Retirement Plans Newsletter

May 9, 2016

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Treasury Department Letter to Congress on Its Rejection of Central States Application to Reduce Benefits (PDF)
"The Central States plan ... remains severely underfunded and is projected to become insolvent within the next 10 years.... [A]bsent congressional action, by the time the Central States plan becomes insolvent, the [PBGC] multiemployer insurance fund -- which insures part of those benefits -- may itself already be insolvent.... We urge Congress to consider carefully the issues that have emerged ... Finding a balanced solution will require painful choices, but we must work together to preserve the promise of retirement security that these workers have bargained for and earned." (U.S. Department of the Treasury, via Pension Rights Center)  


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Treasury Special Master Rejects Central States' Plan for Pension Cutbacks
"The decision could dim the chances for multiemployer pension funds to avoid insolvency by slashing benefits. Central States projects that, without the cuts, it will be out of funds by 2026 because it's currently paying out $3.46 for every $1 it takes in. Even under the plan, the fund gave itself a coin-flip's chance of surviving past 2064, according to its proposal." (Bloomberg)  

Treasury Rejects Central States Benefit Reductions
"Central States' proposed benefit suspensions 'are not reasonably estimated to allow the plan to avoid insolvency,' Mr. Feinberg said, because Treasury officials considered the plan's 7.5% rate of investment return and entry age assumptions to be unreasonable.... At the time of its application, [the Central States plan] was 53% funded, with $35 billion in liabilities.... If Treasury had approved the application, an estimated two-thirds of the plan's 400,000 participants would have seen their benefits reduced, with nearly 40% seeing cuts of 30% or higher[.]" (Pensions & Investments)  

Plan Auditors Ponder New Procedures After Change in Determination Letter Program
"There is currently no additional exposition of what procedures are required with respect to the statement reviewing 'those aspects of the plan document relevant to the determination of its tax-exempt status' ... As a result of the changes, it is possible that audit fees could go up. For example, plan sponsors might pay their legal counsel to draft an opinion on the plan. The auditor would then need to apply audit procedures to the reliability of that opinion[.]" (Bloomberg BNA)  

Q&As on the DOL Fiduciary Rule: Compensation
"How does the new DOL Rule impact hourly, fee-only advisors who do not accept ongoing fees for AUM? ... How will split-commission arrangements between securities and insurance brokers be affected under the Rule? ... How are referrals/solicitation agreements between RIAs affected by the DOL Rule? ... I have some retail accounts that pay 12b-1 fees. Will I need to get a BIC contract signed in order to keep these accounts, or are they fine as is? ... Did the DOL clarify what 'disclose fees and compensation' means? Is that dollar amount, percentage or other?" (fi360)  

Corporate Pension Funded Status Drops by $25 Billion in April (PDF)
"The funded status of the 100 largest corporate defined benefit pension plans worsened by $25 billion during April ... The deficit rose to $411 billion, primarily due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities.... As of April 30, the funded ratio declined to 77.1% from 78.1% at the end of March. Discount rates have fallen in every month of 2016 so far and funding ratios have followed suit. Funded status losses for the year are $104 billion." (Milliman)  

Fewer People Feel Satisfied in Retirement
"The decrease in retirement happiness is partially due to financial concerns.... Good health is an essential component of an enjoyable retirement.... Both men and women appear to have similar levels of retirement happiness.... Retirement happiness tends to increase with age." (U.S. News & World Report)  

Suggested Best Practices for 403(b) Plans
"[1] Automatically enroll participants at a deferral of 6% of salary ... [2] Automatically escalate deferrals each year up to 10% of salary; [3] Do a re-enrollment to sweep in all employees not participating or not participating at a 6% deferral rate; [4] Choose an appropriate qualified default investment alternative (QDIA) for the plan; and [5] Stretch the match to get employees to save more." (PLANSPONSOR)  

[Opinion]

Letter from House Members to President Obama Calling for Executive Order Requiring Auto-Enrollment (PDF)
"We believe having Federal contractors auto-enroll all of their employees in retirement plans would further help remedy some of our nation's savings issues, and it could become a reality if you require them to do so through executive action. There are a number of ways this requirement could be met, such as requiring employers to enroll their workers in a company's traditional pension or 401(k) plan. Employers could at least make use of the myRA ... We hope any such action would include a requirement to apply to both full- and part-time employees." (U.S. Rep. Joseph Crowley [D-NY], Vice Chair of the House Democratic Caucus, and 65 Democratic Members of Congress)  

[Opinion]

Statement by Central States Pension Fund Regarding Treasury Department's Denial of Proposed Rescue Plan
"Although the decision by our Trustees to file this application under provisions of the Multiemployer Pension Reform Act of 2014 (MPRA) was gut wrenching, we are disappointed with Treasury's decision, as we believe the rescue plan provided the only realistic solution to avoiding insolvency. The Central States Pension Fund Trustees will carefully consider the most appropriate next steps, based on this denial and the final guidance issued by Treasury on April 26." (Central States Pension Fund)  

[Opinion]

Central States Benefit Reductions Are Probably Inevitable
"The only question is whether the trustees decide to fire themselves and the people now servicing the plan by going directly to the [PBGC] under a distress termination which would require maximum benefit cuts for participants and a lot of work for the PBGC ... or resubmit the application with a later suspension date and bigger benefit cuts that will likely come close to PBGC maximum limits." (Burypensions)  

Executive Compensation and Nonqualified Plans

[Official Guidance]

Text of Revised Proposed Regs on Dodd-Frank Provisions Regulating Incentive Compensation Arrangements by Certain Financial Institutions (PDF)
488 pages. "Notwithstanding the recent progress [since the time that proposed regulations where issued in 2011], incentive-based compensation practices are still in need of improvement, including better targeting of performance measures and risk metrics to specific activities, more consistent application of risk adjustments, and better documentation of the decision-making process. Congress has required the Agencies to jointly prescribe regulations or guidelines that cover not only depository institutions and depository institution holding companies, but also other financial institutions.... [T]he Agencies are proposing a uniform set of enforceable standards applicable to a larger group of institutions supervised by all of the Agencies." (U.S. Securities and Exchange Commission [SEC], U.S. Department of the Treasury, Federal Reserve System, Federal Deposit Insurance Corporation [FDIC], Federal Housing Finance Agency, and National Credit Union Administration)  

Press Releases

President Names Henry C. Eickelberg to PBGC Advisory Committee
PBGC [Pension Benefit Guaranty Corporation]

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Lois Baker, J.D., President <loisbaker@benefitslink.com>
David Rhett Baker, J.D., Editor and Publisher <davebaker@benefitslink.com>
Holly Horton, Business Manager <hollyhorton@benefitslink.com>

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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