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December 23, 2013          Get Health & Welfare News  |  Advertise
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SchwabRT Specialist
Carroll Consultants, Ltd.
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Lincoln Financial Group

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The Newport Group
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[Guidance Overview]

IRS Issues Temporary Non-Discrimination Testing Relief for Closed DB Plans, Requests Comments
"This relief helps these plans meet the Code's technical nondiscrimination requirements for plan years beginning before January 1, 2016, even if the equivalent benefit conditions cannot be satisfied, as long as the defined benefit plan in the Aggregated Plan situation was amended to exclude new hires prior to December 13, 2013 and meets one of the following two conditions: for [the] plan year beginning in 2013, the defined benefit plan was part of an Aggregated Plan that was either primarily defined benefit in character; or the defined benefit plan passed nondiscrimination testing on its own, without any aggregation, for the plan year beginning in 2013." (Proskauer's ERISA Practice Center)  


ASPPA On Tour- Coming to a City Near You!

Sponsored by ASPPA

ASPPA on Tour is the ultimate conference experience for retirement plan professionals. With the perfect balance of national and regional content, each of our five stops will stimulate, motivate and challenge you. Registration for LA is now open!

Retirement Plan Guidance is on EBSA's Gift List for 2014
"[EBSA] recently released an update to its guidance agenda, including a number of priorities that can be expected to affect retirement plans. Clearly there are some surprises in this updated priorities document and perhaps some reason for concern as well." (Ascensus)  

Regions Financial Settles 401(k) Case for $22.5 Million
"Regions Financial Corp agreed to a $22.5 million settlement with employees who claim to have [lost] money in their 401(k) retirement accounts because the regional bank exposed them to risky home loans and mismanaged some bond mutual funds ahead of the financial crisis. According to settlement [documents], employees lost money on Regions' stock in their retirement accounts after the housing bubble burst, causing the bank's portfolio of subprime, commercial real estate and exotic loans to sink in value. The employees claimed that the stock should not have been an investment option because Regions knew it was too risky." (Reuters)  

Supreme Court Takes on Fifth Third Bancorp v. Dudenhoeffer ESOP Dispute
"[A] little 'derisking' is worth considering, at least in the context of a combined 401(k)/ESOP. Recently, [one company] that historically deposited matching contributions into the ESOP change its policy, to invest in accordance with the participants' elections for future 401(k) plan contributions. The [company] cited diversification principles as its reason for making this change, and reminded participants to consider diversification as part of their investment strategy." (Porter Wright Morris & Arthur LLP)  

Supreme Court to Decide Applicability of the 'Prudence Presumption' in ERISA Stock Cases (PDF)
"[A] decision by the Supreme Court not to recognize the prudence presumption would undermine the federal policy encouraging ownership of employer stock and create significant uncertainty for both plan sponsors and fiduciaries. Plan fiduciaries would be operating in a much different environment where even modest changes in the value of the employer's stock could arguably give rise to an obligation to take action or face participant claims. Faced with the consequences of this uncertainty and the increased litigation risks, plan sponsors might decide to avoid or eliminate employer stock investments." (Morgan Lewis)  

What Impact Will the Budget Bill Have on Your DB Plan?
"Depending on a plan's participant count and how well funded the plan is, plan sponsors could see an increase of 155% or more in total PBGC premiums. Consider the case for this hypothetical DB plan. The plan has 250 participants, $10 million in assets, and an 85% funded ratio. Assuming everything else stays the same, total PBGC premiums would increase from $26,385 in 2013 to $67,185 in 2016 -- a 155% increase." (The Principal Blog)  

Louisiana, New Mexico Courts Issue Public Pension Decisions
"A Louisiana appeals court held that state law requires the City of New Orleans to contribute pension funding amounts calculated by the pension system actuary. According to the court, the City was not at liberty to put in less than the actuary's calculation of normal cost plus an amortization payment of the unfunded liability. This represents a fiscal challenge for financially-strapped New Orleans ... The New Mexico legislature, in an attempt to improve the funded status of its pension plan and control funding costs, passed a bill which would reduce future cost of living adjustments. The Supreme Court of New Mexico rejected public retirees' challenge to those reductions:" (Reinhart Boerner Van Deuren s.c.)  

California Pension Initiative Gets Mixed Cost Analysis from Legislative Analyst's Office
"The measure would give state and local governments the option of cutting retirement benefits current workers earn in the future, while preserving benefits already earned through past service. The analyst said this part of the initiative has the potential to reduce 'hundreds of millions to billions of dollars per year in state and local government costs,' depending on how much retirement benefits are reduced and salary and other benefits are increased." (Calpensions)  

Do PBGC Premiums Provide Incentive to Plan Sponsors to Borrow for Pension Plan Funding? (PDF)
"[F]ollowing the enactment of both MAP-21 and BBA 2013, the increases in PBGC variable rate premiums payable based on unfunded vested benefits have incented plan sponsors to fully fund their pension plans -- rather than to delay funding, as allowable under both MAP-21 and the typically seven-year amortization schedule for plan funding. Borrowing to fund the pension plan both eliminates PBGC variable rate premiums and allows the sponsor to take advantage of tax arbitrage, especially if contributions and loan interest payments are tax-deductible." (Russell Investments)  

Did MAP-21 Decrease Pension Contributions? (PDF)
"[C]orporations, both individually and in aggregate, contributed closer to the higher pre-MAP-21 requirements than to the reduced post-MAP-21 requirements. Despite the ability to delay contributions for several years, companies still contributed toward their pension plan amounts indicative of a longer-term view of their place within the organization, as well as a view that funding would ultimately be required." (Russell Investments)  

JCT Description of Certain Revenue Provisions Contained in the President's Fiscal Year 2014 Budget Proposal
220 pages. Items of interest to employee benefits practitioners include: eliminating the Section 404(k) Employee Stock Ownership Plan dividend deduction for large C corporations (at page 53); [2] requiring nonspouse beneficiaries of deceased IRA owners and retirement plan participants to take inherited distributions over no more than five years (at page 128); and limiting accruals under tax-favored retirement plans (at page 136). (U.S. Congress, Joint Committee on Taxation)  

Are You Saving Too Much?
"The financial industry's typical rule of thumb -- which states that retirees need to save enough to be able to replace 75% to 85% of their preretirement income every year after they stop working -- isn't really useful for many people. New research shows that many retirees can live well on less than that but others rack up higher expenses through travel, expensive hobbies or medical costs that can't be avoided. The 75%-to-85% ratio may work for younger workers who have no way of knowing precisely what their incomes or expenses will be as they head into retirement." (The Wall Street Journal; subscription may be required)  

The Retirement Glass Is Half Full
"Standard investment advice is that retirees should seek 70% to 80% of their pretax, preretirement income.... Generally, this advice is given with the implication that the 80% mark ... is the true goal, but, if the investor falls a bit short, that would be acceptable.... [Morningstar's David Blanchett] cites a report by Aon Consulting that calls for income-replacement ratios of 78% to 94%. David's research suggests that these numbers are high." (Morningstar Advisor)  

How to Get the Best Deal on Your 401(k) Fees: Four Key Year-End Strategies
"[1] Have your employer hire an independent fiduciary who specializes in defined contribution plans.... [2] Have the fiduciary compare your plan to similar plans and benchmark it.... [3] Use market forces to get providers to compete to offer the best deal.... [4] Get your fund providers to find the cheapest share class." (Forbes)  


Solving the Global Pension Crisis?
"The last thing countries should do is follow Australia's shift into state sponsored defined-contribution plans.... [T]here are no pension lessons to be drawn from Down Under, and Australia doesn't deserve to be among the world's best pension spots. And what about Canada? Well, our top ten defined-benefit plans are global trendsetters but our federal government foolishly ignores the benefits of DB plans[.]" (Pension Pulse)  

Benefits in General; Executive Compensation

Supreme Court Upholds Plan's Statute of Limitations for Filing Claims in Court
"Although the Court did not state how long a limitations period must be to be considered reasonable, the Court found the three-year statute of limitations to be reasonable because it provided ample time for a participant to file suit after a typical one-year internal review process. Plan administrators may also want to re-evaluate the benefit of providing additional internal appeals beyond what is required by ERISA regulation, because any such additional levels of appeal will toll the plan's statute of limitations period, thereby lengthening the time a claimant has to file suit." (Sutherland)  

New Tax Increases Make Deferral of Compensation a (More) Valuable Benefit for Many Employees
"The combination of the new additional Medicare taxes on wages, additional taxes on certain investment income of higher income taxpayers, and the new higher marginal income tax rates on both ordinary income and capital gains make income deferral opportunities a potentially valuable benefit for many employees. Because many taxpayers are likely to be subject to these additional taxes or higher tax rates during some or all of their remaining working lives, yet not subject to some or all of these increased taxes in other years or following their retirement, managing the date of recognition of taxable income by use of available deferral techniques can produce actual tax savings." (Pillsbury Winthrop Shaw Pittman LLP)  

Institutional Shareholder Services Releases Updated FAQs Regarding 2014 U.S. Compensation Policy
"[T]he FAQs include: [1]The impact of an adverse say-on-pay recommendation on equity plan proposals. [2] The changes ISS made to its pay for performance quantitative screen, [and] [3] The calculation method for 'granted pay' that is compared to a CEO's 'realizable pay'." (Practical Law Company)  

Hodgson Russ Employee Benefits Developments, December 2013
Topics include: Modification of "Use-or-Lose" rule for health FSAs; Women's preventive services and for-profit employers; A lesson on maintaining historical plan documents; First spouse awarded survivor pension benefits; and Claim for post-bankruptcy pension benefits rejected following "free and clear" purchase of assets. (Hodgson Russ LLP)  

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