Deadline Looms for SEC Request for Information on Potential Uniform Fiduciary Standard
"[T]here is little evidence to suggest that the rate of complaints against fiduciary-regulated RIAs is higher than suitability-regulated registered representatives under FINRA, nor that the typical liability settlement for RIAs is materially higher than for brokers ... [M]any advisors have [said] that their costs for Errors & Omissions insurance actually went down when they left their broker-dealer and became an RIA instead, suggesting that even insurers who have to put their dollars on the line to back the liability claims against advisors believe that fiduciary advisors have less typical liability than brokers."
(Michael E. Kitces)
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Multiple Class Action Complaints Challenge Church Plan Status of Hospital Pension Plans
"At least five complaints have now been filed ... challenging the 'church plan' status of certain pension plans maintained by church-sponsored hospital systems.... According to the complaints, certain of the targeted plans are notably underfunded when compared to the funding that would be required for nonchurch pension plans subject to ERISA. The imposition of ERISA's funding requirements on pension plans having projected liabilities that greatly exceed assets would impose a significant financial hardship on the sponsors of those plans."
(McDermott Will & Emery)
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PBGC Seeks Comments on Implementing a Missing Participants Program for Individual Account Plans
"The RFI suggests that the PBGC may be considering a limited program that only fills needs that are not adequately met by private-sector services. In addition to the challenge of identifying those gaps and constructing a program to fill them, the PBGC's efforts may encounter other obstacles. One of these could be reluctance on the part of plan fiduciaries to give assets to the PBGC when DOL guidance offers safe harbor relief from ERISA's fiduciary liability provisions for another approach: IRA rollovers."
(Thomson Reuters / EBIA)
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Louisiana Supreme Court Rules Jindal-Backed Pension Changes Unconstitutional
"The Louisiana Supreme Court ... struck down a controversial change made to the retirement system for new state workers, saying the legislation did not garner enough votes when it was originally passed in 2012.... [Gov. Bobby Jindal had] backed a change to the system for new state workers that would have shifted them from a traditional pension into a 401(k)-like, or 'cash balance,' retirement plan. While the plan was passed by a simple majority in both chambers, some lawmakers said the change required a two-thirds vote because it would result in an increase in cost to the state."
(The Times-Picayune)
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Asset Valuations and Safe Portfolio Withdrawal Rates
"Our simulations indicate that the safety of a given withdrawal strategy is significantly affected by the initial bond yield and [cyclically adjusted price-to-earnings (CAPE)] value at retirement ... Using valuation measures current as of April 15, 2014, which is a bond yield of 2.0% and a CAPE of 22, we find the probability of success for a 40% equity allocation with a 4% initial withdrawal rate over a 30 year period is approximately 48%. This success rate is materially lower than past studies and has sobering implications[.]"
(David Blanchett, Michael S. Finke, Wade Pfau via SSRN)
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J.P. Morgan Pension Pulse, Spring/Summer 2013
Articles include: [1] Rising assets, ebbing liabilities lift corporate funded status 9% in the first half of 2013; [2] Should pension funds buy into buy outs? For the average U.S. plan, a buyout can increase risk instead of derisking; and [3] So when does a buyout make sense? All options need to be modeled to determine which derisking tool is most appropriate.
(JPMorgan)
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Raising the Savings Rate (PDF)
"EBRI's 2013 Retirement Confidence Survey found that ... if those not currently offered a plan were auto-enrolled in a retirement savings plan at a deferral rate of 6 percent of pay: [1] 44 percent say they would continue contributing at that rate; [2] 11 percent would increase it; [3] 24 percent would continue contributing but decrease the amount; [4] 16 percent would cancel the contribution altogether."
(EBRI)
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Mitigating a Plan Sponsor's Fiduciary Liability for DC Investment Decisions
"While a 'do-it-yourself' approach can be an effective strategy, committees and plan sponsors should understand that under this approach, there generally are no outside parties with whom to share fiduciary responsibility. Plan sponsors should ensure that they have committee members with sufficient investment knowledge and expertise to make sound and defensible decisions consistent with ERISA's 'prudent expert' standard. If certain members lack the appropriate qualifications, then those individuals should pursue relevant knowledge through training and education programs"
(Vanguard)
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U.S. Public Pension Assets Reach Record Highs
"For the 100 largest public-employee retirement systems, cash and security holdings totaled $2.93 trillion in the first quarter, the highest on records going back to 1968 ... The previous peak was just before the financial crisis in the fourth quarter of 2007, $2.929 trillion. But earnings on investments, which are key to public pensions' health as they provide 60 percent of the funds' revenue, slowed."
(Reuters)
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[Opinion]
Supreme Court Marriage Decision Affects Retirement Plans
"Here are just a few issues suddenly opened to same gender spouses in those states that recognize such marriages: [1] Spousal rollovers; [2] Delay in taking required minimum distributions after death; [3] Extended period to take required minimum distributions; [4] Spousal protections in joint and survivor plans; [5] 100% of the death benefit in non-J&S plans unless the spouse consents; [6] QDROs, without regard to whether the spouse qualifies as a dependent; [7] Certain hardship distributions without regard to whether the spouse qualifies as a dependent."
(SunGard Relius)
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[Opinion]
Dear SEC: About That Pesky Fiduciary Issue...
"'Business model neutrality,' 'cost-benefit analyses,' 'harmonization,' 'investor choice' (which apparently is essential in broker responsibility, but not so much when it comes to arbitration) and most recently 'coordination' with the Department of Labor, all have become central topics of debate, while nary a word gets uttered about protecting investors who couldn't tell you the difference between a fiduciary duty and a suitability standard if their lives depended on it."
(Advisor One)
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[Opinion]
FINRA Has Already Established a Fiduciary Standard
"What makes all of the stonewalling by the SEC and Congress even more amusing is that FINRA, the SRO for the financial services industry, has already clearly stated that brokers already have a legal duty to always put a customer's best interests first, especially with regard to financial interests.... [By] blocking a universal fiduciary standard that requires brokers to always act in a customer's 'best interests,' Congress and the SEC are actually preventing such harmony."
(The Prudent Investment Adviser Rules)
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[Opinion]
Moody's Flawed Estimate on Public Pension Liabilities
"Rather than using the average historical investment return rate of 8 percent, Moody's uses a return on a taxable bond index. This return would be no higher than that on a basket of high-rated corporate bonds ranging from 4.4 to 6.2 percent, the [Financial Times] says. The problem with using this rate is that we have been in a five-year period of zero-interest rate policy while the Federal Reserve has artificially suppressed interest rates to promote financial stability and spur economic growth."
(Reuters)
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[Opinion]
Credit Rating Agency Produces Moodier Pension Numbers
"Defined Benefit plans are costly and decades of hiding that fact from all parties gives us Detroit which, were it included in the Moody's report, would show that their funded ratio was not really 90%, as the plans officially report, but about 64% according to Moody's methodology[.]"
(Burypensions)
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[Opinion]
Text of Comments by the Secretary of the Commonwealth of Massachusetts to SEC on Duties of Brokers, Dealers and Investment Advisers (PDF)
31 pages. Excerpt: "I urge the Commission not to capitulate to industry advocates and the courts that would relegate investor protection to a 'bean counter' analysis concerned with the quantification of industry costs to the exclusion of the harmed warm-blooded investor.... The information we are providing indicates the costs, and indeed the harm, that retail investors suffer under the current system, which permits broker-dealer firms to provide investment advice to customers without any fiduciary duty to them. I urge the SEC to obtain similar data from every regulator in order to fend off the rising tide of cost-benefit rule destruction."
(Office of the Secretary, Commonwealth of Massachusetts)
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Benefits in General; Executive Compensation
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[Official Guidance]
Text of OPM Guidance on Extension of Benefits to Married Gay and Lesbian Federal Employees, Annuitants, and Their Families
"All legally married same-sex spouses will now be eligible family members under a Self and Family enrollment. In addition, the children of same-sex marriages will be treated just as those of opposite-sex marriages and will be eligible family members according to the same eligibility guidelines.... All legally married same-sex spouses and children of legal same-sex marriages are now eligible family members under the FEGLI Program, which means that employees may add coverage for a same-sex spouse and any newly eligible children under Option C.... All retirees who are in legal same-sex marriages will have two years from the date of the Supreme Court's decision (i.e., June 26, 2015) to inform OPM that they have a legal marriage that now qualifies for recognition and elect any changes to their retirement benefits based on their recognized marital status. In the coming days, OPM will be developing guidance to help retirees determine whether they wish to change their pension benefits in a way that will provide benefits for their surviving spouse."
(U.S. Office of Personnel Management)
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[Guidance Overview]
Supreme Court Rules DOMA Unconstitutional: Significant Implications for Employee Benefit Plan (PDF)
"For plans that recognize same-sex marriages, employers will need to revise their administrative procedures in areas such as COBRA, QDROs, special enrollment, etc.... Employers should consider whether they will notify employees of the change in the law and advise employees to let the employer know of any same-sex marriages (and request a marriage certificate as proof). Employers may also need to consider whether they will send out special notices to same-sex spouses they do know about, such as a general COBRA notice to those same-sex spouses covered by a group health plan."
(Dickinson Wright)
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[Guidance Overview]
Supreme Court's DOMA Decision Leaves Many Unanswered Questions
"Typically, an unconstitutional statute is deemed to have been unconstitutional from its enactment. Should that be true here, could a retirement plan be required to pay spousal benefits to a surviving same-sex spouse, even though a deceased retiree had already received his or her full benefits on the basis of an unmarried status? If so, this could expose the plan to additional liabilities that were not anticipated under the terms of the plan document."
(SpencerFane)
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[Guidance Overview]
Supreme Court Changes Landscape with DOMA Decision: A Primer for Employee Benefit Plans
"For now ... there seems no reason for plans to assume retroactivity. Claims may arise that will have to be managed, but most plans will want to avoid a wholesale revisiting of all potentially affected situations for the present. Plan provisions that apply contractual limitation periods on bringing claims that are shorter than would apply under ERISA case law may be especially helpful in this context. Thus, this is probably an ideal time for an updated review of strategies to limit claims exposure. In other respects, however, adopting plan language that seeks to protect a plan from retroactivity seems reasonable."
(Kilpatrick Townsend)
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[Guidance Overview]
Supreme Court Strikes Down DOMA: What It Means for Employee Benefit Plans
"While some employers may want to wait for official guidance before making some plan changes and taking other steps in response to the new decisions, there are several action items that employers may want to address immediately, including: [1] Notify employees of the window (typically 30 days) under your cafeteria plan for family status changes and special enrollment rights for same-sex spouses and their dependents; [2] Stop imputing income for health plan benefits and premium payments for same-sex spouses; [3] Review definitional and choice-of-law provisions of benefit plans concerning the definition of 'spouse'; [4] Start obtaining spousal consent from same-sex spouses for any defined benefit plan retirement distributions; [5] Advise employees married to same-sex spouses to review their death beneficiary designations; [6] Plan to file FICA refund claims; and [7] Send the required general COBRA notice to same-sex spouses who have not previously received it."
(Nixon Peabody LLP)
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[Guidance Overview]
IRS Begins 457(b) Plan Compliance Check Project
"The IRS just announced a 'compliance check' project for 457(b) plans maintained by non-governmental tax-exempt entities ... Certain items the IRS will be looking at ... may catch some plan sponsors off guard. The [IRS] will send compliance check letters and questionnaires to approximately 200 tax-exempt organizations between now and October 30, 2013, and another 200 during the fiscal year ending October 30, 2014."
(Fiduciary Partners Retirement Group)
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Michigan Ban On Domestic Partner Benefits Blocked
"[A] federal judge in Michigan has blocked the state from enforcing a 2011 law that bans public employers from offering benefits to same-sex couples.... [The judge] ruled in favor of five same-sex couples who sued the state over a 2011 law that prohibits various public employers, including cities and counties, from offering health benefits to same-sex couples. The American Civil Liberties Union challenged the law on behalf of the plaintiffs, who either lost their health insurance or stood to lose it as a result of the law."
(Detroit Free Press)
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Methodology for Measuring CEO Compensation and the Ratio of CEO-to-Worker Compensation
"Because the data used are average hourly earnings and the CEO compensation data are presented as annual numbers, the final industry-level typical worker compensation data are multiplied by 2,080. This converts hourly compensation of production/nonsupervisory workers to annual average worker compensation, which can now be directly compared with the annual CEO compensation figures used to calculate CEO-to-worker compensation ratios ... Most workers do not work full-time and year-round, so the annual compensation measure we are employing clearly overstates the actual annual compensation of a typical worker."
(Economic Policy Institute)
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U.K. Executive Compensation Disclosure Rules Finalized
"The UK has at last published its promised regulations on executive compensation disclosure, with few changes from previous drafts, and companies will need to act quickly as the regulations become effective October 1 this year.... [T]he regulation requires two 'remuneration reports,' one on actual compensation paid in the last year subject to a nonbinding shareholder vote and one on forward looking compensation policy subject to a binding shareholder vote at least every three years."
(HR Policy Association)
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Press Releases
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