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June 24, 2014          Get Health & Welfare News  |  Advertise
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Employee Benefits Jobs

Retirement Education Specialist
The Newport Group
in NC

ESOP Service Administrator II
Bankers Trust
in IA

ESOP Account Manager
Bankers Trust
in IA

ERISA Attorney
Employee Benefits Law Firm
in CA

Account Executive II
The Principal Financial Group
in MD

ERISA Attorney
Employee Benefits Law Firm
in CA

Retirement Plan Administrator
Benefit Administration Corporation
in CA

Benefits Program Strategy Manager
University of California, Office of the President
in CA

Director, Retirement Services Call Center
MassMutual Financial Group
in MA

Customer Services Representative - Retirement Services Call Center
MassMutual Financial Group
in MA

Counsel 3
Wells Fargo
in MN, NC

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[Guidance Overview]

Same-Sex Marriages and Retirement Plans: Turning Back Time to June 26, 2013 (PDF)
"Dealing with the Windsor decision going forward is relatively easy -- retirement plan sponsors must consider same- sex spouses as legally married for all plan purposes.... The chart [in this article] addresses the most significant areas of concern with regard to applying the rules under the Windsor decision retroactively to June 26, 2013.... [These suggestions] assume that the plan sponsor and plan administrator can rely on a participant's statements as to marital status (for example, the plan administrator does not have any independent knowledge that would cause them to question a participant's statements to the plan)." (Alston & Bird, LLP)  


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[Guidance Overview]

Retirement Plans Need Not Apply U.S. v. Windsor Retroactively
"Although the long-awaited IRS guidance is helpful and welcome, employers should continue considering a number of issues, including: [1] Additional costs associated with providing benefits to same-sex married couples; [2] Changes that may be needed to plans, summary plan descriptions, election kits, policies and procedures, administrative forms and other related plan documentation; [3] Communications to participants discussing benefit changes for same-sex couples who are now considered married; [4] The need to track states that permit same-sex marriage; ... [5] The need to update beneficiary designation forms; ... and [6] Possible participant claims for retroactive benefits." (Towers Watson)  

[Guidance Overview]

IRS Technical Advice Memorandum Illustrates Correction Methods, Excise Tax for ESOP Prohibited Transaction
"Companies that sponsor leveraged ESOPs should ensure that the method by which shares are allocated to participant accounts matches the method provided for in the ESOP's underlying loan agreements ... TAM 201519 [provides] technical guidance on calculating the amount involved for prohibited transactions that extend over multiple years and the resulting excise taxes. Note that TAM 201519 provides support for the application of a below-prime interest rate to calculate the applicable excise taxes, assuming supporting documentation is provided." (Practical Law Company)  

Why American Workers' Retirement Income Security Prospects Look so Bleak: A Review of Recent Assessments
"The measurement of preretirement income and its spendable portion as an indicator of living standard in working years is often exaggerated owing to inappropriate indexing. This leads to overestimates of earnings to be replaced in retirement, underestimates of the income replacement capacity of Social Security for various segments of the workforce, and misperceptions about workers' own responsibility for securing their retirement prospects. Although clearly some workers are not saving sufficiently to maintain their standards of living throughout retirement, the situation is less dire than a number of studies have suggested." (Gaobo Pang and Sylvester J. Schieber, Towers Watson)  

2014 Planning and Progress Study: Retirement Redefined (PDF)
16 presentation slides. Excerpt: "Those who are currently working feel they will retire at a much later age than those who are currently retired (68 years old for those working vs. 59 being the age current retirees entered into retirement). Working adults aged 60+ are the most pessimistic that they will retire at the 'traditional' age of 65.... Nearly three in ten adults (27%) do not feel at all financially prepared to live to the relatively 'young' age of 75." (Northwestern Mutual)  


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Financial Education for Today's Workforce: 2014 Survey Results (PDF)
67 pages. Excerpt: "Nearly two in five respondents feel a responsibility to educate on pension and benefit options, encourage retirement savings and help participants/employees become financially literate managers of their money.... Half of organizations have experienced increased demand from participants for financial education in the past five years.... Among organizations offering financial education, the three most common topics are retirement plan benefits, investments and savings." (International Foundation of Employee Benefit Plans [IFEBP])  

Gens X and Y Educators Need Education About Retirement
"Gens X and Y respondents regardless of whether they are educators or not prefer to get advice in person.... Nearly six in ten (58%) Gens X and Y educators reported they prefer to learn about financial planning issues at work, rather than on their own." (planadviser)  

Rethinking Revenue Sharing
"While revenue sharing may be a legitimate way to pay for the costs of operating a plan, both US courts and the [DOL] have made it clear that plan sponsors have a significant responsibility as fiduciaries to fully understand, evaluate and monitor their revenue-sharing arrangements and determine whether they are reasonable. Therefore, the most prudent response for plan sponsors may be to rethink the practice of revenue sharing altogether." (Alliance Bernstein)  

Latest Trends in Target Date Funds (PDF)
"Fees continue to fall: they are down to an average of 0.67 percent for the lowest cost institutional share class for all target date funds, a steady drop from 0.70 percent in 2012 and 0.72 percent in 2011.... In 2013, target date fund assets increased 24 percent to nearly $625 billion in Investment Company Act of 1940 funds. BrightScope estimates total target date assets are actually closer to $900 billion w hen collective investment trusts and pooled separate accounts are added." (BrightScope)  

DOL Revisiting TDF Proposal in Light of SEC Advisory Committee Recommendation (PDF)
"Failure to coordinate could result in inconsistent disclosure requirements between the two entities and generate confusion on the part of plan sponsors as well as participants and beneficiaries .... [T]he DOL has continued to consult with SEC staff while working on the TDF rule.... [T]he DOL is likely to pay close attention to the recent comments that the SEC received, and, generally, to the substance of the SEC's final rule." (Buck Consultants)  

Investment Advisers May Have Role in Creating Unbundled Target Date Funds
"Fund companies often install mandates limiting what underlying funds their TDF managers are allowed to purchase as part of the proprietary TDF portfolio. In many cases the managers are only permitted to invest in their own firm's fund offerings ... even when those funds consistently underperform similar offerings on the market.... It's not hard to see how the proprietary mandate could harm the fund manager's ability to truly pursue the best risk-adjusted returns at the right expense," (PLANSPONSOR)  

How (and Why) the 401(k) Fiduciary Should Act to Increase Employee Deferral Rates
"Industry folks sometimes forget regular folks don't use words like 'nomenclature' or 'deferral.' And yet, chances are if participants sit through an entire employee 401k presentation, they'll hear the word 'deferral' a number of times. Only the most astute presenter will remember to define it in terms of an annual contribution." (Fiduciary News)  

As a Participant, Should I Be More Hands-on with My 401(k)?
"These days more plans are providing guidance in the form of online tools and target date funds: 72% of 401(k) plans offer target-date funds, up from 57% in 2006 ... Taking advantage of this help can be a smart move. But if you opt for a target-date fund, be sure that you use it correctly -- as your only investment. Adding other funds will throw off what's designed to be an ideal, all-in-one asset mix." (Money)  

The Impact of 'Leakage' on 401(k) Accumulations (PDF)
"[T]he combined impact of the three primary types of leakage on 401(k) accumulations at age 65 of younger workers with at least 30 years of 401(k) eligibility reduced the probability of reaching an 80 percent real replacement rate (combining 401(k) accumulations and Social Security benefits) by 8.8 percentage points for the lowest-income quartile and 7.0 percentage points for those in the highest-income quartile." (Employee Benefit Research Institute [EBRI])  

DOL Fee-Disclosure Guide Upsetting DC Recordkeepers
"[Critics] point out that the [DOL] conducted focus groups among small DC plans -- those with fewer than 100 participants -- concurrently with its seeking public comment about the proposed rule. Because the 90-day public comment period ended June 10, trade groups say they haven't seen the results of the focus groups -- the DOL hasn't made them public -- so they lacked some information to prepare their comments." (Pensions & Investments)  

Liability De-Risking: Plan Terminations, First Quarter 2014 (PDF)
12 pages. Excerpt: "In the first quarter of 2014, there were 49 cases settled with a total premium of $222.76 million. The first quarter is typically the slowest in any given calendar year, but this figure is lower than those of the first quarter s of 2012 and 2013. As the average placement size was under $5 million, the players in the smaller end of the market had the most activity." (Hewitt EnnisKnupp)  

Cypen & Cypen Newsletter, June 19, 2014
Article titles include: "[1] Funds held in inherited Individual Retirement Accounts are not retirement funds within meaning of bankruptcy exemption; [2] Last defendant settles SEC fraud charges in 'pay-to-play' case involving New York State Common Retirement Fund; [3] Detroit reaches tentative pension agreement with union; and [4] N.J. Governor not the only one to steal worker pensions to balance budget." (Cypen & Cypen)  

Advisors Must View Succession Planning as Growth Strategy, Not Just Retirement Strategy
"With 99 percent of independent financial services and advisory practices going out of business when their founder retires, firms must increasingly view succession planning as a growth strategy not a retirement strategy ... Beyond succession planning, less than half (45 percent) of advisors polled have a continuity plan in place in the event of an unexpected departure or leave of absence.... Of those without a business continuity plan, nearly three-quarters (69 percent) plan to implement one over the next few years." (SEI)  

[Opinion]

Further PBGC Premium Increases Pose Greatest Threat to Pension System (PDF)
"Despite the current soundness of the [PBGC] single employer program, proposals to increase PBGC premiums are under consideration. These increases are not only unnecessary, but they also threaten the long-term viability of both the [DB] pension system and the PBGC's plan termination insurance program ... PBGC premiums are effectively tax increases and increases create perverse incentives that ultimately will reduce the premium amounts collected by the PBGC. These incentives pose a significant risk to the PBGC's ability to cover future obligations by driving away those employers most important to the viability of the single-employer insurance program." (Quantria Strategies, LLC, for American Benefits Council)  

[Opinion]

NCEO Responds to Wall Street Journal ESOP Article
"According to data from the EBSA, ESOPs have both higher average return and lower volatility than 401(k) plans. Contributions to the ESOP come overwhelmingly not from employees but from companies, and those company contributions to ESOPs are on average 75% larger than to non-ESOP plans. Perhaps most persuasively, people who work for ESOP companies have between 2 and 2.5 times as much asset value in employer plans versus people in comparable non-ESOP companies." (National Center for Employee Ownership [NCEO])  

Benefits in General; Executive Compensation

Fifth Circuit Finds Transit Workers' Benefit Claims Improperly Dismissed for Lack of Jurisdiction
"The Fifth Circuit disagreed with the district court's decision to dismiss the case on jurisdictional grounds, saying in a June 23 ruling that the U.S. Supreme Court 'has repeatedly instructed that we must avoid conflating the question of whether we have subject matter jurisdiction' with 'whether the plaintiff has stated a valid claim.'" [Smith et al. v. Regional Transit Authority, No. 13-30647 (5th Cir. June 23, 2014)] (Bloomberg BNA)  

IRS Issues Revenue Ruling on Applicability of Section 457A to Options and Stock Appreciation Rights
"By specifically noting that stock-settled SARs exempt from Section 409A are functionally identical to nonqualified stock options with a 'net exercise' feature (i.e., a right to exercise the option by withholding shares subject to the option having a fair market value equal to the applicable exercise price on the date of exercise), the IRS concluded that these SARs are also exempt from Section 457A. [Rev. Rul. 2014-18] confirms that SARs that could be settled other than in stock -- such as in cash -- are not exempt from Section 457A, even if exempt from Section 409A." (Proskauer's ERISA Practice Center)  

Revenue Ruling Allows Tax-Deferred Stock Rights for Managers of Offshore Funds
"Section 457A of the [Code] generally restricts the ability of offshore funds and other entities domiciled in tax-indifferent jurisdictions to offer tax-advantaged deferred compensation to U.S. persons.... Revenue Ruling 2014-18 ... allows an offshore fund to compensate its managers with stock rights that will only be subject to U.S. tax upon exercise, so long as the stock right is exempt from Section 409A and the manager has the same redemption rights with respect to acquired shares as other shareholders of the hedge fund." (McDermott Will & Emery)  

Is Proxy Disclosure Shareholder Litigation on Executive Comp Finally Over?
"[P]laintiffs' law firms are scrutinizing proxy statements and awards to find potential instances in which a company's awards appear not to have complied with the letter of the relevant plan.... [T]he following steps [can] ensure that the company is not targeted in this third wave of shareholder litigation: Evaluate every grant to make sure that it does not run afoul of the operative stock incentive plan in any respect.... Be careful to seek re-approval of the plan every five years... Ensure that the language in the plan as well as the proxy statement does not guarantee that every award will be exempt from the tax deduction limits[.]" (Pillsbury Winthrop Shaw Pittman LLP)  

Multinationals' Global Benefits Management Strategy Evolves
"Seven out of ten global or regional benefit managers at multinational companies have limited or no access to timely financial information related to current employee benefit spending ... The underlying information exists, but needs to be extracted in a structured manner from finance systems, which is often the difficult part.... [T]wo-thirds of multinationals are at the early stages of developing their global benefits strategy and management approach. This means they are either just getting started or narrowly focusing on a single global benefit management area." (Towers Watson)  

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