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April 1, 2013          Get Health & Welfare News  |  Advertise  |  Unsubscribe
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Webcasts and Conferences

Due Diligence for Alternative Investments
in Arizona on April 18, 2013 presented by fi360

COBRA: From Basics to Healthcare Reform
Nationwide on April 10, 2013 presented by Employers Council on Flexible Compensation (ECFC)

"403(b) Plans: New Pre-approved Plan Procedure and Sample Language" Web Seminar
Nationwide on April 16, 2013 presented by SunGard Relius

403(b) Plans: New Pre-approved Plan Procedure and Sample Language" Web Seminar
Nationwide on May 3, 2013 presented by SunGard Relius

View All Webcasts and Conferences

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[Official Guidance]

Text of IRS Final Report on Section 401(k) Compliance Check Questionnaire (PDF)
"The Interim Report projected 401(k) Questionnaire findings to the section 401(k) plan sponsor population that files Form 5500. [This] Final Report also includes: [1] additional analysis of the 401(k) Questionnaire not included in the Interim Report; [2] a new section on Automatic Contribution Arrangements; [3] stratified data highlighting differences in the results based on plan size; [and] [4] updates to the data included in the Interim Report to address questions from the retirement plan community." (Internal Revenue Service)


Learn About the Innovative ftwilliam.com Form 5500 Preparation & E-filing Software

Sponsored by ftwilliam.com

If you're not using ftwilliam.com for 5500 preparation, you'll want to watch this webinar! On April 24th, we'll cover everything from hassle-free conversion to e-filing via our intuitive web-portal. Stop by and learn how our solutions save you time!

[Official Guidance]

April 23 IRS Phone Forum to Provide 'Defined Benefit Plan Update'
"Earn continuing education credit while you learn about recent developments affecting defined benefit plans. The discussion ... will include guidance topics as well as issues and practices the IRS has encountered in examinations and requests for rulings. If you have a specific matter that you would like to be addressed, please email [IRS] at ep.phoneforum@irs.gov by April 16, 2013." (Internal Revenue Service)

[Guidance Overview]

IRS Opens Determination Letter Process for Governmental Plans
"Why does it matter whether a governmental plan is qualified? Employees are not taxed on employer contributions to a qualified plan.... Mandatory employee contributions to a qualified plan can be made pretax ... No such relief is available for mandatory employee contributions to a nonqualified plan.... Does a governmental plan need a determination letter to be qualified? In theory, no. However, as a practical matter, the qualification requirements are so complex, and their interpretation is often so ambiguous, that it is impossible to be certain that a plan is qualified in the absence of a determination letter." (Calhoun Law Group)

[Guidance Overview]

IRS Issues Sample Language for Use in Pre-approved 403(b) Plan Documents
"Sponsors are not obligated to use the language but the LRM language serves as an outline of what the IRS will approve. Although the LRM language is not intended to serve as guidance, the language often clarifies IRS positions and the reviewer notes often provide guidance as to how the IRS will rule on certain language. This Technical Update identifies some of the interesting sample language provisions and notes to IRS reviewers." (SunGard Relius)

[Guidance Overview]

IRS Establishes Program for Pre-Approved 403(b) Plans
"Although the pre-approval program has many similarities to the program for IRC Section 401(a) plans in Revenue Procedure 2011-49, key differences include: [1] Employers adopting a pre-approved 403(b) plan are not able to apply for an individual determination letter for the plan at this time. [2] A 403(b) volume submitter plan must provide that the volume submitter practitioner can amend the plan on behalf of adopting employers." (Practical Law Company)


Register Now for the 2013 Employee Ownership Conference - April 24-26

Sponsored by National Center for Employee Ownership

Registration prices increase after April 2 -- conference on ESOPs and equity compensation includes 88 panels and many additional interactive sessions, film screenings, keynote addresses and more. April 24-26, 2013, Preconference April 23 - Seattle, WA

[Guidance Overview]

Making Retroactive Corrective Amendments Using the IRS Self-Correction Program Instead of the VCP
"In general, correction of an operational error requires the plan sponsor to put the plan and the participants in the position they would have been if the error had not occurred. If the correction requires the plan sponsor to amend the plan, the [EPCRS] generally requires the plan to file under the Voluntary Correction Program (VCP). However, EPCRS provides five situations in which a plan sponsor may adopt a retroactive corrective amendment under the Self-Correction Program (SCP) and not have to file under VCP." (SunGard Relius)

Stockton Bankruptcy Decision Could Trigger Precedent-Setting State Pension Debt Negotiations
"If it receives bankruptcy protection, the city begins a months-long process of negotiations over debt repayment that some say could end up in the U.S. Supreme Court.... 'Does bankruptcy code apply to CalPERS or not? If bankruptcy code trumps state law, then that's huge and it has huge implications in terms of what happens next for other municipalities across California,' [said attorney Karol Denniston, a municipal restructuring expert]" (The Washington Post)

Illinois Pension Reform Efforts Squeeze Penalty to 2011 Low
"Investors betting the worst is over for Illinois have driven its debt to the strongest level in two years as the state offers $800 million of general-obligation bonds, its biggest sale in 11 months. ... Four months after Democratic Governor Pat Quinn released a video showing a cartoon of 'Squeezy the Pension Python' threatening to strangle the capitol building in Springfield, investors are looking to Illinois debt to pad returns. Buyers demand 1.3 percentage points of extra yield on 10-year debt from Illinois and its localities, close to the smallest since February 2011, data compiled by Bloomberg show." (Bloomberg)

Strategies for Reducing Retirement Plan Risk in DB Plans
"Risk management strategies include both in-plan options (such as plan design changes, investment strategies, and annuity options), as well as settlement strategies (irrevocable actions that relieve the plan of benefit obligations). Plan design modifications, including hybrid and cash balance plans, can reduce longevity risk by reducing pension liabilities, and may transfer some investment risk to participants." (Retirement Town Hall)

Before It's Too Late: A Retirement Security Newsletter from Phyllis Borzi
"We all face tremendous challenges in saving for retirement, but the economic crisis has had a particularly profound effect on families of color.... This, combined with higher rates of unemployment and lower rates of eligibility for and participation in employer-sponsored retirement plans, means that we must make particular efforts to partner with these communities to ensure they are not left further behind." [Editor's note: Also includes an article entitled, "Are You Ready for Retirement? Find Out with EBSA's Interactive Worksheets."] (Employee Benefits Security Administration)

A New Strategy for Serving Middle Market Retirees (PDF)
"The underlying reason the insurance industry is not effective with middle market retirees is that it has failed to recognize that this is an advanced market. It has as much complexity as business insurance or estate planning. Failing to address people's actual needs neither serves nor persuades well.... The big financial question for middle market retirees is not 'retirement income' but 'retirement cash flow'." (RetirementWORKS, Inc.)

March Madness: The DOL 95-1 Insurer Financial Strength Tourney Challenge
"[This article] consider[s] the financial strength of several life insurers and see which one advances to be crowned the [Department of Labor Interpretative Bulletin 95-1] champion.... DOL 95-1 outlines six core criteria items which fiduciaries should be considerate of when evaluating insurers: [1] Quality & diversification of annuity provider's investment portfolio; [2] Size of insurer relative to size of proposed contract; [3] Level of insurer's capital & surplus; [4] Lines of business of the annuity provider and other indications of an insurer's exposure to liability; [5] Structure of the annuity contract and guarantees supporting the annuities, including use of separate accounts; [6] Availability of additional protection through state guaranty associations and the extent of their guarantees." (Pi (Pension Indemnification))

Why Kentucky's State Pension Reform Has Some Local Governments Yawning
"[T]he County Employees Retirement System (CERS) has been required by state law to fully pay its actuarially required contributions each year. Meanwhile the state has been taking breaks from making its payments or has been putting in partial payments into its fund, the Kentucky Employees Retirement Systems (KERS). Both systems are managed by the state under the parent, Kentucky Retirement Systems, along with a state police fund and a teachers' fund. State fund managers dictate to cities and counties what their annual contributions should be. But even with fully funding pensions according to state-mandated levels, CERS is only slightly more than 60 percent funded." (Governing)

ETFs Taking Center Stage
"Low costs have always been one of the biggest attractions of exchange-traded funds, so it should put a smile on advisers' faces to learn that the largest providers of ETFs are squaring off with index providers to lower costs. Experts predict that any cost cuts will make their way down to the end user." (Investment News; free registration required)

Public Pension Funds Face Scrutiny from New Accounting Rules
"Not only do new financial reporting rules from the Governmental Accounting Standards Board start going into effect this June, but Moody's Investors Service Inc. is implementing -- starting this month -- a new set of calculations that puts pension debt front and center in rating state and local governments." (Pensions & Investments)

Big Public Pension Funds Trump Hedge Fund Benchmarks
"All but four of the public fund hedge fund portfolios ... topped the one-year return of the HFRI Fund of Funds index, the benchmark most commonly used by institutional investors. Seven of 19 portfolios trailed their internal benchmarks. The top return for the year ended Dec. 31 was a high of 17.3% for the $300 million directional hedge fund portfolio of the $8.1 billion defined benefit plan of the Missouri State Employees' Retirement System, Jefferson City." (Pensions & Investments)

Ninth Circuit Affirms Liability for Failure to Consider Institutional Class Shares, but Rejects Broader Investment-Related Claims
"The fiduciary obligation to engage in a prudent process when selecting investments is not news, but this decision remains noteworthy for its conclusion that Firestone's standard of review principles are not limited to benefit denials; its rejection of the continuing violation theory for investment selection claims; and its reminder that, while the recommendations of advisors cannot be accepted uncritically, their efforts do not need to be duplicated." [Tibble v. Edison Int'l, 2013 WL 1174167 (9th Cir. 2013)] (Thomson Reuters / EBIA)

What Does The Tibble Decision Mean for Plan Fiduciaries? (PDF)
"Highlights from this 50-page opinion are: [1] Plan fiduciaries breached their duty of prudence by including retail-class shares of three mutual funds in the plan's investment menu without first investigating the funds' cheaper institutional-class alternatives. [2] ERISA's six-year statute of limitations starts to run from when the initial decision was made to include the challenged investments in the plan's investment menu. [3] The safe harbor provided under ERISA section 404(c), which protects fiduciaries from liability arising from losses that result from a participant's exercise of control over his or her account, does not apply to a fiduciary's selection of investment menu options.... [4] The abuse of discretion standard of review is not limited to benefits claims, but also applies to fiduciary duty claims." (Trucker Huss)

The Tibble Case: 401(k) Plan Investment Selection Triggered ERISA Violation
"The trial court determined that [Edison's] investment selection process did not properly investigate the alternative of offering lower-fee institutional-class funds available from the same investment firm. Edison argued that it had acted prudently because it based its decision on advice received from Hewitt, which had been retained to provide advisory services to the plan. The Ninth Circuit rejected this argument, stating that expert advice does not absolve a fiduciary of responsibility: 'Just as fiduciaries cannot blindly rely on counsel ... or on credit rating agencies[,] a firm in Edison's position cannot reflexively and uncritically adopt investment recommendations.'" (Crowell Moring)

French Prime Minister Says Pension Reform to Keep Retirement Age of 62
"A plan to reform France's state pension system will leave in place the official retirement age of 62, [according to] French Prime Minister Jean-Marc Ayrault ... France is under pressure to fix a short-term pension deficit which Ayrault said would swell to 20 billion euros ($25.68 billion) by 2020 if unaddressed." (Reuters)

Bankrupt San Bernardino Approves Over $1 Million in Pay Hikes
"The bankrupt city of San Bernardino, California, approved over $1 million in pay increases for police and firefighters despite claims it can barely make payroll, let alone afford the salary hikes.... The bankruptcy of the city 65 miles east of Los Angeles is a national test case on whether the pensions of government workers take precedence over other payments in a municipal bankruptcy. It is a high-stakes issue for pension plans and their beneficiaries, and for Wall Street bondholders who lend money to governments." (Reuters)

Arizona Judges Win Partial Victory Against Law Changing Pension Formula
"Arizona state lawmakers acted illegally in requiring most sitting judges in that state to pay more into their retirement system ... Maricopa County Superior Court Judge Douglas Rayes found Arizona judges were 'effectively made a promise about their pensions when they went on the bench,' namely that they would be paying 7% of their salary into their retirement system, the Elected Officials Retirement Plan (EORP)." (PLANSPONSOR.com)

Assessing Fiduciary Risk for DC Plan Sponsors: Using an ERISA 3(21) vs. an ERISA 3(38) Fiduciary (PDF)
"Because employees are often limited to the investment options selected by DC plan sponsors, these investment decisions are critical ones and may expose sponsors to risk ... Many plan sponsors don't have the necessary expertise or resources in-house and partner with outside investment experts; but do these partners really take on fiduciary accountability and mitigate risk? This [article] provides DC plan sponsors with an overview of ERISA fiduciary options and the corresponding risk considerations when it comes to their fiduciary roles." (SEI)

Verizon Management Retirees' Suit May Proceed, Judge Rules
"U.S. District Court Judge Sidney Fitzwater in Dallas ruled that the class of about 41,000 retirees who were affected by the [purchase of a group annuity from Prudential to transfer $7.5 billion in pension obligations] could sue as a group. He also ruled that another 50,000 plan participants whose benefits were not part of the transfer could also sue.... [Issues are] whether the transaction violated ERISA Section 404(a), whether the plan's summary plan description satisfied the requirement to disclose the circumstances that might result in a loss or reduction of benefits, and whether the transaction violated ERISA's non-discrimination provision." (Pensions & Investments)

Government Agencies Restore Protections to Hospital Retirees' Pensions
"After a 10-year struggle, hundreds of former workers and retirees from the Hospital Center at Orange (HCO) once again have federal protections for their pensions. In an unprecedented move, the Internal Revenue Service (IRS) has reversed its 2003 decision to grant HCO's pension plan recognition as a 'church plan.' The IRS' action paves the way for the [PBGC] to restore insurance protections to the HCO plan." (Pension Rights Center)

The Great Recession, Older Workers with Disabilities, and Implications for Retirement Security
"[This study uses] data from the 2004-2010 waves of the Health and Retirement Study to examine how the great recession has affected workers with chronic health conditions that put them at greater risk of disability.... [R]esults suggest that increases in job losses were 30% greater for those with greater underlying risk of disability than for the general HRS population, and decreases in consumption were 20% greater." (University of Michigan Retirement Research Center)

How Personality Traits Affect Economic Preparation for Retirement
"[The authors] find levels of adequate economic preparation for retirement ranging from 29 percent to 90 percent and that conscientiousness positively affects the proportion of persons adequately prepared for retirement, while neuroticism negatively affects it. Both consumption and wealth increase with conscientiousness but wealth increases faster, indicating that more conscientious persons save more out of retirement resources." (University of Michigan Retirement Research Center)


Stockton Bankruptcy: The Case for CalPERS Cuts
"If a federal judge rules today that Stockton is eligible for bankruptcy, bond insurers facing big losses may wonder if they should have taken a harder look at how the city's CalPERS debt could be cut.... Ironically, said a city attorney, the insurers provided no legal basis under California law for cutting pensions in pre-bankruptcy negotiations, but also oppose eligibility for the bankruptcy that might allow pension cuts." (CalPensions)


Will Talk of Huge Pension Benefits Bring Reform to California Public Plans?
"Revelations about a Bay Area county executive whose base retirement plan will top $400,000 a year have sparked new debates about public employee pensions. Lost in much of the discussion is a reality for governments across the state: No reform plan in place or seriously contemplated would touch core benefits for current employees, many primed to gain from big boosts granted by governments at the turn of the century." (San Diego Union-Tribune)


Waiting Periods on 401(k) Plans Can Be Costly for Workers
"At a time when workers are facing more pressure than ever to save for retirement, waiting periods are making the task harder, and reducing employees' potential nest eggs by tens of thousands of dollars. One trouble with waiting periods ... is that they keep some people from ever signing up for the plan. And in all cases, the gaps add up." (Boston.com)


SEC Goes on a Fiduciary Fishing Expedition
"On March 1, the [SEC] took a highly unusual -- perhaps unprecedented -- action. [T]he commission requested input under the subject heading 'Duties of Brokers, Dealers and Investment Advisers' with the stated intention to use the information to '[inform] our consideration of alternative standards of conduct for broker-dealers and investment advisers when providing personalized investment advice about securities to retail customers.' That the SEC finds itself unable or unwilling to formulate a rule on this issue is troubling." (Investment News; free registration required)


Text of NAGDCA's Comments to Tax Reform Working Group on Pensions and Retirement, U.S. House of Representatives (PDF)
"Eliminating or diminishing the current tax treatment of defined contribution plans, particularly during a time of increasing challenges faced by defined benefit plans, creates further risks for the retirement security of both the public and the private workforce. Government agencies are keenly aware of the revenue challenges being faced at all levels of government. We also understand, however, that as employees are asked to take a greater role in establishing their retirement security, existing tax incentives to encourage voluntary saving should be maintained, even enhanced, but certainly not reduced." (National Association of Government Defined Contribution Administrators)

Benefits in General; Executive Compensation

[Official Guidance]

Text of Proposed Regs on the $500,000 Deduction Limitation for Remuneration Provided by Certain Health Insurance Providers
"[I]f applicable individual remuneration, deferred deduction remuneration, or a combination of applicable individual remuneration and deferred deduction remuneration that is attributable to services performed by an applicable individual for a covered health insurance provider in a disqualified taxable year exceeds $500,000, the amount of the remuneration that exceeds $500,000 is not allowable as a deduction in any taxable year. To the extent that the aggregate applicable individual remuneration and deferred deduction remuneration attributable to services performed by an applicable individual for a covered health insurance provider in a disqualified taxable year is less than $500,000, the remuneration generally may be deducted by the covered health insurance provider in the taxable year or years in which the amount is otherwise deductible." (Internal Revenue Service)

[Guidance Overview]

Changes in the IRS Independent Contractor Classification Program
"There are two primary benefits to the [voluntary classification settlement program]. First, there are no penalties and no interest, and the payment involved is very nominal.... The second benefit is that the employer and the IRS enter into related to these workers for past years. Therefore participants in the program will relinquish the independent contractor classification prospectively without implicating the past." (Pepper Hamilton LLP)

Hodgson Russ Employee Benefits Developments, March 2013
Articles include: [1] Department of Health and Human Services Issues Final HIPAA Privacy and Security Regulations; [2] IRS Updates EPCRS Process; [3] DOL Updates Delinquent Filer Voluntary Compliance Program; [4] Employee Not Entitled to COBRA Penalties; [5] Court Denies ERISA Claims Involving a Plan Sponsor's Imprudent Investment Decisions; [6] PBGC Properly Denied Shutdown Benefits; and [7] ERISA Does Not Preempt Shareholder Derivative Action for ESOP Participants. (Hodgson Russ LLP)

Trucker Huss Benefits Report, March 2013 (PDF)
Articles include: [1] New HIPAA Privacy and Security Rules -- What Plan Sponsors and Their Business Associates Need to Know to Comply by the September 23, 2013 Deadline; [2] HHS Issues Final Rules on Essential Health Benefits, Actuarial Value, and Accreditation; [3] Target Date Retirement Funds: New Fiduciary Tips; and [4] DOL Extends Transition Period for Temporary NAIC-similar State External Review Process under the ACA. (Trucker Huss)

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