Retirement Plans Newsletter

July 14, 2017

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Social Security Trustees: No Change for Combined Trust Fund Reserves Depletion Year
"In the 2017 Annual Report to Congress, the Trustees announced: The asset reserves of the combined OASDI Trust Funds increased by $35 billion in 2016 to a total of $2.85 trillion. The combined trust fund reserves are still growing and will continue to do so through 2021. Beginning in 2022, the total annual cost of the program is projected to exceed income. The year when the combined trust fund reserves are projected to become depleted, if Congress does not act before then, is 2034 -- the same as projected last year. At that time, there will be sufficient income coming in to pay 77 percent of scheduled benefits."
U.S. Social Security Administration [SSA]

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Appointing and Monitoring a 401(k) Investment Manager Under ERISA
"[T]he District Court ... concluded that ERISA intended to grant safe-harbor relief to fiduciaries who have been granted control of the assets of a plan and who have properly appointed an investment manager to manage plan assets, even if the named fiduciaries are not designated as trustees.... The district court emphasized that an appointing fiduciary fails to satisfy the duty to monitor by merely implementing procedures allowing for regular reporting on the investment managers. The duty to monitor is a substantive duty[.]" [Perez v. WPN Corp., Severstal Wheeling, et al., No. 14-1494 (W.D. Penn. June 7, 2017)]
InvestmentNews

Does the New Fiduciary Rule Apply to Plan Sponsors and Committees?
"[As] a plan fiduciary, you are responsible for monitoring those people and you need them to be compliant. In addition, you need to know whether your providers are cutting back on their services in order to avoid being classified as fiduciaries under the new Rule or whether they are required to put your participants' interests first. The Rule can even affect your own HR employees, who could become fiduciaries if they give advice to participants. Here is a short action list of steps for plan fiduciaries to take[.]"
Cohen & Buckmann, P.C., via 401kTV

Making Sure 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable'
"[A scoring system] adds an objectivity that cannot be as easily affected by the really skilled sales people you'll be talking with and listening to.... It's very likely that by the time you've finished with interviews, scoring and group discussion your choice will have emerged. If it hasn't, identify what further information you need to get to a decision.... Plan on your conversion taking 90 and 120 days from the date on which you sign on the dotted line, usually a letter of intent, until assets move."
Fiduciary Plan Governance, LLC

Mixed Reviews on Proposal to Scrap DOL Rule
"Under [Rep. Ann Wagner's (R-MO) proposal], an investment recommendation would satisfy the best interest standard if it reflected 'reasonable diligence' on the part of the agent/advisor. Her definition of 'reasonable diligence' would be modeled on FINRA's existing definition. Likewise, agents/advisors would need to exercise reasonable 'care, skill, and prudence,. based on a customer's individual investment needs ... The bill also includes language that would render state-level fiduciary rule efforts null."
InsuranceNewsNet.com

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Aon Eliminates Company Stock Fund from 401(k) Plan
"The Aon Savings Plan ... had $5.3 billion in assets as of Dec. 31 ... Aon's company stock accounted for $238.3 million. The 11-K statement gave no reason for dropping the fund ... Effective Dec. 1, 2017, the stock fund will be liquidated and removed from the plan."
Pensions & Investments

Assessing Pension Plan Health: More Than One Right Number Tells the Whole Story (PDF)
10 pages. "The issues facing some retirement programs can be emotionally charged and involve allegations of misdeeds. But despite seemingly contradictory information, it may be that none of the parties involved lack financial literacy or are intentionally misleading with their statements. In fact, they may be viewing the same situation from different perspectives. Various actuarial 'numbers' exist, each of which conveys different useful information and can lead to different conclusions regarding the financial health of a pension plan."
American Academy of Actuaries

Traditional Pensions Are Here to Stay
"Nearly one-third of private-sector workers participating in retirement plans are in pension plans. Although there's been a shift to 401(k)-type retirement savings plans, pension plans remain popular because of the security they provide to workers and retirees."
Pension Rights Center

Catch 22 Situations With Retirement Plan Distributions
"Sometimes you need a particular form of distribution to achieve a certain tax result, but the retirement plan doesn't allow it. Or sometimes the tax law seems to say opposite things about the same distribution.... Retiring between age 55 and age 59 1/2.... 401(k) hardship distribution subject to the 10% penalty.... Estate wants to use the five-year payout."
Natalie Choate, in Morningstar Advisor

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[Opinion]

Social Security Slouches Towards Insolvency
"Each year since 2010, Social Security has been operating at a cash flow deficit, meaning the annual costs exceed income from payroll taxes and the taxation of benefits. In 2022, the annual program costs will be more than total income, which also includes interest on the trust fund assets. At this point the trust fund will be drawn down. By 2034, the trust fund will be exhausted, at which point tax income would only be enough to pay for 77 percent of benefits."
Charles Blahous, Manhattan Institute for Policy Research

[Opinion]

The 'Pension Crisis' Is a Myth, Part One
"The so-called pension crisis is a myth promoted by people who are either hostile to public employees, have a financial interest in moving from pensions to 401(k)s, or both. All of the evidence indicates that the claims of these doomsayers are untrue and most of their predictions have been proven wrong. The real pension crisis in the United States is the lack of pensions by most working people.... The move away from pensions to 401(k)s has made this worse, not better."
National Public Pension Coalition

Benefits in General

The Rise of the Mobile Devices: Putting Benefit Communication in Your Participants' Hands (PDF)
"Because the vast majority of us expect access to information anywhere from any device 24/7, it makes sense that we should consider a commitment to incorporate mobile devices, particularly smartphones, to provide benefits information to our audiences.... The thinking around creating a communications plan that uses smartphones is different from other media you may use."
International Foundation of Employee Benefit Plans [IFEBP]

Discussions on
the BenefitsLink Message Boards

Employer Stock Dividend Payouts and Hardships
"Sponsor of 401(k) plan with employer stock as an investment option which pays quarterly dividends has elected to give the participants the option to either receive dividends as a cash payment or to reinvest back into the plan. Dividend payouts are being counted as normal distributions so, for any participant with employer stock in a Hardship eligible source who has elected the cash payout option for dividends, the amount available for Hardship is reduced for each dividend payout the participant receives. Is this correct? It seems to me that, since dividends are classified as earnings if they are reinvested, payouts should be considered a distribution of earnings and not principal and shouldn't have an effect on the Hardship calculation."
BenefitsLink Message Boards

401(k) Plans for Household Employees
"Can a household employer establish a 401(k) plan on behalf of the household employees & be exempt from the 4972 10% excise tax on nondeductible contributions if the plan restricts contributions to only elective deferrals?"
BenefitsLink Message Boards

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National Alliance Elects New Board Leadership; Adds New Members
National Alliance of Healthcare Purchaser Coalitions

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Lois Baker, J.D., President  loisbaker@benefitslink.com
David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
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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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