Retirement Plans Newsletter

November 13, 2017

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Jobs

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

Field Relationship Manager - 493574
Mutual of Omaha
in NE

Defined Benefit Conversion Specialist
Principal Financial Group
Telecommute

Financial Analyst I
Principal Financial Group
Telecommute

ERISA Attorney
Archer, Byington, Glennon & Levine, LLP
in NY

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Senate Sneaks 401(k) Contribution Limits Into Tax Cuts Bill
"High earners would be prohibited from making $6,000 catch-up contributions to 401(k) workplace retirement plans. That lets the Senate say it isn't targeting 401(k) deferrals, but it's a huge grab out of the $24,000 high earners can put away today ($18,000 elective deferral and $6,000 catch-up). In addition, the Senate proposal targets government workers who have both a 457 retirement plan and a 401(k) plan. No matter how much they earn, they wouldn't be able to save to the max in both plans anymore at one employer. And special catch-ups for 403(b) and 457 plans would be restricted too."
Forbes

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Nordstrom Plan Participant Claims 401(k) Plan Fees No Bargain
"[The participant] argues, among other things, that Nordstrom failed to use the leverage it says the plan's $2.6 billion in assets should have enabled it to obtain reasonable fees for plan participants. In addition, she argues that the plan fiduciaries failed to adequately and prudently manage the plan by not using lower-cost investment vehicles and that they provided inadequate disclosures on fees." [McCorvey v. Nordstrom, Inc., No. 17-8108 (C.D. Cal., complaint filed Nov. 6, 2017)]
National Association of Plan Advisors [NAPA]

Extension of Fiduciary Rule Transition Period Likely to Become Official by End of November
"DOL's and [IRS]'s current broad non-enforcement policy, issued in FAB 2017-02, ends on January 1, 2018 (though it may be extended in connection with the delay once it is finalized). Financial institutions may want to consider whether obtaining additional non-enforcement relief would be helpful to cover any potential 'gap period' where the conditions of the exemptions become temporarily applicable because the delay is not finalized by January 1."
Morgan Lewis

Higher Education Plan Sponsors Ramp Up Use of Investment Policy Statements
"In light of a stronger focus on fiduciary responsibilities, more than three-fourths of higher education plan sponsors have implemented an investment policy statement, compared to 60% in 2015 ... 7% of respondents offer fewer than 10 investment options, while 31% offer 11 to 15 options. Just 12% of higher education plans offer between 16 and 20 investment options, generally considered to be the ideal number for accommodating -- but not overwhelming -- participants with choice."
PLANSPONSOR

HD LDI: High Definition Liability Driven Investing
"Those early pioneers of LDI discovered that long bond exposure indeed worked to reduce risk. But once that fact was established, the race to refine the LDI experience kicked into high gear much like the race to improve HDTV.... Real application of LDI led to deeper thought regarding pension cash flows and yield curve behavior."
The Principal Blog

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Managing Pension Risk: More Firms Make Move, But Targets Shifting
"[P]ension buyout transactions in the second quarter of 2017 totaled $4.1 billion, well above the $1 billion during the same quarter in 2016. Experts expect a total of $18 billion to $20 billion by the end of 2017, compared to $14 billion in 2016.... This increase in volume has been accompanied by a singular trend in the pension risk transfer landscape: transferring the liabilities specifically of retirees who receive smaller monthly benefits."
Pensions & Investments

Why Performance Fees Are Banned for Most Financial Advisors
"As financial advisors feel increasing pressure to differentiate themselves, a recently emerging trend for those who (actively) manage client portfolios is the idea of charging clients not an AUM fee that is a percentage of assets, but instead, a performance-based fee that is a percentage of upside (or outperformance of a benchmark index), where the advisor's fee is forfeited if he/she fails to achieve the required threshold or hurdle rate. Such a compensation structure would compel active financial advisors to eschew closet indexing and really, truly, try to outperform their benchmarks -- which can be a very compelling proposition to prospective clients."
Nerd's Eye View

[Opinion]

A Few Concerns About the Multiemployer Plan Bailout Bill
"If this is an arbitrage deal (like Pension Obligation Bonds (POBs) were supposed to be) then isn't the whole idea to invest the money in riskier investments for profit? Will these plans be able to consider the Treasury bond money as an asset of the trust without a corresponding liability so as to artificially reduce contributions like what is going on with POBs? What happens with plans that have already cut benefits?"
Burypensions

Benefits in General

Secretary Acosta to Testify at Hearing on DOL
"Committee on Education and the Workforce Chairwoman Virginia Foxx (R-NC) today announced that the committee will hold a hearing on Wednesday, November 15 at 10 a.m. on 'Examining the Policies and Priorities of the U.S. [DOL].' The Honorable R. Alexander Acosta, Secretary, U.S. Department of Labor, will testify. The hearing will take place in room 2175 of the Rayburn House Office Building."
Committee on Education and the Workforce, U.S. House of Representatives

Executive Compensation
and Nonqualified Plans

From Fourth Circuit: Top-Hat Plan Can Change Crediting Rate Used to Calculate a Participant's Payout
"After plaintiffs retired, the Plan's board amended the crediting rate again which resulted in a more flexible crediting rate linked to a participant's selection of one (or more) of four valuation funds ... But this arrangement included more volatility and risk, including the possibility of losing value in a participant's notational account. Because of the lack of predictability, the annual payments could no longer be made strictly equal.... The district court denied plaintiffs' motion for class certification ... granted summary judgment to the company, and held that the Amendment was valid." [Plotnick v. Computer Sciences Corp. Deferred Comp. Plan for Key Executives, No. 16-1606 (4th Cir. Nov. 8, 2017)]
Roberts Bartolic

Differences in Amended House Bill, Senate Proposal, Place Future of Executive Compensation Changes in Limbo
"While the House decided to remove the proposed changes to the [NQDC] rules and leave in place the repeal of the 162(m) performance-based compensation exception, the Senate version kept intact the NQDC proposed changes and expanded the changes to 162(m). To meet Congress's aggressive timetable for tax reform passage, if there are differences in the bills, it is speculated that the House would then move to adopt the Senate version of the bill, in its entirety, rather than have a conference committee to resolve those differences. Thus, all eyes are on the Senate version to see if the executive compensation provisions are amended during the markup[.]"
Willis Towers Watson

GOP Tax Proposal Eviscerates Current Executive Compensation Designs and Practices -- Perhaps? (PDF)
10 pages. "[C]ompanies should review their compensation -- both outstanding and to be granted -- and consider whether any changes are advisable to lessen the impact of the Tax Proposal changes. [A chart] lays out the key issues most likely to be faced by the majority of public companies if the NQDC rules are enacted, but there will be specific facts and circumstances that could warrant other potential action that companies may need to consider as well."
ExeQuity

[Opinion]

An Obituary for Equity Compensation, d. 2017
"Stock Options, Restricted Stock Units, young Performance Units and their cousin Non-Qualified Deferred compensation tragically died in 2017 as an unintended consequence of colliding with the 429 page U.S. tax reform ... Employee Stock Purchase Plan is currently in critical condition at a local hospital.... The proposed tax reform bill of 2017 would eliminate many of the time-tested and successful components of equity compensation, effectively removing one of the three legs of many companies' three-legged stool of compensation philosophy."
Performensation

Discussions
on the BenefitsLink Message Boards

EACA and Auto Escalation
Employer has an EACA plan and auto enrolls participants at 4%. They now want to add auto escalation at 1% up to 10%. Question: Because this is an EACA Plan, is the employer prohibited (regulatory restriction vs document restriction) from including the participants who made an affirmative election in the auto escalation? For example, Jane defers 5% of pay. Can she be included in the auto escalation annually? I realize that she can decline the auto escalation during the notice period.
BenefitsLink Message Boards

Annual 'Plan Ahead' Warning re Your Filings, While FIRE Is Down
The FIRE Production System will be down from 6 p.m. ET December 8, 2017, through January 7, 2018, for yearly updates. A controlled launch is scheduled for January 8-10, 2018, from 8 a.m. ET to 4 p.m. ET. The FIRE Production System will be available on January 16, 2018. An alert will be posted on the FIRE webpage if the system is available prior to January 16, 2018.
BenefitsLink Message Boards

Compensation Used in QNEC Calculation; New, Partial Plan Year
Company is starting a calendar non-safe harbor 401k plan; document to be signed 11/15/17. The plan is effective retroactive to 1/1/17. 401k is effective 11/15/17. 415 limits therefore are not applied pro rata. We will use current year testing. The owners, due to December bonuses, could deposit $10K+ in 401(k) contributions before end of 2017 -- producing a high ADR for them. The NHCEs would not be that high. A QNEC is being considered, which will cost big bucks, but my question is whether the QNEC must use full year compensation as a basis or just the compensation from 11/15 through 12/31? This would obviously make a big difference in the QNEC.
BenefitsLink Message Boards

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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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