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July 9, 2013          Get Health & Welfare News  |  Advertise
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Webcasts and Conferences

[Official Guidance]

Text of DOL Advisory Opinion 2013-03A: Application of ERISA Plan Asset and Fiduciary Obligations to Certain Revenue Sharing Arrangements
"Due to the inherently factual nature of the inquiry, it is possible that revenue sharing amounts received by [the Principal Life Insurance Company ('Principal')] in connection with a particular plan's investments are assets of the plan, depending on Principal's arrangements and communications with that plan. Nothing in the circumstances described above, however, would lead us to conclude that amounts recorded in the bookkeeping account as representing revenue sharing payments are assets of a client plan before the plan actually receives them. As noted above, however, the assets of a plan may include any type of property, tangible or intangible. Thus, the client plan's contractual right to receive the amounts agreed to with Principal, or to have them applied to plan expenses, would be an asset of the plan. Similarly, if Principal should fail to pay amounts as required by the contract or arrangement with the plan, the plan would have a claim against Principal for the amount owed and the claim itself would be an asset of the plan." (Employee Benefits Security Administration, U.S. Department of Labor)


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[Official Guidance]

Text of IRS Notice 2013-48: Application of Wash Sale Rules to Money Market Fund Shares (PDF)
"This notice proposes a revenue procedure describing circumstances in which the [IRS] will not treat a redemption of shares in a money market fund as part of a wash sale under Section 1091[.] The proposed revenue procedure provides that if a taxpayer realizes a loss upon a redemption of certain money market fund shares and the amount of the loss is not more than a specified percentage of the taxpayer's basis in such shares, the IRS will treat such loss as not realized in a wash sale. This proposed guidance is intended to mitigate tax compliance burdens that may result from proposed changes in the rules that govern the prices at which certain money market fund shares are issued and redeemed." (Internal Revenue Service)

EBSA's 2013 Calendar Includes Final Rules on Target Date Funds, Funding Notices
"The fiduciary rule ... is scheduled to be re-proposed in October, the agenda said ... EBSA hopes to be involved in finalizing five rules. Among these is a rule on target date disclosures that would amend the department's qualified default investment alternative regulation and its participant-level disclosure regulation by requiring that more detailed information about target date fund investments be disclosed to plan participants and beneficiaries. The agency ... intends to release the final rule in November. In October, EBSA expects to issue a final rule on annual funding notices.... In January, EBSA expects to issue a final rule amending the abandoned plan program." (Bloomberg BNA)

Sheet Metal Workers Pension Fund Latest to Go to Variable Pension Accruals
"To set each year's benefit accrual rate, staff and actuaries of the Sheet Metal Workers plan will use the average investment return of the preceding three years, once the actuarial valuation is made. If the three-year return average is 8.5% or better, most accruals don't change. Returns between 6.5% and 8.4% would trigger an accrual rate of 0.75% of contributions, anything below that would be 0.5%, and three years of zero or negative returns would mean no accruals. For 2014, based on preliminary investment returns, fund officials are predicting a return of 8.22%, which would mean an accrual rate of 0.75%." (Pensions & Investments)

CalPERS to Post 500,000 Pensioners' Names, Payment Amounts and Other Data Online
"The California Public Employees' Retirement System will launch a searchable pension database with information that is deemed public, such as a retiree's name, monthly gross pension payment and some employment history, said spokeswoman Amy Norris. The database is expected to go live next week.... The fund acknowledged that such disclosure would stir privacy concerns from retirees." (KTVU.com)


PSCA's 2013 National Conference, Sept. 9-12, in Scottsdale, AZ

Sponsored by PSCA (Plan Sponsor Council of America)

Join leading defined contribution plan experts for keynotes presentations, workshops, roundtables, and networking opportunities at the premier industry conference of the year. Use discount code BLMDISC for an additional $150 off your registration.

Proposed Federal Tax Law Change Aims to Ease Pension Funding Burden on States and Cities
"If Senator Hatch's proposal were to become law, a local government that opted for insurance would hold competitive bidding once a year. The winning carrier would give each worker a contract, guaranteeing a retirement-to-death annuity amount for a year's worth of work. Public employees' unions would no longer negotiate the size of their members' pensions; instead, they would negotiate how much the local employer would pay the insurer upfront. The annuity contracts would be portable, meaning workers would take theirs with them when they changed jobs." (The New York Times; free registration required)

Tatum vs. R.J. Reynolds Tobacco Company: Plan Fiduciary Issues Involving Employer Stock Investments
"[1] How do you reconcile this court's 'substantive prudence' standard with the holding of ... Tussey v. ABB? ... [2] What is the standard for holding a single stock fund that is not an employer security? ... Given their inherently risky nature, many have believed that such funds present a high 'imprudence risk.' Nevertheless, the Tatum court seems to be saying that -- with appropriate evaluation and monitoring -- such a fund could be maintained in some circumstances. [3] How does the standard for the prudent evaluation of retaining a risky investment differ from the standard for the acquisition of such an investment? ... Even though it might be imprudent to acquire that stock, the court adopted the position of plaintiff's expert that the disposition of that stock presents a different set of issues." (October Three)

Text of DOL Amicus Brief to Fourth Circuit in Tatum v. R.J. Reynolds, in Support of Plaintiffs-Appellants and Urging Reversal
"The district court ... used an incorrect standard for determining whether the breaching fiduciaries made such a showing.... [It] is not sufficient to show that a hypothetical prudent fiduciary could prudently have decided to eliminate the Nabisco Funds on January 31, 2000. This standard is inconsistent with the adoption by this Court as well as other Circuits of a hypothetical prudent fiduciary standard ... By concluding that RJR met its burden by showing that a hypothetical prudent fiduciary could have made the same decision, the district court's decision set too low a bar for breaching fiduciaries and threatens to weaken ERISA's deterrent effect against such breaches of fiduciary duties. Instead, where a fiduciary failed to conduct an adequate investigation into the prudence of the relevant investment decision and a loss to the plan occurred, the fiduciary must show that, had it conducted such an investigation, it is more likely than not that it would have made the same decision and the plan would have suffered the same loss." (Employee Benefits Security Administration, U.S. Department of Labor)

Text of DOL Amicus Brief to Eighth Circuit in Tussey v. ABB
"The district court correctly decided that the ABB Defendants violated their duties of prudence and loyalty with respect to the revenue sharing fees that the Plans paid to Fidelity Trust.... Under longstanding interpretive guidance by the Secretary, a statement of investment policy issued by a named fiduciary authorized to appoint investment managers is a plan document that fiduciaries are required to follow unless doing so would violate ERISA. Accordingly, the district court correctly determined that the ABB fiduciaries violated their fiduciary duties when they failed to comply with the Plans' own requirements, as expressed in the Investment Policy Statement, that revenue sharing be used to offset or reduce the cost of providing administrative services to the Plans." (Employee Benefits Security Administration, U.S. Department of Labor)

Limiting the 401(k) Finder's Fee
"A series of lawsuits making their way through the courts have raised questions about whether employees are being overcharged for the accounts.... [B]ecause of the combination of forces, the cost of running and investing in the plans, on average, have been on the decline for several years.... Still, workers can pay a fairly wide range of fees. Many plans cost between 0.2 and 1.8 percent, but some plans, particularly smaller ones, are more costly." (The New York Times; subscription may be required)

California's Pension Debt Jumps 5 Percent
"[D]espite glowing reviews for Brown's 2013-2014 budget ... the state's unfunded retirement liability has increased 5 percent since February.... California's major retirement systems now have $222.2 billion in unfunded pensions, up from $211.4 billion five months ago.... [T]hat number was $110 billion in 2007-2008, meaning the state's unfunded pensions have doubled in six years.... Some observers think those numbers are actually underestimating the state's unfunded liabilities." (Sacramento Business Journal)

The Retirement Saver's Secret (as in 'Underappreciated') Weapon
"Unlike exercise, tax deferred savings can offer immediate gratification. It can, in effect, give you an instant raise in net take-home pay." (Fiduciary News)

Company Owners Can be Personally Responsible for Contributions to Multiemployer Pension Plans
"As business conditions deteriorated, the shareholder decided to pay creditors other than the multiemployer funds.... According to the court, the owner prioritized the payment of corporate expenses that were beneficial to him, such as bank loans that he had personally guaranteed or other personal loans, over payments to the multiemployer funds. That preference violated a duty of loyalty to the funds and constituted defalcation under bankruptcy rules. The obligation was therefore nondischargeable." (Leonard, Street and Deinard)

Who Uses the Roth 401(k), and How Do They Use It?
"Approximately one year after the Roth is introduced, 9% of 401(k) participants have positive Roth balances. Roth participation is more than twice as high among 401(k) participants who were hired after the Roth introduction than among 401(k) participants who were hired before the Roth introduction. In essence, once an employee joins a 401(k) she becomes passive/inattentive, thereby reducing the likelihood of reacting to the introduction of a new Roth option." (National Bureau of Economic Research)

Fiduciary Duty Boosts Revenue, Not Compliance Costs, According to Financial Planning Coalition
"[T]he Financial Planning Coalition argued that the [SEC] should adopt a uniform fiduciary standard for retail investment advice, which would raise advice requirements for brokers. [The Coalition] supported such a move [with a] survey showing that 55% of registered investment advisers and 46% of registered representatives acting as fiduciaries experienced more than 10% in annual asset growth from 2007 to 2011. Those numbers compared with 29% for registered reps who are not fiduciaries and charge commissions." (Investment News; free registration required)


To Boldly Go Where No Class Action Plaintiff Has Gone Before: Church Plan Class Actions
"No matter what one thinks of class action plaintiffs' firms, the reality is that both the threat of breach of fiduciary duty class actions and the changes imposed by suits that are successful play a significant role in maintaining the standards and integrity of benefit and pension plans.... [T]hey are testing whether the controlling standards for church plans are correct, and giving the courts an opportunity to address this in detail. Eventually, these cases and this argument will almost certainly end up in the appeals courts, giving rise to a body of modern, well-developed authority on the issue. In the end, this can only benefit everyone." (Stephen Rosenberg of The McCormack Firm, LLC)


Prof. Norman Stein Calls for End to Conflicts of Interest in Investment Advice
"ERISA says unambiguously that people and firms that give investment advice to people in retirement plans are fiduciaries and that fiduciaries cannot generally have disabling conflicts of interest. This is not a new idea. It has been the law for close to half a century. But in 1975 the [DOL] adopted a regulation that artificially constricted the meaning of investment advice.... Well, the world in 1975 was a very different world than it is today. Steve Jobs was still tinkering in his dad's garage, e-mail meant mail in envelopes, Jennifer Aniston was in first grade, and more pertinent, the 401(k) plan had not yet been invented and only a few thousand individual retirement accounts had been opened." (Pension Rights Center)


Comments by American Council of Life Insurers to SEC on Duties of Brokers, Dealers and Investment Advisers (PDF)
172 pages. Excerpt: "If the SEC determines it is appropriate to harmonize broker-dealer and investment adviser regulation involving personalized recommendations about securities to retail customers, it is essential that any related rulemaking preserve or enhance: [a] Investor protection for retail customers; and [b] Choice and access to securities products and services for the full spectrum of retail customers. Any new harmonized standard of care must satisfy the Dodd-Frank Act mandate that it apply only to 'personalized' investment advice about securities to 'retail investors' as those terms are defined." (American Council of Life Insurers (ACLI))


Comments by Financial Services Institute to SEC on Duties of Brokers, Dealers and Investment Advisers (PDF)
45 pages. Excerpt: "FSI's members are committed to a regulatory environment that achieves three important goals: (1) Investor access to financial advice and services; (2) Investor choice between available providers of advice and services; and (3) Robust and effective investor protections. FSI and its members believe that a uniform fiduciary standard of care, plainly articulated conduct rules, effective customer disclosures, and balanced regulatory supervision efforts will achieve all three of these goals and promote an environment that provides widespread benefits to all stakeholders." (Financial Services Institute (FSI))


Comments by The Committee for the Fiduciary Standard to SEC on Duties of Brokers, Dealers and Investment Advisers (PDF)
62 pages. Excerpt: "[S]ome of the assumptions made in the RFI would, if adopted, not conform to the requirement under the Dodd Frank Act that the fiduciary standard be as stringent as that found under the Advisers Act.... Under the jurisprudence of the Advisers Act, disclosure does not discharge a fiduciary's continued obligation to act in the client's best interest; much more is required of the fiduciary advisor.... [We] suggest the formation of a 'Fiduciary Board of Standards' for purposes of aiding the SEC, DOL, OCC and state securities regulators in the application of fiduciary standards... As the fiduciary standard operates as a restraint on conduct, certain business practices of brokers should be modified." (The Committee for the Fiduciary Standard)


Text of Comments by AICPA to SEC on Duties of Brokers, Dealers and Investment Advisers (PDF)
"The current self-regulated broker-dealer examination regime is inherently conflicted. If applied to the investment adviser profession, the same rules-based standard would result in a check-the-box approach similar to broker-dealer oversight and is not conducive to appropriate regulation of the investment adviser profession. This harms the public's best interest as it diverts focus from placing the investor's interest first to simply complying with the rules." (American Institute of CPAs (AICPA))


Text of Comments by Wells Fargo to SEC on Duties of Brokers, Dealers and Investment Advisers (PDF)
"Wells Fargo's support for a uniform fiduciary duty is conditioned on the SEC's conduct of a proper cost-benefit analysis, and upon the adoption of a cost-effective standard that preserves investor choice, is business model neutral and avoids regulatory conflict or duplication.... Wells Fargo also notes that the Commission currently has access to an extensive body of existing research comparing standards of care for brokers, dealers and investment advisers." (Wells Fargo)


Text of Comments by ASPPA to IRS on Forfeitures Used to Fund Safe Harbor Contributions
"The IRS should change its ruling policy and, to the extent necessary, issue sub-regulatory guidance that confirms forfeitures are permissible sources for Restricted Contributions ... and that the non-forfeitable status of such amounts is determined at the time they become part of the accrued benefit of the recipient of the Restricted Contributions.... The IRS should apply the protections of Code Section 7805(b) liberally in circumstances where plan documents subject to a favorable opinion, notification or determination letter do not explicitly prohibit the use of forfeitures to fund Restricted Contributions." (American Society of Pension Professionals & Actuaries (ASPPA))

Benefits in General; Executive Compensation

[Official Guidance]

Semiannual FSLG Newsletter from the IRS Office of Federal, State and Local Governments, July 2013 (PDF)
Articles include: IRS Guidance on Sick Leave Plans; Severance Pay and FICA; Recorded Webinars for Government Employers; EHR Reporting; and Directory of FSLG Specialists. Excerpt: "This is the semiannual newsletter of the office of Federal, State and Local Governments (FSLG) of the Internal Revenue Service. Our mission is to ensure compliance by Federal, state, and local governmental entities with Federal employment and other tax laws through educational and compliance review activities." (Internal Revenue Service)

[Guidance Overview]

New Compliance Check Program Announced for 457(b) Non-Governmental Plans (PDF)
"It is unclear how the VCP program will be applied, since non-governmental 457(b) plans generally cannot be corrected under the [EPCRS] ... However, the Revenue Procedure states that the IRS may consider submissions by tax-exempt entities -- to correct unfunded section 457(b) deferred compensation plans that were erroneously set up to benefit rank and file employees -- if the plan has been operated in a manner similar to a qualified plan. It is unknown how the IRS will react when they encounter 457(b) plan errors by tax-exempt entities that do not fall within this narrow area of consideration." (Buck Consultants)

Text and Status of Recently-Introduced Regulatory Accountability Act of 2013 (H.R. 2122)
Summary from the Library of Congress: "Amends the Administrative Procedure Act to revise and expand the requirements for federal agency rulemaking by requiring agencies, in making a rule, to base all preliminary and final factual determinations on evidence and to consider the legal authority under which the rule may be proposed, the specific nature and significance of the problem the agency may address with the rule, any reasonable alternatives for the rule, and the potential costs and benefits associated with such alternatives. Requires agencies to publish advance notice of proposed rulemaking for major rules and for high-impact rules ... and for rules that involve a novel legal or policy issue arising out of statutory mandates, which shall include a written statement identifying the nature and significance of the problem the agency may address with a rule, the legal authority under which the rule may be proposed, the nature of and potential reasons to adopt a novel legal or policy position, and a solicitation for written data, views, or arguments from interested persons. Sets forth criteria for issuing major guidance ... or guidance that involves a novel legal or policy issue arising out of statutory mandates. Expands the scope of judicial review of agency rulemaking by allowing immediate review of rulemaking not in compliance with notice requirements and establishing a substantial evidence standard for affirming agency rulemaking decisions." (U.S. House of Representatives)

DOMA's Demise in Supreme Court's Windsor Decision Affects Employee Benefits
"In analyzing these issues, employers should take into account the extent to which their plans have previously provided benefits to same-sex spouses, individuals in civil unions under state law or persons who qualify as domestic partners under the employer's policies. Employers will need to consider how plan changes will impact all of these groups." (Goodwin Procter LLP)

Impact of the DOMA Case on Employee Benefit Plans
"If a same-sex couple is legally married and lives in a state that recognizes the marriage, but one or both of the spouses works in a state that does not, how do the federal employment laws apply? Our current advice is that individuals are considered married or not, and the State of residence would control. Therefore, federal employment laws would recognize the marriage regardless of where the spouses work." (Blank Rome LLP)

2013 Canadian Say on Pay Results (PDF)
"Say on Pay ('SoP') is still voluntary in Canada and the uptake continues with 127 companies having SoP votes in 2013, up from 104 last year. Among the S&P/TSX 60 index companies, 82% have now adopted SoP.... SoP votes have generally tracked last years' experience with high approval rates, but they are down slightly from prior years. Three companies failed to receive majority support ... Last year, only one company (QLT Inc.) failed to receive majority support." (Meridian Compensation Partners, LLC)


Comments by U.S. Chamber of Commerce in Support of H.R. 2122, the Regulatory Accountability Act of 2013 (PDF)
"Federal agencies very often fail to grasp the full impact that their new regulations -- added to prior rules and those of other agencies -- have on businesses, communities, and the economy as a whole.... As a result, rulemakings produce flawed, incoherent rules that become subject to lengthy court challenges, leaving regulated parties struggling to understand what exactly they have to do to comply with the law.... The legislation would put balance and accountability back into the federal rulemaking process, without undercutting vital public safety and health protections ... The Act would require federal agencies do a better job of explaining the rationale for new rules and being more open and transparent when they write those rules." (U.S. Chamber of Commerce's Health Care Solutions Council)

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