Retirement Plans Newsletter

August 23, 2018

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Shares of Former Parent Company Were No Longer 'Employer Securities' for ERISA Purposes After Spinoff

"In a case of first impression, a federal district court in the Southern District of Texas has ruled that a former parent company's stock was not an 'employer security' under section 407(d)(1) of [ERISA]. As a result, the ERISA exemption from the duty to diversify and the duty of prudence (to the extent the latter requires diversification) were not available where a plan held former parent company stock in a legacy single-stock fund." [Schweitzer v. Investment Comm. of the Phillips 66 Savings Plan, No. 17-3013 (S.D. Tex. May 9, 2018)]
Mayer Brown

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PBGC Staff Express Concern Over Premium Reduction Strategy (PDF)

"Successful implementation of the two-step strategy could result in significant savings in PBGC premiums ... Plan sponsors essentially receive a full year of PBGC coverage, but only pay a partial year of premiums.... [T]he only purpose of the transaction appears to be avoiding PBGC premiums. While there is nothing inherently wrong with wanting to reduce PBGC premiums, it's not surprising to hear the PBGC push back on strategies which serve no other purpose."
Lockton

Guide for Improving 401(k) Nondiscrimination Testing Results

"Traditionally, [nondiscrimination tests] are done on the last day of the plan year (or the beginning of the next) to get all the data. [The authors] also recommend at least a mid-year, and surprise assessment at a random point during the year.... You may be able to take preventative action that can help you pass the test and avoid a potentially costly correction.... [If your plan fails:] ... Step #1: Check again -- using a different test method ... Step #2: Take corrective action immediately ... Step #3: Fix your plan -- Encourage participation and contribution."
ForUsAll

Planning for the Administration of Your Cash Balance Plan

"This article describes several common administration issues and examines ways you can address these issues through planning and ongoing communication with your actuary, to further ensure the success of your plan.... Sharing the ongoing cost of the plan ... Addressing plan issues arising from workforce changes ... The decision to strategically terminate the plan."
Findley

How Financial Mentorship of Younger Employees Leads to Improved Retirement Preparedness (PDF)

"Most younger employees aren't thinking about retirement.... Early career employees also want coaching at work. This is part of an overall generational trend toward seeking guidance, not direction.... Employers that offer financial coaching and mentorship to their early career employees are more likely to help them achieve their life goals and enjoy financially healthier lives."
Society of Actuaries

[Advert.]

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Easing the Retirement Crisis

"[The authors] analyze eight changes individuals can make to better build their financial future. The actions fall into three categories: [1] financial planning (adjusting one's standard of living in retirement; delaying retirement; increasing contribution rates), [2] investing (increasing net returns from investing; using a more aggressive asset allocation), and [3] investor behavior (signing up for increased contributions over time; starting with a larger amount of savings; and choosing whether to invest one's savings at all)."
Morningstar Advisor

How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors (PDF)

28 pages; a working paper. "Two competing explanations for why consumers have trouble with financial decisions are gaining momentum. One is that people are financially illiterate since they lack understanding of simple economic concepts ... which could cause them to make suboptimal financial decisions. A second is that impatience or present-bias might explain suboptimal financial decisions.... [R]esults show that [the authors'] measure of impatience is a strong predictor of wealth and investment in health. Financial literacy is also correlated with wealth though it appears to be a weaker predictor of sensitivity to framing in investment decisions."
Pension Research Council, The Wharton School of The University of Pennsylvania

[Opinion]

Testimony of Fred Reish at Hearing on Retirement Income by the ERISA Advisory Council

"[1] The [DOL] should affirmatively state that insurance and annuity products are, in concept, prudent for defined contribution plans and should simplify its annuity safe harbor regulation.... [2] The Department should issue guidance that the concepts in the SunAmerica Advisory Opinion and the Pension Protection Act advice exemptions apply to retirement income products and services ... It should be clear that the independent fiduciary is the responsible fiduciary, and not the plan sponsor.... [3] The Department should issue guidance that platforms of retirement income products and services are analogous to brokerage windows, and therefore the platform, but not the products and services, needs to be vetted by plan sponsors as fiduciaries."
FredReish.com

[Opinion]

The Retirement Sky is Falling? Don't Believe Everything You Read

"In just the last few months, [the author has seen] the following: [1] Several articles claiming an explosion in seniors filing for bankruptcy.... [T]he underlying study cherry-picked a year to dramatically over-state the trend, while the actual percentage of seniors filing for bankruptcy is very small. [2] Articles touting an extremely high median savings level among millennials, but conveniently leaving out the fact that the underlying survey excluded millennials with zero savings ... [3] A particularly good article on millennial attitudes versus reality regarding stock investing (when asked, many stated that they were stock-averse, but most actually invested in equities) was turned by other media outlets into a 'millennials are risk-averse' piece which, in examining their actual investments, was not the case."
Cammack Retirement Group

Executive Compensation
and Nonqualified Plans

[Guidance Overview]

New IRS Guidance Regarding Expanded 162(m) Rules

"Companies subject to the deduction limitation should act now: [1] to confirm that the list of individuals that they have identified as subject to the deduction limitation comply with this methodology, [2] to determine what portion, if any, of current compensation arrangements would be able to be grandfathered, and [3] consider methods to maximize the deductibility of current and future compensation."
Vorys

[Guidance Overview]

More Details on the IRS Guidance on the 162(m) Grandfathering Rules

"One thing the guidance does make absolutely clear is that the first step in determining whether any payment to any person in any year after 2017 is subject to the draconian limits of Section 162(m) is to determine whether there was a written binding contract in effect on November 2, 2017, which created a legal obligation on the company under any applicable law (e.g., state contract law) to pay the compensation under such contract if the employee performs services or satisfies the applicable vesting conditions. Every one of the many examples provided in the guidance begins with a determination of whether the plan or agreement created a legal obligation on the company. In the examples, some do and some do not."
Winston & Strawn LLP

[Guidance Overview]

IRS Clarifies Grandfather Rule and Other Code Section 162(m) Issues

"[Notice 2018-68] indicates that compensation will not be considered payable under a written binding contract if the employer is not obligated to pay it under applicable law. Thus, it appears that plans that provide the employer with discretion to reduce or eliminate an employee's compensation (i.e., negative discretion) will fail to satisfy the 'written binding contract' standard to the extent the compensation can be reduced or eliminated."
Groom Law Group

Selected Discussions
on the BenefitsLink Message Boards

RMDs for Inherited Roth 401(k)

I thought the whole idea of inherited IRAs for non-spousal beneficiaries was the participant's beneficiary could roll the money over, e.g., from a 401(k) plan, to an inherited IRA. Then, instead of being forced to receive the distribution from the plan under the plan's terms, the beneficiary could stretch out the payments under the Inherited IRA under the more friendly provisions allowed under the RMD rules, as opposed to the plan's rules. Now that I re-read Notice 2007-7, Q&A-19, it seems the inherited IRA is required to follow the RMD rules that were in the plan from which the distribution was made. Is that correct?
BenefitsLink Message Boards

Submit Two Alternative Proposed Corrections in One VCP Filing?

An error was made in a plan document, which resulted in the omission of a year of service requirement for matching contributions. Client is asking to submit VCP filing asking IRS to approve a retroactive amendment, or to approve the calculations for making up the missed contributions. Can you submit alternative correction methods in one VCP filing for the same error? Essentially, "if not this, then that"? Thanks.
BenefitsLink Message Boards

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David Rhett Baker, J.D., Editor and Publisher
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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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