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Cypen & Cypen Newsletter for August 16, 2012
Covers employee benefit developments with an emphasis on governmental plans. Topics in this issue include: Retirees Entitled To Company-Paid Health Benefits For Life; Are Money Manager Fees Worth It? Public DB Plans Follow Corporate Lead In Using "Select And Ultimate" Rates; Annual Survey Of State-Administered DB Plans.
(Cypen & Cypen)
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Plan Sponsors' Loyalty to Service Providers Increases
"In spite of significant changes now in progress for the fee disclosures required from retirement fund service providers, a study of plan sponsors' loyalty to these vendors shows increased satisfaction with them. The survey's results may indicate that new fee transparency rules alone may not sway many plan sponsors to switch providers."
(Thompson SmartHR Manager)
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Are State Pension Funds Paying Wall Street Too Much?
"A recent report by two Maryland think tanks makes the case for state retirement systems to dump Wall Street investment firms for more passive equity index funds. The study by the conservative-leaning Maryland Tax Education Foundation and Maryland Public Policy Institute outlines fees state pension funds pay investment firms, totaling $7.8 bil.lion nationwide in 2011. This price tag is too high, the authors argue, given their meager returns in recent years."
(Governing)
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The Global Nomad's Retirement Puzzle
"While the number of employees on international assignments has remained relatively stable over recent years,... the rising percentage of global nomads and long-term expatriates has meant the provision of expatriate benefits is a key priority for multinational companies—85 percent of survey respondents have specific procedures in place to monitor the success of expatriate benefit programs."
(Human Resource Executive Online)
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Can Index Funds Fix Your 401(k) Fee Problem?
"it's hard to convince people that index funds are a better deal. Studies repeatedly show that people think higher fees buy better performance.... For better or worse, 401(k) fee costs are more a function of size: how big a plan is, how big the average contribution is, and how big the plan funds are. Large plans, which the PSCA defines as 5,000 or more participants, pay sharply lower 'institutional' fees than smaller plans pay."
(U.S. News & World Report)
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[Opinion]
Public Pensions' Unrealistic Rate of Return Assumptions
"The problem of underfunded public pensions cannot be solved until it is acknowledged. Unrealistically high rate of return assumptions, like those embraced by CalPERS and other public retirement plans, mask the magnitude of the underfunding of public pensions. The refusal to confront the problem of pension underfunding may help state officials to get re-elected by kicking the proverbial can past the next election, but the problem cannot be ignored indefinitely. The longer the problem of underfunded state pensions is ignored, the more difficult will be the ultimate adjustments required of state taxpayers and state employees."
(Prof. Edward Zelinsky, OUPblog)
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Benefits in General; Executive Compensation
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Relative Total Shareholder Return: Myths and Realities (PDF)
"[T]he seven myths are: 1. RTSR plans provide an incentive to beat the competition. 2. TSR is a good measure of executive performance. 3. Measuring TSR on a relative basis levels the playing field by removing overall market movements and industry economics from the evaluation of executive performance. 4. It is too hard to set valid multi-year financial goals. 5. RTSR plans are better than stock options. 6. All percentiles are created equally. 7. The accounting expense will be no more than the value of the share at grant, and may be less, reflecting the uncertainty of achieving the performance hurdles."
(Aon Hewitt)
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Tis the Season—To Review and Update Your Compensation Committee Charter!
"This issue is fresh again as Committees decide whether to add to their Charter's duties and responsibilities relating to the Dodd-Frank Act provisions on executive compensation and governance, and other best practices, including the adjustment or recovery of incentive awards or payments if the performance measures upon which such incentive awards or payments were based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment, consistent with Section 10D of the Exchange Act (per Dodd-Frank Act Section 954)."
(Winston & Strawn LLP)
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Executive Compensation Tax Deductions Cost Treasury $30.4 Bil.lion Over 2007-10
"An exception to [Internal Revenue Code section 162(m)] allows corporations to deduct qualified performance-based compensation. This exception has a major weakness: While it requires that shareholders approve the performance-based compensation to preserve deductibility, corporations are only required to provide shareholders with general information. Thus, shareholders are asked to, and usually do, approve compensation plans without knowing the potential payouts from the plans or whether the performance conditions are challenging."
(Economic Policy Institute)
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New IRS Rule on Business Aircraft Could Cost Companies Big Bucks
"The [IRS] rejected what is called 'the primary purpose of the trip' method for identifying whether expenses were incurred for entertainment, amusement, or recreational purposes. The result is that a business will pay dearly if even one passenger is aboard a business flight for entertainment purposes."
(CFO)
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Reinhart Employee Benefits Update, August 2012 (PDF)
Articles include: HHS Releases Additional FAQs on Medical Loss Ratio Requirements; HHS Issues Audit Protocol for HIPAA Compliance as Mandated by HITECH Act; DOL Revises Mailing Address and Electronic Filing Method for Plan Fiduciaries to Report Disclosure Failures by Covered Service Providers; IRS Issues FAQs on Notice Requirements for Benefit Restrictions for Single-Employer Defined Benefit Plans; DOL Issues Revised Guidance Regarding Participant-Level Fee Disclosures.
(Reinhart Boerner Van Deuren s.c.)
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Retired Teachers Will Get Less As Michigan Legislature Overhauls Pensions, Health Care
"State lawmakers passed a bill Wednesday that will mean higher costs or reduced pensions for most of the nearly 450,000 employees and retirees of Michigan's public schools.... The plan would pre-fund retiree health care costs, give many school employees the option of making larger pension contributions or receiving reduced pensions, and require most public school employees to pay 20% of their health care coverage. Retirees younger than 65 as of next Jan. 1 also would have to pay 20% of their health care premiums, while older employees would maintain their current 10% share, according to a fiscal agency analysis."
(Detroit Free Press)
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Boomers Need Health Care Costs Reality Check
"When it comes to retirement planning, experts say most boomers overlook the cost of health-care. In fact, a new study from the Society of Actuaries shows nearly half of Americans between the ages of 45 and 70 years have no financial plans in place to protect themselves against outliving their assets and the rising cost of health care."
(Reuters via FoxBusiness.com)
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Eye-Popping Retiree Medical Tab Seen
"Even if employees are healthy, medical costs are likely to take up a large and growing percentage of their retirement budget. So say experts who have crunched the numbers and come up with some frightening estimates of just how much Medicare premiums, drug costs and the occasional illness will set back working Americans. A healthy moderate-income couple of 45-year-olds can expect to spend $1.7 mil.lion on health care over their retirement years[.]"
(Employee Benefit News)
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Press Releases
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