Retirement Plans Newsletter

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[Guidance Overview]

IRS Guidance on Section 457: What Non-Profit and Governmental Employers Need to Know, Part 1
"Under the proposed rules, compensation is not 'deferred' if the compensation must be paid and actually is paid within 2-1/2 months following the end of the calendar year ... in which the payment is no longer subject to a substantial risk of forfeiture.... For bonus plans, this means that as long as the bonus plan provides that the bonus must be paid by March 15th of the year following the year in which the employee earns the bonus and the bonus is actually paid on or before that March 15th, the plan will not be subject to Section 457(f). While this is good news, this can lead to unusual results if the bonus plan is not carefully designed."  Poyner Spruill LLP


Weighing the Pros & Cons of Automatic Enrollment Plans

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District Court: Retirement Plan Can Mandate Arbitration, Cost-Sharing
"The judge upheld a provision in ETS's retirement plan requiring that claims over plan benefits be submitted to a binding arbitration process in which the claimant and the plan 'equally share' in the arbitration costs. The widow unsuccessfully argued that this cost-sharing provision violated [ERISA]." [Luciano v. Teachers Ins. & Annuity Assoc. of America / College Retirement Equities Fund (TIAA-CREF), No. 15-6726 (D.N.J. July 29, 2016; unpub.)]  Bloomberg BNA

ERISA Fee Litigation: New Claims Seek to Impose Heightened Fiduciary Standards for 401(k) Plans
"[P]laintiffs' counsel have begun bringing claims against 401(k) plans that offer as investment options Vanguard and Stable Value Funds [SVFs].... In several slightly different cases, plaintiffs have challenged the ERISA-exempt status of SVFs offered by insurers ... Plan fiduciaries can ... engage in preventive measures ... [such as periodically investigating] share classes and fee options to ensure that the 401(k) plan is obtaining the lowest cost option for which it qualifies. This process should be well documented to defend against any later claims that a cheaper share class was readily available."  Proskauer Rose LLP

Alternative Investments in Defined Contribution Plans
"With interest rates near record lows and stock valuations elevated, some consideration of alternative strategies should be given, as they may potentially reduce volatility, enhance returns, and deliver lower correlation with traditional assets. Plan sponsors should be careful, as most of the alternative investment strategy funds lack a long-term track record, have inconsistencies in their performance, and exhibit high disparity among managers. They also have higher expenses and have not been tested in full marked circles. These factors complicate due diligence for a retirement plan sponsor."  Cammack Retirement Group

Workplace Promotion of Retirement Benefits Is True Trigger for Younger Participants
"Employer promotion of the retirement plan is most effective at spurring those younger than 35 (40 percent), followed by 35- to 49-year-olds (32 percent) and lastly those aged 50 and older (32 percent).... It's imperative that plan sponsors and financial professionals get involved early in every sense of that word. They need to think of themselves as a trusted resource for their employees -- particularly those younger than 35. They have an opportunity for an influential role that includes guidance, retirement education, communications and resources to promote financial wellness."  OneAmerica


The Ultimate Retirement Professional Conference Experience

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Retirement Balances Improve in Q2 2016 While Percentage of 'Do It for Me' Investors Hits Record Levels
"The percentage of Fidelity customers with all of their 401(k) assets in a target date fund or managed account topped 45 percent at the end of Q2.... The average balance for Millennials who have been continuously active in their 401(k) plan for 10 years reached a record $92,900 at the end of Q2, an increase of nearly 10 percent from $84,700 one year ago. The overall balance for long-term savers reached $241,300 at the end of Q2, up from $231,500 one year ago."  Fidelity

Most Retirement Plan Sponsors Would Recommend Their Financial Advisor
"88 percent of plan sponsors would recommend their advisor, with 37 percent 'very likely' to do so. Only 10 percent said they were unlikely to make a recommendation ... 35 percent of sponsors have switched advisors in the past. Among sponsors who changed advisors, 41 percent did so because they judged their advisor as failing to provide adequate support."  MassMutual

July 2016 Pension Finance Update
"July was a mixed month for pension sponsors. On one hand, interest rates ended the month at all-time low levels, pushing up pension liabilities. On the other hand, stock markets posted solid gains for the month and are now in healthy positive territory for the year. Overall, the news was good for both model pension plans ... Plan A improved 2% last month but remains down 6% for the year through July, while Plan B gained 1% and is now down just 1% for 2016 so far[.]"  October Three Consulting

Sizing Up Online Retirement Calculators
"[M]any of the tools offered online ask for relatively few inputs, which should be a warning sign that the results may be less accurate than those that require more comprehensive information ... At a minimum, the calculator should ask about different sources of income, expected living expenses during retirement and all forms of assets that will be available as a means of support[.]"  Financial Planning

The Three Biggest Mistakes Retirement Savers Make During Down Markets
"[It] is critically important that retirement savers make a long-term game plan for their savings and investing strategy. In doing so, they are more likely to: [1] Make more correct decisions; and, [2] Stick to those decisions under times of pressure/anxiety (such as during falling markets)."  Fiduciary News


Final DOL Fiduciary Rule Is Likely to Spawn More Litigation Against Financial Advisers
"While the extent of the change is obvious, its worth asking whether the change is for the good or not ... [A recent] article on rollovers certainly describes a process that is more labor intensive, more transparent and puts more legal risk on the adviser involved in the process: however, whether that means better outcomes for consumers is the question, one that is at the heart of the dispute between the financial industry and the [DOL]."  Stephen Rosenberg, The Wagner Law Group

Benefits in General

[Guidance Overview]

The Cost of ERISA Non-Compliance Just Got More Expensive
"[B]oth the [DOL] and the [IRS] have voluntary compliance programs that may mitigate any penalties. Don't wait until until the plan is audited. It's much more expensive that way.... [C]ompliance with ERISA and the other laws can be both complicated and confusing. Ultimately, compliance is the responsibility of the plan sponsor and fiduciaries and not a third party."  The Retirement Plan Blog

DOL Increases Civil Monetary Penalties (PDF)
"Most professional liability insurance policies are not designed to cover penalties.... Cutting-edge fiduciary liability insurance companies have filled that void by providing coverage for certain penalties faced by employee benefit plans.... The key questions for trustees of employee benefit plans [are] what penalty coverages do you need and how much coverage do you need."  Euclid Specialty Managers

Seventh Circuit: Doubts or Gaps in the Evidence Should Not Be Resolved in the Claimant's Favor Under De Novo Review
"Sometimes gaps in coverage can occur when, for example, a claimant alleges disability while using accrued vacation. These gaps can result in denial of a disability claim.... [The Seventh Circuit recently held:] Under de novo review, the court 'should not [resolve] doubts or gaps in the evidence in [the claimant's] favor, because she had the burden to demonstrate policy coverage.... Under ERISA, a claimant's 'reasonable expectation' of coverage requires 'actual reliance by the employee.' " [Cheney v. Standard Insurance, No. 15-1794 (7th Cir. July 27, 2016)]  Lane Powell PC

Criminal Conviction of Plan Trustee, Outside Legal Counsel Shows Risks of Retaliating Against Whistleblowers for Reporting ERISA Violations
"[Brain v. Perez] highlights the care that employee benefit plan sponsors, fiduciaries, advisors and service providers and their management must use when responding to allegations or other evidence of wrongdoing relating to an employee benefit plan ... The decision also makes clear that outside legal counsel advising an employee benefit plan or its fiduciaries in relation to the investigation or response to charges of ERISA misconduct involving an employee benefit plan must use care to avoid actions that could ... [violate] their duty of loyalty to the plan by allowing themselves to become involved in a conflict of interest when investigating or defending potential wrongdoing involving an employee benefit plan[.]"  Solutions Law Press

Spending for Social Security and Major Health Care Programs in the Long-Term Budget Outlook
"CBO projects that spending for Social Security would increase noticeably as a share of the economy -- from 4.9 percent of gross domestic product (GDP) in 2016 to 6.3 percent in 2046 -- if current laws generally remained unchanged. Spending for the major health care programs is projected to grow even faster: Net outlays for those programs would increase from 5.5 percent of GDP now to 8.9 percent in 2046."  Congressional Budget Office [CBO]

Executive Compensation and Nonqualified Plans

[Guidance Overview]

New 409A Regulations, Part 5: If it Ain't Broke, Don't Fix It (and Other Minor Changes)
"[T]he IRS has revised this permitted correction rule. First, if there is no good faith basis for saying that the arrangement violates 409A, it cannot be fixed. Second, the regulations provide a list of facts and circumstances for determining if a company has a pattern or practice of permitting impermissible changes. If they do, then they would not be able to fix a nonvested amount."  Benefits Bryan Cave

Executive Compensation in the Banking Industry
"Regulators' recently re-proposed rules under Section 956 of the Dodd Frank Act (incentive-based compensation arrangements) will undoubtedly change the structure and mix of pay for a significant number of employees at larger banks. At the same time, banks are pressured to embrace digital business models that represent new opportunities, but that also create new threats, a wider range of competitors and increased risks. With this backdrop, the industry faces increasing challenges to attract, retain and compensate talent."  Meridian Compensation Partners, LLC

Press Releases

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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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