Retirement Plans Newsletter

March 12, 2015

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Part Time On Call Retirement Planning Consultant
Transamerica Retirement Solutions
in AR, CA, FL, GA, HI, IL, MI, MO, NJ, NY, TN, TX, UT

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CBIZ
in OH

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MidAmerica Administrative & Retirement Solutions, Inc.
in FL

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Morehead Plan Administrators, LTD.
in NC

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Pentegra Retirement Services
in CT, NC, NY, VT

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Benefit Consultants Group
in NJ

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BPAS, Inc. [Benefit Plans Administrative Services]
in PA

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Webcasts and Conferences

Flexible Compensation Specialist (FCS) Study Course - Session 1: Flexible Spending Arrangements (FSA)
April 1, 2015 WEBCAST
(ECFC [Employers Council on Flexible Compensation])

Navigating The Maze: How To Stay Compliant With the Affordable Care Act (ACA)
April 9, 2015 WEBCAST
(PlanSource)

An Overview of the Employee Benefit Security Administration's New York Regional Office
April 9, 2015 WEBCAST
(New York City Bar Association)

2015 Mid-Sized Retirement & Healthcare Plan Management Conference - Is It Time to Re-Examine Your Benefit Plans?
April 26, 2015 in MA
(University Conference Services)

38th Annual Conference - “ESOPs: Creating Our Destiny”
May 7, 2015 in DC
(ESOP Association)

HSAs, HRAs, and Consumer-Driven Health Care
May 13, 2015 in MN
(Thomson Reuters / EBIA)

ERISA Compliance for Health & Welfare Plans
May 13, 2015 in MN
(Thomson Reuters / EBIA)

Trustees and Administrators Institutes - Planning for the Future, Choosing the Best Route
June 15, 2015 in CA
(International Foundation of Employee Benefit Plans [IFEBP])

View All Webcasts and Conferences



[Official Guidance]

Text of PBGC Monthly Interest Update for April and Second Quarter 2015
"The second quarter 2015 interest assumptions under the allocation regulation will be 2.71 percent for the first 20 years following the valuation date and 2.78 percent thereafter. In comparison with the interest assumptions in effect for the first quarter of 2015, these interest assumptions represent no change in the select period (the period during which the select rate (the initial rate) applies), a decrease of 0.18 percent in the select rate, and a decrease of 0.34 percent in the ultimate rate (the final rate). The April 2015 interest assumptions under the benefit payments regulation will be 0.75 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. In comparison with the interest assumptions in effect for March 2015, these interest assumptions represent an increase of 0.25 percent in the immediate annuity rate and are otherwise unchanged." (Pension Benefit Guaranty Corporation [PBGC])  


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[Guidance Overview]

IRS Publication 4806: Profit Sharing Plans for Small Businesses (PDF)
Dated Oct. 2014; posted online Mar. 11, 2015. "This booklet highlights some of a profit sharing plan's advantages and some of your options and responsibilities as an employer operating a profit sharing plan. For more information, a list of resources for you and for prospective plan participants is included at the end of this booklet." (Internal Revenue Service [IRS])  

[Guidance Overview]

Correcting 403(b) Plan Mistakes: Salary Deferral Opportunity Not Offered to All Eligible Employees (PDF)
"If a participant should have been excluded based on written provisions, the excluded participant group may need to be included based on the Universal Availability Rule. Errors regarding Universal Availability may be corrected without sanction using the Self-Correction program as long as sufficient compliance procedures are in place and the error is considered insignificant to the Plan as a whole." (Ekon Benefits)  

Bridging the Gap: How Prepared Are Americans for Retirement?
Hearing before the Senate Special Committee on Aging, March 12, 2015. Video and links to written testimony by [1] Jean Chatzky, NBC's Today Show; [2] Alicia Munnell, Ph.D., Center for Retirement Research, Boston College; [3] Michal Grinstein-Weiss, Ph.D., Brown School of Social Work, Washington University, Center for Social Development; and [4] Rob Carmichael, Maine Savings Federal Credit Union. (Special Committee on Aging, U.S. Senate)  

The Continuing Retirement Savings Crisis (PDF)
"Nearly 40 million working-age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k) type plan or an IRA.... The average working household has virtually no retirement savings.... Even after counting households' entire net worth -- a generous measure of retirement savings -- two-thirds (66 percent) of working families fall short of conservative retirement savings targets ... Public policy can play a critical role in putting all Americans on a path toward a secure retirement by strengthening Social Security, expanding access to low- cost, high quality retirement plans, and helping low- income workers and families save." (National Institute on Retirement Security [NIRS])  


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Sponsored by National Center for Employee Ownership [NCEO]

NCEO's 2015 Employee Ownership Conference will take place at the Sheraton Downtown Denver Hotel. NEW: See Preconference Session on Compensation Issues and our Agenda to view sessions marked CB -- a track dedicated to compensation and benefits issues in employee-owned companies.



Nation's Retirement Income Deficit Now $7.7 Trillion
"The Retirement Income Deficit is the gap between what American households have actually saved today and what they should have saved today to maintain their living standards in retirement. The updated RID is based on projections of retirement income and wealth for American workers ages 30-60, using data from the 2013 Survey of Consumer Finances." (Pension Rights Center)  

Multiemployer Guarantee Will Cover a Smaller Share of Benefits in Future Plan Failures
"[M]ore than half of the people in terminated multiemployer plans that run out of money in the near future face a reduction in benefits under current PBGC guarantees. This compares to 20 percent of workers and retirees who saw reduced benefits under plans that have already run out of money and are relying on PBGC financial assistance.... For retirees and workers whose benefits were not fully guaranteed in the past, a typical loss was about 10 percent of the promised pension benefit. These reductions are likely to become deeper and more frequent for retirees and workers in plans that require PBGC assistance in the future." (Pension Benefit Guaranty Corporation [PBGC])  

2015 PBGC Multiemployer Guarantee Study (PDF)
16 pages. "This report provides a starting point to examine how the [multiemployer] guarantee has affected and is likely to affect the benefits of plan participants in insolvent plans.... To date, the multiemployer program has provided full-coverage somewhat less often than the single-employer guarantee program. Twenty-one percent of multiemployer participants in Current Plans experienced a reduction in benefits versus 16 percent of participants in our most recent study of single-employer plans. The risk and magnitude of benefit loss increases dramatically when we look at the plans that are projected to require financial assistance in the future and apply the guarantee." (Pension Benefit Guaranty Corporation [PBGC])  

Weighing the Pension Investment Implications of Mortality Assumption Changes
8 pages. "The new mortality assumptions reflect improved longevity and will therefore result in increases to both pension liabilities and plan durations. Lower plan funded statuses (due to pension liability increases) theoretically provide incentive to re-risk asset allocations, while longer plan durations suggest de-risking is more appropriate.... The investment decision requires a fundamental choice on whether to accept, intensify, mitigate or shift the incremental funded status volatility associated with lengthened liability duration.... [Plan] sponsors should review their strategic asset allocations, benchmarks (particularly with respect to duration), contribution policies and glidepaths to ensure optimality based on all available information." (Standish)  


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Pension De-Risking in 2015
"[This article discusses] how changes in interest rates, [PBGC] premiums, the new Society of Actuaries mortality tables and regulatory developments may affect plan sponsor decisions to de-risk (or not de-risk) defined benefit plan liabilities in 2015. For purposes of this article, [de-risking means] paying out a participant's benefit as a lump sum and thereby eliminating the related liability." (October Three Consulting)  

Syllabus and Reading List for 2015 Actuarial Exams (PDF)
35 pages; covers May 2015 Basic (EA-1) Examination, May 2015 Pension EA-2 (Segment L) Examination, and November 2015 Pension EA-2 (Segment F) Examination. "Candidates are urged to develop a thorough understanding of the conditions generally or specifically applicable to all examination questions as set forth later in this examination program. Conditions for each examination will be included in the applicable examination booklets." (Internal Revenue Service [IRS])  

The American Retirement Association: A New Name for an Expanding Mission
"For nearly half a century, the American Society of Pension Professionals and Actuaries (ASPPA) and its affiliated organizations have been working for America's retirement. As of today, it does so under a new name as broad and expansive as the members it represents: the American Retirement Association.... [T]he American Retirement Association is a nonprofit professional organization with two major goals: to educate all retirement plan and benefits professionals, and to create a framework of policy that gives every working American the ability to have a comfortable retirement.... The American Retirement Association is composed of four premier retirement industry associations: [1] the American Society of Pension Professionals & Actuaries (ASPPA); [2] the ASPPA College of Pension Actuaries (ACOPA) ; [3] the National Association of Plan Advisors (NAPA); and [4] the National Tax-deferred Savings Association (NTSA)" (American Retirement Association)  

Federal District Court: No Fiduciary Breach by Fidelity in Payment of Account Fees from Float Income (PDF)
"Here, the Plaintiffs did not contract for an alternative arrangement, for example, specifying that beneficiaries would be paid from accounts owned by the Plan. As a result, Fidelity owned the relevant bank accounts, was responsible for the account fees associated with those accounts and was, therefore, free to pay those fees using the float income." [In re Fidelity Float ERISA Float Litigation, No. 13-10222-DJC (D. Mass. Mar. 11, 2015)] (U.S. District Court for the District of Massachusetts)  

Alternative Investments Make Push for Retirement Accounts
"Alternative fund managers are getting a boost from a movement among retirement-plan advisers to use more open-architecture and custom target-date funds ... The move comes on top of the growth of customized target-date funds and open-architecture lineups that provide more access to outside fund managers who offer hedge-fund style investments." (InvestmentNews)  

The Effects of Automatic Enrollment: A Comprehensive View (PDF)
"When evaluating how automatic features will impact the Plan, use a holistic approach. If the goal of automatic enrollment is to increase participation and savings, ensure that the benefits of automatic enrollment are not being diminished by a decreased match or lower average deferral rate. When considering auto-enrollment, take into account how it will impact the goals you are trying to achieve and how it will affect the rest of the plan." (Ekon Benefits)  

IASB Chairman: Hybrid Retirement Plans Need New Accounting Standards
" 'Pension schemes are being transformed in a rapid fashion,' said Hans Hoogervorst, chairman of the IASB ... He referred to the fact that less than a quarter of FTSE 100 companies offer a defined benefit fund to all employees. 'In their place (we are) moving toward so-called hybrid pension schemes. These do not fit neatly into either DC or DB categories in IAS19 (the existing pensions accounting standard). In fact, modern schemes can have infinite variations from the extremes of DC, through to DB, with different degrees and forms of risk sharing in between.' " (Pensions & Investments)  

How to Maximize an ERISA 403(b) Plan with Participant-Controlled Assets
"[M]any service providers issue 403(b) contracts where participants have control over the contract, regardless of the plan's ERISA status. This may be appropriate in the non-ERISA environment, but it's grossly inappropriate in ERISA plans where fiduciaries are supposed to control the plan assets.... Start by educating employees.... It can take a long time for plan participants to understand their options and the benefit of transferring to a new service provider. Find a service provider that can handle the legacy asset issues. Make sure you are considering all the administrative issues." (The Principal Blog)  

CalPERS Projects 8% Decline in Fees to Wall Street Next Year
"Calpers projects it will pay about $100 million less in fees for hedge-fund investments. The pension has said it would take about a year to unwind all its holdings. It paid $135 million in fees in the fiscal year that ended June 30 for hedge-fund investments, which earned 7.1 percent and added 0.4 percent to its total return, according to Calpers figures." (Bloomberg)  

California Pension Reform Measure to Target CalPERS
"A ballot measure campaign to cut California's public pensions will be launched in May by a coalition of politicians and business people led by former San Jose Mayor Chuck Reed, with the state's largest retirement system a prime target.... Reed says the push will seek to place a simpler, more legally watertight pension reform measure on California's November 2016 ballot, giving mayors and other local government executives the authority to renegotiate contracts." (Reuters)  

Illinois Justices Press State's Lawyer on Pension Overhaul
"Illinois Supreme Court justices asked the state's lawyer to explain ... how the government can seek extraordinary power to reduce public pension benefits in the face of a fiscal crisis when the government itself is culpable for the financial mess. Justice Robert Thomas peppered solicitor general Carolyn Shapiro during oral arguments over the constitutionality of a 2013 law that cuts retirement benefits in a 30-year plan to slay a $111 billion deficit." (Associated Press)  

[Opinion]

Pension De-Risking: Government Regulators Need to Step Up
"Regulators are only beginning to consider ways to appropriately police pension de-risking behavior. We propose that the government should take an aggressive stance in regulating such conduct. Participants as a class should not be made worse off by a pension de-risking transaction, and the relevant de-risking rules should so reflect. More specifically, regulators should [1] encourage desirable forms of de-risking by establishing regulatory safe harbors; [2] require a battery of procedural safeguards for annuitization transactions; [3] require improved disclosures for cash buyouts; and [4] limit cash buyouts when beneficiaries are not likely to meaningfully understand the potentially adverse consequences of trading a pension for cash." (Paul M. Secunda and Brendan S. Maher, via SSRN)  

[Opinion]

Focusing Capital on the Long Term?
"[T]he constant pressure to deliver short-term results will only intensify unless corporate America addresses a compensation system run amok.... And the sad reality is that pensions, which make up the bulk of so-called patient capital touting the long, long view, are guilty of the same short-term thinking that they supposedly want to combat." (Pension Pulse)  

[Opinion]

Proposed Labor Rule Could Restrict Access to Affordable Retirement Advice
"In a letter to OMB Director Donovan, senators warn of potential negative consequences for American workers if DOL 'fiduciary' rule has not changed significantly from previous proposal." (U.S. Senate Committee on Finance)  

Benefits in General; Executive Compensation

Rochow Revisited: No Multi-Million Dollar Disgorgement Award
"This case is a big win for insurers and plan administrators. It sets a clear line prohibiting duplicative recovery and provides guidance as to what constitutes 'separate and distinct' injuries that would give rise to equitable relief. In addition, it makes clear that equitable relief is available only when relief available elsewhere in ERISA is insufficient, thus reinforcing the usual reading of [Varity Corp. v. Howe] that Section 502(a)(3) is a catch-all provision, and not one that provides relief in conjunction with Section 502(a)(1)(B). Finally, it eliminates as a remedy recovery that could have made ordinary benefits decisions prohibitively expensive." [Rochow v. LINA, No. 12-2074 (6th Cir. Mar. 5, 2015)] (Seyfarth Shaw LLP)  

Plop Plop, Fizz Fizz, Oh What a Relief It Is: Sixth Circuit Says No Disgorgement for Arbitrary Denial of Benefits
"With a deep split in the opinions, and vigorous argument on both sides, one should expect to see the disgorgement theory asserted in other cases. The better argument is the one presented by the majority, but there are arguments to make, as shown by the dissent." [Rochow v. LINA, No. 12-2074 (6th Cir. Mar. 5, 2015)] (Lane Powell PC)  

Federal District Court: ERISA Does Not Provide Breaching Fiduciary with Right to Relief from Another Fiduciary
"The plan administrator argued that it tried to inform Brown of the risk of losing his benefits if he did not enroll in the individual plan, but the union prevented it from giving correct information. In dismissing the third-party complaint, the court first held that the union was not a fiduciary by virtue of having made representations to participants that they would keep their LTD benefits. Second, the court held that even if the union was a fiduciary, ERISA does not provide breaching fiduciaries the right to seek relief from other fiduciaries." [Brown v. Cal. Law Enforcement Ass'n, No. 3:14-cv-03559-JCS (N.D. Cal. Mar. 2, 2015)] (Proskauer's ERISA Practice Center)  

Pension Changes Affecting Executive Comp Disclosures; Proxy Hysteria Arrives
"Bloomberg reported in a video and an article that GE CEO Jeffrey Immelt was rewarded with an 88% increase in compensation despite sluggish performance. The company attributed the compensation increase to his reshaping of the company and to an increase in the value of his pension.... The pension plans in which Immelt participates did not change. He wasn't granted a massive benefit increase resulting in his total compensation doubling. What happened was that his 2014 compensation replaced his 2009 compensation (remember 2009 was a horrible year for the US and global economies) in a 5-year average, pension discount rates dropped (this increases the present value of pension benefits), and the Society of Actuaries released a new mortality table (I suspect GE adopted it) reflecting longer life expectancies in general." (Benefits and Compensation with John Lowell)  

SEC Proposes Expanded Disclosures of Hedging Policies
"Under the proposed rule, companies could cross-reference the hedging policy disclosure in Item 407, which would meet the [compensation discussion and analysis] requirement for disclosure of hedging policies for [named executive officers]. However, this would make the entire policy, if it goes beyond covering just executive officers, subject to a say-on-pay vote." (Towers Watson)  

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