Retirement Plans Newsletter

September 22, 2016 logo logo LinkedIn logo Twitter logo Facebook logo
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ACA Nondiscrimination Rule and EEOC Wellness Requirements
September 28, 2016 WEBCAST
Morgan Lewis & Bockius LLP

Using Your Brain to Win
October 4, 2016 WEBCAST
ASPPA [American Society of Pension Professionals & Actuaries]

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[Official Guidance]

Text of PBGC Final Rule: Late Premium Payment Penalty Relief
13 pages. "The [PBGC] is lowering the rates of penalty charged for late payment of premiums by all plans, and providing a waiver of most of the penalty for plans with a demonstrated commitment to premium compliance.... There are two levels of penalty, which heretofore have been 1 percent per month (with a 50 percent cap) and 5 percent per month (capped at 100 percent).... This final rule cuts the rates and caps in half (to 1/2 percent with a 25 percent cap and 2-1/2 percent with a 50 percent cap, respectively) and eliminates the floor. The rule making also creates a new penalty waiver that applies to under payments by plans with good compliance histories if corrected promptly after notice from PBGC. PBGC will waive 80 percent of the penalty assessed for such a plan."
Pension Benefit Guaranty Corporation [PBGC]


P&I DC West Conference | San Diego | Oct 23-25

Sponsored by Pensions & Investments

Join leading executives who manage 401(k), 403(b), 457 and TSP plans at DC West. You'll learn how other plan sponsors analyze, develop, implement and measure programs for their participants, so you can improve your own plan.

[Guidance Overview]

IRS Explanation, Worksheet (Alert Guidelines), and Deficiency Checksheet: Minimum Vesting Standards for DC Plans (PDF)
19 pages; revised April 2016. This single PDF document contains three items: Publication 6389, Form 5623, and Form 6041. Excerpt: "The purpose of the Worksheet Number 2 (Form 5623) and this explanation is to identify major problems in the area of plan vesting.... The worksheet applies only to plans to which Internal Revenue Code section 411 applies, except plans mentioned in section 411(e) (such as governmental plans) and plans that cover participants who are employed in maritime or seasonal industries." [Cycle A Submission Period, 2/1/2016 through 1/31/2017]
Internal Revenue Service [IRS]

[Guidance Overview]

IRS Explanation, Worksheet (Alert Guidelines), and Deficiency Checksheet: Minimum Vesting Standards for DB Plans (PDF)
45 pages; revised April 2016. This single PDF document contains three items: Publication 4962, Form 5624, and Form 8401. Excerpt: "The purpose of the Worksheet Number 2A (Form 5624) and this explanation is to identify major problems in the area of plan vesting.... The worksheet applies only to plans to which Internal Revenue Code section 411 applies, except plans mentioned in section 411(e) (such as governmental plans) and plans that cover participants who are employed in maritime or seasonal industries." [Cycle A Submission Period, 2/1/2016 through 1/31/2017]
Internal Revenue Service [IRS]

[Guidance Overview]

403(b) Multiple Employer Plans: ERISA and Tax Considerations (PDF)
14 pages. "Code section 403(b) plans are generally subject to less statutory and regulatory guidance and oversight than most Code section 401(a) qualified plans.... The effect of this discrepancy is that there is more greyness as to the legal standards that would apply to a closed Code section 403(b) MEP.... [This memorandum] ... [1] Defin[es] the meaning of the term 'closed multiple employer plan'; [2] Review[s] how the multiple employer plan rules apply to Code section 401(a) qualified plans; [3] Provid[es] a brief overview of Code section 403(b) plans; and [4] Review[s] how certain multiple employer plan rules could be applied to a closed Code section 403(b) MEP."
Groom Law Group, for Transamerica

JCT Description of Senate Committee Chairman's Modification of the Retirement Enhancement and Savings Act of 2016 (PDF)
59 pages. "The Senate Committee on Finance [passed] a committee markup on September 21, 2016, of an original bill, the Retirement Enhancement and Savings Act of 2016.... The proposal amends the Code rules relating to multiple-employer plans to provide that certain defined contribution plan s will not fail to meet the Code requirements applicable for tax-favored treatment merely because one or more employers of employees covered by the plan fail to take the actions that are required of employers for the plan to meet such requirements.... In addition, under the proposal, a qualified defined contribution plan that is established or maintained for the purpose of providing benefits to the employees of two or more employers and that meets certain requirements ('pooled employer plan') is treated for purposes of ERISA as a single plan that is a multiple-employer plan."
Joint Committee on Taxation, U.S. Congress


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.

Senate Committee Approves Funding for Mine Workers' Pension Plan
"The mine workers bill, whose supporters say will have a floor vote by the end of the year, was approved 18-8. It would allow the use of surplus funds from the Abandoned Mine Land Reclamation Fund, which currently goes to the U.S. Treasury. Without the funds, the pension fund could become insolvent and overwhelm the [PBGC]."
Pensions & Investments

A Review of Class Action Litigation Against Fiduciaries
23 presentation slides. Topics include: [1] Recent settlement structures; [2] Lessons to be learned: fiduciary processes and documentation; and [3] Best practices for fiduciary liability insurance and indemnification provisions.
Multnomah Group

Not-for-Profit Hospitals and Health Care Providers Face Retirement Plan Class Actions
"[S]teps such plan sponsors may want to consider: [1] Adopting a robust governance structure ... [2] Adopting an investment policy statement ... [3] Setting up performance standards for the plan's service providers and regularly monitoring their performance.... [4] Conducting a confidential, comprehensive, and objective review ... of all current investment options available in the plans ... [5] Implementing a periodic competitive bidding process for record-keeping, administrative, investment consulting, plan participant education, and other commoditized plan services."
Greenberg Traurig

The 401(k)/404(c) Plan Sponsor's Achilles Heel(s) -- Redux
"401(k)/404(c) plan sponsors need to realize that the primary reason that plans are being successfully sued involves a plan sponsor's fiduciary duty that will not be changed due to the DOL's announcement ... In far too many cases, liability is based primarily on a plan sponsor's failure to properly perform the personal investigation and evaluation of a plan's investment options."
The Prudent Investment Adviser Rules

Highest Number of DC Plans in a Decade Are Using Fixed Record-Keeping Fees
"[T]he asset-weighted average expense ratio for DC plans is currently 0.42% versus the 2006 level of 0.57% ... Eighty-two percent of plans have re-contracted their record-keeping fees since 2013, which has led 51% of plans with to have a fixed-fee record keeping arrangement.... Lifetime income offerings are now offered by five percent of plans versus none in 2012. The percentage of plans offering stable value funds remains unchanged at 47%, the same level as 2012.... Company stock remains a fixture in retirement plans, offered in 28% of plans. Approximately 60% of public companies offer these securities."

Fiduciaries Need to Answer These Questions About Target Date Funds (PDF)
"[The DOL has] five main issues with the first generation of TDFs and how the industry uses them today.... [F]or each plan you work with, you must: [1] Establish an objective process for comparing, selecting and reviewing your TDFs. [2] Understand the fund's investments and how they change over time. [3] Determine if the expenses are appropriate for the services given. [4] Know if the TDFs chosen have the ability to get defensive in market failures. [5] Develop effective employee communications."
Beaumont Capital Management

You Get What You Pay For: Guaranteed Returns in Retirement Saving Accounts
"A variety of recent proposals would offer guarantees for new types of savings plans including some state-sponsored retirement savings plans for small businesses.... The key economic issues are the level of costs and benefits associated with a government-provided guarantee and who would bear the costs. Guarantees are a classic example of the economics dictum that it is impossible to get something for nothing."
The Brookings Institution

Adequacy, Fairness and Sustainability of Pay-As-You-Go-Pension-Systems: Defined Benefit Versus Defined Contribution
"[The authors] analyse defined benefit versus defined contribution schemes in terms of adequacy, fairness and sustainability ... [R]isk sharing mechanisms, that involve changes in the key variables of the system, are designed to restore the financial sustainability at the same time that [the authors] study their consequences on the adequacy and fairness of the system."
Jennifer Alonso-Garcia, Maria el Carmen Boado-Penas, and Pierre Devolder, via SSRN

Managing Unfunded Liabilities in a DB Plan (PDF)
"A pension plan's Unfunded Accrued Liability (UAL) is the excess of its benefit settlement liabilities over plan assets at Fair Market Value (FMV) if settled at one time.... Many plan sponsors overlook an outstanding opportunity to reduce their UALs through discretionary Profit Sharing Plan (PSP) provisions under Floor-offset Plan (FOP) arrangements.... Each $1 of PSP contributions reduces the [DB plan] contribution by considerably more than $1[.]"
H.C. Foster & Company

'This Is Becoming a Moral Issue': Officials Face Truth Behind Oregon's Soaring Pension Costs
"Just how bad is Oregon's public pension funding crisis? Bad enough that Rukaiyah Adams, the normally polished investment professional who is vice chair of the Oregon Investment Council, broke down in tears last week as she spoke of passing a record $22 billion in unfunded promises to future taxpayers.... Experts openly acknowledged they're understating the magnitude of Oregon's problem."
The Oregonian

Unintended Tax Consequences from Mishandling of an Inherited IRA: A Case Study
"Ultimately, retirement account owners will be responsible for paying any income tax due on distributions that they take from their retirement accounts, whether or not those distributions are shared with others.... For those who want to share inherited accounts with others, strategies can be implemented to ensure that any tax burden is also shared."
Appleby Retirement Dictionary

Benefits in General

[Official Guidance]

Text of DOL Notice of Extension of Comment Period on Proposed Changes to Annual Information Return/Reports (Form 5500)
"The comment period for the Notice of Proposed Revision of Annual Information Return/Reports and the Notice of Proposed Rulemaking is extended to December 5, 2016.... The Agencies are not prepared at this time to grant a more extended deadline for public comments on the proposed form revisions and regulatory amendments because of concern about potential adverse effects on the timing and cost of the EFAST2 recompete process.... The deadline for capable businesses to respond on the Request for Industry Feedback is not being extended in this Notice.... It is not clear at this time that a public hearing will necessarily contribute to the decision-making process by clarifying one or more significant issues affecting the proposal, but the Agencies will be in a better position to evaluate that issue after receiving the public comments on the proposals. Similarly, the issue of the effective date of final form changes is better addressed in a final notice of form revisions after the Agencies have had the benefit of public input on the proposals and have decided upon the final form changes and regulatory amendments that will be adopted."
Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL]

In the Ninth Circuit, a New Burden of Proof for Employers in Benefits Litigation
"For employers facing benefits litigation in the Ninth Circuit, the burden-shifting rule announced in this decision may be a game-changer. On remand, if the participant can make a prima facie case that he is entitled to benefits, the defendants will bear the burden of production regarding whether the participant worked sufficient hours for participating employers. This determination would involve records from several decades ago. As the dissenting judge notes, the plan administrator in this case could therefore be forced to provide benefits to the participant even though it did not abuse its discretion under established ERISA caselaw." [Estate of Barton v. ADT Security Serv. Pension Plan, No. 13-56379 (9th Cir. Apr. 21, 2016; rehearing en banc denied Sept. 20, 2016)]
Practical Law Company

Company Stock Plans Are a Valued Benefit, But Risks Should Be Understood
"16 percent of employees say company stock is their most important employer-provided benefit, up from 10 percent in 2014.... Almost two-thirds of employees (63 percent) said that participating in their company stock plan gives them a sense of ownership of the company, and 53 percent said it makes them feel more loyal to their employer. Nearly half of employees (49 percent) said that a company stock plan is an important factor when considering a new job."
Society for Human Resource Management [SHRM]

Press Releases

DOL Announces More Than $150K in Research Grants to Expand Portable Retirement Savings Plans for Low-wage Workers
Employee Benefits Security Administration [EBSA], U.S. Department of Labor

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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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