Retirement Plans Newsletter

May 9, 2018

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[Guidance Overview]

ESG Factors: Perspectives on the OECD and New U.S. Guidance

"DOL appears to be signaling that, as a matter of enforcement, it will require additional documentation regarding the economic value of significant expenditures of plan assets for shareholder activism. Left unsaid is whether this question of 'value for money' could be a relevant question in selecting defined contribution plan line-ups to include ESG-themed funds as well."
Groom Law Group

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[Guidance Overview]

DOL Announces Temporary Enforcement Policy for Fiduciary Rule

"[T]he DOL has concluded that financial institutions: [1] Should be permitted to continue to rely upon the temporary enforcement policy announced in FAB 2017-02 until the DOL issues additional guidance. [2] May also choose to rely upon other available exemptions to the extent applicable after the Fifth Circuit's decision. But the DOL will not treat an adviser's failure to rely upon other exemptions as a violation of the prohibited transaction rules if the adviser meets the terms of the DOL's temporary enforcement policy."
Thomson Reuters Practical Law

DOL Issues Temporary Enforcement Policy for Fiduciary Advice Rule

"DOL explained that it is continuing to consider what other types of temporary or permanent prohibited transaction relief is needed for investment advice fiduciaries. Unfortunately, the guidance does not provide any insight into how the DOL will approach the definition of investment advice fiduciary in the future."
Seyfarth Shaw LLP

2018 Investment Company Fact Book (PDF)

348 pages. "The Fact Book provides objective data and information about investment companies and their investors ... a wealth of information on investor characteristics.... [and] informed analysis for how developments in markets affected flows to US mutual funds.... [Y]ounger and lower-income workers are less likely to participate in employer-sponsored retirement plans. But alarm over this pattern is misplaced: younger workers don't stay young, and many lower-income workers advance into better-paying jobs."
Investment Company Institute [ICI]

'Reasonable Cause' for a Missed Required Minimum Distribution

"When a participant is actually retired can be a 'facts and circumstances' determination. Has the participant been laid-off, or completely severed from employment? Is the participant on an unpaid leave of absence or on a medical or disability leave? Is the participant completely retired or still working two days a week? ... A missed RMD resulting from an employer's misunderstanding of the employee's retirement status could be a good case for a reasonable cause to have the 50% penalty waived."
PenChecks

[Advert.]

ERISA Litigation Update: New Trends and Significant Changes

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May 31 webinar includes tips for avoiding litigation. key issues in defending claims for benefits, and emerging areas of specialized ERISA claims. Discount for BenefitsLink readers.


Overcoming the Challenges of Using Annuities for Retirement Planning

"[1] The world of annuities is confusing.... [2] Balancing guaranteed income and financial freedom.... [3] Building portfolios that will withstand market fluctuations.... [4] Recommending the appropriate products in the fiduciary era."
InvestmentNews

Making a Complex Investment Problem Less Difficult: Robo Target Date Funds

"The authors ... propose that target-date funds should allow greater personalization of investments by offering participants a conservative, moderate, and risky fund for each target-date.... Second, they suggest that pension plans incorporate robo advisers to help participants identify the appropriate level of risk and appropriate target-date fund based on their personal circumstances. Third, they propose on-the-spot financial education, to be provided when a participant is selecting a target-date fund, to help participants understand the implications of risk level and target-date fund choice for both pension growth and the range of possible outcomes."
The Journal of Retirement; subscription required for full article

Employers May Be Overlooking Baby Boomers for Retirement Needs of Millennials

"Michael Doshier, global head of retirement marketing for Franklin Templeton Investments, says that the average 27-year-old is not going to care about a Social Security optimization tool, but the average 57-year-old is going to care greatly. The financial services firm has spent the past three years focusing on how best to reach those ages 50 to 60 with messages tailored to where they are at in their retirement savings journey. Ironically enough, employers may be ignoring their retirement needs over their millennial colleagues."
Employee Benefit News

Moving Pensions from Defined Benefit to 'Defined Ambition'

"DB plans require providers to take on big, long-term risks, which private employers in the U.S. have generally decided they don't want to do anymore and some state and local governments have done an awful job of managing. DC plans put all those risks on the shoulders of individual workers and retirees, with predictably mixed results. It sounds like there ought to be a middle way, right? There is, and it's being developed mainly outside the U.S."
Bloomberg

[Opinion]

Including High-Fee Funds Not Necessarily a Breach of Fiduciary Duty

"[D]espite higher fees ... [the] active portfolio's average return is better than that of the passive portfolio by 40 basis points per year, while exhibiting less volatility of returns ... [These] findings call into question [potential] plaintiffs' claims that the selection of higher-fee funds is necessarily against plan participants' interests."
Pensions & Investments

[Opinion]

Rising Pension Costs are California's Biggest Problem

"Over the next seven years, rising pension costs will require cities to nearly double the percentage of their General Funds they pay to CalPERS.... Without fundamental changes, cities will have to choose between cutting services or raising taxes.... There are three things we should do now ... First, cities and the state should set aside 2 to 3% of their budgets to pay down their unfunded liabilities. Second, cities and the state should look for cuts and new revenue sources now, not wait until pension costs begin to crowd out funding for basic services. Third, and most importantly, we must revise the California Rule."
Fair Observer

Benefits in General

California's Independent Contractor Decision: What It Means for ERISA Plans

"[W]hat is the likely impact of the Dynamex ruling on employee benefit plans? Will employers have to offer coverage retroactively to the hire date of the now-reclassified independent contractors? Must they offer coverage going forward? ... As a starting point, it is helpful to look at how most plan documents currently define 'eligible employee' and how they treat the issue of workers who were engaged as independent contractors, but later are classified as common law employees."
E is for ERISA

Less Than Half of U.S. Workers Willing to Pay More for Better Health Care Benefits

"[T]wo-thirds of respondents (66%) said they would be willing to pay more each month for larger, more generous retirement benefits, while 61% would give up more pay to have a guaranteed retirement benefit.... Only 38% are willing to pay more each month for a more generous health care plan; 46% are willing to pay more to have lower, more predictable costs when using health care services.... Less than a quarter are willing to pay for tools and services that help them live healthier lifestyles (24%) or help improve their finances (19%)."
Willis Towers Watson

Executive Compensation
and Nonqualified Plans

How Are Companies Faring in the Current Pay-for-Performance Environment?

"[S]alary and target annual incentives remained fairly consistent with ... 2016, increasing 2% and 3% respectively. Pay increases are primarily driven by long-term incentives (LTI), which align with the positive TSR statistics observed in 2017 ... Target LTI values, which represent the grant value of stock options, time-vested restricted stock and the target value of long-term performance awards, increased by approximately 7%, compared to 5% in 2016."
Willis Towers Watson

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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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