Retirement Plans Newsletter

December 2, 2015

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[Official Guidance]

Text of PBGC Disaster Relief Announcement 15-11 in Response to Severe Storms, Tornadoes, Straight-Line Winds and Flooding in Texas
"This Disaster Relief Announcement provides relief relating to PBGC deadlines ... [to] any person responsible for meeting a PBGC deadline (e.g., a plan administrator or contributing sponsor) that is located ... in the disaster area. The relief generally extends from October 22, 2015 through February 29, 2016. The disaster area consists of Bastrop, Brazoria, Caldwell, Comal, Galveston, Guadalupe, Hardin, Harris, Hays, Hidalgo, Liberty, Navarro, Travis, Willacy, and Wilson counties." (Pension Benefit Guaranty Corporation [PBGC])  


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[Guidance Overview]

Reportable Event Changes for Pension Plans Effective January 1, 2016
"PBGC reporting now is automatically waived for certain reportable events if any of the following conditions are met: [1] the well-funded plan waiver, [2] the public company waiver, [3] the low-risk default waiver, and [4] small plan, foreign entity and de minimis waivers.... [T]he new PBGC rules modify the definition of certain events that must be reported, and require electronic filing of all event notices. These new reportable event rules apply to post-event reports for events occurring on or after January 1, 2016, and apply to advance reports due on or after January 1, 2016." (McDermott Will & Emery)  

Sixth Circuit Sides With Independent Fiduciary in ERISA Stock-Drop Case
"Rather than identifying 'special circumstances,' Pfeil identified four specific dates on which State Street should have sold the plan's GM stock in light of the company's deteriorating financial condition. The [Sixth Circuit] strongly disagreed, characterizing Pfeil's argument as resting on a sleight of hand, hindsight analysis. The fact that State Street could have made a different investment decision does not mean that its decisions were imprudent, as courts evaluate a fiduciary's conduct as of 'the time it occurred,' not 'post facto.' " [Pfeil v. State Street Bank and Trust Co., No. 14-1491 (6th Cir. Nov. 10, 2015)] (Calfee, Halter & Griswold LLP)  

DOL Weighs in on ESG: Key Takeaways from Interpretive Bulletin 2015-01 (PDF)
"While sustainable investing previously attracted investors that directed their investments based on personal values, the DOL is acknowledging that many strategies that incorporate ESG factors today do so with economic motivations, and have investment beliefs and datasets to support the theory that they can earn superior returns within acceptable levels of risk by examining securities through factors tied to environmental sustainability, social betterment, or strong corporate governance." (Callan Associates)  

Sometimes Reducing the Number of Employees Eligible to Participate Could Be the Greater Good
"Maximizing participation may be the goal in most cases, but plan consultants in tune with their clients' businesses should recognize instances when immediate eligibility and/or automatic enrollment are contraindicated.... industries with very high turnover, such as the restaurant, landscaping, or car wash industries are better served by a one-year waiting period before automatic enrollment takes place. ... Similarly, there can be circumstances in which allowing employees who work less than 1,000 hours per year to participate causes the previously small plan to exceed 120 participants, requiring a financial statement audit to be attached to the Form 5500." (Belfint Lyons & Shuman, CPAs)  


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DOL Notice on Tips for Selecting and Monitoring an ERISA Plan Auditor Alarms Recipients: Fear Not!
"The recent notice sent to Plan Administrators, providing tips for selecting and monitoring plan auditors ... encourages, but does not require, Plan Administrators to consider the following factors in selecting an auditor: [1] The number of employee benefit plans the CPA audits each year, including the types of plans; [2] The extent of specific annual training the CPA receives in auditing plans; [3] The status of the CPA's license with the applicable state board of accountancy; [4] Whether the CPA has been the subject of any prior DOL findings or referrals, or has been referred to a state board of accountancy or the American Institute of CPA's for investigation; and [5] Whether or not the CPA's employee benefit plan audit work has recently been peer reviewed by another CPA and, if so, whether the review resulted in negative findings." (Davis Wright Tremaine LLP)  

The Five W's: A Plan Fiduciary Perspective
"There are a lot of questions that plan fiduciaries should ask, but here are five W's and an H that every new plan fiduciary -- or every 'old' fiduciary who is new to a plan -- should ask. [1] Who are the (other) plan fiduciaries? ... [2] What does the plan cost? ... [3] When was the plan document last updated? ... [4] Where is the plan document (or at least a copy of it)? ... [5] How much insurance coverage do you have? ... [6] Why do we offer this workplace retirement plan?" (National Association of Plan Advisors [NAPA])  

More Fiduciary Rule Questions Answered
"It sounds like advisors to small plans (under 100 participants) would sign a BICE contract, but they still can get indirect compensation like 12-b1 fees. Wouldn't this be in conflict with putting the participant interests first? ... How do we get ahead of this -- regardless of outcome? ... If I only receive level comp from plan sponsors or IRAs and sell no proprietary products, I would not be subject to a BIC requirement? ... How would you respond to those who say this rule will reduce access to services to the middle income savers?" (fi360)  

The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2004-2013)
"The report covers both defined benefit (DB) and defined contribution (DC) plans using data from Form 5500 Annual Reports filed with the Department of Labor, with 2013 being the most recent information currently available. The report analyzes key trends in demographics, cash flows, and investments for defined benefit and defined contribution plans over the ten-year period from 2004 through 2013, and will help trustees, consultants and policy makers gain a better understanding of these plans and their environment." (International Foundation of Employee Benefit Plans [IFEBP])  


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Fear of Market Uncertainty Continues to Drive Preference for Retirement Guarantees
"More than a third of respondents (37%) said 'fear of market uncertainty' would prevent them from investing today if they had extra cash available. That's slightly lower than the 40% who expressed that concern in 2014, but it remains the top reason keeping them out of the market ... 81% -- up from 78% in 2014 -- said they find a product with 4% return that is guaranteed not to lose value more attractive than one with 8% return that is vulnerable to market downturns." (Allianz Life Insurance Company of North America)  

Change in Average 401(k) Account Balances from January 1, 2014 through December 1, 2015 (PDF)
The report shows the change in average 401(k) account balances, grouped by age and tenure, from January 1, 2014 through December 1, 2015, counting only those participants who had an account balance at the end of 2013. (Employee Benefit Research Institute [EBRI])  

Using Systematic Partial Roth IRA Conversions and Recharacterizations to Fill the Lower Tax Bracket Buckets
"[N]ot only is a 'partial' Roth conversion permitted, but in practice it's often the optimal strategy, allowing retirement account owners to convert just enough to fill the lower tax brackets, without causing 'too much' income that would trigger the top tax brackets. In fact, the Roth recharacterization rules make it feasible to precisely fill the bottom tax brackets, but not a dollar more, by converting more than enough to fill the lower tax brackets each year, and then doing a partial recharacterization to back into the optimal partial Roth conversion amount after the year is over!" (Michael Kitces in Nerd's Eye View)  

You May Need Less Retirement Income Than You Think
"In retirement, you likely no longer contribute to Social Security, Medicare and your retirement account. That means your replacement rate is down to no more than 77% of your final year's salary -- or 60% or less if you use average lifetime income ... If you subtract other expenses -- commuting and a lower federal income-tax bill (assuming you're in a lower tax bracket in retirement than you were in your working years) -- the replacement rate falls lower still." (MarketWatch)  

100% Certain That We're Not Sure About Optimizing Retirement Plan Financial Parameters
"The first order of business is to eliminate catastrophes -- those red dots. We can't avoid red dots when we fund retirement with an equity portfolio because even good returns on average can fall victim to an unfortunate sequence of returns. We can, however, make red dots non-catastrophic by building a floor of safe income with TIPS bond ladders, Social Security benefits, fixed annuities and the like to insure that we can meet our non-discretionary spending needs. Then, even if our equity portfolio becomes a red dot, we don't lose our standard of living." (The Retirement Cafe)  

Nearly Half of Physicians Fall Short of Recommended Retirement Savings Rates
"Despite strong average savings rates, nearly half (48 percent) of physicians are saving less than Fidelity's recommended savings rate of 15 percent with an average of only 9 percent.... Forty-eight percent are not maxing out their contributions to a qualified workplace plan ... a number that's even higher for female physicians (58 percent) than their male counterparts (45 percent).... Many pre-retirees (39 percent) are very aggressive in their equity allocation making their savings more susceptible to market fluctuations. At the same time, more than one-third of physicians in their 40s are conservatively allocated, thus limiting their potential for growth during their longer-term savings horizon." (Fidelity)  

[Opinion]

Opening Statement of HELP Subcommittee Chairman: Principles for Ensuring Retirement Advice Serves the Best Interests of Working Families and Retirees
"The administration has said this proposed rule -- known as the 'fiduciary rule' -- will require retirement advisors to put the best interests of their clients above their own financial interests. That, of course, is an admirable goal and one we agree is worth pursuing.... However, as witnesses explained at a committee hearing this summer, the department's rule -- as proposed -- will impose on financial advisors a host of costly new mandates and burdensome regulations that will have far reaching consequences for those most in need of assistance. And as with most well-intended Big Government schemes, it's the people who need help who are hurt the most." (Committee on Education and the Workforce, U.S. House of Representatives)  

Benefits in General; Executive Compensation

[Guidance Overview]

DOL Issues Proposed Rule That Would Significantly Alter Claims Procedures (PDF)
"The Proposed Rule would almost certainly increase the administrative costs and burdens of administering disability plans, and would encourage claimants to pursue their claims in court.... Changes of concern include: [1] Disclosure of the basis for disagreeing with a third party ... [2] Strict compliance and possible de novo review ... [3] Right to review and respond to new information before final decision." (Groom Law Group)  

Managing Nonqualified Deferred Compensation Distributions: What Employers Need to Know (PDF)
"Know when to take out Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes.... Keep NQDC participants in your payroll system even after they've left the company.... Remember other sources of income when calculating taxes on distribution.... Be aware of differences in state income tax requirements.... Report distributions on the proper tax documents." (Bank of America Merrill Lynch)  

New York State Court Invalidates Executive Compensation 'Soft Cap' Regulation
"On Nov. 13, 2015, the Albany County Supreme Court upheld New York Governor Cuomo's Executive Order regarding executive compensation and administrative expenses of certain service providers (EO 38) ... but struck down those provisions of the [Department of Health] regulation that prevented Covered Providers from using non-State dollars to pay Covered Executives more than $199,000. The Albany court is the third New York State trial court to rule on the validity of EO 38 and the DOH regulations promulgated pursuant to that executive order. Significantly, the Albany Supreme Court took a different approach than the two other courts which previously ruled on this issue." (Greenberg Traurig)  

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