Retirement Plans Newsletter

November 7, 2014

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Webcasts and Conferences



[Official Guidance]

Text of DOL Interim Final Rule with Request for Comments: Revisions to Annual Return/Report -- Multiple-Employer Plans
"This interim final rule describes revisions to the Form 5500 Annual Return/Report of Employee Benefit Plan and Form 5500-SF Annual Return/Report of Small Employee Benefit Plan ... to implement annual reporting changes for multiple-employer plans required by The Cooperative and Small Employer Charity Pension Flexibility Act (CSEC Act), enacted on April 7, 2014.... Specifically, the annual return/report of a multiple-employer plan must include a list of participating employers and a good faith estimate of the percentage of total contributions made by each participating employer during the plan year. This interim final rule also includes findings by the [DOL] ... that good cause exists to adopt these revisions on an interim final basis without prior notice and public comments." (Employee Benefits Security Administration [EBSA], U.S. Department of Labor)  


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[Guidance Overview]

'Hidden' New MEP 5500 Legislation Requires Substantial New Reporting for 2014 Plan Year
"Buried deep within 'The Cooperative and Small Employer Charity Pension Flexibility Act of 2014 (CSEC Act),' enacted on April 7, 2014 is a new MEP Form 5500 reporting requirement. It is one which, frankly, most of us missed. It came to light as the DOL issued its Interim Final Rule ... implementing the reg for the 2014 plan year. MEPs will now have to report all of their participating employers, their EIN and a good faith estimate of the 'percentage of the contributions made by all participating employers made by each employer relative to the total contributions made by each employer.'" (Business of Benefits)  

Implications of Differential Mortality for Analyses of Social Security Policy Options (PDF)
28 presentation slides. "How might growing differences in life expectancy across socioeconomic groups influence analysis of various Social Security policy options? What happens to assessments of raising the eligibility age or ages? What tools can we use to look at implications of growing differences in life expectancy in the future? CBO's long-term model (CBOLT) projects individual earnings over time and creates measures of Social Security benefits and taxes based on those individual earnings as well as household status. The gap in life expectancies across socioeconomic groups going forward can be altered within the model to show the implications of increasing differences in the future." (Congressional Budget Office [CBO])  

Revised Mortality Assumptions Issued for Pension Plans
"The calculations to comply with the accounting standards for retirement plans ... may be affected as early as for fiscal year-end 2014. Calculations to comply with IRS's single-employer pension plan funding rules under the 2006 Pension Protection Act will not be affected until the Treasury Department formally adopts -- possibly not until 2017 -- a replacement for the current statutory tables ... Public and multiemployer pension plans are not required to adopt these new tables. However, as these plans' actuaries review the mortality assumption they currently use, they may find that information presented in the new tables may influence the plans' assumptions as [the new tables] become widely accepted." (Milliman Retirement Town Hall)  

New Mortality Tables Expected to Further Drive Interest in Pension Plan De-Risking
"The impact from these mortality tables alone is expected to be a 6 percent to 9 percent increase in costs for traditional ongoing defined benefit plans ... Insurance companies are already using updated mortality estimates to price annuity contracts .... [T]he cost of an annuity contract should diminish relative to the cost of the liability shown on the company's books[.]" (Bloomberg BNA)  


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A Path to Better Retirement Outcomes: Allocating Real Estate Assets to Retirement Portfolios (PDF)
"Employing a simulation approach using historical data, [the authors] test a range of DC-style asset allocations (including target date and target risk funds) that include an allocation to both listed and unlisted real estate versus comparable designs without real estate. [They] find that portfolios with a relatively modest allocation (i.e., 10%) to a real estate blend achieve similar expected outcomes (and in some cases better results) with less tail risk and volatility than a conventional portfolio without such a real estate allocation." (Defined Contribution Real Estate Council [DCREC])  

Managing Risk to Create Retirement Income
"Volatility forces clients' hands when they react to market drops by jumping into cash and missing the rebound.... [In] addition to losses incurred in the drop, missing that rebound reduces returns by another 2%.... [T]he oft-touted 4% rule works when the client has a large allocation to bonds, but by changing the risk management technique used on the portfolio, an advisor can 'dramatically improve' upon the 4% rule." (ThinkAdvisor)  

Retirement Planning: Half of You Answered 'No' to This Critical Question
"[A] recent Pew Research Center survey shows that the majority of people of all ages -- and more than 86% of young people -- believe that Social Security will pay either reduced or even no benefits when they retire.... A recent Bureau of Labor Statistics study reported that only 48% of people who worked in the private sector participated in an employee retirement plan. Let that sink in for a minute. Of the approximately 117 million private-sector workers in the U.S., potentially up to 61 million don't participate in a retirement plan through their work." (Motley Fool)  

Republicans Expected to Tackle Retirement Issues in 2015
"Retirement issues rarely came up during elections such as the one that gave Republicans control of the House and Senate on Tuesday, but that is expected to change when the 114th Congress convenes in January. Their first appearance is likely to be when the new Congress focuses on tax reform and other revenue raisers. With retirement incentives high on the list of tax expenditures, 'that puts retirement issues squarely on the table,' said American Benefits Council President James Klein." (InvestmentNews)  

The Great 401(k)-or-Not Debate: The Perils and Rewards for RIAs Thinking of Wading Into the Fast-Moving 401(k) Stream
"[The authors] went into this webinar (sponsored by The Hartford -- thank you) with the bias that RIAs should err on the side of advising 401(k) plans and/or their participants.... It's a monster, underserved market, growing fast and there for the taking, especially by advisers accustomed to acting as fiduciaries.... But after hearing what these experts in the field had to say, [the authors] also better realize the level of knowledge and commitment involved in making a good 401(k) business work. [They] hope this transcript makes the conversation accessible to people who weren't able to attend, and makes for a good reread for those who listened in." (RIABiz)  

Defined Contribution Plan Participants' Activities, First Half 2014 (PDF)
"DC plan withdrawal activity in the first half of 2014 remained low and was similar to the activity observed in the first half of 2013.... The vast majority of DC plan participants continued contributing to their plans in [the first half of] 2014 ... DC plan participants' loan activity edged up a bit by the end of June 2014, and continues to remain elevated compared with six years ago." (Investment Company Institute [ICI])  

Pension Finance Watch: Little Change in October Pension Index
"Equities bounced back but long bond yields dropped slightly in October. Portfolio returns slightly exceeded liability growth, so the net impact was a 0.2% increase in the Towers Watson Pension Index, to 73.6. Despite the positive October result, the funding index remains down almost 6% for the year." (Towers Watson)  

[Opinion]

Growing Chorus Recognizes Value of Longevity Annuities
"From academics to personal finance experts to the President's Administration, more attention is being given to longevity risk and to retirement income products that can address and manage this risk. The [recent Brookings paper] also successfully identifies barriers that are impeding their use, particularly for including these lifetime income options in workplace retirement plans." (Insured Retirement Institute [IRI])  

Benefits in General; Executive Compensation

Borzi, ERISA Advisory Council Exchange Updates
"[T]he Council recommended that the DOL 'provide education and outreach to participants and plan sponsors on the considerations and benefits to participants of retaining assets within the employer-sponsored system.' ... Regarding the issue of outsourcing employee benefit services, the Council urged the DOL to educate plan sponsors on current industry practices, including the kinds of services and providers available and common practices for contracting for those services. Additionally, the Council recommended that the DOL clarify the legal framework under ERISA for delegating responsibility to service providers to help minimize confusion about fiduciary liability." (American Society of Pension Professionals & Actuaries [ASPPA])  

The Availability of Surcharge as Relief for Individual ERISA Fiduciary Breach Claims
"While some courts have endorsed a broad view of surcharge and allowed a plaintiff to seek monetary recovery for personal loss flowing from a fiduciary breach, the Ninth Circuit concluded that surcharge only applies in cases involving loss to, or unjust enrichment at the expense of, the plan.... The Seventh Circuit, unlike the Ninth Circuit, adopted a broader reading of surcharge ... The Fourth, Fifth, and Eighth Circuits also appear to have at least considered the possibility that surcharge may have a broader application than in cases involving a loss to the trust or unjust enrichment of the fiduciaries at the trust's expense." (Proskauer's ERISA Practice Center)  

FASB Commences Project to Improve and Simplify Accounting for Stock Compensation Under ASC Topic 718 (PDF)
"On October 8, 2014 [FASB] added to its agenda a narrow-scope project to improve and simplify accounting for stock compensation under FASB Accounting Standards Codification (ASC) Topic 718. The project is intended to focus on the following six areas: [1] Minimum statutory withholding requirements; [2] Presentation of stock-for-tax withholding transactions on the statement of cash flows; [3] Accounting for forfeitures; [4] Accounting for excess tax benefits and deficiencies; [5] Presentation of excess tax benefits on the statement of cash flows; [and] [6] Simplifications and practical expedients for nonpublic companies[.]" (Frederic W. Cook & Co., Inc.)  

Glass Lewis Releases 2015 Policy Guidelines
"The firm has added an area of focus in its discussion on the say-on-pay analysis: The implementation and effectiveness of the company's executive compensation programs including pay mix and use of performance metrics in determining pay levels ... The firm does not believe one-off awards are generally in shareholders' best interest ... Glass Lewis is generally in favor of ESPPs and in most cases will support plans up to a purchase limit of $25,000 per employee per year[.]" (Steven Hall & Partners)  

New Surprises in Final 2015 ISS Policy Updates
"ISS is adopting a 'scorecard' model which it calls the Equity Plan Scorecard, or EPSC, that considers a range of positive and negative factors, rather than a series of 'pass' or 'fail' tests, to evaluate equity incentive plan proposals.... EPSC factors will fall under three categories: Plan Cost, Plan Features, and Grant Practices ... ISS will generally recommend a vote against the plan proposal if the combination of above factors indicates that the plan is not, overall, in shareholders' interests[.]" (Dodd-Frank.com, a blog by Stinson Leonard Street)  

Press Releases

DOL Achieves Restoration of Nearly $2M in Health Benefits for Welfare Benefit Plan Clients of Cox Enterprises Inc.
Employee Benefits Security Administration [EBSA], U.S. Department of Labor

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