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August 25, 2008

Here are the Web's best new links about compliance and cost aspects of plan operation, design and policy.


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[Guidance Overview] IRS Updates Its Employee Plans Compliance Resolution System
Excerpt: "In Rev. Proc. 2008-50, the Internal Revenue Service updates its Employee Plans Compliance Resolution System (EPCRS), which is the agency's comprehensive system of voluntary correction programs for sponsors of qualified retirement plans. The revenue procedure supersedes Rev. Proc. 2006-27, C.B. 2006-1, 945." (Wolters Kluwer)


Washington Update: Focus on Fees
Excerpt: "With the clock winding down on the Bush administration, Department of Labor (DOL) regulators have been scrambling to complete work on comprehensive new fee disclosure rules for defined contribution plans. Democrats in Congress, meanwhile, continue to support legislation that would further expand disclosure but disagree on the best approach. It appears that with debates on a number of other issues likely to fill what's left of the legislative calendar in 2008, time is running out on any congressional activity this year on fees." (The Vanguard Group)


How Financial Literacy and Trust in Financial Institutions Affect 401(k) Savings Behavior
Excerpt: "With benefits such as a company match, it's hard to imagine employees walking away from the chance to contribute to a 401(k) plan. Yet many do. Sometimes their decision can simply be attributed to budget constraints or procrastination. Often, however, it goes much deeper. Literacy, Trust, and 401(k) Savings Behavior focuses on the issues of financial literacy and trust -- or the lack thereof -- in financial institutions. This research paper . . . represents the first attempt to examine how these issues affect 401(k) savings behavior." (The Vanguard Group)


Pension Expert Discusses the 'New Retirement'
Excerpt: "As one of America's leading researchers on finance, employee benefit plans and retirement economics, Olivia S. Mitchell was tapped by the National Institute on Aging, or NIA, to collaborate on one of the most comprehensive studies on aging ever undertaken. . . . The result, The Health & Retirement Study, or HRS, is a cooperative effort managed by the NIA and the University of Michigan's Institute for Social Research. Bankrate.com caught up with Mitchell as she was returning from an international conference for pension fund managers in Lima, Peru." (Yahoo! Inc.)


PBGC's New Diversified Investment Policy (PDF)
Written by Charles E. F. Millard, PGBC Director, March 4, 2008. Excerpt: "The new policy is designed to take advantage of the PBGC's long-term investment horizon, and will allocate 45 percent of Corporation assets to equity investments, 45 percent to fixed income, and 10 percent to alternative investments such as private equity. This strategy of increased diversification aims at generating better returns, while providing superior protection against ultimate downside risks over time. The previous policy was not diversified, and therefore carried greater risk." (The Bureau of National Affairs, Inc. via Pension Benefit Guaranty Corporation)


Orange County, California, Officials Haven't Learned Yet from Troubling Results of Excessive Pension Increases for Government Workers
Excerpt: "[T]he United States is facing massive financial problems caused by the granting of unsustainable pension and medical benefits to government workers and dependents. . . . The Bay Area city of Vallejo has been in the news lately for declaring bankrup.tcy and perhaps facing a state takeover after city officials gave government unions – especially police and fire unions – CEO-level pay and benefit packages that have consumed more than three-quarters of the city's $80 million general-fund budget and have led to massive shortfalls. . . . So what are local city officials doing in the face of this daunting evidence that pension-spiking is unsustainable? Spiking pensions, of course, and putting their taxpayers at risk of a Vallejo-like scenario." (The Orange County Register)


Class Action Filed to Recover Retirement Benefits for Employees of Failed Arkansas Bank
Excerpt: "A class action filed on behalf of over 250 former employees of ANB Financial, N.A., charges that the bank holding company, individual trustees, and other fiduciaries of the ANB Employee Stock Ownership Plan (ESOP) breached their duties to plan participants by continuing to invest participants' retirement savings in company stock even after the fiduciaries knew that the bank was engaged in unsafe and unsound banking practices." (Lewis, Feinberg, Lee, Renaker & Jackson P.C.)


Filipinos Get New Retirement Plan
Excerpt: "PRESIDENT Arroyo yesterday signed into law the Personal Equity and Retirement Account which gives employees in the private and public sector an incentive to save money which they can use when they retire. The scheme encourages savings by granting tax breaks to employees, particularly migrant Filipino workers, on products that will be listed under the Pera system." (Manila Standard Today)


Costs of Barstow, California, Police and Firefighters Go Far Beyond Wages
Excerpt: "The annual cost of retirement benefits -- including the employers' contribution and the portion of the employees' contribution that employers pick up as an added benefit -- amounts to about $23,738 per firefighter/paramedic. The city pays an annual average of $24,094 in retirement benefits per officer, according to numbers provided by the city and fire district." (Desert Dispatch)


Using a 401(k) Loan for a Down Payment on a Home Loan
Excerpt: "While a 401(k) loan can indeed help provide the down payment on a home, keep in mind that lenders typically treat the money as a form of debt. That could have an impact on your qualifying debt-to-income ratio for the size of the home loan for which you can qualify. The flip side is that using 401(k) money for a down payment could provide the needed equity to avoid paying mortgage insurance. Retirement-fund loans have to be repaid within five years. But there is no set time frame for paying back the loans if they are used to make a down payment on a primary home." (San Jose Mercury News)


Chattanooga Fire and Police Pension Fund Closer to Resolution
Excerpt: "Chattanooga officials and fire and police pension fund personnel on Friday afternoon moved one step closer to approving a plan that would help correct the underfunded pension fund. But the pension fund board must work with the City Council to determine exactly how the improvements will be implemented. Should the council and board agree, the matter would begin the process to become an ordinance, not a referendum in November as some stakeholders feared." (Chattanooga Times Free Press)


Successful Retirement More Than Investments
Excerpt: "The bottom line is that successful retirement -- at whatever age -- is about much more than one's stock portfolio. The conversation about retirement planning must move from one of just finances to one of how to achieve a desired lifestyle. Discussing and defining what we really want from our retirement lifestyle is critical, but in times of economic instability, boomers may have to revise their retirement goals and timelines and think creatively about how to achieve those goals." (IndyStar.com)


Can Cities Afford to Keep Paying Pensions?
Excerpt: "While many employees in the private sector sock away part of their incomes into 401(k)s and IRAs for retirement, full-time government employees can bank on a pension that is guaranteed to support them for the rest of their lives. But pensions for public workers are a sore spot for some homeowners, who have to foot part of the pension bill through their property taxes." (Naperville Sun)


[Opinion] Baby Boomers Had Better Plan on Working Past Age 65; Procrastination and DC Plan Designs at Fault
Excerpt: "The inconvenient truth that most investors in their 40s and 50s need to hear is that no investment product can make up for decades of little or no saving. That is why baby boomers must stay in the 'accumulation phase' until they have achieved a minimum of 10 times their final salary." (Jane White in Investment News)


[Opinion] How the PBGC Plans to Increase Profits Without Taking on Risk
Excerpt: "The Pension Benefit Guaranty Corporation, which is supposed to guarantee that those of us with pensions will get paid even if our employers go broke, has a $14 billion deficit. But it claims to have found a way to climb out of that hole while reducing the risk of its investments. It plans to move a lot of money out of bonds and into stocks, with sizable investments going into real estate and private equity funds." (The New York Times; free registration required)


[Opinion] The Provisions of PPA Dealing with Investment Advice Offered to Participants Under the Auspices of a Fiduciary Adviser
Excerpt: "Of course, the heart of the controversy lies in the potential, if not inherent, conflicts of interest that arise when advisers offer advice on investments that provide compensation to those same advisers. Some, of course, believe that those conflicts can never be surmounted, or at least that they cannot be surmounted by every adviser every time. Others believe that the problem can be overcome by a combination of process structure, disclosure, and oversight." (PLANSPONSOR.com; free registration required)


[Opinion] A Pension Deficit Disorder - Pension Debts Loom As the Next Financial Crisis
Excerpt: "Pension deficits are not like market crashes (although their severity can obviously be exacerbated by them); rather, their malign evolution is something of a slow-burner. To put it another way, banking and property crises are short term. But an underfunded pensions system is the issue of a lifetime." (The price of everything)


[Opinion] SEIU Files Citizens' Initiative with Washington Legislature to Limit State's Investment in Private Equity Companies
Excerpt: "Under the proposed [Service Employees International Union]-drawn rules, the State Investment Board, which manages $62 billion in public pension money, would be required to consider certain 'societal criteria' before it could invest in the likes of Kohlberg Kravis Roberts or the Carlyle Group." (The Wall Street Journal)


[Opinion] New Jersey Early Retirement Programs for State Workers
Excerpt: "early retirement deals offer up- front savings at the expense of long-term pension costs. The current buyout, for example, was expected to incur $250 million in long-term pension costs if the target number of employees opted for it. That means it would take about three years of salary savings to offset the added pension costs. Adding more debt to the state pension system is like throwing gas onto a raging fire. The state is already about $26.8 billion in the hole for its pension obligations, according to one conservative estimate. And on Wednesday, we learned that the state's debt ballooned by almost $2.2 billion last year to $32.9 billion. Similar buyout deals in 1991, 1993, 1997, 1999 and 2002 failed to achieve the savings that had been anticipated." (nj.com)



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Links to Items on Executive Comp, Benefits in General

[Guidance Overview] Sixth Circuit Rejects Claim for Statutory Penalties
Excerpt: "This recent unpublished Sixth Circuit opinion provides a good overview of the limited scope of the disclosure requirements of 29 U.S.C. 1024(b)(4). The case follows existing Sixth Circuit precedent on the reach of the statute, so there are no real surprises. The prejudice requirement for imposition of the penalty, while again not novel, is formulated in a manner that is nonetheless of interest." (Health Plan Law blog by Attorney Roy F. Harmon III)


[Guidance Overview] Revisions to the Standard of Care Rule Book, Unit 1
Excerpt: "I have some work to do in updating the standard of review section of the ERISA Toolkit after the MetLife v. Glenn decision. As I develop these segments, I will post them as independent units. Ultimately they will be incorporated into the Toolkit page. Here's the first revision . . . ." (Health Plan Law blog by Attorney Roy F. Harmon III)


[Guidance Overview] Final Deadline for Section 409A Amendments
Excerpt: "Identifying and updating every deferred compensation arrangement subject to Section 409A is time-consuming. These amendments often require the consent of affected participants, the review and approval of the employer's board of directors (or compensation committee) and, for public companies, disclosure of the amendments in SEC filings. Because the amendments need to be completed by December 31, 2008 and because year-end board agendas will fill up quickly, employers need to complete their compliance initiatives now." (Pepper Hamilton LLP)


40% of Stock Options Are Underwater
Excerpt: "Stock options are currently underwater at nearly 40% of Fortune 500 companies, compared with about one-third that had worthless options during the first quarter, according to data compiled for Financial Week by compensation consultants Steven Hall & Partners. And many of those options are well into the abyss: One in every 10 companies now has options that are more than 50% underwater." (Financial Week; free registration required)


Fair Value Transfer: Measuring the Costs of Aggregate Long-Term Incentive Grant Practices (PDF)
22 pages. Excerpt: "We are pleased to present our fourth survey of aggregate fair value transfer ('FVT'), measuring the total value transferred from shareholders to employees through grants of long-term incentive compensation. Our research of 240 companies, spread across four broad industry sectors, revealed that aggregate FVT rates leveled off in 2006 and 2007 following previous declines from 2003 to 2005. In the following pages, we present a detailed explanation of our analysis, along with other key findings." (Frederic W. Cook & Co., Inc.)


Appellate Panel Backs Staples Options Cutoff for Fired Employee
Excerpt: "The Staples office supply company has been cleared of wrongdoing in refusing to allow an ex-employee the right to exercise his stock options after he was fired for cause. The 1st U.S. Circuit Court of Appeals upheld an earlier ruling by U.S. District Judge Morris E. Lasker of the U.S. District Court for the District of Massachusetts that Staples' cutoff of Alan S. Noonan's options rights was within its discretion. The company made the move because Noonan had been fired for lying on his company travel expense reports." (PLANSPONSOR.com; free registration required)


More Education Needed on Equity Compensation
Excerpt: "New research from Fidelity indicates equity compensation plans encourage employee loyalty and productivity, but many employees are not reaping the total rewards from this incentive due to lack of understanding. Overall, the study from Fidelity Stock Plan Services suggests 16% of the U.S. work force is enrolled in at least one type of stock plan, while 9% are enrolled in multiple plans." (PLANSPONSOR.com; free registration required)


DOL Helps Employers with Injured Veteran Issues
Excerpt: "The U.S. Department of Labor announced a new online resource to help employers in their employment of veterans with traumatic brain injury (TBI) and post-traumatic stress disorder (PTSD), two increasingly common battlefield conditions. Managed jointly by the Department of Labor's Office of Disability Employment Policy and Veterans' Employment and Training Service, in collaboration with other federal agencies, the America's Heroes at Work Web site (www.AmericasHeroesAtWork.gov) provides information about TBI and PTSD as well as tools and guidance on how to implement workplace accommodations and other services that benefit affected individuals." (PLANSPONSOR.com; free registration required)




Newly Posted Events

DOL's Proposed 408(b)(2) Fee Disclosure Regulations
Nationwide on September 9, 2008
presented by American Society of Pension Professionals & Actuaries (ASPPA)

Investing IRAs and Qualified Plan Rollovers in Real Estate, Franchises, Start-Ups and Other Private Investments - Techniques and Risks
in California on September 23, 2008
presented by Lorman Education Services

The Consequences of Plan Disqualification
in Illinois on September 17, 2008
presented by ASPPA Benefits Council of Chicago

Who Gets In The White House? How State And National Public Policies Will Be Impacted
in Maryland on September 11, 2008
presented by Worldwide Employee Benefits Network -- Baltimore chapter



Newly Posted Press Releases

Fees Are Now Top Reason Retirement Plan Sponsors Switch Providers
Spectrem Group



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Director Retirement Plans Client Services
for Mutual of Omaha Insurance Company
in NE

Retirement Plan Specialist
for Diversified Investment Advisors
in MD

Operations Manager
for ING, US Financial Services
in AL, AR, FL, LA, MS, TN

Prescription Benefit Program Representative
for National Rural Electric Cooperative Association
in VA

401(k) Professional
for Dubuque Bank & Trust through its holding company Heartland Financial USA, Inc
in IA

HR Administrator - Benefits & HRIS
for Quinn Group
in CA

Enrolled Actuary
for Preferred Pension Planning Corporation
in NJ

Actuary/Pension Plan Consultant
for The Weiss Group, Inc.
in FL, IL

Implementation Manager
for OCI
in CO




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