Retirement Plans Newsletter

July 14, 2016

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Defined Benefit Service Bureau Administrator
The Angell Pension Group, Inc.
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LoVasco
in MI

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Sunwest Pensions
in AZ

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TPA Firm
in MI

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MassMutual
in MA

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Scholz & Friends Enlightened Retirement Group, Inc.
in TX

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Webcasts and Conferences

Department of Laborís New Fiduciary Duty Rule: How Your Business Must Change
July 18, 2016 in NY
(IA Watch)

401(k) Beyond the Basics 01 - IRS and DOL Correction Programs
August 1, 2016 WEBCAST
(FIS Relius Education)

Practical Look at the New 409A and 457 Regulations
August 18, 2016 WEBCAST
(ABA Joint Committee on Employee Benefits [JCEB])

Health Benefits Laws Compliance Assistance Seminar
August 23, 2016 in IL
(Employee Benefits Security Administration [EBSA], U.S. Department of Labor)

Presidential Politics and Policy: Benefits Under Debate
September 14, 2016 WEBCAST
(Conference of Consulting Actuaries)

2016 SPARK Forum
November 7, 2016 in FL
(SPARK Institute)

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Discussions


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[Official Guidance]

Text of PBGC Interest Rate Update for August 2016
"The August 2016 interest assumptions under the benefit payments regulation will be 0.50 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. In comparison with the interest assumptions in effect for July 2016, these interest assumptions represent a decrease of 0.25 percent in the immediate annuity rate and are otherwise unchanged." (Pension Benefit Guaranty Corporation [PBGC])  


[Advert.]

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[Guidance Overview]

Cautionary Observations on the Proposed 457 Regulations
"Practitioners in the for-profit arena currently believe they enjoy wide latitude in restructuring severance arrangements that are exempt from 409A. It would not appear that practitioners will have that same latitude for severance arrangements that are exempt from 457 ... The regulations restrict, but do not eliminate this flexibility by establishing requirements that must be satisfied for non-competes and rolling risks of forfeitures to create a substantial risk of forfeiture.... Finally, the proposed 457 regulations raise the possibility that many leave programs, especially those maintained by governmental entities, could be suspect as deferred compensation arrangements." (Benefits Bryan Cave)  

Court Finds Debtor's IRA Distribution Is Exempt From Creditors Under Texas Law
"The trustee objected to the debtor's exemption in her IRA, arguing that funds invested in an IRA are only conditionally exempt. According to the trustee, all funds withdrawn from the IRA by the debtor, including the funds withheld for the payment of income taxes, lost their exempt character because of the debtor's failure to use the funds to make a rollover contribution into another exempt retirement account.... Nothing in Section 42.0021(c) requires an account holder to safeguard distributed funds for 60 days or to transfer the funds into another retirement account, the court said.... The exemption doesn't disappear when the account holder receives a distribution, the court said." [In re Moore, No. 15-42046 (Bankr. E.D. Tex. July 6, 2016)] (Bloomberg BNA)  

With Plan Operational Errors, One Plus One May Equal Three
"[If] an employer maintains a nonqualified deferred compensation plan that permits eligible employees to defer compensation, the amount of compensation that the employee may have to defer to the employer's qualified plan may be directly affected by the deferral under the nonqualified deferred compensation plan ... If the employer only [corrects an] error under the nonqualified deferred compensation plan by returning the excess compensation to the affected employee ... the employee's eligible compensation for the qualified plan for the affected year(s) will not be corrected." (Morgan Lewis)  

Pension Plan Self-Audits: More Important Now than Ever
"Corrections usually require adjustments for interest or lost earnings, so the longer you wait to make them, the more expensive they become.... Self-correction avoids having to prepare a formal application for IRS approval and paying a user fee, and correction costs and user fees cannot be paid out of plan assets. Neither the IRS nor the [DOL] will let you use their less expensive self-correction programs if they have initiated a real audit.... It's better to determine with an outside review that the language is compliant than to have to deal with the consequences of incorrect plan operations and to have to make corrective amendments years later." (Cohen & Buckmann pc)  


[Advert.]

SPARK Forum - November 6-8, 2016 -- The Breakers, Palm Beach, FL

Sponsored by SPARK

Join us at the retirement services industry's leading event for top marketing, sales, administration and record keeping professionals. Comprehensive agenda to meet the needs of 401(k) Plan Providers, Financial Advisors and Third Party Administrators.



Investment Line-up Evaluation Guide
"As a plan sponsor, you should try to be certain you have the right type of investments to help your participants build portfolios that may help them reach a successful retirement. [This] Investment Line-Up Evaluation Guide will help you: [1] Recognize what many plan line-ups look like; [2] Where these plans are lacking; [3] Properly define diversification; [4] Create a diversified line-up." (Pension Consultants, Inc.; free registration required)  

Plan Sponsors Say Provider Quality of Service Outranks Fees in Driving Satisfaction (PDF)
"In 2016 81% of plan sponsors surveyed rated their overall satisfaction with their retirement service provider a '7' or a '6' on a 7-point scale. This score is an increase of 4 percentage points relative to 2015 (77%).... [A]ttributes related to strong execution in service delivery are most highly correlated to overall satisfaction, while measures related to fees and investment services have a relatively lower impact.... Firms that have the smallest proportion of 'at-risk' relationships, have the highest scores for both 'offers solutions to plan objectives and goals' (83% top 2 box) and 'helps participants reach goals' (77%)[.]" (Chatham Partners)  

Broker-Dealers Eye Level Commissions to Reduce Risk Under DOL Fiduciary Rule
"While the [DOL's] fiduciary rule allows brokerage firms and their advisers to receive forms of variable compensation, such as 12b-1 fees and commissions, some executives want to make commission payouts as similar as possible among like products to avoid the appearance of a conflict of interest when an adviser makes an investment recommendation. Such a practice would be a departure from the way broker-dealers currently conduct business, whereby similar investment products could offer a fairly wide range of different commission payouts." (InvestmentNews)  

Mind the Fund Details, Not the Labels
"It was never a good idea to choose funds on the sole basis of their names. Today, however, the risk of that approach leading you to a fund that does not operate as you might expect may be greater than ever.... Indexing used to refer to low-cost, broadly diversified, market-capitalization-weighted portfolios. Actively managed portfolios could be defined as carrying higher costs, with less diversification and more risk. Today, it is overly simplistic to say that 'indexing outperforms active management,' or that index funds are 'low-cost' or 'broadly diversified.' " (Vanguard)  

Despite Brexit, Target Date Fund Investors Should Stay the Course
"Target date funds are based on risk and reward assumptions for the various asset classes they invest in, including equities, fixed income, and cash equivalents. These asset classes are also evaluated by their country of origin as well. Target date fund managers now have to separate the risk and reward assumptions of investing in the UK and Europe and develop appropriate strategies for both.... Even if the reward outlook doesn't change, there is a high probability for future volatility." (The Principal Blog)  

Long Bonds for the Short Run
"Will the supply of long corporate bonds be sufficient to meet demand for corporate pension funds? This question has been percolating for years. And with good reason: Corporate plan sponsors continue to de-risk and shift assets toward liability-matching bonds, and there is valid concern that demand will exceed the supply of long corporate bonds." (Nuveen Asset Management)  

Task Force Recommends Changes in Actuarial Standards for Pension Plans
"The primary recommendations of the [task force] include: [1] Calculation and disclosure of a solvency value; [2] Improved management of assumptions; [3] Clarification of existing guidance regarding assumptions; [4] Additional guidance regarding methods; [5] Calculation and disclosure of contribution requirements and funded status associated with a reasonable actuarially determined contribution; [6] That the actuary provide an opinion statement about the reasonableness and consistency of assumptions and methods; [7] Special disclosures applicable to specific situations, including where the contribution requirement is less than the normal cost plus interest on the unfunded accrued liability." (Cheiron)  

Proposed Changes to Social Security: SSA Actuary Estimates Financial Effects (PDF)
22 pages. "H.R. 5747, the S.O.S. Act of 2016 ... includes seven provisions with direct effects on the Social Security Trust Funds.... Assuming enactment of the proposal, the combined OASI and DI Trust Funds would be fully solvent throughout the 75-year projection period, under the intermediate assumptions of the 2015 Trustees Report." (U.S. Social Security Administration [SSA])  

[Opinion]

This Senator Opposes a Mine Worker Pension Bailout
"Wyoming produces 40 percent of the nation's coal. That's more than the next five largest coal-producing states combined.... [T]he UMWA's unfunded pension plan ... is on track to become insolvent in less than a decade.... But as [Sen. Mike Enzi, R-Wyo.] pointed out, 'the UMWA agreement was made between the members and the UMWA, not between the members and the American taxpayer.' The union -- not taxpayers -- should have to account for the union's broken promises.... [T]he mere fact that a coal cleanup fund exists does not mean one select coal union should have access to that fund for its unfunded pensions." (The Daily Signal)  

Benefits in General

[Guidance Overview]

Proposed Changes to Form 5500 and Schedules Would Expand Benefit Plan Reporting
"The Departments did not provide mock-ups of the forms, schedules, and structured attachments as they would appear in final.... Some of the instructions are entirely new, while others reflect the elimination of existing line items or schedules that would be deleted under the proposed forms revisions.... The proposed regulations would also add new questions ... on participation, contributions, and asset allocation by age, and participant-level diversification.... [T]he proposed revisions would require all ERISA plans that provide group health benefits to file Form 5500 (including new Schedule J) and applicable schedules, regardless of [the size of the plan, or whether] funded using a trust, unfunded, or an unfunded/insured combination." (Practical Law Company)  

[Guidance Overview]

Penalties Increase for ERISA Violations
"The new penalty amounts are effective August 1, 2016, and will apply to any penalties assessed after the effective date.... The maximum civil penalties that DOL may assess under ERISA are adjusted as shown in [a detailed chart.]" (Cheiron)  

Want to Fund Your HSA with Your IRA? Here's How
"A [Qualified HSA Funding Distribution (QHFD)] is done by direct transfer from your IRA to your HSA. This transaction is not taxable or subject to the 10% early distribution penalty. The amount that can be transferred cannot exceed the amount you are eligible to contribute to your HSA for the year.... The amount you can move will be reduced by any HSA contributions you have already made during the year. You may only do one QHFD in your lifetime. There is an exception to this rule if you start out the year with self-only coverage and then later switch to family coverage." (Slott Report)  

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Lois Baker, J.D., President  loisbaker@benefitslink.com
David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
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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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