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October 1, 2012 Get Health & Welfare News  |  Advertise  |  Unsubscribe  |  Past Issues  |  Search

Employee Benefits Jobs

BOLI Services Manager
for New York Life Retirement Plan Services in ANY STATE

Account Manager III
for Lincoln Financial Group in ANY STATE, IL, IN

Account Spec On Site
for The Standard in TX

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Webcasts and Conferences

Corporate Benefits Summit
in Nevada on January 20, 2013 presented by marcus evans

Managing Risk in a Complex World
in Washington on October 5, 2012 presented by FTI Consulting

CFO Liability and Pension Plan Governance and Risk Management
in Florida on October 16, 2012 presented by FTI Consulting


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California Creates State-Run Private Retirement Plan
"The bill would not be implemented unless the savings program is projected to be self-sustaining and exempt from federal rules that cover private-sector defined benefit plans. Such plans have to meet minimum standards under [ERISA]. The bill also requires the board to submit an annual audit." (The New York Times; free registration required)


[Advert.]

West Coast Defined Contribution Conference San Francisco Nov. 4-6

Sponsored by Pensions & Investments

Free registration for qualified plan sponsors. Sponsored by Pensions & Investments - learn how to develop a defined contribution plan that helps ensure your participants lifetime income.


Solving the Public Pension Plan Funding Crisis
"The public sector does have some breathing room for addressing underfunding problems because of the funds' long-term horizons. 'It took years to get in that hole, and it's probably going to take years to get out,' said [Meredith Williams, executive director of the National Council on Teacher Retirement]. 'The first thing you do is stop the bleeding,' starting with more realistic benefit promises for new hires, then existing employees, and even retirees, if necessary[.]" (Pensions & Investments)

Investigation Determines Broker-Dealers' Non-Public Information Not Private Enough
"[FINRA, the SEC, and the NYSE] examined 19 small and large firms as part of a case study on best and worst practices for managing the conflicts of interest at broker-dealers. In the 52-page report, examiners from the SEC concluded that a number of risks remained in the classification, reporting and handling of material non-public information that could be misused for unfair profit." (Financial Planning)

Pension Reforms Begin in San Diego and Los Angeles
"The state's three largest cities, which have their own independent retirement systems, are like many other cities hard hit by pension investment losses and generous retirement benefits boosted in good times.... Most cost-cutting pension reforms only cover new hires.... [P]ensions promised current workers are a 'vested' right, protected by contract law, that can only be cut if offset by a benefit of equal value.... The three largest cities, which are not in CalPERS, are using different strategies in their attempt to cut the pension costs of current workers." (CalPensions)

Some Public Pension Execs Worry Reporting of Unfunded Liability Will Add Fuel to Fire
"Under current GASB accounting and disclosure methods, public pension plans have focused on their annual required contribution, which is used to set annual pension funding targets. That figure will now slip to the footnotes while the total unfunded liability, instead of the current amount due, goes on the balance sheet. Intended to make public plans report more like their corporate counterparts, the new rules are expected to make underfunded plans look worse, and even relatively well-funded ones less so." (Pensions & Investments)

Large Company Pensions in Europe 2002-2012: 175bn GBP of Contributions Fails to Reduce Total Unfunded Liability
"Deficits in FTSE350 pension schemes were 73bn GBP at the end of June 2012, virtually unchanged from the position 10 years ago. Over the last 10 years an estimated 175bn GBP of deficit contributions has been paid by FTSE350 companies. This amounts to approximately 40% of the average scheme asset values over the period. However, funding levels shown in company accounts have only improved by around 8%, from 79% at 31 December 2002 to 87% at 30 June 2012." (Mercer)


[Advert.]

Defending & Managing ERISA Litigation - Oct. 29-30, NYC

Sponsored by American Conference Institute

Advanced forum brings together leading in-house counsel and outside defense attorneys to engage in developing winning litigation strategies and overcoming new and emerging theories of liability from the plaintiffs' bar. BenefitsLink discount code: BL 200


Good News: You're Living Longer -- Bad News: Your Pension Liabilities Just Went Up
"Mean life expectancy assumptions increased by around 3 to 6 months in 2011 adding 1% to [UK pension] scheme liabilities. Life expectancy assumptions increased by around 3 years for men since 2006 adding 7% to scheme liabilities. Median Discount rate continues 3 year fall from 5.4% to 4.8%; corresponding to 10-15% increase in liabilities for a typical scheme in 2011." (Mercer)

The Evolving Role of Defined Contribution Plans in the Public Sector (PDF)
"Traditional defined benefit public sector retirement plans are under pressure to make structural changes with governments making a range of changes that seek to reduce or control employer contributions and address unfunded liabilities.... As public sector employees face greater financial pressures and employers continue to make changes to primary pension plans, it is time to review the role and design of defined contribution plans in the public sector." (NAGDCA, Arthur N. Caple Foundation and Center for State and Local Government Excellence)

401(k) Balances and Changes Due to Market Volatility
"The EBRI/ICI Participant-Directed Retirement Plan Data Collection Project is the largest, most representative repository of information about individual 401(k) plan participant accounts.... Using that database, which includes demographic, contribution, asset allocation, and loan and withdrawal activity information for millions of participants, EBRI has produced estimates of the cumulative changes in account balances -- both as a result of contributions and investment returns -- for several combinations of participant age and tenure." [Ed. note: Update for October 1, 2012 included.] (EBRI)

China Slides Faster Into Pensions Black Hole; Underfunding in the Trillions of Dollars
"Policy makers and economists have long been worried about the financial burden of China's expanding patchwork of pension schemes, but those concerns have recently escalated as its rural pension scheme took off in the past three years. The funding shortage is daunting: economists say it could blow out to a whopping $10.8 trillion in the next 20 years from $2.6 trillion in 2010[.]" (CNBC)

Cypen & Cypen Newsletter for September 27, 2012
Covers employee benefit developments with an emphasis on governmental plans. Topics in this issue include: Judge Declares Baltimore's Pension Reform Unconstitutional; Pennsylvania Auditor General Issues Analysis on Local Government Pension Plans; Top 5 Wealth-building Factors Among Millionaires; SEC Offers Tips for Selecting a Financial Professional. (Cypen & Cypen)

Diversify Your 401(k) in 9 Easy Steps
"Early in the development of 401(k), 457, and 403(b) plans there was a rush to offer every conceivable alternative in plans. The U.S. Department of Labor requires a minimum level of diversification to narrow the fiduciary risk to the employer, but this rule is usually interpreted to mean just four investment options with a combination of equity and debt funds. The Labor Department also requires a default option for employees who refuse the obligation to make choices. Yet, in some cases, companies were offering more than 200 funds. For workers, the choices are just too numerous." (Reuters)

Europe's Debt Crisis Exacerbated by Sacrosanct Pensions
"[P]ension expenditures represent the single biggest line item in the Spanish government's budget, at nearly 40 percent of public spending and 9 percent of Spanish gross domestic product.... The fact that Spanish public pensions are not only off limits to the budget knife but also are being enhanced, is a reminder of one reason that European debt and deficit problems have proved so difficult to resolve." (The New York Times; free registration required)

Oakland Pushes Cuts to Pension Payments
"Oakland officials sought Friday to pressure a group of retired police officers and their beneficiaries to pay back millions of dollars in pension benefits after a judge sided with the city and ruled they had been overpaid since 2008. Oakland's effort to recoup the money—about $11.5 million, according to city attorneys—is the latest move in an unusual dispute that saw the cash-strapped city sue one of its own pension systems, claiming it was miscalculating benefits." (San Francisco Chronicle)

Bank of America Settles Pension Fund Lawsuit Over Disclosure of Merrill Lynch Losses
"Five pension funds on Friday announced a $2.43 billion settlement of a class-action lawsuit against Bank of America over information it did not provide regarding billions of dollars in losses at Merrill Lynch prior to its acquisition by BofA in January 2009. Two of the lead plaintiffs, the $76.4 billion Ohio Public Employees Retirement System and $62.6 billion Ohio State Teachers' Retirement System, both of Columbus, are estimated to receive a total of around $20 million as part of the settlement[.]" (Pensions & Investments)

European Pension Funds Among Victors As Bank of America Reaches $2.4B Settlement Over Merrill Lynch
"America's second-biggest bank struck a deal with investors to end a near four-year legal battle that was destined for trial in a New York court next month. PGGM, which helps manage 125bn EUR ... in the Netherlands, and AP4, one of Sweden's state pension funds, are among those who had led the litigation in Manhattan." (The Telegraph)

Future Rise in Interest Rates Might Bring Defined Benefit Plans Roaring Back
"In today's low interest rate environment, defined contribution plans hold a clear cost advantage over defined benefit plans. The typical DC plan cost is 5% to 6% of plan payroll versus 17% for the typical DB plan ... But with a rise in interest rates defined benefits plans would become more cost-effective very quickly. Interest rate increases of 300 to 400 basis points, roughly equal to rates that prevailed in 2006-2007, would not only decrease defined benefit pension costs by 30% or more but would give defined benefit plans surpluses of 115% to 125% of liabilities[.]" (Financial Planning)

Potential Inflation and Loss of Bond Values Present Threats to a Fulfilling Retirement
"An evolution toward a fixed-income-heavy asset allocation is thus a common practice in retirement planning. However, the risks and limitations of this traditional approach may not be fully appreciated. In this era of medical technology breakthroughs and expanding life expectancy, providing a sustainable income stream, namely one that preserves purchasing power over time, may require a different approach." (Investment News; free registration required)

ESOPs In Changing Times: Stock Value Fluctuations Bring Operational Issues
"The always uncertain economy puts pressure on the dynamics of the ESOP appraisal process and company stock values. It is not simply an issue of the fair market value, per se, but how fluctuations in company stock values are handled. The valuation process raises fiduciary and management issues, including employee communications, benefits calculations, procedural prudence, and strategic planning." (Chang Ruthenberg & Long)

Geithner Gives New Life to Proposals for Regulation of Money-Market Funds
"In a letter to the Financial Stability Oversight Council (FSOC) on September 27, Geithner acknowledged that MMFs were a 'significant source of short-term funding for businesses' and agreed that MMFs 'provide an important cash management vehicle for both institutional and retail investors' but called for the FSOC to begin the process of regulating the funds in the event that the SEC is 'unwilling to act in a timely and effective manner'." (Association for Financial Professionals)

DOL Assembles Participant-Level Fee Disclosure Information on New Webpage
"Whether the webpage will actually attract many participants and beneficiaries remains to be seen, but even if it does not, the webpage will still be valuable to employers and administrators who want a better sense of the DOL's expectations or who need to quickly access the applicable guidance." (Thomson Reuters / EBIA)

New York City's Deferred Compensation Plan Target-Date Portfolios—Are Participants Aware of the Risks? (PDF)
"New York City Deferred Compensation Plan [NYC DCP] target-date funds have a significant allocation to the equity asset class beyond the target date. [Plan] participants have either been misinformed or do not clearly understand how the NYC DCP target-date funds work. The federal-government-sponsored Thrift Savings Plan (TSP) may be a suitable model for the NYC DCP to replicate." (Thomann Tax & Asset Management, Inc.)

[Opinion]

401(k) Fee Disclosure Regs Provides Much Information But Little Recourse for Unhappy Participants
"[W]hile this latest educational missive from the Labor Department is a welcome and useful tool, there is one thing it does NOT do. It does not give employees any power or leverage to force the employer to switch to another, lower cost plan provider—or to include lower cost funds." (Chicago Sun-Times)

[Opinion]

California Private Pension Plan Would Raid Taxpayers to Fill Public Pension Gap
"California Secure Choice Retirement Savings Trust Act is nothing more than an attempt to raid the private sector for cash flow to cover abuse, misfeasance, malfeasance and fiscal recklessness that bankrupted the state's public pension plans. Anyone who believes this money—estimated at $6.6 billion the first year—transfused into the public pension system will be left sequestered should check how well that promise was kept for Social Security." (Sacramento Bee)

[Opinion]

Defined Benefit Plan Changes by Large Employers Are Creative But Discouraging
"Hardly a week goes by without an announcement from an employer—typically a very large one—about programs they are putting in place to 'de-risk' their pension plans.... [W]hat all these approaches are bringing home is that, bit by bit, the nation's employment-based defined benefit plan system is withering away, as the actions being taken by these employers are a way to better manage benefits already promised—not an expansion of additional or new obligations." (Business Insurance; free registration required)

[Opinion]

NFL Owners Sacrificed Three Weeks of Games on the Altar of Capitalism Idealogy
"The NFL locked out its referees in the name of taking away their pensions. It was not that the pensions were a threat to the long-term fiscal survival of the league -- again and again, we were reminded that the sums involved were pocket change in a growing, multibillion-dollar enterprise. It was that the pensions existed at all." (Slate)

[Opinion]

NFL Sacks Referees' Retirement Security
"Companies have been freezing or terminating their traditional pension plans for some time. Typically when companies stop their defined benefit plans, they offer a 401(k) plan to their employees, often with the promise of employer contributions. This is the type of arrangement that the NFL and the referees agreed to. However, the employer contributions aren't required and can be rescinded at the employer's whim, with little or no reason." (Pension Rights Center)

[Opinion]

U.S. Chamber Urges Financial Stability Oversight Council and SEC to Evaluate Existing Money Fund Reforms Before Taking Action
"Businesses use money market funds to raise capital and manage cash flows. The FSOC needs to consider that it may destroy tools used by companies to grow and create jobs. Millions of investors—from retail investors to universities to cities and states—will also likely oppose the proposal pushed by the Treasury Secretary if he merely re-packages the same harmful plans put forward by Chairman Schapiro." (U.S. Chamber of Commerce and 15 Other Employer Organizations)

Benefits in General; Executive Compensation

[Official Guidance]

Text of DOL Advisory Opinion 2012-06A: Joint Fund Is Not ERISA-Covered Plan But Could Become One
"[T]he only benefits which can be said to be provided by the LECET Fund's activities accrue generally to the construction industry in Hawaii and participating employers and their covered bargaining unit employees as a whole rather than to individual participants or beneficiaries.... [G]eneralized industry and workplace improvements of the sort that may be generated by the activities of a labor management cooperation committee are not 'benefits' covered by section 3(1)(B) of ERISA ... Accordingly ... the LECET Fund is not an employee benefit plan covered under Title I of ERISA. The absence of any explicit limitation in the Trust Agreement that would prevent the Fund from providing ERISA-covered welfare or pension benefits to participants or beneficiaries precludes us from assuring you that the Fund will not be an employee benefit plan if it is operated so as to provide a welfare or pension benefit within the meaning of Title I of ERISA." (Employee Benefits Security Administration)

[Official Guidance]

IRS Seeks Applications for Advisory Committee on Tax Exempt and Government Entities; Two Slots Open for Employee Plan Issue Reps
"The [IRS] is requesting applications for membership to serve on the Advisory Committee on Tax Exempt and Government Entities (ACT). Applications will be accepted for the following vacancies, which will occur in June 2013: Two (2) employee plans and two (2) exempt organizations. Written applications or nominations must be received on or before November 2, 2012." (Internal Revenue Service)

Study Reports Directors Focused on Say on Pay, But Rate Proxy Advisors' Work Below Average
"When asked about individuals or entities having the greatest influence over compensation decisions, the majority of directors (86%) cited compensation consultants as influential or very influential, followed by the CEO (79%) and institutional investors (54%)." (HR Policy Association)

Joint Fund Provides No Individual Benefits, Thus Not ERISA-Covered Plan, DOL Says
"A fund administered by a joint labor-management board of trustees but providing no benefits to individual participants or beneficiaries is not an employee welfare benefit plan under [ERISA] ... DOL said any benefits provided by the activities of [the Fund] ... accrue generally to the construction industry in Hawaii rather than to participants or beneficiaries upon a specific occurrence." (Bloomberg BNA)

IRS Proposed Regs Clarify Application of Meal and Entertainment Deduction Limit
"The proposed regulations ... clarify that the rules for applying the exceptions to the Secs. 274(a) and (n) deduction limits apply to reimbursement or other expense allowance arrangements with employees, whether or not a payor is an employer. Any party that reimburses an employee is a payor and bears the expense if the payment is not treated as compensation and wages to the employee." (Journal of Accountancy)

Hodgson Russ Employee Benefits Developments, September 2012
Monthly newsletter; this issue includes the following articles: Department of Labor Updates 408b-2 Notice Procedures; Guidance Issued on ERISA 101(j) Notice on Underfunded Defined Benefit Plans; Health Care Reform Guidance on the Play-or-Pay Mandate; Eighth Circuit Denies Deference to Administrative Decision and Upholds $749,037 Award; Plan's Statute of Limitation Provision Bars Benefits Claim; Fourth Circuit Affirmed Decision Dismissing Claims on Definition of Normal Retirement Age. (Hodgson Russ LLP)

Sixth Circuit Rules That Payments Made as Part of Severance Program Are Not Subject to FICA Withholding
"In so deciding, the Court rejected longstanding [IRS] rulings on the treatment of supplemental unemployment benefits ('SUB payments') under FICA, as well as a contrary decision by the U.S. Court of Appeals for the Federal Circuit in CSX Corp. v. United States, 518 F. 1328 (Fed. Cir. 2008)." [United States v. Quality Stores, Inc., No. 10-1563 (6th Cir. Sept. 7, 2012)] (Epstein Becker & Green, P.C. and The ERISA Industry Committee)

Ninth Circuit Says Attorney Communications in Connection With ERISA Claims Generally Are Not Privileged Until Final Benefit Determination Is Made
"This ruling serves as a reminder that communications between plan fiduciaries and attorneys during the internal claims process may be subject to disclosure if the matter ends up in litigation, especially where a conflict of interest is alleged. Under the court's reasoning, communications with an attorney will not generally be subject to the privilege until the final benefit determination[.]" [Stephan v. Unum Life Ins. Co. of America, 2012 WL 3983767 (9th Cir. 2012)] (Thomson Reuters / EBIA)

Press Releases

SEBC Honors Salisbury With Hazlehurst-Lamon Award
Southern Employee Benefits Conference



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David Rhett Baker, J.D., Editor and Publisher
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