Retirement Plans Newsletter

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[Guidance Overview]

IRS Revisits the Determination Letter Program for Individually Designed Plans
"[Rev. Proc. 2016-37] also touches on operational compliance -- an issue many consider distinct from documentary compliance.... To assist employers in 'achieving operational compliance', the IRS announced that it intends to provide another annual list -- the 'Operational Compliance List'. The Operational Compliance List will identify changes in qualification requirements that are effective during a calendar year. Any deviations for that list will require assessment of possible correction under EPCRS." (Michael Best & Friedrich LLP)  


The Advisor's Guide to Qualified Plans

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The Advisor's Guide to Qualified Plans enables you to handle all aspects of qualified plans and provide the perfect solution for each client on a case-by-case basis, without a one-size fits all cookie cutter approach. Print and eBook editions available.

[Guidance Overview]

IRS Issues Guidance on Determination Letter Program
"Although expiration dates on previously issued determination letters are no longer operative, sponsors may not rely on the letters with respect to any provisions that are subsequently amended or subsequently affected by any change in law. To assist in operational compliance, the IRS intends to provide an annual Operational Compliance List that will identify changes in qualification requirements that are effective during the calendar year." (Bradley Arant Boult Cummings LLP)  

[Guidance Overview]

PBGC Issues Proposed Rule for Multiemployer Plan Mergers and Transfers
"The proposed rule clarifies PBGC's authority to facilitate the merger of multiemployer plans under section 4231 of ERISA. Facilitation may include training, technical assistance, mediation, communication with stakeholders, and support with related requests to other government agencies.... PBGC may also provide financial assistance to facilitate a merger determined necessary to enable one or more of the plans involved to avoid or postpone insolvency ... The proposed rule presents noteworthy changes to the actuarial valuation requirements for mergers and plan solvency tests." (Trucker Huss)  

[Guidance Overview]

Section 457 Proposed Regs: Bona Fide Severance Pay, Death Benefit, Disability, and Paid Time Off Plans
"The definition of a 'bona fide severance pay plan' under the proposed regulations differs from the definition of a 'separation pay plan' under Section 409A.... Because benefits offered by tax-exempt employers are subject to Section 409A and Section 457 unless an exemption applies, tax-exempt employers may wish to design their severance programs to meet the requirements of the bona fide severance pay plan exemption, the separation pay plan exemption, and/or the 'short-term deferral' exemptions under Section 409A and the proposed regulations." (Drinker Biddle)  

[Guidance Overview]

IRS Proposes Regulations on 457(f) Plans for Tax-Exempt Employers
"The proposed regulations provide rules for how the amount that is subject to tax under Section 457(f) is to be determined. If the deferred amount may be paid or available at different times or in different forms under the plan, the amount is treated as payable at the time and form where the present value is highest. However, if payment has commenced, or a time and form of payment have been elected and cannot be changed without both party's consent, the time and form of payment as commenced or elected is utilized." (Seyfarth Shaw LLP)  


ASPPA's New Retirement Plan Fundamentals Course - Now Available

Sponsored by ASPPA

ASPPA's Retirement Plan Fundamentals course has been redesigned as online, interactive modules. Perfect for anyone new to the industry or who is preparing for an ASPPA credential. Ask your employer to make RPF part of your professional development.

Strategies in Retirement Plan Governance
"[P]lan sponsors are increasingly concerned about the ability of their employees to retire in a timely manner. In fact, given the business implications such as a stagnant workforce, potentially higher labor costs and lower productivity, 39% of respondents view retirement readiness as a risk today, and 44% view it as a risk two years from now.... Plan sponsors continue to cite regulatory concerns as a key risk and with good reason. Over the past two years, approximately 31% of sponsors have faced a government audit of their plan(s), and larger plan sponsors report an even higher likelihood for audits." (Willis Towers Watson)  

Driving Plan Health 2016 (PDF)
28 pages. "Participation has increased by 19% during the last five years, with increases noted across all demographic segments.... Plan defaults can make a huge difference in whether a participant meets his/her goal for a better retirement.... Employee communication campaigns can have an impact on all areas of participant behavior ... [E]mployees just starting out are likely to be automatically enrolled in the plan and defaulted into a diversified investment option.... [E]mployees with longer tenures experience better results. Plan sponsors must consider what role turnover plays in determining plan health." (Wells Fargo)  

The Cash Balance Moment
"In an industry that has been dominated for years with headlines for plan freezes and buyouts (signs for a declining DB market), these 'hybrid' plans are on the rise. Their ease of understanding, portability, and potential for reduced risk appeal to sponsors and participants alike. Their share of the DB market (based on number of plans) has grown from being only 3% in 2000 to around 30% in 2015[.]" (Russell Investments)  

Preparing for a DB to DC Plan Transition (PDF)
"The degree of flexibility allowed with plan freezes, through plan amendments and notices to participants, enables plan sponsors to develop a transitional approach that best aligns with organizational goals. This article discusses plan transition considerations from the standpoints of business strategy, human resources, and employee impact.... [As] plan sponsors continue to shift away from DB plans in favor of more DC-based plan designs, like 401(k) and profit sharing plans, the accompanying reallocation of risk from the plan sponsor to its employees creates new issues to be resolved." (Bryan, Pendleton, Swats & McAllister, llc)  

Should a Fiduciary Use Historic Returns or Economic Forecasts When Making Retirement Return Projections?
"Whichever path is chosen requires sound reasoning behind the choice. For a fiduciary, that mean 'defensible' reasoning, the kind that can stand up to judicial scrutiny.... [T]he way one makes projections will say a lot about the extent of the fiduciary liability exposure one assumes. If it's clearly stated that the intention is to test for a range of possible results, then it's clear the historic data is not being used to predict future returns." (Fiduciary News)  

Aggregate Funded Ratio of U.S. Corporate Pension Plans Declined Almost Two Percentage Points in June (PDF)
"The aggregate funded ratio for U.S. corporate pension plans decreased by 1.8 percentage points to end the month of June at 76.1 percent, the low point over the past twelve months and bringing its year-to-date decline to 5.3 percentage points ... The monthly change in funding resulted from a 3.5 percentage point increase in liability values partially offset by a 1.1 percentage point increase in asset values. The year-to-date decrease in funding is the result of a 10.9 percentage point increase in liability values." (Wilshire Associates)  

Why Most Retirees Never Spend Their Retirement Assets
"[For] a long-term retirement, where compounding inflation can double or even quadruple spending needs after 30 years, retirees actually should allow their portfolios to grow at least slightly for at least the first half of retirement. It's a necessity just to cover later-years' spending needs at their inflation-adjusted levels. Furthermore, given uncertainty about the length of retirement, how high inflation will be, and whether portfolio returns will be favorable or not, often retirees spend even less in the early years just to defend against these risks -- an approach now dubbed the 'safe withdrawal rate'. Yet given that most of the time markets and inflation don't actually spiral out of control, following a safe withdrawal rate approach just further increases the likelihood that retirement portfolios will continue to grow throughout retirement." (Michael Kitces in Nerd's Eye View)  

Eight Ways Women Can Improve Their Retirement Security
"[1] Don't be intimidated by the jargon ... [2] Increase your savings rate ... [3] Invest found money ... [4] Seek professional help ... [5] Take advantage of workplace benefits ... [6] Unique investment strategy ... [7] Don't cash out ... [8] Plan ahead for widow's benefits." (MarketWatch)  


Employee Stock Ownership Plans: Are They Worth the Risks? (PDF)
10 pages. "[S]imple yet modest measures could protect employees whose retirement savings are held in ESOPs.... [1] Direct a study of ESOPs by the [GAO] investigating, among other things, the rate of failure among ESOPs. [2] Require that participants in all ESOPs have the same right to diversify out of employer stock as participants in ESOPs that hold publicly-traded stock as part of a 401(k) plan. [3] Encourage participants to elect out of employer stock if they have the right to do so." (William K. Bortz, for Pension Rights Center)  

Benefits in General

[Guidance Overview]

DOL Increases Civil Monetary Penalties, Effective August 1
"[V]iolations occurring on or before November 2, 2015, as well as assessments made before August 1, 2016 whose associated violations occurred after November 2, 2015, continue to be subject to the civil penalty amounts set out in the DOL's prior regulations ... [A chart provides] the statutory cite, a general description of the violation leading to the penalty, and the ultimate amount of the catch-up [civil monetary penalty] that will be due for violations occurring after August 1, 2016." (Practical Law Company)  

ERISA Litigation Continues a Plaintiff-Friendly Trend
"Since the U.S. Supreme Court's 2011 decision in Cigna Corp. v. Amara, ... the clear trend [is now] to allow plaintiffs to pursue various alternative forms of equitable relief side-by-side with a claim for plan benefits.... While the scope and extent of the discovery that may be conducted in benefits claims litigation under Section 502(a)(1)(B) is strictly limited, that is often not so in cases involving claims under Section 502(a)(3). Discovery and depositions are frequently one of the most, if not the most, time-consuming and costly aspects of litigation. Thus, the evolution in the law has a real world impact on the parties to ERISA litigation. Cases are, on the whole, taking longer to resolve and becoming more expensive to defend." (Trucker Huss)  

Executive Compensation and Nonqualified Plans

[Guidance Overview]

New Proposed 409A Regulations May Impact Nonqualified Deferred Compensation Arrangements
"To prevent employers from changing time and form of payment provisions that otherwise comply with 409A, or from creating errors with the intent of using the errors as a pretext to change the time and form of payment provisions, the proposed regulations provide that deferred amounts that are subject to a substantial risk of forfeiture will be treated as not subject to substantial risk of forfeiture when there is a change in a plan provision related to the time and form of payments that is not otherwise permitted under 409A if there is no reasonable, good faith basis to conclude that (a) the original provision failed to satisfy the 409A requirements and (b) the change is necessary to bring the plan into compliance with 409A." (Sherman & Howard)  

[Guidance Overview]

IRS Issues New Section 409A Guidance
"In several instances, ... the proposed regulations curtail practices that many practitioners have thought to be compliant with Section 409A. In what may be a small consolation, practitioners will appreciate the liberalization of the rules regarding payments in the event of the death of a plan participant and payments to beneficiaries." (Skadden, Arps, Slate, Meagher & Flom LLP)  

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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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