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[Guidance Overview]
GASB 67/68: New Accounting Standards for Public Pension Plans (PDF)
"An implementation guide for the standards has not yet been published, but the material made available so far indicates five major changes that will impact public pension plans and their sponsoring employers: (1) Unfunded actuarial liability, with assets measured at fair value, will be recognized on employer balance sheets ... (2) Calculation of liability is revamped for some plans ... (3) Plans will need to develop formal funding policies separate from their financial reporting calculations ... (4) Significantly expanded plan financial disclosures ... (5) More volatile annual financial reporting entry amounts for annual plan expense."
(Healthcare Town Hall)
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[Advert.]
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[Guidance Overview]
Puerto Rico Treasury Department Provides Helpful Clarification of Deduction Limit for Contributions to Defined Benefit Plans (PDF)
"Effective for taxable years beginning on or after January 1, 2011, the 2011 PR Code now imposes a 10% excise tax on contributions in excess of the 2011 PR Code applicable limits ("Non‐Deductible Contributions"). The 2011 PR Code includes an exception to the applicable percentage limitation on contributions, allowing a deduction for contributions up to the amount required to comply with the minimum funding standards [of ERISA] ... In A.D. 12-13, the PR Treasury has [clarified that] for Puerto Rico income tax purposes, a deduction for contributions made to a Puerto Rico qualified plan to comply with [ERISA] requirements would be allowed even if in excess of the applicable percentage limitation on contributions under Puerto Rico law. Consequently, such contributions would not be subject to the new 10% excise tax on non‐deductible contributions."
(Groom Law Group)
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Reshuffling the ESOP: Maximizing Stock Allocations for Active Participants While Minimizing Stock Allocations for Terminated Participants
"There are a variety of options for ESOP companies looking to maximize stock allocations to active participants, minimize stock allocations to terminated participants, and efficiently use the cash within the trust to accomplish these objectives. This article briefly looks at two of them. In what the IRS calls 'reshuffling,' the ESOP exchanges the stock in a terminated participant's account with cash from active participants' accounts. This is carried out as of the end of the plan year in which the participant terminates employment, regardless of when they will be eligible to receive a payment from the ESOP. The option can benefit both active and former employees.... The ESOP may also be amended to allow terminated participants to request a distribution from only their reshuffled cash account at any time following the year in which they leave the company."
(Chang Ruthenberg & Long)
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When and Why to 'Recycle' or Redeem ESOP Shares?
"This article addresses the tax, policy and valuation concepts that are affected by the decision to keep ESOP shares in the plan rather than distributing them (i.e., to 'recycle' them within the ESOP) or to reduce the number of ESOP shares outstanding by having the company redeem them when distributed."
(Chang Ruthenberg & Long)
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401(k)s Flagged in NFL's Referee Debacle
"The advent of the 401(k) plan gets blamed for much of the financial woe facing baby boomers as they approach retirement. But until this week, the savings plans had never been held responsible for the outcome of a football game.... [W]hile the referees may have been getting short shrift from the billion-dollar industry in which they're employed, they remain fortunate in many respects when compared with much of the American workforce."
(MarketWatch.com)
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70 Is Not the New 65
"Working longer does help. While only about half of households age 50-59 in 2007 could retire at 65, the number increases to nearly two-thirds if retirement age is increased to 70. Those extra five years have a dual effect: not only do workers save more, but they also delay dipping into their retirement funds, which allows those funds to continue growing."
(Chicago Tribune; free registration required)
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Private Equity Firms and Their Investors on a Collision Course
"Pension funds and endowments are pressing private equity firms hard to boost returns amid a global economic slowdown, just as buyout executives set off on a new round of multibillion-dollar fundraising. The tension between private equity firms and their institutional investors is rising, with pension funds also wanting more exposure to specialised investments rather than just broadly themed funds. Some buyout bosses believe that may not be such a good idea."
(Reuters)
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How 401(k)s Could Work Much Better
"[T]he move away from defined benefit plans to 401(k)s in the private sector is not reversible ... the problem is not that the U.S. ended up with defined contribution plans in the private sector but rather that 401(k)s are the most extreme individualistic form of a defined contribution plan."
(MarketWatch)
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Mom—The Practically Perfect Picture of a Fiduciary
"A fiduciary must handle each client with customized care. Some clients are better off not taking the risk to score outlandish returns. Other clients may need to swing for the fences despite the risk of failing miserably, for if they don't they will fail miserably anyway. A fiduciary knows this, explains this and has a process in place to work through this.... Fiduciaries must not only work the process, but they must have the knowledge, experience and training to understand the various shades that process can assume."
(Fiduciary News)
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Women Face Host of Obstacles to Retirement
"Financial experts and studies say that the gender pay gap is not disappearing—women continue to earn less than men and are less likely to save for retirement. In addition, the Great Recession has forced many women back into the job market at a time they thought they would be enjoying retirement."
(USA TODAY)
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Stable Value Database Executive Summary of Findings as of June 30th, 2012 (PDF)
"Performance of the underlying portfolios [during the quarter ended June 30, 2012] for the 1-year period ranged from 1.47% to 4.28% percent. Performance over a 3-year annualized period ranged from 1.60% to 4.84 percent. Our data shows that, on average, 1-year investment returns have decreased slightly since last quarter. Market-to-book ratios generally increased this quarter due to a depressed interest rate environment and a weakening, volatile equity market, which drove up the price of bonds."
(Blue Prairie Group, LLC)
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Study Warns Against Bailout of State Pensions
"Republican staff of the U.S. Congress Joint Economic Committee said with state debt topping $4 trillion, including $2.8 trillion in unfunded pension benefits and at least $627 billion for retiree health care, states may buckle under the pressure to raise taxes, cut spending and take other measures to pay off their debt.... It recommended that the U.S. government reduce its potential aid to states in proportion to their unfunded liabilities until their pension funds become solvent over a specific time frame."
(The New York Times; free registration required)
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FSU Study Says Markets Not to Blame for Governmental Pension Problems
"[The] report includes data from 2005 through 2011 on all 492 local government pension plans. It concludes that underfunding began before the market fell, although dropping stock prices did make the problem worse.... [The] report makes no recommendations but warns that underfunding likely will get worse before it gets better unless local governments take such steps as reducing benefits or increasing employee and taxpayer contributions."
(Bloomberg BusinessWeek)
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Early Impact Of 401(k) Fee Disclosure Rules
"Thus far, sources say that the reaction to the fee disclosures, which were to be sent to plan sponsors by July 1 and to plan participants by Aug. 30, has been a snore.... However, sources have noticed a small uptick in queries from plan sponsors and administrators, and these queries, mostly centered on fees and how they're paid, could swell into a pricing war once plan sponsors and their participants have a chance to absorb the information and, more importantly, compare it to what other advisors and fund vendors are charging."
(On Wall Street)
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Boomers Relying Too Heavily Upon Work During Retirement Years
"[A]bout one-third of Baby Boomers (34.9%) and one-quarter of Generation Xers (25.1%) reported they are planning to retire at age 66 or older.... In 2012, 50% of surveyed retirees report they retired earlier than planned. The most cited reasons are, 51% due to health issue or disability, 21% due to changes at their employer or downsizing, and 19% due to family care giving responsibilities.... Among workers age 50 and older, 38% expressed an interest in a phased retirement program."
(Insured Retirement Institute)
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IRS Issues Guidance on Benefit Limitation Notice for Defined Benefit Plans (PDF)
"For plan years beginning on and after January 1, 2008, the Pension Protection Act of 2006 (PPA) and ERISA imposed new benefit limitations on plans that do not meet specific funding percentage levels. The plan administrator of a single-employer or multiple employer defined benefit plan must provide a written notice to participants and beneficiaries, generally within 30 days after the plan becomes subject to these benefit limitations.... The IRS recently issued Notice 2012-46 to help plan administrators comply with the notice requirements of the final rules. This Notice supplements the final regulations and includes guidance on: General timing requirements; Which persons must receive the notice; Content requirements; and Acceptable methods for distribution."
(Prudential)
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Using In-Service Retirement for Employee Retention
"Plan sponsors need to be aware that providing in-service subsidized retirement benefits will generally increase the ongoing cost of the plan. Specifically, the plan amendment will most likely increase the minimum required contribution under IRC Section 430 and will most likely increase net periodic pension expense.... However, depending on the actuarial assumptions used, allowing participants to elect to receive full normal retirement benefits after attaining NRA may not result in an increase in the plan's funding target.... There is some question as to whether fully subsidized early retirement benefits can be paid to in-service retirees."
(Retirement Town Hall)
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Do You Need to Send an Annual Notice to Plan Participants by December 1, 2012? (PDF)
"The table [in this article] provides a list of the content and deadlines for the most common notices that plan sponsors may need to distribute [prior to the start of a plan year]. It includes: Traditional Safe Harbor 401(k) Notice; Qualified Automatic Contribution Arrangements (QACA) for a Safe Harbor 401(k) Notice; Eligible Automatic Contribution Arrangement Notice; Qualified Default Investment Alternative Notice (QDIA); Non-Safe Harbor Automatic Contribution Arrangement Notice."
(Alston + Bird LLP)
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[Opinion]
Coming Pension War Makes Election Battle Look Tame
"The tax gap isn't the deepest divide in America. The deepest gap is the pension divide, between those few who have a guaranteed cushion in the form of defined-benefit pensions, which promise a fixed annuity at retirement, and those who don't.... Thirty years ago, about 62 percent of American workers were covered by some kind of plan like this. Even then, however, companies routinely siphoned off the funds' surpluses for purposes other than pensions. Pension returns themselves looked modest relative to the incredible interest rates offered in the money market. But federal law prevented workers in private plans from pouring their pension money into tax-deferred vehicles. A defined-benefit pension felt like a prison."
(Bloomberg)
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Benefits in General; Executive Compensation
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[Official Guidance]
Text of IRS Notice 2012-63, Special Per Diem Rates (PDF)
"This annual notice provides the 2012-2013 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home, specifically (1) the special transportation industry meal and incidental expenses (M&IE) rates, (2) the rate for the incidental expenses only deduction, and (3) the rates and list of high-cost localities for purposes of the high-low substantiation method."
(Internal Revenue Service)
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[Official Guidance]
Text of Chicago Stock Exchange Proposed Rule Change to Establish Listing Standards for Compensation Committees
"The Exchange proposes to amend portions of Article 22, Rule 2 (Admittance to Listing), Rule 4 (Removal of Securities) and Rule 19 (Corporate Governance) to establish listing standards that require each member of a listed issuer's compensation committee to be an 'independent' member of its board of directors, to adopt standards relating to compensation committees' authority to retain compensation advisers and to clarify the consequences to issuers for failure to comply with these proposed amendments. It is important to note that virtually all of the proposed amendments are in Rule 19(d), which currently outlines all of the listing standards with respect to issuers' compensation committees."
(Chicago Stock Exchange)
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[Official Guidance]
Text of NYSE Proposed Rule Change to Modify Listing Rules for Compensation Committees
"The proposed changes ... will not become operative until July 1, 2013. ... The Exchange believes that its existing 'bright line' independence standards as set forth in Section 303A.02(b) of the Manual are sufficiently broad to encompass the types of relationships which would generally be material to a director's independence for compensation committee service.... As proposed, Section 303A.05(c) would not include any specific additional factors for consideration, as the Exchange believes that the list included in Rule 10C-1(b)(4) is very comprehensive and the proposed listing standard would also require the compensation committee to consider any other factors that would be relevant to the adviser's independence from management."
(New York Stock Exchange)
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[Official Guidance]
Text of NASDAQ Proposed Rule Change to Modify Listing Rules for Compensation Committees (PDF)
"Generally, Nasdaq's proposals provide that: (1) Companies must have a compensation committee consisting of at least two members, each of whom must be an Independent Director as defined under Nasdaq's current listing rules; ... (3) in determining whether a director is eligible to serve on a compensation committee, a Company's board must consider whether the director is affiliated with the Company, a subsidiary of the Company or an affiliate of a subsidiary of the Company to determine whether such affiliation would impair the director's judgment as a member of the compensation committee; ... (6) Smaller Reporting Companies must have a compensation committee comprised of at least two Independent Directors and a formal written compensation committee charter or board resolution that specifies the committee's responsibilities and authority, but such Companies are not required to adhere to the compensation committee eligibility requirements relating to compensatory fees and affiliation, or the requirements relating to compensation consultants, independent legal counsel and other compensation advisers[.]"
(NASDAQ)
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Seattle's New Paid Leave Law Takes Effect (PDF)
"Seattle's Office of Civil Rights (SOCR) ... recently issued guidance for employers on administering paid time off under the new law.... The ordinance applies to employees who work at fixed locations, telecommute, or only work on occasion in Seattle, regardless of where their employer is located. Once an employee meets the 240-hour threshold, he or she remains covered by the ordinance for both the current and the following calendar year.... SOCR rules confirm that employers that already provide sufficient PTO to meet the ordinance's minimum requirements do not have to provide additional PTO."
(Buck Consultants)
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[Opinion]
Inside the Head of an Overpaid CEO
"High CEO pay is like a zombie that will not die.... Study after study also shows that high differentiation in pay between the CEO and lower-level staffers hurts organizational performance. And there is no shortage of outrage over CEOs who get rich whether their companies do well or not. But social psychology helps to explain why so little has changed -- and why not much is likely to, either."
(The Washington Post; free registration required)
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Press Releases
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David Rhett Baker, J.D., Editor and Publisher
Holly Horton, Business Manager
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