Retirement Plans Newsletter

April 4, 2017

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Wespath Benefits and Investments
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Webcasts and Conferences

How to Properly De-Risk Your Pension Plan: A Rainbow of Options
RECORDED
Findley Davies, Inc.

ERISA Benefit Plan Investment Management Agreements: Selecting 3(38) Investment Managers, Structuring the IMA
April 18, 2017 WEBCAST
Strafford

Specialty Pharmacy Use, Health Plan Type, and Worker Productivity
April 19, 2017 WEBCAST
Midwest Business Group on Health

What’s Next for ACA? Impact of the New Administration on Benefits
April 27, 2017 in IL
Worldwide Employee Benefits Network [WEB] - Chicago West Chapter

Fundamentals of 401(k) and Other Qualified Plans
June 5, 2017 in NC
FIS Relius Education

8th Annual Executive Compensation Summit
June 12, 2017 in IL
Equilar

Impacts of Pay Ratio Disclosure Rule on CEOs and Companies
June 16, 2017 WEBCAST
Knowledge Group

Stretch IRAs 101
July 12, 2017 WEBCAST
National Business Institute

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Discussions

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[Guidance Overview]

DOL's Final Rule on Fiduciary Investment Advice: Overview and Considerations for Plan Sponsors
"While the fate of the regulatory package is uncertain and its most immediate effects would be on investment advisers, there are various things plan sponsors should be thinking about.... Assess the policies, procedures, and practices already in place for ensuring your fiduciary obligations are being met and to reduce the possibility of co-fiduciary liability.... Examine your investment adviser relationships, keeping in mind that plan sponsors have the fiduciary obligations of prudently selecting and monitoring all service providers, including investment advisers.... Pay close attention to services in the following areas that would be especially impacted by the new rule: [1] Rollover and distribution advice ... [2] Investment education materials and activities."
Hodgson Russ LLP

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Using EPCRS to Correct Participant Loan Issues
"Plan failures related to participant loans can be corrected using either Voluntary Correction Program (VCP) or Correction on Audit. Since plan loan failures are not operational failures, they cannot be corrected using the self-correction method.... [P]ossible failures related to participant loans ... include: [1] Plan loans in excess of the maximum limit ... [2] Loan terms do not satisfy repayment requirements ... [3] Loan defaults due to repayments that are not in accordance with the loan term"
Belfint Lyons & Shuman, CPAs

Compensation of Self-Employed Participants for Purposes of Qualified Retirement Plans
"[This article discusses] the basic rules for determining the compensation for self-employed individuals (sole proprietors, partners in a partnership, and members of an LLC taxed as a partnership)."
EisnerAmper

BNY Mellon Can't Nix Retirement Plans' Suit Over Foreign Exchange Transactions
"Bank of New York Mellon must defend a proposed class action accusing it of charging excessive, unauthorized and undisclosed rates to seven retirement plans through the bank's foreign exchange transactions. Because the participants are suing in their representative capacity on behalf of the plans, they don't need to allege an individualized injury to have standing, federal district Judge J. Paul Oetken held[.]" [Carver v. Bank of N.Y. Mellon, No. 15-10180 (S.D.N.Y. Mar. 31, 2017)]
Bloomberg BNA

Rollover Roulette: Rollover, Direct Rollover, Direct Payment, Direct Transfer, or Transfer (Part 1: The Terminology)
"Using one 'rollover' term when you really mean another can result in horrible federal income tax consequences to a plan participant or IRA owner and ... Plan sponsors, plan administrators, human resources personnel, trustees, custodians, investment advisors, and anyone else who deals with retirement plans and IRAs need to be careful with the words used in plan and IRA materials (particularly distribution forms, summary plan descriptions, and IRA disclosure statements) and when these terms come up in conversations with plan participants or IRA owners."
Morgan Lewis

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The Biggest 401(k) Participant Misperceptions
"I only need to contribute up to the maximum company match ... It is OK to take a participant loan ... Rolling a 401k account into an IRA is a good idea ... My 401k account is a good way to save for college, a first home, etc.... I should stop making 401k contributions when the stock market crashes ... Actively trading my 401k account will help me maximize my account balance ... Indexing is always superior to active management ... Target date funds are not good investments ... Money market funds are good investments ... I can contribute less because I will make my investments will work harder."
Lawton Retirement Plan Consultants

Study Finds Plan Sponsors Overpaying PBGC Premiums
"Defined benefit plan sponsors overpaid $700 million in [PBGC] premiums in the past six years by not following best practices ... The [study] analyzed public Form 5500s and the PBGC's historical premium database for 23,000 single-employer plans, with a focus on the 5,000 plans with at least 250 participants that represented more than 96% of the premiums paid. In 2015 alone, those larger plans paid $145 million in premiums that could have been avoided ... and 65% of eligible companies paid too much in variable-rate premiums."
Pensions & Investments

March 2017 Pension Finance Update
"Pension sponsors made it three for three so far in 2017 with another modestly positive month for pension finance. Stocks gained a bit last month, while interest rates also edged up, shaving pension liabilities. Both model pension plans ... gained ground again in March: Plan A improved 1% and is now up 3% this year, while Plan B added a fraction and is now up 1% through the first quarter of 2017."
October Three Consulting

Large Plan Sponsors Use Every Tool in the Toolbox to Manage Pension Cost and Risk
"[S]ponsors continue to adjust, reduce, or eliminate DB benefits by adopting hybrid plan designs (often cash balance plans), closing plans to new entrants or freezing benefit accruals to manage and reduce pension costs.... 2016 contributions of $18 billion were some $5 billion more than 2015's, but only marginally more than the cost of new benefit accruals.... Since 2010, at least six of the 19 sponsors have shifted 10% or more of their portfolio to fixed income from return-seeking assets. The biggest policy change in 2016 was IBM's fixed income allocation target increasing from 56% to 70%."
Russell Investments

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Corporate Pension Plans Push Demand for Treasury STRIPs
"With interest rates going up, U.S.-based corporate defined benefit pension funds seeking duration have been particularly enthusiastic about STRIPS. For pension funds, they are a natural fit -- a strategy that is used to secure cash flow for the future payment of liabilities and protect against interest rates risk[.]"
Pensions & Investments

In Absence of Help from Archdiocese, New Jersey Hospital Pensioners Put Faith in U.S. Supreme Court
"While adversaries argued in front of the U.S. Supreme Court last week, 79 people who once worked at St. James Hospital in Newark watched the clock.... Their pension fund would go belly up in less than a month.... They would lose retirement income that was promised for a lifetime. And no one is taking responsibility. But the case being decided by the highest court in the land could give new hope to the pensioners[.]"
NJ.com

Communicating Your ESOP Distribution Policy
"Many companies [find] that a key challenge facing their ESOP participants is understanding the distribution policy.... Live meetings are the best way to answer any immediate questions participants may have. A short recorded webinar can be developed to provide an overview of the distribution policy, including the process and timeline.... Print materials are useful because participants can refer to them at a later date and can share them with spouses or financial advisors."
Principal Financial Group

Benefits in General

Halo Looms Over New Decision That Adds to ERISA Risks for Claims Administrators
"The latest decision to rely on the influential Halo v. Yale Health Plan decision from the 2nd Circuit adds to a worrisome pattern of courts applying the strictest possible review to lawsuits brought by aggrieved plan participants.... The court concluded that 'together, the violations ... are sufficient under Halo to trigger de novo review of the defendants' determination that [the plaintiff] did not meet the "reasonable occupation" test.' One is left to wonder if the court would have held that de novo review was appropriate if Aetna had committed only one of the sins [described]." [Schuman v. Aetna Life Ins. Co., No. 15-1006 (D. Conn. Mar. 20, 2017)]
Thompson Coburn

Quiz: Do You Get the Most Out of Your Benefits?
"If you scored a 9 or higher, congratulations! Chances are that you see your employee benefits as an integral part of your overall compensation. If you scored an 8 or lower, you may be leaving money on the table by not taking full advantage of everything your employer offers. If you have access to financial coaching via your workplace financial wellness program, consider setting up a time to talk to a planner about how you can fully maximize the value of your employee benefits."
Financial Finesse

Executive Compensation and Nonqualified Plans

409A and the Reverse Haircut
"At what point would the potential diminution in compensation be so insufficient that its loss would not be material and therefore there would fail to exist a substantial risk of forfeiture? Or put differently, at what point would enough hair be returning to our hero's head that its loss would leave him wondering how he could go through the rest of his life so improperly coiffed? ... [B]ased on all of the facts and circumstances of this particular situation, [Chief Counsel Memorandum 201645012 said] that the 25% reverse haircut was a material incentive and that such materiality did create a substantial risk of forfeiture."
Benefits and Compensation with John Lowell

Nonqualified Benefit Plans: One Size Does Not Fit All
"When consultants design SERPs solely for retirement income, because the decision-makers are concerned about retirement, they often make the mistake of designing a plan that fails its primary goal -- attracting, retaining and rewarding key talent.... Nonqualified benefit plans can be designed to pay out benefits at certain pre-set dates or life events while still employed. Benefits can be paid to accomplish goals other than retirement."
Advisor Magazine

Discussions on the BenefitsLink Message Boards

401(k) Plan Can Exclude Summer Interns as a Class?
"A client's 401(k) plan has age 21 and immediate eligibility for participation, but doesn't want to include interns hired for the summer months. They don't want to change from immediate eligibility to a 1 year-of-service/1,000 minimum hours rule."
BenefitsLink Message Boards

No HCEs in 403(b) Plan, But Does Universal Availability Still Apply?
"Yes. Section 403(b)(12) does not include an exception for a plan without HCEs. That makes no sense, as you point out, but it's still there."
BenefitsLink Message Boards

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David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
Holly Horton, Business Manager  hollyhorton@benefitslink.com

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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