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BenefitsLink Retirement Plans Newsletter
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[Guidance Overview]
More Oversight for 401(k) Brokerage Windows
"Practically, most current platforms are ill-prepared to provide employers with information about brokerage window alternatives. Also, some plans include multiple brokerage windows with no central provider to collect and coordinate information. Many question whether this might lead the DOL to soften its stance. So far, it hasn't. Instead, the DOL has pointed out that its guidance merely describes a safe harbor. The uncertainty over whether the DOL will relent presents a dilemma for plan sponsors. It could take a long time to chase down the information to comply, making waiting detrimental. But if the DOL backs off, the extra work may have been done for no reason."
(Warner Norcross & Judd LLP)
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[Guidance Overview]
Practical Effects of MAP-21 Pension Funding Relief
"At this point, rough calculations suggest that the 2012 relief will increase the 'effective interest rate' for plans by 100 to 150 basis points. This translates to a decrease in liabilities of 10-20 percent for most plans. So, for instance, a plan with $100 mil.lion in liabilities under current interest rates will have only $80-$90 mil.lion in liabilities after reflecting the 2012 corridor. That is, as they say, real money. Each employer will have to do the math as it applies to its plan(s), and, as we said, we will have to wait for IRS to come out with 'official' numbers. But it's clear that for some employers at least this relief will be significant."
(Plan Advisory Services)
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[Guidance Overview]
Plan Sponsors Must Act Quickly to Conform with 408(b)(2)
"Responsible plan fiduciaries must take action if their covered service providers did not provide the 408(b)(2) disclosure; the disclosure did not comply with the letter or spirit of 408(b)(2); or any problems uncovered could not be easily rectified. Any one of these problems will cause complications because ERISA 408(b)(2) does not give 401k plan sponsors much time to comply. Sponsors must give service providers 90 days to conform with 408(b)(2)."
(Fiduciary Plan Governance, LLC)
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[Guidance Overview]
Pension Funding Stabilization - Opportunities and Costs (PDF)
"[MAP-21 includes] pension funding reform provisions that ... radically change the way that interest rates used in defined benefit funding calculations are determined and adds provisions that substantially increase PBGC premiums and potentially expand disclosure requirements. ... The ultimate cost of the plan (absent PBGC increases!) will not change; only the timing of required contributions changes. These changes should not affect asset allocation strategies. Minimum funding requirements will decrease in the short run, but required contributions could increase over the long run."
(P-Solve Cassidy)
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DOL Action Results in Order to Restore Half a Mil.lion Dollars to Retirement Plans Sponsored by Ohio Company
"[A federal district judge] has ordered the president of [a Columbus, Ohio company] to restore $505,551.46 to the company's two employee retirement plans. Additionally, [the president of the firm that] served as administrator for the plans, has been ordered to restore funds to both plans.... [T]he suit alleged that [company owners] failed in their fiduciary responsibilities as plan trustees by neglecting to monitor the actions of the plans' administrator. They also [allegedly] failed to review and reconcile the plans' trust account statements, review participant distribution calculations and require the administrator to issue participant statements. Finally, [the plan administrator allegedly] failed to maintain accurate records for participants in both plans; consequently, some participants have not received the correct retirement benefits." [Solis v. Clark Graphics Inc., Mary Clark, James Clark, Stephen Clark, Marcia Dowdell, Clark Graphics Defined Benefit Plan and Clark Graphics Profit Sharing Plan (S.D. Ohio, No. 2:11-cv-00870)]
(Employee Benefits Security Administration)
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Record $355 Bil.lion Pension Underfunding for S&P 500 Companies
"Turning [our] attention from public pension funds—which are suffering from underfunding and paltry rates of return—to corporate pension funds, we find, well, a lot of the exact same problems. Defined-benefit pensions at S&P 500 companies reached a record underfunding level of $354.7 bil.lion at the end of 2011, an increase of more than $100 bil.lion from 2010 and surpassing the $308.4 bil.lion record underfunding level set in 2008, according to a new study by S&P Dow Jones Indices. Underfunding for other post-employment benefits [such as retiree health care], or OPEBs, increased to $223.4 bil.lion in 2011 from $210.1 bil.lion in 2010."
(Barrons)
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Pension Funds Seriously Underfunded, Studies Find
"While the cost of retirement is out of reach for many older workers and growing more expensive for younger ones, it's becoming less of a burden for employers ... Employers are paying less into pension funds despite the fact that company cash levels remain near record highs and cash flows are at an all-time high ... Meanwhile in the public sector, a separate pension-related report ... warned that public pension funds in the U.S. are underfunded by $1 tril.lion to $3 tril.lion, depending on who's making the estimate."
(Los Angeles Times)
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The Cracked Nest Egg: The Retirement Outlook of Unemployed American Workers (PDF)
"The majority (61 percent) of displaced workers reported having a retirement savings account of any kind. Despite the vast majority's familiarity (87 percent) with taxes and penalties that may apply, current financial challenges are such that more than one-third (35 percent) of respondents who have retirement accounts have taken a withdrawal from those accounts. Of those who participated in a 401(k) plan at their most recent employer where they were fully employed, 45 percent indicated they have taken a withdrawal from these accounts, including 63 percent of the unemployed compared to 34 percent of the underemployed."
(Transamerica Center for Retirement Studies)
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New Jersey Cities Abusing Pension Law May Waste Millions
"New Jersey local governments failed to remove hundreds of contractors such as lawyers and engineers from pension rolls, which may cost taxpayers millions of dollars a year in improper payouts, a state audit shows.... The comptroller's audit found that many of the contractors boost pensions by working for multiple government units, a method called 'tacking.' ... Several governments opted to keep their attorney enrolled in the pension system based on legal advice from that person, the report said."
(Bloomberg)
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State Pension Legislation Enacted During 2012
"This report summarizes selected state pensions and retirement legislation enacted in 2012. Its goal is to help researchers and policy makers know how other states have addressed issues that could arise in any state. In keeping with that goal, the report excludes most clean-up legislation, cost-of-living adjustments, administrative procedures and technical amendments. This report is organized according to the topics that legislatures addressed in 2012[.]"
(National Conference of State Legislatures)
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[Opinion]
A Strategy for Reforming the Russian Pension System
"[E]stimates suggest that in an inertia-based scenario the [Russian] pension system will be in deficit by over 6% of GDP by 2020. A discussion of alternative models of pension reform is therefore a matter of urgency. [The authors] assess the scale of the problems faced by the current pension system, analyze the solutions that have already been proposed and make suggestions for reforming the system in the medium-term."
(Gaidar Institute for Economic Policy)
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[Opinion]
Three Years of Pension Returns Do Not Tell Us Much About Thirty Years
"Pensions saw strong double-digit returns in the last years of the 90s. They had negative returns in the first years of the last decade. If anyone extrapolated from the last three years of the 90s and predicted double digit returns for the decades ahead or the first three years of the last decade and predicted flat or negative returns, they should have been taken far away from any position with any responsibility for pensions."
(Business Insider)
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Benefits in General; Executive Compensation
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[Official Guidance]
Text of Questions and Answers from IRS on the Additional Medicare Tax
The new items are Q&A 7 through Q&A 20. Excerpt: "The Additional Medicare Tax applies to individuals’ wages, other compensation, and self-employment income over certain thresholds; employers are responsible for withholding the tax on wages and other compensation in certain circumstances. The IRS has prepared these questions and answers to assist employers and payroll service providers in adapting systems and processes that may be impacted."
(Internal Revenue Service)
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[Guidance Overview]
IRS Issues Guidance Regarding Increased Medicare Tax Effective January 1, 2013
"Effective January 1, 2013, employers must withhold an additional Medicare tax of 0.9% from the wages of employees who earn $200,000 or more. The IRS issued Frequently Asked Questions (FAQs) to help employers implement this new tax. The FAQs state that the employer must withhold the additional tax beginning with the pay period in which it pays wages in excess of $200,000 to an employee. The tax applies only to the wages over the $200,000 threshold. There is no requirement to notify employees once the employer begins withholding the additional tax[.]"
(Haynes and Boone, LLP)
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[Guidance Overview]
SEC Adopts Compensation Committee and Adviser Independence Rules
"While the final rules do not require a company to have a compensation committee, the new independence criteria, as well as the requirements relating to the consideration of a Compensation Adviser's independence and requirements relating to the responsibility for the appointment, compensation, and oversight of Compensation Advisers, are equally applicable to any board committee performing the functions typically performed by a compensation committee. In formulating the new independence standards, the exchanges are instructed to consider relevant factors, which must include ... The sources of compensation, including consulting, advisory, or other fees paid by the issuer to such member of the board of directors. Whether the board member is affiliated with the company, any subsidiary of the company, or an affiliate of a subsidiary of the issuer."
(Morgan, Lewis & Bockius LLP)
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Gradual Recovery in State Revenues Not Sufficient to Keep Pace with Costs for Pensions and Retiree Health Care
"[This report examines] the financial condition of six heavily populated states—California, Illinois, New Jersey, New York, Texas and Virginia. While each state varies in detail, a common thread runs through the analysis, supported by information available for states generally.... Certain large expenditures are growing at rates that exceed reasonable expectations for revenues ... The most important demographic force of the next two decades, the aging of our society, is upon us. The first wave of baby boomers is at retirement age. The medically expensive elderly population that is eligible for Medicaid will swell, as will the number of state and local government retirees to whom health benefits were promised. In addition, pension costs will rise as a result of earlier pension underfunding and failure to recognize liabilities, and investment earnings that have fallen below assumed rates of return." [The chairmen of the Task Force Chairmen are Richard Ravitch, a former lieutenant governor of New York, and Paul A. Volcker, a former chairman of the Federal Reserve.]
(State Budget Crisis Tax Force)
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Is This the End of Group Long Term Care?
"Leading insur.ance carriers have withdrawn from the group long-term care insur.ance market, prompting employers to think twice about implementing new programs—are we witnessing the death throes of worksite LTC?"
(Employee Benefit Advisor; free registration required)
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Bureau of Labor Statistics Reports Greater Benefits Availability Among Larger Employers
"Access to employer-provided benefits was greater in medium and large private industry establishments than in small establishments in March 2012, according to the U.S. Bureau of Labor Statistics. Access, or availability of a benefit, was 57% for medical care in small establishments (those with fewer than 100 employees), compared with 89% in large establishments (those with 500 employees or more). In private industry, retirement benefits were available to 50% of workers in small establishments, 79% of workers in medium size establishments (those employing between 100 and 499 workers), and 86% of workers in large establishments."
(Employee Benefit Adviser)
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Employee Medical, Retirement, and Leave Benefits, March 2012
"Access to employer-provided medical and retirement benefits was greater in medium and large private industry establishments than in small establishments in March 2012. The rate of access to medical care benefits in small establishments (1 to 99 workers) was 57 percent, compared with 82 percent in medium-size establishments (100 to 499 workers) and 89 percent in large establishments (500 or more workers)."
(U.S. Bureau of Labor Statistics)
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[Opinion]
Corporate Governance and the Problem of Executive Compensation: The International Response to Pay Ratios
"Different from the usual requirements, [Dodd-Frank] went beyond the computation of executive compensation and required the disclosure of a comparative metric. The SEC must adopt rules that require the disclosure of pay ratios. In effect, companies had to reveal the ratio between the compensation paid to the CEO and that paid to the median employee. The metric provides another basis for determining the reasonableness of compensation. It is also company specific. The metric, therefore, gives shareholders a mechanism for assessing the fairness of the amount paid within a particular company. Changes in the metric from year to year may also provide valuable information on the relative fairness of CEO compensation."
(TheRacetotheBottom.org)
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Press Releases
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