Retirement Plans Newsletter

July 26, 2016

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Webcasts and Conferences

Its Time for Your Check Up: The Affordable Care Act and Other Employee Healthcare Topics
October 18, 2016 WEBCAST
Andrews Kurth

Is an ESOP Right for You? An In-Depth Look at Employee Stock Ownership Plans
October 19, 2016 in RI
National Center for Employee Ownership [NCEO]

Health Plan Claims and Service Operations Conference
October 26, 2016 in FL
Strategic Solutions Network

Member Experience Across the Health Plan Continuum
October 27, 2016 in TN
Strategic Solutions Network

State Roundtable
November 3, 2016 in OK
State and Local Government Benefits Association [SALGBA]

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[Guidance Overview]

The Proposed 457(f) and 409A Regs: A Closer Look
"One of the first clarifications provided in the proposed regulations is that the rules under 409A apply 'separately and in addition to the rules under 457.' Thus, both the 409A regulations and the 457 regulations would apply to 457(f) plans when finalized. So the regulatory environment for 457(f) plans remains complex, though important clarifications regarding the interaction between 457(f) and 409A was provided in the proposed 457 regulations."  Cammack Retirement Group


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Terminated Participants: Out of Sight, Out of Mind -- And That's the Problem
"[The DOL] has recently launched an initiative to audit retirement plans to confirm whether or not they have terminated, vested participants that might be owed plan benefits.... Many retirement plans do not have the written description in place about how the sponsor will work to locate lost participants, the time frames and responsibilities. And many of those that do have such procedures in place are not completing the process on the regular timely basis specified in the plan document."  Cammack Retirement Group

Understanding the Numbers Would Motivate 401(k) Participants to Save More
"Many participants know they are not saving enough -- 68% say their 2015 contributions were below where they should have been.... 48% of participants admit they simply do not spend enough time thinking about and planning for retirement.... 28% have never rebalanced their 401(k) account, 31% have never made a change to their initial choice of investment options, and 18% have never increased their contribution amount."  PLANSPONSOR

DC Plan Sponsors Can Build Better Lineups and Reduce Fiduciary Risks through a Discretionary Investment Approach
"Factors like investment complexity, increased fee pressure, litigation and the increased reliance on DC plans as the primary retirement savings vehicle, place tremendous pressure on plan sponsors.... [S]imply choosing brand-name funds, passively managed funds or funds provided by recordkeepers are no longer automatically safe choices.... [P]lan sponsors and committees are often understaffed, stretched for time or simply lack the expertise to effectively manage and monitor complex investment portfolios."  SEI

Help 401(k) Participants Make Better Investment Decisions
"Some of your plan participants enjoy trading their 401(k) accounts. They believe they can market-time their buys and sells to take advantage of market fluctuations.... Require these individuals to meet with the investment advisor that works with your plan. You can identify who they are by looking at the website reports that your recordkeeper produces. They will be the individuals who are not close to retirement who check their balances every day and make frequent trades."  Lawton Retirement Plan Consultants


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401(k) Fiduciary Alert: Regulators Targeting 12b-1 Fees, Is Revenue Sharing Far Behind?
"We're beginning to see more intense scrutiny of 12b-1 fees by the SEC. While an increasingly smaller percentage, the ICI estimates that through 2014, about 17% of all 401k plan assets still invest in funds with 12b-1 fees ... We all know financial service providers have an incentive to use 12b-1 fees.... Given the plan sponsor shares this conflict-of-interest liability, why is nearly one out of every five dollars of 401k plan assets still using funds with 12b-1 fees?"  Fiduciary News

Seventh Circuit: ERISA Permits Indemnification or Contribution Among Fiduciaries
"The Seventh Circuit's opinion indicates that when multiple fiduciaries are accused of breaching their fiduciary duties, contribution and indemnification claims among them are permitted, and as a matter of equity, the allocation of recovery on such claims as among the respective fiduciaries depends on the degree each had responsibility and their relative knowledge, experience, control, and authority." [Chesemore v. Fenkell, Case Nos. 14-3181, 14-3215, and 15-3740 (7th Cir. July 21, 2016)]  Drinker Biddle

Two-Thirds of Plan Providers Are Optimistic on Impact of DOL Rule to Their Asset Retention Rates
"64 percent of the top retirement plan record-keepers and providers believe the [DOL] fiduciary rule will have a positive or neutral effect on their overall asset retention rate over the next two years.... 28 percent of companies felt the rule would help them increase asset retention while 36 percent felt it would have no impact on their current asset retention rate.... 75 percent of plan providers surveyed say they will change how their call centers respond to calls related to retirement plan distribution options."  LIMRA

Pension Funded Status Decreased in Q2 2016 Due to Continued Interest Rate Declines (PDF)
"During the second quarter of 2016, the funded status of the model pension plan examined in each issue of Prism dropped by 3 percentage points: from 79 percent to 76 percent. This decline was the result of a 2 percent asset increase and a 6 percent liability increase during the quarter."  Segal Rogerscasey

It's Key to Factor in Health Costs When Saving for Retirement
"According to Fidelity Investments, the average 65-year-old couple retiring this year are likely to spend $245,000 on medical care not covered by Medicare -- 29 percent more than they did 10 years ago. That figure doesn't include long-term care, which can run as high as $200,000 a year for a private room in a nursing home. The data from the Employee Benefits Research Institute are even grimmer. A 65-year-old couple who would like a 90 percent chance of having enough money for lifetime health care should set aside $392,000. Health-related costs are rising by twice the rate of overall inflation."  CNBC

Marital Histories, Gender, and Financial Security in Late Mid-Life: Evidence from Four Cohorts in the Health and Retirement Study
"Middle Baby Boomers are more likely to have negative wealth (i.e. debt) or zero wealth, and those who have positive wealth have lower levels of wealth. On the other hand, Middle Baby Boomers working full-time have higher earnings than earlier cohorts, especially women. More recent cohorts are less likely to be continuously married than previous cohorts.... [T]he economic benefits of continuous marriage are more pronounced for wealth than earnings."  Center for Retirement Research at Boston College

You Are Never Too Old to Convert to a Roth IRA
"No matter what your age, you should ask yourself three questions. First, when will the money be needed? Do you need your IRA money immediately for living expenses? If so converting may not be for you. Second, what is your tax rate? If you are retired and your income is lower, that may favor conversion. The third question to ask yourself is whether you have the money to pay the tax on the conversion. It is best to pay the conversion tax from non-IRA funds."  Slott Report

Are Early Social Security Claimers Making a Mistake?
"Comparing the calculated household replacement rates with target rates from previous research shows that, overall, roughly 65 percent of households claiming at 62 are not prepared; the rate for the disadvantaged group is twice the rate of the advantaged group.... A simple probit regression suggests that health and employment shocks and the absence of a DB pension are related to the lack of preparedness for both the disadvantaged and advantaged."  Center for Retirement Research at Boston College

Benefits in General

[Guidance Overview]

DOL Proposes Major Overhaul to Form 5500 Reporting
"The proposed revisions will improve data mining by including searchable data fields ... Easier access to data from these forms, however, means there will be more scrutiny moving forward. More minable data means that government agencies and plaintiffs' lawyers will be looking at this information. The agencies are also asking for more specific information about service provider fees, which have been the subject of government scrutiny and litigation[.]"  Society for Human Resource Management [SHRM]

ING's Penalty for ERISA Claims Procedure Violations Partly Tossed by Ninth Circuit
"[T]he Ninth Circuit held that a benefit plan governed by [ERISA] can't be liable for statutory penalties for failing to follow appropriate claims procedures, because those penalties can be assessed only against plan administrators and not plans themselves. This clarified prior precedent and adopted the views of seven other federal appellate courts. The decision turned on the fact that ERISA plans and the administrators of those plans are distinct legal entities under the statute." [Lee v. ING Groep, N.V., No. 14-15848 (9th Cir. July 25, 2016]  Bloomberg BNA

Will Long Term Care Ruin Retirement Plans?
13 pages. "[R]oughly 85% of couples will utilize long term care prior to death. Long term care expenses impact financial plan sustainability at a declining rate as wealth increases from $1 million to $10 million. At a portfolio value of $1 million, adding long term care expenses to the simulation results in ruin, defined as depleting the portfolio entirely prior to the death of both members of the couple, about 30% of the time."  Michael W. Crook and Ronald Sutedja via SSRN

Executive Compensation and Nonqualified Plans

Industry Slams Exec Pay Proposal, Others Call for More
"A coalition of industry groups slammed the proposal, arguing the regulators exceeded their Dodd-Frank mandates in an attempt to impose a 'one-size-fits-all approach' to the issue rather than a principles-based approach. They also faulted the proposal for its definitions of 'risk-takers' subject to the restrictions, the wait time and the record-keeping costs it would impose."  Bloomberg BNA

Does Your Severance Plan Trigger ERISA? Why You Should Care and What You Should Do
"[T]he court focused on whether the severance payable under the employment agreement involved a 'separate and ongoing administrative scheme.' It highlighted several facts that demonstrated the existence of such an ongoing administrative scheme that caused ERISA to apply. For example, the employer had the discretion to decide whether a termination was with or without cause, the payments and provision of benefits continued over five years (rather than being paid in a lump sum), and the employer had the ongoing duty to monitor the non-compete, non-solicitation, and medical coverage provisions." [Zgrablich v. Cardone Industries Inc., No. 14-4665 (E.D. Penn. Feb. 3, 2016)]  Foley & Lardner, via Lexology

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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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