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Managing ERISA Pension Money — QPAM and INHAM 101 Webinar
Nationwide on October 23, 2012 presented by FTI Consulting

 

Flat Fees on Plan Participants: Class Warfare in Your 401(k)?
"[M]ore and more employers are moving to an a la carte system, where each investor is charged a separate fee for their share of the plan's back office costs. But in taking this step, employers aren't just itemizing these costs. Many are also replacing fees tied to account balances with flat-rate dollar ones, say $100 a year for each participant, on the logic that many of these accounting costs vary little no matter how much money is in an account.... That's raising some eyebrows among experts who point out that ... recent changes could subtly transfer shared plan costs from workers who are typically older and better paid to ones that are younger and poorer." (MarketWatch)

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Correction Procedures at 'Top of the List' for Forthcoming Guidance
"The IRS is updating Rev. Proc. 2008-50, which provides guidance on the Employee Plans Compliance Resolution System (EPCRS), Victoria Judson, associate chief counsel (Tax Exempt and Government Entities), told participants at [a recent conference]. The IRS is also developing a correction program under Code Sec. 403(b), Judson said.... Other pending guidance projects, according to Judson, concern plan funding, the basis of plan rollovers and Roth account rollovers." (Wolters Kluwer Law & Business)

Ballot Measure May Replace Pensions with 401(k)s at Los Angeles City Hall
"Former Los Angeles Mayor Richard Riordan plans to submit language Friday for a May 2013 ballot measure that would eliminate government pensions for newly hired workers at City Hall, replacing them with 401(k)-style retirement benefits. Riordan's proposal also would freeze the size of pensions for existing employees even when their salaries go up -- unless they are promoted to a higher-paying job. The plan is designed to save hundreds of millions of dollars annually by 2017 and would apply to every city worker, including police officers, firefighters and employees of the Department of Water and Power[.]" (Los Angeles Times)

How Does a Lump Sum at Plan Termination Affects Prior Use of a 'Substantially Equal Periodic Payment' Election?
"[A participant receiving a 'series of substantially equal periodic payments' (SOSEPP) is offered a lump sum payment when the former employer's plan is terminated.] Shortly before she reached age 59-1/2, [the participant] signed a paper electing to receive that lump sum. Does her signing this election before reaching age 59-1/2 constitute a 'modification' of the SOSEPP, retroactively invalidating her entire 'series' of payments?" (Morningstar Advisor)

Infrastructure Raises Its Asset Profile
"Investing in infrastructure projects is about to become much more of a mainstream activity. After mixed results from early forays into the nascent infrastructure asset class, investors are increasingly drawn to the potential steady, long-term returns that can be realized through these types of investments." (Pensions & Investments)

CalPERS Reportedly Near $500 Million Deal on Illinois Shopping Center
"In spite of the price tag, experts said it fits perfectly with CalPERS' focus on steering its real estate dollars toward safe investments in the wake of the market crash." (Sacramento Bee)

Working Longer May Not Boost Social Security Benefits
"For most of your above-average earning clients, working an extra year or two may boost their income and allow them to increase their retirement savings, but it will have no measurable impact on their Social Security benefits.... [F]or the typical worker, an additional year of work at the end of his career translates into about 2.5 cents of additional retirement benefits for every additional dollar of payroll taxes. And for about one-third of men ... an additional year of earnings and tax payments at the end of the work life results in no increase in benefits." (Investment News; free registration required)

Success by Plan Design: Improving 401(k) Plan Health and Employee Wellness (PDF)
"According to the 2012 Workplace Benefits Report ..., not only are employees more aware than ever that they are responsible for funding their retirement -- they also want to do something about it. We found that 82% of employees surveyed are willing to give up a portion of their salary to secure guaranteed retirement income. But procrastination, inertia, and lack of knowledge about how to take advantage of the benefits offered (and, in some cases, about plan offerings) prevent many employees from maximizing contributions and investing wisely in their 401(k) plans." (Bank of America Merrill Lynch)

Your Employer Thinks You're Sabotaging Your Retirement
"Almost three-quarters of employers surveyed said that one primary reason they offer a 401(k) or similar plan is to ensure that their employees will have adequate retirement income. Yet... Only about a quarter of employers believe that their workers make informed decisions in investing their 401(k) money. Nearly three-quarters of employers have doubts about whether their employees have realistic expectations about how much their 401(k) accounts will be able to provide for them after they retire. And only one in 11 employers thinks that workers have explicitly set income-based goals for their retired years." (AOL Daily Finance)

Sandusky Will Get to Keep $900K in Pension Money
"Pennsylvania's public employee retirement system says Jerry Sandusky will get to keep more than $900,000 in state pension payments he received after his 1999 retirement from Penn State University. The State Employees' Retirement System said Thursday it won't seek repayment of the money Sandusky received from 1999 to September 2012 because the state's forfeiture law does not authorize SERS to go after money paid before the date of a plea or conviction." (The New York Times; free registration required)

The New Retirement Plan: Save More, Invest Less
"You know something's wrong when more than 90% of employees who are 30 to 40 years old tell researchers that the most important thing about retirement is a guarantee that the money will be there when they need it, yet more than 75% of Americans have their retirement funds invested in the volatile stock markets, where there are no guarantees." (Forbes)

U.K. Employees Warned of 'Buying Blind' Into Expensive Pension Investments
"U.K. employees enrolling in company-sponsored pension plans may be 'buying blind' into funds charging high fees that could reduce their savings by as much as 50 percent, according to a [recent] report ... Ninety percent to 97 percent of employees joining a company pension plan use the default fund offered, meaning whether they end up with a large or small retirement fund is a 'lottery' due to fees, said the report. Smaller employers are more likely to use older funds with higher charges, it said." (Bloomberg)

Proper Advisor Benchmarking Values Facts Over Opinions (PDF)
"As details of advisor compensation and business relationships are disclosed, plan sponsors will need to take action to document their files to support their continued use of the advisor as prudent, reasonable, and conflict free. As 408(b)(2) plan level disclosures and the 404(a)(5) participant disclosures become effective, plan sponsors should have a strategy in place to address the threat of litigation." (FRA / Plan Tools)

SEC Seeks to Extend Principal Trading Rule -- Yet Again
"'[T]he requirements of [the principal-trading rule], coupled with regulatory oversight, will adequately protect advisory clients for an additional limited period of time while we consider more broadly the regulatory requirements applicable to broker-dealers and investment advisers,' the SEC proposal states. That assertion doesn't comfort those in favor of a universal fiduciary standard, who contend that principal trading makes investors vulnerable to brokers' dumping underperforming securities into their accounts." (Investment News; free registration required)

Federal Employee Thrift Savings Plan Roth Participation Grows Steadily
"Just four months after its inception, about 40,000 federal employees, including 5,300 Marines, have opted into the Thrift Savings Plan's Roth option, according to Federal Times. At the end of August, about 20,000 total federal employees had invested about $13 million into the Roth plan." (GovExec.com)

More Consumers Use the Internet to Research Insurance and Annuity Products
"Sixty-one percent of consumers who researched individual insurance or annuity products looked online, a significant increase over the 38 percent of consumers who looked online in 2006.... The top three reasons consumers sought information online are: (1) Research companies and product offerings; (2) Seek general product information; [and] (3) Compare prices[.]" (LIMRA)

Corporate Canada's Pension Hole
"To some extent, you can see the problem in companies' bottom lines, as they deduct what's referred to as 'pension expense' before arriving at net income each quarter. But the true cost of an underfunded pension is actually worse because ... the cash contributions can and do exceed the expense recorded on the income statement. Pension expense 'materially understates' the cash amount, ... analysts say, as the total cash contributions of the companies they examined -- $6.4 billion -- were more than double the recorded expense of just over $3 billion." (The Globe and Mail)

MEPs Need to Comply With Toughest Rules When Regulations Overlap
"Multiple employer plans, when facing overlapping requirements from the Department of Labor and the Internal Revenue Service, should comply with the more stringent rules, a speaker said during [a recent] webcast" (Bloomberg BNA)

Advisors Feel Pinch of Compensation Squeeze
"Pricing their services is always tricky for advisors -- but there is some evidence that could be changing, at least at the high end.... The median asset under management fee for a portfolio of $500,000 to $1 million has remained constant at 1% ... But the $2 million portfolio fee has bumped up from 80 to 88 basis points, and the fee for a $5 million portfolio has jumped from 63-65 basis points to 70.... Looking at revenues by source, 89% of revenues were derived from asset management fees. And, notably, the median income per owner in 2011 stood at $300,000, finally surpassing 2008 levels." (Investment Advisor)

Shifting Longevity Risk (Back) to Insurers (PDF)
"[C]orporations increasingly look to the expertise of insurers to manage the longevity risk in their DB plans and to offer guaranteed lifetime income products within their DC plans. Individuals, too, are turning to insurance products to protect against the very real possibility of outliving their savings.... [M]anaging longevity risk has not been as high a priority to plan sponsors as managing investment risk." (Prudential Retirement)

[Opinion]

Private Equity: Knowing What It Takes
"With almost $2 trillion invested in private equity worldwide, is the potential for excess returns worth the higher costs and uncertainty associated with this investment strategy? ... [I]nstitutional investors, such as pension fund managers or nonprofit investors, should only consider an allocation to private equity if they can access the very top-performing managers and have the liquidity and flexibility to respond to capital calls." (The Vanguard Group, Inc.)

[Official Guidance]

Text of Chicago Stock Exchange Amended Proposed Rule to Establish Listing Standards for Compensation Committees (PDF)
"[Proposed Rule 19 was amended] to include a charter requirement for compensation committees and removes the definition of 'compensation committee' and 'functional equivalent' ... to narrow the scope of the passive business organizations exemption.... to include a phase-in period for foreign issuers who no longer qualify as such.... to solely refer to the smaller reporting companies exemption and includes a phase-in period for issuers that no longer qualify as such.... to reorganize the bright line tests for independent directors and to allow the inclusion of proposed paragraph (B), which outlines additional independent director requirements specific to compensation committee membership.... to remove a listed exemption for small business issuers. Finally, proposed paragraph .05(6) of the Interpretations and Policies of Rule 19 outlines an amended transition period for compliance with the proposed listing standards." (Chicago Stock Exchange)

Please Release Me, When I Let You Go -- 409A Corrections Required By December 31
"If the plan or agreement requires that the employee sign the release within a designated period following the triggering event such as 'no more than 90 days after termination,' the arrangement must be amended to provide for payment either on the last day of the period only or in the later tax year if the period begins in one tax year and ends in another. If the plan does not provide for payment within a period following the triggering event, the plan document must be corrected to provide for payment either on a fixed date 60 or 90 days after the payment event or during a specified period of not longer than 90 days after the payment event, provided that, if the period begins in one year and ends in a second year, payment will be made in the second year. In both cases, the employment-related action must occur during the applicable period and prior to payment." (Chang Ruthenberg & Long)

Proskauer ERISA Litigation Newsletter, October 2012
"[This issue discusses] the issues involved in whether and when arbitration may apply to ERISA claims and whether an employer or fiduciary may wish to require arbitration. [Recent court rulings] could permit plan sponsors to avoid defending class action ERISA claims in federal court by conditioning employment on arbitration agreements, as well as avoid classwide arbitration. However ... the recent case law applying the Supreme Court rulings in employment claims appears to suggest that some courts may look to find means to distinguish ERISA claims and thereby preclude the use of arbitration clauses in this manner." (Proskauer Rose LLP)

District Courts in the Fourth Circuit Run Full Speed Ahead with Equitable Estoppel Claims
"Following Amara and the Fourth Circuit decision in McCravy v. Metropolitan Life Ins. Co. ..., District Courts in the Fourth Circuit, in two recent decisions, permitted plan participant's claims to move forward past summary judgment, premised upon oral representations made by plan fiduciaries that were inconsistent with the written plan terms." [Israel v. Prudential Ins. Co., 2012 U.S. Dist. Lexis 106107 (D.S.C. July 31, 2012); and Strickland v. AT&T Umbrella Benefit Plan, 2012 U.S. Dist. LEXIS 14145 (W.D.N.C. Sept. 30, 2012)] (Wombyle Carlyle)

Employers Should Evaluate Refund Opportunities Following Sixth Circuit Ruling on FICA Taxes and Severance Payments
"Quality Stores now is the law in the Sixth Circuit (Michigan, Ohio, Tennessee, and Kentucky). Employers whose principal place of business is in those states should consider seeking refunds of FICA taxes they remitted for SUB payments since January 1, 2009. Also, Sixth Circuit employers should consider whether to withhold FICA taxes from SUB payments made since Quality Stores. Those employers should keep in mind that, if Quality Stores ultimately is overturned, they would owe back FICA taxes for all periods for which the statute of limitations for assessment is open" (Ballard Spahr)

Dallas-area Employers and Local Providers Teaming up with Mercer to Provide Advanced Health Care
Mercer

ERISA Advisory Council to Hold Final 2012 Meeting Oct. 30-31
U.S. Department of Labor, Employee Benefits Security Administration (EBSA)

New Health Care Partnership Allows Small Employers to Offer Big Benefits
Blue Cross and Blue Shield Association