Retirement Plans Newsletter

May 24, 2016

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Supreme Court Sends Verizon Annuity Buyout Lawsuit Back to Appeals Court
"The Supreme Court gave a class of Verizon Communications Inc. retirees another chance to challenge a pension buyout annuity deal ... when it vacated a lower court decision and ordered the 5th U.S. Circuit Court of Appeals in New Orleans to reconsider it. The Supreme Court granted the petition in light of its May 16 decision in Spokeo, Inc. vs. Robins, which made it harder for potential plaintiffs to have standing in such cases without proof of direct harm, but left it to an appeals court to rule further." [Pundt v. Verizon Comm., No. 15-785 (S. Ct. cert. pet. granted May 23, 2016)] (Pensions & Investments)  


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Text of Ninth Circuit Opinion: Participants May Bring Simultaneous Claims for Benefits and Equitable Relief (PDF)
"While Amara did not explicitly state that litigants may seek equitable remedies ... if Section 1132(a)(1)(B) provides adequate relief, Amara's holding in effect does precisely that. After the Amara court held that plaintiffs did not have reformation available to them under Section 1132(a)(1)(B), the Supreme Court then went on to authorize reformation as a form of equitable relief under Section 1132(a)(3)....The Eighth Circuit's reading [of Amara in Silva v. Metro. Life Ins. Co.] permits plaintiffs to present Section 1132(a)(1)(B) and Section 1132(a)(3) as alternative -- rather than duplicative -- theories of liability. This approach is an accurate application of Amara in light of Varity because it allows plaintiffs to plead alternate theories of relief without obtaining double recoveries." [Moyle v. Liberty Mutual Retirement Plan, Nos. 13-56330, 13-56412 (9th Cir. May 20, 2016)] (U.S. Court of Appeals for the Ninth Circuit)  

'Mega Back Door' Technique for Roth IRA Contributions Sparks Interest in Old School After-Tax Contributions
"[IRS Notice 2014-54] made it easier for 401k participants to roll voluntary contributions into a Roth IRA, where the money could then grow tax-free -- just like Roth deferrals inside a 401k plan.... [This guidance] got a lot of people excited about making voluntary contributions to their 401k plan. Why? They are subject to a much higher annual contribution limit than Roth deferrals ($53,000 vs. $18,000 for 2018). By utilizing this higher limit, a retirement saver can pump additional after-tax contributions into their 401k plan and then roll them into a Roth IRA for tax-free growth." (Employee Fiduciary)  

10 Years Later: Pension Protection Act's Impact on Defined Contribution Plans
"Since 2006, the impact of this legislation for defined contribution plans has been substantial. Consider: 61% of plans use auto enrollment, compared to 35% in 2006. 73% of plans use target date funds, compared to 32% in 2006. 45.9% of plans use auto-increase, compared to 26% in 2007. 61.6% of plans have incorporated Roth contributions, compared to 31.1% in 2007." (T. Rowe Price)  

Transitioning from a Defined Benefit to a Defined Contribution Program: The Migration Study
"While younger employees have the ability to plan accordingly -- even small changes in spending habits or an slight increase in their savings rate can make a large impact come retirement -- older employees ... tend to be the most negatively impacted by moving away from DB-style plans. Providing enhanced contributions to these older employees' attempts to minimize the impact of the transition for those who may otherwise feel like the rug is being pulled out from underneath them. These initial conversations are the most important aspect of any migration study and they must occur before the real analytical work begins." (Cammack Retirement Group)  

How to Decide How Much of Your 401(k) Should Be in Stocks
"Here is a look at four percentages of stock allocation for an investor to consider, and the types of investors that might want to consider each of the levels. 0%: No stocks, thank you. Who is using this approach: The very rich, those with low required rates of return.... 30%: Nearly out of the market. Who is using it: Investors with short-term market concerns and those near retirement who want to reduce their risk.... 50%: The middle way. Who is using it: Middle-aged investors seeking to preserve some of their portfolio after the bull run.... 100%: All in Who is using it: Some young investors, and the 'undersaved'." (Fidelity)  

Fidelity Faces ERISA Lawsuit Over 401(k)brokerage Window
"According to the complaint, filed May 20, Fidelity selected mutual funds with higher expense ratios for the plan brokerage window that allowed the investment firm to rake 'significant amounts' in revenue-sharing payments in violation of [ERISA] ... The lawsuit was filed ... by participants in the Delta Air Lines Inc. retirement plan. According to the complaint, as of 2014 the plan had approximately $7.5 billion in assets, of which more than $2.8 billion where invested through Fidelity's brokerage window[.]" (Bloomberg BNA)  

Who Will Pay Benefits of Bankrupt Multiemployer Plans?
"Multiemployer (union) plans, for a variety of reasons, will all go bankrupt. So what happens to promised benefits? The Road Carriers Local 707 Pension Fund (RC707) ... is one of five multiemployer plans looking to suspend benefits under MPRA. Their application asserts that 'the plan is projected to be insolvent by February, 2017' so they are proposing to 'reduce all of the Plan participants' pension benefits to 110 percent of the PBGC guarantee' ... The most instructive chart from the 8/31/14 valuation report is the asset history[.]" (Burypensions)  

Chicago Reaches New Pension Deal with Laborers
"Chicago Laborers' Annuity & Benefit Fund is projected to be 90% funded, from the current approximately 45%, by 2057, under an agreement ... between city officials and the two unions representing pension fund participants.... Chicago will contribute $40 million annually to the pension fund beginning in 2017 ... The city funding will come from revenue received from a 2014 increase in the city's emergency phone surcharge. Also, union members hired after Jan. 1, 2017, will contribute 11.5% of pay to the pension fund, up from the current 8.5%, and cannot retire before age 65." (Pensions & Investments)  

[Opinion]

The Truth About Actuarial Valuations of Pension Plans
"[W]hat we have now is a tangled web. There are some many liabilities and percentages. Every single one of them affects the cost of your plan. There is the funding target, the plan termination liability, the liability for purposes of calculating PBGC premiums. There's the FTAP, the AFTAP, and various other funding percentages. While each individual calculation is simple, getting to the correct answer is not. And, that's why your choice of actuary for your plan is actually far more important today than it used to be." (Benefits and Compensation with John Lowell)  

Benefits in General

Spokeo and the Future of ERISA Litigation?
"The Supreme Court's Spokeo decision is sure to impact ERISA litigation. Expect ERISA plaintiffs to focus more on alleging a 'concrete' injury, and ERISA defendants to argue more often that the claim cannot proceed in federal court because its alleged injury, while it may allege a breach of ERISA, does not rise above a purely technical violation." (Seyfarth Shaw)  

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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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