Retirement Plans Newsletter

December 22, 2016

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[Official Guidance]

Text of PBGC Disaster Relief Announcement 16-18, in Response to Wildfires in Tennessee
"This Disaster Relief Announcement provides relief ... [to] any person responsible for meeting a PBGC deadline ... that is located in the disaster area for which the [IRS] has provided relief in ATL-2016-11 ... whose operations are directly affected by the Wildfires that began on November 28, 2016, in Tennessee.... The relief generally extends from November 28, 2016 through March 31, 2017. The disaster area consists of Sevier County."
Pension Benefit Guaranty Corporation [PBGC]

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PBGC Updates Early Warning Program Information
"In an effort to increase transparency about PBGC's single-employer Early Warning Program, PBGC recently enhanced and reorganized the information available on its website. Under this program, PBGC works with certain employers to preserve their pension plans and protect the retirement security of their workers and retirees. The updated information can be found on PBGC's Risk Mitigation & Early Warning Program webpage. We're also inviting dialogue on the program and encouraging practitioners to send technical questions to webmaster@pbgc.gov, with the goal of posting a new set of Early Warning Program FAQs in early 2017."
Pension Benefit Guaranty Corporation [PBGC]

Pension Plan Owes Rescue Petition Success to Past Rejection
"The Iron Workers fund changed its investment return assumptions in response to the department's denial of Central States' petition. It did so by altering the local plan's original flat annual 6.5 percent investment return assumption and replacing it with year-by-year return assumptions that were lower in early years and gradually increased in later years. The fund also informed its participants of the cuts using the department's model notice."
Bloomberg BNA

Longevity and Liabilities: Bridging the Gap
16 pages. "Unmanaged longevity risk can fundamentally worsen a plan's risk profile, reduce funded status, and lead to unforeseen costs.... [P]lan sponsors should consider a three-pronged approach to better address longevity risk into their portfolio decisions: [1] Implement a robust framework to accurately measure and analyze the implications of longevity risk on plan outcomes. [2] Assess the toolbox of investment and protection actions that can mitigate the impact of longevity risk on the plan. [3] Evaluate the desirability, potential timing, and likely costs of risk transfer actions given the impact of longevity risk on plan liabilities and corporate balance sheet volatility."
PGIM

CalPERS Board Cuts Assumed Rate of Return to 7%
"Chief Investment Officer Theodore Eliopoulos said at last month's finance and administration committee meeting that given diminished investment return assumptions over the next decade, 6% was a more realistic return for the coming 10 years....CalPERS' current funding ratio is 68%. Two years of poor results -- a 0.6% return for the fiscal year ended June 30 and a 2.4% return in fiscal 2015 -- have contributed to a more negative view of what CalPERS can earn over the next decade."
Pensions & Investments

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Delta Air Lines Latest Plan Sponsor Hit with 401(k) Class Action
"The lawsuit, filed Dec. 20 in federal court in Delaware, attacks Delta's decision before 2011 to offer at least 200 investment options in its retirement plan. These options were 'duplicative' and allegedly 'added nothing but confusion to the set of options available to participants,' the lawsuit said. The plan wasted tens of millions of dollars through the 'payment of unreasonable, excessive and unnecessary fees, as well as the persistent underperformance of these ill-chosen investments,' the participants alleged."
Bloomberg BNA

Economic Hurdles, Plan Design Inefficiencies Discourage Millennials from Saving for Retirement
"[J]ust 43% of Millennials [surveyed] meet the oft-cited industry benchmark of a 10% salary deferral rate.... While meant to lower costs and reduce employee turnover, [certain plan design features] ultimately do a disservice to workers.... [P]roviders must build a strong, multi-channel digital experience if they are to serve young employees effectively.... [F]irms should expand their advice and education offerings to ensure better outcomes for younger employees."
Corporate Insight

Funding Will Be Key to Self-Sufficient State Auto-IRA Programs (PDF)
"[A]uto-IRA programs can break even and pay back initial losses in about 9 years as long as: [1] initial fees are allowed to be higher in the short-run -- around 100 basis points -- before dropping down to their long-term equilibrium; [2] the default contribution rate is meaningful; and [3] per-account costs are relatively low."
Center for Retirement Research at Boston College

CBO Supplement to 2016 Long-Term Projections for Social Security
"This report presents additional information about CBO's long-term projections for Social Security in the form of 12 exhibits that illustrate the program's finances ... In addition to presenting projections of scheduled, or full, Social Security benefits ... this report provides projections of payable benefits, which would be less than the scheduled amounts once the trust funds were exhausted ... The appendix presents information about CBO's demographic projections[.]"
Congressional Budget Office [CBO]

Warning Labels Needed for Systematic Withdrawal Plans (SWPs)?
"SWPs assume that all non-recurring expenses in retirement, such as long-term care costs, bequest motives and unexpected expenses, will be funded through some other unspecified resources. SWPs aren't coordinated with income from other sources in retirement.... Even if income from other sources is relatively constant in real dollar terms over the retiree's lifetime planning period, adding the SWP amount to the income from other sources during a year may not produce a spending budget that is consistent with the retiree's spending objectives."
Ken Steiner, FSA Retired

New York Pension Fund Manager, Brokers Charged in Pay-To-Play Scheme
"U.S. prosecutors on [Dec. 21] accused a former portfolio manager at New York state's retirement fund, the third largest in the United States, of steering $2 billion in trades to two brokerage firms in exchange for gifts such as cash, drugs and prostitutes. Manhattan federal prosecutors announced charges centered on the New York State Common Retirement Fund, which was shaken by another pay-to-play scheme a decade ago that sent the state comptroller to prison and sent shock waves through the pension fund world."
Reuters

Another Question is Answered in the Who's the Employer Q&A Column
"At the ASPPA regional conferences this year, a slide said 'Can controlled group members pass coverage separately? If yes, each may have its own plan with different provisions. If no, then they must be in the same plan or mirror plans.' I'm told you had concerns about the wording of that slide. So, what's the problem?"
BenefitsLink

Change in Fiduciary Rules to Encourage Social Investing by Pension Funds Sought at OECD (PDF)
"[At] the December meeting of the OECD WPPP, a new paper supporting the enhanced use of ESG factors ... questions whether the traditional fiduciary rule ... is too 'narrow' and hindering the application of ESG factors in investing, and therefore should be modified ... Indications are that the proponents of ESG investing will continue to try to push for pension funds to invest based on ESG factors[.]"
Groom Law Group

[Opinion]

Death of DOL Fiduciary Rule Could Spur SEC Action on Uniform Standard
"With the industry holding sway in 2017, the SEC might focus on beefing up rules surrounding rollovers from 401(k)s to individual retirement accounts and fee disclosures. Perhaps the suitability rule will be elevated. Whatever proposal is rolled out won't look like the DOL rule.... We could see fiduciary advocates demanding stringent cost benefit analyses and resisting SEC efforts to promulgate what they think is a watered-down rule."
InvestmentNews

Executive Compensation and Nonqualified Plans

Refining the Use of Total Shareholder Return: The Evolution of Long-Term Incentive Design in the Say-on-Pay Era
"[Total shareholder return (TSR)] use in S&P 500 companies rose from 30% to 51% from 2011 to 2015. As its use has increased, several design elements, including targeted percentiles, have become standardized. TSR-based modifiers increasingly are used by companies to link existing performance plans to TSR without redesigning the awards. TSR-based payout limiters are used to prevent excessive payouts by companies that already use relative TSR as a weighted payout metric in their long-term awards."
Willis Towers Watson

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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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