Retirement Plans Newsletter

August 31, 2018

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Retirement Services Analyst
Sacramento County
in CA

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OneAmerica
in IN

Plan Solutions Consultant Sr
OneAmerica
in IN

Retirement Plan Administrator
Growing Fintech Company
in DE

Associate Director of Pension Benefits
Sheet Metal Workers' National Pension Fund
in VA

Retirement Plan Administrator
Great Lakes Pension Associates, Inc.
in MI

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UNC Health Care
in NC

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Trump Executive Order to Seek Changes to Retirement Accounts

"[An] executive order the President is expected to sign Friday will seek a review of how required minimum distributions from 401(k) plans and individual retirement accounts are calculated, and for regulators to see how small businesses can more easily band together to offer retirement plans to their workers.... The purpose of reviewing the rules would be to update those tables and allow account holders to take lower RMDs."
CNBC

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IRA Balances, Contributions, Rollovers, Withdrawals, and Asset Allocation, 2016 Update (PDF)

48 pages. "Just under 11 percent of all accounts in the database received a contribution in 2016 ... Rollovers to IRAs in 2016, regardless of the source, amounted to over 16 times more than the total contributions in the database.... The overall IRA withdrawal percentage was largely driven by activity among individuals ages 70-1/2 or older owning a Traditional IRA -- the group required to make withdrawals under the required minimum distribution rules.... [A]mong owners under age 60, fewer than 12 percent of any age group had a withdrawal."
Employee Benefit Research Institute [EBRI]

Common Misconceptions of Retirement Plan Sponsors

"[1] The size of the plan determines the likelihood of an audit.... [2] Complaining participants can be ignored.... [3] The investment menu does not need to change.... [4] Good intentions trump noncompliance.... [5] Hiring an advisor is too expensive or not necessary."
PlanPILOT

IRS Issues Guidance on New UBTI Calculation with Potential IRA Effects

"The change in effect for 2018 and future taxable years requires that UBTI be reported when taxable business earnings reach $1,000, but is not offset by net losses of one or more UBTI-generating lines of business -- in this case, UBTI-generating business interests held within an IRA. Note however, that only IRAs that hold interests in multiple businesses generating UBTI would potentially be affected. Such business interests are among the less common IRA investments, and generally are held in IRAs administered by nonbank trustees or by trust departments."
Ascensus

Editor's Pick Getting ESG Funds Into Retirement Plans Can Be Challenging

"CalSavers recently announced the selection of State Street Global Advisors [SSGA] to manage the investment lineup ... but said there won't be an ESG fund in the plan, at least not initially. The reason? The ESG options were too expensive."
Morningstar Advisor

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Puerto Rico Archdiocese Files for Bankruptcy After Successful Suit by Pension Plan Participants

"The Roman Catholic Archdiocese of San Juan, Puerto Rico, filed for bankruptcy ... following a $4.7 million judgment in cases brought by pension plan participants against the Superintendence of Catholic Schools of the Archdioceses of San Juan.... [T]he Puerto Rico Supreme Court [had] authorized the immediate seizure of church assets from across the island ... to pay the judgment, prompting the archdiocese's bankruptcy filing to stay all litigation. An earlier attempt by the pension plan to declare bankruptcy was denied by the court."
Pensions & Investments

Editor's Pick Tontine Pensions Could Solve the Chronic Underfunding of State and Local Pension Plans (PDF)

20 pages. "While replacing the CalSTRS traditional defined benefit plan with a tontine pension would do nothing to reduce that $101.6 billion obligation, it would ensure that California would never again have to worry about underfunding attributable to future benefit accruals. One approach would be for California to freeze its current CalSTRS defined benefit plan and add a new tontine pension for all future benefit accruals."
Society of Actuaries

Full Funding of Traditional State and Local Government Pensions: The Entry-Age-Service-Cost Method (PDF)

42 pages. "[W]hen an actual pay raise differs even modestly from what is assumed, the plan-normal rate does not accurately reflect the impact of that raise on pension liability.... [The authors] propose instead that the employer should be required to contribute, on an employee-by-employee basis, the amount that correctly funds the liability attributable to that employee's actual pay raise.... The method ensures that the impact of actual pay raises on liability is paid for in the budget that grants the raises."
Society of Actuaries

Why California Public Agencies Need to 'Monitor' Full-Time, Temporary Employees

"[M]any California public agencies are forced to fill workforce gaps with temporary employees from staffing agencies.... Misconception No. 1: Workers obtained from 'temp' or staffing agencies are always the responsibility of those agencies.... Misconception No. 2: 'Temporary-assignment' workers can be permanently excluded from CalPERS."
Best Best & Krieger LLP

[Opinion]

Liability-Driven Investing in a Late Market Cycle: Get Active

"While simple index replication might have worked as the economy was recovering, ... the aging of the current cycle and the decline in the credit quality of the index create the potential for elevated downgrades and an increase in negative outlooks that could have adverse price effects.... [An] active management approach can potentially take advantage of these structural changes to sustain, and even enhance, relative performance."
PIMCO

[Opinion]

No Standard for Retirement Readiness

"Retirement readiness is considered a critical marker for determining whether plan participants are preparing properly for retirement. Income replacement is one factor in this wide-ranging concept that classifies plan participants' preparedness and habits, but some firms consider fund diversification just as critical while others incorporate factors that are considerably less quantifiable. All metrics, however, prove highly variable across firms, and an industry standard that clearly defines retirement readiness remains out of reach."
Corporate Insight

Executive Compensation
and Nonqualified Plans

[Guidance Overview]

FASB Issues Accounting Standards Update on Accounting for Stock Compensation to Nonemployees (PDF)

"Previously, Topic 718 applied only to stock compensation granted to employees ... Stock compensation granted to nonemployees was subject to vesting date, ... fair value principles that required companies to remeasure fair value at each reporting period until settlement for equity-classified awards. The expansion of Topic 718 to include nonemployees ... will simplify accounting by making most equity-classified awards subject to fixed grant date fair value principles, thereby eliminating the variable mark-to-market accounting."
FW Cook

[Guidance Overview]

Time to Review Executive Compensation Arrangements in Light of IRS Guidance on Section 162(m)

"[P]ublic companies should: [1] Identify and track covered employees.... [2] Discern if a single compensation agreement includes compensation elements that are eligible for grandfather treatment and others that are not.... [3] Analyze whether pre-existing arrangements constitute written binding contracts.... [4] Analyze CFO compensation-related agreements.... [5] Pause before amending executive compensation agreements.... [6] Watch for additional IRS guidance."
Womble Bond Dickinson

[Guidance Overview]

IRS Issues Guidance on Code Section 162(m) Including Grandfathered Arrangements and Covered Employees

"Stock option awards that vest based on continued service granted before the grandfathered date that otherwise qualified as performance-based compensation under the pre-act Section 162(m) rules typically will continue to be treated as performance-based compensation ... Many performance-based restricted stock unit awards granted before the grandfathered date that otherwise qualified as performance-based compensation under the pre-act Section 162(m) rules will not be grandfathered ... Many bonus plans in effect as of the grandfathered date under which the payments would have qualified as performance-based compensation pursuant to the pre-act Section 162(m) rules also will not be grandfathered[.]"
Wilson Sonsini Goodrich & Rosati

Small Caps Most Likely to Face Negative Say-on-Pay Result

"So far this year, 22 non-S&P 1500 companies have lost a say-on-pay vote, compared with 13 same-size companies in 2017. The number of S&P SmallCap 600 companies that have lost a say-on-pay vote has also risen from seven in 2017 to 11 in 2018 so far."
Corporate Secretary

Selected Discussions
on the BenefitsLink Message Boards

Missed the Deadline to File PBGC Form 500

Notice of Intent to Terminate went out in December 2017 for a 1/31/18 plan termination date. Plan anniversary was March [1] Plan has been frozen since 2006. When the new rates went into effect March 1, the plan was more underfunded than the client anticipated. They took a couple months to figure out if they were going to go ahead with the plan termination. Now they want to move forward, but we're past the 180 days to file the PBGC 500. They really want to get it paid out by year-end but especially by PYE. Its not clear to me what the options are. I see where one can change the proposed termination date, but not more than 90 days. Have we missed that window too? Is there anything we can do at this point other than start over?
BenefitsLink Message Boards

Need to Get Copy of Earlier-Filed 5500-EZ

We were recently contacted by a doctor, who received a CP214 Letter in February this year. His mother, who recently passed, took care of filing the 5500-EZ for him. Neither the doctor nor the accountant has been able to find copies of the prior filings. Would submitting the IRS Form 4506 be the only way to obtain a copy, or is there another option?
BenefitsLink Message Boards

Top Heavy Contribution Required After Refund of Matching Contribution Made Earlier for HCE?

An HCE makes a deferral and is matched. Because of ADP and ACP failures (the HCE was the only deferring participant during the 401(k) plan's first year), the deferral and the HCE's match were refunded. The match was the only employer contribution during the year. The plan is Top-Heavy. Do all non-keys get a contribution (% of match/HCE comp) even though the contribution for the HCE, after refund, is $0?
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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