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December 3, 2008

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


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[Official Guidance] Listing of IRS Published Guidance for January - November 2008
The target page links to guidance published by the Service relating to retirement plans: Treasury Regulations; Revenue Rulings; Revenue Procedures; Notices; and, Announcements. (Internal Revenue Service)


[Guidance Overview] In Can.ada, Earnings Ceiling for Public Pension Contributions to Rise in 2009
Excerpt: "As of January 2009, the earnings ceiling to make pension contributions under the Can.ada Pension Plan (CPP) will increase, according to a recent announcement by the Can.ada Revenue Agency. Contribution rates will remain unchanged. . . . Changes in contributions to the CPP for next year include: The maximum earnings to pay pension contributions to the CPP will increase from CAD 44,900 (USD 36,185) to CAD 46,300 (USD 37,313)." (Watson Wyatt Worldwide)


[Guidance Overview] Backdated Options: The Tag-Along Qualified Plan Claims
2 pages. Excerpt: "Companies that allegedly backdated stock options now have a companion concern. Fiduciaries of their 401(k) plans are facing ERISA fiduciary claims where their plans have maintained company stock funds. In one such case, a federal district court has permitted a former employee to proceed with a claim against the employer and certain of its officers for breaches of ERISA fiduciary duties relating to alleged backdating. Bendaoud v. Hodgson, 2008 U.S. Dist. LEXIS 72788 (D. Mass. 2008)." (Utz, Miller, Kuhn & Eickman, LLC)


[Guidance Overview] DOL's Field Guidance on ERISA Bonding Requirement (PDF)
1 page. Excerpt: "On November 25, 2008, the Department of Labor issued Field Assistance Bulletin 2008-04, providing guidance to its field offices as to the fidelity bonding requirement of ERISA §412. The guidance, in the form of 42 Q-and-A's, reflects DOL's existing regulations, its responses to field and other inquiries, and its position on changes enacted in the Pension Protection Act of 2006." (Sutherland)


[Guidance Overview] Supreme Court Rules on Age Discrimination and Early Retirement Eligibility (PDF)
5 pages. Excerpt: "In Kentucky Retirement Systems v. Equal Employment Opportunity Commission, the Supreme Court held that a provision in a Kentucky pension plan imputing service until a disabled person was eligible for early retirement, did not violate the Age Discrimination Employment Act (ADEA), despite the fact that in many cases older disabled persons would not benefit at all from the rule, while younger workers (who were more likely not to have attained early retirement) would benefit." (Aspen Publishers, Inc. via Steptoe & Johnson LLP)


[Guidance Overview] 2008 Plan Year: Year-End Compliance Reminders for Defined Contribution Plans Subject to ERISA (PDF)
4 pages. Excerpt: "This information applies to qualified defined contribution plans and 403(b) plans that are subject to Title I of ERISA. Every year, plan sponsors must make sure their plans meet certain compliance requirements, including those listed . . . . This publication identifies the materials you need to review and will help you prepare for year-end." (Prudential Retirement)


[Guidance Overview] 2008 Year-End Compliance Reminders - for Defined Contribution Plans Not Subject to ERISA (PDF)
2 pages. Excerpt: "This information applies to defined contribution plans, such as qualified governmental plans (including 'grandfathered' 401(k) plans), qualified church plans that do not elect to be covered by ERISA ('non-electing church plans'), 403(b) programs, and section 457 plans that are not subject to Title I of ERISA. Every year, defined contribution plan sponsors should make sure their plans meet certain compliance requirements, including those listed . . . . This publication identifies the materials you need to review and will help you prepare for year-end." (Prudential Retirement)


[Guidance Overview] Guide to 2008 Corrective Distribution Forms (PDF)
1 page. (Prudential Retirement)


[Guidance Overview] The Employee Plans Compliance Resolution System: An Overview for Governmental Plans (PDF)
6 pages. Excerpt: "This research memorandum summarizes IRS guidance related to its programs for correcting retirement plan qualification errors, including the Self-Correction Program, the Voluntary Correction Program, and the Audit Closing Agreement Program." (Gabriel Roeder Smith & Company)


[Guidance Overview] Internal Revenue Code Qualification Rules Applicable to Governmental Defined Benefit Plans (PDF)
14 pages. Excerpt: "This research memorandum summarizes key federal qualification rules for state and local government defined benefit plans under Internal Revenue Code §401(a). Topics include: general qualification requirements, benefit and compensation limits, minimum distribution rules, retiree medical benefits, employer pick-ups, and rollovers." (Gabriel Roeder Smith & Company)


[Guidance Overview] Exercise of Proxy Voting Rights on Behalf of ERISA Plans
Excerpt: "The Department of Labor . . . has issued an interpretive bulletin . . . explaining the application of ERISA's fiduciary rules to the exercise of shareholder proxy rights on behalf of plans that hold corporate stock. The Bulletin consolidates and updates prior IRS guidance on proxy voting and examines the impact of plans' written statements of investment policy, shareholder activism and social investing on proxy voting. In view of the current market turmoil, the Bulletin is especially timely and provides welcome guidance to plan trustees and investment managers regarding their obligations in voting proxies. The Bulletin became effective on October 17, 2008. This article examines the consolidated guidance provided by the Bulletin." (Tax Management, Inc.)


[Guidance Overview] Use of 'ROBS' Plans, 'Rollovers as Business Startups,' to Fund Start-up Businesses
Excerpt: "ROBS generally are structured as profit-sharing plans with a §401(k) cash-or-deferred arrangement ('CODA') attached. Typically, the client is someone who has a large amount of retirement savings that he or she wishes to use to start a new business. ROBS, in effect, are wolves in sheep's clothing: a legitimate profit sharing plan that may even have an IRS favorable determination letter, but whose main purpose is to allow individuals to access their retirement savings without paying income or penalty taxes, on the theory that there has been no taxable distribution." (Tax Management, Inc.)


[Guidance Overview] IRS Releases Cumulative List for Cycle D Plans
Excerpt: "This Cumulative List states that the IRS, when reviewing determination letter applications for Cycle D plans, will not consider any: '(1) guidance issued after October 1, 2008; (2) statutes enacted after October 1, 2008; (3) qualification requirements first effective in 2010 or later; or (4) statutory provisions that are first effective in 2009, for which there is not guidance identified in this notice.'" (Pension Protection Act Blog)


The Role of the Annuity's Value on the Decision (Not) to Annuitize: Evidence from a Large Policy Change
Excerpt: "This paper presents new evidence on how the annuitization decision is affected by changes in the annuity's value. We take advantage of an unprecendented change in policy, which in 2004 moderated the super-mandatory Swiss occupational pension scheme: The 20 percent reduction in the rate at which retirement capital is translated into a life-long annuity equates to a net present value loss of approximately 20'000 SFR (20'000 US$) for the average retiree." (Social Science Research Network)


Solicitor General Recommends Denial in ERISA Case
Excerpt: "The federal government on Tuesday recommended the court deny certiorari in [AK Steel Corporation Retirement Accumulation Pension Plan v. West] (07-663), an ERISA case. The brief, filed in response to an order last June inviting the views of the Solicitor General, is available [via a link from the target page]." (Akin Gump)


Stocks Are Less of Your Net Worth Than You Think
Excerpt: "Here's why. Say you are a 65-year-old man; your life expectancy is 17 more years. You earned good money, and now you can expect a monthly Social Security payment of $2,000. At least for now, the U.S. government pledges that you will receive those payments, adjusted for inflation, for as long as you live. Having Social Security is equivalent to holding a bond that should produce $24,000 in today's purchasing power every year." (The Wall Street Journal via Yahoo! Finance)


Working Longer: The Solution to the Retirement Income Challenge
Excerpt: "This timely and insightful book assesses the potential of longer work lives to strengthen retirement security. With a clear-eyed view of the challenges associated with such a major social and economic change, this book is an essential resource for individuals, employers, and policymakers alike." (Center for Retirement Research at Boston College)


Economic Worries Spur 401(k) Participants to Hold Fewer Equities, Take More Loans, Watson Wyatt Finds
Excerpt: "Watson Wyatt noted that more than half of the employers surveyed, 53%, reported that their employees were moving their 401(k) investments out of equities. Nearly a fifth, 19%, of employers reported that more employees were taking out plan loans, while 15% reported an increase in hardship withdrawals." (Wolters Kluwer)


When You Retire, Where Should Your 401(k) Money Go? Here's How to Make That Decision
Excerpt: "[A]dvisers urge investors to do their homework before making a rollover decision: Analyze the range of offerings in your 401(k) plan, envision when and for what reason you might tap your retirement savings and examine the tax consequences of both options, paying special attention to what happens if funds are rolled over incorrectly. For some retirement savers, it may be the first time they have given any significant thought to these kinds of issues." (The Wall Street Journal)


Future Generations of Taxpayers Face Large Bill for Public Pension Funding
Excerpt: "If public pensions do not adjust their investment and funding strategies, future plan participants and taxpayers will bear an enormous burden for funding public pension obligations, a working paper released by the National Bureau of Economic Research (NBER) asserts. Researchers Robert Novy-Marx and Joshua D. Rauh contend that the true extent of public pension underfunding has been obscured by governmental accounting rules allowing pension liabilities to be discounted at expected rates of return on pension assets. According to the report, while the public pension plans appear almost fully funded under government-chosen discount rates, there is a large probability of significant shortfalls in the future, and the cost of fully insuring future taxpayers and plan participants against these potential shortfalls would approach $2 trillion." (PLANSPONSOR.com; free registration required)


Institutional Retirement Income Research Council Urges Plan Sponsors to Focus on Retirement Income
Excerpt: "Plan designs should evolve beyond their current focus on helping employees accumulate an adequate amount of retirement savings to a focus on encouraging participant behavior that accomplishes the goal of securing lifetime income during retirement, according to the Institutional Retirement Income Research Council (IRIRC). In its first white paper, 'Institutional Retirement Income Solutions: A Call to Action,' the IRIRC discusses why defined contribution plan sponsors should consider adding retirement income solutions to their plans." (PLANSPONSOR.com; free registration required)


Federal Judge Allows Class Action Suit Against Embarq and Sprint on Age Discrimination and Illegally Canceling Retirement Benefits
Excerpt: "The lawsuit, filed in U.S. District Court in Kansas City, Kan., claims that Embarq and Sprint violated federal law protecting retirement benefits and seeks to have those benefits restored. Plaintiff attorneys estimated the class action would cover around 13,000 former Embarq and Sprint workers." (The Hays Daily News Online)


DOL Sets Sights on PE Valuation
Excerpt: "In a move likely to have a significant impact on private equity funds, the Department of Labor's Boston office recently issued a letter alleging that pension plan fiduciaries violated the Employee Retirement Income Security Act of 1974, or ERISA, by relying on investment valuation reports provided by the PE fund manager or general partner. Further, the letter set forth the office's view that plan fiduciaries are obligated to have in place a process to independently assess the valuation of alternative investments, such as private equity funds. Although the Boston office is DOL's only regional branch to have adopted such a position, its letter has already sent shockwaves through the pension plan community, and as a result, some private equity funds may find themselves faced with a choice between accommodating plan investors' need for increased transparency and potentially losing pension dollars." (The Deal, LLC)


Is CalPERS a Sovereign Wealth Fund?
Excerpt: "Sovereign Wealth Funds (SWFs) are the subject of intense debate. While these funds are hard to define in precise terms, all agree they are government-sponsored pools of financial assets. With roughly $3 trillion under management today and forecasts that suggest this number could approach $10 trillion in under a decade, many wonder what role these public investment funds will play in private markets. Due to SWFs' government sponsorship, some fear that they will be used illegitimately to advance political, instead of commercial, agendas. This geopolitical concern is compounded by a general lack of transparency and a perception among Western analysts of weak accountability and poor governance practices." (Center for Retirement Research at Boston College)


Plans Still Need to Step up Plan Governance
Excerpt: "Towers Perrin points out that under Employee Retirement Income Security Act (ERISA) guidelines, whoever appoints a fiduciary has a duty to monitor the appointee for continued compliance and faces potential liability in the event that the appointment of the fiduciary is questioned. The wide-ranging responsibilities of a typical board or board committee may result in too little attention being paid to the duty of fiduciary monitoring. 'Acting as an ERISA fiduciary carries with it the potential for civil liability,' said Lisa Alkon, a principal in Towers Perrin's Retirement practice and coauthor of the survey report, in the press release. 'With the rise of lawsuits and regulatory actions, it is only prudent for directors and their organizations to take certain defensive measures that start with plan governance.'" (planadvisor)


Securities Lending Now a Dangerous Game for Plan Sponsors, Warns Consultant
Excerpt: "Executives who oversee pension funds and their investments may want to consider steering clear of any securities-lending activity. According to a new analysis from consultants at Watson Wyatt, the risk-reward trade-off of securities lending has changed greatly during the current economic turmoil. The consulting firm is now advising some of its corporate clients that if executives don't understand all of the arrangements and risks involved in their securities-lending activities, they should suspend securities lending. 'We're telling our clients that they have to approach securities lending as an investment decision and that they have to be fully aware of all the risks involved,' said Lisa Laird, head of U.S. custody research at Watson Wyatt." (Financial Week)


[Opinion] Letter to the Editor on Detroit's Liabilities: Two Professors' View
Excerpt: "Re 'If Bankrup.tcy Hits Detroit' (editorial, Nov. 22): Citing our statistics, you argue that General Motors' pension situation makes bankrup.tcy less palatable than new government loans, as taxpayers could face $23 billion in unfunded pension liabilities. While the figure you report is correct, we disagree with your reasoning." (The New York Times; free registration required)



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Links to Items on Executive Comp, Benefits in General

[Guidance Overview] What to Do with Your Employee Stock Purchase Plan During the Current Financial Crisis
Excerpt: "[T]he dramatic drop in stock prices not only impacts stock options and related executive compensation, but it can severely impact broad-based equity compensation in the form of employee stock purchase plans. It is important that every company with an ESPP analyze its plan and discuss how the consequences of the financial crisis will be handled. If your company is in this situation, you may want to contact an equity compensation expert for advice on how to proceed." (The National Center for Employee Ownership)


Big Three automakers' survival bailout requests rise to $34B
Excerpt: "All three companies' plans envision the government getting a stake in the auto companies that would allow taxpayers to share in future gains if they recover. Along with detailed stabilization plans, the auto executives were offering up a hefty dose of humility and a host of symbolic concessions designed to repair their images, badly tattered after they arrived in Washington last month on three separate private jets to plead for federal help. Ford CEO Alan Mulally, GM CEO Rick Wagoner and Chrysler chief Bob Nardelli all planned to road-trip the 520 miles from Detroit to Washington in fuel-efficient hybrid cars for hearings on Thursday and Friday. Mulally and Wagoner both said they'd work for $1 per year -- something Chrysler's plan said Nardelli already does -- if their firms took any government loan money, while Ford offered to cancel management bonuses and salaried employees' merit raises next year, and GM said it would slash top executives' pay. Ford and GM both said they would sell their corporate aircraft." (AP via Google)


CitiGroup Eliminates Additional Employee Severance Payments
Excerpt: "The new chief of human resources at Citigroup, in one of his first official duties since ascending to the position last week, announced in an internal memo Monday, December 1, that the firm would eliminate certain forms of severance pay for U.S. workers. The memo, sent to U.S. employees by HR head Paul McKinnon, who replaced 30-year company veteran John Donnelly last week, said Citigroup would no longer provide additional weeks of base pay beyond its standard severance formula to employees who have 10 or more years of service." (Workforce Management; free registration required)


U.S. Employers Offer Lower Severance Pay
Excerpt: "A new global study has found that employees laid off in the United States earn the least amount of severance pay worldwide -- no matter what level of employee or amount of tenure with the organization. A Right Management news release about its severance pay study found US-based employees consistently earn less severance per year of service than colleagues around the world." (PLANSPONSOR.com; free registration required)




Newly Posted Events
(Post Yours!)

All-Day Seminar with Sal Tripodi, Esq., APM
in Colorado on December 9, 2008
presented by Western Pension and Benefits Conference-Denver Chapter

Enrolled Retirement Plan Agent (ERPA) Winter Exam Window
Nationwide on January 6, 2009
presented by AIRE, LLC (American Institute of Retirement Education)

The Impact of the Financial Crisis on Defined Benefit Plans
in Ohio on December 11, 2008
presented by ASPPA Benefits Council of Cleveland



Newly Posted Press Releases
(Post Yours!)

Transamerica Enhances Online TPA Solution Technology
Transamerica Retirement Services

Small Business Owners Say Cutting Health Care Costs, Need for Reform are Top Concerns
Robert Wood Johnson Foundation

States View Limits on Retiree Health Benefits
Center for State and Local Government Excellence



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DC Implementation Analyst
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Pension Administrator Assistant
for TSP Associates, Inc.
in CA

Manager of Benefits & Recognition
for GeoEngineers, Inc.
in WA




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