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[Official Guidance]
IRS Employee Plans News, June 8, 2012 Edition (PDF)
Articles include: highlights from a March 30 phone forum on the determination letter program; how exam agents are handling 403(b) written plan failures; issues found in defined benefit plan audits for PPA 2006; and an upcoming June 12 phone forum on operating under the written plan requirements and common issues identified in 403(b) plans.
(Internal Revenue Service)
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CalPERS Provides First State-Required Report on Placement Fees
"CalPERS funded seven new investments that used placement agents that received a total of $1.85 mil.lion in fees since July 10, 2010, according to a report from the $229.4 bil.lion pension fund. The comprehensive report is the first since new state placement agent disclosure requirements for the California Public Employees' Retirement System ... went into effect on Jan. 1, 2011.... The report ... comes after disclosures in 2010 that tens of millions of dollars in fees were being paid to placement agents who helped private equity companies receive investment allocations from CalPERS."
(Pensions & Investments)
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GM and Ford Pension Settlement Actions: Considerations for Plan Sponsors
Article includes an overview of the GM pension settlement program, as announced on June 1, with a comparison of that program to the one recently announced by Ford Motor Company. Also included is information on pension settlement actions considered by other plan sponsors during 2012, and commentary on considerations associated with pension settlement strategies.
(Aon Hewitt)
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Text of Report of Recommendations to IRS by Advisory Committee on Tax Exempt and Government Entities (ACT) (PDF)
"If a plan sponsor can show through its responses to an [IRS] questionnaire that it has checks and balances integrated into the administration of the essential plan operations that the IRS has identified as prone to error, further probing by the examiner is unlikely to uncover instances of noncompliance.... Appendix A suggests some processes for establishing and maintaining essential plan administrative functions that: incorporate adequate internal controls to support ongoing compliance, increase the likelihood of a quick audit, and reduce the costs of bringing a plan back into compliance through an IRS program if an error occurs."
(Internal Revenue Service)
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Will More Retirement Plans Shift to ETFs?
"[A]ssets in ETFs accounted for only 8% of total net assets managed by investment companies at year-end 2010 ... In employer-sponsored 401(k) plans, mutual funds continue to make up the bulk of portfolios, but as the advantages of ETFs enter the media spotlight, some plan sponsors are integrating them in their 401(k) plan or carving out a brokerage window for savvy participants to freely trade."
(On Wall Street)
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Connecticut Governor Finds Path to Pension Reform for Troubled State Pension Plan
"[Gov. Dannel P.] Malloy's plan smoothed out a back-loaded schedule for state contributions to the State Employees Retirement System, which ... is considered one of the most underfunded state pension systems in the nation.... [The] proposal, which was approved by union leaders and the legislature, involves larger state payments to the fund over the next decade to eliminate the need for the much bigger payments that were previously set to follow in the years through 2032.... [Here] was a governor exacerbating his own administration's fiscal challenges to avoid potential calamity in the future."
(TheDay.com)
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OECD Backs Use of Private Pensions to Fill Gap Between Retirement Needs and State-Sponsored Pensions
"In a review of the outlook for pensions in its 34 member countries, the Organisation for Economic Cooperation and Development [OECD] said today's and tomorrow's workers will have to work longer before retiring and will have smaller public pensions.... 'Even if further increases in retirement ages are implemented, private pension provision should be promoted to allow workers to draw on their savings in old age, complementing their working income and public pension benefits,' the report said. 'Making private pensions compulsory would be the ideal solution to eliminate the pension gap and ensure benefit adequacy.'"
(Chicago Tribune)
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Tussey v. ABB Case Shines Spotlight on Bundled Retirement Plans
"Plan sponsors such as ABB like bundled retirement plans because they are easy and convenient, offering a kind of one-stop shopping ... [P]roviders certainly like bundled retirement plans.... [They] are a particularly lucrative sales channel through which [the provider] effectively and efficiently distributes its proprietary investment products, such as mutual funds. Indeed, the primary reason why bundled plans exist is so plan service providers ... can distribute their proprietary investment products on their recordkeeping platform.... A bundled plan makes it more likely that any excessive revenue-sharing ... can be disguised in the sense that it won't be monitored by a plan sponsor, as Judge Laughrey found in Tussey."
(Morningstar Advisor)
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Demand Soaring for Pension Transfers to Insurers
"GM's splash was so big, there may be somewhat limited capacity for more mega-sized deals in the market for pension-risk transfers. Still, the market could be in the tens of billions over the next few years, they said. A Reuters analysis of the pension obligations of the S&P 500 found that almost half of the companies with underfunded pensions have enough cash to spare to do a risk-transfer deal[.]"
(The New York Times; free registration required)
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San Jose, San Diego Pension Reforms Go to Court
"The [San Jose] police union and several firefighters, who are in one of the two San Jose city retirement systems, filed separate suits last week asking a superior court to overturn Measure B.... The suit argues that Measure B violates ... a constitutional amendment [which gives] pension boards the 'fiduciary' duty of placing the interests of current and future retirees above the interests of taxpayers, which previously were equal. The suit argues that the measure compromises the fiduciary duty of the pension board by compelling the board to 'ensure fair and equitable treatment for current and future plan members and taxpayers with respect to the costs of the plans.'"
(CalPensions)
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Delphi Salaried Retirees Get Documents in Pension Termination Case
"Delphi, while in bankrup.tcy in 2009, terminated the pension plans of 70,000 people and left a $7.2 bil.lion shortfall. The PBGC, the government's pension insurer, assumed the plans and must pay $6 bil.lion of the losses.... GM 'topped up' the pensions of most union Delphi hourly workers and retirees, primarily those from the United Auto Workers union ... even though it wasn't legally obligated to do so.... GM did not do the same for Delphi's salaried retirees.... Some retirees will lose up to 65 percent of benefits."
(The Detroit News)
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Recent Votes in Wisconsin and California Reflect Increasing Scrutiny Nationwide on Benefits for Public Employees
"America's appetite for austerity in paychecks and benefits for government employees is spreading.... Last year, 18 states increased employee pension contributions for state workers, up from 11 in 2010. Sixteen states increased age and service requirements for state employee retirements. States including Colorado, Minnesota, New Jersey and South Dakota have moved to postpone or cut cost-of-living adjustments on state employee pension benefits."
(McClatchy)
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Tennessee Cities Pulling Out of State Pension Plan
"The Tennessee Consolidated Retirement System [TCRS] bills itself as 'one of the best-funded pension plans in the nation,' but some local governments have been pulling their new hires out of the plan.... The reason: These cash-strapped political entities have found their contributions into TCRS to be too costly... [Tri-Cities Regional Airport's] TCRS contribution expense is almost 18 percent of payroll. The airport decided to go with a different defined contribution plan that would have a maximum 9 percent of payroll cost."
(Kingsport Times-News)
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Landmark Prudential, GM Deal Seen As Opening Floodgates for U.S. Pension Transfers
"[GM] said it will move $26 bil.lion of pension liabilities off its balance sheet by the end of the year ... largely by transferring the plan to a group annuity operated by Prudential.... The deal, a common practice in Great Britain, is expected to be the largest pension-risk transfer made in the United States, industry analysts say. And it's also expected to be the catalyst for more deals to come."
(The Star-Ledger)
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Investment Advisers Wary of SRO Bill Despite Intent to Cap Membership Fees
"Investment advisers remain opposed to legislation that would put them under the jurisdiction of a self-regulatory organization [SRO] even after a suggestion by the bill's author that the SRO membership fees could be capped. In a congressional hearing last week, witnesses and lawmakers expressed concern about how much it would cost to set up and operate an SRO."
(Investment News)
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Is the Path to Retirement Just Pure Luck?
"Retirement is starting to sound like a pipe dream subject to every outside influence, from where there the stock market is one day to who sneezes the next day. Surely there must be some signs of retirement hope for the baby boomer generation and their offspring. [The author] obtained a full copy of the Wells Fargo/Gallup survey and sifted through looking for glimmers of good news [and] found several."
(National Center for Policy Analysis)
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Using the Cost Benefit Ratio to Measure 401(k) Plan Value (PDF)
"Successful small plans with good cost/benefit ratios will on average have total annual costs of $600 to $1,100 for each successful participant. Successful mid-sized plans will on average have total annual costs of $500 to $900 for each successful participant. Successful large plans will on average have total annual costs of $400 to $750 for each successful participant. In all size categories unsuccessful plans will have costs 2-5 times higher."
(Unified Trust Company, N.A.)
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Focus of ERISA Fee Litigation Shifts to Revenue Sharing
"[The] outcome of a recent 401(k) plan lawsuit [Tussey v. ABB] did more than force the sponsor to write a check for $37 mil.lion. It led to lessons learned about the need to regularly review record-keeping and investment management fees, negotiate for rebates if possible and adhere to documented investment guidelines. What it did not resolve was 'whether the record keeping costs of a 401(k) plan may be borne exclusively by those participants whose investment funds enjoy revenue sharing...while participants whose accounts are invested in investment funds with no revenue sharing pay little or nothing.'"
(Pension Risk Matters)
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401(k) Plan Fee Case Has Broad Implications for Plan Sponsors
"The Court explicitly rejected the plan sponsor's argument that it was monitoring the reasonableness of the fees by tracking the expense ratio of the investments chosen for the plans' investment platform. The Court stated that 'the expense ratio does not show how much revenue is flowing from the investment company to the recordkeeper ... [and] it does not show what the competitive market is for recordkeeping fees for comparable funds.'"
(PwC)
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2012 NCPERS Public Fund Study (PDF)
"[The study] includes responses from 147 state and local government pension funds with a total number of active and retired memberships surpassing 7.5 mil.lion and assets exceeding 1.2 tril.lion.... The study finds that public funds continue to respond to changes in the economic, political and social landscape by adopting substantial organizational and operational changes their stakeholders to ensure long-term sustainability for their stakeholders. Efforts include increasing age and service requirements, increasing member contributions, stronger operational practices and more diligent oversight."
(National Conference on Public Employee Retirement Systems)
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Update on the U.S. Pension Risk Transfer Market
Podcast. "According to the U.S. Department of Labor, over the past 40 years the number of defined benefit pension plans in the U.S. has dropped from around 140,000 to less than 50,000. However, even plan sponsors with frozen D-B plans are under pressure to de-risk themselves from these obligations."
(LIMRA)
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[Opinion]
California Shows Way Through Tricky Pension Mess
"Since the downturn, new hires have borne the brunt of belt-tightening in the nation's public sector. They, not their elder cubicle mates, have had to swallow diminished expectations for their golden years. This unfair two-tier system is likely to further discourage the young and talented from considering a career in the civil service. In addition, such marginal reform won't be enough over the long term to fill a $700 bil.lion shortfall in America's public pension system. A better approach is burden sharing -- something San Jose and San Diego are trying to push through."
(Reuters)
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[Opinion]
Public Pension Reform Can't Come Soon Enough
"[Arizona] state voters in 1998 passed a constitutional amendment prohibiting cuts in retirement benefits to current government employees. Throw in a sagging investment portfolio that requires higher contributions to the state pension fund even to fund it at a 78 percent level, and Flagstaff, like cities across the state, have been caught in a financial squeeze play. Even as municipal revenues are falling and positions are being cut, total pension expenses increase—they are up 39 percent in Flagstaff since 2008."
(Arizona Daily Sun)
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[Opinion]
Governance Problems At Root of Underfunding of Government Pension Plans
"The real crisis in U.S. public pension funds isn't their funding, it's their lack of proper governance. In most cases, they pay monkey salaries and get monkey results which only come to the forefront when a financial crisis hits, exposing their shortcomings. It's time for U.S. lawmakers to stop the insanity of dismantling public sector pension funds and start implementing intelligent reforms, like a complete overhaul of pension governance."
(Pension Pulse)
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[Opinion]
401(k) Fees: Why Transparency is Important
"[The public is] now getting stories and even ridiculous recommendations such as the one from the Motley Fool folks suggesting that participants should drop out of their 401(k) and save in an IRA. They also suggested that if there is a brokerage option in the plan, participants should use that option rather than the plan-provided investment menu. Because most 401(k) participants work at larger companies with the plan asset level enabling them to enjoy institutional pricing, this will force participants making these choices to pay higher, not lower, fees."
(Plan Sponsor Council of America)
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Benefits in General; Executive Compensation
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Report Finds Significant Proxy Advisory Firm Influence Over Investor Say-on-Pay, Governance Votes
"Though the [IRRC] report states that it is difficult to identify the causal relationships for significant shifts in support and that large institutional investors use many sources of information, it states, 'Regardless of how wide a net they cast for informational inputs into voting decision making, most asset managers find proxy firm data particularly useful for say-on-pay [votes].' ... [The] report also references the influence of proxy advisors over issuers and cites a 2010 Center On Executive Compensation study, which found that 54 percent of companies had changed or adopted a compensation plan or policy during the prior three years to meet the standards of a proxy advisory firm."
(HR Policy Association)
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Employees Would Exchange Salary for Retirement Income Guaran.tee
"When asked about the desire for a guaran.teed source of income during retirement, 82% of employees would be willing to give up 5% of their salary if it meant having reliable income to help them live comfortably during their later years, according to Bank of America Merrill Lynch's 2012 Workplace Benefits Report. Forty-two percent said they would be willing to give up 10% or more of their salary."
(PLANSPONSOR.com)
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2012 Workplace Benefits Report
"[N]ine out of 10 employers believe that financial benefits are equally or more important to potential hires today than five years ago—with half believing such benefits to be more important than ever. Confirming this, nearly 80 percent of employees view these benefits as a key factor when considering and accepting a new position."
(Bank of America Merrill Lynch)
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The First Circuit's DOMA Decision: What It Means for Employers
"For now, the decision will not have much impact on employee benefit plans because the Court stayed enforcement of its ruling. This means that DOMA is still in effect and will continue to operate as valid law until this case is either upheld or denied review by the U.S. Supreme Court.... So at this point, employers and plan sponsors need not make any changes to their employee benefit plans. Employers should monitor developments in the case, however, as a decision upholding the First Circuit ruling (or no decision at all) will likely have significant ramifications for employees and employers alike."
(Verrill Dana LLP)
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Employer Costs for Legally Required Benefits in March 2012
"Total employer compensation costs for private industry workers averaged $28.78 per hour worked in March 2012. Wages and salaries averaged $20.25 per hour worked and accounted for 70.4 percent of these costs, while benefits averaged $8.53 and accounted for the remaining 29.6 percent. The average cost for legally required benefits was $2.36 per hour worked in private industry (8.2 percent of total compensation) in March 2012."
(U.S. Bureau of Labor Statistics)
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