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July 19, 2012 Get Health & Welfare News  |  Advertise  |  Unsubscribe  |  Past Issues  |  Search

Employee Benefits Jobs

Onsite Participant Counselor - Retirement Services
for Diversified in MI

Data Conversion Specialist - Client Implementation
for Diversified in NY

Employee Benefits Attorney
for Miller Johnson in MI

Pension Administrator
for Midwest Pension Actuaries, Inc. in MI

Defined Benefit/Defined Contribution Plan Administrator
for Actuarial Consultants, Inc. in CA

Defined Benefit Plan Specialist
for ACCG/GEBCorp - Association County Commissioners of Georgia's Government Employees Benefits Corporation in GA

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[Guidance Overview]

IRS Letter Ruling Addresses Mortality Table Legal Issues After Buyout of Retirees in Defined Benefit Pension Plan (PDF)
This Private Letter Ruling details applicable law regarding use of plan-specific mortality tables for calculation of defined benefit plan funding requirements following an 'Annuity Settlement Window' offered to a specific population of participants. The Annuity Settlement Window is described as a limited time period in which a certain group of retired participants in pay status can choose to receive their remaining benefit as a single lump sum payment or a qualified joint-and-survivor annuity. The plan sponsor requested approval to either continue use of, or request in the future a specific change to, its current plan-specific mortality tables, based on actuarial certifications regarding the life expectancy of the then-younger participant population that remains after the Annuity Settlement Window closes. (Internal Revenue Service)


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[Guidance Overview]

Using the Safe Harbor 401(k) Plan Top-Heavy Exemption
"The principal advantage of the safe harbor 401(k) plan is the ability to obtain the 'free' pass on the ADP and ACP tests. However, a safe harbor 401(k) plan may also qualify for an exemption to the top-heavy requirements. The top-heavy exemption is not automatic. The exemption depends on the design and the operation of the plan. This [article] defines the top-heavy exemption and explains how the top-heavy rules apply to a safe harbor 401(k) plan." (SunGard Relius)

[Guidance Overview]

Disclosure Obligations for ERISA-Covered Retirement Plans
"[I]nvestment advisers to ERISA-covered pension plans and private investment funds deemed to hold the 'plan assets' of ERISA-covered pension plans must disclose certain information regarding the services they provide and the compensation they receive to such ERISA plans. A private investment fund generally will be deemed to hold plan assets under ERISA if (i) 'benefit plan investors' (e.g., employee benefit plans and other retirement accounts subject to ERISA or Section 4975 of the Internal Revenue Code) hold 25% or more of the value of any class of equity interest in the fund (generally excluding for these purposes commitments held by the fund's sponsor and investment adviser and their affiliates), and (ii) the fund does not qualify for the venture capital operating company (VCOC) exception or any other available exception under the ERISA plan assets regulation." (Precept Group)

New Study Affirms Auto Solutions Boost Retirement Readiness for 401(k) Participants
"85% of plan sponsors reported that automatic features are especially effective in helping participants who consider themselves less educated on retirement matters. Plans with automatic escalation experienced deferral rates of 8% or higher compared to the average deferral rates of 4% or less for the majority of plans in America. 97% of plan sponsors who have adopted the bundle of automatic enrollment, automatic escalation and QDIA say the advantages outweigh any perceived disadvantages reinforcing the value of the full bundle rather than a single feature approach." (Lincoln Financial Group)

401(k) Investors Willing and Able to Save More But Confusion Dominates Many Retirement Decisions
"Employees across the United States are willing to save more for retirement and report that there is room in their budgets to do so. However, many defined contribution (DC) investors are hampered by an 'action gap' caused by the disconnect between understanding what is important and knowing how to take action.... Seventy-eight percent of survey respondents reported that they know it is important to determine how much to save for a secure retirement but only 33 percent claim to have the knowledge to determine that amount.... Fifty-two percent of respondents would be willing to increase their savings rate to as high as 10 percent if their employer automatically increased their savings rate by one percent each year.... Approximately 40 percent of respondents expressed uncertainty about the risk and return characteristics of common investments found in 401(k) plans, including international equity funds, stock index funds, and stable value funds.... Approximately 67 percent know adjusting their investments over time is important, but only 30 percent say they know how to do this.... Approximately 82 percent think it is important to know how to make retirement savings last a lifetime, but just 28 percent reported they know how to achieve this.... More than half of survey respondents admitted they do not know what target date funds (TDFs) are, or are not familiar with how they work." (State Street)

Compton, Calif., on Brink of Bankrup.tcy
"City officials announced that Compton could run out of money by summer's end, with $3 mil.lion in the bank and more than $5 mil.lion in bills due. A longer-term problem is a $43-mil.lion deficit that the city amassed after years of improperly using money from water, sewer and retirement funds to balance its general fund. Compton will have to pay the money back at a time when it has no reserves and has been frantically cutting costs." (Los Angeles Times)

Northern Mariana Islands Hit With Bill for Failed Pension Fund Bankrup.tcy
"[G]overnment leaders of the Northern Mariana Islands found out that even the expense of getting thrown out of bankrup.tcy court has an eye-widening price tag. Administrators who run the state pension fund for public workers of the Northern Mariana Islands—a fund that made a 44-day attempt at Chapter 11 bankrup.tcy protection to avoid running out of money in 2014—ran up a $750,937.82 legal bill before a bankrup.tcy judge could rule that the government-esque entity didn't qualify for protection under the U.S. Bankrup.tcy Code." (The Wall Street Journal Health Blog)

Dutch Nurses' Pension Payouts May Be Cut Amid Low Rates
"The 118 bil.lion-euro ($145 bil.lion) pension fund for 2.5 mil.lion Dutch health-care workers became the latest retirement plan to warn of payout cuts due to lower interest rates. Pensioenfonds Zorg en Welzijn, or PFZW, today said that its coverage ratio, a measure of assets relative to future benefit payments, fell to 92 percent at the end of the second quarter from 96 percent at the end of March. The ratio would need to recover to at least 100 percent by the end of December to prevent payment cuts." (Bloomberg BusinessWeek)

China Swoops In to Buy Assets in GM Pension Plan
"General Motor Co's underfunded pension plan has found a buyer for its illiquid private equity assets—the Chinese government, which is willing to pay between $1.5 bil.lion and $2 bil.lion ... China, which holds close to $1.2 tril.lion in U.S. treasuries, has been looking to capitalize on the liquidity concerns of assets managers such as pension funds amid financial market volatility by snapping up their assets.... The as yet uncompleted sale would involve the transfer by GM adviser Performance Equity Management LLC of stakes to the State Administration of Foreign Exchange (Safe), which manages China's more than $3 tril.lion in foreign exchange reserves." (The New York Times; free registration required)

CalPERS Tells California Cities to Take Responsibility for Consequences of Generous Pension Plan Formulas
"California's cities should learn how to keep their pension costs in check instead of blaming the California Public Employees' Retirement System for their problems, some of the pension fund's board member said on Wednesday. While the fund can lay out the costs of pension plans, it is ultimately up to cities to decide how much they want to pay for them, they said at a meeting in Petaluma, California.... CalPERS board member and California state Controller John Chiang recommended that the fund guide local governments on best practices regarding pension planning. Chiang, whose office is looking into Stockton's financial practices, told Reuters that cities need to do a better job of thinking through their pensions policies and how they factor them into their overall finances." (The New York Times; free registration required)

Will Pension Investment Fees Be Next U.K. Scandal?
"[The] leader of the U.K. opposition Labour Party said that after journalism and banking, the next scandal in British public life will be over fees charged by pension companies.... The average British mutual fund charges 2.21 percent of its clients' assets annually, compared with 1.04 percent in the U.S., according to academic research published by the Review of Financial Studies in 2009. Opaque fee structures, which exclude trading charges that can double the cost of owning a fund, make it difficult for customers to compare products and hurt competition." (Bloomberg)

Five Ways to Boost Your Company's ROI on 401(k)s
"Of all the moving pieces involved in running a successful company, employee retirement plans probably don't rank very high on your list of priorities. On one level, that makes sense—it's not as if the inner workings of your company's plan are integral to growing revenue and profit margins, right? That said: Is your retirement plan any good? Does it have the right mix of investment options for your staff, delivered at a fair cost?" (Inc.)

Investment Advisers Reject NBA Retirement Plan
"Advisers aren't thrilled about a new arrangement that will require National Basketball Association players to sock away money for retirement into annuities. The savings plan, part of a decade-long collective bargaining agreement reached between the NBA and the players' union, requires the athletes to put away 1% of their income from basketball into an annuity ... Along with a league pension, players also will be enrolled into a retirement savings plan into which another 5% to 10% of their salaries will be deposited automatically. Though the moves are an attempt to forestall future riches-to-rags stories, financial advisers who work with professional athletes question whether an annuity is the best way to go." (Investment News; free registration required)

Ontario Pension Reforms Come into Force
"As of July 1, 2012, a number of amendments to the Ontario Pension Benefits Act (PBA) and related amendments to the general regulation under the PBA were proclaimed in force. Employers and plan administrators should carefully review their plans and their administrative practices to ensure that they continue to be compliant with the PBA, and to assess whether any changes are warranted in view of these pension reforms that are now in force." (Osler, Hoskin & Harcourt LLP)

Attracting Employee Savings: 401(k) Match 'Thresholds' Drive Participation More than Rates
"According to a new report, a higher match rate (for instance, offering an employer match of 80 percent, rather than 50 percent, of an employee's contribution up to 6 percent of salary) has only a small effect on savings plan contributions. In contrast, raising the match threshold (for instance, matching 50 percent of an employee's contribution up to 10 percent of salary, rather than up to 6 percent) has a substantial impact. That's probably because '[the threshold] serves as a natural reference point when individuals are deciding how much to save, and may be viewed as advice from the savings program sponsor on how much to save,' according to [the report's author]." (Society for Human Resource Management)

[Opinion]

Why GM Retirees Should Say 'No' to Lump-Sum Payoff Option
By Karen Friedman of the Pension Rights Center, Washington, D.C. "Understandably, after years of serving the company and being promised a pension for life, many of these retirees feel frightened, betrayed and confused. GM's decision to off-load their pension plan has put this group of retirees in the agonizing position of having to make a decision that will impact them for the rest of their lives, at a time when they are most vulnerable.... Financial advisers who offer to help will likely charge high fees, will not be able to guaran.tee results, and may have some degree of self-interest. It will only take a few bad investments or another market downturn to turn the American retirement dream into a nightmare." (Detroit Free Press)

[Opinion]

How Efficient Is the 401(k) System at Saving for Retirement?
"Closely linked to the criticism that the 401(k) system is unfair is a criticism that it is inefficient: that it does not do as good a job accumulating retirement savings as could be done. While the 'inefficiency' argument is complicated and involves a variety of issues, the elements of the system that have gotten the most attention are the issues of costs and fees. To oversimplify: there is concern that the nature of 401(k) plans creates costs and the potential for higher fees; as a result, the ultimate value of retirement savings is lower than it would be under a more efficient system." (October Three)

[Opinion]

Tax Reform and 401(k) Plans: What's Fair?
"A key element of the debate over comprehensive tax reform and retirement savings tax incentives will be the fairness of the current 401(k) system. In this article [the authors] review current fairness arguments and the data that opponents and proponents put forward in support of their views." (October Three)

[Opinion]

Are Public Pension Funds an Irresistible Pool of Money That's Running Dry?
"Desperate public officials often see public pension funds as an almost irresistible pool of money, borrow from these pensions and neglect topping them up. The compounded effect of such actions has led to massive pension shortfalls.... [B]efore you condemn this as yet another example of public profligacy, ... things aren't better in the private sector. The WSJ reports that S&P 500 companies posted a record level of underfunding for pensions and other post-employment benefits in 2011. Defined pensions were underfunded by $354.7 bil.lion in 2011, an increase of over $100 bil.lion from the end of 2010. During the good years, companies used investment gains from their pension plans to pad their earnings and outright steal from pensions, but now that option has vanished. With interest rates hitting record lows, pensions have become a liability, prompting companies to cut them or offload the risk to insur.ance companies." (Pension Pulse)

Benefits in General; Executive Compensation

Fourth Circuit Identifies Surcharge and Equitable Estoppel as Possible Remedies for Fiduciary Breach Under ERISA Life Insur.ance Plan
"This opinion applies one of the significant principles of the Amara opinion—that courts have greater latitude than previously recognized in fashioning remedies for fiduciary disclosure breaches.... [T]he takeaway for plans and insurers is to monitor eligibility, because after Amara the cure for accepting life insur.ance (and perhaps other welfare benefit) premiums for ineligible individuals may not be limited to simply returning those premiums." [McCravy v. Metro. Life Ins. Co., 2012 WL 2589226 (4th Cir. 2012)] (Thomson Reuters / EBIA)

Proskauer Rose ERISA Litigation Newsletter, July 2012
"[T]he authors examine the risks and exposures that employers may face in adjusting their programs to the new requirements imposed by the [ACA]. The authors also examine the litigation risks and potential causes of action that may arise in the wake of the [ACA]'s implementation. [A] second article examines deferred-compensation arrangements. Using recent judicial decisions as a guide, the author considers ERISA's relationship with deferred-compensation programs and ERISA's impact on disputes involving benefits payable under those programs. The author concludes with suggestions for employers considering such arrangements as part of their compensation programs." (Proskauer Rose LLP)

DOMA and Employee Benefits
"Although the recent case law may be indicative of the tide turning against the constitutionality of DOMA, it is too early to tell. More litigation on the issue is expected. The district court decision in San Francisco is not binding on other courts, even courts in the same district. The First Circuit decision has been stayed, so it also is not binding on other courts, although lower courts in the First Circuit as well as in other federal circuit courts of appeal may find it persuasive. What that means is that plan administrators will need to watch future decisions to determine whether they impact their respective plans. If a split develops in the federal circuit courts of appeal, administrators will have difficult decisions to make about whether or not DOMA is still applicable in their jurisdiction. If a benefit plan is applicable in more than one jurisdiction, plan administrators' jobs will be even more difficult because they may have to reconcile conflicting court decisions." (Precept Group)

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