediate taxation of their plan benefits, a 20-percent additional tax and a 'premium interest tax.' " [Davidson v. Henkel Corp., No. 12-cv-14103 (E.D. Mich. Jan. 6, 2015)] (McGuireWoods LLP)  

Press Releases

PSCA Updates ERISA Fiduciary Training
PSCA [Plan Sponsor Council of America]

Broadridge to Acquire Wilmington Trust Unit
Broadridge Financial Solutions, Inc.

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