Retirement Plans Newsletter

September 30, 2014

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Webcasts and Conferences

Reporting, Fees, and the HPID - A Monthly Employee Benefits Conversation
October 3, 2014 WEBCAST
(Littler Mendelson)

Retirement Plan Insights Two-Day Seminar
October 7, 2014 in IL
(McKay Hochman Co., Inc.)

Private Health Insurance Exchanges Conference
October 7, 2014 in DC
(Conference Board, The)

Benchmarking Service Provider Fees and Services
October 16, 2014 in CA
(Western Pension & Benefits Council - Orange County Chapter)

Health Care Transparency: Seeing Costs and Quality in a New Way
October 22, 2014 in IL
(Worldwide Employee Benefits Network [WEB] - Chicago Downtown Chapter )

The CSI Approach to Controlling Benefit Rate Increases
October 24, 2014 in NY
(Corporate Synergies)

Put the Lid on Escalating Benefit Costs
October 28, 2014 in NY
(Corporate Synergies)

Developing a Strategy for Health Care Costs and Risks: Why Employers Need to take Matters into Their Own Hands
October 28, 2014 in TX
(Worldwide Employee Benefits Network [WEB] - Dallas Chapter)

Practicing Before the IRS - Circular 230 A to Z
October 29, 2014 WEBCAST
(IRS [Internal Revenue Service])

Affordable Care Act's Reporting Requirements For Large Employers
November 4, 2014 WEBCAST
(Liebert Cassidy Whitmore)

Retirement Plan Insights Two-Day Seminar
November 10, 2014 in NV
(McKay Hochman Co., Inc.)

Work, Health, and Well-being: Integrating Wellness and Occupational Health and Safety in the Workplace
January 26, 2015 in MA
(Harvard School of Public Health Executive and Continuing Professional Education)

View All Webcasts and Conferences



[Guidance Overview]

IRS Final Regs Address Market Rates of Return for Hybrid Plans
"The final regulations adopt an exclusive list of permitted cash balance plan interest crediting rates.... The preamble to the final regulations confirms that it is acceptable to determine an investment-crediting rate based on a specified blend of multiple rates.... [T]he list of permitted interest crediting rates in the final regulations is exclusive.... The final regulations do not permit a cash balance plan to allow participants to choose among different interest crediting rates." (October Three Consulting)  


[Advert.]

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[Guidance Overview]

HATFA Extends MAP-21 Pension Funding Stabilization
"[A] plan sponsor can irrevocably elect to defer use of the HATFA rates until the first plan year beginning after January 1, 2014, by providing written notice of the election to the plan's enrolled actuary and plan administrator.... A plan sponsor will be deemed to elect to defer the HATFA rates to 2014 if the Form 5500 and Schedule SB for the plan year beginning in 2013 uses the MAP-21 rates. The IRS permits a plan sponsor to revoke a deemed election to defer in one of several ways." (Littler)  

2015 Projection: 401(k) Retirement Plan Contribution Limits
"Based on the current CPI information through August, here are the projected 2015 retirement plan limits as calculated by a number of reliable sources. The IRS will release the official numbers on or about October 22, 2014. Remember, these are just projected 2015 numbers." (401kHelpCenter.com)  

IRS LESE Program Identifies Noncompliance Issues (PDF)
"In 2007, the [IRS] initiated the Learn, Educate, Self-Correct and Enforce (LESE) program. LESE projects involve the focused examination by the IRS of a random selection of approximately 50 Form 5500 returns with similar characteristics. The IRS reviews the plans in the random sample for compliance issues and releases the results and findings ... To date, 17 projects have been completed and information on the findings is available on the web. The findings from the LESE examinations are expected to improve the ability of the IRS to identify plans likely to be noncompliant so they can focus their audit activity on those plans." (Retirement Management Services)  

John Hancock Dodges ERISA Class Action
"The cases are holding with few exceptions that the functional fiduciary test under 3(21)(A)(i) must show that the fiduciary actually exercised their discretion. In decisions in favor of AUL and John Hancock, the plaintiffs were unable to show that. In decisions against Transamerica, MassMutual, and ING, the plaintiffs were able to either show the exercise of discretion or that it was a issue of fact for trial.... The open question from these cases is whether 3(21)(A)(iii) requires the actor to actually exercise their discretion or not, i.e. it's a fiduciary breach to be both malfeasant and nonfeasant." (The Lowenbaum Partnership and FRA PlanTools)  


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Third Circuit Serves Up Big Win for Retirement Plan Service Providers
"The Third Circuit found that a service provider owes no fiduciary duty to a plan with respect to the terms of its service agreement if the plan trustee exercised final authority in deciding whether to accept or reject those terms.... Of course, the opinion does not immunize service providers from fee claims if there is a sufficient nexus between the fee allegations and the scope of the service provider's fiduciary duties. However, to state a successful claim, plaintiffs will likely need to show that the service provider had fiduciary control over the amount of its own fees." [Santomenno v. John Hancock Life Ins. Co., No. 13-3467 (3d Cir. Sept. 26, 2014)] (Alston & Bird LLP)  

Supreme Court Strikes Down ESOP Presumption of Prudence and Imposes New Limits and Standards for Stock Drop Claims (PDF)
"[P]lan fiduciaries and their advisers must now identify an approach to monitoring the plan's investment in company stock designed to fulfill ERISA's prudence requirement while recognizing that ERISA's diversification requirement does not apply.... [It] is likely that the plaintiff's bar will test the limits of the Dudenhoeffer decision quickly.... [T]he plaintiff's bar could explore claims that offering company stock was imprudent regardless of the market price due to dim future prospects, participation in a dying industry, or other examples of why investment in such a company may not be a prudent long term investment[.]" [Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (U.S. June 25, 2014)] (Groom Law Group)  

Plaintiffs and DOL Ask Supreme Court to Permit ERISA Fiduciary Breach Lawsuit More Than Six Years After Initial Selection of Investment
"Every federal court of appeals to have addressed the issue has held that, absent materially changed circumstances, ERISA's statute of repose bars challenges to the prudence of investments selected more than six years before suit was filed. The federal government has now asked the Supreme Court to reject that reading of the statute and to hold instead that regardless whether circumstances change after the initial selection of a plan investment, a plan fiduciary can be liable under ERISA for investments held to be imprudent that were selected more than six years before a suit is commenced." [Tibble v. Edison International, No. 13-550 (S. Ct., cert. petition filed Oct. 30, 2013); the 319-page petition for a writ of certiori to the 9th Circuit, dated Aug. 1, 2013, is online.] (Goodwin Procter)  

U.S. Employers Looking to Enhance 401(k) Investment Structures
"40% of the 457 U.S. employers surveyed recognize that using a multi-manager, white-label investment strategy is a more efficient approach to active management than single, stand-alone active options. Additionally, about half of the respondents see the value of custom TDFs." (Towers Watson)  

Can the PBGC Save Multiemployer Plans?
"[T]he PBGC's insurance fund for multiemployer plans is projected to be exhausted within the next 10 years. One idea is to head off plan insolvencies through 'partitions' that transfer some costs to the PBGC, but little support exists for hiking premiums to cover the costs. The bottom line is that the PBGC, as currently structured, will not be able to stave off plan insolvencies or fully protect workers in plans that become insolvent." (Center for Retirement Research at Boston College)  

Morningstar Removes Gold-Level Rating on PIMCO Total Return Fund and Predicts Possible Exit of 'Tens of Billions' in Assets
"[Morningstar has] lowered its rating on the Newport Beach, Calif.-based firm by two full levels, from gold to bronze, citing the departure of Bill Gross from PIMCO and the unintended consequences of that sudden exit. 'Given Bill Gross's abrupt departure, investors have focused on the possibility that out-flows could wreak havoc on the portfolio. Snap estimates of expected outflows have been all over the map, but it seems likely that outflows could total in the tens of billions of dollars,' wrote senior analyst Eric Jacobsen about PIMCO's Total Return Fund." (RIABiz)  

ESOPs Can Increase a Company's Sales, Profitability, Employee Satisfaction and Job Security
"[N]umerous studies have shown that ESOP companies tend to be more profitable, more likely to weather economic downturns and more likely to retain and grow their workforce.... ESOP companies perform better in the post-ESOP period than their pre-ESOP performance would have predicted.... ESOP companies are more likely to offer a second defined contribution plan than non-ESOP companies are to offer any defined contribution plan at all ... [O]n average ESOP companies contributed 75 percent more to their ESOPs than other companies contributed to their primary 401(k) or profit sharing plan.... ESOP and broad-based equity plan companies are also less likely to lay off employees." (Fox Rothschild LLP)  

Pension Benefit Plan Design Innovation: Labor Unions as Agents of Change
"This paper uses a case study of a private sector union to demonstrate how labor unions can influence the renegotiation of the pension contract for American workers. The case study describes how one union evaluated the pension crisis from a sustainability viewpoint, and responded pro-actively by developing a hybrid pension plan that attempted to align the interest of all the stakeholders through equitable risk sharing. The hybrid plan developed by this union eventually had a broader influence on the pension community at large and the public policy debate around the pension crisis." (Pension Research Council, Wharton School of the University of Pennsylvania; free registration required)  

Back to the Future: Hybrid Co-operative Pensions and the TIAA-CREF System
"Hybrid retirement plans that combine the best features of defined benefit and defined contribution plans can provide an efficient and equitable method of ensuring retirement security for workers. Co-operative pension structures also enhance retirement security through risk pooling and leveraging economies of scale.... The TIAA-CREF system ... provides an example of a plan design with features of a hybrid co-operative pension. [The authors] examine the historical performance of the core components, TIAA (a guaranteed fixed annuity) and CREF (a variable annuity), discuss key design features, and analyze data on contributions, investment returns, risk pooling, and retirement distribution characteristics." (Pension Research Council, Wharton School of the University of Pennsylvania; free registration required)  

Actuarial Funding Policies and Practices for Public Pension Plans (PDF)
"This White Paper represents groundbreaking actuarial research in that it develops a principles based, empirically grounded Level Cost Allocation Model (LCAM) for use as a basis for funding policies for public pension plans throughout the US.... [The authors] believe that the funding policies developed herein could serve as a rigorously defensible basis for an 'actuarially determined contribution' under Statements 67 and 68 of [GASB] .... [This] White Paper is intended to provide guidance not just in the evaluation of particular current policy practices but also in the development of actuarially based funding policies in a consistent and rational manner." (Conference of Consulting Actuaries, Public Plans Community)  

How Poor Plan Design Damages Retirement Readiness
"[H]igh fees were not the worst culprit when it comes to siphoning value out of retirement accounts. In fact, of the four identified sources of the $273,000 loss, fees contributed the least.... [A recent analysis by Alicia Munnell, director of the Center for Retirement Research at Boston College,] estimated the toll from fees was only $59,000. Leakages ate up $78,000 while poor savings habits resulted in losses of $136,000 ($71,000 from 'Intermittent Contributions' and $65,000 from 'Immature System,' i.e., the failure to save early)." (Fiduciary News)  

Planning for Health Care: How Excellent Health and Longevity Impact Retirement Income Planning
"Average cumulative health care expenses including insurance premiums, for a 65-year-old male in excellent health can be expected to reach $345,000; the corresponding estimate for a 65-year-old male in poor health is about $246,000. Those in excellent health will spend less on an annual basis, but more over their retirement due to their longer expected lifespans." (Insured Retirement Institute [IRI])  

Don't Be Worried and Confused About Making Your Money Last During Retirement
"One of the big problems with the 4% Rule and other 'safe' withdrawal strategies is that after the first year, you have no real way of knowing whether you are still 'on track.' ... The Actuarial Approach automatically adjusts for actual experience as it emerges and annually lets you know whether you can increase your spending or whether you should decrease your spending based on your personal situation and objectives." (Ken Steiner, FSA Retired)  

[Opinion]

Let's Enable ERISA Plans to Use More Electronic Delivery
"EBSA's preference -- reflected in its regulations governing electronic delivery of retirement plan communications of many kinds -- requires that plan participants and beneficiaries affirmatively declare their willingness to receive notices, election requests, summaries and other information, electronically. Many ... believe EBSA should be more flexible and more in line with the rest of financial industry in this area. Given the inclination of many people to put off decision making, or to fail to take action simply out of inertia, it is likely that the lack of an election to receive communications electronically is not necessarily a rejection of that form of delivery." (Todd Berghuis, for Ascensus)  

[Opinion]

Tax Incentives for Retirement Savings Need Reform
"Roughly 9,000 taxpayers have IRAs with balances that top $5 million, a [GAO] study found. Despite contribution limits to tax-advantaged retirement accounts, such balances are possible because some executives buy shares of stock for their IRAs at extremely low valuations -- sometimes less than a penny each. Those balances then swell when the stocks are valued at market price -- and the gain is tax-free." (Center on Budget and Policy Priorities)  

Benefits in General; Executive Compensation

Now Is the Time to Review Compensation Arrangements for Section 409A Compliance
"[E]arlier this year, ... the IRS began a compliance initiative project (CIP) focused on Internal Revenue Code Section 409A.... Even though this initial CIP is limited in scope, practitioners expect that the IRS will implement a much broader Section 409A enforcement initiative in the not so distant future. Before the IRS begins its examination ... in full force, all compensation arrangements, especially customized deferred compensation plans for highly paid executives, should be carefully reviewed for Section 409A compliance." (Fox Rothschild LLP)  

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