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Retirement Plans Newsletter

September 16, 2010

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DB Administration, Discrimination Testing and Proposal software with Multiple Plan and Cash Balance Plan handling. PPA'06 Pension Funding.
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* 404(o) Cushion; 430 minimum and 404(o) maximum contributions
* Funding Target Attainment Percentages (FTAPs)
Schedule SB reports and links to our 5500/PBGC System, and our FAS 158 and Termination Calculation reporting systems. or call 1-888-328-2474

[Guidance Overview]
FASB Issues Exposure Draft Outlining New Employer Disclosures Related to Multiemployer Defined Benefit Pension Plans
Excerpt: "The FASB appears concerned that multiemployer plans, and the employers participating in these plans, are exposed to increased risks as a result of the recent economic downturn and the requirements of the Pension Protection Act of 2006 applicable to financially troubled plans."
(Proskauer Rose)

[Guidance Overview]
Maybe You Didn't Miss Your Retirement Plan Restatement's Deadline After All
Excerpt: "Retirement plan practitioners are very aware that the EGTRRA restatement deadline was April 30, 2010 for plans that qualified to use the prototype or volume submitter plans. . . . The 6-year cycle generally provides a longer time period in which to restate plans -- but not always. The 6-year cycle effectively is an exception to the 5-year cycle."
(SunGard Relius)

Survey of Retirement Attitudes -- Employees' Confidence in Retirement
Excerpt: "Last year, the financial crisis had a deep impact not only on employees' savings, but also on the confidence they had in their ability to retire comfortably. A Towers Watson survey finds that this impact may be more long term than previously thought and, despite the onset of a gradual economic recovery, employees continue to be apprehensive about securing their retirement."
(Towers Watson)

IRS Is Aggressively Monitoring Abusive Tax-Avoidance Transactions, Officials Say
Excerpt: "IRS officials warned taxpayers to be aware of abusive tax-avoidance transactions (ATATs) that the IRS is currently investigating and that threaten individuals' retirement plans. IRS officials discussed potential abusive schemes that can threaten retirement savings, including insurance-funded plans, schemes involving defined benefit plans, employee stock ownership plan (ESOP) abuses and rollover as business start-ups (ROBS) compliance issues, among others, during an August 27, 2010 IRS teleconference."
(Wolters Kluwer Law & Business)

Costs of Retirement and Savings Benefits for Employers in Private Industry, June 2010
Excerpt: "In June 2010, average costs in private industry for retirement and savings benefits were 96 cents per hour worked, or 3.5 percent of total compensation. Among occupational groups, employer costs for retirement and savings benefits ranged from 21 cents per hour worked, or 1.5 percent of total compensation, for service occupations, to $1.89 per hour worked, or 3.9 percent of total compensation, for management, professional, and related occupations."
(Bureau of Labor Statistics, U.S. Department of Labor)

Japan's Ticking Time Bomb: Underfunded Corporate Pensions
Excerpt: "The Accounting Standards Board of Japan has proposed requiring companies to immediately recognize their pension funding shortfalls as liabilities on their balance sheets. Currently they have been able to keep these shortfalls largely off balance sheet for younger workers . . . ."
(Wall Street Journal)

Europe Reforms Pension Systems Amid Threats of Collapse
Excerpt: "After an entire night of fierce debate, the French Parliament passed on Wednesday morning a bill to increase the official retirement age for government retirement benefits from 60 to 62."
(Epoch Times)

Some 401(k) Plans Are Adding an Annuity Option
Excerpt: "Only 2 percent of 401(k) plans include some sort of annuity or insurance option as an investment choice alongside standard stock and bond funds, according to Hewitt Associates . . . ."
(New York Times; free registration required)

Pump Up a 401(k) by Lowering the Fees
Excerpt: "Thanks to new Department of Labor rules, published in July and taking full effect next July 16, you can identify these onerous expenses and do something about them."
(New York Times; free registration required)

Lawmakers Discuss Oklahoma Pension Overhaul
Excerpt: "House leaders have said a range of changes to the system will be considered, including a transition from the current defined-benefit pension system to a defined-contribution plan, like a 401(k) savings plan."
(Washington Post; free registration required)

Insurers Press U.S. to Let Employers Offer Annuities
Excerpt: "The government should extend and clarify 'safe harbor' protection, which exempts employers from liability, so they can add annuities as an option in 401(k) retirement plans, said Christine Marcks, president of retirement at Prudential Financial Inc. . . ."
(Business Insurance)

New Jersey Is One of Several States Cutting Benefits for Workers, Retirees
Excerpt: "Since 2008, at least 20 states -- including New Jersey, Rhode Island, and Wyoming -- have rolled back pension benefits or seriously considered doing so. That is not only for new hires, but also for current employees and retirees."
(Philadelphia Inquirer)

Minnesota Case to Test Cuts in Pension Benefit Formula
Excerpt: "Minnesota last year replaced its previous pension formula, which increased retiree benefits annually based on investment gains and inflation, with a flat 2.5% increase. This May, the state lowered that increase for some retirees and eliminated it for others, until the pension plans are 90% funded . . . ."
(The Wall Street Journal)

CalPERS Must Release Documents Detailing $100 Million Investment Loss
Excerpt: "In refusing to release all the investment records the [plaintiff] sought earlier this year, CalPERS cited a state law restricting access to details concerning public investments in hedge funds and with venture capitalists. But [the judge] ruled that the law didn't apply to a traditional real estate investment . . . . "
(Contra Costa Times)

Phyllis Borzi: Requiring Annuity Payout Options Unlikely
Excerpt: "An Obama administration effort to encourage use of annuity payouts in employer-sponsored retirement plans is unlikely to become a regulatory requirement . . . ."
(Business Insurance)

Feds Drop Appeal in San Diego Pension Case
Excerpt: "Late Monday, prosecutors filed a notice with the 9th U.S. Circuit Court of Appeals saying it has decided to drop the appeal of a decision in April by Judge Roger Benitez that dismissed the long-running case."
(The San Diego Union-Tribune)

New Jersey's Governor Christie Proposes Sweeping Pension Changes
Excerpt: "By doing nothing, Christie warned[,] . . . New Jersey's unfunded pension liability will spike from $46 billion to $181 billion by 2041, while the cost of public employee benefits to taxpayers will grow 40% over the next four years."

ESOP Companies Contribute More to Employee Savings
Excerpt: "[T]he average ESOP participant has 20% more defined contribution (DC) assets than the average participant in a non-ESOP DC plan, and far less of it comes out of the employee's pocket."

Study of Public Plan Finds Auto Enrollment Drastically Increases Participation
Excerpt: "The study . . . said prior to the implementation of automatic enrollment, about 20% of all eligible employees participated in [South Dakota's Supplemental Retirement Plan.] Eight months after the passage of automatic enrollment legislation, 91% of new, eligible employees [participated]."

Alternative Investments Gaining Share in Corporate Pension Portfolios, According to New Surveys
Excerpt: "Alternative investments, such as hedge funds, private equity, and real estate, are slowly but surely gaining sway with corporate pension fund managers. A recent survey by J.P. Morgan Asset Management of about 150 corporate pension plans found that alternative investments constitute about 11% of their assets, on average, and that the plans intend to increase that allocation to 14% within the next three years."

Looking Ahead to the Spend-Down Years
Excerpt: "[Behavioral-finance researchers] goal is to help people make better decisions about both accumulating retirement assets and then drawing on them -- a process they call decumulation."
(The New York Times; free registration required)

Comments by American Academy of Actuaries at Public Hearing on Lifetime Income Options (PDF)
5 pages. Excerpt: "We support a requirement that some form of guaranteed lifetime income be one of the investment or distribution options offered in tax-qualified individual account plans, provided that the requirement is accompanied by a clear set of regulations that will allow for their effective implementation at reasonable cost and without subjecting plan sponsors to undue fiduciary risk. Individual plan sponsors should also be permitted to make an annuity the default option."
(American Academy of Actuaries)

Comments on Proposed Amendments to International Accounting Standard 19, Employee Benefits (PDF)
9 pages. Excerpt: "We do have some concerns . . . regarding implementation and measurement details, particularly with regard to termination-of-employment curtailments and the handling of administrative expenses. In addition, we have concerns about the minimum funding requirement, and the disclosures of sensitivities, risk, and multiemployer plans."
(American Academy of Actuaries)

How Government Pensions Can Get Out of the Red
Excerpt: "The pension-fund crisis is rooted in the intersection of excessive optimism by fund managers and the funds' influence on the political process. . . . Eventually debt-heavy governments will begin to default, which will disrupt the municipal bond market by blocking access to new capital for even the most credit-worthy public institutions."
(Richard Riordan and Alexander Rubalcava in the New York Times; free registration required)

New York State's Pension Crisis
Excerpt: "[T]he pension cost for state and local governments will escalate by 37 percent in 2012 [compared to 2011]. That's because municipalities will be forced to contribute to the state pension fund a value equal to 16.3 percent of total salary."

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Benefits in General; Executive Compensation

Pension Money Lost in Chrysler Bankrup.tcy, Executives Claim
Excerpt: "According to the suit, Daimler converted current executives' pensions into annuities back in 2005, when the company began experiencing financial problems. For reasons unexplained, the company failed to do the same with former employees' pensions."

Public Plans, Including University of California's, Facing Ballooning Deficits
Excerpt: "A poster child emerged last week for the developing crisis faced by underfunded public pensions. It was announced that the University of California has a $21 billion unfunded liability for its retiree health and pension benefits."
(The Street)

New Jersey Governor Christie Outlines Cuts to Future Pensions, Health Care Coverage
Excerpt: "Christie wants to raise the number of years used to calculate that average salary from three years to five for state workers and school employees, and one year to three years for police and firefighters. Assembly Speaker Sheila Oliver (D-Essex) said making workers pay health care based on the cost of premiums would hurt lower paid workers."
(The Star-Ledger)

Webcasts and Conferences

Free Webcast - FASB Standards Proposal--Potential Major Impact on Multiemployer Plans and Employers
Nationwide on September 23, 2010
presented by International Foundation of Employee Benefit Plans

Pension and Retirement Savings Plan Fundamentals
in New York on September 30, 2010
presented by New York Metropolitan Area Chapter - ISCEBS

U. S. Department of Labor's ERISA Advisory Council to Hold Oct. 4 Meeting
in District of Columbia on October 4, 2010
presented by U.S. Department of Labor, Employee Benefits Security Administration (EBSA)

Press Releases

US Labor Department Obtains Judgment Restoring Nearly $18,000 to Clinton, Md., Retirement Plan
U.S. Department of Labor, Employee Benefits Security Administration (EBSA)

Prudential Launches IPS Scorecard Tool
Prudential Financial, Inc.

ASPPA Applauds Passage of Roth Conversion Provision
American Society of Pension Professionals & Actuaries (ASPPA)

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