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October 17, 2013          Get Health & Welfare News  |  Advertise
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[Official Guidance]

Text of FINRA Proposed Rule Change to Revise the Series 6 Examination Program
"The proposed revisions update the material to reflect changes to the laws, rules and regulations covered by the examination and to incorporate the functions and associated tasks currently performed by an Investment Company and Variable Contracts Products Representative. In addition, FINRA is proposing to make changes to the format of the content outline. FINRA is not proposing any textual changes to the By-Laws, Schedules to the By-Laws or Rules of FINRA." (Financial Industry Regulatory Authority [FINRA])  


Free Webcast: PPA Restatements Update

Sponsored by ASC

Put ASCi's expertise to work for you! Join 30-year, ERISA expert, Charles Lockwood, J.D., LL.M. for a discussion about the upcoming PPA restatement process. Click here for more info.

[Guidance Overview]

'Open' Multiple Employer Plans After DOL Advisory Opinion 2012-04A: An Assessment (PDF)
"[It] is important not to overstate the consequences of this holding. It does not in any way forbid plans with an Open MEP-type structure from operating, but rather, contemplates only that they are to be treated as multiple single employer plans for purposes of Title I of ERISA.... We have no doubt that [the DOL's] commonality and other standards ... were developed entirely with the motivation of protecting plan participants' interests, and likewise, any new product or model that is brought to market should be carefully scrutinized by regulators." (Fred Reish, Bruce Ashton and Joshua Waldbeser in Journal of Pension Benefits)  

[Guidance Overview]

Using Forfeitures in EPCRS Corrections
"In general, a corrective allocation must come from employer nonelective contributions. However, if the plan uses forfeitures to reduce employer contributions, the plan may use forfeitures to satisfy the corrective allocation requirement. In a plan with a discretionary profit sharing or matching formula, the effect of using forfeitures to reduce or increase benefits is more perception than economic. Accordingly, an employer should strongly consider providing in the plan document that forfeitures will be used to offset employer contributions, in order to provide the employer with more corrective options under EPCRS." (SunGard Relius)  

[Guidance Overview]

Required 2013 Qualified Retirement Plan Amendments and Cycle C Determination Letter Filing Deadline
"This Article summarizes amendments that plans may be required to adopt for the 2013 plan year as well as plan document considerations for plans that are scheduled to apply for an IRS determination letter under Cycle C. This Article may be updated to reflect additional guidance issued in 2013 that may require more amendments to be adopted by the end of the 2013 plan year." (Practical Law Company)  

Federal District Court Approves $35 Million Settlement for Cigna Employees and Retirees Over Disputes in the Handling of the Cigna 401(k) Plan
"The case involves disputes over the handling of the Cigna 401(k) plan, the prudence and level of fees of certain plan investment options, and the sale of Cigna's retirement business to PRIAC.... The settlement is the largest ever for a case of its kind on behalf of 401(k) plan investors.... As part of the settlement, Cigna has agreed to a variety of initiatives designed to enhance its review of alternatives for the Plan and Plan Participants' retirement savings. Additionally, Cigna has agreed to continue not to include in the Plan's investment lineup any investment options managed by it or its affiliates, and has agreed to continue to exclude retail class mutual funds from the Plan's lineup. Cigna will engage independent consultants to evaluate and make recommendations regarding certain aspects of the Plan's administration." (Schlichter, Bogard & Denton via prweb)  

How the Future of the 401(k) Industry May Hinge on the Outcome of a Lawsuit Brought by Fidelity Employees Against Their Own Company
"[T]his lawsuit hits specific share classes, pointing out that expensive retail share classes are used in Fidelity's 401(k) plan, when less costly institutional share classes could instead be used.... [T]hen, too, there's the David and Goliath-like aspect of having the king of the 401(k) industry, with its more than 20 million institutional and individual clients, pitted against participants.... A loss for Fidelity could open a legal Pandora's Box for plan sponsors who operate along lines similar to Fidelity's." (RIABiz)  

Lockheed Martin Asks Supreme Court to Review Class Certification Decision in Excessive Fee Case
"The petition presents the following question: 'Whether a plaintiff has standing to represent a class where the defendant's alleged misconduct did not cause him harm.' Lockheed Martin argues that the Seventh Circuit's holding that Plaintiffs do have standing even though they 'do not appear to have suffered any damages,' conflicts with decisions by the Third, Sixth, Eighth, Tenth, and Eleventh Circuits." (FRA PlanTools, LLC)  

Initial Fee Disclosure Deadlines Are Behind Us, but Fee Disclosure Is Not (PDF)
"In February 2013, Assistant Secretary Phyllis Borzi wrote about the success of the disclosures on the marketplace, praising those who have designed apps and websites to make accessing and comparing fees simpler for participants. She also stated that EBSA will continue to closely monitor the implementation of the fee disclosure rules and stressed the importance of these rules, stating that the most important thing participants can do is 'review [their] fee disclosure chart.'... The DOL's recent communications should send a clear message to plan sponsors and service providers that fee disclosure will continue to be an important focus." (United Retirement Plan Consultants)  

The IRA Investor Profile: Traditional IRA Investors' Activity, 2007-2011 (PDF)
76 pages. Excerpt: "Despite dramatic declines in stock values between October 2007 and March 2009, a recession (December 2007 to June 2009), and rising unemployment rates, traditional IRA investors with accounts from year-end 2007 through year-end 2011 showed little reaction to the financial events. Contribution and rollover activity declined only a bit in the wake of the financial crisis. Although relatively few traditional IRA investors contribute to their traditional IRAs in any given year, those that do contribute tend to do so in multiple years; this tendency persisted even from 2007 to 2011. Withdrawal rates rose slightly between 2008 and 2011, but still only a small fraction of younger traditional IRA investors took money out of their traditional IRAs." (Investment Company Institute [ICI])  

401(k) Plans Are Working: DC Plans Continue to Grow, and Millions Are Saving for Retirement
"During the last couple of years, participation rates, deferral rates, and company contributions have increased steadily, and are now equal to or higher than they were before the recession: 87.6 percent of eligible employees have a balance in the plan. Participants are saving an average of 6.8 percent of pay (up from 6.4 percent in 2011, and 6.2 percent in 2010). 95.3 percent of plans made the matching contribution in 2012, when provided for in the plan (up from 89.0 percent in 2010 and 85.2 percent in 2009). The average company contribution is now 4.5 percent of pay, up from 4.2 percent in 2011 and 3.7 percent in 2010." (Plan Sponsor Council of America [PSCA])  

401(k) Participants in the Wake of the Financial Crisis: Changes in Account Balances, 2007-2011 (PDF)
"The average 401(k) account balance fell 34.8 percent in 2008, then rose from 2009 to 2011. Overall, the average account balance increased at a compound annual average growth rate of 5.4 percent over the 2007-2011 period, to $94,482 at year-end 2011. The median 401(k) account balance (half above, half below) increased at a compound annual average growth rate of 11.5 percent over the period, to $42,082 at year-end 2011. Analysis of a consistent group of 401(k) participants highlights the impact of consistent participation in 401(k) plans. At year-end 2011, the average account balance among consistent participants was 60 percent higher than the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group's median balance was about two-and-a-half times the median balance across all participants at year-end 2011." (Employee Benefit Research Institute [EBRI])  

Third Circuit Rules That Claim for Pension Benefits Fails Under Theory of Equitable Estoppel
"[T]he Third Circuit Court of Appeals noted that ERISA Section 502(a)(3) allows a beneficiary to obtain appropriate equitable relief to redress ERISA violations, and that a beneficiary can make out a claim for appropriate equitable relief based on a theory of equitable estoppel. But to succeed on such theory, the beneficiary must establish: (1) a material misrepresentation, (2) reasonable and detrimental reliance upon the representation, and (3) extraordinary circumstances." [Jenkins v. Union Labor Life Company, No. 12-4310 (3rd Cir. Sept. 16, 2013)] (Cary Kane ERISA Lawyer Blog)  

Mercer U.S. Pension Buyout Index, September 2013
"During September, as indicated by the Index, the cost of purchasing annuities from an insurer increased from 108.8% to 108.9% with a corresponding increase from 108.1% to 108.2% in the economic cost of maintaining the liability. The retiree buyout cost relative to the economic cost of retaining the liabilities remained level during September and remains low at approximately 70 basis points indicating that buyout premiums are potentially attractive for sponsors when compared to the cost of retaining the liabilities[.]" (Mercer)  

Long Beach Says It Has Achieved Total Pension Reform
"The city of Long Beach is announcing that it has achieved pension changes for all city employees after reaching a tentative agreement that asks four of the city's bargaining units to increase the amount employees pay into their retirements.... Employees covered under the new contracts will now contribute 8% of their salary into CalPERS, an increase from the 2% they previously paid. As part of the deal, they will also receive a 5% raise this month, followed by a 4% increase next year." (Los Angeles Times)  

The War on Pensions Goes Federal
"A soon-to-be-introduced bill could allow the trustees of some financially troubled plans, like the Central States Fund, to slash benefits already promised to current retirees. It's not yet clear how big those cuts would be.... While the reform bill's language has not yet been drafted, it is expected to closely mirror a February 2013 proposal, Solutions not Bailouts, from the National Coordinating Committee for Multi-Employer Plans (NCCMP)[.]" (In These Times / Institute for Public Affairs)  

Judge Questions Detroit Pension Claims
"U.S. Bankruptcy Judge Steven Rhodes pressed lawyers ... to explain why Michigan municipal pension commitments can never be revised ... [and] challenged unions and a city pension system on their claims that the state constitution bars any cuts to municipal retiree payments, in or out of bankruptcy.... 'Is there any other constitutional right, state or federal that is that absolute?' Mr. Rhodes asked an attorney for a pension system that opposes the bankruptcy. 'Even freedom of the press isn't that absolute, is it?'" (Pensions & Investments)  

City of North Miami Beach to Sue Pension Board
"North Miami Beach council members voted ... to sue one of the city's pension boards after the board refused to implement cuts to employee pension benefits. The council recently decided to cut the rate at which employees accumulate pension benefits.... Benefits already accumulated would not be lost, however.... The city anticipates savings of $736,000 the first year and $1 million per year after that.... City Attorney Darcee Siegel assured council members these steps were legal, but a majority of the pension board and their lawyer disagreed." (Miami Herald)  

Prince Charles, in Unusual Attack, Says Short-Term Thinking Is Not Fit for Handling Pensions
"Prince Charles has warned pension fund managers to move beyond short-term thinking or risk creating a 'miserable future' for coming generations.... He said the world faces a 'perfect storm' of overpopulation, increased pollution, overconsumption of finite natural resources, and the 'very real and accumulating' risk of catastrophic climate change coupled with higher than ever levels of debt and financial uncertainty. The future king said the short-term focus on quarterly profits is not adequate against this troubled backdrop, particularly as pension liabilities stretch out many decades. He said investors have a duty to develop a sustainable financial system." (The Washington Post; subscription may be required)  


Pensions' Massive Bet on Rising Rates?
"[A recent] survey by JP Morgan found inflation expectations dropped to their lowest level since 2010 ... So why are investors betting on rising rates if they see no inflation on the horizon? Is it due to fears of a bond market dislocation once the Fed starts tapering or is it because of fears of a run on the U.S. dollar? ... [W]ithout inflation, it's hard to make any case for a substantial rise in interest rates." (Pension Pulse)  


AARP's Fuzzy Math on Social Security
"Last year, Social Security paid out almost $715 billion in retirement, survivors and disability benefits. This money supports seniors, but according to AARP the gains don't stop there.... [A recent] report concludes: 'Because of the multiplier effect, every dollar of Social Security paid out translates to almost two dollars in spending in the United States.' Sounds like magic. But what AARP overlooks is the money pulled out of the economy through Social Security payroll taxes to fund these benefits." (The Wall Street Journal; subscription may be required)  

Benefits in General; Executive Compensation

Argument Analysis: Nobody Seems Worried About ERISA Limitations Periods
"In Tuesday's argument in Heimeshoff v. Hartford Life & Accident Insurance Co., the Justices seemed convinced that no matter how they decide this case, it probably won't be a big deal.... [T]here is a dearth of data explaining how often the statute of limitations actually prevents the beneficiary of an ERISA-regulated plan from filing suit. Sometimes, such information gaps invite speculation, wild theories, and entertaining hypotheticals. On Tuesday, however, the Justices responded by wondering out loud whether the issues in the case even matter." (SCOTUSblog)  

High Court Hears Arguments on Accrual of Limitations Periods in ERISA Plans
"Justice Stephen G. Breyer asked [Heimeshoff's attorney Matthew W.H.] Wessler whether Heimeshoff's problem could be solved by allowing her to file a 'protective complaint' prior to the conclusion of the administrative review process. Wessler argued that this solution would distort the administrative review process, saying that this 'gets lawyers and courts involved in a process that should be private.'" (Bloomberg BNA)  

California Governor Signs New Law Reducing State Tax Penalty for Section 409A Violations
"California law previously provided for ... a 20% state income tax penalty in addition to the 20% federal income tax penalty on amounts previously deferred and includible in income as a result of a Section 409A violation. The new law ... substitutes the phrase 'five percent' in lieu of the phrase '20 percent' as the additional income tax penalty for violations of Section 409A. The reduced income tax penalty is applicable for taxable years beginning on or after January 1, 2013." (Proskauer's ERISA Practice Center)  

California Public Pension Ballot Initiative Would Eliminate Vested Right to Future Benefit Accruals
"The proposal if passed would amend the California constitution to provide that employees have no vested rights in future pension and retiree health benefit accruals, but only to benefits accrued based on past employment. As such, it would cause the vesting of public retirement plans in California to be more comparable to the vesting of private retirement plans under [ERISA]. The proposal, if adopted, would be particularly significant inasmuch as California has historically been a leader in the recognition of the right of public employees to vesting in future benefit accruals." (Calhoun Law Group)  

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