Retirement Plans Newsletter
December 8, 2009

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[Official Guidance]
Text of IRS Notice 2009-96: Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates (PDF)

4 pages. Excerpt: "Text of IRS Notice 2009-96: Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates (PDF) This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under section 412(b)(5)(B)(ii)(II) of the Internal Revenue Code as in effect for plan years beginning before 2008. It also provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), the 24-month average segment rates, and the funding transitional segment rates under section 430(h)(2). In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under section 431(c)(6)(E)(ii)(I), and the minimum present value segment rates under section 417(e)(3)(D) as in effect for plan years beginning after 2007." (Internal Revenue Service)



[Guidance Overview]
GAO Makes Suggestions to DOL on Fee Reporting

Excerpt: "In a new report, the Government Accountability Office (GAO) makes suggestions to the U.S. Department of Labor to address plan sponsor and provider confusion over new reporting requirements for the Form 5500 Schedule C and over how plan expenses are defined." (PLANSPONSOR.com; free registration required)



[Guidance Overview]
IRS's Initial Rulings on 'Contingent' Annuities (PDF)

3 pages. Excerpt: "The Internal Revenue Service (IRS) has issued its first rulings on 'contingent' annuities. These products are guarantees issued by insurance companies to complete a specified installment income stream for an annuitant's life if the assets in a designated investment portfolio are exhausted prior to death. They are similar to the guaranteed minimum or lifetime withdrawal benefits offered by insurance companies in variable annuities, but are linked to an investment portfolio owned by the purchaser rather than to assets held in an insurance company separate account. Several contingent annuity products designed for 'nonqualified' purchase (i.e., outside of a qualified retirement plan, IRA or similar program) have been filed for registration with the Securities and Exchange Commission. The IRS, however, had not provided guidance on the tax consequences of these products until these two new rulings (PLR 200949007, issued to a taxpayer who was a potential purchaser of the contingent annuity, and PLR 200949036, issued to the insurance company, both dated July 30, 2009), which conclude on their facts that . . . ." (Sutherland Asbill & Brennan LLP)



[Guidance Overview]
Compliance Update for Tax-Qualified Retirement Plans (PDF)

4 pages. Excerpt: "This Client Alert describes upcoming key deadlines and actions that must be taken by plan sponsors of tax-qualified retirement plans by the end of 2009 or beginning of 2010. In particular, many plansponsors that maintain qualified plans must adopt certain amendments to comply with the Pension Protection Act by December 31, 2009. In addition, plan sponsors should ensure compliance with recent regulations and guidance on plan disclosures that apply to all qualified plans." (Paul, Hastings, Janofsky & Walker LLP)



[Guidance Overview]
Eighth Circuit Sends Claims of Excessive Fees and Undisclosed Revenue Sharing Back to Trial Court

Excerpt: "EBIA Comment: This is a preliminary ruling and the Eighth Circuit's decision to remand this case for trial is based on assumptions that may not prove to be true. But plan fiduciaries are understandably snapping to attention at the possibility that claims of excessive fees and undisclosed revenue sharing arrangements can lead to costly litigation. Although existing ERISA rules do not require extensive disclosure of fee arrangements, the DOL has issued proposed rules that would require more disclosure of these arrangements, including revenue sharing . . . . In addition, Congress is considering proposals that would require more extensive fee disclosure . . . . While the ultimate outcome of this case is uncertain, all this activity regarding investment fees suggests that employers and their advisors should consider implementing a rigorous, regular review of their fee arrangements and disclosures." (Employee Benefits Institute of America)



[Guidance Overview]
Employer's Hand-Delivery Process for Distributing SPDs Was Sufficient Under ERISA

Excerpt: "EBIA Comment: Although the DOL regulations specifically approve of 'in-hand delivery' of SPDs at the worksite, it can be difficult as a practical matter to maintain the business records necessary to show that an SPD was furnished as required. This employer was able to provide a written copy of its process for distributing SPDs (along with an employee list) and detailed statements from its employees who were responsible for SPD delivery. But if key employees have left, it may be difficult to establish (to the satisfaction of a court) what distribution method was actually used. Note also that records evidencing an employer's SPD distribution processes will need to be retained for the applicable statute of limitations period for ERISA benefits claims; the periods vary by state and can be quite long (6-10 years is not uncommon)." (Employee Benefits Institute of America)



Social Security in a Changing Environment: Findings from the Retirement Research Center at the National Bureau of Economic Research
Excerpt: "Since September 2003, the Retirement Research Center at the National Bureau of Economic Research has conducted a coordinated series of investigations on Social Security in a changing environment and the potential routes to sustainable solvency. The Center supports extensive collaborative research over a multiyear horizon to achieve a more fully integrated understanding of Social Security's challenges and the changing environment in which it operates. This article is an overview of the studies completed since the Center's inception." (Social Science Research Network)



Will Automatic Enrollment Reduce Employer Contributions to 401(k) Plans?
Excerpt: "Many employers match employee contributions to 401(k) plans. However, the employer cost of continuing this practice may increase rapidly as trends towards automatic enrollment boost employee participation. This paper examines the relationship between employer matching behavior and automatic enrollment. Using a sample of large 401(k) plans, we find that match rates are about 7 percentage points lower among firms with automatic enrollment than among those without automatic enrollment, even controlling for firm characteristics. So while autoenrollment increases the number of workers participating in private pensions, our findings suggest it might also reduce the level of pension contributions." (Center for Retirement Research at Boston College)



Private Pensions: Additional Changes Could Improve Employee Benefit Plan Financial Reporting
Excerpt: "GAO recommends that Labor (1) provide additional guidance and require all indirect compensation be disclosed on the Schedule C, (2) coordinate the implementation of its new Form 5500 requirements with the publication of its 408(b)(2) regulation, and (3) require that asset-based fees be explicitly reported. Labor generally agreed with GAO's recommendations, although the agency proposes evaluating the data after reporting begins to determine how best to address indirect compensation." (U.S. Government Accountability Office)



Cash Balance Plan Can Rely on Fractional Accrual Rule, Second Circuit Holds
Excerpt: "Cash balance plans can rely on the 'fractional rule' to satisfy ERISA's minimum accrual standards, the US Court of Appeals for the Second Circuit has decided. The court also found participants received proper notice of the cash balance conversion, even though the notice didn't explain that departing employees' benefits might increase to satisfy accrual rules. The first appellate ruling on the question, this court's fractional-rule analysis could influence other courts and may open up compliance alternatives for sponsors preparing to grapple with PPA's market-rate-of-interest rules." (Mercer LLC)



IRS Video Highlights Website Resources for Retirement Plan Audits
Excerpt: "A video posted on the IRS website alerts employers and practitioners to the resources available for large retirement plans (2,500 or more participants) audited under IRS's Employee Plans Team Audit program. IRS encourages employers to review plan operations and fix any errors, pointing out that the sooner an error is corrected, the less costly the correction will be for the employer." (Mercer LLC)



EBSA to Unveil Regulatory Agenda Wednesday
Excerpt: "The head of the U.S. Department of Labor's Employee Benefits Security Administration (EBSA) will host a live public Web chat to discuss its regulatory agenda. The Web chat with Assistant Secretary of Labor Phyllis C. Borzi will be at 10 a.m. EST on Wednesday, December 9 . . . . [Information on participating is on the target page.]" (U.S. Department of Labor)



DOL Discusses Lifetime Annuity Income Project
Excerpt: "The U.S. Department of Labor (DoL) on Monday waded into the ongoing debate over the need for lifetime retirement income products with word that it is investigating how it can best encourage the use of lifetime annuities or other similar instruments. DoL Secretary Hilda L. Solis kicked off a three-day series of live Web chats featuring department officials discussing their plans for new regulations in a variety of regulatory areas including the Employee Benefits Security Administration (EBSA), which oversees retirement plans and other workplace benefit programs." (PLANSPONSOR.com; free registration required)



Study Finds Many Not Reaping Target-Date Funds' Benefits
Excerpt: "Retirement plan participants invested in target-date funds along with other funds offered by the plan could end up with a potentially inferior portfolio in terms of risk/return tradeoff, according to a study published by the nonpartisan Employee Benefit Research Institute (EBRI). The study in the December EBRI Notes points out that target-date funds were designed to be 'all-in-one' portfolios that diversify asset allocations and rebalance over time based on a defined target-date horizon, benefitting participants who lack financial literacy or desire to manage their investments. 'However, holding TDFs with other funds could lead to an unexpected result of ending up with a potentially inferior portfolio in terms of risk/return tradeoff from more assets allocated to some sectors than the designers of the target date funds had planned,' the study says." (PLANSPONSOR.com; free registration required)



[Opinion]
New Book, 'Plunder! How Public Employee Unions Are Raiding Treasuries Controlling Our Lives and Bankrupting the Nation,' Exposes Power of Unions

Excerpt: "The inability of politicians to restrain their spending of taxpayer dollars is the direct result of the forceful application of political power. And, in California, there are no greater political influences than the public employee unions. Between the most powerful unions ? reflected in the alphabet soup of acronyms CTA, SEIU, CCPOA & AFSCME ? they are able to force the legislators whom they placed into power (many union leaders themselves) to maintain a high level of government largess. Even liberal Democratic leader Bill Lockyer, now state Treasurer, publicly scolded a legislative committee saying they were incapable of reforms because of who put them in power. It is in this context that Steven Greenhut has just released his book, aptly titled Plunder! How Public Employee Unions Are Raiding Treasuries Controlling Our Lives and Bankrupting the Nation. Readers who have high blood pressure are advised to take a double dose of medication before opening this book. For the vast majority of ordinary citizens who toil in the private sector, this book will produce more than outrage ? it is likely to spur many to take up the cause of stopping these corrupting influences on our systems of governance." (FlashReport)




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Links to Items on Executive Comp, Benefits in General

[Guidance Overview]
Correct Code Section 409A Violations by December 31, 2009

Excerpt: "Employers have until December 31, 2009 to take advantage of opportunities to avoid the 20% and other penalty taxes that otherwise would be imposed by Section 409A of the Internal Revenue Code. We recommend employers review all their plans and agreements that are subject to Section 409A, including nonqualified deferred compensation, severance, change of control plans and agreements, and employment agreements." (Haynes and Boone LLP)



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