Retirement Plans Newsletter

January 29, 2015

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Webcasts and Conferences

A New Webcast Series: Basics of 401(k) Plans
January 29, 2015 WEBCAST
(ASC Institute)

2015 Winter Breakfast Meeting
February 10, 2015 in VA
(ESOP Association)

4th Annual ESOP Chili Cook Off
February 26, 2015 in TX
(ESOP Association)

Avoiding Medicare Mistakes: What Group Health Plan Sponsors and Advisors Need to Know
February 26, 2015 WEBCAST
(Thomson Reuters / EBIA)

401(k) Summit
March 22, 2015 in CA
(National Association of Plan Advisors [NAPA])

Health Care Management Conference
April 13, 2015 in CA
(International Foundation of Employee Benefit Plans [IFEBP])

View All Webcasts and Conferences



[Guidance Overview]

IRS Issues Administrative Guidance on Applying Code Section 415(c) Limits to DROPs
"On December 8, 2014, the Director of Employee Plans (EP) at the Internal Revenue Service issued a memorandum to EP employees regarding applying Internal Revenue Code (IRC) Section 415(c) limits to governmental defined benefit (DB) plans that offer a deferred retirement option plan (DROP).... [W]hile the participant works, the retirement benefits that the participant would otherwise have received (referred to in the guidance as the 'DB Benefit Amounts) are credited to the DROP.... [A]s provided in the IRS memorandum, EP employees reviewing governmental plans should not treat the DB Benefit Amounts that are credited to the DROP as annual additions subject to the IRC Section 415(c) limit." (Gabriel Roeder Smith & Company)  


[Advert.]

Brush-up on the Rules: Minimum Coverage Testing

Sponsored by ASC

Prepare for Compliance Testing season by learning how to avoid and correct coverage problems that can cause plans to lose qualified status. Join Charles Lockwood, J.D., LL.M. for this February 5th webcast. Register today – click here!



Proposed Changes to Form 5500 Series Could Complicate Compliance in 2015
"[If] the proposed changes to the 2015 Form 5500 are accepted, the annual reporting process will require more concentrated effort for gathering data to answer the form's questions.... Given the disparity between the draft form and related instructions, we can expect to see revised drafts of one or both documents. For example ... Line 9 of the Form 5500-SUP requests the amount of contributions deducted and whether the contributions exceeded the deductible limit. The instructions for Line 9, however, relate to the amount of distributions made under certain circumstances. IRS expects that the questions on the Form 5500-SUP will be added to the 2015 Form 5500 and Form 5500-SF and related schedules." (ERISAdiagnostics, via Thompson HR Compliance Expert)  

Text of Federal District Court Opinion: Retroactive Plan Amendment Changing Lump Sum Interest Rate Was Not 'In Effect' on Date of Plan Termination, and Impermissibly Reduced Participant Accrued Benefits
"[R]etroactive amendments are unquestionably bound by [29 C.F.R.] Section 4041.8's prohibition on post-termination benefit-decreasing amendments.... Nothing in PPA Section 1107 affects this crucial portion of Title IV's implementing regulations.... It is undisputed that adoption of the PPA Amendment resulted in Plan participants receiving roughly $2.1 million less in distributions than they would have received in its absence. Royal Oak contends, however, that Plan participants experienced no decrease at all in the value of their benefits.... This attempt to draw a distinction between the 'amount' of benefits (which, according to Royal Oak, may decrease) and the 'value' of benefits (which, under Section 4041.8, may not decrease), is unconvincing. Royal Oak's interpretation has no basis in the text of the Regulation itself.... Despite its assertions to the contrary, Royal Oak could have easily complied with the tax code without decreasing benefits to its Plan participants." [Royal Oak Enterprises v. PBGC, No. 13-1040 (D.D.C. Jan. 28, 2015)] (U.S. District Court for the District of Columbia)  

Will DOL Require ESOP Appraisers to Be ERISA Fiduciaries? Probably Not
"It's generally known among DC groups that are following the DOL's proposed fiduciary rule that the portion of the rule directed toward ESOPs will not be included in the re-proposed fiduciary proposal from 2010. It should be noted, however, that the DOL will be looking for clarity and guidance on ESOP appraisals that are in accord with ERISA rules for private ESOP stock to be valued at fair market value, as defined by a 'willing buyer/willing seller' construct." (The ESOP Association)  

Two Hats, One Head, No Heart: The Anatomy of the ERISA Settlor/Fiduciary Distinction
"While the settlor/fiduciary doctrine has worked well and is not controversial in routine cases, the article shows that the doctrine has permitted employers in some cases to bypass express and implied ERISA requirements through artful plan drafting and, perhaps more troubling, has also permitted employers to exploit ERISA's broad preemption of state law to insulate plans actions from judicial or state legislative oversight, even in areas where there is broad national consensus, such as limits on claim subrogation and liability for negligent medical decision-making. The article suggests three limiting principles that courts could use to provide a more nuanced approach to balancing employer and employee interests in and related to ERISA plans. These principles would leave intact the core of the doctrine while mitigating its most troubling effects." (Dana M. Muir and Norman P. Stein, via SSRN)  


[Advert.]

Top 5 Employee Benefit Trends for 2015 -- February 12 webinar

Sponsored by Lorman and BenefitsLink

This live webinar will discuss top employee benefit trends for 2015. including defined contribution and flexible benefit plans; single-carrier and multi-carrier exchanges; consumer-driven health plans; and voluntary benefits. BenefitsLink discount.



Retirement Saving: Excuses and Regrets
"Saving for retirement is not a major priority for 81 percent of the workers surveyed.... [S]aving takes a back seat to myriad other financial concerns, topped by the impact of the global economic downturn and the U.S. job market. Things are much clearer to retirees. Nearly half of them, when asked for the latest age at which people should start preparing to retire, said before 30. Many retirees -- about two out of five -- said 'they did not realize that their preparation had fallen short until it was far too late.' " (SquaredAway Blog, by the Center for Retirement Research at Boston College)  

Doing the Math on Teacher Pensions: How to Protect Teachers and Taxpayers
"[S]tate-by-state report cards included in this report present comprehensive state data on pension funding and pension system rules, and grade the states on the extent to which they: Offer teachers the option of a flexible and portable primary pension plan, such as a defined contribution (DC) plan.... Ensure that traditional defined benefit (DB) pension plans are portable, flexible and fair for all teachers... At a minimum, ensure some basic principles of fairness in traditional systems... Shore up pension funding for existing commitments... Require that pension systems smoothly accrue pension wealth with each year of work." (National Council on Teacher Quality)  

Gold-Plated Public School Pension Plans? Most Teachers Never See The Cash
" 'An average of 70 cents of every dollar contributed to state teacher pension systems is paying off the ever-increasing pension debt,' according to a new study by the National Council on Teacher Quality ... Last year, state teacher pension systems had $499 billion in unfunded liabilities. That figure is up $100 billion in the two years since the group's last report. On average, that's about $10,000 in pension debt for each school-age child in the country." (Forbes)  

Retirement Savings Crisis Is Real and Getting Worse
"The most convincing estimates project that more than 50% of households will fall short, and even the most optimistic studies predict that nearly one-quarter of retirees will ... 'The biggest problems are that far too many people don't have access to a private-sector retirement plan, and secondly, the plans they do have access to aren't very good,' said David Madland, managing director of the [Center for American Progress] economic policy team." (InvestmentNews)  

Illinois Pension Ruling May Not Impact Chicago Case
"If the Illinois Supreme Court voids Illinois' pension reform law, that ruling will not derail another law aimed at shoring up two of Chicago's public pension funds, a lawyer for the city argued ... [An attorney] representing Chicago ... said the state is basing its defense on the need to invoke its police powers to ensure it can fund essential state services. The city has an additional argument that its law does not unconstitutionally diminish pension benefits because without its cost-saving elements and higher contributions the two pension funds would become insolvent within a matter of years[.]" (Reuters)  

Tips for Increasing Revenue and Decreasing Expenses in Operating Your Multiemployer Plan
"Establishing an aggressive collection policy might aid in the timely collection of employer contributions while keeping legal fees for the collection of older delinquent contributions in check.... There are several methods a trustee may consider when looking to reduce the expenses paid by their plan. However, trustees should also keep in mind that choosing the lowest cost option may not always be the prudent choice. In most cases, lower cost means lower quality, which can increase issues in the future that ultimately become more costly." (Bond Beebe Accountants & Advisors)  

Good News, Bad News: Avoiding FICA Taxes Can Lead to Lower Social Security Benefits
"[B]ecause of the so-called 'bend points' used to calculate an individual's Primary Insurance Amount under the Social Security rules, not all FICA tax avoidance strategies have the same consequences.... In fact, those who don't have enough years of income to qualify for Social Security benefits may even want to pay more in FICA taxes, to both increase their benefits and ensure that they can receive those benefits at all!" (Michael Kitces in Nerd's Eye View)  

Benefits in General; Executive Compensation

Text of Ninth Circuit Opinion: Beneficiary Designation Forms Are Not 'Plan Documents'
From the summary provided by the court: "The plan participant formally designated his wife as his beneficiary. After their divorce, he designated his son as beneficiary over the telephone but did not sign and return beneficiary designation forms. The panel held that the beneficiary designation forms were not 'plan documents' governing the plan administrator's award of benefits ... The panel concluded that there was a triable issue as to whether, under state law, the plan participant strictly or substantially complied with the governing plan documents' requirements for changing his beneficiary designation. The panel remanded the case for further proceedings." [Becker (plaintiff in interpleader) and Mays-Williams v. Williams, No. 13-35069 (9th Cir. Jan. 28, 2015)] (U.S. Court of Appeals for the Ninth Circuit)  

Comparing Nonqualified Stock Options to Awards of Restricted Stock
"[W]hen a company's stock has very little value, the recipient is likely to prefer restricted stock; however, as the value of the stock rises, the recipient may prefer NSOs because of the potential immediate tax (with an 83(b) election) on grant. On the other hand, if the company performs poorly, the stock's value may fall below the NSO's exercise price, rendering the NSO worthless. Restricted stock awards may be more complicated for the company because the recipient becomes a shareholder on the award date, even though some of the shares remain subject to forfeiture." (entreView)  

Analyzing Separations from Service Under Section 409A (PDF)
"Nonqualified plans, including severance and change in control plans subject to Section 409A, are frequently designed to commence benefit payments to an employee after the employee incurs a 'separation from service,' which is a permissible payment trigger. However, the rules surrounding the Section 409A definition of 'separation from service' are complex, and it is not always clear when an employee separates from service -- and consequently, when the employee's deferred compensation should be paid. This article discusses the Section 409A rules relating to the separation from service payment trigger, and how those rules apply in several scenarios commonly faced by companies." (Groom Law Group, via Bloomberg BNA Pension & Benefits Daily)  

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