Retirement Plans Newsletter

March 8, 2016

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Employee Benefits Jobs

Senior Administration Relationship Manager
NestEggs Retirement Plan Services, Inc.
in FL

401(k) Plan Administrator
Alliance Pension Consultants, LLC
in IL

Senior Actuarial Analyst
Verisight
in OH

401(k) Plan Processing Team Leader
Third Party Administrators, Inc.
in NH

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Webcasts and Conferences

Pension Wars: Rise of De-risking
March 22, 2016 WEBCAST
(Findley Davies, Inc.)

Employer Diabetes Forum: Reigniting Diabetes Management Strategies to Treat, Engage & Empower
April 6, 2016 in IL
(Midwest Business Group on Health)

Certificate in Global Benefits Management
June 6, 2016 in IL
(International Foundation of Employee Benefit Plans [IFEBP])

New Trustees Institute
June 27, 2016 in NV
(International Foundation of Employee Benefit Plans [IFEBP])

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Discussions


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[Official Guidance]

Text of IRS Instructions for 2015 Form 5500-EZ (PDF)
Dated Mar. 3, 2016. [Replaces the Feb. 18 version, but IRS provided no explanation of any changes. -- Editor.] "What's New: ... Questions on line 6 have been split and added for active participants and number of participants that terminated employment during the plan year with accrued benefits that were less than 100% vested.... New IRS compliance questions were added to lines 13 through 16. The IRS has decided not to require plan sponsors to complete these questions for the 2015 plan year, and plan sponsors should skip these questions when completing the form." Also available: 2015 Form 5500-EZ. (Internal Revenue Service [IRS])  


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[Guidance Overview]

Text of IRS Memo to Employee Plans Division on Spousal Provisions in Section 403(b) Applications for Opinion and Advisory Letters (PDF)
Dated March 1, 2016. "If the definition of 'spouse' ... specifically excludes a same-sex spouse, Determinations agents and specialists should verify whether that definition is controlling with respect to plan provisions describing spousal rollover rights under IRC Section 402(c)(9) and required minimum distributions under IRC Section 401(a)(9). If so, in conformity with standard practice, request necessary changes to the plan document. If the taxpayer declines the requested changes, do not issue an opinion or advisory letter. If that exclusive definition does not control those relevant provisions, or if the plan sponsor amends the definition of 'spouse' with respect to IRC Sections 402(c)(9) and 401(a)(9) to comply with Rev. Rul. 2013-17, then issue an opinion or advisory letter, assuming satisfaction of all other applicable requirements." (Internal Revenue Service [IRS])  

Media Short-Cuts on Expense Ratios Can Misdirect 401(k) Fiduciary Due Diligence
"Much has been written about 401k plan fees, and often writers will casually link mutual fund expense ratios to this issue. These linguistic short-cuts can then lead to a butterfly effect of miscalculations. For example, the popular meme that 'low expense ratio mutual funds always beat higher expense ratio mutual funds' has long been exposed as a myth ... Yet, the meme persists in the mass media (and even some trade journals). Why has this myth survived and what can be done about it?" (Fiduciary News)  

Financial Technology and the Fiduciary Rule
"Financial technology enthusiasts will counter that a more automated approach to retirement planning is a good thing for big and small savers alike.... There are central questions about the fiduciary obligations of a company that concentrates on algorithmic advising and money management. Besides seeking to contain model risk, there is a need, at a minimum, for a vendor to regularly review client objectives and constraints." (Pension Risk Matters)  

Are Retirement Plan Fiduciaries Required to Prevent Cyberattacks?
"An effective plan will include thorough due diligence on third-party administrators; contractual protections and insurance in arrangements with TPAs, with regular reviews of those contracts; regular review of the TPAs' cybersecurity compliance and risks; and if appropriate, utilize protections in the SAFETY Act and purchase specific cybersecurity and privacy insurance." (ThinkAdvisor)  


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Defined Contribution Plan Re-Enrollment: A Fiduciary Imperative? (PDF)
"This paper looks at: [1] The role a re-enrollment campaign can play in guiding all plan participants to an appropriate asset allocation; [2] Common reasons cited by plan sponsors for avoiding re-enrollment, and counterpoints to each; [3] Key elements of a successful implementation; [4] Re-enrollment terminology." (Russell Investments)  

Why Target Date Funds Are Widely Misused by Retirement Investors (PDF)
33 pages. "The high incidence of partial-TDF usage, and the evidence that such partial-TDF users significantly underperform more appropriately diversified investors, calls into question the efficacy of relying solely on TDFs to achieve retirement security for plan participants. This study seeks to better understand why many retirement investors hold only part of their retirement plan assets in TDFs and why they decrease their allocation to TDFs over time. This study also shares implications of these findings for retirement plan designs." (Financial Engines)  

Generation X Lacks Confidence in a Secure Retirement
"[O]nly 24 percent of GenXers are highly confident they will have enough money to support themselves throughout retirement. And the lack of confidence may be warranted given GenXers' current savings levels. Overall more than a third of GenXers have nothing saved for retirement.... [O]nly 8 percent of GenXers have enough saved to support themselves in retirement. Even among the oldest GenXers, those aged 44 to 53, only 11 percent have sufficient savings." (Insured Retirement Institute [IRI])  

Retirement Savings and Annual Spending
"[The Motley Fool] took data from a GAO report that includes the current financial status of households between the ages of 55 and 64.... [T]he median annual income implied by the [Motley Fool] chart is only $4,085 for households that buy an annuity and $3,098 for households that go with the '4% Rule'....Realistically, families that have saved less than the median savings would probably be better off using the savings for emergencies rather than annuitizing them." (The Retirement Cafe)  


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Retirement Blues: Does Retirement Adversely Affect Mental Health?
"This paper analyses the short- and long-term effects of retirement on mental health in ten European countries.... The results display no short-term effects of retirement on mental health, but a large negative longer-term impact.... [F]indings suggest that reforms inducing people to postpone retirement are not only important for making pension systems solvent, but with time could also pay a mental health dividend among the elderly and reduce public health care costs." (Gabriel Heller-Sahlgren, via SSRN)  

How Are IRA Annuity RMDs Calculated After Life Annuitization?
"There is some debate over whether or not such a distribution from an annuitized annuity can be used to satisfy RMDs for other IRAs in the year of annuitization. On the one hand, once annuitized, IRA annuities generally follow defined benefit plan rules instead of the defined contribution rules. That would lead you to believe the answer is no. On the other hand, RMDs are based on prior year-end balances. Since the annuitized annuity had a prior year-end balance and wasn't annuitized at the time, that might lead you to believe yes[.]" (Slott Report)  

ESOP Loan Terms: How Long Should They Be?
"Employee Benefit Considerations: Target Benefit Level ... Benefit delivered by other plans ... Compensation philosophy ... Financial considerations: Single or multiple transactions ... The share release schedule ... The relationship between eligible compensation and the projected value of the shares in the ESOP suspense account ... Projected share prices ... Method of repurchasing shares from former employees ... External factors: Who holds the note ... Experience of the trustee and their advisors." (Principal Financial Group)  

Funded Ratio Continues to Decline in February (PDF)
"Volatility still played a critical role in February as the funded status of our representative plans marginally declined.... The funded ratio of our representative open plan declined 1.0% to finish at 72.5% and the funded ratio of our closed plan declined 0.6%, finishing at 74.2%." (Russell Investments)  

Funded Status Deficit Increases by $35 Billion in February, Has Ballooned by $68 Billion So Far in 2016 (PDF)
"The funded status of the 100 largest corporate defined benefit pension plans dropped by $35 billion during February ... The funded status deficit widened to $364 billion from $329 billion at the end of January, primarily due to the drop in the benchmark corporate bond interest rates used to value pension liabilities.... As of February 29, the funded ratio dropped to 79.1%, down from 80.8% at the end of January." (Milliman)  

Pension Index Drops Further in February
"Capital markets remained unfavorable in February, as interest rates declined and equities returned near zero. These factors combined to drop the Willis Towers Watson Pension Index 2.2% for the month to 68.9. A four-month downward slide has now dropped the index over 7% since October." (Willis Towers Watson)  

Benefits in General

If You're Alive in 30 Years, Chances Are Good You May Also Be Alive in 1000 Years
"Sure, computers are getting better, but how's that relevant for making people younger? ... In recent decades, biology and medicine has to an increasing extent started to become an information technology. With computers we can now, among other things: [1] Read human genes; [2] Edit genes with CRISPR/Cas9, a revolutionary technology that has been adopted by laboratories worldwide. Still better technologies for gene editing are under development.... So medicine is about to become an information technology, and that's the main reason why we can expect medical technology to advance exponentially in the future." (Haakon Skaarud Karlsen, on haakonsk.blogg.no)  

Supreme Court Rules That ERISA Preempts Vermont Claims Reporting Requirement
"The concurring opinions are alternatively unsettling and odd. The suggestion by Justice Breyer to the effect that the [DOL] might get to the same result as the Vermont law by empowering the states seems reckless if by that he means he is willing to have different rules in each state.... It is impossible to offer a critique of the majority opinion (and of the outcome of the case) that is free from bias. One is likely to agree or disagree with the decision based on one's relationship to ERISA-covered entities." [Gobeille v. Liberty Mutual Ins. Co., No. 14-181 (U.S. Mar. 1, 2016)] (Mintz Levin)  

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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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