Retirement Plans Newsletter

December 5, 2017

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DCIIA Fourth Biennial Plan Sponsor Survey (PDF)
12 pages. "Over 60% of all plans have implemented auto enrollment, but the majority of those are larger plans.... Ninety-three percent of plan sponsors surveyed who have implemented auto enrollment do so with all new hires.... [D]efault savings rates for auto enrollment are increasing.... [T]he use of auto escalation is also growing.... [T]he default annual contribution escalation rate remains steady, at 1%.... Prior to the implementation of auto enrollment, only 11% of plans had participation rates over 90%. Post-implementation, the percentage of plans whose participation exceeded 90% increased more than fourfold to 46%."
Defined Contribution Institutional Investment Association [DCIIA]

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Addressing the Need for Lifetime Income in a Post-Defined Benefit Plan World
"As employers watch a growing number of workers retire with no dependable source of monthly income beyond a meager Social Security benefit, the need grows for a simple, economical conversion of an account balance to a reliable monthly benefit.... This article summarizes some of the approaches commonly used by retirees to convert their lump-sum distribution into a lifetime of retirement income."
Milliman

PBGC and Open Government -- Call for Ideas
"PBGC is interested in your ideas on how we make information available. Please consider the following: What PBGC data or content should be more readily available? Which PBGC online service or data would you like to be easier to use? Which PBGC service would you like to use on your mobile device? You can submit your feedback to Opengov@pbgc.gov."
Pension Benefit Guaranty Corporation [PBGC]

Fiduciary Rule: Status Quo Until July 1, 2019
"[F]inancial institutions and advisers who rely upon the BIC Exemption are not required to enter into enforceable written contracts with IRA owners or adopt new policies and procedures in connection with conflict mitigation until July 1, 2019. Similarly, the additional contract and policy and procedure requirements under the Principal Transaction Exemption and the amendment under PTE 84-24 that revokes the availability of the exemption for fixed indexed annuities are not applicable until July 1, 2019."
Spencer Fane

Will Record Breaking Market Be the Anchor That Sinks 401(k) Savers?
"Reconfiguring long-term expectations based on recent market highs poses peril to retirement savers ... For the majority of retirement savers, ... the tendency is to chase returns ... And don't think this risk taking is limited to equities, or even 'alternative' asset classes.... Individual retirement savers have very specific needs, and each person's need is unique and different for each other person's need.... With a ['Goal-Oriented Target' strategy], expectations are predicated on needs, not the happenstance of the market."
Fiduciary News

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New Tax Bill: No More Roth IRA Do-Overs
"Advisors need to contact every client who did a Roth conversion in 2017, especially if it was on your recommendation. You probably told them -- and rightfully so at the time -- that they had until October 15, 2018 to undo any part or all of that conversion for any reason, even if they simply changed their mind and no longer wished to pay the tax on the conversion. The new law repeals the Roth recharacterization after 2017, which effectively means that any 2017 Roth recharacterizations must be completed by the end of this year, or your clients will be stuck with the tax bill."
Financial Planning

To DB or Not DB? Most CFOs Say Pension Contributions Going Up
"Nearly three-quarters of respondents to the survey said they were either considering increasing their pension contributions (33%) or had already done so (40%), to reduce the premiums they pay to the [PBGC].... The prospect of lower federal corporate taxes also has survey respondents considering prefunding their DB plans in 2017 to a greater extent than they have in past years (42%) or contributing beyond the minimum amount they did in 2016 (35%)."
CFO

Franco Modigliani: Another Nobel Laureate in Economics Who Was Focused on 401(k) Plans
"Franco Modigliani [was] the 1985 winner of the Alfred Nobel Memorial Prize in Economic Sciences for his pioneering analyses of saving, and specifically his life-cycle hypothesis of household saving.... Modigliani and Brumberg's model is a micro-economic study of savings behavior. Since consumption is distributed over a lifetime, they argued that workers naturally build up a stock of wealth while active that would be consumed during old age."
Plan Sponsor Council of America [PSCA]

[Opinion]

Fixing the 401(k) System for Small Companies
"[S]mall-company plans face a structural handicap, one which the invisible hand has not grasped. To be sure, some providers, Vanguard most notably, now offer significantly cheaper small-company plans. But most small 401(k)s remain pricey. In addition, cost improvements do not help those employees who work at the 50% of small firms that lack a plan. Two simple legislative changes would lead to great improvement."
John Rekenthaler, via Morningstar

Benefits in General

[Guidance Overview]

Implementation of Final Rule on Disability Claims Procedures Formally Delayed
"For employers that maintain insured disability plans, communication with the insurance carrier to discuss how the new procedures will be applied and documented will be important. Employers may consider amending their retirement plans so that the definition of disability relies on the determination of a third party, such as the Social Security Administration or the employer's long-term disability carrier. In that case, the disability claims rules generally would not apply to the retirement plan."
Dickinson Wright PLLC

2017 Form 5500 Annual Return/Report Series Issued
"IRS-only questions that filers were not required to complete on the 2016 Form 5500, Form 5500-SF, and Schedules H, I, and R have been removed from the 2017 forms and schedules.... The instructions for 2017 Forms 5500 and 5500-SF have been updated to reflect an increase in the maximum civil penalty amount assessable under ERISA Sec. 502(c)(2) ... Form 5500 and Form 5500-SF have been changed to provide a field for filers to indicate that the name of the plan has changed."
Wolters Kluwer Law & Business

Senate-Passed Tax Reform Bill Would Change Employee Benefits
"The Act will significantly reform the Internal Revenue Code, including in the areas related to an employer's compensation and benefit plans. Some of these changes are minor, such as the removal of qualified moving expense reimbursements as a tax-free benefit. However, other changes would be extremely significant, such as the changes to the deductibility of compensation in excess of $1 million to covered employees under Code Section 162(m) and the adoption of public company-like rules for the top employees of tax-exempt organizations." [Includes side-by-side comparison of House and Senate provisions affecting employee benefits and executive compensation.]
Duane Morris LLP

Executive Compensation
and Nonqualified Plans

[Guidance Overview]

ISS Issues 2018 Final Policy Updates and Additional Guidance on Pay-for-Performance Assessment and Equity Plan Evaluations
"The policy updates and guidance revise ISS proxy voting policies and methodologies for U.S.-listed companies in the following areas relating to executive compensation ... [1] ISS quantitative pay-for-performance assessment, [2] ISS Equity Plan Scorecard evaluation, [3] Evaluation of non-employee director compensation, [4] Problematic pledging of company stock, [5] Lack of (i) Say on Pay or (ii) Say on Pay Frequency ballot items, [6] Board responsiveness to low shareholder support on a Say on Pay proposal."
Meridian Compensation Partners, LLC

Tax Reform Now Appears Certain
"Both [House and Senate] bills would eliminate the performance-based compensation exemption from Code Section 162(m) and extend the reach of the limitations under that Section to individuals and companies not currently covered, including some private companies. Large tax-exempt organizations will now face a similar limit. (Neither bill would touch Code Section 409A.)"
Winston & Strawn LLP

Discussions
on the BenefitsLink Message Boards

New Comparability Safe Harbor 401(k): Effect of Top Heavy Rules
7 participant 401(k) with standard safe harbor match. Plan is Top Heavy and has a New Comparability profit sharing formula. Is a 3% minimum allocation required for non-key employees if a Profit Sharing contribution is allocated? Doesn't the safe harbor matching contribution satisfy the Top Heavy contribution requirement?
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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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