Retirement Plans Newsletter

February 1, 2018

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Negotiating Employment and Severance Agreements: Issues Benefits and Employment Lawyers Should Watch For
February 22, 2018 WEBCAST
ALI-ABA [American Law Institute-American Bar Association]

Executive Compensation 2018: Strategy, Design, and Implementation
June 14, 2018 in NY
ALI-ABA [American Law Institute-American Bar Association]

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[Guidance Overview]

Overpayments to Plan Participants: Collateral Damage from the Tax Cuts and Jobs Act
"Until clarified by the IRS, only repayments greater than $3,000 can continue to be deducted in full for the year the repayment occurred. Anything less than $3,000 was a casualty of the elimination of miscellaneous itemized deductions subject to the 2% floor.... You also don't get to adjust your tax filings for any previous years[.]"
Slott Report

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American Views on Defined Contribution Plan Saving, 2017 (PDF)
32 pages. "Seventy-four percent of US households had favorable impressions of 401(k) and similar retirement plan accounts in fall 2017, up from 70 percent in fall 2016, and similar to the 72 percent reporting a favorable impression in fall 2015.... More than eight in 10 DC-owning households said the tax treatment of their retirement plans was a big incentive to contribute. Nearly all households with DC accounts agreed that it was important to have choice in, and control of, the investments in their DC plans."
Investment Company Institute [ICI]

Those Pesky Plan Documents: What Do They Have to Do with My Fiduciary Duties? (PDF)
"What about plan amendments that have never been signed -- are they governing plan documents? Will other documents -- such as an Investment Policy Statement, QDRO Policy, Loan Procedures, divorce decrees affecting benefits and/or beneficiary designations -- be considered governing plan documents for purposes of [ERISA] Section 404(a)(1)(D)? ... [P]lan fiduciaries should seriously consider whether the old adage 'the less you say the better' might apply to plan documents."
Boutwell Fay LLP

Benchmarking: It Isn't Just for Fees Anymore
"[In] the focus on fee benchmarking, some plan sponsors have concentrated solely on fees, to the exclusion of other important measures of the retirement plan's success. Plan sponsors who are not currently benchmarking the following plan metrics may wish to consider them: Overall plan asset growth ... Average account balance ... Projected income replacement ratios at retirement."
Cammack Retirement Group

Lower Fees May Not Mean Added Retirement Savings
"Lowering investment fees by 100 basis points saves the average investor $40,000 by the time they hit retirement ... but the vast majority of cut-rate products will also sacrifice quality and may come along with higher costs elsewhere.... A focus on lowering non-fee costs could save clients around $340,000 over the same period ... [T]he typical retiree accumulated an average of 124% more wealth in retirement when using a strategy that reduced non-fee costs, rather than using products that just had a low relative price."
Financial Planning

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Navigating the Compliance Challenges of Missing Participants

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70,000 Oracle Workers Get Class Status in 401(k) Fee Case
"A federal judge in Colorado Jan. 30 granted class status to the workers, who accuse the California software company of draining more than $40 million from its retirement plan through a bad deal with the plan's record keeper, Fidelity Management Trust Co." [Troudt v. Oracle Corp., No. 16-175 (D. Colo. Jan. 30, 2018)]
Bloomberg BNA

U.S. Single Employer Pension Plan Contribution Indices, 2009-2015 (PDF)
"For 2015, about 11% of plans had an unfunded liability for 2015 as computed using the smoothed corporate bond rates allowed under current law to discount liabilities and compared with the market value of assets.... Preliminary results for 2016 show an increase in unfunded liabilities -- roughly 27% of plans had unfunded liabilities, compared with 11% for 2015 ... About 25% of plans contributed at least enough to maintain the unfunded liability, while the remaining 59% fell short."
Society of Actuaries

U.S. Multiemployer Pension Plan Contribution Indices, Updated Through 2015 (PDF)
"In 2015, more plans received sufficient contributions to maintain their unfunded liabilities as measured with funding discount rates -- 78% in 2015 compared with 76% in 2014. Also, more plans met a 15-year funding pace -- 55% in 2015, up from 50% in 2014.... 22% of plans received in sufficient contributions to maintain existing unfunded liabilities computed on the same basis, down from about 26% for 2014.... Aggregate unfunded liabilities increased slightly from about $129 billion for 2014 to about $133 billion for 2015, when measured with the actuarial discount rates, cost and asset methods used for funding purposes."
Society of Actuaries

U.S. Multiemployer Pension Plan Stress Metrics: Previous Benefit Cost and Previous Benefit Cost Ratio (PDF)
"Using funding discount rates, the median [Previous Benefit Cost (PBC)] was -$621 in 1999, indicating a small funding 'surplus' rather than an unfunded liability.... Using lower Current Liability discount rates, median PBCs generally increased since 2009 -- from $8,004 in 2009 to $11,271 in 2015, almost five times its funding discount rate equivalent ... Using funding discount rates, the median PBCR was 0% in 1999, indicating no unfunded liability. It peaked in 2009 at 61% and has declined to 54% in 2015.... Since 2009, annualized costs of unfunded liabilities outweigh the cost of current participants' benefit accruals for over half of plans."
Society of Actuaries

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U.S. Multiemployer Pension Plan Withdrawals, 2009-2015 (PDF)
"On average over 2009-2015, 1.2% of all participating employers withdrew annually, affecting 18% of plans which covered 63% of all participants. In 2015, 0.8% of all employers withdrew, affecting 15% of plans which covered 63% of all participants. Based on a partial year of data for 2016, 1.3% of all employers withdrew, affecting 19% of plans that covered 67% of all participants.... While over half of plans' assessed withdrawal liabilities were less than one-tenth of 1% (0.001%) of plan liabilities, a small number of plans saw assessed withdrawal liabilities of more than 10% of plan liabilities."
Society of Actuaries

[Opinion]

California Government Pension Contributions Required to Double by 2024 -- Best Case
"When assessing the impact of a nearly $30 billion hike in pension contributions between now and 2024, it's important to note that these projected payments do not include contributions collected from state and local government employees via payroll withholding.... Why are the employees only paying 25% of the cost for their benefit? Didn't the PEPRA reform of 2012 put them on track to pay 50% of the cost of their pensions?"
California Policy Center

[Opinion]

ARA Comment Letter to IRS: Revised EPCRS User Fee Structure Is Unfair to Small Businesses (PDF)
"ARA recommends that the IRS immediately amend Revenue Procedure 2018-4 to: [1] Provide that the applicable general VCP user fee is the lesser of the general VCP user fee in effect on January 2, 2018, or the general VCP user fee in effect immediately prior to January 2, 2018, pursuant to Revenue Procedure 2017-4; and [2] Reinstate the special reduced VCP user fees in effect immediately prior to January 2, 2018[.]"
American Retirement Association [ARA]

Benefits in General

Steps for Making Employee Benefits a Year-Round Conversation
"Find the resources to help you create and deploy your communications. As you develop your communications, keep the these things in mind: Stick with one or two topics for each communication (unless you're doing a newsletter); keep your content short (use bullet points where you can) and engaging -- let employees know what's in it for them up front and early on; avoid attaching files to emails; and if you can use short videos to communicate information, do it."
Willis Towers Watson

Executive Compensation
and Nonqualified Plans

Delaware Court Case May Have Far Reaching Effects on Director Compensation
"According to the Court's decision, the presence or absence of [prescribed annual] limits will determine whether director compensation is reviewed by Delaware courts under the business-friendly 'business judgment rule' or the more stringent 'entire fairness' standard if the compensation is challenged in a shareholder suit. Beyond the applicable legal standard of review, the Court's decision may increase the prevalence of 'strike' suits against public companies challenging director compensation." [In re Investors Bancorp, Inc. Stockholder Litigation, No. 169, 2017 (Del. Dec. 19, 2017)]
Meridian Compensation Partners, LLC

Selected Discussions
on the BenefitsLink Message Boards

Reporting of IRA Prohibited Transaction
The owner of an IRA engaged in a PT in 2011. The consequence is all assets in the IRA are treated as having been distributed at their 1/1/2011 value and the account is no longer an IRA as of that date. We're planning on filing amended individual income tax returns for 2011 and forward and reporting the deemed distribution on the 2011 return (fortunately the owner was over 59-1/2). We'll also report all investment income/expenses and realized gains/losses in the account as adjustments on the amended individual returns along with backing out the RMDs. We're assuming the investment holding period for purposes of determining whether realized gains/losses are short or long term started at the 1/1/2011 deemed distribution date. Does this sound correct? Does the IRA custodian have to file amended 1099-Rs and Forms 5498? Anything in the way of other disclosures/reporting that we should be concerned about?
BenefitsLink Message Boards

Include Value of Group Term Life Insurance in 'Compensation' per IRC 3401(a)?
If a plan uses 3401(a) for the definition of Compensation, then that excludes the value of group term life insurance on the life of the employee, correct? The plan does not use the W-2 def of compensation, which would include it under 6052. The plan's definition does not exclude the value of fringe benefits.
BenefitsLink Message Boards

New Hardship Procedures for Personal Casualty after TCJA
TCJA changed Code Section 165(h) that defines a casualty loss. That Code section is referenced in the safe harbor hardship rules. Under the new law, expenses for repair of damage due to a participant's principal residence are not available for hardship unless included in a federally declared disaster area. Are you modifying your clients' safe harbor hardship procedures to restrict casualty hardship?
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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 2018 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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