[Guidance Overview]
No Asset Sale Exception to Withdrawal Liability Applies Where Purchaser Can Reduce Employee Hours Post-Acquisition
"The Second Circuit Court of Appeals affirmed a district court holding that a seller was not exempt from withdrawal liability under the Multiemployer Pension Plan Amendments Act because the purchaser of the seller's assets was not obligated to contribute substantially the same number of contribution base units to the pension fund post-sale as seller had contributed pre-sale. In this case, the "contribution base units" were hours of employee pay."
(Haynes and Boone, LLP)
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[Guidance Overview]
Cypen & Cypen Newsletter for May 31, 2012
Covers employee benefit developments with an emphasis on governmental plans. Topics in this issue include: GASB Standards Are Accounting Guidelines, Not Funding Requirements; and Surviving Spouse's Pension Benefit Under San Diego Municipal Employees' Pension Plan Not Discriminatory on Basis of Gender.
(Cypen & Cypen)
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Statement of TAG Resources, the Applicant in Recent DOL Advisory Opinion on Open MEPs (PDF)
"TAG Resources has provided plan management services to 401(k) plan sponsors since 2004, and will continue to do so in accordance with the guidance issued to us by the United States Department of Labor.... TAG Resources welcomes this guidance and the certainty it brings to the marketplace. With just a few adjustments which our model was designed to accommodate, this opinion enables us to continue to provide the professional plan management services to a broader spectrum of the market which had heretofore been uncomfortable with the lack of clarity under MEP arrangements."
(TAG Resources, LLC)
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DOL Says Open MEPs Are Multiple Plans Under ERISA
"The most immediate implication of this ruling is that arguably open MEPs must file separate Forms 5500 (or 5500-SF or -EZ) for each adopting employer. If an employer has more than 100 participants, there would need to be a separate audit. This takes away two of the benefits open MEP promoters have long claimed for their arrangement. However, other benefits remain."
(SunGard Relius)
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CalPERS Slashes Former City Employee's $45,000 Per Month Pension Payment
"'[The California city of] Vernon's reporting and documentation has failed to comply with the legal requirements necessary to justify these payments,' CalPERS Chief Executive Officer Anne Stausboll said ... 'We fully intend to pursue recovery of all overpayments where we can[.]' ... CalPERS said it would also deny six other Vernon officials all or part of their pensions on similar grounds."
(The New York Times; free registration required)
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Republicans Propose Hikes in Employee Contributions to Federal Pensions to Fund Student Loan Program
"House Republicans have proposed increasing federal retirement contributions by 1.2 percent over the next three years to pay for a one-year extension of the reduced interest rate for student loans. In a letter to President Obama dated Thursday, Republicans from both chambers of Congress rejected Senate Democrats' proposal to pay for a one year extension of a reduced interest rate for subsidized Stafford student loans with a tax hike on small businesses."
(Government Executive)
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Stable Value: Still a Firm Foundation for 401(k)
"[F]or the first quarter of 2012, stable value fund assets delivered an average crediting rate (return) of 2.73 percent. Stable value continues to outperform money market funds, which returned 0.03 percent. Stable value assets have risen by 27 percent since the height of the financial crisis in the fourth quarter of 2008, when [the Stable Value Investment Association] began its survey."
(Plan Sponsor Council of America)
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Should We Scrap the 401(k) System and Start Over?
"Demos, a progressive think tank, argues that even in best-case scenarios, fees take an enormous bite from retirement nest eggs. The report kicked off immediate blow-back from the industry, which criticized its methodology.... Although the study assumes the couple is invested in stock and bond index fund, it uses composite current weighted average expense ratios supplied by the Investment Company Institute for all stock and bond funds—0.72 percent for bond funds and 0.95 percent for stock funds. That overstates considerably the costs investors pay for low-cost index funds, according to The American Society of Pension Professionals & Actuaries (ASPPA), an industry trade group."
(Reuters)
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Last-Minute Public Pension Bill Enrages Illinois Lawmaker
"Illinois State Rep. Mike Bost, R-Murphysboro, blew a gasket on Tuesday after leaders in the Democrat-controlled General Assembly delivered new pension-reform legislation at the end of the session's last day. The video above captures Bost's blast, which included throwing the bill into the air, punching at the cascading papers and quoting Moses' words to Pharaoh: 'Let my people go.'"
(The Sacramento Bee)
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Guess How Much Your 401(k) Plan Is Costing You in Hidden Fees
"[The U.S. Government Accountability Office] report notes that the average mutual fund matches the average return of the overall stock market by earning a 7% return before fees are factored in. However, once those fees are subtracted, the report notes that these returns fall to 4.5% or about one-third less."
(Business Finance)
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Pressed for Cash? Switching Jobs? Don't Touch That Retirement Fund
"For many, the concept of a retirement and savings account has become blurred, when in reality the funds set aside for retirement are meant to be set aside over the long-term to grow. The challenge becomes how to grow your retirement fund on a tax-deferred basis, and to tap in to other means with a less negative long-term impact if you find yourself temporarily out of the workforce or with an unplanned financial need."
(Conrad Siegel Actuaries)
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Illinois Lawmakers Close Session Without Addressing Pension Reform
"[D]ealing with Illinois' huge $83 bil.lion unfunded pension liability by [the May 31] midnight deadline for the current session proved to be a thornier issue as lawmakers tried to navigate state constitutional protections for existing benefits."
(The New York Times; free registration required)
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Advisors More Focused on Risk, Compliance Than Client Service
"Advisors are spending 73% more time and resources to risk and compliance than they did previously, Fidelity found in a recent study of its advisor clients. As a result of that shift, advisors are spending 19% less time on marketing and business development activities, and 10% less time on client service."
(On Wall Street)
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California Senate Approves Bill Creating State Retirement for Private Workers
"Unlike individual retirement accounts, [the bill's sponsor] said his legislation would create a 'defined benefit retirement' plan with a guaran.teed rate of return. He described the California Secure Choice Retirement Savings Act as a supplement to Social Security for nearly 7 mil.lion Californians without access to a workplace retirement plan.... [The bill] now moves to the Assembly."
(CBS News)
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408(b)(2) Fiduciary Rules Heighten Need to Define, Implement and Monitor Your 401(k) Plan's Value Proposition (PDF)
"It seems obvious that, for a fee to be reasonable, it must be competitive—it must fall within the range found in the marketplace for comparable services or products. However, just because a fee is competitive does not mean it is reasonable (i.e., being competitive is a necessary, but not a sufficient, condition for a fee to be reasonable). For a fee to be reasonable, the participants also must derive sufficient value from the products and/or services they are buying. Thus, the real question is: What value should the participants be getting for the fees they pay?"
(Investment Horizons, Inc.)
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Pennsylvania Lawmakers Want to Change Retirement Plans for State, School Employees
"It is estimated that by 2015, pensions to state workers and teachers will swamp the [Pennsylvania] budget in $4.5 bil.lion of red ink.... 'A defined contribution plan is much more predictable for governments and for taxpayers, and it's affordable,' said Nate Benefield of the Commonwealth Foundation. But the teacher's unions don't buy it and say don't blame workers for the approaching tsunami of debt."
(WHTM)
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[Opinion]
Text of Comments by SPARK Institute to DOL on Transition Relief in Connection with Anticipated 408(b)(2) FAQs and Other Issues Raised in FAB 2012-02 (PDF)
"[If] the Department interprets the disclosure regulations in a manner that is inconsistent with service providers' interpretations and already programmed disclosure solutions, service providers will be unable to adjust their compliance approaches before the deadline. ... FAB 2012-02 only provided relief from enforcement actions that may be brought by the Department. [The SPARK Institute is] concerned that such limited relief in connection with the anticipated 408(b)(2) FAQs will unduly expose service providers who have acted in good faith to substantially greater risk of private party claims and litigation."
(The SPARK Institute)
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[Opinion]
Study Calls for 'Drastic Reform' of Public Pension Regulation
"Recent studies by the Harvard Kennedy School Mossavar-Rahmani Center and the Federal Reserve Bank of Cleveland prove all municipal and state pension funds eventually will run out of money without immediate radical reforms and 'huge' future tax increases.... What we end up with is public policy that hides trillions of dollars in debt, puts 27 mil.lion public workers and retirees at risk of poverty and actually encourages the risky, reckless behavior that caused this municipal and state pension crisis in the first place."
(State Budget Solutions)
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[Opinion]
A Progressive's Progress: How Democrats Can Take the Lead on Public Pension Reform
"[San Jose Mayor Chuck] Reed numbers among a small but growing group of California Democrats making the 'progressive case' for pension reform: if local governments spend so much money on retiree pensions, they won't have enough left to provide the government services that liberals care so much about. Governor Arnold Schwarzenegger's pension advisor, David Crane, also a Democrat, has told the legislature that one cannot be a progressive without embracing pension reform[.]"
(City Journal)
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[Opinion]
A State Pension Plan for Private Industry: How Risky?
"The plan calls for employees to kick in 3% of their wages, and for the program to deliver the same sort of safe returns as long-term Treasury bonds. Granted, there's no such thing as guaran.teed returns in the financial industry, and the plan may have to invest more aggressively at first just to cover its start-up costs. But by bringing together millions of workers of varying ages, the plan will be far better positioned to ride out market downturns than individual investors are."
(Los Angeles Times)
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[Opinion]
More Bombast from Andrew Biggs on Public Pension Plans
"[Economist Andrew] Biggs takes on the National Institute on Retirement Security (NIRS) and the pension administrators who belong to it. He labels as 'nonsense' the NIRS 'Pensionomics' research that shows how each dollar of pension benefits produces $2.37 in economic output, creating millions of new jobs and billions in additional labor income. According to Biggs, the NIRS research is 'faulty' ... NIRS executive director, Diane Oakley, argues that 'What doesn't make sense is the nation's broken retirement infrastructure.' ... [To] the extent that opponents of DB plans [for teachers in public schools] are reaching out for new reasons to support their 'conversion' arguments could suggest that perhaps some of their older ones are not gaining much traction? One can only hope."
(National Council on Teacher Retirement)
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Benefits in General; Executive Compensation
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[Guidance Overview]
Proposed Regs Clarify 'Substantial Risk of Forfeiture' Under Section 83
"The proposed regulations narrow the scope of what constitutes a substantial risk of forfeiture in two ways. First ... a substantial risk of forfeiture can only be a service-based restriction or a condition related to the purpose of the transfer.... The second proposed amendment narrows the scope of the 'condition related to the purpose of the transfer' provision."
(PwC)
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[Guidance Overview]
Employee Benefits Developments, May 2012
Covers recent rulings, opinions, and cases. Articles in this issue include: Release Protects TPA From Negligent Misrepresentation Claim; Estate May Sue to Enforce Waiver and Recover 401(k) Benefits; Separation Policy Benefit Is Not an 'Early Retirement Subsidy' Subject to QDRO; Employer Is Not Liable for Allegedly Ambiguous Summary Plan Description; Acquired Employees Were Properly Denied Shutdown Benefits; PBGC Asserts Liability Against Foreign Control Group Member; Court of Appeals Holds That Union May Be Required to Reimburse Employer for Withdrawal Liability Associated With Multiemployer Plan.
(Hodgson Russ LLP)
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[Guidance Overview]
DOMA Ban on Same-S.ex Marriage Falls
"The benefits at issue are keyed to legal marriages. Whether all of those benefits would still be available if a legally married couple traveled to another state to live could depend upon whether their new state officially accepted their marriage as valid. One thing left uncertain in Thursday's ruling was the impact of the ruling on legally married gays who now live in states that refuse to recognize any such marriage. A part of DOMA that deals with this point—Section 2, giving states permission not to recognize such a marriage performed in another state—was not at issue before the First Circuit."
(SCOTUSBlog)
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Appeals Court Turns Back Marriage Act as Unfair to Same-S.ex Couples
"The decision, from the United States Court of Appeals for the First Circuit, in Boston, will have no immediate effect because the court stayed its ruling in anticipation of an appeal to the Supreme Court. Legal experts said the justices could agree as early as this fall to hear the case and arguments could come next spring, making it the first case involving the same-s.ex marriage law to be decided by the court. While the case dealt narrowly with the question of federal benefits for same-s.ex couples—not with the legality of same-s.ex marriage itself—many scholars said it was a significant moment in civil rights."
(The New York Times; free registration required)
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Massachusetts Senate Adopts Legislation Limiting Compensation of Non-Employee Officers, Directors, and Trustees of Public Charities
"Continuing a trend we are seeing in other states, the Senate legislation also authorizes the Massachusetts Attorney General to review the compensation of public charity directors, officers, and senior managers acting in an executive capacity for the purpose of considering appropriate compensation levels."
(Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.)
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[Opinion]
Some Commentary on First Circuit Ruling Against DOMA
"[The First Circuit] panel's characterization that DOMA will have 'adverse consequences' for same-s.ex couples and 'will penalize' them smuggles in a baseline that assumes that same-s.ex couples have the same right to marriage as opposite-se.x couples.... [Further, the] panel's federalism concerns ... are entirely misplaced.... The definition of marriage for purposes of provisions of federal law is inherently a federal matter."
(National Review)
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Press Releases
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