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| October 24, 2007 |
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(a) New Guidance Documents
Final Regs: Qualified Default Investment Alternatives Under Self-Directed Retirement Plans (PDF)
30 pages. Excerpt: "This document contains a final regulation that implements recent amendments to [ERISA] enacted as part of the Pension Protection Act of 2006, Public Law 109-280, under which a participant in a participant directed individual account pension plan will be deemed to have exercised control over assets in his or her account if, in the absence of investment directions from the participant, the plan invests in a qualified default investment alternative. A fiduciary of a plan that complies with this final regulation will not be liable for any loss, or by reason of any breach, that occurs as a result of such investments. This regulation describes the types of investments that qualify as default investment alternatives . . . ." (Employee Benefits Security Administration, U.S. Department of Labor)
DOL Fact Sheet: Regulation Relating to Qualified Default Investment Alternatives in Participant-Directed Individual Account Plans (PDF)
Excerpt: "By facilitating the adoption of automatic enrollment plans, and by encouraging investments appropriate for long-term retirement savings, the Department estimates the rule will result in between $70 billion and $134 billion in additional retirement savings by 2034." (U.S. Department of Labor)
(b) News
New Regulation Expected to Raise 401(k) Participation
Excerpt: "A final regulation to be issued by the Labor Department . . . is expected to significantly boost employee participation in 401(k) retirement plans. The regulation clarifies how employers can invest money from workers who were automatically enrolled in the plans rather than actively signing up." (USA TODAY)
(c) Summaries of Guidance; Filed Comments
DOL's QDIA Rule Allows Variable Annuities, Excludes Stable-Value Funds
Excerpt: "The U.S. Labor Department has decided to include variable annuities on the basic list of 401(k) plan qualified default investment alternatives but to shut out stable-value funds." (The National Underwriter Company; free registration or paid subscription required)
Information Sheet on Asset Allocation and Default Investments in 401(k) Plans (PDF)
2 pages. Excerpt: "The default investment rule applies only to new contributions after the effective date of the new rule, but employers adopting the new defaults will have to provide notice to participants that could lead them to shift existing assets. A shift of current investments is not required, but could occur as a result of implementation." (Employee Benefit Research Institute)
Overview: IRS's Final 403(b) Regulations
Excerpt: "The section 403(b) regulations complete a triad of regulations covering defined contribution plans that may be funded by employee contributions. The IRS issued final regulations for governmental 457(b) plans in 2003 and revamped the 401(k) regulations in late 2004." (Blank Rome LLP)
Overview: Final Treasury Section 415 Regulations -- Compensation Issues Emerge
Excerpt: "The regulations are generally applicable to limitation years beginning on or after July 1, 2007." (Morgan, Lewis & Bockius LLP)
Public Comments on the Harmonization of PPA Funding Requirements with Cost Accounting Standards Applicable to Federal Government Contractors
The Pension Protection Act of 2006 requires the Cost Accounting Standards Board (CASB) to harmonize the PPA's funding requirements with the cost accounting standards applicable to government contractors by January 1, 2010. The target page by the CASB contains a link to a July 3 request for comments and a link to the 20 comments received from the public, including comments by Watson-Wyatt, Mercer, Segal, the American Academy of Actuaries, government agencies, contractors and a group of actuaries who work for government contractors. (Cost Accounting Standards Board, Office of Federal Procurement Policy, Office of the Management and Budget, Executive Office of the President)
(d) Trends, Surveys, Research
Working Paper: Are 401(k) Saving Rates Changing? Cohort/Period Evidence from the Health and Retirement Study (PDF)
29 pages. Excerpt: "This research examines the determinants of eligibility and participation in 401(k) plans using two cross-sections of data from the Health and Retirement Study. Our sample consists of workers ages 51-56 representing two cohorts: the original HRS cohort born 1931-41, first interviewed in 1992, and the Early Baby Boomer (EBB) cohort born 1948-53, interviewed in 2004. Participation in 401(k) pensions in the EBB cohort is nearly 50 percent greater than that of the earlier cohort." (University of Michigan Retirement Research Center)
NAGDCA Fee Disclosure Task Force Executive Summary of Survey (PDF)
20 pages. Excerpt: "While some issues regarding fee disclosure were identified as being in need of improvement or further discussion, there were also positive findings from the survey that showed most defined contribution plan sponsors are aware of and understand plan costs. The survey also showed that industry partners are informing participants about fees associated with their account in a variety of formats including periodic statements and customized plan Web-sites." (National Association of Government Defined Contribution Administrators, Inc.)
Financially Speaking, What's Troubling Americans? Nothing Dominates, But Economic Uncertainty and Retirement Savings Register High
Excerpt: "The largest category of responses is macroeconomic in nature -- consisting of things largely outside of individual Americans' control. Chief among these are healthcare and health insurance costs, which 9% of Americans name as a current concern, and 13% as a long-term concern. But taken together, sizable numbers also mention inflation, housing costs, the possibility of a downturn in the stock market, taxes, the possibility of recession, rising interest rates, gas and home heating prices, and long-term care." (Gallup, Inc.)
Overview: DOL Extends Deadline for Furnishing Annual Benefit Statements to Form 5500 Filing Deadline
Excerpt: "EBIA Comment: The deadline extension in this latest guidance will provide welcome relief for plan sponsors that make profit-sharing contributions after the end of the plan year. As a reminder, the new benefit statement requirements generally are effective for defined contribution plans with plan years beginning on or after January 1, 2007 (thus, calendar-year plans required to provide annual statements must provide the first statements for the year that ends December 31, 2007)." (Employee Benefits Institute of America)
Working Paper: Financial Literacy and Stock Market Participation (PDF)
48 pages. Excerpt: "To better understand financial literacy and its relation to financial decision-making, we have devised two special modules for the DNB Household Survey. We have designed questions to measure numeracy and basic knowledge related to the working of inflation and interest rates, as well as questions to measure more advanced financial knowledge related to financial market instruments (stocks, bonds, and mutual funds)." (University of Michigan Retirement Research Center)
(e) Policy, Opinion, Advocacy
Opinion: A Lesson in Stealing Pensions as National Teachers Union Copies N.Y. Scam
Excerpt: "Rather than steering members toward the best retirement plans, the NEA's leadership is quietly accepting payments to endorse a low-return, high-fee plan that eats away at the savings of the nation's public schoolteachers. Not including management fees, the NEA's only officially endorsed 'retirement program' - the Security Benefit Life Insurance Corporation's Valuebuilder annuity - charges 0.9 percent to 2.6 percent a year. Throw in management fees, and the least expensive option costs a teacher 1.73 percent of her account balances each year, while the most expensive costs 4.85 percent." (THE NEW YORK POST)
Revenue Sharing Creates Confusion, Greater Clarity Needed
Excerpt: "The term 'revenue sharing' creates confusion requiring greater clarity in the terminology used to describe different types of revenues, speakers told a Department of Labor ERISA Advisory Council working group Sept. 20. Following the recommendation to clarify what is meant by revenue sharing, speakers said plan sponsors and fiduciaries need to understand the revenues received by a plan's service providers to determine the overall reasonableness of the plan's arrangement with the service providers, and also to ensure that plan fiduciaries are aware of any potential conflicts of interest or other biases that service providers may have in providing advice or recommendations." (The Bureau of National Affairs, Inc. via MJM Financial, LLC)
Links to Items on Executive Comp, Benefits in General
IRS Notice 2007-89: 2007 Reporting and Wage Withholding Under Internal Revenue Code Section 409A (PDF)
19 pages; provides interim guidance to employers and payers on their reporting and wage withholding requirements for calendar year 2007 with respect to deferrals of compensation and amounts includible in gross income under § 409A. The notice also provides interim rules on calculating amounts includible in gross income under § 409A. (Internal Revenue Service)
Overview: IRS Notice 2007-86 Provides General Extension of §409A Transition Relief Through 2008 (PDF)
3 pages. Excerpt: "The extended transition period provides the relief that was needed to allow employers, their advisors and the IRS to address thoughtfully the unresolved issues encountered in attempting to apply the final regulations. The Notice extends the period for adopting amendments to nonqualified deferred compensation arrangements subject to Code section 409A and allows continued good faith operational compliance in the interim." (Sutherland Asbill & Brennan LLP)
Overview: IRS Extension of Section 409A Transition Relief and Deadlines to December 31, 2008
Excerpt: "Under the extended transition relief, executives, directors and other service providers subject to Section 409A may elect, through December 31, 2008, to change the time and form of payment of their nonqualified deferred compensation benefits without regard to the Section 409A restrictions." (Ballard Spahr Andrews & Ingersoll, LLP)
Overview: IRS Rules on Section 419 Funds Utilizing Cash Value Life Insurance (PDF)
2 pages. Excerpt: "On October 17, 2007, the Internal Revenue Service issued a revenue ruling taking the position that an employer's contribution to a welfare benefit fund may not be deductible, in whole or in part, under section 419 to the extent the fund pays premiums on cash value life insurance policies." (Sutherland Asbill & Brennan LLP)
Overview: IRS Challenges Section 419(e) 'Single Employer' Plans (PDF)
2 pages. Excerpt: "On October 17, 2007, the Internal Revenue Service issued two notices notifying taxpayers that it intended to challenge, retrospectively as well as prospectively, the claimed tax treatment of certain welfare benefit funds involving cash value life insurance promoted typically to small businesses as 'section 419(e)' or 'single employer' plans, and identified some of these arrangements as 'listed transactions.'" (Sutherland Asbill & Brennan LLP)
Executive Pay Disclosure in 2007: How Well the Tabular Disclosure Met Investor Needs
Excerpt: "[This newsletter answers the following:] Did the new disclosure requirements enhance investors' understanding of executive pay? Was the new total compensation figure useful to investors? What challenges did the plan-based and equity award tables present? What made comparisons of pension benefits across companies difficult? Why were disclosures of severance and change-in-control payments inconsistent?" (Mercer LLC; free registration required)
Navigating the International Provisions of Code §409A
Excerpt: " The final regulations contain numerous exceptions that permit both U.S. citizens and resident aliens working abroad, and non-resident alien individuals working within the United States, to accrue benefits under foreign plans that do not meet the Code 409A requirements. Where no exception applies, it will be necessary to amend the foreign arrangement to comply with the §409A requirements in order to avoid the §409A sanctions. This article summarizes the available exceptions and the requirements that must be met for them to apply." (McDermott Will & Emery)
Recent Study Shows Stock Options Affected CEO Behavior in Ways That Led to Extreme Wins and Losses
Excerpt: "[A] new study by a pair of business professors, Wm. Gerard Sanders of Brigham Young University and Donald Hambrick of The Pennsylvania State University, takes an in-depth look at stock options and how they affected CEO behavior . . . . What Sanders and Hambrick found, not unexpectedly, is that while stock option compensation did in fact promote increased risk-taking by CEOs as intended, the results were more often negative than positive." (Human Resource Executive Online; free registration required)
How Tax Code Will Be Adjusted for Inflation Next Year
Excerpt: "Last week, the government announced inflation adjustments for 2008. They affect a wide range of federal taxes and tax benefits including the standard deduction, personal exemption, tax brackets, retirement plan contributions and Social Security tax. Most inflation adjustments reduce your tax bill, although a few increase it." (San Francisco Chronicle)
Overview: SEC Comment Letters on Executive Compensation Disclosures
Excerpt: "On August 21, the Securities and Exchange Commission (SEC) asked the CEOs of roughly 300 large public companies to submit additional information for their fiscal year 2007 Compensation Discussion and Analysis (CDA) and proxy disclosures by September 21. While many of the SEC's comments may not warrant a restatement of either the proxy or the company's 2007 10-K, they suggest a significant gap between what the SEC expected and what was filed. This article outlines the substance of the SEC's comments and offers suggestions for responding to comments and for preparing next year's proxy filings." (Watson Wyatt Worldwide)
Newly Posted Press Releases
U.S. Department of Labor's ERISA Advisory Council to Hold November 2007 Meetings
U.S. Department of Labor, Employee Benefits Security Administration (EBSA)
Labor Department Sues to Compel Trustees to Manage Abandoned 401k Plan
U.S. Department of Labor, Employee Benefits Security Administration (EBSA)
DOL Action Clears Way to Distribute $60,000 in 401k Assets
U.S. Department of Labor, Employee Benefits Security Administration (EBSA)
U.S. Department of Labor Announces Final Rule on Default Investment Alternatives for Participant-directed Plans
U.S. Department of Labor, Employee Benefits Security Administration (EBSA)
Principal Helps Fiduciaries Navigate Complex Requirements
Principal Financial Group
ACLI Responds To Labor Department's 'Default Investment' Rule
American Council of Life Insurers
First Mercantile Launches LifeStyle Target Date Fund Series
First Mercantile
The FutureOffice Network Announces FutureOffice Payroll In Partnership With TruPay Corporation
FutureOffice Network
Commonwealth Partners with 401k Producer Services
Commonwealth Financial Network
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