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Retirement Plans Newsletter

April 7, 2010

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[Official Guidance]
Listing of IRS Published Guidance for January-March 2010
The target page links to guidance published by the Service relating to retirement plans: Treasury Regulations; Revenue Rulings; Revenue Procedures; Notices; and, Announcements.
(U.S. Internal Revenue Service)

[Official Guidance]
Handout from the Phone Forum: IRS Retirement Plans Determination Letter Program (PDF)
54 pages. The Retirement Plans Determination Letter Program phone forum discussed the progress of the new DL program and tips on completing the new Form 5307.
(U.S. Internal Revenue Service)

[Official Guidance]
Text of IRS Notice 2010-36: Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates (PDF) (PDF)
Excerpt: "This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 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 § 430(h)(2). In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I), and the minimum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007."
(U.S. Internal Revenue Service)

[Guidance Overview]
Beginning with Reporting for 2009 Plan Year, Plan Sponsors Face Significant Changes to Form 5500 Filings
Excerpt: "The single biggest challenge is in extensive new disclosure requirements for Schedule C. For the first time, plans with 100 participants or more (large-plan filers) must report not just direct compensation but indirect and 'eligible indirect' compensation -- and must identify the individuals who received it. Form 5500 and all its related schedules and attachments must now be submitted electronically. ERISA-covered 403(b) plans must now abide by the same reporting requirements as 401(k) plans."
(The Vanguard Group, Inc.)

[Guidance Overview]
Supreme Court Declines to Review Normal Retirement Age Based on Service
Excerpt: "The U.S. Supreme Court has declined to review a federal appeals court's 2009 decision allowing pension plan sponsors to define normal retirement age (NRA) by a period of service rather than a specific age."
(Towers Watson)

[Guidance Overview]
Form 5500 Schedule C: Reporting Other Indirect Compensation of Key Service Providers
Excerpt: "Line 3 reports OIC received by key service providers. It does not report EIC or direct compensation. . . . Key service providers are fiduciaries and service providers who provide contract administrator, consulting, custodial, investment advisory, investment management, broker, or recordkeeping services. Notice that this is a functional definition. What matters are the services you perform, not the title you give yourself. Investment advisory services include advice to participants and advice to the plan."
(SunGard Relius)

[Guidance Overview]
What Can't Be Converted to a Roth: 72(t) Payments, Hardship Distributions Among Items Ineligible for Conversion
Excerpt: "The tax code allows only eligible rollover distributions to be converted to Roth individual retirement accounts. That means that besides required minimum distributions, there are a number of other items that can't be converted. These include 72(t) payments, hardship distributions, corrective distributions of excess deferrals, deemed distributions (i.e., defaulted plan loans, though plan loan offsets are eligible for rollover) and dividends from employer securities. In addition, funds in an inherited IRA are not eligible to be converted to a Roth IRA."
(Investment News; free registration required)

[Guidance Overview]
Employee Stock Ownership Plans: Diversification Myths and Misunderstandings
Excerpt: "[F]ailing to comply with the diversification requirements can result in a fiduciary breach and cost the ESOP its tax qualified status. A better understanding and monitoring of the rules can help avoid these pitfalls. A good start toward that understanding is a look at the five myths surrounding ESOP diversification. But first a little background."
(Chang, Ruthenberg & Long PC)

[Guidance Overview]
Fiduciary Duties in ESOP Refinancing
Excerpt: "[A] refinancing, no matter what the reason, must be agreed to between the ESOP trustee and the lenders and guarantors (if any) of the ESOP debt, which may include the selling shareholder, the company or a bank. This article identifies the seldom discussed yet appropriate factors under ERISA and trust law for fiduciaries to consider when refinancing an ESOP."
(Chang, Ruthenberg & Long PC)

2009 Disclosures of Funding, Discount Rates, Asset Allocations and Contributions
Excerpt: "This article examines reported funding results at year-end 2009, the discount rate assumptions used to measure liabilities, target asset allocation policies, and plan contributions made for 2009 as well as those expected for 2010."
(Towers Watson)

Automaker Pension Funding and Multiple Federal Roles Pose Challenges for the Future (PDF)
77 pages. Excerpt: "As part of GAO's statutorily mandated oversight of TARP, this report examines: (1) the impact of restructuring on GM's and Chrysler's pension plans; (2) the impact of restructuring on auto supply sector pension plans; (3) the impacts on PBGC and plan participants should auto industry pension plans be terminated; and (4) how the federal government is dealing with the potential tensions of its multiple roles as pension regulator, shareholder, and creditor."
(U.S. Government Accountability Office)

Approaches to Retirement Security in the United States
Excerpt: "The 2009 ERISA Advisory Council . . . reached a consensus focusing on the adequacy of and structure of U.S. retirement plans to assess whether structural aspects of these plans contribute to retirement security. The Council concludes that most contemplated changes to improve retirement security, particularly for defined benefit (DB) plans, requires legislation. . . . This Report lists some of the longer-term reform recommendations made by witnesses and others. The Council specifically recommends the formation immediately of a Presidential Commission."
(Advisory Council on Employee Welfare and Pension Benefit Plans)

Promoting Retirement Literacy and Security by Streamlining Disclosures to Participants and Beneficiaries
Excerpt: "The 2009 ERISA Advisory Council ('Council') reached a consensus to focus on the issue of promoting retirement literacy and security by streamlining disclosures to participants and beneficiaries. The Council studied the efficacy of ERISA's reporting and disclosure schemes as well as problems and costs related to such disclosures. Testimony to the Council was provided on July 23, 2009, and September 15, 2009, by eighteen witnesses. After much discussion and debate concerning the issues presented and the extent the Council believes the Department of Labor ('DOL') needs to address ERISA's disclosure requirements, the Council submits the following recommendations to the Secretary of Labor for consideration."
(Advisory Council on Employee Welfare and Pension Benefit Plans)

Report on Stable Value Funds and Retirement Security in the Current Economic Conditions
Excerpt: "The Council received testimony from ten (10) witnesses on July 22, 2009 and from eight (8) witnesses on September 16, 2009. These witnesses represented a wide variety of interested parties and viewpoints, including members of the stable value industry, such as Stable Value Fund managers and product providers, independent investment advisors, retirement plan consultants, employee benefits providers, employee benefits attorneys, and non-profit associations. The Council submits the following recommendations to the Secretary of Labor for consideration . . . ."
(Advisory Council on Employee Welfare and Pension Benefit Plans)

Software Helps with Completing Revamped Form 5500, Schedule C
Excerpt: "New software on the market helps service providers fulfill their fiduciary responsibility to transparently convey information about services provided and fees associated with those services before the Oct. 15, 2010 deadline for the Form 5500, Schedule C. In light of the DOL's doubling of reporting codes associated with Form 5500 (which once had 23 codes, but now has 55), North Carolina-based PlanTools, LLC, has developed software to aid service providers with the new reporting codes."
(Employee Benefit Adviser; free registration required)

Video: 401k Fee Disclosure Under 408(b)(2) Regulations
Excerpt: "Forthcoming Labor Department rules are expected to expose conflicts in how financial advisers deliver retirement advice to workers. Kristen McNamara talks with attorney Jason Roberts about the significance of these disclosure requirements."
(MarketWatch, Inc.)

Supreme Court Sets Fee Standard for Mutual Fund Advisers
Excerpt: "Addressing allegations that a mutual fund investment adviser breached its fiduciary duty under the Investment Company Act of 1940 by charging excessive fees, a unanimous US Supreme Court has ruled an adviser faces liability only if the fee 'is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm's length bargaining' (Jones v. Harris Assoc.). Though the case did not involve ERISA issues, the ruling could color analysis of claims that excessive 401(k) fees violate ERISA fiduciary standards."
(Mercer LLC)

Trade Groups Offer Tool for Fiduciaries Evaluating Target-Date Funds
Excerpt: "Fiduciaries evaluating target-date funds (TDF) for a 401(k) plan's lineup may wish to review a list of relevant considerations identified by the American Benefits Council and the Investment Company Institute in a joint letter to the Department of Labor (DOL). The tool focuses on issues unique to TDFs, including asset allocation methods, glide paths and the TDF's status as a qualified default investment alternative."
(Mercer LLC)

Automaker Pensions Underfunded by $17 Billion
Excerpt: "The pension plans at General Motors and Chrysler are underfunded by a total of $17 billion and could fail if the automakers do not return to profitability, according to a government report released Tuesday."
(The New York Times; free registration required)

11th Annual Retirement Survey, 2009-2010: The Importance of Employee-Funded Retirement Plans
Excerpt: "[These] reports were compiled from our 11th Annual Retirement Survey, a poll of American workers and their employers designed to explore the attitudes and the behaviors regarding retirement security and benefits. The survey is conducted through an independent research firm and the data represents employees of different age groups and employers of various sizes. In addition to the findings on various retirement issues, the survey can provide you with in-depth segmentation and comparison analysis based on company size, gender, and age groups."
(Transamerica Center for Retirement Studies)

Income of the Population 55 or Older, 2008
Excerpt: "This report provides a broad income picture of a cross section of the population aged 55 or older, with special emphasis on income of the population aged 65 or older. The tabulations focus on the major sources and amounts of income in 2008, both separately and combined, for those age groups."
(U.S. Social Security Administration)

Three Great Ways the New DOL Investment Advice Rule Helps the 401(k) Fiduciary
Excerpt: "The Rule 'bans' conflicts-of-interest - advisers can no longer direct plan participants to investments in which the adviser has a pecuniary interest . . . . Well, upon reading the fine print, it doesn't really ban conflicts-of-interest, but it does discourage them. The DOL will continue to offer an exemption on prohibited transactions by advisers if those advisers employ a fee-level arrangement and use a computer model - i.e., one regularly audited to insure it contains no bias - to proffer advice."
(Pandamensional Solutions, Inc.)

Three Terrible Problems the New DOL Investment Advice Rule Poses for the 401(k) Fiduciary
Excerpt: "Did you know the Department of Labor's proposed Investment Advice Rule may increase a 401k plan sponsor's fiduciary liability? If a plan enters into a prohibited relationship with a vendor - or if an existing relationship now becomes prohibited - fiduciary liability rises. . . . Can the 401k fiduciary afford to ignore these critical issues?"
(Pandamensional Solutions, Inc.)

Negotiating the Fiduciary Delegation Minefield
Excerpt: " Named fiduciaries, particularly those with little investment expertise, may wish to retain an experienced investment professional to whom they can delegate this authority. In addition, the plan's directed trustee may have negotiated agreements with providers like futures commission merchants, and may be willing to take direction from the investment manager to execute such agreements on behalf of the plan. Regardless of the approach selected, named fiduciaries ought to be aware that they may be subjecting themselves to potential liability when they execute ancillary documentation at the request of investment managers."

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Executive Compensation; Benefits in General

[Guidance Overview]
EEOC Proposes Rule on Age Discrimination Defense
Excerpt: "The Equal Employment Opportunity Commission (EEOC) has proposed a rule to provide guidance on the meaning of 'reasonable factors other than age' (RFOA) under the Age Discrimination in Employment Act (ADEA). The RFOA defense is one of several ADEA affirmative defenses and is particularly important to employers facing an allegation that a seemingly neutral employment action or policy had a disparate impact on older employees."
(Towers Watson)

[Guidance Overview]
Milliman's Monthly Benefit News and Developments, April 2010 (PDF)
2 pages. The newsletter provides a summary of the previous month's legislative, regulatory, and judicial information on employee benefits and upcoming key dates.

[Guidance Overview]
Another Court Rules That Severance Pay is Not FICA Wages (PDF)
2 pages. Excerpt: "The IRS has the stronger position to treat severance payments as FICA wages, and at this point employers should continue to withhold applicable FICA taxes. However, to preserve a future refund claim, an employer can file protective claims based on the court's decision."
(Groom Law Group)

[Guidance Overview]
The ERISA Litigation Newsletter, April 5, 2010 (PDF)
10 pages. Excerpt: "[The newsletter begins] this month with a review of published employer stock drop decisions in the first quarter of 2010. As the article reports, there has no been no shortage of decisions. . . . The second article uses the recent decision in Hartsfield, Titus & Donnelly, LLC v. The Loomis Company, . . . as a vehicle for a discussion about disputes between ERISA plan sponsors and their third-party administrators over alleged overpayments of health benefit claims. As always, be sure to review the section on Rulings, Filings and Settlements of Interest."
(Proskauer Rose LLP)

Even With a Recovery, Job Perks May Not Return
Excerpt: "Workers have seen everything from 401(k) contributions to educational reimbursements cut by their employers during the recession. While some companies are slowly restoring some benefits, experts say workers shouldn't expect a return to pre-2007 levels any time soon. 'Those days are gone,' says Tim Prichard, head of BridgeStreet Consulting, a benefits administration consulting firm. 'Benefits across the board are no longer sacred cows.'"
(The Wall Street Journal)

Federal Government Jobs Far Outpace Private Sector Counterparts in Pay and Benefits
Excerpt: "Recent statistics suggest the federal government is becoming an increasingly more attractive place to work than the private sector. According to information from the Bureau of Labor Statistics, federal jobs outpay their private sector counterparts 83 percent of the time."
(FOX News Network, LLC)

Webcasts and Conferences

"Troubleshooting Participant Loan Issues" Web Seminar
Nationwide on May 4, 2010
presented by SunGard Relius

2010 Orange County 401k/DC Evaluation Summit
in California on May 19, 2010
presented by Xponential Growth Solutions

Roth IRA Conversion Rules and How They Impact Your Practice
in New York on April 20, 2010
presented by ASPPA Benefits Council (ABC) Of New York

Sections 409A & 457A: What's A Multinational Employer To Do?
Nationwide on April 21, 2010
presented by ABA Joint Committee on Employee Benefits

Press Releases

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