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Retirement Plans Newsletter

April 6, 2010

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National Employee Benefits Day acknowledges employee benefits professionals for the quality benefits you provide and for the important role you have in your colleagues’ well being.
This year Benefits Day has a special focus on Workplace Wellness. We encourage you to evaluate your wellness offerings and to reach out to your employees with suggestions on living a healthier lifestyle.

Visit www.ifebp.org/benefitsday for free resources to help you celebrate!


[Official Guidance]
58-Page 401k Plan Checklist Published by IRS (PDF)
58 pages. Excerpt: "Every year it is important that you review the requirements for operating your 401k retirement plan. Use this checklist to help you keep your plan in compliance with many of the important rules."
(U.S. Internal Revenue Service)

[Guidance Overview]
Downsizing Employers with Ongoing Pension Plans May Face an Immediate and Significant PBGC Liability
Excerpt: "There are many costs that an employer contemplating a significant downsizing needs to take into account as part of the planning process. One of those costs, and in some cases the largest one by far, may be the Section 4062(e) liability. Developing a reliable estimate of the likelihood and magnitude of this liability is critical, as is evaluating whether careful planning may be able to minimize or even eliminate it. Adapted from a Client Alert issued by Keightley & Ashner LLP on February 18, 2009."
(American Bar Association)

[Guidance Overview]
PBGC Rejects 2009 Premium Filings with Improper or Late Method Elections
Excerpt: "PBGC is rejecting single-employer pension plans' 2009 premium filings with improperly documented or late elections of the alternative method for calculating variable-rate premiums. A rejected filing could mean additional premiums, interest and late-payment penalties. Plan sponsors should review their 2009 premium filings for potential election problems. Sponsors finding problems may wish to self-correct to reduce late-payment penalties."
(Mercer LLC)

[Guidance Overview]
New Proposed Regulations Relax Restrictions on 401(k) Plan Investment Advice to Participants
Excerpt: "Stakeholders such as brokers and mutual fund companies have, over the course of this regulatory process, raised concerns about these new rules. [For example:] Broker compensation fallout. The regulations make clear that brokers may not receive any fee or other compensation from any party based in whole or in part on the participant's selection of an investment option. However, an affiliate of a fiduciary adviser may receive fees that vary by investment. This rule effectively kills any bonus-based compensation that may have been provided to a broker for his promotion and sale of investments, including cash, as well as trips and other rewards."
(Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C.)

Private Firm Pensions Face Deadline for Funding Target
Excerpt: "The showdown stems from a 2006 law that required most private pensions to meet annual funding targets. On Thursday, the companies and nonprofits that sponsor these plans must declare their funding statuses. The law has a 96%-funded target for 2010; the next pension payment is due April 15."
(The Wall Street Journal)

Preparing for Retirement in an Uncertain World (PDF)
20 pages. Excerpt: "The results of this study support a change in public policy to allow employers offering 401(k)s to default their employees into a dynamic lifecycle fund."
(National Center for Policy Analysis)

Target-Date Funds As the Focus of Retirement Savings
Excerpt: "Morningstar's 2010 Target-Date Series Industry Survey, which includes research on 20 of the largest target-date series, revealed that more than $45 million in new cash flowed into these funds last year. The survey examined investor returns, which reflect monthly flows in and out of funds, and the returns earned. With target-date funds, investor returns over the past three years exceeded the funds' total returns in every target-date category except for one, and far exceeded returns on a traditional mutual fund, according to the survey."
(Financial Planning)

Retirement Plan Survey 2010: Report of Findings (PDF)
22 pages. Excerpt: "Drinker Biddle & Reath, Grant Thornton LLP and Plan Sponsor Advisors conducted this confidential survey to assess the level of understanding of investments, fees and administrative practices pertaining to retirement plans."
(Grant Thornton LLP)

2009 Risks and Process of Retirement Survey: Report of Findings (PDF)
77 pages. Excerpt: "The purpose of the study was to evaluate Americans' awareness of potential financial risks in retirement, how this awareness impacts the management of their finances with respect to retirement, and how Americans are managing the process of leaving the workforce."
(Society of Actuaries)

California State Pension Funds Going Broke, Stanford Study Finds
Excerpt: "New calculations by Stanford graduate students show that California's three main public employee pension funds are in more dire financial trouble than previously believed. . . . The students suggest either reducing pension benefits or moving to a hybrid system in which retirees receive a smaller fixed pension combined with a 401(k)-style plan. This would relieve some of the burden on the state and give employees more responsibility for their retirement. Two-thirds of Californians would support such a plan, according to a poll by the Public Policy Institute of California."
(Stanford University)

Reforming California's Public Employee Pension Systems (PDF)
8 pages. Excerpt: "We conclude that California's public pension liabilities are substantially understated. Given the consequences of pension underfunding, we believe every effort should be made in short order to implement policy changes to reverse the current shortfall and to prevent a similar shortfall in the future. Specifically, improved long-term funding outcomes can be influenced through higher contributions, investment in less risky assets, and lower benefit levels[.]"
(Stanford Institute for Economic Policy Research)

Companies Now Play a Much More Active Role in Guiding Employees' 401(k) Investment Decisions
Excerpt: "Employers have long struggled to educate employees about how to actively manage their accounts for maximum gains. But research has shown that employees rarely do so, and have to be coaxed mightily into joining plans and choosing how to invest their money. Ironically, their reluctance to manage their accounts seems to have served them well in the recent crisis. Fidelity reports that among the 11 million 401(k) plan participants in the plans it administrates, only 6.1% made any kind of asset exchange in the hairy last quarter of 2008, up a mere percentage point from the previous quarter, and only 11.3% took any action in all of 2009."
(CFO.com)

Rating Retirement Advice: A Critical Assessment of Retirement Planning Software
Excerpt: "This paper develops a rating system for internet-based free retirement planning software that assumes unsophisticated users. The rating system takes into account two of the most important sources of retirement income - Social Security and investments - and the two main determinants of retirement income needs - the length of the planning period and the target replacement rate or target retirement income. We illustrate the rating approach with a sample of programs, and we find that these often tend to do a poor job in the way they handle Social Security benefits. Some encourage older persons to assume large benefit cuts, which we view as unlikely. "
(Pension Research Council; registration required to download working papers)

[Opinion]
Advisers Should Speak Up on 401(k) Plan Advice Regulations
Excerpt: "The agency appears to be on the right track in its proposal that would allow broker-related advisers to provide advice to 401(k) plans if they based the advice on third-party-provided computer-based models. But it has asked for comment on a number of questions regarding investment theory, investment performance, historical returns and the factors that should be acceptable in such models. Among other questions, the department asks: What investment theories are generally accepted, and what investment practices are consistent or inconsistent with such theories?"
(Investment News; free registration required)




The American Society of Pension Professionals & Actuaries (ASPPA) and the College for Financial Planning (the College) have joined forces to offer advanced qualified retirement plan education to financial professionals. Beginning April 19, the College will offer instructor-led courses online that lead to ASPPA’s Qualified Plan Financial Consultant (QPFC) credential. Students will be able to sit for the QPFC exams and upon successful completion, apply for the QPFC credential with ASPPA!

"If you're a financial advisor engaged in the increasingly complex world of qualified plans, this partnership represents a significant opportunity to advance your career." ~Sheldon H. Smith, Esq, APM, President, ASPPA

For more information and to register, visit http://www.asppa.org/cffp.

Sponsored by ASPPA

Executive Compensation; Benefits in General

[Guidance Overview]
The HIRE Act: What it Means to Employers
Excerpt: "HIRE provides a limited payroll tax 'holiday' for employers hiring new workers, business tax credits for retaining such workers and other provisions designed to further stimulate the economy and offset the cost of the stimulus. On March 29th, the IRS issued a series of Q&A regarding the HIRE Act./1/ This update incorporates the IRS comments."
(Littler Mendelson P.C.)

[Guidance Overview]
Employers Should Consider Filing Protective FICA Refund Claims Related to Certain 2006 Severance Payments
Excerpt: "Consider whether to file protective refund claims by April 15, 2010. As an initial step, employers should determine if any FICA taxes have been paid on SUB pay during open tax years (generally 2006 or later) and whether to file a protective refund claim. Refund claims for FICA payments made on SUB pay during the 2006 calendar year are generally due by April 15, 2010."
(Perkins Coie LLP)

[Guidance Overview]
Accounting for Stock Compensation Under FASB ASC Topic 718 (PDF)
13 pages. Excerpt: "FASB ASC Topic 718 (Topic 718) is in substantial convergence with the International Accounting Standard Board's (IASB) final standard on Share-based Payment, except for transactions with nonemployees and nonpublic companies, and minor technical differences in regard to employee stock purchase plans, modifications, liabilities, and income tax effects. Topic 718 creates a more 'level playing field' for equity incentive design that is expected to result in the increased prevalence of full-value and performance-vesting awards, and a corresponding decline in plain-vanilla, tax qualified, and reload stock options, and employee stock purchase plans. This paper summarizes the most pertinent provisions of accounting for stock compensation under Topic 718 and other related FASB and Securities and Exchange Commission (SEC) Topics."
(Frederic W. Cook & Co., Inc.)

Happy National Employee Benefits Day!
Excerpt: "The International Foundation of Employee Benefit Plans (IFEBP) says that National Employee Benefits Day 'acknowledges trustees, administrators, corporate benefits practitioners and professional advisors for your dedication to providing quality benefits and the important role you play in their colleagues' well-being.'"
(PLANSPONSOR.com)

Firms Adopt Say on Pay As Congress Considers Mandate
Excerpt: "To date, more than 50 companies have adopted say-on-pay policies. Some recent adopters, including CVS Caremark, Hewlett-Packard, Hill-Rom Holdings, PepsiCo and Wells Fargo, provide an annual shareholder vote on executive compensation. Others, such as Bristol-Myers Squibb, Colgate-Palmolive and General Mills, provide a biennial vote. These announcements come as the Senate considers a bill that would require all public companies to adopt say-on-pay policies. The House has already passed legislation mandating say on pay."
(Mercer LLC)

New Trends in the Regulation of Executive Remuneration
Excerpt: "This paper, which was first presented as a conference paper at the Annual 2009 Supreme Court of New South Wales Conference in June 2009, considers the impact of the global financial crisis on the regulation of executive pay in a range of common law jurisdictions, including the United States, the United Kingdom and Australia."
(Social Science Research Network)

IRS to Issue Hire Act Final Form W-11 Week of April 5
Excerpt: "The IRS will issue the final version of Form W-11, 'Hiring Incentives to Restore Employment (HIRE) Act Affidavit,' and a revised second quarter Form 941, 'Employers Quarterly Federal Tax Return,' during the week of April 5, according to an IRS official. The IRS issued a draft Form W-11 on March 31."
(McGuireWoods LLP)

Updated Issue Brief on the State of Employee Ownership
The NCEO has posted excerpts from its updated issue brief on the state of employee ownership in the U.S. This report details the extent and growth of employee ownership through ESOPs, 401(k) plans, stock options, ESPPs, and other vehicles; summarizes the leading research on employee ownership and corporate performance; and discusses current challenges and prospects.
(National Center for Employee Ownership)

Updated Issue Brief on the State of Broad-Based Equity Plans
The NCEO has posted excerpts from its newly updated issue brief on the state of broad-based equity plans. It provides an overview of the prevalence of various kinds of broad-based equity plans (stock options, ESPPs, etc.), who is eligible for them, and what impact they have on corporate performance.
(National Center for Employee Ownership)

[Opinion]
Are Adjustments Necessary to Current Three Year Performance Periods?
Excerpt: "In comparing notes recently with Fred Whittlesey of Hay Group, we both have experienced a flood of inquiries from clients regarding executive compensation arrangements through the year 2012. This has apparently been triggered by concern that 3-year performance share cycles commencing January 1, 2010 may need to accommodate a truncated calendar year in the final year of the performance period. These discussions have led to a revelation of the complexities of executive compensation planning resulting from the end of the world scheduled for December 21, 2010, a full ten days short of the completion of the three-year cycle."
(Michael Melbinger via Winston & Strawn LLP)


Webcasts and Conferences

An Overview of Your Fiduciary Duties and A How-To on Dependent Audits, Including Employer Case Studies
in Maryland on May 6, 2010
presented by Worldwide Employee Benefits Network -- Baltimore chapter

Helping Employees to Understand and Appreciate Their Benefits (No-Cost Webinar)
Nationwide on April 21, 2010
presented by Benefit Software Inc.

Improving Employee Morale and Retaining Key Employees During A Recession (No-Cost Webinar)
Nationwide on April 8, 2010
presented by Benefit Software Inc.

Moving up to Online Benefits Enrollment (No-cost Webinar)
Nationwide on April 8, 2010
presented by Benefit Software Inc.


Press Releases

The Pension Tour for CPAs Begins May 2
Executive Benefits Design Group


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