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Retirement Plans Newsletter

January 3, 2011

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[Official Guidance]
Text of the IRS Retirement News for Employers, Fall 2010 Edition (PDF)
Articles include In-Plan Roth Rollovers; Guidance and Forms 1099-R and 8606 reporting instructions for retirement plan sponsors and participants; Rollovers as Business Start-Ups; Common ROBS operational mistakes made by new business owners using their retirement funds to pay business start-up costs; Fixing Common Plan Mistakes; Voluntary Correction Program Submission Kit for the missed April 30, 2010 deadline for signing a pre-approved EGTRRA plan document; Form 5500 Notices Sent in Error Need a Response; and What is an Annuity?
(U.S. Internal Revenue Service)

[Guidance Overview]
IRS Guidance on In-Plan Roth Rollovers Addresses Eligible Distributions, Plan Amendments and Tax Recognition Rules
Excerpt: "Section 2112 of the Small Business Jobs Act, signed into law by President Obama earlier this year, permits rollovers of eligible distributions from a non-Roth account into a designated Roth account in the same plan. Prior law allowed participants to roll over qualified plan distributions to a Roth IRA outside of the plan, but did not permit rollovers to designated Roth accounts within the plan."
(AdvisorOne)

[Guidance Overview]
DOL's Final Participant Fee Disclosure Rules for Defined Contribution Plans (PDF)
5 pages. Excerpt: "This rule applies to plan administrators of participant-directed defined contribution plans (including 403(b) plans) that are subject to ERISA. This rule does not apply to governmental plans, church plans that do not elect to be covered by ERISA ('nonelecting church plans'), or non-ERISA 403(b) plans."
(Prudential Retirement)

[Guidance Overview]
District Court Issues Order on Cash Balance Suit Damages
Excerpt: "Alliant Energy Corp. converted its traditional defined benefit plan to a cash balance plan in 1998. Under the plan, participants accrued a 'benefit credit' equal to 5% of their salary, together with the right to an interest credit that is equal to the greater of 4% or 75% of the rate of return generated by the plan for the calendar year. [The judge] found that from 1998 to 2006, Alliant's method of calculating lump-sum distributions violated ERISA because the interest rates used by Alliant did not result in a whipsaw calculation as required . . . ."
(PLANSPONSOR.COM)

Pittsburgh's Move to Avoid Pension Takeover Stymied by Math Error
Excerpt: "The city's actuaries on Thursday found a mathematical problem in the City Council's pension bailout plan, forcing officials to redo the legislation with little more than a day left to forestall a state takeover of the plan. . . . [T]he council miscalculated the 'net present value' of the future stream of parking tax revenues. If the calculation was not accurate, state officials have said, the 50 percent funding level would be missed and the fund would pass to state takeover. According to information from King, the council will revise the bailout plan to take about $735.7 mil.lion in parking revenues over 31 years instead of the $414.7 mil.lion."
(The Philadelphia Inquirer)

Pittsburgh City Council Pulls Off Pension Fix
Excerpt: "Council members voted 9-0 to override Mayor Luke Ravenstahl's veto of the plan to dedicate as much as $27 mil.lion a year of its 37.5% parking-lot tax through 2041 to the retirement funds, according to Bloomberg."
(PLANSPONSOR.COM)

A Social Security Reality Check
Excerpt: "Once upon a time, workers were told that Social Security was but one leg of a three-legged stool that would support them during retirement. Private pensions and personal investments would serve as the other two legs. As time passed, most employers eliminated their pension plans. Instead of defined-benefit plans, workers were given access to defined-contribution plans. The three-legged stool then became the two-legged stool."
(San Francisco Chronicle)

DOL Advice Rules to Get Tougher for Consultants and Advisors That Serve Retirement Plans
Excerpt: "The DOL's fiduciary standard initiative is similar to one that pertains to retail financial advisors currently unfolding at the Securities and Exchange Commission. The initiative would create a single standard governing how advisors and brokers give advice to their clients. The result is expected to be a common fiduciary standard, and will be released early this year."
(On Wall Street and SourceMedia, Inc.)

The New State Of Social Security: Educating Clients
Excerpt: "A holistic approach to retirement planning means fact finding and education on any and all possible sources of income. If you're not taking such an approach to educating your clients on the role Social Security will play, you may be leaving them in the dark or unprepared. Here are some tips from top branch managers on how to educate clients about Social Security."
(On Wall Street and SourceMedia, Inc.)

Highlighting Employee Contribution Rate Gaps
Excerpt: "Some employers are more proactively educating workers about insufficient contributions to their 401(k) plans, a trend that's expected to persist into 2011. One company, after mailing nearly 17,000 personalized letters about current employee investing levels, tracked a 45 percent increase in contributions."
(Workplace Management: free registration required)

Wilmington Trust Targeted in 401(k) Investigation
Excerpt: "According to a press release, Stull, Stull & Brody says that 'among other things', it is investigating 'whether fiduciaries of the Wilmington Trust Thrift Savings Plan, a 401(k) plan, may have violated [ERISA] by failing to disclose the Company's true operating condition to participants and beneficiaries of the plans (including disclosures relating to the Company's eroding loan quality, the heavy concentration of the Company's loans in areas experiencing loan troubles, and growing cash shortages), by offering Company stock as an investment option under the plan when it was not prudent to do so, and/or by allowing an imprudent over concentration of Company stock in the Company's 401(k) plan'."
(PLANSPONSOR.COM)

Solutions to the Target-Date-Fund Dilemma
Excerpt: "Just as deciding if your plan-investment philosophy is to have funds go down less in a down market (more conservative) or go up more in an up market (more aggressive), plan sponsors should first decide if they want their target-date funds to get their employees 'to' or 'through' retirement. The formula for this is the fund's glide path."
(Human Resource Executive Online)

Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 12/31/10
Excerpt: "Each Monday, we'll give you a quick synopsis of the major news events and trends impacting ERISA plan sponsors, 401k fiduciaries and those in the business of supporting these fine folks."
(Fiduciary News)

Tips for Reaping the Benefits of a Supplemental Employee Retirement Plan
Excerpt: "A properly designed SERP plan encourages early retirement by providing public employees with a monthly income that begins at the time of retirement and supplements their regular benefits."
(Employee Benefit News; one-time free registration required)

South Dakota Auto-Enrollment Plan Raises Plan Participation
Excerpt: "The analysis found that among government units that adopted automatic enrollment, 91% of new eligible employees are participating in [South Dakota's Supplemental Retirement Plan], compared to the 1% of new hires in units without automatic enrollment."
(Employee Benefit News; one-time free registration required)

Under ERISA, Fiduciaries Must Evaluate Whether Arrangements with Service Providers Are Reasonable
Excerpt: "That responsibility is found in the fiduciary responsibility rules of ERISA § 404(a) and the prohibited transaction provisions in § 408(b)(2). The responsibility includes assessing the reasonableness of the fees being paid to advisers, the revenues received by recordkeepers and third-party administrators, and the expenses of the investments."
(PLANSPONSOR.COM via Reish & Reicher)

Despite Growth of Target-Date Funds, Sponsors Ill- Informed About the Plans, Survey Reveals
Excerpt: "For instance, compared to last year's findings, 50% of plans don't know when the end date of the glide path is, up from 32% in 2009. More than one-third are not familiar with the 'to' or 'through' glide path debate, and 35% are not sure what the best qualified default investment alternative is for their employee population."
(Employee Benefit News; one-time free registration required)

Wisconsin Prepares for Strain on Systems As Baby Boomers Retire
Excerpt: "In Wisconsin, state health officials forecast that the number of people aged 65 and older will nearly double over the next 20 years, from less than 800,000 to more than 1.4 mil.lion. Brown County's older population is similarly expected to jump from 28,757 to 57,645, eventually reaching a saturation point at which almost one in five residents in the Green Bay area will be retirement age. Some experts foresee this seismic shift in demographics putting demands on the community for previously unimagined accommodations -- from road signs that are larger and easier to read, to physicians who are better at treating geriatric health problems."
(Green Bay Press-Gazette)

Governor-Elect Says He's Worried About Florida's Public Pension Fund
Excerpt: "He thinks the pension is betting on achieving unrealistically high returns to meet its obligations to future retirees. And he fears using these rosier estimates merely delays the day of reckoning for taxpayers who will be on the hook for growing deficits."
(St. Petersburg Times)

[Opinion]
Revisiting Pension Actuarial Science: Comments on Rizzo, Ostaszewski and Krekora (PDF)
3 pages. Excerpt: "The series of papers titled 'Reviewing Pension Actuarial Science,' by Rizzo, Ostaszewski and Krekora, aimed at re-examining the current financial model for the mark-to-market valuation of public sector pension liabilities. The paper focuses on three distinct deficiencies (in the opinion of the authors) of the current model: 1. The limitations of the ABO, which they see as a violation of labor economics principles. 2. The risk-free discount rate assumes certainty of future benefit payments 3. The use of risk-free discount rates 'fails to adequately reflect the observable and not so observable inputs from market participants' behavior.'"
(Society of Actuaries via Gabriel, Smith & Company)




P&I Retirement Plan Connections Online Conference - Thursday, January 27
Connect with leading industry experts, your colleagues & solutions providers without leaving your desk.
In straightforward language, this online conference will provide time-tested strategies from experts & your peers. Whether your objective is to build your business & best help your clients, or make prudent decisions for your plan participants, this conference will provide the answers you need. Register today FREE of charge.

Benefits in General; Executive Compensation

[Guidance Overview]
Internal Revenue Code Section 409A: Tax Relief for Non-Compliant Separation Pay Arrangements (PDF)
4 pages. Excerpt: "This Alert summarizes guidance set forth in [Notice 2010-6], as modified on November 30, 2010 by Notice 2010-80, for taxpayers who participate in 409A-covered plans conditioning separation payments on employee action and who wish to avoid immediate taxation by voluntarily correcting document failures and/or taking advantage of transition relief."
(Schulte Roth & Zabel LLP)

Some Employers Thinking Outside the Benefits Box
Excerpt: "At some companies, benefits sweeteners can extend beyond health and dental in an effort to better retain employees even after the job market improves. Some of the less-routine perks include pet insurance, elder care, free personal trainers and a $500 allowance toward a commuter bike purchase."
(Workplace Management: free registration required)

Chronological Summary of Major Post-ERISA Benefits Legislation (PDF)
21 pages. As of April 10, 2010, with descriptions of the legislation.
(Hewitt Associates, Inc.)

[Opinion]
A Look at Trends That Were on Our Mind This Past Year and Those Just Over the Horizon
Excerpt: "What's ahead: More and better disclosures, a growing interest in offerings that take more into account than mere retirement date (including managed accounts), and more discussion around the importance of open architecture solutions and concerns about the (lack of) ERISA fiduciary status for the providers who bundle their own offerings together. But as for real change -- failing another sharp stumble in the markets -- most seem to be content with the way things are."
(planadviser)


Webcasts and Conferences

"Plan Fees: Navigating the Maze Workshop" - Des Moines
in Iowa on February 4, 2011
presented by SunGard Relius

"Plan Fees: Navigating the Maze Workshop" - San Francisco
in California on February 3, 2011
presented by SunGard Relius

"Plan Fees: Navigating the Maze Workshop" - Seattle
in Washington on February 4, 2011
presented by SunGard Relius




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