Retirement Plans Newsletter |
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| July 20, 2009 \ Compliance \ Costs \ Administration \ Design \ Policy | ||
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[Official Guidance]
Text of EBSA FAB 2009-2: Form 5500 Relief from Accounting for Most Pre-2009 403(b) Annuity Contracts and Custodial Accounts
Excerpt: "[T]he administrator of a 403(b) plan does not need to treat annuity contracts and custodial accounts as part of the employer's Title I plan or as plan assets for purposes of ERISA's annual reporting requirements provided that: 1. the contract or account was issued to a current or former employee before January 1, 2009; 2. the employer ceased to have any obligation to make contributions (including employee salary reduction contributions), and in fact ceased making contributions to the contract or account before January 1, 2009; 3. all of the rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual owner of the contract or account without any involvement by the employer; and 4. the individual owner of the contract is fully vested in the contract or account." (Employee Benefits Security Administration, U.S. Department of Labor)
[Guidance Overview]
Employers Must Act by Last Day of 2009 Plan Year to Amend Tax-Qualified Plans Pursuant to PPA
Excerpt: "The Pension Protection Act of 2006 made numerous changes to rules regarding employee benefit plans, including tax-qualified defined benefit and defined contribution plans. Although the changes took effect at various dates (and plans have been required to operationally comply with each change as of the specified effective date), amendments reflecting these changes generally do not have to be adopted until the last day of the plan's 2009 plan year (December 31, 2009 for calendar year plans). [A 7-page Summary of Key Changes is at http://www.perkinscoie.com/files/upload/BUS_09-07_PPAchangessummary.pdf.]" (Perkins Coie LLP)
[Guidance Overview]
IRS's Benefit Plan Audit Materials
Excerpt: "The [Employee Plans Team Audits] materials are important tools that plan administrators may use to conduct self-audits of plan compliance." (McDermott Will & Emery)
[Guidance Overview]
After Marriage, Spouse Fails to Consent in Writing to Executed Prenuptial Agreement's Naming of Participant's Child As Beneficiary
Excerpt: "Since there was never an actual spousal consent as required under ERISA, the spouse would be considered the primary beneficiary and unless that surviving spouse properly disclaimed being the beneficiary, he or she would be entitled to the deceased participant assets." (McKay Hochman Co., Inc.)
[Guidance Overview]
Nonspouse Beneficiary Rollover Rules
Excerpt: "The purpose of this article is to provide the rules on nonspouse beneficiary rollovers. To start, we provide a list of the guidance on this subject incorporated into this article." (McKay Hochman Co., Inc.)
401(k) Plans and Retirement Savings: Issues for Congress (PDF)
32 pages. Excerpt: "Over the past 25 years, defined contribution (DC) plans -- including 401(k) plans -- have become the most prevalent form of employer-sponsored retirement plan in the United States. The majority of assets held in these plans are invested in stocks and stock mutual funds, and the decline in the major stock market indices in 2008 greatly reduced the value of many families' retirement savings. The effect of stock market volatility on families' retirement savings is just one issue of concern to Congress with respect to defined contribution retirement plans. This report describes seven major policy issues with respect to defined contribution plans . . . ." (U.S. Congressional Research Service via Workplace Prof Blog)
Post-Retirement Needs and Risks
Excerpt: "The financial environment changed dramatically between 2008 and 2009. To gauge the impact of the financial downturn on retirees, the Society of Actuaries (SOA), LIMRA and the International Foundation for Retirement Education (InFRE) resurveyed respondents of the 2008 study, 'Will Retirement Assets Last a Lifetime?'. The original 2008 study surveyed 1,524 retirees ages 55 to 75 with $100,000 or more in household investable assets prior to the financial downturn. The participants were re-contacted in April 2009 and posed a subset of the original questions via an online survey. In this follow-up report, the 2009 results are contrasted with the results of the original 2008 study." (Society of Actuaries, LIMRA and the International Foundation for Retirement Education)
Madoff-Related Liability Insurance Litigation
Excerpt: "[A recent case has been] filed in connection with a profit sharing plan where 100% of the assets ($12,000,000) was invested with Bernard L. Madoff Securities LLC. . . . The Complaint filed by the plan sponsor against the insurer provides an indication as to the allegations being made by the DOL in requiring the plan sponsor to restore losses. According to the Complaint, the DOL is claiming 'errors' on the part of fiduciaries: In failing to obtain a signed statement from Madoff acknowledging he was a fiduciary and registered as an investment advisor under The Investment Advisors Act of 1940. In failing to provide the DOL with copies of quarterly performance reports, written quarterly investment reviews, information on costs associated with the Plan, and an Investment Policy Statement." (ERISA Fiduciary Guidebook)
Public Pensions, Beyond Our Ability to Pay: A Report by the 2008-2009 San Francisco Civil Grand Jury (PDF)
30 pages. Excerpt: "Over the past 8 months the San Francisco Civil Grand Jury (the Jury) investigated the San Francisco Employees' Retirement System (SFERS), which is responsible for the administration of the City's defined benefit plans. In particular, the Jury investigated the significant increases in the cost of pensions and health benefits over the past 10 years. . . . The escalation of pension costs can be attributed to many factors not the least of which being the relationship of public officials and unions who have negotiated extraordinary pension and retirement benefits today, without consideration of the unfair financial burden placed on future generations. [You may have to go to http://www.sfgov.org/site/courts_page.asp?id=3680 to retrieve fulltext of the Appendixes.]" (City and County of San Francisco)
Market Valuation of Accrued Social Security Benefits
Excerpt: "We find that the difference between market valuation and 'actuarial' valuation is large, especially when valuing the benefits of younger cohorts. Overall, the market value of accrued benefits is only 4/5 of that implied by the actuarial approach." (National Bureau of Economic Research; paid subscription or individual purchase required to retrieve fulltext)
Delphi Retirees Try to Block PBGC Takeover
Excerpt: "A retiree group at bankrupt auto parts supplier Delphi Corp. has gone into federal court in an effort to block company plans to terminate salaried employees' pension plan and transfer it to the private-sector pension insurer. A Dow Jones news report said the suit filed by the Delphi Salaried Retiree Association in Michigan demands that an independent administrator be appointed to better represent the workers' interests. The suit also requests the court temporarily block the transfer of the plan to the Pension Benefit Guaranty Corporation (PBGC) until the issues raised by the case are worked out." (PLANSPONSOR.com; free registration required)
ESOP: A Great Incentive for Employees (PDF)
Page 4 of 6 pages. Excerpt: "Perhaps the most overlooked benefit of ESOPs is their potential effect on employees. Several studies have shown that, when properly communicated, ESOPs result in 'employee-owner' attitude and behavior. Over time, this results in increased productivity and efficiency and higher stock value." (Swerdlin & Company)
Puerto Rico Mandatory Retirement for Police Officers; Chronology of Events Leading to Exemption Under ADEA for Mandatory Retirement of Firefighters and Law Enforcement Officers
See items number 3 and 4 on the target page. (Cypen & Cypen)
Should Retirees Annuitize Their Retirement Assets?
Excerpt: "With the decline in the stock market over the last year, there is renewed interest in lifetime income guarantees for retirees. So, does it make sense to annuitize retirement money or roll the dice with market based returns? When you run the numbers, there doesn't seem to be much of an advantage to annuitizing. In fact, clients may forfeit significant opportunities for greater income by doing so. To run the analysis, you have to compare the income distribution you would receive from an immediate annuity against the likelihood of not running out of money using that same distribution rate from a balanced investment portfolio." (Investment News; free registration required)
More Index Funds Sought for 401(k)s
Excerpt: "In a recent survey of about 150 employers by consulting firm Hewitt Associates, 17% of them said they are likely this year to replace some or all of their plan's actively managed investment options with index funds. That is up from 8% a year earlier. While the largest employers have long had access to the lowest-cost index funds, many small and midsize plans, which have typically been sold pricier funds, are now demanding passively managed products, too. Service organization Rotary International, for example, last year added more index funds to its $15 million 401(k), helping to reduce plan costs, while Fremont, Calif.-based Accept Software Corp. in recent weeks dumped actively managed funds completely from its $1.5 million plan. Some smaller plans that don't have the purchasing power to access the lowest-cost index funds on their own are banding together in multiple-employer plans that take a passive approach." (The Wall Street Journal)
San Diego, California, Pension Funding Tinkering Defended
Excerpt: "San Diego pension officials yesterday defended their decision to study accounting changes that could shave $50 million off of the city's estimated $225 million payment into the retirement fund next year. Several critics, including City Councilman Carl DeMaio, lashed out at the board for broaching the subject of loosening formulas for funding future pension obligations. . . . The accounting changes would provide short-term savings, but could result in higher payments in later years." (The San Diego Union-Tribune)
Employees at Wichita-Based Small Firm Name Investment Adviser in 401(k) Suit
Excerpt: "A group of fewer than 30 employees at a small company in Kansas has filed a lawsuit against the investment adviser, record keeper and custodian for its $2 million 401(k) plan, alleging that the trio of plan providers caused participants to pay 'secret' and 'excessive' fees. The claim itself is a familiar one, of course, as more than a dozen Fortune 500 companies that boast billions in their 401(k) plans have been hit with similar suits in the past four years. However, experts said, this latest suit represents the first time that participants have taken aim at such a small plan -- and an investment adviser." (Investment News; free registration required)
[Opinion]
The ERISA Industry Committee Comments re Joint DOL/SEC Hearing Regarding Target Date Funds and Similar Investment Options (PDF)
7 pages. Excerpt: "There is no need for additional regulations or guidance under ERISA specifically aimed at target date funds." (The ERISA Industry Committee)
[Opinion]
Converting an IRA into a Roth? How's Your Crystal Ball?
Excerpt: "Starting Jan. 1, you'll be able to take a regular I.R.A., say, one that you have in a brokerage account after having rolled an old 401(k) into it, and turn it into a Roth. You'll be able to do this no matter how much money you make, though you'll have to pay income taxes at your current rate on whatever you move. . . . Why would you want to make such a swap? Because you think you or your heirs could end up with more money over the long haul by investing in a Roth instead of a regular I.R.A. . . . It all seems pretty simple, until you consider this: The tax laws might change substantially, throwing all of your careful planning into utter disarray." (The New York Times; free registration required)
[Opinion]
The Changing Retirement Landscape
Excerpt: "Numerous changes affecting retirement plans may be in the offing soon if some proposed legislation is enacted. Although there are differences between the proposed bills, the emphasis is on increased transparency as well as increased penalties for noncompliance." (Human Resource Executive Online)
[Opinion]
Protecting Retirement Assets from Rising Taxes
Excerpt: "President Obama intends to raise income taxes on the rich, and since earned income is the source of most retirement savings, trying to reduce such income taxes is important for retirement plan funding. Being rich means you're in at least the top 5% of wage earners. However, given the projected future deficits, the odds are the definition of 'rich' may expand somewhat in the future. But the tax rate clients pay on their [earned income] and the ultimate savings is often a matter of timing." (Investment News; free registration required)
[Opinion]
What, Exactly, Does Fiduciary Really Mean?
Excerpt: "In essence, the fiduciary is the purchaser of investments and should not be the product provider. This concept must be understood by anyone attempting to establish fiduciary standards in the investment realm." (Investment News; free registration required)
ASPPA (Advert.)
DOL Speaks: The 2009 Employee Benefits Conference –September 14-15,2009 ASPPA and the U.S. Labor Department EBSA co-sponsor this conference, which focuses exclusively on ERISA Title 1 issues. Get the latest information about ERISA regulatory and legislative issues; DOL audit enforcement, retirement plan and group health-plan issues; fiduciary matters, the fundamentals of managing an ERISA plan and more. There also will be information about he Pension Protection Act. Early bird registration ends Friday, July 24, 2009, so register now. Washington Hilton Hotel /1919 Connecticut Street, NW / Washington, DC. |
Links to Items on Executive Comp, Benefits in General
[Guidance Overview]SEC's Proposed Revisions to Proxy Disclosure of Executive Compensation (PDF)
2 pages. Excerpt: "For the most part, the proposed revisions represent fine-tuning of the comprehensive revision of the compensation disclosure requirements adopted by the SEC in 2006. They also contain new disclosure requirements that reflect public perception surrounding the causes of the current financial crisis -- particularly the perception that incentive policies focused on shortterm results have encouraged excessive risk-taking. This alert outlines some of the principal revisions proposed by the SEC . . . ." (Seyfarth Shaw LLP)
Rep. Frank Puts Out Discussion Draft for House Executive Compensation Bill
Excerpt: "Next week the U.S. House Financial Services Committee is expected to begin consideration of legislation that would give shareholders a voice in a company's executive compensation policies. In a Web statement, Chairman Barney Frank (D-Massachusetts) said the bill to be marked up in committee was similar to a measure passed by the House in 2007, as well as a recent Treasury Department proposal . . . . In addition to giving shareholders a say on the compensation for the top five most highly paid executives, the measure would also empower federal regulators to proscribe inappropriate or imprudent compensation practices as part of solvency regulation of all financial firms." (PLANSPONSOR.com; free registration required)
Company Cost-Cutting Strategies in the Downturn, According to Survey
Excerpt: "The survey identified these trends: In the first wave of cost cutting, which began late in 2008 and continued through the first quarter of 2009, respondents took a fairly traditional approach, with salary freezes for the overall workforce (59%) and no salary increases for executives (59%), as well as tighter bonus criteria for executives (41%)." (Towers Perrin)
Press Releases
U.S. Department of Labor Obtains Consent Judgment Against Herndon, Virginia, Company to Protect Participants of Abandoned Retirement PlanU.S. Department of Labor, Employee Benefits Security Administration (EBSA)
Employee Benefits Security Administration Releases Field Assistance Bulletin on Annual Reporting by 403(b) Plans
U.S. Department of Labor, Employee Benefits Security Administration (EBSA)
ERIC Says No Need for Additional ERISA Regulations Aimed at Target Date Funds
ERIC (ERISA Industry Committee)
Employers Express Doubts About Employer Mandate and Government-Sponsored Public Plan, Says Aon Consulting Survey
Aon Consulting
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