Retirement Plans Newsletter

April 19, 2016

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Webcasts and Conferences

Latest in Compensation and Benefits Accounting: Navigating the FASB's Proposed Pension Changes
RECORDED
(PricewaterhouseCoopers LLP)

DOL Fiduciary Definition Regulations are Here...Really They are Finally Here
April 27, 2016 WEBCAST
(Seyfarth Shaw LLP)

2016 Denver Benefits Summit
April 28, 2016 in CO
(Western Pension & Benefits Council - Denver Chapter)

DOL Fiduciary Definition Regulations are Here...Really They are Finally Here
May 3, 2016 in NY
(Seyfarth Shaw LLP)

Assessing the New DOL Fiduciary Rule: Policy and Practical Challenges
May 10, 2016 in DC
(Investment Company Institute)

DOL's Fiduciary Rule is Finalized, What You Should Know
May 11, 2016 WEBCAST
(Regulatory Compliance, LLC )

Employee Benefit Plans - 2015 Plan Sponsor Update
June 2, 2016 WEBCAST
(PricewaterhouseCoopers LLP)

Develop a Strong Parental Leave Policy
June 6, 2016 WEBCAST
(Lorman Education Services)

401(k) Plan Workshop - Syracuse
June 23, 2016 in NY
(FIS Relius Education)

Form 5500 Workshop - Syracuse
June 24, 2016 in NY
(FIS Relius Education)

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[Official Guidance]

Text of FINRA Regulatory Notice 16-12: Pension Income Stream Products (PDF)
"Pension income stream products typically involve an up-front lump sum payment to a pensioner in exchange for the rights to the pensioner's future pension income payments. This Notice discusses the characteristics of and investor protection issues presented by pension income stream products, as well as the legal status of these products. In addition, this Notice addresses the responsibilities of firms in supervising the sale of pension income stream products." (Financial Industry Regulatory Authority [FINRA])  


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[Guidance Overview]

The New Fiduciary Regs: A Practical Review, Part I (PDF)
"The new Regulation Package ... does not attempt to redefine who is a fiduciary.... [If] you give advice and get paid for it, you are a fiduciary. What the Regulation does do is to clarify what constitutes 'fiduciary advice.' The DOL then endeavors ... to provide fiduciary advisors with a structure under which they may be paid in a 'customary' manner -- i.e., flat fees and certain variable fees.... Step 1: Are you giving advice? ... Step 2: Are you a fiduciary vis-á-vis that advice? ... Step 3: I'm a big shot fiduciary, too, exception ... Step 4: Okay, I'm a fiduciary. So what?" (Ferenczy Benefits Law Center LLP)  

[Guidance Overview]

Adviser Can Shift Monitoring Responsibility to an Investor, But Maybe Not When Monitoring Is Especially Difficult
"In the preamble to the Best Interest Contract Exemption (BICE), the DOL noted that a fiduciary adviser and his or her financial institution (e.g., RIA firm or broker-dealer) could contractually limit the duty to monitor. But then the DOL went on to say ... 'Financial Institutions should carefully consider whether certain investments can be prudently recommended to the individual Retirement Investor, in the first place, without a mechanism in place for the ongoing monitoring of the investment.' ... In other words, if an adviser isn't going to have a duty to monitor the investments, don't recommend investments that retirement investors lack the capacity to properly monitor." (FredReish.com)  

[Guidance Overview]

DOL Issues Long Awaited Final Rule on the Definition of an ERISA Fiduciary (PDF)
"Legislative efforts to try to derail the new rule are expected, but that path forward is difficult ... Litigation also is expected, with a likely focus on the process under which the rule has been formulated and/or on the substantive features of the rule, particularly its application to IRAs.... Plan sponsors are well advised to review all of their existing relationships with service providers to determine whether those service providers should be treated as fiduciaries under the new rule, including consideration of the carve outs and the BICE, and to revise their relationships accordingly." (Plan Sponsor Council of America [PSCA])  

[Guidance Overview]

DOL Issues Final Fiduciary Rule and Related Exemptions
"The conditions that apply to the sale of proprietary products and the receipt of third-party payments present a high threshold, one that may not be easy for a financial institution or adviser to meet. Sellers of relatively low-fee proprietary investments may be able to make the case that they qualify, but many financial institutions and advisers will find it difficult to accept the risk that they can be second-guessed by ['retail' plan and IRA investors, called Retirement Investors in the rule,] or the DOL[.]" (DLA Piper)  


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House Members Move to Block Fiduciary Rule, Preserve Access to Affordable Retirement Advice
"Rep. Phil Roe (R-TN), chairman of the Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions, along with Rep. Charles Boustany, chairman of the Ways and Means Subcommittee on Tax Policy, and Rep. Ann Wagner (R-MO), today introduced a resolution, under the Congressional Review Act, to block the [DOL's] (DOL) controversial rule restricting access to investment advice. Known as the 'fiduciary' rule, the rule will make it harder for low- and middle-income families to save for retirement and creates new obstacles for small business owners who want to offer employees options to save for retirement." (Committee on Education and the Workforce, U.S. House of Representatives)  

Senate Republicans Move to Block Fiduciary Rule
"A group of Senate Republicans introduced a resolution to stop the Labor Department's new conflict-of-interest rule for retirement brokers. The resolution (S.J.Res.33) introduced April 18 and sponsored by Sen. Johnny Isakson (R-Ga.) seeks to pump the brakes on the rule via the Congressional Review Act. The CRA allows Congress to block new regulations through a joint resolution of disapproval passed by both chambers, which is subject to presidential veto." (Bloomberg BNA)  

Seven Things Plan Sponsors Say They Want to Know About the New Fiduciary Regs
"[1] Have my fiduciary responsibilities changed? ... [2] Do I need to worry about the final regulation compliance dates? ... [3] Are these new regs bad for retirement plans? ... [4] I heard that these regs are the Obamacare of the retirement plan industry. Is that true? ... [5] I have heard these regs will be repealed, just like the ACA. Is that likely? ... [6] Is my investment advisor impacted? ... [7] Is there something I need to do if my investment advisor works for a brokerage firm?" (Lawton Retirement Plan Consultants)  

Constructing a Defined Contribution Investment Lineup: Four Best Practices (PDF)
16 pages. "[S]ponsors can encourage diversified participant allocations through the use of target-date funds, a tiered investment lineup, and a managed-account advisory service.... [F]our best practices for constructing a plan lineup: [1] identifying plan objectives; [2] focusing on the fundamentals of investing; [3] creating a tiered lineup that reflects plan objectives; and [4] ensuring active, ongoing oversight." (Vanguard)  

What to Do When a Participant's Elective Deferral Election Is Not Followed
"In the case of missed deferral elections, the [EPCRS] offers two options for employers completing a correction. The first option is the one that has been available under Revenue Procedure 2013-12[.] ... Revenue Procedure 2015-27 and Revenue Procedure 2015-28 ... offer a less expensive way to correct missed deferral errors, but require that a notice be distributed to affected participants." (Belfint Lyons & Shuman, CPAs)  

These Roth Accounts Have Required Minimum Distributions
"Designated Roth accounts, or DRAs for short, are Roth accounts held inside an employer-sponsored retirement plan, like a Roth 401(k) or Roth 403(b).... Although Roth IRAs have no RMDs during your lifetime, designated Roth accounts are subject to RMDs.... Roth IRAs have no RMDs during your lifetime, but if there is any money left in your Roth IRA when you die, your heirs -- other than (possibly) your spouse -- will have to take RMDs from the inherited Roth IRA." (Slott Report)  

Retirement and Financial Education: Financial Wellness
"While automated plans have made it easier for employees to save for retirement, there are instances when employees are still failing to make significant headway in their savings goals.... [A] program aimed at developing financial wellness is an additional strategy to further address retirement preparedness.... plan advisors will want to consider the following: [1] Is the retirement plan goal to provide income replacement that is superior to an industry average? [2] Is the company challenged with attracting and retaining top talent? [3] Is the company in a highly competitive industry? [4] Does the retirement plan have below average participation, below average savings rates, or above average loan usage?" (T. Rowe Price)  

Multiemployer Pension Funding Study: Spring 2016 (PDF)
"The aggregate funded percentage for multiemployer plans is estimated to be 75% as of December 31, 2015, compared with 79% as of June 30, 2015. For most multiemployer pension plans, estimated 2015 investment experience was flat or slightly negative, far below expected returns. Over one-half of the total underfunding for multiemployer plans continues to be attributable to plans that are less than 65% funded. Of the nearly 200 critical plans with 2014 information available, about 40% are projected to be insolvent at some point." (Milliman)  

Central States Teamsters Pension Fund Returns -0.81% in 2015
"For the three years ended Dec. 31, the ... pension fund, whose assets totaled $16.1 billion as of Dec. 31, returned an annualized 8.06% ... Northern Trust Asset Management, which is named as fiduciary of the pension fund and oversees 50% of the fund's assets in an active management style, reported ... [an] equity composite return [of] -2.73%, outperforming its -3.04% custom benchmark return, while Northern Trust's fixed-income composite return was -4.49%, underperforming its -3.4% custom benchmark return." (Pensions & Investments)  

Things You Should Know About Public Pension Disclosure Changes (PDF)
"The new GASB requirements do not affect actuarial funded ratios or pension contribution requirements ... The placement of net pension liabilities on an employer's balance sheet could create the erroneous impression that this is an obligation that is due immediately. This is not the case.... A new term, pension expense, refers to the change in the net pension liability from one year to the next, and should not be confused with what governments actually budget and expend on pension contributions." (Center for State & Local Government Excellence)  

[Opinion]

Recommendation of the SEC Investor Advisory Committee Regarding Mutual Fund Cost Disclosure (PDF)
"The Investor Advisory Committee recommends that the Commission explore ways to improve mutual fund cost disclosures. The goal should be to enhance investors' understanding of the actual costs they bear when investing in mutual funds and the impact of those costs on total accumulations over the life of their investment. In the short term, the Committee believes the best way to make investors more conscious of costs is through standardized disclosure of actual dollar amount costs on customer account statements. In addition, as part of a longer term effort to improve disclosures, we encourage the Commission to explore ways to provide context for cost information in order to improve investor understanding of the impact of those costs." (Investment Advisory Committee, U.S. Securities and Exchange Commission [SEC])  

[Opinion]

Making BICE Meaningful -- Reality vs. Illusion
"[T]he benefits and protections of the BICE agreement are essentially meaningless unless a customer has the ability to detect violations of the agreement and the 'best interests' rule. Needless to say, most people lack the knowledge or experience to detect such violations.... Shifting the responsibility for enforcing the 'best interests' provision of the DOL's new fiduciary standard on to the public simply makes no sense and provides a significant loophole for unethical brokers and other financial advisers." (The Prudent Investment Adviser Rules)  

[Opinion]

DOL's Fiduciary Rule Grandfather Clause Does Not Protect Investors
"Will a firm ensure an advisor will follow a careful step-by-step process for each and every separate conflicted transaction? Will the process be documented? Will it entail disclosure, mitigation, and client informed consent in writing? And will the transaction then be affirmed by the advisor as consistent with a true best interest standard? And then, will the same level of care be afforded to the same client's non retirement clients? If not, how does that conversation between the broker and customer explaining the lower standard go?" (Knut Rostad, in Fiduciary News)  

Benefits in General

Proposal Would Impose Tax on Dividends and Interest Paid to Tax-Exempt Employee Benefit Trusts
"The proposal would require corporations to withhold on dividends and interest at a 35% tax rate and pay that amount to the US Department of the Treasury. Taxable shareholders and bondholders would be able to claim a nonrefundable tax credit on their tax returns equal to the amount withheld, but tax-exempt shareholders and bondholders -- including pension and other tax-exempt employee benefit funds -- would be unable to use the credit. And therein lies the rub: under the proposal, tax exempts would bear one level of tax on dividend and interest income from US corporate stocks and bonds where they currently bear none." (Morgan Lewis)  

Move It or Lose It: Plan Sponsors May Not Have the Right to Recover Funds If They Don't Move Fast
"This case has significant ramifications far beyond group health plans and can also adversely impact disability plans and retirement plans.... Plan sponsors should: [1] Consider monitoring the legal case [which has been sent back to the District Court by the U.S. Supreme Court]; [2] Put the participant on notice (through his attorney) of the plan's expectation of reimbursement and demand that the proceeds be kept segregated; and [3] As soon as the matter is settled, take quick action (through your lawyer if necessary) to make a claim against the recovery." [Montanile v. Bd. of Trustees of Nat. Elevator Ind. Health Benefit Plan, No. 14-723 (U.S. Jan. 20, 2016)] (Warner Norcross & Judd LLP)  

Private Equity Groups on the Hook; What in the World Is a 'Partnership in Fact'?
"With respect to retirement plans, the potential adverse impact ranges from a failure to properly extend participation in the plan to the employees of the deemed controlled group to nondiscrimination testing issues, both as to coverage and contribution testing. Similarly, with respect to welfare benefit plans, such a failure could lead to potential penalties under the [ACA] by a failure to recognize controlled group employees in determining if an employer is subject to the employer mandate." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)] (Wilkins Finston Friedman Law Group LLP)  

Press Releases

NAPA Welcomes Samuel Brandwein as President
National Association of Plan Advisors [NAPA]

CalPERS Approves New Real Assets Strategic Plan
CalPERS [California Public Employees' Retirement System]

Stone Street Advisor Group Wins 401(k) Leadership Award
National Association of Plan Advisors [NAPA]

Federal Court finds City National Corporation Engaged in Self-dealing in its 401(k) Profit-sharing Plan
Employee Benefits Security Administration [EBSA], U.S. Department of Labor

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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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