Retirement Plans Newsletter

March 31, 2017

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Senior Pension Administrator
Scholz & Friends Enlightened Retirement Group, Inc.
in TX

Health & Welfare Department Manager
MidAmerica Administrative & Retirement Solutions
in FL

Defined Contribution Plan Consultant
BPAS
in PA

Relationship Manager - Firm Relations
Principal Financial Group
in AZ, CA, CO, DC, GA, IA, IL, IN, MA, MN, MO, NC, OH, OR, PA, TN, TX, UT

Pension Administrator
East Bay TPA Firm in Northern CA
in CA

Defined Contribution / 401k Retirement Plan Administrator
Pension Consultants, Inc.
in CT

Consultant - Defined Contribution Practice
Aon
in NJ

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Senate Votes Down DOL Reg Allowing City-Sponsored Retirement Plans for Private Sector Employees
"The House has passed a similar bill and another one that would make it more difficult for states to provide retirement plans to private sector workers. The Senate has yet to vote on a bill that would affect state-run plans."
CNBC

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The Most Effective Proposed MEP Legislation Happens Not To Be MEP Legislation
"[A recent bill] would simply permit unrelated employers which have the same plan administrator, trustee, one or more named fiduciaries which are the same, the same investments and the same plan year to file a 'single aggregated' Form 5500. This legislation could ... [open] the market for the advantageous pooling of the resources of small employers which would have otherwise been reserved to the State programs. It also could minimize any need for new federal MEP legislation, and promote models which are a lot less risky than the MEP."
Business of Benefits

Putting the Pension Back in 401(k) Plans: Optimal Versus Default Longevity Income Annuities
"[I]ntroducing a longevity income annuity [LIA] to the plan menu is attractive for most DC plan participants who optimally commit 8-15% of their plan balances at age 65 to a LIA that starts paying out at age 85.... [An] approach where a fixed fraction over a dollar threshold is invested in LIAs will be preferred by most to the status quo, while enhancing welfare for the majority of workers."
Pension Research Council, The Wharton School of The University of Pennsylvania

Conservative Investment Options in Defined Contribution Plans (PDF)
11 pages. "This [article] evaluates the most heavily represented Defined Contribution capital preservation plan options and provides a framework for constructing and communicating the most appropriate line-up for participants.... [D]eveloping a process for the evaluation of the appropriate capital preservation option within a DC plan is critical."
Rocaton Investment Advisors, LLC

How to Create 'Survivor Funds'
"This Article explains how to create 'survivor funds' -- short-term investment funds that would pay more to those investors who live until the end of the fund's term than to those who die before then. For example ... a survivor fund would invest in [a] ten-year bond but divide the proceeds only among those who survived the full ten years.... Survivor funds would work like short-term tontines."
Jonathan Barry Forman and Michael J. Sabin, via Pace Law Review

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Jackson National Sued Over In-House Funds in 401(k)
"The proposed class action claims that Jackson's retirement plan invested 89 percent of its assets -- about $542 million -- in investment funds that earned high fees for the company and its affiliates. Eighteen of the plan's 21 investment options were affiliated with Jackson, the lawsuit claims, and most of those options were 'virtually identical' to funds that other institutions offered at 'a fraction of the cost.' " [Pease v. Jackson Nat'l Life Ins. Co., No. 17-284 (W.D. Mich., complaint filed Mar. 29, 2017]
Bloomberg BNA

DOL Fires Back at Chamber's Fiduciary Rule Appeal
"The department has 'broad authority to classify individuals as "fiduciaries" and to regulate their conduct accordingly,' the DOL said ... The Chamber's claim that it will be harmed if the court doesn't act to pause the fiduciary rule is implausible given the DOL's recent actions placing the rule's future in question, the department argued."
Bloomberg BNA

DOL Fiduciary Rule Blamed for Insurers' Massive Hit on Variable Annuity Sales
"The variable annuity industry took a beating in 2016, with several of the top sellers inking losses upwards of 25% on the year and some exceeding 40%. The [DOL's] fiduciary rule ... played a big role in the industry's bruising, observers said.... But variable annuity sales have been declining for the past half-decade, and some believe the trend is symptomatic of other factors, too, such as poor product structure, the rise of indexed and hybrid indexed-variable annuities, and a strategic move among insurers to control their VA sales."
Investment News

Quarterly Survey of Public Pensions: Fourth Quarter 2016
"This report provides national summary data on the revenues, expenditures and composition of assets of the largest defined benefit public employee pension systems for state and local governments.... Tables 1 and 3 include data on cash and security holdings; and Table 2 provides data on earnings on investments, contributions and payments."
U.S. Census Bureau

Individual Retirement Accounts: A Global Perspective
"A decade ago when Congress debated President George W. Bush's proposal for partial privatization of Social Security, U.S. pension analysts scrutinized the experience of countries that had replaced, or partially replaced, social insurance with privately managed investment accounts, seeking lessons for the United States.... This [article] highlights recent developments in four key countries[.]"
National Academy of Social Insurance [NASI]

Another Question is Answered in the Who's the Employer Q&A Column
"Is a private equity firm considered a service organization for the ASG rules?"
S. Derrin Watson, on BenefitsLink

[Opinion]

Should the Required Minimum Distribution Age Be Raised?
"The oldest of the 75 million baby boomers in the U.S. turned 70-1/2 on July 1, 2016, which means they must take their first required withdrawal ... by April 1 of this year. That represents the start of a lot of money being pulled out of retirement accounts over the next few decades. Couple that with higher life-expectancy rates, and many have started to wonder if the age for those required minimum distributions, or RMDs, should be raised -- or even eliminated[.]"
MarketWatch

[Opinion]

ICI Applauds Senate Vote to Restore Consumer Protections for Proposed Municipal-Run Retirement Plans
"Workers who are automatically enrolled in any state- or city-run retirement program need the same bedrock investor protections that workers in private-sector plans have enjoyed for more than 40 years. The [DOL's] rules would limit these workers' ability to address a host of issues, including unreasonable fees and malfeasance.... Congress is right to eliminate these special carve-outs."
Investment Company Institute [ICI]

Benefits in General

[Guidance Overview]

Death of the Substantial Compliance Doctrine?
"The days of the substantial compliance doctrine ... appear to be at an end in the Second Circuit. But plan fiduciaries expecting to rest easy, because their ERISA disability benefits litigations are likely to arise elsewhere, should think again. On December 16, 2016, the DOL issued final revisions to the Claims Procedure regulation ... [P]lan fiduciaries can likely expect courts all over the country to increase scrutiny of administrators' claim handling procedures, especially with respect to disability claims."
Jackson Lewis P.C.

Senate Committee Confirms Secretary of Labor Nominee
"R. Alexander Acosta was confirmed as Secretary of Labor by the Senate Health, Education, Labor and Pensions Committee on [March 30]. The committee voted 12-11 along party lines; a full Senate vote is expected soon."
Pensions & Investments

Bridge Your Engagement Gap -- Go Mobile
"Consumers are getting their information through smartphone apps; whether it's shopping, paying for coffee, checking train schedules, hailing a taxi -- you name it. [Those] responsible for internal communication need to embrace the fact that employees want to get their benefits info like they get everything else -- through an app[.]"
Frenkel Benefits

Court Upholds Eroding Defense Expense Provision; ERISA Exclusion Bars Coverage for Constitutional and Statutory Civil Rights Claims
"A number of underlying lawsuits were brought against the insured alleging that it underfunded its retirement plan and trust. The suits alleged beaches of contract and fiduciary duty, as well as violations of the Mississippi and United States constitutions and 42 U.S.C. Section 1983. The insurer defended the insured under a reservation of rights. The insurer then filed an action seeking a declaration that defense costs were included in the limit of liability and that no coverage existed under the EPL coverage part due to the Employee Benefits Law Exclusion.... On appeal, the Fifth Circuit recognized that defense costs erode the limit of liability under the plain language of the policy.... The court further held that the Employee Benefit Law Exclusion barred coverage for claims not only under ERISA and related laws but also based on federal and state constitutions and statutes, including Section 1983 claims." [Federal Ins. Co. v. Singing River Health Sys., No. 15-60876 (5th Cir. Mar. 1, 2017)]
Wiley Rein LLP

Executive Compensation and Nonqualified Plans

States and Municipalities Propose CEO Pay Ratio Tax
"[T]he city of Portland, Oregon ... increases its corporate tax rate by 10% for a public company with a CEO pay ratio of 100:1 and by 25% for a public company with a CEO pay ratio of greater than 250:1.... Rhode Island and Minnesota currently have proposed tax rules that are substantially similar to the Portland tax provision. In other jurisdictions, the tax proposals range from the nominal ($2,500 annual filing fee in Illinois) to the material (potential as high as 25% corporate income tax rate in Connecticut) based on the level of a company's proxy-disclosed CEO pay ratio."
Meridian Compensation Partners, LLC

Press Releases

Pension Rights Center Has Moved
Pension Rights Center

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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2017 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 those materials. You may not alter or remove any trademark, copyright or other notices from copies of the content.

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