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October 14, 2008

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

Today's sponsor is SunGard

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[Guidance Overview] Solvency, Mark-to-Market, the PPA and Insurance
Excerpt: "Every year or two, there is a new set of catchphrases. Leading up to the passage of PPA and even since then, the term 'mark-to-market' has certainly been in the forefront. But, now as America faces life after the 'Bailout Bill', we see Congress laying some of the blame on mark-to-market. Still, it's a critical part of pension funding rules, and as of now, it's the direction that financial accounting remains headed. In this article, we comment on the impact that the concept of mark-to-market has on employer-provided benefit programs." (JPMorgan Chase & Co.)

[Guidance Overview] Class Action Defense Cases–Shirk v. Fifth Third Bancorp: Ohio Federal Court Certifies ERISA Class Action
Excerpt: "Plaintiffs, former employees of Fifth Third Bancorp and participants in the company's profit sharing plan, filed a class action against various defendants alleging breach of fiduciary duties under ERISA; specifically, the class action complaint asserted that the company's stock was an 'imprudent investment' during the proposed class period." (Michael J. Hassen, Jeffer Mangels Butler & Marmaro LLP)

[Guidance Overview] LaRue and the Participant Disclosure Regulations as a Fiduciary Duty: Opening of Pandora's Box
Excerpt: "We have commented in the past on how the REAL impact of the DOL's 'three pronged' disclosure effort lies not in each discrete set of rules, but in how they interact with each other. Our friend and fellow blogger Jerry Kalish, at National Benefit Services has wryfully dubbed this effect as 'The Three Amigos.' This will be tough enough, but their impact gets even more complicated when you take a look at the interplay of the Supreme Court's decision in LaRue v. DeWolff, Boberg & Associates with the Three Amigos." (Baker & Daniels)

[Guidance Overview] New Regs Ahead for 403(b) Plan Sponsors Starting January 1, 2009
Excerpt: "If you're one of the many 403(b) plan sponsors just getting started in dealing with the impact of the new 403(b) regulations on administration and compliance requirements, this post may provide you some guidance in focusing on the issues that need to be addressed by the rapidly approaching January 1, 2009 effective date." (The Retirement Plan Blog)

IRS Puts Off Implementation of Retirement Age Regulation for Public Plans
Excerpt: "The IRS has delayed the implementation of regulations that soon could have affected the early retirement plans of thousands of Nevada state and local government employees. The federal agency issued a bulletin on Friday delaying the 'normal retirement age' regulations for government pensions until fiscal year 2011-12. The IRS initially planned to adopt the rules for public pension plans in 2009-10." (Las Vegas Review-Journal)

McCain and Obama Back Loosening the Required Minimum Distribution Rules
Excerpt: "Retirees feeling hemmed in by minimum distribution requirements got some support from the two leading presidential candidates. On Friday. GOP Presidential candidate Senator John McCain called for the suspension of the minimum distribution requirements that 'mandate that investors must begin to sell off their IRAs and 401Ks when they reach age 70 and one half.' On that point, at least, the two major Presidential candidates could find common ground. That same day the Obama campaign issued a statement supporting McCain's retirement-account proposal - with a slight twist." (; free registration required)

Congressional Lawmakers Seek Oversight of Railroad Retirees
Excerpt: "Members of the New York Congressional delegation summoned officials of the federal Railroad Retirement Board to a meeting in New York City on Friday, emerging with what the lawmakers said was an agreement that could lead to the re-evaluation of disability payments awarded to hundreds of retired Long Island Rail Road workers." (The New York Times; free registration required)

Retirement Wealth Across Cohorts: The Role of Earnings Inequality and Pension Changes (PDF)
43 pages. Excerpt: "Changes in labor markets over the past 30 years suggest upcoming changes in the distribution of wealth at retirement. Baby boom cohorts have spent the majority of their prime earnings years in a labor market with increased earnings inequality. This paper investigates how changes in lifetime earnings distributions affect the distribution of retirement wealth among cohorts retiring over the next decade." (University of Michigan Retirement Research Center)

Best Buy Finds Social Networking Site and 401(k)s Can Be a Good Fit
Excerpt: "In January 2007, Best Buy launched a contest on BlueShirt Nation, inviting employees to create online videos about what 401(k) plans mean to them. The contest, which also had an in-store competition element to increase 401(k) plan participation, ended in March. By then, Best Buy's 401(k) participation had jumped to 47 percent." (Workforce Management; free registration required)

Market Mess Exposes Gaps in 401(k) Savers' Knowledge
Excerpt: "HR managers in recent weeks are realizing that despite all the financial education they offer, many employees still don't understand the fundamentals of 401(k) plans." (Workforce Management; free registration required)

Reports Show How AT&T's Cash Balance Design Created Periods of 'Wear-Away' for Older Employees
Excerpt: "Documents relating to Engers v. AT&T Management Pension Plan, C.A. 98-3660 (D.N.J.) include the following: Expert statistical report dated Sept. 23, 2008 of Robert A. Bardwell, Ph.D., of Bardwell Consulting, on the impact on older employees of the conversion of AT&T's defined benefit plan to a cash balance pension formula. Expert actuarial report dated Sept. 22, 2008 of Claude Poulin, F.S.A., on the periods of wear-away and benefit reductions produced by the conversion of AT&T's defined benefit plan to a cash balance formula." (Stephen R. Bruce and Zipin Web & Consulting)

House Committee Signals Intent to Revamp Retirement Landscape
Excerpt: "Using the current financial crisis as a starting point, the House Education and Labor Committee expressed concern over the retirement assets of American workers at an October 7 hearing. . . . While the intent of the hearing was to examine the effect of the financial crisis on retirement savings, the hearing ranged far afield as witnesses and Members called for significant reforms that would fundamentally change the vehicles in which employees can save for retirement." (The ERISA Industry Committee)

Be the Master of Your 401(k) Domain
Excerpt: "As the financial crisis continued to unfold and the stock market crashed last week, we saw an increasing number of news stories and TV segments aimed at trying to help everyday people sort this out and assess what it all means for their future. Part of this effort should include a better understanding of traditional, or open-end, mutual funds that are the only investment product available in many 401(k)s and are also the preferred choice for many investors outside of retirement plans." (

Are 401(k)s Still Viable for Retirement Saving?
Excerpt: "The global financial crisis that revealed the flaws of Wall Street has also exposed the vulnerability of America's retirement system. Employers have increasingly abandoned traditional pensions, forcing workers to rely on 401(k)s and similar plans that have a lot more exposure to the stock market. The assumption was that even if the market suffered short-term losses, over time it would rise, allowing workers to recoup their savings. But the steepness of this year's market collapse and the still-uncertain depth of the economic downturn has prompted lawmakers, academics and economists to question the wisdom of letting workers hitch their retirement fortunes to the precariousness of the stock market." (The Washington Post; free registration required)

Pension Risk Management: Derivatives, Fiduciary Duty and Process (PDF)
64 pages. Excerpt: "Recognizing that meaningful change, as needed, cannot occur without knowledge of the status quo, the objectives of this research are threefold – (a) understand why and how plan sponsors employ derivative instruments, if at all (b) identify what plan sponsors are doing to address investment risk in the context of fiduciary responsibilities and (c) assess if and how plan sponsors vet the way in which their external money managers handle investment risk, including the valuation of instruments which do not trade in a ready market." (Society of Actuaries and Pension Governance, LLC via Pension Risk Matters)

New Study Addresses Pension Risk Management Gaps
Excerpt: "Pension Governance, LLC is pleased to make available a new research report that explores current pension risk management practices. In what is believed to be a unique large-scale assessment of pension risk practices since the publication of a 1998 study by Levich et al, this survey of 162 U.S. and Canadian plan sponsors seeks to: (1) understand why and how pension plans employ derivative instruments, if they are used at all (2) identify what plan sponsors are doing to address investment risk in the context of fiduciary responsibilities and (3) assess if and how plan sponsors vet the way in which their external money managers handle investment risk, including the valuation of instruments which do not trade in a ready market. The report was written by Dr. Susan Mangiero, AIFA, AVA, CFA, FRM, with funding from the Society of Actuaries." (Pension Risk Matters)

Keller Rohrback Announces Class Certification Phase of ERISA Litigation Regarding Wal-Mart Profit Sharing and 401(k) Plan
Excerpt: "The litigation filed against Wal-Mart Stores, Inc. . . . is currently pending in U.S. District Court in the Western District of Missouri. The complaint alleges that Wal-Mart breached its fiduciary duties under the Employee Retirement Income Security Act ('ERISA') by failing to provide prudent investment options for the participants and beneficiaries of the Plan. In particular, the lawsuit alleges that Wal-Mart selected investment options that were significantly more expensive than comparable or better performing funds readily available in the marketplace. Moreover, the suit alleges that, in violation of its fiduciary duties, Wal-Mart allowed the Plan Trustee, Merrill Lynch, to obtain kickback payments from the fund companies whose investment options were selected for inclusion in the Plan." (MarketWatch)

Candidates Present 401(k)/IRA and Small-Business Plans
Excerpt: "Senator John McCain proposed on Friday that investors should be given a temporary reprieve from a rule forcing them to withdraw from their 401(k)'s and I.R.A.'s after the age of 70, so that they might be shielded from the devastating plunge of the stock market in recent weeks. . . . Campaigning in Ohio, Senator Barack Obama also put forth a proposal to deal with the economic crisis, urging a rescue plan in which the Small Business Administration would lend directly to small businesses that are cut off from other sources of loans. The plan would provide fixed-rate loans to help businesses meet operating expenses, make short-term investments and refinance existing debt." (The New York Times; free registration required)

Wisdom of 401(k) Plans Questioned
Excerpt: "'Everyone wiped their hands of any obligation for retirement, and the burden shifted from the employer to the employee, and the risk is shifted from the employer to the employee,' said Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, who last week convened a hearing to examine 401(k)s. 'In the beginning, no one ever said, 'Would this be sufficient? Would it work?' and what you see is a plan that is highly responsive to external events unlike Social Security, unlike defined-benefit plans, unlike a public pension plan.'" (Hartford Courant)

Landmark New York State Pension Reform Bill Signed Into Law
Excerpt: "A landmark pension reform bill that closes the loopholes allowing some public employees to collect six-figure salaries on top of six-figure pensions was signed into law Friday by Gov. David A. Paterson. Citing pension abuses that have been uncovered in a series of Newsday stories, Paterson said in a statement, 'At a time when the state is facing an unprecedented fiscal crisis, we must be honest about flaws in current operations.'" (Newsday)

Milliman 100 Pension Plans Lose $9 Billion in September
Excerpt: "Milliman, Inc., one of the premier global consulting and actuarial firms, today released the first of what will be a monthly update to the Milliman 100 Pension Funding Index. During the financially volatile month of September, the assets of the Milliman 100, which includes the 100 largest corporate defined benefit pension plans, dropped by more than $78 billion in value." (Market Digest)

[Opinion] Recommendations for Improving the Retirement Plan System
Excerpt: "At the recent Hearing before the U.S. House Committee on Education and Labor, entitled 'The Impact of the Financial Crisis on Workers' Retirement Security,' there was a lot of discussion about the dire state of the retirement security of Americans. And from that hearing came the remark that American workers have lost as much as $2 trillion in retirement savings over the last year and that the system is broken. You can access the testimony here (as well as the recommended fixes). While it is true that we need to be examining a number of areas involved here, I don't agree with those who are advocating that we need a universal pension system. I would say that there are ways to improve the current system and for starters would recommend the following . . . ." (Attorney B. Janell Grenier via

[Opinion] 401(k) Plan Fallacy - A Get-Rich Scheme That Was Too Good to Be True
Excerpt: " The pitch for the 401(k) was a contemporary version of the get-rich-quick scheme: The promise of strolling along a sun-dappled beach in retirement would be realized with ease, as long as workers regularly contributed modest amounts to the accounts and then let the compounding magic of the market work. To hear the mutual fund companies and the media tell it, only fuddy-duddies and dinosaur employers would be foolish enough to opt for the old-fashioned defined-benefit pension, the type employers paid for and professional managers oversaw, and which guaranteed monthly payments in old age." (

[Opinion] Disappearing Pensions Make Lives Less Secure
Excerpt: "Of all the threats to the American middle-class standard of living, from stagnating incomes to piles of consumer debt, perhaps the least understood and among the most serious is the looming crisis in retirement. Several trends, each debilitating alone, are due to converge on the middle class over the next decade or so." (Detroit Free Press)

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Links to Items on Executive Comp, Benefits in General

[Guidance Overview] Economic Stabilization Bill Could Affect Pensions; Includes Enhanced Mental Health Parity Rules
Excerpt: "[The legislation establishes a mechanism] to purchase 'troubled assets' from 'financial institutions.' The bill also includes enhanced mental health parity requirements for group health plans and other provisions that might be of interest to employers from a compensation and benefits perspective. This article highlights but a few relevant features of the Emergency Economic Stabilization Act ('EESA')." (Deloitte via

[Guidance Overview] The Emergency Economic Stabilization Act of 2008: Summary, Analysis and Implementation (PDF)
11 pages. Excerpt: "Despite its passage, the EESA raises various issues that remain to be worked out by Treasury. These include uncertainty regarding the actual mechanism and pricing of troubled assets to be purchased and the timing of such purchases. Congress also imposed various conditions, including limits on the funding mechanism, greater Treasury oversight and accountability for the program, and limits on executive compensation, that must be resolved in implementing the new law." (Paul, Hastings, Janofsky & Walker LLP)

[Guidance Overview] Executive Compensation Limits and Other Employee Provisions Under the Emergency Economic Stabilization Act of 2008 (PDF)
3 pages. Excerpt: "How will the Treasury enforce the new law? Does it have any real teeth? What about executives enjoying binding agreements? What if they refuse to 'cooperate'? Also, it is interesting to note that, once again, Congress believes the tax code is a good vehicle to moderate and regulate the behavior of executives and compensation committees as well as the magnitude of executive compensation. History would indicate, however, that this does not work well and, for the most part, has served only to shift the cost to the shareholders." (Dechert LLP)

[Guidance Overview] Emergency Economic Stabilization Act of 2008: Thoughts on the Landscape of Executive Compensation (PDF)
6 pages. Excerpt: "Partly to raise revenue and partly to make the [Troubled Assets Relief Program (the 'TARP')] palatable to a skeptical voter base, the Act includes several restrictions on compensation payable to senior executives of certain participating FIs and limits its tax deductibility. In addition, as described below, the Act amends the deferred compensation tax law applicable to certain off-shore entities, whether or not they participate in the TARP." (Dewey & LeBoeuf LLP)

[Guidance Overview] Discrimination Claims Under ERISA
Excerpt: "Historically, ERISA §510 claims have been most often asserted in relation to retirement/pension plans. However, recent cases have been brought under ERISA §510 in relation to health and welfare plans. Claims for ERISA §510 violations occur most often when an employer has terminated an employee, and the employee claims that the termination was in anticipation of the employee making a claim under a benefit plan or becoming eligible for benefits under a benefits plan." (Aiken & Aiken)

[Guidance Overview] Moral Hazard and Executive Compensation (PDF)
4 pages. Excerpt: "Moral hazard is an awkward phrase that means, when a party is insulated from risk, it may behave differently than if it were fully exposed to that risk. The concept has definite applicability to executive compensation. If an executive team is rewarded for the positive outcomes of good investments, but insulated from the negative consequences of investments that turn sour, then we may encourage excessive risk-taking. It is thought that moral hazard has been a major contributing factor to the current financial crisis gripping Wall Street. It is directly addressed by the recent legislation enacted by Congress that grants the Treasury Department power to purchase distressed assets from banks and other financial firms. Specifically, the Act prohibits participating companies from providing compensation incentives to senior executive officers 'to take unnecessary and excessive risks that threaten the value of the financial institution.'" (Faegre & Benson LLP)

[Guidance Overview] Summary of FASB Statement 123R, Share-Based Payment, October 9, 2008 (PDF)
14 pages. Excerpt: "Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), Shared-Based Payment (Statement 123R) repeals the longstanding 'intrinsic value' method of accounting for equity compensation prescribed by APB Opinion No. 25 (Opinion 25), and replaces original Statement 123 with a mandate that generally all equity awards granted to employees be accounted for at 'fair value.'" (Faegre & Benson LLP)

How Much Sunlight Does it Take to Disinfect a Boardroom? A Short History of Executive Compensation Regulation
Excerpt: "This paper reviews the history of executive compensation disclosure and other government policies affecting CEO pay, and as well surveys the literature on the effects of these policies." (Social Science Research Network)

Connecticut High Court Approves G.ay Marriage
Excerpt: "Connecticut became the third state to legalize same-sex marriage with a state Supreme Court ruling that g.ay couples have the constitutional right to wed." (; free registration required)

Newly Posted Events
(Post Yours!)

ERISA Litigation: The Bailout Bill, the Financial Crisis, and the Impact on Your Practice
Nationwide on October 23, 2008
presented by ALI-ABA (American Law Institute-American Bar Association)

Investment Advice--Participants and Beneficiaries; Hearing
in District of Columbia on October 21, 2008
presented by U.S. Department of Labor, Employee Benefits Security Administration (EBSA)

Newly Posted Press Releases
(Post Yours!)

Financial Crisis Recasts Debate on Pensions Versus 401(k)s
Watson Wyatt

Treasury Announces Executive Compensation Rules Under the Emergency Economic Stabilization Act
U.S. Department of Treasury

Financial Service Standards Wins PSCA Signature Award for Its 401k Service Solution™ Six-Step ERISA Process
Financial Service Standards, LLC

Pension Governance, LLC Releases Retirement Plan Risk Management Study
Pension Governance, LLC

Americans for Tax Reform and Rutledge Capital Release 2008 Election 401(k) Calculator
Americans for Tax Reform (ATR)

Goldleaf Partners To Provide 403(b) Services For Wisconsin Evangelical Lutheran Church (WELS)
Goldleaf Partners

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