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December 24, 2013          Get Health & Welfare News  |  Advertise
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Second Circuit Finds Xerox Calculation of Pension Benefits Is Unreasonable, SPD Violates ERISA Notice Provisions (PDF)
"ERISA plans may be constructed to change the risk borne by rehired employees or reduce such employees' benefits in a manner that treats them worse than newly hired employees, provided that such terms exist in the plan. They do not exist here..... [We] find that the SPDs fail to clearly identify the circumstances that will result in an offset, are insufficiently accurate and comprehensive, and fail to explain the 'full import' of Section 9.6 of the Plan. Accordingly, we hold that the Plan violates ERISA's notice provisions.... [T]he SPDs do not state that the amount of the lump-sum distribution will reduce the [Retirement Income Guarantee Plan formula (RIGP)] benefit, stating only that it 'may' result in a reduction.... [E]ven assuming that the SPDs prescribe an offset to RIGP, the SPDs fail to describe the mechanics of any offset." [Frommert v. Conkright, No. 12-67-cv (2nd Cir. Dec. 23, 2013)] (U.S. Court of Appeals for the Second Circuit)  


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California Judge Bars Voter-Approved Pension Cuts for San Jose City Workers
"Superior Court Judge Patricia Lucas ruled that a ballot initiative forcing workers to contribute more to their pensions was invalid. In her 'tentative' ruling, dated from last week but publicly released on Monday [December 23], Lucas said the city was entitled under the ballot measure to cut workers' pay to save money, but she held that vested pension benefits were protected by state law and thus off limits." (Reuters)  

The Case for Funding a Pension Plan Using Borrowed Money
"The effect of [the PBGC variable rate] premiums is to raise the breakeven rate at which it is worthwhile for a plan sponsors to borrow in order to fund. Jim Gannon has extended that analysis to capture the typical corporate debt issuance term of 10 years, and to include the impact of the tax benefit that exists for many corporations: contributions are tax-deductible whether made immediately or over a period of time, but borrow-and-fund also leads to a tax deduction on debt interest. That makes the case for the strategy even stronger." (Russell Investments)  

401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2012 (PDF)
"The bulk of 401(k) assets continued to be invested in stocks.... Seventy-two percent of 401(k) plans included target date funds in their investment lineup at year-end 2012.... More new or recent hires invested their 401(k) assets in balanced funds, including target date funds.... Participants' 401(k) loan activity remained steady, although loan balances increased slightly in 2012... The year-end 2012 average 401(k) account balance in the database was 8.4 percent higher than the year before, but may not accurately reflect the experience of typical 401(k) participants in 2012." (Investment Company Institute [ICI] and Employee Benefits Research Institute [EBRI])  

Use of Target Date Funds Expands in 401(k) Plans
"Target date fund use varies across 401(k) participant age.... [Y]ounger participants are more likely to hold target date funds and target date funds represent a much larger share of their 401(k) assets. At year-end 2012, 52 percent of 401(k) plan participants in their twenties had target date funds, and those funds made up 34 percent of their 401(k) assets." (Investment Company Institute [ICI] and Employee Benefits Research Institute [EBRI])  

New York City Pension Contributions to Level Off, State Report Says
"The projection for city contributions to the $145 billion New York City Retirement Systems -- which comprises five funds -- is expected to reach $8.16 billion for the fiscal year ending June 30, 2014, up from the $8.02 billion contribution for the most recent fiscal year, according to [a review of city finances by New York state Comptroller Thomas DiNapoli]. For the three fiscal years after FY 2014, the contributions are estimated to be $8.08 billion, $8.2 billion and $8.36 billion, respectively[.]" (Pensions & Investments)  


District Court Rebukes IRS Church Plan Rulings
"In its motion to dismiss, Dignity relied heavily on four IRS private letter rulings. A predecessor, Catholic Hospitals Healthcare West, obtained the first. The IRS concluded the pension was a church plan from the get-go, a ruling whose validity the plaintiffs challenge... [District Judge Thelton E. Henderson] focused on the requirement that to be exempt, a pension plan must be 'established and maintained ... by a church' or by a church-associated organization created to administer a church pension plan.... That's exactly how the law should be read. It is a withering indictment of chief counsel for issuing private letter rulings that cannot possibly be in the interests of workers in ERISA plans." [Rollins v. Dignity Health, No. C13-1450 TEH (N.D. Cal. Dec. 12, 2013)] (David Cay Johnston for Tax Analysts)  

Benefits in General; Executive Compensation

Supreme Court Upholds Plan-Imposed Limitations Periods for ERISA Benefit Claims (PDF)
"The decision affords added flexibility and protection in defending claims, but by no means provides blanket protection for any and all types of statutes of limitations periods that are, or may be, incorporated into plan documents.... A plan limitation provision of three years is well-within the ambit of reasonableness and courts are likely to find that limitation terms of 12 months or more are also reasonable; going forward, it is unclear whether plan limitation periods of less than 12 months are enforceable." (Groom Law Group)  

Year-End Health and Retirement Plan Guidance Grab Bag
Topics include: FICA and Medicare tax refunds for individuals treated as married for tax purposes due to the Windsor decision; other compliance changes resulting from the Windsor decision, including election changes under cafeteria plans and administration of flexible spending accounts; the Supreme Court's recent decision that allows enforcement of some statutes of limitation in plan documents; IRS guidance on nondiscrimination requirements as applied to soft-frozen defined benefit plans; and IRS guidance on in-plan Roth conversions. (Winstead PC)  

The 2013 Directors Compensation Report (PDF)
"Director compensation levels have stabilized since the introduction of the Dodd-Frank act, with recent increases in the low to mid single digits (i.e., 3% to 6%). Compared to last year, small-cap companies had the largest increase in total director compensation. Director workload and oversight continues to increase, especially for Compensation Committee members, in light of regulatory changes like say-on-pay and mandated risk assessments." (Frederic W. Cook & Co., Inc.)  

Press Releases

US Department of Labor Files Suit Against Home Valu Inc. and Fiduciaries of Employee Health Plans
Employee Benefits Security Administration (EBSA), U.S. Department of Labor

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