Retirement Plans Newsletter

July 15, 2016

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Webcasts and Conferences

Retirement Plans in the Courtroom: What Plan Sponsors Need to Know
RECORDED
(Segal Consulting)

Nondiscrimination Rules for Closed Pension Plans
July 21, 2016 WEBCAST
(IRS [Internal Revenue Service])

Compensation Planning for Non-Profits and Governmental Entities Newly Issued Code Section 457(f)
July 27, 2016 WEBCAST
(Trucker Huss)

401(k) Beyond the Basics 05: Coverage Testing Issues
September 12, 2016 WEBCAST
(FIS Relius Education)

Form 5500: They want MORE!
September 14, 2016 WEBCAST
(FIS Relius Education)

Changes to Cafeteria Plans: What You Need to Know to Prepare
September 21, 2016 WEBCAST
(Lorman Education Services)

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[Guidance Overview]

Interesting Angles on the DOL's Fiduciary Rule, Part 12
"[A] person who recommends a fiduciary adviser (which could include financial advisers, insurance agents and investment advisers under the new definition) will be a fiduciary for that purpose, if a fee is paid for the referral; and the payment of that fee could be (or, perhaps, probably will be) a prohibited transaction. This is a significant change. Advisers who pay fees for referrals should consider its impact." (FredReish.com)  


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[Guidance Overview]

Final Fiduciary Rule Amends PTE 84-24 for Transactions Involving Insurance Agents, Brokers and Others
"The newly issued [DOL] final fiduciary and conflict of interest regulations amend PTE 84-24 to: [1] Impose on those seeking relief the same impartial conduct standards found in the Best Interest Contract Exemption; and [2] Narrow the scope of the exemption so that it cannot be used for advice by investment advice fiduciaries to [IRA] owners in connection with transactions involving: [a] Variable annuity contracts or other annuity contracts that would constitute 'Securities' under federal securities laws; or [b] Mutual fund shares." (Mintz Levin)  

[Guidance Overview]

Newly Proposed Regs Under Section 457(f) Impact Deferred Compensation Arrangements of Tax-Exempt and Governmental Entities
"These requirements for noncompetition agreements may be difficult to satisfy in many cases, particularly in states where noncompetition agreements are largely unenforceable. Even so, the treatment under section 457(f) is more flexible than under section 409A ... The noncompetition provisions in the proposed regulations provide a significant plan design opportunity for employers to coordinate different aspects of sections 457(f) and 409A such that compensation may continue to be deferred after the end of employment." (Steptoe & Johnson LLP)  

[Guidance Overview]

Newly 457(f) Proposed Regs Clarify Rules for Nonqualified Deferred Comp Provided by Non-Profit and Governmental Entities (PDF)
"Of note is the fact that the Proposed Regulations do not generally provide grandfathered status to current Section 457(f) plans. While there are special rules for delayed applicability of the regulations for collectively bargained plans and plans of governmental entities that would be required to be amended by legislative action, the current provisions regarding the applicability of Section 457(f) regulations would not just apply prospectively but would apply to plans and other arrangements (unless specifically exempt from Section 457(f)) adopted before the date the regulations are finalized". (Trucker Huss)  

Class Certified in ERISA 'Unreasonable Compensation' Case
"The Colorado federal court concluded last summer ... that an insurer could be subject to ERISA liability for receiving unreasonable compensation in connection with a stable value fund, and that the fund was not exempt from ERISA as a 'guaranteed benefit policy.' ... [T]he court [recently] certified a broad class of investors on the claim that Great-West violated ERISA either by 'setting the credited rate [for the fund] with its own profitability in mind rather than the best interests of the Fund participants,' or by 'reap[ing] unreasonable compensation' from the credited rate. The court rejected Great-West's argument that individualized issues would predominate because its costs and profits for the fund varied among participants." [Teets v. Great West Life & Annuity Ins. Co., No. 14-2330 (D. Colo. June 22, 2016)] (Wilmer Hale)  


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Fidelity Win in 'Float' Case Highlights Ways Companies Profit from 401(k)s
"The theory driving each of these decisions is that the interest earned by the financial company doesn't qualify as a 'plan asset' under ERISA. If the interest isn't a plan asset, the companies can't be liable under federal law for pocketing that interest rather than sharing it with the plan participants whose accounts helped generate it." (Bloomberg BNA)  

Floating a Few Thoughts on Kelley v. Fidelity
"[T]he decision makes clear that it is only about whether the float income alone, in a context where the plan document allows for it, cannot support such a claim. The opinion, partially at the behest of the [DOL], goes out of its way to make clear that other theories of recovery where float income is at issue, such as theories that the use of the float income contradicted the plan's terms themselves, are still open to litigation." Kelley v. Fidelity Management Trust Co., No. 15-1445 (1st Cir. July 13, 2016)] (Stephen Rosenberg, The Wagner Law Group)  

Target Targeted in Stock Drop Suit
"Here the defendants are charged with violating their fiduciary duties by allowing the plan to retain common stock of Target Corporation as an investment option in the plan when a reasonable fiduciary ... would have done otherwise. The suit claims that, as of the start of the class period the Target plan held over $2 billion in company stock, and it further acquired hundreds of millions of dollars of Target stock while Target stock was artificially inflated.... In the Target plan, all investments were participant directed, including the company's matching contributions, which are invested in the Target Corporation Common Stock Fund unless otherwise directed by the participant." (National Association of Plan Advisors [NAPA])  

Guiding Participants from Intent to Action: 2016 Defined Contribution Plan Participant Survey Findings
28 pages. "When it comes to participants' retirement saving and investing, a knowledge gap remains, despite years of educational efforts on the part of plan sponsors.... Automating the saving and investing process (while allowing participants to opt out) could help address participant inaction.... A key reason given by many plan sponsors for not implementing automatic features and conducting a re-enrollment is anticipation of employee pushback. Survey results, however, suggest that participants recognize their need for saving and investing guidance, and most are in favor of, or at least neutral toward, these features and strategies." (J.P. Morgan Asset Management)  

DC Plans Shifting from One-Size-Fits-All to One-on-One Retirement Advice
"A growing number of plan sponsors report they are focusing more on helping employees adequately plan and prepare for a secure retirement ... [M]ore than one-quarter (27%) are likely to start offering access to an advisor, and one in four (25%) is likely to give participants access to one-on-one advice from a third party. Nearly as many (23%) are likely to incorporate online investment models provided by the plan provider." (Cogent Reports)  

The Economics of Providing 401(k) Plans: Services, Fees and Expenses, 2015 (PDF)
32 pages. "In 2015, the average expense ratio for equity mutual funds offered in the United States was 1.31 percent. 401(k) plan participants who invested in equity mutual funds, however, paid less than half that amount, 0.53 percent, on average. The expense ratios that 401(k) plan participants incur for investing in mutual funds have declined substantially since 2000." (Investment Company Institute [ICI])  

2016 RIA Benchmarking Study (PDF)
"2015 results showed that stable client relationships and robust business fundamentals drive growth, while technology and human capital increasingly align to drive operational efficiency. In 2015, asset and revenue growth eased somewhat but remained positive.... Firms added a significant number of new clients over the past five years -- between 28% and 50% more at the median -- while average client size increased by 22% at the median over the same period. Despite eased growth, profitability -- which grew by 27% at the median over the past five years -- was driven by improvements in operational processes and technology -driven efficiencies." (Charles Schwab)  

403(b) Policy Loans: A Continuing Form 5500 Reporting Problem
"[No] cash for the loan has ever come out of the plan itself.... The reserve amount in the annuity contract related to the policy loan still shows up as an invested asset under the contract (typically reported under line 1(c)(14)). If you actually then report the amount of the outstanding 'policy loans' on line 1(c)(8), the result is a double-counting of the loan amount as an asset, and your books will be sorely out of balance." (Business of Benefits)  

Benefits in General

Recommendations from House Republicans Would Affect Employee Benefits
"The proposals would repeal the ACA, cap the employee tax exclusion for employer health benefits, reject the fiduciary advice rule and more. The task force proposed significant reforms to Medicare, including a voucher program that would begin in 2024. Tax exclusions for dependent care assistance, qualified transportation benefits, adoption assistance and other benefits would be eliminated.... While few of the recommendations are expected to see legislative action this year, significant changes for health, retirement and other employee benefits could be on the table in 2017." (Willis Towers Watson)  

Executive Compensation and Nonqualified Plans

[Guidance Overview]

Welcome Tinkering in Section 409A Proposed Regs
"The proposed changes to the Section 409A regulations contain nearly 20 substantive points. The overall tone is tinkering that will address minor issues that have arisen over time. Most changes are helpful to taxpayers, with a couple of changes designed to close potential loopholes." (Squire Patton Boggs)  

Press Releases

DOL Solicits Nominations for 2017 ERISA Advisory Council
Employee Benefits Security Administration [EBSA], U.S. Department of Labor

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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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