Retirement Plans Newsletter |
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| May 21, 2009 \ Compliance \ Costs \ Administration \ Design \ Policy | ||
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[Guidance Overview]
Proposed IRS Regulations Permit Suspension or Reduction of Safe Harbor Nonelective Contributions (PDF)
3 pages. Excerpt: "On May 18, 2009, the Internal Revenue Service (IRS) issued proposed regulations that would permit employers experiencing a substantial business hardship to suspend or reduce safe harbor nonelective contributions under a 401(k), 401(m) or 403(b) plan during a plan year. The regulations are intended to provide employers experiencing a significant economic downturn with an alternative to plan termination. The proposed regulations . . . are effective for plan amendments adopted after May 18, 2009. Employers may rely on the proposed rules now, pending the issuance of final regulations. Comments on the proposed regulations are due by August 17, 2009." (Sutherland)
[Guidance Overview]
IRS Provision of WRERA Funding Relief Election Procedures (PDF)
5 pages. Excerpt: "These developments affect sponsors of and participants in qualified multiemployer defined benefit plans. They do not affect single-employer plans, multiple employer plans, governmental plans or church plans that do not elect to be covered by ERISA ('non-electing church plans'). . . . On December 23, 2008, President Bush signed into law the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA). In response to the current economic crisis, WRERA provides welcome funding relief for multiemployer plans. For plan years beginning on or after October 1, 2008, and before October 1, 2009, WRERA allows plans to temporarily freeze their funding status based on the prior year's actuarial certification. In addition, the sponsor of a multiemployer plan may elect for a plan year beginning in 2008 or 2009 to extend the plan's applicable funding improvement plan or rehabilitation plan by three years. The IRS recently issued Notice 2009-31 to provide guidance relating to the elections offered under WRERA." (Prudential Retirement)
[Guidance Overview]
New Contribution Relief Proposal for Employers Sponsoring Safe Harbor 401(k) Plans
Excerpt: "On May 18, 2009, the Internal Revenue Service (IRS) proposed a regulation that would permit employers that sponsor a safe harbor defined contribution plan to reduce or suspend employer nonelective contributions after the start of the plan year if the employer has incurred a substantial business hardship and certain other requirements are met. The proposed change liberalizes current restrictions on the suspension or reduction of a safe harbor plan's nonelective contributions after the plan year has begun." (McGuireWoods LLP)
[Guidance Overview]
Proposed Regulations Permit Suspension of Safe Harbor Nonelective Contributions upon Substantial Business Hardship
Excerpt: "The proposed regulations apply to both traditional safe harbor nonelective contributions and safe harbor nonelective contributions under qualified automatic contribution arrangements. On May 15, 2009, the Internal Revenue Service (IRS) issued proposed regulations that permit sponsors of 401(k) and 403(b) safe harbor retirement plans that experience a substantial business hardship to suspend or reduce safe harbor nonelective contributions mid-plan-year rather than terminate their plans. The proposed rules parallel existing regulations that allow sponsors of safe harbor matching plans to suspend or reduce matching contributions as an alternative to terminating the plan." (McDermott Will & Emery)
[Guidance Overview]
401(k) Fee Litigation, May 2009 Update
The target page provides links to a 25-page paper titled: '401(k) Fee Litigation' and to a 38-page chart of 401(k) Fee Cases. (Groom Law Group)
[Guidance Overview]
Guide to New Form 5500 Schedule C Reporting and Disclosure Rules Including Gifts and Gratuities (PDF)
10 pages. Excerpt: "A number of questions have been raised by the new rules governing Form 5500 Schedule C and related gifts reporting. This question and answer guide provides background information for CIEBA members. CIEBA wishes to thank Morgan, Lewis and Bockius, LLP for preparing this educational resource. This Guide is general in nature and does not constitute legal advice on any specific matter." (The Committee on Investment of Employee Benefit Assets)
[Guidance Overview]
Exception to Premature Distribution Tax for IRA Distributions Used to Pay Health Insurance Premiums Is Limited to Payments Made During Tax Year of Distribution
Excerpt: "A taxpayer who received IRA distributions in 2004 was not entitled to claim the exception from the 10% early withdrawal tax for the amount of premiums that she paid in 2003 and 2005, even though she may have been prevented from taking a distribution from her IRA in 2003 because of state unemployment compensation laws, the U.S. Tax Court has ruled in Davis v. Commissioner of Internal Revenue." (Wolters Kluwer)
[Guidance Overview]
Tips to Keep the Company 401(k) Plan on Track
Excerpt: "Looking forward, there are several issues plan sponsors need to address in reviewing their plans, from the plan's governance to the choices of a low-risk investment option. . . . To keep their plans on sound footing, Mercer suggests that plan sponsors investigate 10 key issues: [1] Determine how much participants are paying in investment and plan administration fees. 'If you haven't benchmarked these fees in over a year, it is time for an update,' Mercer advises. 'Consider whether the market decline has jeopardized the fee guarantees under your contract, thus reducing your leverage in enforcing service-level agreements.'" (Institute of Management & Administration via insurancenewsnet.com)
Extending Life Cycle Models of Optimal Portfolio Choice: Integrating Flexible Work, Endogenous Retirement, and Investment Decisions with Lifetime Payouts
Excerpt: "This paper derives optimal life cycle portfolio asset allocations as well as annuity purchases trajectories for a consumer who can select her hours of work and also her retirement age. Using a realistically-calibrated model with stochastic mortality and uncertain labor income, we extend the investment universe to include not only stocks and bonds, but also survival-contingent payout annuities. We show that making labor supply endogenous raises older peoples' equity share; substantially increases work effort by the young; and markedly enhances lifetime welfare. Also, introducing annuities leads to earlier retirement and higher participation by the elderly in financial markets. Finally, if we allow for an age-dependent leisure preference parameter, this fits well with observed evidence in that it generates lower work hours and smaller equity holdings at older ages as well as sensible retirement age patterns." (Pension Research Council; registration required to download fulltext of paper)
Deficit at PBGC Tripled in the Last Six Months to a Record High
Excerpt: "The agency, the Pension Benefit Guaranty Corporation, faced a shortfall of just $11 billion as of October. The combined effect of lower interest rates, losses on its investment portfolio and rising numbers of companies filing for bankrup.tcy produced the jump in its projected deficit, officials said Wednesday. Because the agency has $56 billion in assets -- most of which is invested in Treasury bonds -- it is not facing any prospect of default in the short term, officials said." (The New York Times; free registration required)
How Well Are Employees Saving and Investing in 401(k) Plans: 2009 Hewitt Universe Benchmarks (PDF)
4 pages. Excerpt: "Hewitt recently released a study which analyzes the quality of participation, plan balances, investment behavior, account activity, and demographics of over 2.7 million employees. The report shows that despite the significant decline in the stock market during 2008, most participants did not change their saving and investment behavior throughout the year. Overall participant rates across the universe remained flat from last year. Contribution rates declined slightly. In terms of trading behavior, only one in five participants made a transfer throughout the year, similar to the year before. There was an increase in overall withdrawals, and specifically hardship withdrawals, but little change in loans." (Hewitt Associates via MJM401k, LLC)
Investment Company Institute Response to May 13 Entry on BrightScope Blog about ICI's Research on 401(k) Fees
Excerpt: "The BrightScope blog [at http://www.brightscope.com/blog/2009/05/13/reconciling-the-401k-fee-estimates-of-the-ici-and-its-critics/] critiques the sampling used in the Defined Contribution/401(k) Fee Study published by Deloitte Consulting LLP and the Investment Company Institute, and attempts to 'reconcile' the Deloitte/ICI report with estimates of 401(k) fees made by others, particularly pension consultant Matthew Hutcheson. In summary, the blog entry suffers from several basic flaws . . . ." (Investment Company Institute)
Retirement Increasingly Elusive in Today's Economy
Excerpt: "'You get three benefits by working longer,' says Stuart Ritter, a certified financial planner with the investment management company T. Rowe Price. 'Each year you work you get one more year of contributions to a retirement plan. You have one less year that your investments have to support you in retirement. And you get a 7 to 8 percent inflation-adjusted increase in your Social Security payments for each year you put off taking Social Security until age 70.'" (NPR.org)
Bill Enables California Legislature to Identify and Address Concerns in CalPERS Additional Retirement Service Credits Program
Excerpt: "A bill by Assemblyman Roger Niello (R- Fair Oaks) to provide transparency regarding Additional Retirement Service Credits (ARSC) in the California Public Employees Retirement System (CalPERS) was unanimously approved today by the Assembly Appropriations Committee and now heads to the Assembly Floor. The Additional Retirement Service Credit program enables eligible CalPERS members to purchase up to five years of service credit to be applied toward retirement benefits. It is sometimes referred to 'air time' because members' benefits are based upon these years even though they were not directly involved in public service at the time." (Rocklin & Roseville Today)
Automotive Pension $77 Billion Shortfall Could Spell Trouble for Younger Retirees' Benefits
Excerpt: "The entire auto industry -- which would include the Detroit Three, as well as other auto manufacturers and auto suppliers that offer defined-benefit pension plans -- is looking at a combined $77 billion in underfunded pension liabilities, based on the estimates of the Pension Benefit Guaranty Corp. We do not want to alarm anyone. So make no mistake, the rug is not being pulled out from under most auto retirees. Many older retirees at General Motors Corp. and Chrysler LLC face no change in their pension payout." (Detroit Free Press)
Post-Bankrup.tcy Pension Cost: Potential Jobs Killer
Excerpt: "This economic downturn includes a problem that we have seen before -- an ever-growing number of underfunded pension plans. But one big difference this time is that additional fees imposed in 2006 can prevent a company from reorganizing and thereby hasten the day it closes its doors. Just as it was from 2002 to 2003, pension shortfalls arose from the combination of the stock market and an overall interest rate drop at the same time. That combination of events can create deficiency in a previously fully funded plan almost overnight. Most of a pension plan's liabilities are for payments to be made well into the future. To evaluate the adequacy of a plan's funding, those obligations are discounted to a 'present value.'" (Law360 via Haynes and Boone, LLP)
Former PBGC Director Invokes Fifth Amendment Rights at Senate Hearing
Excerpt: "Charles E.F. Millard, the former head of the nation's private pension plan insurer, refused to answer questions by the Senate Special Committee on Aging during a Wednesday legislative hearing on Capitol Hill regarding the Pension Benefit Guaranty Corporation (PBGC). . . . Millard, whom Congress announced it is now investigating for possible improper interactions with financial services firms at a time when the agency was considering an allocation change . . . was scheduled to be the first witness. After the first question by Kohl, Millard said he had been advised by his attorneys, who were present with him, to decline to answer any questions by the committee." (PLANSPONSOR.com; free registration required)
Acting PBGC Head Recommends Dumping Money Management Contracts
Excerpt: "Vince Snowbarger, acting director of the Pension Benefit Guaranty Corporation, has recommended three controversial contracts with Wall Street firms be dropped, according to a letter released Wednesday. U.S. Secretary of Labor Hilda L. Solis revealed the Snowbarger recommendation to the agency's board in a letter sent to and released by U.S. Senator Herb Kohl (D-Wisconsin), chairman of the Senate Special Committee on Aging, which conducted a hearing into the private-sector pension insurer on Wednesday . . . ." (PLANSPONSOR.com; free registration required)
Testimony on Pension Benefit Guaranty Corporation: Financial Challenges Highlight Need for Improved Governance and Management (PDF)
May 20, 2009, Testimony by Barbara D. Bovbjerg, director, education, workforce, and income security, before the Senate Special Committee on Aging. 1 page. Excerpt: "Specifically, this testimony addresses two issues: (1) PBGC's financial vulnerabilities, and (2) the governance, oversight, and management challenges PBGC faces." (Pension Benefit Guaranty Corporation)
Public Pension Funds Object to Chrysler Sale and Want Trustee
Excerpt: "A group of Indiana pension funds that hold first-lien debt of Chrysler LLC objected to a plan to auction the company's assets and said a U.S. District Court judge should rule on whether the sale is lawful. The Indiana State Teachers Retirement Fund, Indiana State Police Pension Trust and Indiana Major Move Construction filed court papers late yesterday and today asking U.S. Bankrup.tcy Judge Arthur Gonzalez in New York to block the sale, claiming the plan is illegal and tramples their rights. A hearing to approve the sale to a group led by Fiat SpA, or a bidder that tops its $2 billion offer, is scheduled for May 27." (Bloomberg L.P.)
Shortfall Triples at U.S. Pension Benefit Guaranty Corporation
Excerpt: "The federal agency that backstops corporate pension plans reported that its deficit tripled in the last six months, to $33.5 billion. Despite the shortfall, the agency said it has enough assets to pay benefits for many years, even if the holder of one of the largest retirement programs, General Motors Corp., were to file for bankrup.tcy. The news came as the Pension Benefit Guaranty Corp.'s former director invoked the Fifth Amendment in response to lawmakers' questions about possible mismanagement under the Bush administration. The PBGC's inspector general last week issued a report saying that the former director had violated prohibitions on contacting bidders that were seeking investment contracts." (The Wall Street Journal)
Many Frozen Pension Plans Likely to Be Terminated, According to Report
Excerpt: "Companies with frozen pension plans are more likely to consider investment strategies that will eventually allow them to terminate the plans, rather than continue them, Aon Consulting reports in the brief titled 'Ready 2012: Pension Pulse Survey.'" (Employee Benefit Adviser)
[Opinion]
Is 'Your Mattress' a Valid Retirement Savings Option? The Implications of Financial Turbulence for Plan Sponsors (PDF)
7 pages. Excerpt: "In conclusion, current market conditions have participants worrying, rightfully so, about the security of the retirement investments, and, consequently, making the wrong decisions when trying to protect themselves. The decisions occur due primarily to fear and misunderstanding. It is incumbent upon Plan Sponsors to fully understand their participants and their participants' needs, and to design plans that provide the helpful investments and tools - in all economic conditions." (National Association of Government Defined Contribution Administrators, Inc.)
[Opinion]
Groom Law Group Comments on IRS Pilot Government Plan Questionnaire (PDF)
5 pages. Excerpt: "Groom Law Group submitted [a] letter to the IRS to provide comments on the Government Plan Survey released in February 2009 and sent to a pilot group of 25 governmental plans. We provide comments on two distinct topics - (1) steps that might be taken prior to the broader distribution of the Survey and (2) steps that might be taken to improve and make the Survey more manageable for governmental plans." (Groom Law Group)
[Opinion]
Specific Defined Benefit Plan Funding Relief Proposals (PDF)
5 pages. Excerpt: "First Relief Proposal: Amortization of 2008 Losses. In general. Under the Pension Protection Act of 2006 ('PPA'), 2008 asset losses must be amortized over seven years. The problem is that these losses are so large that seven-year amortization creates unmanageable funding obligations. Employers need time to recover before they can begin making up for these losses. On the other hand, if no contributions are made, the funding shortfall will only grow larger. Accordingly, we propose that for two years, employers shall be required to pay interest on their plans' 2008 losses to prevent the plans' shortfall from growing, but seven-year amortization of those losses would not commence until the expiration of those two years. So, all 2008 losses would be fully funded, but only two years later than would otherwise be the case." (American Benefits Council)
[Opinion]
Thoughts on Costs and Fees in 401(k) Plans
Excerpt: "I am thinking in particular today of the court's treatment of the amount and lack of transparency of the fees and costs in the plan before it as essentially not important, for all intents and purposes, either to participants, or, seemingly, to the court's analysis of the plan's obligations. A deeper look at the role of costs and fees, along with their impact, I suspect, might suggest an entirely different outcome to excessive fee cases such as Hecker, and it would not surprise me if at least some other courts in the future engage in such a closer examination and come to a different conclusion as a result." (Stephen Rosenberg of The McCormack Firm, LLC)
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Links to Items on Executive Comp, Benefits in General
[Guidance Overview]Issues a Company Should Consider When Designing an Executive Compensation 'Repayment' Policy (PDF)
5 pages. Excerpt: "There is increasingly widespread agreement that corporations should adopt policies concerning repayment of executive compensation when the financial criteria that led to such payment are later determined to be inaccurate. There is much less agreement, however, on the specific terms that should be contained in a repayment policy. This letter explores the key questions that a Board of Directors must address in designing a repayment policy." (Frederic W. Cook, Inc.)
U.S. Senator Introduces Measure to Give Shareholders Input into Companies' Executive Pay Practices
Excerpt: "A Reuters news report said the bill from Senator Charles Schumer (D-New York) also includes a provision requiring separating a publicly-traded company's CEO from the chairman position. Schumer told Reuters that his measure will likely be part of a larger legislative package of financial regulatory reforms, which he hopes can be passed by the end of the year. The measure would also give shareholders 'proxy access,' meaning they would have an advisory vote on executive compensation packages, and would require that corporate boards establish risk committees. The bill would require companies to obtain shareholder approval for the pay packages given to executives when they leave a company." (PLANSPONSOR.com; free registration required)
Obama's Vast Agenda Sparks Concern: Are Proposals too Much for Congress to Handle?
Excerpt: "Mr. Obama came into office pledging to enact an ambitious agenda to bolster the ailling financial sector, jump-start the economy, provide health care for the uninsured, address global warming, overhaul the nation's energy policies, save Social Security and Medicare and pour billions more into education. And that's just for starters. Now analysts have begun asking whether the president's lengthy shopping list is more than Congress can handle, or whether a debt-ridden, weakened economy can bankroll all his plans without falling deeper into a financial hole." (The Washington Times)
Webcasts and Conferences
Davis Bacon Retirement PlansNationwide on June 3, 2009
presented by pensionpodcasts.info
ERISA Litigation in Distress Situations: What's New and Important
Nationwide on May 27, 2009
presented by ALI-ABA (American Law Institute-American Bar Association)
(Click to post your webcast or conference)
Press Releases
Kaiser Family Foundation Launches a Health Reform Gateway Page With New Resources on the 2009 DebateKaiser Family Foundation
Charles Schwab Finds Many Workers Who Have Left Their Jobs Have Also Left Their 401(k) Savings Behind
Charles Schwab & Co., Inc.
Record PBGC Deficit Requires Congressional Action to Strengthen Defined Benefit Pension Plan System
American Benefits Council
The Phia Group, LLC Announces Alliance with Interface EAP, Inc.
The Phia Group, LLC
Susman Godfrey L.L.P. Obtains $45 Million Settlement for Milwaukee County During Trial Against Mercer (US), Inc.
Susman Godfrey L.L.P.
(Click to post your press release)
Employee Benefits Jobs
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for Lenox Advisors, Inc.
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