News Items

"One page shows life expectancies for people who are age 65 in 2019. The other page shows life expectancies for people who are age 25 in 2019. Differences in life expectancy between the ages reflect two competing forces[.]"

"The Cadillac tax would be levied on health plans, which are legal entities through which employers and unions provide benefits to employees. Its impact on employees would be indirect and depend on how firms and health plan managers respond to the tax in offering and designing benefits. Many of the alternatives to the Cadillac tax that have been proposed instead involve curtailing the tax exemption received by employees, which would impact them more directly."

"If your Company leadership is looking for an innovative employee benefit – something outside the standard employee benefit package of retirement, health, and welfare benefits, a Company-sponsored charitable foundation might be your answer. A charitable foundation not only can further your Company culture while serving the community, but it also has tax benefits to boot."

"The modern financial industry led to a great diversity of money management options, including self-direction and the modern suite of financial products for sale by non-fiduciaries. [The] trend today is toward an increasing number of asset pools hiring a discretionary investment manager, under various names -- including [outsourced chief investment (OCIO)], 3(38), discretionary trustee, 'delegated management,' 'fiduciary management,' and 'implemented consulting.' But the catchiest label in the United States seems to be OCIO."

17 pages. "For less mature ongoing pension plans without solvency issues, we believe a horizon of 20 years or more is appropriate for evaluating the reasonableness of the long-term investment return assumption.... When compared to the 2018 edition of the survey, the expected returns for this 2019 edition were 15 basis points higher over a 10-year horizon and 11 basis points lower over a 20-year horizon. "

"There are two aspects: the tax base has to keep growing or the pension benefits have got to quit growing so rapidly for pay-as-you-go to be stable. What if you're Detroit? Or Illinois? Or Chicago?"

"Those who claim there's no crisis think that, well, we don't have to worry about the bonded debt. We'll just default. We can also increase taxes….or maybe we can be really clever re: investments. Let's do anything but adjust the pension benefits that we already can't afford.... if it continues this way, pensions become more vulnerable in terms of the benefits actually getting paid in full.... [P]ublic employees and retirees would consider that a crisis. The policy wonks may not."

"The DOL has more clearly defined which employer associations and PEOs are able under current law to sponsor Multiple Employer Plans ... The IRS proposes to revise the 'one bad apple' rule... Congress moves forward with 'Open MEP' legislation."

"[T]his year has seen a number of fiduciary and best interest investment advice regulations at both the federal and state levels. Firms subject to these regulations will face challenges in dealing with rules that will impose a host of new obligations, and that may overlap and conflict with one another. This chart is intended to help firms take stock of the evolving framework and aid firms in putting the pieces together."

"By now you have probably seen a number of articles about the SECURE Act and its safe harbor for guaranteed retirement income in 401(k) plans.  Some have favored the safe harbor, while others have criticized it. In either case, the authors appear to contemplate that participants will be buying individual annuities at retail prices. ... [T]hose articles -- on both sides of the fight -- are at best misleading and in some cases just plain wrong."

11 pages. "Given its relatively fragmented structure (there are over 50 firms with at least $1 billion of recordkeeping assets, according to Plansponsor), pricing pressure, and technological intensity, it would be rational to expect the industry to consolidate around a handful of 'at scale' competitors, eventually leading to pricing equilibrium....  The question, however, is whether the pace of recordkeeping M&A will accelerate or maintain its current pace."

32 pages. "Most workers who are likely to have the ability to save for retirement and to be focused primarily on saving for retirement participate in an employer-sponsored retirement plan.... Younger and lower-income households are more likely to report that they save primarily for reasons other than retirement -- for example, a home purchase, for the family, or education.... Retirement plan participation increases with age and income; consistent with their stated reasons for saving, younger and lower-income workers are less likely to participate."

"While certain of these disclosures may already be effected via other means (such as in an advisory firm's Form ADV), they must still be provided in the Form CRS. Creating a compliant Form CRS will entail significant effort, and securities firms should prioritize internally coordinated efforts to ensure that their relationship summaries are fully informed and accurate."

"[Rev. Proc. 2019-29] decreases the affordability threshold for ACA employer mandate pay or play purposes to 9.78% for plan years beginning in 2020.... In most cases, ALEs that do not meet the federal poverty line affordability safe harbor will want to use the rate of pay affordability safe harbor.... Consider creating a fixed percentage-based contribution structure if you are going to rely on the Form W-2 affordability safe harbor."

"An employer that wants to expand the range of covered preventive services should keep a few points in mind. [1] Update plan document ... [2] Summary of Benefits and Coverage ... [3] ERISA-directed disclosures ... [4] Plan enrollment implications ... [5] Insurance Carrier/TPA approval ... [6] Medical trend."

"Even though you may have solid health insurance for your family, the policy's provisions may not meet the requirements set by the college your child attends. That means you may be forced to buy an entirely new policy the college sells or sponsors. At some colleges, the cost of the policy is over $5,000 for the 2019-2020 academic year[.]"

73 pages. "Only 26 percent are 'very much' looking forward to retirement.... Retirement fears are health- and financial-related.... Almost seven in 10 expect to retire after age 65 or not at all.... Only one in 10 plan to immediately stop working and retire.... Six in 10 plan to work in retirement.... Reasons for working in retirement are health and financial.... Steps taken to be able to continue working past age 65."

"The primary purpose of the distribution form is to have the hardship distribution request processed, whereas the [separate hardship distribution application (HDA)] is designed only to avoid having the participant provide copies of financial information, medical bills, etc., to the plan sponsor, who, in turn, had to try to determine if the documentation properly supported the hardship distribution request.... The participant is responsible for maintaining the source documentation and the plan sponsor can rely on the details provided without receiving copies of that source information."

"[T]he IRS ... has the option to decide to waive that punitive penalty for failing to take an RMD. However, it's important to note that the onus is on the taxpayer to reach out to the IRS, explain that their mistake was the result of a 'reasonable error,' and show how they are taking 'reasonable steps' to remedy the shortfall.... [A]lthough there is a way to waive the 50% penalty, the means for doing so can be just as confounding as the RMD rules themselves ... at least if the taxpayer hopes to have their penalty abated!"

"[F]rom 1979 to 2016, average incomes for working-age households rose 64% above inflation. Over that same period, average household incomes for retirees grew 104% above inflation. Put another way, in 1979 the average retiree household's income was equal to 73% of working-age households' incomes. By 2016, retiree incomes were equal to 91% of working-age households' incomes, despite retirees facing a lower cost of living, being more likely to have paid off their mortgages, and having smaller households to support."

36 pages. "On average, VRPA plans had 43 participants and plan assets of $2.4 million.... In 2018, 22% of VRPA plans allowed employees to make voluntary contributions immediately after they joined their employer.... 41% of plan sponsors required eligible employees to have one year of service before they could make employee-elective contributions to their plans.... Forty-five percent of VRPA plans provided only a matching contribution in 2018. Eight percent of plans provided both a matching and a nonmatching employer contribution.... Two-thirds of VRPA plans with an employer contribution had adopted a safe harbor design ... As of December 2018, 15% of VRPA plans permitting employee-elective deferrals had adopted automatic enrollment."

"Firms that will continue to provide broker-dealer services to customers who are not retail customers ... might want to ensure that their systems are able to identify accounts that would not be considered retail customer accounts subject to Reg. BI. Firms will also want to keep in mind that they will need to preserve their existing compliance and operational structure for customer accounts that are not covered by Reg. BI."

"The ICHRA does not move the responsibility back fully to the employee alone, but instead provides an employer established account which the employee may access for medical expenses, including health insurance premiums, provided the individual provides proof they have purchased health insurance. If considered just as an account without consideration of all of the governing laws, it sounds like a way to place a dollar limit on healthcare costs for each employee; however, ... the preamble to the final regulations demonstrate the complex rules ... and the guidance still needed."

34 pages. "In 2018, the average expense ratio for equity mutual funds offered in the United States was 1.26 percent.... The average expense ratio that 401(k) plan participants incurred for investing in equity mutual funds fell from 0.45 percent in 2017 to 0.41 percent in 2018. The average expense ratio that 401(k) plan participants incurred for investing in hybrid mutual funds fell from 0.51 percent in 2017 to 0.49 percent in 2018."

"Published by S&P Dow Jones Indices, the semi-annual report measures the percentage of actively-managed funds that outperform their market index benchmark over specific periods of time, net of fees.... [The year-end 2018 SPIVA Scorecard ] found only a small percentage of actively-managed funds outperform the market over time. The takeaway for 401(k) fiduciaries? There is a very good chance that low-cost passively-managed index funds and ETFs that seek to match -- not beat -- the market will offer superior investment returns over the long term."