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MAP-21 Provisions Relating to the Funding of Defined Benefit Pension Plans
"[T]he Moving Ahead for Progress in the 21st Century (MAP-21) Act [signed into law on July 6] ... contains the following revenue-generating provisions relating to pension plan funding rules: 1) Beginning in 2012 for purposes of the minimum funding rules under the Internal Revenue Code (IRC), required employer contributions will decrease by using calculations that value pension liabilities using higher interest rates than current rates. 2) Beginning in 2013, the fixed-rate, variable and multiemployer premiums that employers are required to pay to the PBGC are being increased. 3) [Increased] availability of IRC Section 420 transfers, which permit employers to transfer excess pension assets to fund retiree health benefits."
(Practical Law Company)
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Don’t Miss the Premier Plan Sponsor Conference of the Year! [Advert.]
Join DC industry experts at PSCA’s 65th Annual National Conference. You’ll learn new perspectives, groundbreaking views, and innovative insights all focused on one thing: helping American’s retire better. Register by July 20 for a $200 discount.
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Does It Pay to Delay? The Impact of Mortality, Interest Rates and Program Rules on Social Security Benefits
"[The authors] quantify the degree of actuarial advantage or disadvantage for individuals whose mortality differs from the average.... [A]t real interest rates close to zero, most households—even those with mortality rates that are twice the average—benefit from some delay, at least for the primary earner. At real interest rates closer to their historical average, however, singles with mortality that is substantially greater than average do not benefit from delay; however, primary earners with high mortality can still improve the present value of the household's benefits through delay. [The authors also examine] the extent to which the actuarial advantage of delay has grown since the early 1960s, when the choice of when to claim first became available, and ... decompose this growth into three effects: (1) the effect of changes in Social Security's rules, (2) the effect of changes in the real interest rate, and (3) the effect of changes in life expectancy."
(National Bureau of Economic Research)
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Advisers Show Clients How Much Mutual Funds Really Cost
"Savvy investors are taking a closer look at the fees that their mutual funds charge, digging into little-understood trading costs for the first time.... Only about 10% to 20% of clients have an understanding of fund transaction costs, but that percentage is far greater than it was a few years ago ... While a mutual fund's reported expense ratio, which covers a fund's operating and distribution costs, is reasonably easy to calculate and compare, trading costs are less transparent and include commissions, bid-ask spreads and the possibility that a big-enough trade could move the market for that security, making it more costly."
(Investment News; free registration required)
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Anxious Investors Day Trading with Retirement Accounts
"Americans worried about running out of money in their golden years are trying a new investment strategy: day trading their retirement funds. Disillusioned with the conventional buy-and-hold approach, baby boomers are anxious to improve their retirement prospects after two punishing bear markets in the last decade. Some people are trading the mutual funds in their 401(k) plans more frequently. Others are venturing into options. And some aggressive investors have begun day trading their nest eggs—all in a bid to make up for lost time."
(Los Angeles Times)
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Wall Streeters Lose $2 Bil.lion in 401(k) Bet on Own Firms
"Wall Street employees, who dispense financial advice to individuals and companies, aren't following a basic investing tenet with their own money: diversification. Workers at the five largest Wall Street banks saw the value of company stock in their 401(k) accounts, sometimes the biggest holding of those plans, decline more than $2 bil.lion last year, according to annual filings. Those losses don't include shares received as bonuses. The 2001 collapse of Enron Corp. led to warnings that tying retirement funds to an employer's stock could be more crippling when a company fails, resulting in the loss of both a nest egg as well as a source of income."
(BusinessWeek)
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President Signs Pension Funding Relief Law
"The pension relief provided could be in the range of $40 to $50 bil.lion for S&P 1500 plan sponsors for 2012 and could total well over $100 bil.lion through 2014, according to Mercer estimates. On the other hand, the bill doesn't change plan sponsors' underlying pension obligations. It merely gives them more time to address their plans' current funding shortfalls."
(Society for Human Resource Management)
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Liberalized Pension Funding Rules Present Risks
"[W]ith the funding relief, the discount rate is so smoothed over 25 years that the liability value is known over the next three years. Liabilities will not be sensitive to rates any more. This could raise a question if you are in fixed-income investments ... plan sponsors might have to increase contributions when they could have decreased them had their liabilities been timely marked to market. But the new law could cloud sponsors' judgment, tempting them to choose very short fixed-income investments to remove interest rate risk[.]"
(PLANADVISER.com)
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IRS Proposes Limited Exception to Anti-Cutback Rules for Plan Sponsor in Bankrup.tcy
"The proposed regulations would permit a single-employer plan that is covered under ERISA Section 4021 to be amended to eliminate an optional form of benefit that includes a 'prohibited payment,' provided that four conditions are satisfied on the later of the date the amendment is adopted or effective.... [A] judicial determination must be made, after notice to each affected party (including each plan participant, each employee organization representing plan participants, and the PBGC) and a hearing, that the amendment is necessary to avoid termination of the plan in a distress or involuntary termination before the plan sponsor emerges from bankrup.tcy."
(Wolters Kluwer Law & Business / CCH)
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Moody's Estimate Triples Pension Debt of Public Retirement Plans, to $2 Tril.lion
"A new estimate from Moody's Investor Services triples national public pension debt from $766 mil.lion to $2.2 tril.lion, mainly because the major Wall Street bond-rating firm uses a lower forecast of pension fund investment earnings urged by critics. In a reporting overhaul proposed last week to give investors a better way to compare pension funding, Moody's uses an annual earnings forecast based on corporate bonds, 5.5 percent, much lower than the 7.5 to 8.25 percent forecast by pension funds.... [C]ritics say unrealistic pension system forecasts hide massive long-term debt, easing pressure for urgently needed cost-cutting reforms such as lower pension benefits and higher payments into the pension fund from employers and employees."
(CalPensions)
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Advisor Search Protocol and Template RFP Questionnaire for Use by 401(k) and 403(b) Plan Sponsors
"The advisor search protocol outlines a suggested process for retirement plan sponsors to select a professional retirement plan advisor, or to perform due diligence on their current advisor. The template advisor search RFP questionnaire is designed to help retirement plan sponsors select a professional retirement plan advisor, or to perform due diligence on their current advisor. The document covers all the elements of service typically available from Professional Retirement Plan Advisors, including investment services, participant services, provider services, fiduciary support, and compliance support. This customizable document includes 65 questions on five pages. The advisor RFP questionnaire will assist plan sponsors in complying with recent legislative regulations centered on fee / service benchmarking; it also provides a turnkey solution saving both time and resources for the plan sponsor relative to production of the questionnaire."
(Retirement Advisor Council)
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Los Angeles School District Says State Law Limits Its Ability Simplify 403(b) Plan
"IRS rules require executives of 403(b) plans to act more like those of 401(k) plans in ... monitoring investment options. Many 403(b) plan officials have cited the regulations as the impetus for consolidating the number of providers and investment options. Los Angeles school district officials want to follow suit, but California is one of a handful of states that has an 'any willing vendor' law. That law effectively blocks attempts at consolidation in the name of providing 'open access' for participants to choose providers and investment options. The law affects all K-12 school districts and community colleges in the state."
(Pensions & Investments)
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ERISA Preempts State Law Claims Against Nonfiduciary Plan Custodian
"[T]he Sixth Circuit ruled that ERISA preempted state law claims brought against a custodian that allegedly failed to prevent a plan fiduciary from stealing plan funds.... [The Court ruled that] ... [1] the trustee of the TPA's bankrup.tcy estate had standing as a fiduciary to bring claims on behalf of the plans under ERISA Section 502(a)(2) ... [2] in suing on behalf of the plans, the bankrup.tcy trustee was 'stepping into the shoes of the plans' and was not attempting to recover funds for the TPA's bankrup.tcy estate.... [3] under the complaint's allegations, the Bank was not an ERISA fiduciary of the plans ... [and] [4] ERISA preempted the complaint's state law claims." [McLemore v. Regions Bank, No. 10-5480 (6th Cir. June 8, 2012).]
(Goodwin Procter LLP)
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Which Should Young Adults Do First—Contribute to 401(k), or Pay Down College Debt?
"Nearly 30% of [eligible employees] aren't even contributing enough to their 401(k)s to receive the full employer match—widely considered to be 'free money' ... The problem is even worse among the youngest workers—age 20 to 29—42% of whom fail to contribute to the full extent of their employer match. The Financial Industry Regulatory Authority, which monitors securities firms, found the situation so concerning that it issued an investor alert on the topic, urging all American workers to take full advantage of their employers' 401(k) matching contributions. But should young adults with student debt follow suit? ... [A]s long as your 401(k) earned more than 3.5% annually ... you'd be better off snagging the match than prepaying the loan."
(The Wall Street Journal)
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NYC Comptroller Drops Bid to Consolidate City's Five Different Pension Fund Boards
"A contested plan to consolidate the management of New York City's public pension funds, which was presented in 2011 as a way to depoliticize the system and improve returns, will be dropped ... Investment decisions for the five New York City pension funds, whose value was estimated at $110 bil.lion last February, are now made by five separate boards, which include union representatives and outside fund managers."
(The New York Times; free registration required)
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USPS Estimates 7,400 Employees Might Take Buyout Offers
"Thousands of postmasters and full-time mail handlers have taken the first step toward accepting buyout and early retirement offers from the U.S. Postal Service, as the agency attempts to reduce its ranks through attrition to restore it to solvency.... USPS estimates between 3,800 and 4,200 postmasters will take the $20,000 buyout incentive available to them, and 2,800 to 3,200 full-time mail handlers are expected to take a $15,000 buyout."
(Government Executive)
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Impacts of the 2008 Reform of Chile's Privatized Pension System
"Chile's innovative privatized pension system has been lauded as possible model for Social Security system overhauls in other countries, yet it has also been critiqued for not including a strong safety net for the uncovered sector.... [I]n 2008 [reforms were implemented] to rectify this shortcoming.... [T]argeted poor households received about 2.4 percent more household annual income, with little evidence of crowding-out of private transfers.... [R]ecipient household welfare probably increased due to slightly higher expenditures on basic consumption including healthcare, more leisure hours, and improved self-reported health."
(University of Michigan Retirement Research Center)
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Free Pension Assistance Coming to Illinois Individuals
"The Pension Action Center of the Gerontology Institute at the University of Massachusetts Boston has received a grant from The Retirement Research Foundation to expand its pension counseling services to Illinois. The Illinois Pension Assistance Project (IPAP) will replicate the Pension Action Center's highly successful New England Pension Assistance Project (NEPAP) and will offer free pension counseling services to Illinois residents starting July 2, 2012.... The number of states covered by a pension counseling project now stands at 30."
(Pension Rights Center)
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Behind 408(b)(2)'s Looking Glass: Parties-In-Interest, Non-CSPs and Other Complex Tales
"The disclosures [provide] hints to, and sometimes disclose, the complex series of relationships and financial arrangements which make possible the daily trading and investing of the assets in individual account plans, on both NAV and insur.ance platforms, and the manner in which those parties involved in those relationships are paid for those services. What this new view reminds us of is that 408(b)2 is but one (albeit important) part of the entire scheme of prohibited transaction rules. There are a myriad of other prohibited transaction exemptions that are necessary to make the system work."
(Business of Benefits)
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ERISA Litigation Against Service Providers
"[P]lans' fiduciaries frequently have no involvement in filing a complaint against [service providers] since several courts have allowed plan participants to seek redress without getting permission or even having an obligation to inform a company sponsor.... [A] good offense is to conduct a comprehensive review of agreements on a regular basis. Should litigation occur and an expert is engaged, that person(s) will likely have to review whatever communications were provided to plan participants during the relevant time period as well as the contracts between the plan sponsor and [the service provider]."
(Pension Risk Matters)
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Revenue Sharing Gets Closer Look by DC Plan Execs
"Defined contribution plan executives are becoming more interested in trying to equalize the costs of revenue sharing among their participants, and the new fee-disclosure rules could make the practice more prevalent. Under revenue sharing, all or most of a record keeper's fees are offset by investment management fees. Because fees for active management generally are higher than those for passive management, participants choosing actively managed investment options pay significantly more of the record-keeping tab."
(Pensions & Investments)
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[Opinion]
South Carolina Pension Fund Changes Hold Promise
"Although some of the changes will have a potentially negative short-term impact on public workers (they will pay about $570 a year more from their checks), these much-needed adjustments will help provide a more stable future for state employees when they retire."
(GreenvilleOnline.com)
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[Opinion]
Public Pensions and the Value of Honest Numbers
"GASB's ruling has been five years in the making. It has been bitterly opposed by public-employee unions, and many non-union government employees also are rightly worried that the increased prominence of governments' net pension liability will fuel more vitriol toward public workers. Many pension administrators also opposed the change and worried that including the pension liability on the balance sheet would result in a total-net-assets number that was negative—that, after including net pension liabilities, a government's total liabilities would exceed its total assets. The fact is, however, that the purpose of the financial statements is to reflect economic reality, and over the long run no one benefits from obscuring that reality."
(Governing)
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[Opinion]
An Alternative to Bundled Retirement Plans
"Each of the 401(k) plans present in the troika of cases of Tibble v. Edison International, Braden v. Wal-Mart, and Tussey holds more than $1 bil.lion in assets; they are not mom-and-pop plans. These companies have the means to devote significant monetary resources and personnel to their 401(k) plans. Yet despite that, they cannot seem to comprehend the harmful consequences of revenue-sharing or even understand that their plans need not submit to the inflexibilities of a bundled offering.... Isn't it remarkable that giant providers of bundled retirement plans such as Fidelity ordinarily choose not to take onto their own shoulders the legal responsibility (and liability) for selecting, monitoring, and replacing their plans' investment options carried by their plan sponsor clients?"
(Morningstar Advisor)
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[Opinion]
California Pension Reform Goes to Wire
"Legislative leaders have pledged to come up with a pension-reform package when the [California] Senate and Assembly reconvene in August. They even have suggested the outcome could be more comprehensive, with greater cost savings, than the plan Gov. Jerry Brown rolled out this year. Don't hold your breath waiting."
(San Francisco Chronicle)
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Benefits in General; Executive Compensation
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Risk Management for the Future: Age, Risk, and Choice Architecture
"This study [examines] how different age groups process choices in relation to future risk and retirement planning in diverse decision-making environments.... [W]hen cognitive resources are available older participants opt for more prudent and future oriented financial and retirement choices, but ... this pattern does not hold in situations that do not allow the luxury of executive control override.... At a theoretical level ... much of the difference in financial choices between older and younger decision makers rests in the ability of each age group to override their intuitive and automatic responses to such decisions. At the policy level, as the regulatory field is moving from command-and-control rules to the provision of menu options and choice architecture, [these] findings provide potential guidelines for better designing retirement and savings plans, such as the implementation of [Save More Tomorrow-style] programs and the encouragement of annuity over lump sum retirement benefits."
(NETSPAR and the Robert Wood Johnson Foundation)
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Facing the National Retirement Nightmare
"A long-term care event—either with your parents or yourself—can easily destroy anyone's retirement plans. The cost of paying for long-term care at a nursing home for a few years—which insur.ance firm Genworth recently calculated at more than $80,000 per year—could pay to send a grandkid to Harvard or fund a nice retirement.... There are only two things we can do: (1) Take steps to reduce the odds of needing long-term care, and (2) prepare a plan for paying for the costs in case we need such care. Much easier said than done, of course, but that's the plan."
(CBS News)
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Supervisor's Comments After Employee Sought Leave Creates Viable FMLA Claim
"if an employee informs you that she needs leave to undergo a hysterectomy, [the author advises] against telling the employee it's 'not a good time to take leave,' and urging her to read the book titled, No More Hysterectomies. File this one under the category of 'Employers do inexplicable things that cause them to be sued.'... Even more compelling to the court was the manner in which [the employer] chose employees to be terminated as part of [a concurrent] RIF.... [E]vidence of disparate treatment created doubt about [the employer's] explanation that it chose employees for the RIF based on performance evaluations and discipline. From the court's perspective, this evidence—along with the various comments made to [the employee]—was enough to allow [the employee] to present her FMLA claims to a jury."
(FMLA Insights)
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Checklist of 408(b)(2) Plan Fiduciary Obligations After the July 1, 2012 Deadline; and What About Welfare Plans?
"Note that the 408(b)(2) fee disclosure regulations apply to retirement plan fiduciaries. The Department of Labor is still working on fee disclosure regulations for welfare plans. We are aware that certain vendors, including for example pharmacy benefit management vendors, are suggesting that there is no fee disclosure obligation with respect to welfare benefit plans until those regulations are finalized. This is NOT accurate. In order to have a reasonable contract with a service provider under ERISA section 408, all plan fiduciaries (welfare and otherwise) must take into account all direct and indirect compensation realized or likely to be realized by the vendor."
(Ivins, Phillips & Barker)
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