Retirement Plans Newsletter |
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| July 7, 2009 \ Compliance \ Costs \ Administration \ Design \ Policy | ||
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[Official Guidance]
Listing of IRS Published Guidance for January-June 2009
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]
Delegation for Plan Sponsors, Part 3
Excerpt: "This month I'll describe in some detail how it's possible to insulate the sponsor of a qualified retirement plan such as a 401(k) plan--the 'sponsor' actually being represented collectively by real flesh and blood humans who serve as trustees and other named and functional fiduciaries of the plan--from virtually all day-to-day fiduciary investment risk as well as operational/administrative risk to which they would otherwise be subject in the act of sponsoring the plan." (Morningstar)
[Guidance Overview]
Delegation for Plan Sponsors; The Last of Four Parts
Excerpt: "Upon acceptance of this delegation from a plan sponsor, a full-scope ERISA section 3(21) fiduciary can then turn around and delegate each of the preceding duties to specialized fiduciaries (for purposes of efficiency and risk management). This kind of 3(21) fiduciary has the burden to ensure that the specialized fiduciaries to whom it has delegated these duties are prudent in carrying them out since it is the full-scope 3(21) fiduciary (not the plan sponsor) that will suffer the consequences if they are carried out imprudently. As a result of this, the plan sponsor is insulated from virtually all day-to-day fiduciary investment risk as well as operational/administrative risk." (Morningstar, Inc.)
[Guidance Overview]
SEC Eliminates Broker Discretionary Voting in Director Elections, Proposes Changes to Disclosure & Other Requirements Regarding Corporate Governance & Compensation
Excerpt: "The rule change limiting discretionary voting by brokers and the anticipated adoption of other pending regulatory changes is expected to significantly enhance the leverage of shareholder rights activists and have significant impacts on the governance and disclosure practices of public companies of all sizes." (McDermott Will & Emery)
[Guidance Overview]
Recent Rulings Suggest Plaintiffs May Need To Prove Discriminatory Motive To Prevail under ERISA's Rate of Accrual Provision, Section 204(b)(1)(H)(i) (PDF)
Pages 6-7 of 9 pages. Excerpt: "ERISA § 204(b)(1)(H)(i), 29 U.S.C. § 1054(b)(1)(H)(i), prohibits the reduction or cessation of the rate of benefit accrual in defined benefit plans 'because of the attainment of any age.' A series of rulings by the Seventh, Third, Second, Sixth and Ninth Circuits rejected claims that, since younger workers had more years to accrue interest credits under cash balance pension formulas, those formulas inherently violated Section 204(b)(1)(H)(i). In so ruling, these courts reached the commonsense conclusion that ERISA did not make unlawful the time value of money." (Proskauer Rose LLP)
[Guidance Overview]
District Courts Deny Class Certification on 401(k) Claims (PDF)
Pages 3-5 of 9 pages. Excerpt: "Two district courts recently denied class certification to participants bringing claims related to investments in 401(k) plans, concluding the proposed classes did not meet Fed. R. Civ. P.23(b) (which requires plaintiffs to establish that the proposed class meets the requirements of at least one of the types of classes set forth in Rule 23(b))." (Proskauer Rose LLP)
[Guidance Overview]
IRS Says Transfer Results in a Modification of Stream of Substantially Equal Periodic Payments: PLR 200925044
Excerpt: "[An IRA participant] asked the IRS to rule that: The partial transfer from IRA # 1 to IRA # 3 not be considered a modification [and] A proposed correction of reversing the partial transfer (that was made from IRA # 1 to IRA # 3) to IRA # 1, plus any applicable earnings, not be considered a modification. The IRS' Response[:] The IRS noted that the partial transfer - which was nontaxable- was made before the end of the [series of substantially equal periodic payments] period, (the end would be after five years has elapsed since the inception or until age 59 1/2, whichever is longer. You can use this calculator to determine the end-date of a [series of substantially equal periodic payments]). They further stated that the partial transfer resulted in a modification of the [series of substantially equal periodic payments], and added that the modification could not be corrected by reversing the transfer." (RetirementDictionary!)
Investment Risk Considerations for Pre-Retirees and Retirees
Excerpt: "'The importance of maintaining a balanced portfolio to achieve reasonable expected growth is clear,' says John Ameriks, director of Vanguard Investment Counseling & Research. 'While one-hundred percent cash may be the right allocation for investors with low risk tolerance and very definite ideas about what they need to spend, for investors who are looking to continue to grow their portfolios over the many years still ahead, it still makes sense to consider some exposure to stocks.'" (The Vanguard Group, Inc.)
A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups
Excerpt: "401(k) plans are the primary retirement vehicle for two-thirds of large employers. When analyzing 401(k) plan participation by race and ethnicity, quantifiable differences are evident. . . . This study [is the largest, most comprehensive examination of the 401(k) savings behavior of African-American, Hispanic, Asian, and white employees.] The findings in this study are based on year-end 2007 information collected from nearly 3 million eligible employees working for 57 of the largest U.S. companies across a variety of industries and sectors. The data, collected by Hewitt Associates, includes race, ethnicity, gender, salary, age, job tenure, 401(k) balances, and other account information. It analyzes savings and participation rates, stock exposure, loans and hardship withdrawals, and account balance by race and ethnicity." (Hewitt Associates / Ariel Education Initiative)
Plan Fiduciaries Prevail With Comprehensive, Well-Crafted Benefits Denial
Excerpt: "The Third Circuit recently issued an opinion (unpublished) in the case of Donachy, et al. v. Motion Control Industries which highlights the importance of writing well-reasoned, comprehensive benefits denials under the claims and appeals procedures of a benefit plan. In Donachy, participants had challenged the plan committee's interpretation of plan provisions and claimed that their pensions should have been calculated using a $31.00 per month multiplier rather than a $30.00 per month multiplier." (ERISA Fiduciary Guidebook)
More Detail on Lump-Sum Distributions of Workers Who Have Left a Job, 2006 (PDF)
Pages 2-10 of 20 pages. Excerpt: "This article examines workers' decisions to a take a lump-sum distribution -- a one-time payment -- from an employment-based retirement plan when changing jobs, while remaining in the labor force. It builds on earlier, top-line data from the 2004 Survey of Income and Program Participation (SIPP). This study provides estimates of the percentage of workers changing jobs and leaving their assets in their former employers' plan, compares the standard of living of individuals age 55 or older with that of their early 50s, and assesses how the current near-elderly and elderly have fared after making a lump-sum decision." (Employee Benefit Research Institute)
Papers Presented to 2009 Society of Actuaries Public Plans Finance Symposium
Excerpt: "[On the target page] you will find papers for the 2009 Public Pension Finance Symposium sessions held on May 18-19, 2009. Please note that some sessions have multiple papers from different authors/presenters and that some papers are not available for certain sessions." (Society of Actuaries Public Plans Finance Symposium)
Delta Flight Attendant Says New Pension Formula Will Cost Beneficiaries Millions
Excerpt: "A Delta Air Lines flight attendant has filed a proposed class- action suit against the company, saying it changed its formula for calculating pension benefits, costing beneficiaries millions of dollars in accrued benefits that are federally protected. . . . The suit . . . says Delta made the change in 2007 while in Chapter 11 bankrup.tcy. The change altered the calculation of the Social Security offset for certain participants' pension benefits. The offset typically reduces corporate pensions by a percentage of Social Security benefits received. Delta's change, the suit claims, violates an 'anti-cutback' rule under the Employee Retirement Income Security Act. It could affect tens of thousands of participants and beneficiaries in the airline's pension plan, the suit says." (The Atlanta Journal-Constitution)
Massachusetts Police and Firefighter Unions File Twin Class-Action Lawsuits Against the State over Pension Changes
Excerpt: "The Boston Police Superior Officers Federation, Professional Fire Fighters of Massachusetts, and Boston Firefighters Union Local 718 - on behalf of public employees statewide - assert in a suit filed in US District Court that a provision in the new law amounts to breach of contract. The law, they argue, unfairly reduces retiree benefits by limiting what kinds of compensation count toward their pension. Under the new rules, public employees can no longer use additional pay - such as educational stipends, uniform allowances, and the value of unused vacation and personal days - in their pension calculation. Most public employees, lawyers for the unions say, use such extras to raise their base pay substantially, which in turn boosts their retirement checks." (The Boston Globe)
Special Commentary for Plan Sponsors Regarding Target Date Funds (PDF)
9 pages. Excerpt: "This commentary is designed to help 401(k) plan sponsors and committees understand the current target date fund concerns and what they should do about them." (MJM401k)
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Links to Items on Executive Comp, Benefits in General
[Guidance Overview]Severance Plan Is Subject to ERISA When Employer Discretion and Ongoing Demands on Employer's Assets Are Present
Excerpt: "EBIA Comment: Depending on the nature of plan administration, a severance plan may or may not qualify as an ERISA welfare benefit plan. However, the state of the law is not clear, and the many court cases on this issue have created a range of fine distinctions on which the determination turns. In general, courts will determine that a severance plan is subject to ERISA where the plan requires both an administrative scheme and sufficient employer discretion (e.g., to determine when severance benefits are payable or in identifying eligible employees)." (Employee Benefits Institute of America)
[Guidance Overview]
SEC Proposal of New Executive Pay Disclosure Rules
Excerpt: "[T]he SEC proposed a broad package of corporate disclosure improvements, amending Item 402 of Regulation S-K, to provide shareholders with important information about their corporation's key policies, procedures and practices relating to compensation policies and incentive arrangements." (Michael Melbinger via Winston & Strawn LLP)
[Guidance Overview]
Proposed Rule Changes for Proxy Statement Disclosures and Broker Discretionary Voting
Excerpt: "On July 1, 2009, the U.S. Securities and Exchange Commission held an open meeting to consider three proposals related to proxy statement disclosure enhancements and shareholder voting. The proposals regarding 'say on pay' and enhanced proxy statement disclosures were approved unanimously by the Commissioners. The vote to approve revisions to NYSE Rule 452 on broker discretionary voting was passed, three to two." (Ballard Spahr Andrews & Ingersoll, LLP)
SEC Proposes New Rules on Pay Disclosure and Approves Broker Voting Rule
Excerpt: "The SEC has voted to propose rules changing executive pay and corporate governance disclosures, clarifying TARP companies' legal duty to submit executive pay to an annual shareholder vote, and requiring companies to report proxy vote results within four business days on Form 8-K. If adopted, the changes would take effect for the 2010 proxy season. The commission also has approved a New York Stock Exchange rule to eliminate broker discretionary voting in director elections, effective in 2010." (Mercer LLC)
SEC Proposed Rules Clarify TARP Say-on-Pay Requirement
Excerpt: "Proposed SEC rules clarify say-on-pay requirements under the Troubled Assets Relief Program (TARP) but avoid prescribing specific language for management resolutions. The proposal specifies that the resolution must cover the compensation program set out in the proxy and explains when companies are subject to the requirement. As mandated by the Emergency Economic Stabilization Act, many TARP recipients included say-on-pay proposals in their 2009 proxies. Comments on the proposal, which would apply for the 2010 proxy season, are due within 60 days of publication in the Federal Register." (Mercer LLC)
Webcasts and Conferences
2009 Action Plan: What U.S. Plan Sponsors Must Do and Should Consider Before 2010in New York on July 21, 2009
presented by Osler, Hoskin & Harcourt LLP
FutureOffice Network™ Presents July Smartcast Federal Health Care Reform: A Review and Commentary of the Proposals
Nationwide on July 21, 2009
presented by Davidson Marketing Group -- FutureOffice Network
The American Recovery and Reinvestment Tax Act and Qualified Plans
in New York on July 13, 2009
presented by Executive Benefits Design Group
Web Seminar -- Primer on Providers: Who Does What for Your 401(k) Plan
Nationwide on July 23, 2009
presented by TRI-AD
Work/Life Balance
in Georgia on July 16, 2009
presented by WEB (Worldwide Employee Benefit Network) Atlanta Chapter
(Click to post your webcast or conference)
Press Releases
U.S. Labor Department Obtains Appointment of Independent Fiduciary for Profit-sharing Plans Abandoned by Defunct Binghamton, New York, CompaniesU.S. Department of Labor, Employee Benefits Security Administration (EBSA)
Employers Prefer Incremental Approach to Health Care Reform
Mercer
Fiduciary Benchmarks Announces Milestones
Fiduciary Benchmarks, Inc.
(Click to post your press release)
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