Retirement Plans Newsletter

July 22, 2015

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ESOP and 401(k) Administrator
Primark Benefits
in CA

Pension Administrator
Primark Benefits
in CA

Consultant, Compliance (Health)
The Segal Group
in CA

Financial Services Sales Manager
Retirement Plan Consultants LLC
in ANY STATE, CO, IA, IL, KS, MN, MO, ND, NE, SD

Plan Compliance Consultant
T. Rowe Price
in MD

Pension Administrator
Cornerstone Retirement Plan Administrators, LLC.
in ANY STATE, RI

Benefits Analyst
Milliman
in NY

COBRA Benefits Administrator
DailyAccess a Verisight Company
in TX

DC Retirement Plan Administrator
Pension Plan Administration, LLC
in AR

Conversion Specialist
The Newport Group
in NC

Retirement Plan Administrator
Harding Shymanski & Company, PSC
in IN

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Safe Harbor 401(k) - Portland
August 20, 2015 in OR
(SunGard Relius)

Advanced Cross-Tested Plans: Adding More Tools - Portland
August 21, 2015 in OR
(SunGard Relius)

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[Guidance Overview]

IRS Announces Major Contraction of Individually Designed Plan Letter Program (PDF)
"[Individually designed plans] will generally be able to obtain a determination letter only for initial plan qualification and qualification upon termination. In addition, determination letters will be available in certain other limited circumstances that IRS will identify in future published guidance, on a periodic basis.... IRS will take other steps to assist with compliance, such as: [1] Providing model amendments; [2] Not requiring adoption of 'irrelevant' plan provisions ... [3] Expanding the use of 'incorporation by reference,' that is, using plan language that triggers certain treatment explained in IRS guidance." (Buck Consultants at Xerox)  


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[Guidance Overview]

Last Chance for Governmental Plan Determination Letters?
"The current period for requesting determination letters for governmental plans runs from February 1, 2015 through January 31, 2016, and is available to any individually designed governmental plan that did not file during the February 1, 2013 through January 31, 2014 period.... [T]his may be the last chance for state and local retirement systems and other governmental plans to obtain formal IRS reassurance that their plans are qualified. This article discusses why a determination letter is important, and what needs to be done to obtain one." (Calhoun Law Group, P.C.)  

[Guidance Overview]

Impact of the DOL's Fiduciary Proposal on Participant Investment Advice
"The proposal expands the definition of fiduciary investment advice by providing that a 'recommendation' to a participant would trigger fiduciary status.... Under this standard, many common sales and investment education practices would constitute fiduciary advice.... Advisors could provide generalized investment education to participants without triggering fiduciary status and prohibited transaction (PT) concerns, if they avoid 'recommendations.' But this will be challenging -- under the proposal, referencing available investment options would likely be a fiduciary act." (Drinker Biddle)  

Fiduciary Update, July 2015
Topics include: [1] Tibble v. Edison -- Supreme Court Clarifies Duty to Monitor Investments; [2] ABB v. Tussey -- The Saga Continues; [3] DOL Study Finds Annual Plan Audits Lacking; [4] Equitable Relief for SPD Issues. (CAPTRUST Financial Advisors)  

How to Evaluate the Pension vs. Lump Sum Decision
"While there are several factors that go into the pension-vs.-lump-sum decision, ultimately the trade-off can be boiled down to calculating the internal rate of return (IRR) of the promised pension cash flows, which reveals the 'hurdle rate' of return that a lump sum portfolio would have to earn to generate to reproduce those same payments over the same time horizon. Of course, the longer the retiree is expected to live, the greater the number of anticipated pension payments, and the greater the portfolio hurdle rate will be." (Michael Kitces in Nerd's Eye View)  

Governmental Plan Pension Obligation Bonds: Issues to Consider (PDF)
"A number of state and local governments have turned to pension obligation bonds -- issued by the state or local government entity itself -- in an effort to shore up the funding status of their retirement plans. Critics see this concept as an investment gamble, and complain that the approach saddles future taxpayers with bond repayment obligations to cover past liabilities.... Actuarial analyses of likely outcomes can help plan fiduciaries understand the risks of different funding approaches." (Buck Consultants at Xerox)  

Cost-of-Living Adjustments in State and Local Government Pension Plans (PDF)
"Cost-of-living adjustments (COLAs) in some form are provided on most state and local government pensions.... Considerable variation exists in the way COLAs are designed, and in many cases they are determined or affected by other factors, such as inflation or the condition of the plan.... This brief presents a discussion about the purpose of COLAs, the different types of COLAs offered by government retirement systems, and an overview of recent state changes to COLA provisions." (National Association of State Retirement Administrators [NASRA])  

Americans' Attitudes and Behaviors Toward Finances and Planning
"The vast majority (69%) of U.S. adults are taking a self-directed approach to planning which may be exacerbating already complex financial challenges ... U.S. adults are deeply concerned about financial security before and during retirement, yet ... 30% of U.S. adults say they are 'not at all financially prepared' to live to the relatively 'young' age of 75 while more than a third do not have any sense of how much income they may need in retirement; 62% of working Americans expecting to delay retirement by necessity, citing insufficient savings as a top reason." (Northwestern Mutual)  

U.S. Senate Subcommittee Hearing on Restricting Advice and Education: DOL's Unworkable Investment Proposal for American Families and Retirees
Hearing held July 21, 2015. Includes video and links to written testimony by [1] Thomas Perez, Secretary of Labor; [2] Robert Litan, Non-resident Senior Fellow, The Brookings Institution; [3] Peter Schneider, President, Primerica Inc.; [4] Darlene Miller, President and CEO, PERMAC Industries; and [5] Scott Puritz, Managing Director, Rebalance IRA. (Committee on Health, Education, Labor and Pensions, U.S. Senate)  

DOL Web Page: Public Comments on Proposed Fiduciary Definition
The linked page on the DOL website lists the comment letters submitted on the fiduciary definition regs and prohibited transaction exemptions proposed on April 14, 2015, with clickable links to the full text of each comment. The comment period closed on July 21, 2015. (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])  

[Opinion]

Obama's Big Idea for Small Savers: 'Robo' Financial Advice
"The White House starts with good intentions -- a concern that too many Americans are unprepared for retirement, and need to save more, and invest wisely. But instead of urging Americans to save, the administration has launched a campaign against a phony villain. If you're not on a path to a secure retirement, the White House implies, it's because evil financial advisers are ripping you off." (The Brookings Institution)  

[Opinion]

ICI Comment Letter to DOL on 'Convoluted' Proposed Fiduciary Regs (PDF)
"In separate letters, ICI provides detailed comments on [1] the Department's proposed rule defining the term 'fiduciary' [25 pages]; [2] the proposed exemptions in connection with that definition [36 pages], and [3] the Regulatory Impact Analysis justifying the Department's proposals [36 pages]. This letter highlights the key areas of the rule proposal that we believe make it unworkable and conveys at a high level the changes we urge the Department to make to the proposed rule.... Had the Department adhered to a true principles-based approach, the Institute would be most supportive. Regrettably, however, the Department in fact has chosen a different path -- it has proposed a set of convoluted, inflexible, and highly prescriptive rules that in no way resembles the principles-based approach described in your testimony. The unfortunate result is that, if adopted, the proposed rules will severely and negatively impact retirement savers' access to the guidance, products, and services they need to meet their retirement goals." (Investment Company Institute [ICI])  

[Opinion]

DCIIA Comment Letter to DOL on Proposed Fiduciary Regs (PDF)
"DCIIA urges the Department to guide plan fiduciaries and service providers alike and promote good outcomes by providing examples of non-fiduciary activities and supporting efforts to: [1] Communicate to participants the benefits of keeping their money invested in their plan; [2] Inform participants on the benefits of rolling over other retirement accounts into their employer's plan; and [3] Report account balances as a monthly or annual income stream[.]" (Defined Contribution Institutional Investment Association [DCIIA])  

[Opinion]

IRI Comment Letter to DOL on Definition of Fiduciary Proposal
69 pages. "The definition of an investment advice 'fiduciary' in the Proposed Regulation needs to focus more precisely on conduct that is appropriately regarded as fiduciary in nature rather than all manner of sales activities. The proposed definition would deprive retirement investors of access to information and would inappropriately limit advice sources.... The proposed point of sale, website, annual and ongoing information maintenance requirements impose exceedingly burdensome and expensive disclosure requirements on annuity product providers and distributors ... The proposed eight-month timeline would result in significant and harmful market disruptions." (Insured Retirement Institute [IRI])  

[Opinion]

ERIC Recommends Changes to DOL Conflict of Interest Proposal
"In a 19-page filing as a Senate Subcommittee convenes a hearing ... and the Labor Department plans for August hearings on the rule, ERIC suggested nine areas where the so-called fiduciary rule could be improved. Among them: Who is a fiduciary ... The investment education carve out ... A suggestion is not a recommendation ... Call center employees are not investment advisors." (The ERISA Industry Committee [ERIC])  

[Opinion]

Retirement Advisor Council Comment Letter to DOL on Proposed Fiduciary Definition (PDF)
7 pages. "[The] final regulation needs to be enhanced from the current proposal in nine areas [including]: ... Acknowledge that the evaluation of investment options involves more than price comparison; Overcome the preconceived notion that advisors are necessarily conflicted; Acknowledge that fiduciary investment advice is a process delivered over time, not a one-time transaction.... Expand on the distinctive practices for small plans and large plans.... Expand on the situation of plan sponsors who do not use the services of a fiduciary plan advisor and rely exclusively on the services of their recordkeeping service provider for investment advice, investment array construction, participant education or participant advice." (Retirement Advisor Council)  

[Opinion]

Chamber of Commerce Comment Letter to DOL on Proposed Fiduciary Regs (PDF)
25 pages. "Our examination of the regulatory economic analysis produced by EBSA and reviewed by OMB finds that it is flawed in eight critical aspects ... These failures of the regulatory impact analysis each and collectively contribute to the conclusion that EBSA did not have the full and objective information needed to make a reasoned decision to select the regulatory approach proposed in comparison to other alternatives[.]" (U.S. Chamber of Commerce)  

Benefits in General; Executive Compensation

[Guidance Overview]

IRS Proposes to Simplify Tax Return Filing Process for Section 83(b) Elections (PDF)
"Under the proposed regulations, taxpayers would no longer have to file the section 83(b) election twice: the second filing -- with the ir annual tax returns -- would be eliminated. Eliminating the 'filing with return' requirement will permit taxpayers to file their annual tax return with most commercially available electronic tax return preparation programs." (Morrison Cohen LLP)  

Arbitration of ERISA Claims: Yes, You Can! (PDF)
"The endorsement of arbitration of ERISA claims means that employers may want to consider implementing a mandatory arbitration policy that covers all workplace-related causes of action, including ERISA claims. This article ... highlights some of the key issues." (Jackson Lewis P.C., via Bloomberg BNA Pension & Benefits Daily)  

Third Circuit Rules That Actual Harm Needed for Monetary Equitable Remedy
"The Third Circuit ... [noted] that '[c]laims demanding a monetary equitable remedy ... require the plaintiff to allege an individualized financial harm traceable to the defendant's alleged ERISA violations.' ... [The Court] held that a diminution in Plan assets was insufficient for standing purposes absent individualized harm, which [the plaintiff] could not show because he had received all required distributions. As a result he suffered no financial harm traceable to the alleged ERISA violation.... [T]he Court dismissed as unsupported [the plaintiff's] argument that he did not need to prove an individualized injury insofar as he sought monetary equitable remedies on behalf of the Plan." [Perelman v. Perelman, Nos. 14-1663, 14-2742 (3d Cir. July 13, 2015)] (Proskauer's ERISA Practice Center)  

Eleventh Circuit Decision Illustrates Hurdles Plaintiffs Face in ERISA Statutory Penalty Claims
"We see plaintiffs asserting an ERISA claim for statutory penalties more frequently now. These claims seek statutory penalties (up to $110 per day), alleging the plan administrator 'fail[ed] or refus[ed] to comply with a request for information' by the beneficiary. 29 U.S.C. 1332(c)(1). How easy is it for plaintiffs to win a statutory penalty claim for failing to provide information? Not all that easy." [Smiley v. Hartford Life and Accident Insurance Co., No. 15-10056 (11th Cir. July 17, 2015; unpub.).]" (Lane Powell PC)  

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