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Retirement Plans Newsletter

August 23, 2010

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[Official Guidance]
Post-4/30/2010 Issues Impacting Adopting Employers Who Use IRS Pre-Approved Plan Documents
Excerpt: "This article is separated into two parts. Part I discusses the actions that need to be taken if an EGTRRA pre-approved DC restated plan document was not timely adopted by April 30, 2010. Part II addresses determination letter processing issues that apply to Form 5307/5300 determination letter applications made after April 30, 2010, in regard to pre-approved DC plans."
(U.S. Internal Revenue Service)

[Guidance Overview]
Decision to Invest in 401(k) Plan Fund With Higher Fees Was Breach of ERISA Fiduciary Duty
Excerpt: "Importantly, the court did not hold that the choice of retail shares over institutional shares presumptively violates ERISA's fiduciary duty of prudence. Rather, the court faulted the fiduciaries' failure to fully evaluate the fund classes, noting that had this analysis been performed, the fiduciaries would have discovered that the institutional funds offered the same investment at a lower cost than the retail funds."
(Employee Benefits Institute of America)

Text of Retirement News for Employers, Summer 2010 Edition (PDF)
Excerpt: "The Retirement News for Employers is a periodic newsletter with retirement plan information for employers and business owners - and their tax advisors from Employee Plans (Tax Exempt and Government Entities (TE/GE) at the IRS)."
(U.S. Internal Revenue Service)

FASB Would Drop Fair Value for Pension Plan Loans
Excerpt: "FASB [has] issued a Proposed Accounting Standards Update . . . that is intended to clarify how defined contribution pension plans should classify and measure loans to participants."
(American Institute of Certified Public Accountants)

Audio and Transcript: Even State Pensions Aren't Safe Anymore
Excerpt: "Guest host Rachel Martin talks with Keith Brainard, research director for the National Association of State Retirement Administrators, and Stephen Pincus, a Pittsburgh lawyer representing retirees in a legal fight over benefits."
(National Public Radio)

How to Tell if You Have a Good 401(k) Plan
Excerpt: "A generous employer contribution and low-cost investment options coupled with the tax deferral will help your savings grow. Conversely, an expensive 401(k) plan with poor investment choices will make it more difficult to save for retirement. Here's how to tell if your company has a competitive 401(k) plan . . . ."
(U.S. News & World Report)

Does the 4% Retirement Spending Rule Hold Up?
Excerpt: "Now, when economists hear about this '4% rule' for spending in retirement, they tend to cringe. (At least one well-known one has written an article explaining some reasons why.) One of the biggest issues they point out is, as the chart shows, that the '4% rule' in most cases tends to leave a lot of money unspent (at least over the 30-year horizon), and is hence potentially inefficient."
(The Vanguard Group, Inc.)

Pension Fund Corporate Engagement: The Fifth Stage of Capitalism
Excerpt: "Pension fund capitalism is a new, albeit evolving, stage of Anglo-American capital market development. It is marked by the ability of pension funds to aggregate the widely disbursed ownership of beneficiaries and therefore act as single entities with a unified voice."
(Social Science Research Network)

Earnings Sharing in the U.S. Social Security System: A Microsimulation Analysis of Future Female Retirees
Excerpt: "As part of an ongoing effort to analyze the distributional implications of potential policy reforms to the U.S. Social Security system, we consider the widely discussed reform of earnings sharing. Such an approach has been viewed as a way to 'update' Social Security's family benefits based on marital status and as a means to make the system more marriage neutral."
(Social Science Research Network)

PBGC Data Book Expands Coverage on Growing Multiemployer Liability
Excerpt: "The PBGC report notes that the multiemployer program has a smaller scope (it insures only 1,500 plans, about one-twentieth as many as the 27,600-plan single-employer program), and it covers only about one-third as many participants (10.4 million versus 33.6 million). However, insured multiemployer plans are about six times as large, on average, as insured single employer plans."

Text of Pension Insurance Data Book 2009 (PDF)
120 pages. Excerpt: "The new edition features a detailed article on the smaller of the agency's two pension insurance programs, which provides financial assistance to insolvent multiemployer pension plans."
(Pension Benefit Guaranty Corporation)

12b-1 Reform Could Hit American Funds and Others in the 401k Biz Hard
Excerpt: "12b-1 fees as we know them may soon be dead, if the Securities and Exchange Commission has its way, and their quasi-death could have big implications for mutual fund firms working inside 401ks."
(Investment Wires, Inc.)

More Than Half of U.S. Public Pension Funds Could Disappear
Excerpt: "In a new research paper titled: Policy Options for State Pensions Systems and Their Impact on Pension Liabilities,' [an associate finance professor] explains that the large and daunting group of troubled states pension funds 'are headed for run outs and financial disaster,' an Aug. 19 announcement said."
(Financial Planning)

CalPERS Loan Sought by California Governor Likely 'Very Expensive,' Analysts Say
Excerpt: "The governor's plan represents an apparent about-face - and raises questions about the long-term costs. The last time the state borrowed from CalPERS, it had to pay the pension fund $400 million in interest. More borrowing would surely bring more interest expense, experts said Friday."
(The Sacramento Bee)

Social Security System Is 'Beyond Comprehension,' According to Scholar
Excerpt: "The Social Security benefit formula considers 'average wages, number of years worked, whether the person is married or divorced, on the length of the marriage, on the relative earnings levels of husbands and wives, and other factors,' he says, and the benefit estimates provided by the government apply only until any of those factors change."
(, Inc.)

States Study Their Pension Assumptions
Excerpt: "Pension boards in states around the country are considering recommending lower anticipated returns on investments, a move that could further pinch revenues in states struggling to balance yearly budgets."
(Franklin Center for Government & Public Integrity)

Key Votes in 1996 and 2002 Boosted Top 20 Pensions for San Diego City Workers by 176 Percent
Excerpt: "The deals struck by labor leaders and city officials in 1996 and 2002 created a financial windfall for thousands of city workers, some of whom enjoy double or triple the pensions they would have under the previous program, according to an analysis of pension records by The Watchdog."
(The San Diego Union-Tribune, LLC)

How to Research Your Retirement Plan Investment Choices
Excerpt: "First, you need to find out the names and ticker symbols of the funds in your plan. Even if your plan administrator masks this information, giving funds generic names like Large Company Stock, you can get the name of the mutual fund if you dig."

Departure of the 'Driving Force' Behind SED Proposal on Fund Fees Raises Doubts About Its Fate
Excerpt: "In fact, experts said the final rule will diverge sharply from the current proposal, which is an effort to limit the use of 12(b)-1 fees to their original purpose -- helping to expand a fund's shareholder base in order to lower costs to investors."
(Investment News; free registration required)

Fidelity Finds 2nd Quarter Uptick in 401(k) Withdrawals
Excerpt: "The latest quarterly data from Fidelity Investments found that while the majority of 401(k) participants continued to save during the quarter, the percentage of participants either initiating a loan or a hardship withdrawal increased - albeit not by much."

Retirement Plan Participants Want More Help, According to 2nd Annual DC Participant Experience Study
Excerpt: "A new study finds that 60% of retirement plan participants want more personalized and effective communications, especially using current technologies such as Web sites, proactive e-mails, mobile, or on-demand videos."

Pension Fraud in New Jersey Extends Focus to Other States
Excerpt: "A spokeswoman for Gov. Pat Quinn's Office of Management and Budget, Kelly Kraft, said Illinois believed its pension disclosures were complete and accurate. The state has not hidden the fact that its pension funds have big shortfalls, she said, and there was no reason to think the S.E.C. might lodge a complaint against it, as it did with New Jersey."
(The New York Times; free registration required)

Upper-Income Taxpayers Plan for Tax Hike
Excerpt: "It is hard to determine how many people are converting to Roth IRAs for this reason, however. While conversions are up this year, this was also the first year in which taxpayers earning more than $100,000 annually could take advantage of the Roth, so some people might have converted even without the threat of tax increases next year."
(The Wall Street Journal)

New York May Reduce Assumed Returns on Public Pension Assets
Excerpt: "A reduction to 7.5 percent or 7.75 percent is likely . . . . The move 'will increase the required contributions from the state and local governments but will keep the fund as strong as it is now,' . . . ."
(Bloomberg Businessweek)

Excessive Plan Fees Cost Companies $31.6M
Excerpt: "Caterpillar, Inc., just agreed to pay $16.5 million to settle an excessive fee lawsuit in federal court, and General Dynamics Corporation just agreed pay $15.1 million to settle a similar lawsuit. Both companies were charged with running 401(k) plans that charged participants excessive investment fees."
(HR Morning)

Truth in Pensions: Just How Big a Hole Is New Jersey In?
Excerpt: "The action was historic: New Jersey is the first state targeted by the SEC for securities fraud. But with pension funds crumbling everywhere, other states probably will join us in shame. But from this day forward, cross our hearts and hope to die, New Jersey has agreed to tell the truth about its grossly and dangerously undernourished pension funds."
(New Jersey On-Line LLC)

Hardship Withdrawals from 401(k) Plans and Reduced Employer Contributions Indicative of Trend?
Excerpt: "These 401(k) withdrawals are a result of the increasing unemployment in the country as well as companies cutting back on 'overtime or overall hours' of their workers."
(American Thinker)

How Fidelity Could Reform the 401(k) Plan System, But Won't
Excerpt: "As the 'nation's No. 1 provider of workplace retirement savings plans,' there's a lot Fidelity could do to improve this system. If it wanted to be not only the 'No. 1 provider,' but also the best provider, it could assume full 3(38) ERISA status and agree to act as a fiduciary to plan participants. This would turn the industry on its head."
(AOL, Inc.)

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Benefits in General; Executive Compensation

[Guidance Overview]
IRS Information Letter Discusses Qualified Transit and Parking Benefits That Are Provided Using Smartcards
Excerpt: "EBIA Comment: This information letter analyzes and approves a smartcard that is commonly offered to employees -- one that works for both transit and parking -- so long as separate purses are used for the mass transit and parking benefits. In fact, it is the first official guidance that approves the use of such cards for parking."
(Employee Benefits Institute of America)

Dodd-Frank Should Not Mean New Clawback Accounting
Excerpt: "The specific accounting ramifications of the compensation clawback provisions in the recent financial services overhaul legislation should not go beyond what has traditionally been the case for such corporate transactions. That was a key conclusion of a PricewaterhouseCoopers [report.]"

Who Will Pay? Inter-Generational Transfers and Public Sector Pensions
Excerpt: "This paper analyses the different channels through which particular generations within one society can end up subsidising other generations through the functioning of the welfare state. The welfare state, which is organised and funded by 'society' through taxation, plays an important part in almost all countries, often providing services such as education and health care or transfers such as state pensions."
(Social Science Research Network)

Press Releases

PBGC Data Book Reports on Growing Multiemployer Liability
Pension Benefit Guaranty Corporation (PBGC)

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