Retirement Plans Newsletter |
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| May 18, 2009 \ Compliance \ Costs \ Administration \ Design \ Policy | ||
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[Official Guidance]
Text of U.S. Supreme Court Opinion Holding for AT&T; Approves Special Treatment of Pregnancy Leave Prior to 1978 Under Pension Formula (PDF)
31 pages. Excerpt: "Held: An employer does not necessarily violate the PDA when it pays pension benefits calculated in part under an accrual rule, applied only pre-[Pregnancy Discrimination Act], that gave less retirement credit for pregnancy than for medical leave generally. Because AT&T's pension payments accord with a bona fide seniority system's terms, they are insulated from challenge under Title VII section 703(h)." (U.S. Supreme Court)
[Official Guidance]
Text of IRS Proposed Regs: Suspension or Reduction of Safe Harbor Nonelective Contributions (PDF)
6 pages. Excerpt: "The proposed regulations would . . . permit an employer sponsoring a safe harbor plan . . . that incurs a substantial business hardship (comparable to a substantial business hardship described in section 412(c)) to reduce or suspend safe harbor nonelective contributions during a plan year. These proposed regulations would provide an employer an alternative to the option of terminating the employer's safe harbor plan in such a situation. The proposed regulations would allow for the reduction or suspension of safe harbor nonelective contributions under rules generally comparable to the provisions relating to the reduction or suspension of safe harbor matching contributions." (Internal Revenue Service)
[Guidance Overview]
Retirement Governance and Compliance Advisory Update and Insights: May 2009
Excerpt: "In April, significant legislation focused on participants' rights in defined contribution plans. These bills include: the Savings Recovery Act of 2009, which, among other things, increases 401(k) contribution limits; the Conflicted Investment Advice Prohibition Act of 2009, which revises Pension Protection Act (PPA) rules for providing investment advice to participants; the 401(k) Fair Disclosure for Retirement Security Act of 2009, which requires specific fee disclosure to plan participants. In addition, the IRS released a proposed IRC Section 403(b) opinion letter program and sample language for drafting a 403(b) prototype plan; the Federal Trade Commission delayed enforcement of its new 'red flags' rules (which are conceivably applicable to 401(k) plans that allow loans), and Vermont, Iowa and Maine legalized same-sex marriage." (Towers Perrin)
[Guidance Overview]
The GASB's Invitation to Comment on Pension Accounting and Reporting Standards (PDF)
Excerpt: "On March 31, 2009, the Governmental Accounting Standards Board (GASB) issued its Invitation to Comment (ITC) on potential changes in accounting and financial reporting standards related to public pensions. The ITC is an early step in the GASB's project to review these standards, and is intended to encourage comments from interested parties before the GASB begins its formal deliberations. Written comments are due to the GASB by July 31, 2009, and a public hearing is scheduled during the Board's regular meeting on August 26, 2009. This article summarizes the ITC, along with various arguments suggested in the ITC for and against potential changes to the standards. However, the article does not provide a detailed evaluation of the arguments, which will be done in a separate paper." (Gabriel, Roeder, Smith & Company)
[Guidance Overview]
PBGC Developing Proposed Regulation on Downsizing Liability Section of ERISA
Excerpt: "Attorney Harold J. Ashner, former PBGC assistant general counsel for legislation and regulations, has been warning for some time that PBGC has been stepping up its enforcement of Section 4062(e) and that employers should be considering that as a possible cost when considering a cessation of a facility and the reduction of its workforce . . . . [Click on the title under 'Items of Interest' on the target page.]" (The Bureau of National Affairs, Inc. via Keightley & Ashner LLP)
[Guidance Overview]
Proposed Rules Allowing Employers to Suspend or Reduce Safe Harbor Nonelective Contributions
Excerpt: "The IRS has come up with some new rules to 'ease the pain' of these dire economic conditions and has issued some proposed regulations allowing employers to reduce or suspend their 401(k) or 403(b) safe harbor nonelective contributions mid-year in the case of a 'substantial business hardship described in section 412(c) [of the Internal Revenue Code].' The IRS notes in the preamble to the proposed regulations (in today's Federal Register) that the new rules will 'provide an employer an alternative to the option of terminating the employer's safe harbor plan in such a situation.' There is a 30-day advance notice requirement and a requirement that employees be allowed to change their salary deferral elections in order to take advantage of the new rules." (Attorney B. Janell Grenier via Benefitsblog.com)
[Guidance Overview]
Bill Would Waive Some 401(k) Withdrawal Penalties
Excerpt: "Participants who are undergoing specific financial hardships would get some relief on 401(k) penalties under new legislation. Congressman Robert Latta (R-Ohio) has introduced H. R. 2331, the Individual Recovery Assistance Act of 2009, which waives the 10% penalty on early withdrawals from qualified retirement plans for participants who meet two specific conditions: those who use the funds to make mortgage payments on a primary residence; those who have lost jobs and have received unemployment compensation for 12 consecutive weeks." (PLANSPONSOR.com; free registration required)
U.S. Supreme Court Upholds AT&T Pension Plan's Treatment of Pregnancy Leave Taken Prior to 1978
The Supreme Court holds that AT&T's pension plan formula does not violate the Pregnancy Discrimination Act of 1978 merely because pregnancy leave taken before 1978 (then considered a 'personal' leave of absence, with a cap of 60 days counted as service for plan purposes) is not counted as liberally as other disability leaves of absence. (Associated Press via New York Times)
Chrysler Expands Worker Retirement and Separation Plan
Excerpt: "Chrysler LLC will expand its retirement and separation program for employees at seven facilities it is set to close before December 2010 as part of its restructuring plan. . . . The company will close eight facilities, but employees at its Detroit Axle plant won't get the expanded separation program because they are being transferred to a Marysville, Mich., facility scheduled to open next year. The retirement and separation program window has been extended until May 26, and job cuts will take place a day later." (The Wall Street Journal)
Probe of Former Director of PBGC on Big Shift from Bonds to Equities, Real Estate, and Private Equity
Excerpt: "An investigation into the contacts between the former director of the Pension Benefit Guaranty Corp. and Goldman Sachs, J.P. Morgan, and BlackRock may pose new questions about a big shift in PBGC investing policy from Treasury bonds to stocks, real estate, and private equity. On Thursday the PBGC's Office of the Inspector General began circulating a draft report detailing ex-director Charles E.F. Millard's actions in connection with hiring the three investment firms as strategic partners to manage real estate and private-equity investments for the PBGC, the nation's insurer of defined-benefit pensions. Total fees for the three firms could exceed $100 million over a 10-year period, according to the report." (CFO.com)
IRS Gives Pension Plans Fix for Tax Credit Glitch
Excerpt: "The IRS on Thursday offered pension plans a way to fix a glitch that has been causing the new Making Work Pay tax credit to incorrectly boost pension payments to retirees. Many retirees have been receiving additional money they are not entitled to, money that will have to be repaid at tax time next year, either through a smaller refund or a larger tax bill. The glitch will still affect millions of other taxpayers who will continue to receive money they are not entitled to. The IRS said it is planning an outreach campaign to educate at-risk taxpayers, including married couples in which both couples work, individuals with multiple jobs and Social Security recipients who also have jobs that provide taxable income." (Associated Press)
Illinois Lawmakers' Pension Perk Scrapped; Now They're Like Other State Workers
Excerpt: "State lawmakers voted Wednesday to wipe away a lucrative pension perk and instead have themselves treated like any other state employee. 'The members of the General Assembly should have very similar pension benefits as to what other state employees do. We shouldn't have a sweeter deal and this is one way of moving us in that direction,' . . . . The legislation makes the basis for General Assembly and judicial pensions the average of the highest four years of salary out of their final 10 years of state employment. Currently lawmakers' pensions are based on their final salary." (Daily Herald)
Your Retirement Plan May Need a New Investment Strategy
Excerpt: "Fidelity Investments didn't do a survey but instead relied on actual behavior of the 11.3 million participants in the 17,500-plus corporate-defined benefit plans it runs, and found that worker contributions were down slightly from a year ago, but that exchange levels were low and declining. Fidelity's numbers showed that about 1 out of every 20 plan participants traded out of one fund and into another in their plan. That's where the numbers draw some measure of concern because that low level of activity would indicate that investors, for the most part, are sticking with the investment strategy they started with, which may no longer be suitable or appropriate. For most workers, however, having the same portfolio makeup after many years is akin to a monster wardrobe malfunction. The wardrobe that worked in your first days on the job might not be appropriate for you to wear years later." (Star-Telegram.com)
'Less Conservative' Investment Plan for Pension Benefit Guaranty Corporation Wasn't Implemented
Excerpt: "The Pension Benefit Guaranty Corp. said it never fully implemented the 'less conservative' investment strategy spearheaded by former Director Charles E.F. Millard, who is now under scrutiny for his ties to Wall Street. The government-owned PBGC, which pays the pensions of 44 million people from bankrupt companies, hasn't 'actively put any money' into the 'alternative' investments such as private equity and real estate that Millard championed, said Jeffrey Speicher, a spokesman." (Bloomberg L.P.)
Consider Consequences of Lump-Sum Distributions from Retirement Plans
Excerpt: "Lost tax-deferred growth opportunities. When you take a lump-sum withdrawal from a qualified retirement plan or IRA, you are removing your funds from a tax-deferred environment. Even if you reinvest this money (instead of spending it), you're still missing out on tax advantages. When you reinvest the funds outside of the retirement plan, your earnings generally will be on a taxable basis. Over time, taxes greatly cut into the growth that you're able to achieve. Even if you immediately reinvest your lump-sum amount in another tax-deferred vehicle (such as an annuity), you will still be required to pay income tax on the amount of your lump-sum withdrawal. For that reason, if you're planning to buy an annuity, it may make sense to do a rollover to an IRA (to avoid income tax) and then buy the annuity inside your IRA." (Chillicothe Gazette)
Retirement Group to Propose Changes to 401(k) Disclosure Bill
Excerpt: "An industry association that represents the interests of retirement plan service providers this week will suggest modifications to proposed legislation that would require the industry to break out 401(k) fees on investors' statements. The Spark Institute will push for a less detailed version of a bill introduced last month by House Education and Labor Committee Chairman George Miller, D-Calif. For example, his bill calls for showing in actual dollars the cost to plan participants for their specific investments. The Spark Institute, however, will suggest providing investors with a list of the total expense ratios of the various investment options available in the plan, along with the dollar cost based on a hypothetical $1,000 investment." (Investment News; free registration required)
Wirehouses Add Fiduciary Reps in Effort to Win 401(k) Business
Excerpt: "As competition intensifies to capture the 401(k) and other retirement plan business of small and midsize companies, wirehouses increasingly are allowing representatives who specialize in the niche to act as fiduciaries. . . . The number of reps who serve in a fiduciary capacity varies greatly by wirehouse. UBS Financial Services now permits more than 300 reps to be fiduciaries, while St. Louis-based Wells Fargo Advisors and New York-based Morgan Stanley have 50 and 40 reps, respectively, who act in that role according to officials at the firms." (Investment News; free registration required)
[Opinion]
Let's Rebuild Retirement's Three Legs
Excerpt: "For decades, the U.S. retirement system was described as a three-legged stool. One leg was the Social Security system, the second was the employer-sponsored retirement plan, and the third was personal savings. Unfortunately, all three legs of this metaphorical stool have become fragile. . . . Robert Reynolds, president and chief executive of Boston-based Putnam Investments, is on the right track in proposing changes to 401(k) plans to reduce the risks for participants and in urging other financial industry leaders to join him in pushing Congress for action, as reported in InvestmentNews last week. He has identified the two most critical changes that are needed. First, all employers should be required to enroll all employees in a 401(k) or similar plan, and all employees should be required to contribute a minimum percentage of their pay to the plan." (Investment News; free registration required)
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Links to Items on Executive Comp, Benefits in General
[Guidance Overview]Proposed COLI Deduction Limit Could Impact NQDC Programs
Excerpt: "Employers who have relied on corporate owned life insurance (COLI) to fund either non-qualified deferred compensation benefits or other post retirement benefits not funded in a tax-deferred manner may find that option at least partially closed off in coming months. A client advisory prepared by The Groom Law Group said the restriction could come from an Obama administration proposal to deny a pro-rata portion of the interest deduction based on insurance held on any individual other than a 20% owner of the business. That 'greatly expands' the current situation which, according to the Groom memo, involves pro-rata denial of the interest expense deduction that currently applies to COLI on individuals who are not employees." (PLANSPONSOR.com; free registration required)
Executives' Financial Planning Perks Are on the Chopping Block
Excerpt: "As bailed-out financial institutions take more heat over the massive pay packages dished out to their executives, a key fringe benefit usually awarded to top officers -- the financial planning perk -- appears to be on the chopping block. Every element of executives' pay is being carefully scrutinized by lawmakers, shareholders and taxpayers. As a result, several of the nation's largest financial institutions have already stopped footing the bill for their executives' financial planning, which historically has been a staple of compensation packages for CEOs, CFOs and other top brass." (Workforce Management; free registration required)
Give Your Retirement and Health Plans a Litigation Checkup
Excerpt: "At a time when plaintiffs' attorneys are probing employers' plans for systemic vulnerabilities that could lead to class-action suits and multimillion-dollar judgments, plan sponsors and fiduciaries should review their retirement and health plans and take steps to reduce the potential for litigation. Here are some areas for review." (Workforce Management; free registration required)
Employee Ownership Update for May 15, 2009
NCEO Executive Director Corey Rosen discusses the impressive 2003-2008 stock price growth of ESOP companies in a recent NCEO survey of executive compensation; stories that your customers tell about you, illustrated by an anecdote from Southwest Airlines President Emeritus Colleen Barrett; a new paper saying that the stock options backdating scandal caused significant shareholder damage; and the Ownership Thinking conference. (National Center for Employee Ownership)
Press Releases
PBGC Moves to Protect Foamex Pension PlanPension Benefit Guaranty Corporation (PBGC)
U.S. Labor Department Recovers Almost $32,000 for Company 401(k) Plan From Shelton, Connecticut, Employer
U.S. Department of Labor, Employee Benefits Security Administration (EBSA)
The SPARK Institute Issues White Paper Defending 401k
SPARK Institute
Aon Consulting Launches New Media and Creative Services Group for Clients
Aon Consulting
Buck Consultants Launches Third Annual Global Wellness Survey
Buck Consultants, an ACS Company
New Consultant Joins Arnerich Massena
Arnerich Massena & Associates
(Click to post your press release)
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