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[Guidance Overview]
Cash Balance Plans and ESOPs: 6-Year Restatement Cycle Becomes Available
"Employers who maintain ESOPs and cash balance plans that do not intend to use any of the prohibited pre-approved plan provisions may sign IRS Form 8905 to have their plans immediately subject to the 6-year restatement cycle.... If the IRS does restrict the issuance of determination letters during the life-cycle of a plan, then some practitioners may not want to use Form 8905 to fit within the 6-year restatement cycle. If the plan remains on the 5-year cycle, then the plan can be submitted for a determination letter under the current rules during its applicable 5-year cycle. If obtaining a determination letter is a significant concern, then this might be one of the last opportunities to obtain a determination letter for individually designed plans."
(SunGard Relius)
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[Guidance Overview]
New Oregon Law: Official Feasibility Study Begins for State-Run Retirement Plan
"[The new Oregon Retirement Savings Board] is directed by the new law to develop a defined contribution retirement plan called the Oregon Retirement Savings Plan for individuals employed for compensation in Oregon ... Several Plan requirements establish employer mandates ... In general, the Board must establish the Plan so that eligible individuals may begin making contributions to the Plan no later than July 1, 2017."
(Holland & Knight)
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Text of DOL Solicitor General Brief: 'Top Hat' Plan Exemption Available Only If Plan Covers Exclusively Management or Highly-Compensated Employees (PDF)
33 pages. "ERISA's text, legislative history, structure, and remedial purposes make clear that pension plan participants may only be deprived of these key ERISA protections if their plan is composed exclusively of management or highly compensated employees.... The [DOL] has long and consistently read the statutory exemption for top hat plans in precisely this manner.... The district court's contrary view -- that so long as an unfunded deferred compensation plan is primarily composed of management or highly compensated individuals it is exempt from ERISA's core protections as a top hat plan -- does not honor the remedial legislation that Congress passed." [Bond et al v. Marriott International, Inc.,
No. 10-cv-01256 (D. Md. Aug. 9, 2013; on appeal to 4th Cir.)]
(Solicitor General, U.S. Department of Labor [DOL])
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Insurance Commissioners Say DOL Has Legal Authority to Oversee Annuities
"The National Association of Insurance Commissioners [NAIC] is making clear that it believes [DOL] is not overstepping its authority in proposing greater oversight of insurance products sold into retirement accounts.... The proposed rules are 'comprehensive and complex,' and would make significant changes to retirement plan fiduciary rules that have been in place for almost 40 years, the NAIC said. The commissioners have been asked to push back against the proposal, by doing things such as enlisting congressional and state government support, but the NAIC said it had determined that the DOL was acting under settled law and precedents."
(InsuranceNewsNet.com)
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DOL Fiduciary Proposals May Squeeze Complex Financial Products
"Proposed regulations from the [DOL] aimed at reducing conflicts of interest between corporations providing investment/retirement products and selling agents could drive significant revamps of business practices for many registered investment advisors (RIA) and the financial advisors of broker dealers ... As proposed, the new standards would greatly expand the universe of individuals and corporations covered under [ERISA].... The proposed rules raise the risk of regulatory enforcement and or trial bar litigation ... Limitations on commission structures could have a disproportionate impact on the sale or fee structures of investment and retirement products sold in the middle market[.]"
(Fitch Ratings)
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Outsourcing Considerations for Pension Investment Management (PDF)
"These issues tend to fall into one of three categories: [1] Fiduciary duty -- e.g., how can a plan sponsor ensure that the plan's participants are protected in an outsourcing arrangement? [2] Role -- e.g., should the OCIO provider be an investment advisor as defined under ERISA section 3(21), or an investment manager as defined under ERISA section 3(38), or both? [3] Evaluation -- e.g., how should a sponsor go about evaluating different providers of OCIO services? This note summarizes ... each of these areas and includes a 'who does what' worksheet, along with a set of sample interview/RFP questions that may be useful to a plan sponsor considering outsourcing."
(Russell Investments)
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How Vulnerable Is Your Retirement Plan?
"[T]he most common and costly vulnerabilities [are]: [1] Loans and distributions ... [2] Eligibility tracking ... [3] Plan document updates ... [4] Required minimum distributions (RMD) ... [5] Contribution submissions ... [6] Plan fees ... In most cases the service provider role, and their subsequent liability if something should go wrong, will be strictly limited by their service agreement -- even if they are acting in a self-described 'fiduciary' capacity. In most cases, if something goes wrong, the bulk of liability still falls upon the plan sponsor (Plan Administrator)."
(Roland|Criss)
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Building the Case for Internal Investment Management in Public Retirement Systems (PDF)
"[I]ncreasing in-house investment management becomes feasible once a system has: [1] a certain level of scale as measured by Assets Under Management (AUM); [2] a sufficient degree of budgetary control, i.e., the ability of the fund's fiduciary body to approve hiring additional staff and spending on infrastructure investments; [3] the willingness and ability to set staff compensation to market-competitive levels; and, [4] fiduciaries and staff with confidence in being able to improve net returns within an asset class through internal management."
(Funston Advisory Services LLC)
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Can Technology Solve the Mystery of 401(k) Fees?
"[An] Israeli startup named FeeX says it has a solution: an automated service that calculates the fees in your old 401(k)s and recommends whether a rollover (and which kind) makes sense. Users create an account and connect it to their old and new 401(k) plans, then FeeX calculates how much, if anything, a rollover would save. Sometimes, FeeX data show, your money should stay sitting in an old 401(k). Large employers, in particular, often offer excellent, low-cost plans."
(Bloomberg)
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Millennials Coming of Age in the Workforce: Effects on DC Retirement Plans
"Numbering more than 83 million, the Millennial generation [of Americans born between 1982 and 2000, also known as Generation Y or the 'Baby Boom echo',] has surpassed the Baby Boomers as the United States' largest living generation.... This article focuses on implications for defined contribution retirement plans and how Millennial population growth may influence how employers think about plan design, communication, and participant engagement strategies. It also describes ways employers may be able to use retirement benefit programs to strengthen relationships with their Millennial workers."
(CAPTRUST Financial Advisors)
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What Would an Ideal National Retirement System Look Like? (PDF)
32 pages. "Significant changes will be needed as an increasing proportion of the population in the future will have retired from employment and be relying on their savings and/or the government. In light of this challenge, is there an ideal retirement system to respond to these problems and, at the same time, deliver an outcome that provides adequate benefits that can be sustained over the longer term and is trusted by the community?"
(Mercer and CFA Institute)
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The Transition from Defined Benefit to Defined Contribution Pensions: Does It Influence Elderly Poverty?
"This study examines pension coverage, lump-sum distributions, annuitization, and annuity life options among Health and Retirement Study households observed at ages 65-69 and 75-79 and relates these pension provisions to poverty incidence and the risk of falling into poverty at older ages. The results indicate that households with pensions that are annuitized with the joint-and-survivor life option and that do not take lump-sum distributions before age 55 are best able to avoid income and asset poverty. The results emphasize the importance of making DC plans operate more like DB plans[.]"
(Center for Retirement Research at Boston College)
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Joint Social Security Breakeven Periods, and Why It Rarely Pays for Both Spouses to Delay Benefits
"[D]elaying retirement to generate a larger survivor benefit is a moot point if the survivor already has a larger benefit of their own. In fact, a higher-earning spouse makes it less valuable to delay at all, as the other person's survivor benefit may overwrite the delayed benefit altogether, and thus the couple loses if either member of the couple passes away too soon! Which means ultimately, the ideal strategy for most couples is for the higher-earning spouse to delay as long as possible (which benefits them as long as either remain alive) but to start the lower-earning spouse's benefits as early as possible[.]"
(Michael Kitces in Nerd's Eye View)
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Subchapter S Corporation Cost Basis Adjustments in an ESOP
"A current 'best practice' for adjusting the cost basis in an S corporation ESOP is to allocate the cost basis adjustment of shares in the ESOP trust as of the end of each plan year. Some companies may not adjust the cost basis annually because they do not currently distribute shares from the ESOP, and do not expect to in the future. In that case, the company may instead choose to track the adjustment to the cost basis at the trust level, and perform a cost basis adjustment at the participant level only if stock distributions are indeed later made from the trust."
(The Principal Financial Group)
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New Connecticut Law Protects Retirement Plan Benefits from Creditors
"The law goes into effect Oct. 1. It requires insurance companies to exempt retiree benefits from creditor claims. The law applies to participants and beneficiaries in employer-provided and individual retirement accounts. Rollovers from qualified plans are also protected." [Bill text and history available online; bill summary: "To require an insurance company to provide certain disclosures to employees and retirees of an employer when such company issues a group annuity contract to provide retirement benefits to such employees and retirees, and to protect amounts payable under such annuity contract from creditors of participants and beneficiaries."]
(Pensions & Investments)
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Aetna Deal to Acquire Humana Would Add $3.2 Billion in DC Assets
"Aetna had about $6.1 billion in defined benefit assets as of Dec. 31, and $6.5 billion in liabilities for a funded status of about 94% ... Additionally, Aetna had $6.5 billion in U.S. defined contribution assets as of Dec. 31.... Humana had $3.2 billion in its retirement savings plan as of Dec. 31 ... Humana does not have a defined benefit plan."
(Pensions & Investments)
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[Opinion]
Response of the Pension Rights Center to Editorial About the 'Keep Our Pension Promises Act of 2015'
"This legislation introduced by Senator Bernie Sanders, Representative Marcy Kaptur, and 11 other congressional co-sponsors, offers an economically workable solution to the cash-flow problems faced by severely-troubled multiemployer plans, including the Central States Teamster Pension Fund.... The Sanders-Kaptur legislation recognizes that a major problem for many multiemployer plans is that large numbers of employers have left the plans without paying sufficient withdrawal liability to fund the pensions of the retirees they have left behind."
(Pension Rights Center)
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Benefits in General; Executive Compensation
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[Guidance Overview]
Dodd-Frank Clawback Proposal
"Some executives may not have had anything to do with the misstatement, but would still be required to pay back incentives which were previously thought to be earned.... Will executives want to shift more of their pay from incentive to salary to reduce the risk of future clawbacks? This would be a reverse from the general movement of the market to more performance-based compensation. Will executives expect a larger amount of pay since their compensation is at risk even after it is paid? When the new rule is adopted, virtually every existing clawback policy will need to be rewritten."
(Findley Davies)
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[Guidance Overview]
SEC Proposes Compensation Clawback Rules (PDF)
7 pages. "Registrants should immediately consider amending their incentive compensation plans so that the new recovery rules are applicable.... [To] take an extreme case, if the SEC finalizes its rule in 2015 and the rule is effective upon finalization, a calendar year registrant must be able to recover IBC in the event the 12/31/15 financials are restated and the restatement affects currently outstanding IBC awards, including long-term incentives granted in prior years in which payment is affected by results in 2015. This contractual right of recovery will be particularly important with respect to executive officers who are no longer employed by the registrant -- absent a rule requiring repayment, the registrant may be unable to collect, which could lead to delisting."
(Frederic W. Cook & Co., Inc.)
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Participant Data and Fiduciary Responsibility in the Information/Innovation Age
"Recognizing that ERISA plan fiduciaries are charged with meeting a prudence standard when discharging their duties solely in the interest of plan participants and beneficiaries, fiduciaries must not only act prudently in responding to a breach of their plan participants' [personal health information (PHI)], but should also consider developing prudent policies and procedures with respect to the handling and transmission of all [personally idenfifiable information], participant data, and PHI, in the regular course, as well as notification and remediation measures for breaches of same."
(Epstein Becker Green via Confero magazine)
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Applying Heimeshoff to Contractual Limitations in Benefit Plan Provisions
"To apply the Heimeshoff holding, the reasonableness analysis includes four possible questions: [1] Is the total time for a participant to file suit reasonable? [2] Is the time after the final claim denial reasonable for a typical participant to file suit? [3] Is the information about the limitations provision given to the participant enough to make enforcing it against him or her reasonable? And [4] is the time otherwise reasonable, under the circumstances, for the particular participant to file suit? Answering the first and second questions should be simple; one only needs a rule for how many days are sufficient for a typical plaintiff to file suit. The third question should be simple, yet is the subject of a circuit split.
The fourth question cannot be answered with a simple rule, because what might be equitable would depend on the particular participant and his or her circumstances, and thus could vary case by case."
(Bradley Arant Boult Cummings LLP)
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Compensation Inequality: Evidence from the National Compensation Survey
"Using data from the National Compensation Survey, this article examines compensation inequality measures and trends over the 2007-2014 period. The analysis suggests that inequality measures based on total compensation (i.e., wages plus costs of employer-provided benefits) are higher than measures based solely on wages. It also points to an increase in inequality over the study period -- an increase largely driven by a growing compensation gap between high- and low-earning occupations-- and considerable intraoccupational inequality."
(U.S. Bureau of Labor Statistics [BLS])
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[Opinion]
Steven Hall and Partners Comment Letter to SEC on the Proposed Pay Versus Performance Disclosure (PDF)
6 pages. "[T]he approach suggested ... is overly prescriptive, and represents a troubling move away from the principles-based approach of many of the Commission's other recent compensation disclosure proposals, including, notably, the rule-making that led to the current CD&A format. We believe that a principles-based approach to the pay versus performance disclosure would provide companies with the flexibility necessary to communicate their pay for performance story more fulsomely, and beyond the use of one metric, and would enhance the benefit to shareholders of the proposed disclosure."
(Steven Hall & Partners)
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[Opinion]
TIAA-CREF Comment Letter to SEC on Pay Versus Performance Proposed Rule (PDF)
4 pages. "[T]he Proposed Rule could be strengthened by requiring separate disclosures for each PEO that held the position during the required time period. Combining compensation paid to multiple PEOs in a single year, as currently proposed, may obfuscate the board's decisions related to leadership change. This could result in inaccurate representations of information and cause confusion."
(TIAA-CREF)
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[Opinion]
Meridian Compensation Partners Comment Letter to SEC Recommending Changes to Pay Versus Performance Proposed Rule (PDF)
9 pages. "[Meridian recommends these] changes to the Proposed Rule ... [1] Eliminate the required tabular disclosure in favor of a graphical disclosure depicting registrant total shareholder return (TSR) and compensation actually paid over the covered period. [2] Limit the scope of the required disclosure to a registrant's principal executive officer (PEO) and Principal Financial Officer (PFO). [3] Base the amount 'actually paid' under a stock option grant on the option's in-the-money value on the date of vesting. [4] Eliminate (or modify) the disclosure of peer group TSR."
(Meridian Compensation Partners)
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[Opinion]
Business Roundtable Comment Letter to SEC Opposing Its Proposed Pay Versus Performance Rule
"[T]he prescriptive nature of the proposed rules would add to investor information overload and would lead to a result inconsistent with the objectives set forth by the Senate Banking Committee.... [A] principles-based approach would best serve investors and meet the Committee's and Commission's objectives, and we outline recommendations for taking such an approach [in this letter]."
(Business Roundtable [BRT])
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