Retirement Plans Newsletter

February 1, 2016

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Webcasts and Conferences

A Focus on Participant Outcomes: Understanding Retirement Readiness, Financial Wellness, and Plan Health
February 18, 2016 WEBCAST
(HANYS Benefit Services)

ACA Reporting: Decoding the Codes
February 18, 2016 in NC
(Hill, Chesson & Woody)

ACA Reporting
February 24, 2016 in CA
(Trucker Huss)

ACA Reporting
February 25, 2016 in CA
(Trucker Huss)

Choosing a Retirement Solution for Your Small Business
February 25, 2016 WEBCAST
(Employee Benefits Security Administration [EBSA], U.S. Department of Labor)

Get Ahead of the Regulatory Curve!
March 21, 2016 in DC
(Retirement Industry Trust Association [RITA])

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[Guidance Overview]

New IRS Rule Permits Most Midyear Safe Harbor Amendments
"In short, the Notice permits mid-year changes with very few exceptions. Instead of saying 'You can do this and this and this,' the Notice says 'You can do what you want except for that and that and that.' This is a marked and very welcome change from the IRS." (SunGard Relius)  


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[Guidance Overview]

Benefit Reductions in the Central States Multiemployer DB Pension Plan: Frequently Asked Questions (PDF)
11 pages. Topics include: [1] What is the Central States Pension Plan? [2] Why is the Plan proposing to reduce benefits? [3] Is the PBGC supposed to pay benefits when a plan cannot? [4] How does the Multiemployer Pension Reform Act (MPRA) dictate which benefits to cut and by how much? [5] What is the process for approving benefit reductions? [6] Is a vote of participants required to approve benefit reductions? [7] Has any legislation been introduced that could prevent implementation of the benefit reductions?" [Report No. R44355, dated Jan. 28, 2016] (Congressional Research Service [CRS])  

[Guidance Overview]

IRS Proposes New Normal Retirement Age Safe Harbors for Governmental Plans
"The proposed rules clarify that in the case of a governmental plan that does not provide for distributions before retirement, the plan's NRA is not required to comply with the reasonably representative requirement. However, governmental plans that provide for distributions before retirement (i.e., in-service distributions before age [62] must comply with the reasonably representative requirement. The proposed regulations would allow different normal retirement ages for qualified public safety employees versus other employees covered by the same plan." (Cheiron)  

House Committee Hearing and Markup of Bipartisan Fiduciary Proposal to Take Place on February 2
The Markup of H.R. 4293, 'Affordable Retirement Advice Protection Act', will be held on February 2, 2016, at 10:00 a.m. Live video of the proceedings will appear on the linked page. (Committee on Education and the Workforce, U.S. House of Representatives)  

The Rise of the 'Checklist' Fiduciary (and the Power of Four Overlooked Words)
"It's tempting to commoditize a fiduciary relationship by simplifying it to the creation of mere artifact like a completed checklist. While, in the short run, this may support the illusion of low cost 3(16) provider services, the checklist does not substitute for documentary evidence of the hours of work a 3(16) provider must inevitably perform in monitoring and removing imprudent service providers and fixing the consequence of their imprudence[.]" (ERISA Fiduciary Administrators LLC)  

Activity Tracking to Become a Necessity for Advisers Under the DOL Fiduciary Rule
"The key for advisers is how to mitigate potential exposure given the exemptions.... [Y]ou will need to keep diligent records regarding your meetings with participants. You will need to track which meetings were fiduciary in nature and which meetings qualify for the education exemption. This tracking should include who was present at the meeting, what topics were discussed, ideally any materials that were used (presentations, literature, etc.), and whether the meeting should be considered educational in nature." (QP Steno Blog)  

Be Careful What You Wish For: Dudenhoeffer May Do More Harm Than Good for ERISA Stock Drop Plaintiffs
"Although it may not have immediately been apparent from the Dudenhoeffer decision how much of an impediment the 'more harm than good' standard would be for plaintiffs in so-called 'stock drop' cases, the Amgen decision seems to make clear that the standard has both substantive and procedural significance.... [T]he Court at the very least seems to have solidified the threshold that the plaintiffs in any given case may need to reach at the pleadings stage in order for the case to continue." (Dechert LLP)  

Seven Habits of Highly Successful DB Plan Sponsors
"[1] Understand the impact of interest rates on your plan's liabilities ... [2] Factor the plan's funding ratio into asset allocation decisions ... [3] Consider a lump sum window ... [4] Ponder mortality ... [5] Reduce PBGC premiums ... [6] Set a funding policy ... [7] Search for administrative efficiencies." (The Principal Blog)  

Companies Eye Pension De-Risking
"The decision to de-risk is a complicated one, and it is often driven by a company's CFO.... But given that these deals can leave retirees and employees feeling alienated and confused, it's critical for HR to insert itself in the process. Indeed, deciding to de-risk provides a good opportunity for HR to partner with finance and work through the details of these transactions together." (Society for Human Resource Management [SHRM])  


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Average DC Contribution Rate Drops as Auto Enrollment Spurs More Participation
"[T]he average annual contribution rate was 7.2% for the 2012-2014 period; 7.4% for 2009-2011; 8% for 2007-2008; and 7.9% for 2001-2006. The reason for the decline is most likely due to the 'fallout' caused by auto features ... Participants might be put into lower initial contribution rates through auto enrollment than they might contribute on their own[.]" (Pensions & Investments)  

Navigating the Rollover as Business Start-Up (ROBS) Strategy
"The lack of ERISA attention, along with the IRS's retirement plan concern that people are possibly throwing their career-long savings away to a businesses that fails ... appear to make these [qualified employer securities (QES)] transactions somewhat risky. It should be noted however that, while the IRS has expressed concern over the QES financings as recently as late 2015, the agency does not find the transaction as non-compliant." (Jackson Lewis P.C. via Lexology)  

Despite Volatility in Stocks, Investors Staying Steady on Retirement Savings
"Retirement savers have come to understand that they need to think long term. Many lived through the far more unsettling years of the financial crisis, then saw the market get back to its earlier peak in about 5 years. That sure felt like a long time then, but even those who retire this week can reasonably expect to live another 20 years, long enough for the riskiest parts of any saver's portfolio to recover." (Denton Record-Chronicle)  

Which is Better: Deferring Commencement of Social Security, Buying a QLAC, or Neither?
"[T]he present value at age 65 of the retiree's assets increases with assumed age of death for all four [Social Security claiming] strategies. Which is the optimal strategy? Well, that depends on the retiree's age of death. If he dies before age 85, he is better off under the commence immediately with no QLAC alternative. If he dies on or after age 85 and before age 88, he is better off under the defer to age 70 strategy. If he dies on or after age 88 and before age 95, he is better off under the commence Social Security now and buy a QLAC commencing at age 80 strategy, and if he dies on or after age 95, he is better off under the commence Social Security now and buy a QLAC commencing at age 85 strategy." (Ken Steiner, FSA Retired)  

Comparing Retirement Wealth Trajectories on Both Sides of the Pond
"[In] the U.S. assets on average decline gradually with age, while in England older households actually accumulate wealth. These differences appear to be driven largely, though not entirely, by housing wealth ... [The authors] also consider the potential importance of bequest motives and savings to insure against the risk of medical and long-term care expenses." (University of Michigan Retirement Research Center [MRRC])  

California School Districts Begin Reporting Pension Debt
"The latest financial statements of [California's] fifth largest school district, Elk Grove Unified, list a pension debt of $414.6 million, up from no pension debt in the statement for the previous year. How did the debt go from zero to hundreds of millions in a year? As you might guess, it didn't. The change is how the pension debt is reported under a new rule of the Governmental Accounting Standards board that took effect last fiscal year." (Calpensions)  

[Opinion]

State-Run Retirement Plans: Will the States Get It Right on Retirement Policy?
"The DOL, in its proposed regulation and Interpretive Guidance, assumes the States will get this right. Call us pessimists, but we're not so sure the State of Illinois has a good track record when it comes to managing retirement plans. And Illinois isn't alone." (Dorsey ERISA)  

[Opinion]

Why Are We Third-World America When It Comes to Retirement?
"Unfortunately, President Obama's myRA plan doesn't involve an employer contribution and doesn't allow employees to invest in stocks, which translates into pension poverty. The driver of our pension poverty isn't a lack of savings opportunities but the fact that the typical employer contribution to a 401(k) account is equal to 3 percent of pay versus 8 percent of payroll for a traditional pension." (Jane White, in The Huffington Post)  

[Opinion]

How Should an RIA Explain Fiduciary Duty to Clients?
"If prospects hear me talk too much about how I have a fiduciary duty and how it serves them well, my efforts could produce a negative result. By insisting that I am trustworthy, might those claims sow seeds of doubt, allowing my audience to wonder if the opposite could be true?" (On Wall Street)  

Benefits in General; Executive Compensation

Text of Fourth Circuit Opinion in Marriott 'Top Hat' Case, Dismissing Claim Due to Statute of Limitations (PDF)
"[We] agree with the parties that Maryland's three year statute of limitations for contract actions applies. However ... the question of when the statute begins to run is a matter of federal law.... While the 'formal denial' rule is generally applied in ERISA cases, we [have] recognized ... that in limited circumstances the rule is impractical to use.... [T]he 1978 Prospectus -- in a section entitled 'ERISA' -- plainly stated that the Retirement Awards did not need to comply with ERISA's vesting requirements.... The Appellants then waited more than 30 years to file suit, alleging that the Plan violates ERISA's vesting requirements." [Bond v. Marriott Int'l Inc., No. 15-1160 (4th Cir. Jan. 29, 2016)] (U.S. Court of Appeals for the Fourth Circuit)  

Plan Document Amendments May Be Needed After Montanile Decision
"Part of what the Supreme Court was wading into here was, did Congress use the word 'equitable' as in the traditional courts of equity, or did they use the term in a more benign sense, as a synonym for 'fair?' This is of critical importance for ERISA plans -- the implications are broad. One of the most important is that, in regards to the subrogation provisions in place within many plans (especially large, well-run plans), sponsors will have to be very vigilant and proactive in understanding where they may have the right or even the obligation to pursue recovery of plan assets under the subrogation clause, and where they don't." [Montanile v. Bd. of Trustees of Nat. Elevator Ind. Health Benefit Plan, No. 14-723 (U.S. Jan. 20, 2016)] (PLANSPONSOR)  

Supreme Court Addresses Two ERISA Cases in One Week
"[F]rom the viewpoint of plan sponsors and fiduciaries, the recent rulings in [Montanile] and [Amgen] appear to confirm the Court's ongoing awareness that ERISA balances the competing interests of participants, on one hand, and employers or plan sponsors, on the other. It is well settled that ERISA was intended, in part, to promote an environment that encourages employers to offer employee benefits programs voluntarily. 'In these two cases, the Supreme Court is curtailing the trend towards a litigation free-for-all that we've seen elsewhere, such as in mass-tort litigation,' [said Charles Seemann of Jackson Lewis P.C.]." (Bloomberg BNA)  

The Impact of Lower Stock Prices on 2016 Say-on-Pay
"[T]he market decline will cause an increased number of energy companies to trip a key ISS test in 2016. Fortunately, it's easy to spot now so companies can anticipate the issue and address it in their CD&A." (Meridian Compensation Partners, LLC)  

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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2016 BenefitsLink.com, Inc. All materials contained in this newsletter are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of BenefitsLink.com, Inc., or in the case of third party materials, the owner of that content. You may not alter or remove any trademark, copyright or other notice from copies of the content.

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