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[Guidance Overview]

IRS Proposes Nondiscrimination Rules for Frozen Pension Plans (PDF)
"If a combined plan does not qualify for an exception to the gateway allocation requirement, the proposed rules offer two new options for lowering the gateway allocation amount ... There is also a new exception to providing the gateway allocation for plans that satisfy the nondiscrimination requirements using an interest rate of 6.0%, instead of the current 7.5% to 8.5%. However, the proposed rules do not provide relief from the minimum participation rules for frozen or closed defined benefit plans." (Prudential)  


Frozen plans are different, and need to be managed differently.

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Thousands of pensions have frozen benefit accruals on the path to plan termination. Many more are considering such a step. The Frozen Plan Handbook is an illustrative guide for sponsors who have frozen -- or are considering freezing -- their pension plan.

Checklist for Exceptional Plan Governance: Beat Back the Coming Litigation Onslaught
"While this list does not address every possible governance practice, following the applicable items appropriately should result in good plan governance. It will also be of value to your participants by demonstrating that you have their best interests at the forefront of plan operation. Additionally, the result should be better liability protection for you and the other plan fiduciaries." (Benefits Bryan Cave)  

Digital Investment Advice for Retirement Savings: Does the Robot Know Best?
"[P]lan sponsors that desire to incorporate digital investment advice services into their retirement program [should consider these issues:] [1] Assess the need for investment advice services versus provision of non-fiduciary educational tools, or determine an approach that incorporates both services; [2] Ensure that the plan fiduciaries follow an objective process to elicit information necessary to assess the robo-adviser's qualifications and credentials ... [3] Assess whether the digital investment advice tool is paired with access to a human investment professional ... [4] Determine if the robo-adviser charges level fees and meets the requirements of the BIC exemption[.]" (Epstein Becker Green, via Lexology)  

Moving the Coverage Needle (PDF)
"[As] a nation the disparate patchwork of proposed solutions fails to truly address the issue at hand: ensuring American workers are able to retire with dignity. [The authors] call for a cohesive national framework that is borne out of a dialogue among experts that will help guide a consistent and universal solution for all American employers and employees.... [1] Include universal coverage with automatic features ... [2] Offer tax credits for small employers who provide a company match ... [3] Afford a safe harbor for appropriate investment defaults ... [4] Create more accessible MEPs with consistent governance structures ... [5] Offer plan start-up tax credits for small employers." (State Street Global Advisors)  

DOL Keeps Fighting for Plan Participants in Its 2016 Amicus Briefs
"The Office of the Solicitor has filed three amicus curiae briefs in the first half of 2016 concerning the responsibility of plan fiduciaries to plan participants.... [1] a class action in a case alleging misrepresentation, [2] what is required to allege breach of fiduciary duty in a case of fraud, and [3] what circumstances are required to prove fiduciary breach in a privately-held corporation as opposed to a publicly held one." (Bloomberg BNA)  


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When Your 401(k) Is Better for Your Employer
"[C]lass-action lawsuits against retirement plan sponsors in recent years have generated significant payouts ... [S]ome employers are responding by modifying the terms of their plans.... Changes ... include reducing the amount of time a participant has to bring a legal action and requiring that such an action be brought in a court that is convenient to the plan sponsor but not necessarily to a beneficiary.... Such requirements do more than make it harder for beneficiaries to receive the benefits they are owed, said Norman Stein, senior policy adviser at the Pension Rights Center ... They also prevent participants from holding plan overseers accountable." (The New York Times; subscription may be required)  

Missing Pensions Costly to Retirees
"Since last summer, the [DOL] has opened investigations into more than four dozen large pension plans ... Corporate mergers, spinoffs and bankruptcies can make it tough for retirees to track down and claim pensions from employers they left years ago. And when pensions are transferred from one administrator to another, or turned over to an insurance company, participant information may be garbled or lost completely. That puts a heavy burden on plan members to ... prove they're eligible for a pension -- and to be proactive about claiming benefits when the time comes." (Kiplinger)  

How Public Pension Funding Practices Can Lead to Significant Underfunding or Significant Contribution Increases When Plans Invest in Risky Assets (PDF)
43 pages. "[The authors] have developed a model to evaluate pension risks under different funding policies and investment return scenarios. [They] find that while the most-common funding policies and practices reduce contribution volatility, they increase the likelihood of significant underfunding. Funding policies are unlikely to bring underfunded plans to full funding within thirty years, even if investment-return assumptions are met every single year and employers make full actuarially determined contributions." (Rockefeller Institute)  

Corporate Pension Plan Funding Held Steady in May
"[T]he estimated aggregate funding ratio of pension plans sponsored by S&P 1500 companies rose slightly to 79% at the end of May, up 100 basis points from April, due to a slight increase in discount rates, and relatively flat equity market returns. The discount rate rose two basis points over the month to 3.75%[.]" (Pensions & Investments)  

Moody's Not Soothed by Emanuel's New Pension Law
"Mayor Rahm Emanuel's newly approved plan to fix the police and fire pension funds will spare taxpayers in the short run but cost them billions of dollars more over the long haul ... Moody's analysts said the mayor's plan will increase the city's debt to the pension funds by an extra $3.3 billion over the next 20 years." (Chicago Tribune; subscription may be required)  


Let's Hope the Fiduciary Regulation Is Worth It
"One expense we can find no evidence of being taken into account by DOL is the effort being expended by organizations that consult with, and counsel, financial organizations and advisors who must comply with the new rules. Benefits consulting firms, including law firms whose practice specializes in retirement benefits, are included in this group.... [W]hen all is said and done, the cost of adapting to these regulations will be far greater than four pages of the April 8, 2016, Federal Register suggest. We truly hope the benefits delivered to retirement investors will prove to be worth it." (Todd Berghuis, for Ascensus)  


Second Fiduciary Rule Lawsuit Challenges DOL's Authority to Regulate the Annuity Marketplace
"The second suit is a more narrowly targeted action, brought by sellers of fixed annuities ... While [the complaint in an earlier-filed suit] ... is fairly read as a broad attack on the entire expansion of the fiduciary status and the BIC to retail customers, this complaint is more fairly understood as ... a claim that the Department simply cannot properly regulate insurance agents and the sale of this type of product, or if it can, did not follow proper procedures to do so.... [T]his argument ... essentially asks, from a 30,000 foot perspective, whether ERISA itself captures such products and sellers." (Stephen Rosenberg, The Wagner Law Group)  


Possible Fiduciary Gaps in State-Run Retirement Plans for Private Employees
"Even if a state private-public program is run by those who have sufficient experience and knowledge, will they be held to a fiduciary standard? If not, why not? If so, how will the fiduciary standard compare with ERISA norms if ERISA does not apply?" (Pension Risk Matters)  


Obama's Misguided Reversal on Social Security Expansion
"[Obama had] previously supported a change in the way benefits were adjusted each year that would have reduced the growth rate of benefits over a long timeframe in the interest of improving the program's fiscal trajectory.... [He recently] signalled that he no longer believed 'all options were on the table' to address solvency concerns and instead supports further expansion.... If his favored reforms are implemented it will increase the economic distortions introduced by Social Security and do nothing to address its serious fiscal problems." (Cato Institute)  

Benefits in General

ERISA and Cybersecurity
"[If] a plan fiduciary's duties under Section 404(a) include securing plan data against cyberattacks, a data breach may not necessarily be a breach of fiduciary responsibility. If the fiduciary could demonstrate that it had taken appropriate steps to secure such data, this might be an adequate defense, given that there is no absolute shield against such an attack. The question, of course, is what steps would be 'appropriate.' " (McGuireWoods LLP)  

DOL's Final Overtime Rule May Affect Retirement, Other Benefit Programs (PDF)
"Although the final rule focuses on paying time-and-a-half for hours worked in excess of 40 per week, it includes other new requirements that could have implications for sponsors of retirement plans ... [that depend] on the inclusion or exclusion of overtime pay and/or bonuses in the plan's formula for employer contributions. The final rule also might affect a retirement or other benefit plan's participation base, if salaried (exempt) employees are treated differently from hourly (nonexempt) employees, or it could raise concerns if the programs shift toward favoring the highly compensated." (Milliman)  

Executive Compensation and Nonqualified Plans

Pay for the Top Executive at New York-Based Non-Profit Organizations
"The highest total compensation was observed among Arts, Culture & Humanities organizations, which paid a median of $498,888, approximately $100,000 more that the next highest paid sectors, International (with median pay of $398,212) and Education & Research (with median pay of $397,150). The lowest pay was observed among the Human Services sector, where median total compensation for the top executive was $257,698." (Steven Hall & Partners)  

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David Rhett Baker, J.D., Editor and Publisher
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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2016, 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, 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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