Retirement Plans Newsletter |
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| November 30, 2009 \ Compliance \ Costs \ Administration \ Design \ Policy | ||
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[Guidance Overview]
DOL Considering 403(b) FAQs
Excerpt: "The DOL continues what is actually a pretty extraordinary effort with regard to 403(b) plans. It had struggled early with the new 403(b) changes brought on by the IRS rule changes. It had not really taken a good look at these plans since 1978 when it issued its 'safe harbor' which exempted many 403(b) plans from Title 1 coverage, and I do not recall ever actually dealing with a DOL investigation of a 403(b) plan prior to this year. DOL staff has kept talking to the accounting, legal and consulting professions, as well as employers and vendors, as they try to sort out some of the unusual difficulties presented by 403(b) plans. Indeed, the biggest challenge in this market is not related to the tax code, it is in addressing the mystery of how to define and manage fiduciary issues arising from 403(b) plans funded with individually owned annuity contracts. The DOL is about to take the next step, and is considering [issuing] a 403(b) 'Frequently Asked Questions' as they have done twice for the Schedule C. The FAQ is to address critical year end 403(b) issues related to reporting and Title 1 status." (Giller and Calhoun)
[Guidance Overview]
Motions to Strike Affirmative Defenses in ERISA Litigation
Excerpt: "Note: Motions to strike are disfavored, but this opinion demonstrates circumstances in which they may prevail. In particular, the notice pleading requirement [offers] possibilities as evidenced by the court's decision and its citation of United States v. Sensient Colors, Inc., 580 F. Supp. 2d 369, 378 (D.N.J. 2008) (striking affirmative defense that referred to unspecified statutes of repose because it failed to comply with the notice pleading requirement of Rule 8)." (Roy Harmon III via Health Plan Law)
[Guidance Overview]
Required, and Optional, Qualified Plan Amendments for the 2009 Plan Year
4 pages. Excerpt: "All retirement plans will likely need to be amended for the Pension Protection Act of 2006 (PPA) before the end of the 2009 plan year. This is generally true even if a plan has been restated for EGTRRA (or otherwise recently restated). Some qualified documents may not require an employer signature and can be adopted at the prototype sponsor/volume submitter practitioner level. The deadline, requirements for signatures and the PPA provisions that need to be adopted will be discussed . . . . We will also briefly discuss other required amendments that may be included with PPA Amendments or that will be required in the near future." (American Society of Pension Professionals & Actuaries)
[Guidance Overview]
IRS Insight on Recent Guidance Relating to Retirement Plan Distributions
Excerpt: "In light of a controversial statement included in the new 402(f) safe harbor notice, plan sponsors should take note of an often misunderstood rule with respect to after-tax contributions. If a participant has after-tax contributions, the participant may roll over those amounts through either a direct rollover or a 60-day rollover. However, if the participant does a direct rollover of only a part of the account and receives a distribution of the rest, each payment will include an allocable portion of the after-tax contributions." (Proskauer Rose LLP)
[Guidance Overview]
Tyco Stock Drop Settlement Gets Court OK
Excerpt: "A federal judge in New Hampshire has given final approval of a $70.5-million settlement of a stock drop suit against Tyco International that includes $21.1 million in lawyer fees. U.S. District Judge Paul J. Barbadoro of the U.S. District Court for the District of New Hampshire issued two orders in the seven-year-old suit, one implementing the proposed settlement and the other setting attorney fees. The suit alleged that a decrease in the value of the company's shares meant participants ended up losing a substantial portion of their retirement savings. In their lawsuit, the employees charged that Tyco and its top officials also breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by lying to participants about the company's financial condition and the risk characteristics of the company stock fund." (PLANSPONSOR.com; free registration required)
Congress May Yank Investment Advice Provision from Pension Bill
Excerpt: "Lawmakers in Washington are discussing scrapping the conflicted-advice provision of the 401(k) Fair Disclosure and Pension Security Act of 2009, a move that would be welcomed by many in the financial services industry. The advice provision of the bill, which was approved by House Education and Labor Committee in June, would have allowed only independent advisors to work with 401(k) plans. Currently, the majority of 401(k) providers offer advice to participants in accordance with the Department of Labor's 2001 SunAmerica advisory opinion, which allows providers to offer advice through an affiliate using an independently developed computer model." (Workforce Management; free registration required)
Target Date Funds Expected to Boom by 2018, According to Report
Excerpt: "Total assets in target date funds will grow to $2.6 trillion by 2018, attracting 80% of new and reallocated flows into defined-contribution plans for the next decade, according to a projection in a recent Casey Quirk & Associates LLC report." (Investment News; free registration required)
Harsher Advice Regulations May Come, Experts Worry
Excerpt: "More restrictive investment advice regulations are coming now that the Labor Department has killed a controversial Bush administration proposal that would have permitted the mutual fund industry to provide direct investment advice to defined contribution plan participants. The key question remaining is how narrow the new Obama administration advice regulations will be, ERISA attorneys and pension industry lobbyists said." (Pensions & Investments; free registration required)
8th Circuit Says Wal-Mart 401(k) Suit Requires Further Discussion
Excerpt: "The 8th U.S. Circuit Court of Appeals has vacated a district court's dismissal of a suit alleging Wal-Mart Stores, Inc. breached its fiduciary duties to 401(k) participants by selecting investment options that charged excessive fees. In its opinion the appellate court said the district court erred in concluding that Jeremy Braden lacked standing to maintain claims for the period before he began participating in the plan (see Wal-Mart Captures Resounding Excessive Fee Suit Victory). The court found Braden satisfied the requirements for constitutional standing because he alleged actual injury to his own plan account, and that injury is fairly traceable to the defendants' conduct because Braden alleged a causal connection between their actions - even those taken before his participation in the plan - and his injury." (PLANSPONSOR.com; free registration required)
Insights from the PLANSPONSOR Annual Defined Contribution Survey
Excerpt: "Roughly three-quarters of survey respondents said that they either matched participant contributions or provided a non-elective contribution, though 14.2% said they had never matched contributions. About 5% of this year's respondents had reduced the company match/contribution, with a like number saying that they had eliminated it. Another 5% each were contemplating either cutting or suspending the match. The most encouraging news was that nearly eight of 10 had no plans to reduce, suspend, or eliminate the match. Of those that had cut or suspended the match, nearly one in four planned to restore it for 2010, while roughly 60% said they planned to remain at the cut or suspended level next year." (PLANSPONSOR.com; free registration required)
1 in 2 CFOs More Concerned About Pension Plan Volatility, According to Survey
Excerpt: "Fifty-four percent of U.S. corporate finance executives reported an 'increased level of concern' around volatility in their pension plans, according to a Towers Perrin survey. But of the 133 executives surveyed, only one-third changed their pension plan investment strategy as a result of the recession, and 12% have made changes to their hedging policies." (Pensions & Investments; free registration required)
Is Income Distribution the Next Exchange-Traded Fund Frontier?
Excerpt: "Hoping to address the income needs of retiring baby boomers, providers of exchange-traded funds are gearing up to introduce new income-oriented products. Fixed-income ETFs already pay out monthly or quarterly dividends, but the industry is looking beyond such products, industry executives said during a round-table discussion held Nov. 4 at InvestmentNews' New York offices. 'You may see some type of a managed distribution or an income stream that flows through [to the investor] so the investor does not have to sell units of the ETF,' said Christian Magoon, president and senior managing director of Claymore Securities Inc. and Claymore Advisors LLC." (Investment News; free registration required)
[Opinion]
Private Employer Defined Benefit Plan Demise Was Inevitable, and Should Not Be Revitalized in Current Form
Excerpt: "The private employer-sponsored defined benefit plan has had a good run of it, supporting two generations well in its goal of providing economic security for retirees. But the last 10 years have seen gradual though substantial decline in the number of employers sponsoring these plans, and in the percentage of employees being covered by these plans-now somewhere well south of 19% of the workforce is covered. The economic collapse has exacerbated the problem even further by exposing the weaknesses of the system, as the remaining DB plans are seeking funding relief from Congress. You can find many sound opinions which attempt to explain this demise, from over-regulation, to difficult statutory schemes, to the allure of defined contribution plans. If you step back, though, you can see that all of the reasons for the demise have a central theme: private employers are structurally ill-suited to bear the lifetime risk associated with providing this kind of benefit." (Giller and Calhoun)
[Opinion]
Taking the Roth 401(k) to the Next Level
Excerpt: "To bring employer plan and IRA opportunities into conformity and to prevent a migration of plan assets into IRAs, PSCA is recommending changes to the Roth 401(k) and 403(b) rules (i.e. Code Section 402A) that would: 1. Permit plan sponsors to allow plan participants to convert traditional retirement savings (i.e., employee elective deferrals and after-tax contributions, and employer contributions) into Roth savings within their 401(k) or 403(b) plan and to roll monies from all eligible retirement plans, including Roth IRAs, into the designated Roth account of a 401(k) or 403(b) plan. 2. Exempt Roth 401(k) and 403(b) money from the minimum distribution rules in the same manner that Roth IRAs are not subject to those rules." (Profit Sharing / 401k Council of America)
[Opinion]
Regulatory Developments and the Emergence of a Harmonized Fiduciary Standard
Excerpt: "Q: How does the SEC view fiduciary duty? Do commissioners agree with one another? A: SEC Chair Mary Schapiro, Commissioner Elisse Walter and Commissioner Luis Aguilar appear to agree that a fiduciary standard should apply to all financial professionals who provide advice to investors. Walter has acknowledged that 'financial professionals should always act in the best interests of investors.' Schapiro and Aguilar each have emphasized fiduciaries' duty to put client interests before their own." (Financial Planning)
[Opinion]
Target Date Funds: What About Risk?
Excerpt: "In my most recent Fiduciary Corner column, I looked at how fiduciaries can make the difference in reforming target date funds. A question arose however as to where risk is accounted for. An email I received made the case that the products were being made on the cheap, saying 'What is missing is the most important factor of all: RISK. These life-cycle funds are fatally flawed as they assume the same risk tolerance for all investors retiring in a certain year. Risk drives behavior. Individuals usually fail because of behavior.' The emailer suggested that by not providing subsets based on risk tolerance for each target date year, managers are feeding the same bad investor behavior that causes investor performance to consistently lag behind fund performance." (fi360 blog)
[Opinion]
Four Questions for Fiduciaries About Target-Date Funds
Excerpt: "Since target-date funds have become the most popular new investment for participants -- both by choice and as a default -- the starting point for the DOL is to communicate clearly with plan sponsors and fiduciaries about its expectations concerning the selection and monitoring of TDFs. The DOL clearly is interested in that issue. On June 18, 2009, the DOL and SEC held hearings on TDFs, focusing on the following four questions: 1. How do TDF managers determine asset allocations and changes to asset allocations (including glide paths) over the course of a TDF's operation? 2. How do they select and monitor the underlying investments? 3. How are the foregoing, and related risks, disclosed to investors (that is, plan fiduciaries and participants)? 4. What are the approaches or factors used by fiduciaries (and their advisers) for comparing and evaluating TDFs? It seems obvious to me that, if the regulatory agencies believe these are the most important questions to ask about TDFs, then they are also important questions for plan sponsors, as fiduciaries, to ask and get answers to." (PLANSPONSOR.com; free registration required)
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Links to Items on Executive Comp, Benefits in General
[Guidance Overview]IRS's Final Employee Stock Purchase Plan Regulations
Excerpt: "ESPP Requirements -- The final regulations clarify that the plan document requirements may be satisfied by the terms of the plan document or the terms of the offering under the plan. In order for a plan to be considered an ESPP, the plan must provide that options will be granted only to employees of the employer corporation or of its related corporations. In addition, the plan must be approved by the granting corporation's stockholders within 12 months before or after the date the plan is adopted." (Deloitte via BenefitsLink.com)
[Guidance Overview]
IRS Releases Updated Version of Publication 521 on Moving Expenses
Excerpt: "EBIA Comment: Code Section 132(g) allows employers to reimburse employees for certain moving expenses on a tax-free basis, so long as the expenses would have qualified for an individual tax deduction under Code Section 217. The types of moving expenses that can be provided tax-free are limited, but some employers go further and reimburse a broader array of moving expenses, resulting in taxable income for employees. Publication 521 provides a brief overview of some of the choices available to employers when designing moving expense benefits for employees, but its main purpose is to help individuals determine which of their moving expenses may qualify for a deduction and how to account for any employer reimbursements." (Employee Benefits Institute of America)
House Panel to Hear Concerns Over Delphi Retirees' Pensions and Benefits
Excerpt: "The U.S. House Education and Labor Committee will conduct a hearing Wednesday on the pensions and benefits that may be cut because of the Delphi Corp. bankrup.tcy. U.S. Rep. Tim Ryan, U.S. Sen. Sherrod Brown and Bruce Gump, Delphi retiree representative, are scheduled to testify. . . . In July, Ryan introduced legislation to provide funding for a Voluntary Employees Beneficiary Association, which would cover Delphi hourly and salaried employees and retirees who lost their health coverage through Delphi and GM's Chapter 11 bankruptcies. Gump, of Howland, testified at a Senate hearing on this issue Oct. 29 and came away from that hearing optimistic that senators will work to restore pension benefits." (Vindy.com)
The Effect of Incentive Pay on Rates of Change in Wages and Salaries
Excerpt: "[F]ollowing steady increases of approximately 3 percent per year from December 2006 through June 2008, private industry wage and salary increases have slowed; the annual rate of change in recent quarters has been around 2 percent or below. This overall trend can mask the effect of incentive-paid workers, who make up about 5 percent of the private workforce, as measured by the BLS Employment Cost Index (ECI). Incentive-paid workers are those who receive some portion of their earnings based on sales or output, rather than a unit of time such as an hourly rate or monthly salary. Examples of incentive-paid work include piece-rate systems found in manufacturing environments and commissions paid to certain sales workers. Because such workers represent a small proportion of total employment, it is difficult to track this volatile segment of the workforce. However, by comparing all workers with those who are not paid by incentive, some trends can be identified." (U.S. Bureau of Labor Statistics)
Press Releases
PBGC Moves to Protect Pensions at Hayes Lemmerz International, Inc.Pension Benefit Guaranty Corporation (PBGC)
Terrance Power Named One of 401kwire.com's "300 Most Influential Advisors in Defined Contribution"
American Pension Services, LLC
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