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2012 Third Quarter Update
Nationwide on August 16, 2012 presented by McKay Hochman Co., Inc.

401k Service Training Program
in Pennsylvania on October 11, 2012 presented by Financial Service Standards, LLC

401(k) Rekon Advisor Symposium - Portland
in Oregon on August 14, 2012 presented by 401(k) Rekon

Protected Concerted Employee Activity - Live FutureOffice Network Smartcast
Nationwide on July 17, 2012 presented by Davidson Marketing Group -- FutureOffice Network

Health Benefits Laws Compliance Assistance Seminar
in Ohio on August 8, 2012 presented by U.S. Department of Labor, Employee Benefits Security Administration (EBSA)

 

Moody's Downgrades Pennsylvania on Pensions, Economy
"Moody's Investors Service downgraded Pennsylvania's general obligation debt to Aa2 from Aa1 on Monday, citing concerns about the state's growing unfunded pension liabilities and a slow economic recovery.... Moody's analysts said ... that the rating action was based on Pennsylvania's weakened financial position, and on 'the expectation that large and growing pension liabilities and moderate economic growth will challenge the return to structural balance, contributing to a protracted financial recovery.' [Pennsylvania] Governor Tom Corbett has recently said that Pennsylvania would soon reform its public pensions." (The New York Times; free registration required)

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Seven Low or No-Cost Ways to Increase 401(k) Plan Participation
"Since the beginning of the 401k era, plan sponsors have been told the best way to increase employee participation is to offer to match employee contributions. Unfortunately, three decades of experience shows us, for all that matching, too many employees continue to not save enough. Indeed, many feel getting employees to save more—not getting them to invest correctly—represents the biggest problem in the 401k environment. So, how should 401k plan sponsors address this need?" (Fiduciary News)

CalPERS, CalSTRS Report Paltry Returns
"[S]tocks got hammered while bonds and real estate helped them etch out positive results.... CalPERS made 5.4% in private equity, not a loss as it was reported [by the Los Angeles Times]. The weak returns mean their long-term investment targets will need to be revised down and contribution rates will have to be raised. No choice, there is no other fix. Taxpayers are not on the hook, as is widely reported out there." (Pension Pulse)

Why People Buy Annuities: LIMRA Research that Examines the Motivations (PDF)
"Today, $400 bil.lion is waiting to be rolled over from retirement funds. By 2015, that's expected to grow by 50 percent to $600 bil.lion. A majority of those pension, IRA and 401(k) owners are not secure that their dollars will last their lifetime ... [A]fter planning and buying annuities, buyers were more confident about their retirement.... Buyers average around 60 years old—59 for [variable annuities], 60 for traditional fixed and 61 for indexed.... [A]bout one in four buyers were under 50 when they purchased their annuity." (InsuranceNewsNet)

PBGC Agrees to Take a United Way Plan
"After a 2-1/2-year review, the Pension Benefit Guaranty Corporation (PBGC) has agreed to assume administration of the underfunded pension plan for the United Way for Southeastern Michigan and affiliates ... [T]he Employee Benefit Plan for United Way for Southeastern Michigan and Affiliated Agencies had assets of $29.8 mil.lion when it was terminated in 2010, and was underfunded by $23.6 mil.lion, Crain's reports. The plan was frozen in 2005." (PLANSPONSOR.com)

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 Americans retire better. Register by July 20 for a $200 discount.

Top Six Ways You Can Improve Your 401(k) Plan
"If it turns out that your plan's investment choices came from a thoughtful, comprehensive, continuing review of the 401(k) plan market, you work for an unusual company indeed. At most companies—especially small and mid-size ones—the likely answer is that no one knows how the current investments in the plan got there. If this is the case at your company, your plan probably isn't serving your interests." (ABCNews)

Pension or Buyout? GM Retirees Make the Tough Call
"For retirees, each investment choice has risks. The lump-sum option relies on workers to manage their savings to generate a large enough return to match the current monthly pension amount. The pension, to be paid as an annuity, puts faith in the health of Prudential and its ability to maintain the payments throughout the retirees' lifespans. Here are the stories of how four retirees made their investment decisions." (The New York Times; free registration required)

U.S. Court of Federal Claims Judge Awards Raytheon $59.2 Mil.lion in Pension Case
"A federal judge awarded Raytheon Co $59.2 mil.lion in a case against the United States to recover pension losses for government contract work associated with a restructuring begun by the defense contractor in 2000. [This was] $10.1 mil.lion less than the amount Raytheon had sought [when it] sued in 2005 after a federal contracting officer denied its claim, saying it had not paid pension deficits it had sought to recover for employees who remained within the ... company's pension plans. [The judge] said the government and contractor should 'pay their fair shares to ensure that the pension plans at issue are fully funded to meet the promises made to the employee-participants covered by the pension plans.'" [U.S. v. Raytheon Co, U.S. Court of Federal Claims, No. 05-00448.] (Reuters)

Target Date Fund Managers Branch Out
"From 2009 to 2011, the average asset-weighted target date fund allocation to commodities, real estate and Treasury inflation-protected securities more than doubled to 7.2 percent from 3.6 percent, according to ... BrightScope Inc.... Some target date funds have more than a quarter of their allocations dedicated to these asset classes[.]" (Reuters)

401(k) Loan Defaults: How Big Is the Leakage and What Can Policymakers Do to Preserve Americans' Nest Eggs? (PDF)
"Americans have been increasingly borrowing against 401(k) plans during the recent economic downturn. Unfortunately, many of those borrowers are unable to repay their 401(k) loans due to job loss or disability. They estimate that the amount of "leakage" from retirement accounts caused by involuntary defaults on 401(k) loans could be as high as $37 bil.lion annually. To address this growing problem, the authors advocate that the default rule in a sponsor's plan provide insur.ance via auto-enrollment with an opt out to participants who borrow against a 401(k) account." (Navigant Economics and The Brookings Institution)

Six Public Employee Pension Funds Together Seek Lead Plaintiff Status in J.P. Morgan Chase Suit
"Five public U.S. pension funds and one Swedish one have joined forces to seek lead plaintiff status in a proposed class-action lawsuit against J.P. Morgan Chase related to the bank's trading losses that have totaled $5.8 bil.lion. The six are the Ohio Public Employees Retirement System; Ohio School Employees Retirement System; Ohio State Teachers' Retirement System; Arkansas Teacher Retirement System; Oregon Public Employees Retirement Fund; and Sjunde AP-fonden, known as AP7." (Pensions & Investments)

Pension Funds Split over Trimming Risk from the 401(k) Menu
"Trends ranging from target-date funds to behavioral science were supposed to reduce the number of investment options in 401(k) plans, on the theory that people do better if they have professional management, automatic asset allocation and limited choices. Yet sponsors keep piling on the options—to an average of 22 last year, up from 12 in 2001 ... And still employees avoid making investment decisions. So the debate is shifting a bit, as some experts question whether plans are offering enough low-risk selections." (Institutional Investor)

Retirement Income is Best Delivered as a Process-Driven Out-of-Plan Solution (PDF)
"Today 401(k) participants face not one but two immense challenges. The first is to simply figure out how to save and invest for retirement, and remain on track throughout their working career. The second is how to take the lump sum asset value of savings at the beginning of retirement and convert it into lifetime monthly income sufficient to reliably replace their paycheck. The second challenge highlights the need for reliable retirement income solutions. This has become more evident each year." (Unified Trust Company, N.A.)

CalPERS Reports Preliminary 2011-12 Fiscal Year Performance of 1 Percent
"The California Public Employees' Retirement System (CalPERS) today reported a 1 percent return on investments for the 12 months that ended June 30, 2012, falling short of its benchmark that returned 1.7 percent. CalPERS assets at the end of the fiscal year stood at more than $233 bil.lion.... CalPERS 1 percent return is below the fund's discount rate of 7.5 percent, a long-term hurdle lowered recently in response to a steady decline in inflation and as part of CalPERS routine evaluation of economic assumptions. CalPERS 20-year investment return is 7.7 percent." (California Public Employees' Retirement System)

Key Issues Affecting Safe Harbor 401(k) Cross-Tested Plan Design
"A safe harbor 401(k) cross-tested plan combines two of the most attractive defined contribution plan designs. The plan design provides (1) enhanced disparity; (2) flexibility; and (3) catch-up contribution potential. Understanding how the safe harbor and cross-tested rules interact is essential in designing the combined plan. [This article discusses] some of the important issues which affect the plan design." (SunGard Relius)

United Employee Benefit Fund, DOL Reach Agreement Over Loan Allegations
"What started with a bang has ended with a whimper. It began with the Dept. of Labor issuing a press release on Aug. 30, 2011, announcing that the DOL was seeking 'to recover more than $1 mil.lion in improper and delinquent loans made from United Employee Benefit Fund.' It ended with an agreement between the parties to pay their own attorneys fees and expenses, amend the plan documents, and issue some 1099s." (The Pension Protection Act Blog)

A Twist to the 'Amount Involved' In a 408(b)(2) Prohibited Transaction
"The disclosures related to [ERISA section] 408(b)(2) are really just a precursor to the next step: the imposition of the prohibited transaction taxes and penalties related to compensation which fails to meet those standards. It looks like the regs have the effect of shifting the application of the rules related to the 'amount involved' in the transaction a bit. The 'amount involved' in the transaction is the amount upon which the prohibited transaction taxes and penalties will be assessed.... What the new disclosure rules have done is establish the principal that ANY compensation for which proper disclosure has not been made will not be considered reasonable. This means the 'amount involved in the transaction' will be the entire amount of the improperly (or non) disclosed compensation." (Business of Benefits)

[Opinion]

State Pension Reforms: Are New Workers Paying for Past Mistakes? (PDF)
"When state pension plans are underfunded, someone eventually has to pay for the shortfall. Many recent reforms designed to improve plan finances shift burdens to the young, particularly by making many new employees net contributors to—rather than beneficiaries of—these plans. Using New Jersey as a case study, this brief shows how states require higher levels of employee contributions, invest them in somewhat risky assets, and then, like a bank or financial intermediary, pay back many employees less in benefits than what they contributed and expected to earn on those contributions." (Urban Institute)

[Opinion]

Are Pension Reforms Helping States Attract and Retain the Best Workers? (PDF)
"Recent budget pressures have led many states to cut future pension benefits for state workers. Using New Jersey as a case study, this report describes how these reforms ignore larger employee recruitment and retention issues for today's more mobile workforce. State retirement plans generally do not attract younger workers, lock in middle-aged workers even if a job is not a good fit, and push older workers into retirement. Recent reforms also shift pension financing burdens to the young, largely sparing taxpayers and current older workers and retirees." (Urban Institute)

[Opinion]

How Pension Reforms Neglect States' Recruitment and Retention Goals (PDF)
"To control rising pension costs, many states are reducing the generosity of the retirement plans they offer their employees, partly by increasing required employee contributions. These reforms, however, ignore the employee recruitment and retention problems created by traditional pension plans. Using New Jersey as a case study, this brief shows how state retirement plans discourage younger workers from joining the state's workforce, lock in middle-aged workers even if a job is not a good fit, and push older workers into retirement. Recent reforms make these plans even less appealing to a modern, mobile workforce." (Urban Institute)

[Opinion]

A Mayor's Roadmap for Reforming Pensions
"Though the case for reform in cities and states will increase under economic stagnation and fiscal constraint, mayors and governors will continue to face delicate tradeoffs between political momentum and policy innovation. [San Diego] Mayor [Jerry] Sanders represents those officials who take really tough jobs in order to bring about important and critical reforms for their communities. The background of his handling of the recent pension reforms in his city should provide both political courage and a roadmap for newer elected officials making what seem to be difficult political decisions concerning just how much risk should they take and how much in-your-face fury they can endure." (Governing)

[Guidance Overview]

Change-in-Control and Severance Agreements with a Release of Claims May Need Attention before December 31, 2012
"Severance and other compensation arrangements that promise a payment only if a release of claims (or other employment-related obligations, such as non-solicitation or non-competition agreements) is signed should be reviewed by December 31, 2012, for compliance with Section 409A of the Internal Revenue Code. Failure to ensure that these documents are in compliance could result in substantial penalty taxes and administrative burdens in the future." (Wilson Sonsini Goodrich & Rosati)

[Guidance Overview]

SEC Adopts Final Rules on Compensation Committee and Compensation Adviser Independence
"With only a few exceptions ... the Final Rules do little more than mirror the requirements set forth in the Dodd-Frank Act, although they do establish a definitive timetable for implementation of those requirements... As noted by the SEC in the adopting release, compliance with the final exchange listing standards will likely require compensation committees to create procedures for collecting and analyzing information about potential compensation advisers before they can receive advice from such advisers... The Final Rules expand current SEC disclosure requirements regarding compensation consultants in proxy and information statements for annual meetings (or special meetings held in lieu of an annual meeting) at which directors will be elected." (Goodwin Procter LLP)

Supreme Court Decision On Affordable Health Care Act Affects Stock Compensation Planning
"Starting in 2013, an extra 3.8% tax will be added to the usual capital gains tax for people with yearly adjusted gross income of more than $200,000 (more than $250,000 for married joint filers). This surtax will apply to sales of company stock from equity compensation, and this may prompt some people to sell shares before the end of 2012. For example, if you exercised incentive stock options and have held the shares long enough (two years from grant, one year from exercise) for a sale to be a qualifying disposition, you may decide to sell the shares in 2012, as this would let you pay just the current 15% top capital gains rate and avoid the additional Medicare tax." (myStockOptions.com)

Self-Employed Can Deduct Medicare Premiums, IRS Chief Counsel Advises
"Sec. 162(l)(2)(A) limits the deductible amount of payments made for health insur.ance to the taxpayer's earnings from the trade or business 'with respect to which the plan providing the medical care coverage is established.' [Previous guidance] stated that this meant that payments under a plan that is not established with respect to the taxpayer's trade or business (specifically including Medicare Part B, because it is a federal program) are not deductible. [Chief Council Advice (CCA) 201228037], however, states that because Medicare is insur.ance that constitutes medical care under Sec. 162(l), it is similar to other health insur.ance and its premiums can similarly be deducted, including for coverage of a self-employed taxpayer's spouse and qualifying child or other dependent. Children can include those up to age 27 (effective March 30, 2010). The CCA states that premiums for all Medicare parts are deductible. " (Journal of Accountancy)

Using 'Rolling' Method to Calculate FMLA Leave Almost Always the Best Choice for Employers
"The FMLA regulations allow employers to utilize any one of four different methods to calculate the amount of FMLA leave an employee uses within a 12-month period.... so long as the method is applied consistently and uniformly for all employees.... Clearly, there are pros and cons with each of these four methods. But one method stands out above the rest: the 'rolling' 12-month period measured backward from the date an employee uses any FMLA leave." (FMLA Insights)

Sixth Circuit Finds Individual Relief under ERISA Section 502(a)(2) Unavailable to Life Insur.ance Beneficiary
"[The Sixth Circuit Court of Appeals] held that the ERISA Section 502(a)(2) remedy provision does not permit a life insur.ance beneficiary to recover individualized benefits for an employer's alleged breach of fiduciary duty. The court rejected the beneficiary's argument that this recovery should be permitted under the Supreme Court's decision in LaRue v. DeWolff, Boberg and Associates, Inc. The Sixth Circuit also concluded that ERISA does not require individual notice of the right to convert group insur.ance coverage to an individual policy." [Walker v. Fed. Express Corp., No. 11-5201 (6th Cir. July 11, 2012)] (Practical Law Company)

Make-Whole Relief Under ERISA Comes to the Fourth Circuit
"[The Supreme Court's 2011 decision in CIGNA Corp. v. Amara ], the Fourth Circuit stated, dramatically expanded the remedies available to plan participants or beneficiaries that sought to challenge violations of the terms of the plan. Prior to Amara, damages were limited to benefits due under the plan, premiums wrongfully withheld, or a strict interpretation of equitable relief, such as an order directing the plan to pay promised benefits. The Amara decision, however, seemed to broaden the Court's interpretation of the scope of equitable relief. As a result, injured parties can obtain other remedies, such as an order to make the injured party whole, so that they can obtain the benefit that they believed they had been promised under the plan documents." (HighRoads)

Policy Options for the Social Security Disability Insur.ance Program
"The Social Security Disability Insur.ance (DI) program has expanded rapidly during the past few decades, and CBO projects that, under current law, future spending for the program will significantly exceed the revenues dedicated to it.... CBO has examined a variety of potential modifications to the DI program.... Alleviating the financial pressures on the DI program would require a substantial increase in revenues for the program, a substantial decrease in the program's costs, or some combination of those two approaches." (Congressional Budget Office)

Employee Ownership Update for July 16, 2012
NCEO Executive Director Loren Rodgers discusses the UK government's employee ownership push, the new California Center for Employee Ownership, the Congressional Research Service's report on stock option tax treatment, sample IRS language for 83(b) elections, and company stock in the 401(k) plans of Wall Street firms. (National Center for Employee Ownership)

[Opinion]

Wisconsin Offers California Lessons on Balancing Budget
"Now that three California cities have declared bankrup.tcy, perhaps it's time to consider the lessons of Wisconsin.... When [Wisconsin Governor Scott] Walker introduced his so-called budget repair bill in February 2011, he argued that the biggest beneficiaries of his plan would be cities, towns and school districts, which would gain the flexibility to cut costs without having to negotiate every change in compensation or work rules with local unions. His legislation specifically eliminated collective bargaining by government workers for benefits and required greater contributions from them toward pensions. How local officials employed those changes to cut costs proved revealing." (Los Angeles Times)

[Opinion]

Stockton Bankrup.tcy: Life Goes On
"We're starting to settle into the bankrup.tcy that has enveloped Stockton. It's been almost three weeks since the council meeting in which the vote was a formality that capped five hours—and several months—of tension. What has happened since? The street sweeper was out on my block the other day. The libraries remain open. There's softball being played in Louis Park. City Hall is open and people come and go, continuing to do their business.... Through it all, bankrup.tcy is basically turning out to be a series of showdowns between the city (the council and City Manager Bob Deis) and city employees and retirees." (The Modesto Bee)

E4 Health, Inc. Announces Multi-Media Wellness and Population Health Portal
(E4 Health)