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Employee Benefits Jobs
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Webcasts and Conferences
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[Guidance Overview]
IRS Expands Pre-Approved Plan Program to Include Cash Balance Plans and ESOPs
"Employers currently maintaining individually designed plans that intend to adopt pre-approved cash balance plans or ESOPs (when available) should complete Form 8905, Certification of Intent To Adopt a Pre-approved Plan, before the end of their plan's current 5-year remedial amendment cycle.... If an employer doesn't know which particular pre-approved plan it will ultimately adopt the employer does not need to complete Part II or the information in Part III, line 4, of Form 8905 (requiring identifying information on the pre-approved plan and certification by the M&P sponsor or VS practitioner)."
(Cary Kane ERISA Lawyer Blog)
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The Duty of Prudence and the Net Cost of Investments
"[At] first blush [Tibble v. Edison Int'l] would seem to mean that plans should always use institutional share classes when they are available to the plan (directly or through the provider). However ... institutional shares are not always less expensive than retail shares. For example, when revenue sharing is considered (and used to reduce the expense ratio to its 'net cost), the true, cost of the retail shares may be -- and frequently is -- less expensive."
(Drinker Biddle)
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Supreme Court Decision in 401(k) Case May Have Profound Effect on Fiduciary Debate
"According to the DOL, the [best-interest contract exemption (BCE)] does not mandate an ongoing or long-term advisory relationship, but rather leaves that to the parties to the contract, the terms of which would govern whether the nature of the relationship between the parties is ongoing or not. The allowance of a short-lived fiduciary duty is central to allowing broker-dealers to reasonably modify their current business models to accommodate the requirements of new rule. Tibble v. Edison, however, makes clear that a fiduciary's duty to an ERISA plan is ongoing. Can the BCE be squared with Tibble v. Edison or vice versa?"
(Investment News)
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Discounting Pension Liabilities: Funding Versus Value
"[The authors] argue that the appropriate discount rate for pension liabilities depends on the objective. In particular, if the objective is to measure pension under- or over- funding, a default-free discount rate should always be used, even if the liabilities are themselves not default-free. If, instead, the objective is to determine the market value of pension benefits, then it is appropriate that discount rates incorporate default risk. [They] also discuss the choice of a default-free discount rate... [and] show how cost-of-living adjustments (COLAs) that are common in public pensions can be accounted for and valued in this framework."
(National Bureau of Economic Research [NBER])
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DC Plans Lag DB Brethren in the Management of Risk
"[O]bservers said the best minds in the 401(k) plan space are focused on refining and advancing existing approaches such as multimanager investment options, retirement income adequacy and financial wellness. Defined benefit plan chief investment officers, on the other hand, are looking to employ more informed risk management to generate performance to meet assumed rates of return, more precisely diversify portfolios, protect their funds from drawdowns and become more nimble, opportunistic investors[.]"
(Pensions & Investments)
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Benefits of ESOPs and Use of Leveraging
"Closely held companies that may be unwilling or unable to raise capital through a public offering of stock may find an ESOP especially attractive. The costs of public underwriting and the expenses of operating a publicly traded company can be avoided through the use of ESOP financing. Existing owners and management may prefer to build ownership through their own employees rather than going public and opening ownership to outsiders. But if the ESOP will borrow money and enter into transactions with related parties to acquire the employer's securities, the parties must not ignore the risk of noncompliance with the prohibited transactions rules[.]"
(Reid and Riege, P.C.)
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Are Your Investment Fees Deductible?
"With the rise of comprehensive wealth management, it is increasingly common for clients to pay a single bundled AUM fee that covers not only deductible investment management services but also non-deductible planning expenses. Technically, though, those clients should probably only be deducting a portion of the AUM fee, not the entire amount -- at least where the AUM fee covers a material amount of planning services. The issue is especially concerning when it comes to retirement accounts such as IRAs, where paying a personal financial planning fee with retirement assets could trigger a taxable deemed distribution, or even disqualify the entire IRA as a prohibited transaction.... [F]or some firms, unbundling fees can present challenges in communicating the value of their services."
(On Wall Street)
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Less Is More: What Small Investors Can Learn from a Pension Giant
"Calpers has saved about $300 million in investment expenses over the past five years ... by moving the management of more portfolios in-house and by negotiating better terms with its remaining external managers.... As the new plan takes effect over the next five years, ... the 27 outside managers running Calpers' portfolios of publicly traded U.S. and international stocks will likely shrink to 20. Calpers spends approximately 0.34% of its assets on management fees, down from about 0.48% three years ago."
(The Wall Street Journal; subscription may be required)
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When Private Equity Firms Give Retirees the Short End
"[T]he funds impose fees under terms that create conflicts of interest between investors and general partners who run private equity firms. A little-known practice involves discounts that the firms obtain from lawyers and auditors but do not always share fully with investors. A dive into regulatory filings over the last month revealed that 12 private equity firms said they had actual conflicts of interest in connection with such discounts, while 29 more described potential conflicts. Altogether, the 41 firms oversee almost $600 billion in client assets[.]"
(The New York Times; subscription may be required)
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Survey Shows Knowledge Deficiency about Social Security Retirement Benefits
"The results of the survey, which included a true/false quiz about Social Security facts, were concerning: only 28 percent of those surveyed received a passing grade when asked basic questions about Social Security retirement benefits.... [W]hen asked about their level of knowledge about Social Security retirement benefits, only 8 percent of those surveyed consider themselves to be very knowledgeable.... Nearly all surveyed hold at least one misperception about Social Security -- only one survey respondent answered all true/false questions correctly."
(MassMutual)
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When You Shouldn't Roll Your 401(k) Balance Over to an IRA
"[T]here are a few specific cases when it's better to leave your retirement savings in a former employer's 401(k) plan. [1] You are between ages 55 and 59.... [2]You plan to work past age 70-1/2.... [3] You have company stock in your 401(k) plan.... [4] Your 401(k) plan has especially low fees.... [5] You haven't had time to carefully evaluate your options."
(U.S. News & World Report)
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When Should I Take My IRA RMD?
"Getting money out of that account earlier rather than later allows the net proceeds to be reinvested sooner in long-term gain-producing investments that will get a stepped-up basis at death ... The retiree who takes the RMD late in the year is seeking some or all of the following advantages: The gross income generated by the distribution is not taxable until as late as possible.... The longer the RMD stays in the IRA, the more tax-deferred income it can generate.... You have a better chance of getting in on any tax rule changes that occur late in the year."
(Morningstar)
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[Opinion]
Letter to Actuarial Standards Board from National Public Employee Pension Associations Regarding Actuarial Standards of Practice (ASOPs) (PDF)
"The high profile cases of public plans facing significant financial hardships [1] are not representative of the common condition and [2] did not arrive at their current condition due to shortcomings in ASOPs. Those problems can almost totally be ascribed to plan sponsor contributions at something significantly less than the [actuarially determined contribution] over protracted periods."
(National Association of State Retirement Administrators [NASRA]; National Conference on Public Employee Retirement Systems [NCPERS]; and National Council on Teacher Retirement)
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