Retirement Plans Newsletter

June 28, 2019

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DC Plan Administrator
Northeast Professional Planning Group, Inc.
in Red Bank NJ / NY

DB Consultant/ Relationship Manager
Boyce & Associates, Inc.
in Phoenix AZ

DB Functional Data Analyst
Transamerica
in Cedar Rapids IA / MA

Senior Document Specialist
Newport Group
in Mobile AL / Folsom CA / Minneapolis MN / Saint Petersburg FL

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[Guidance Overview]

SEC Adopts Interpretive Guidance on Investment Adviser Fiduciary Duty

"As laid out in the Release, an investment adviser's fiduciary duty is broad, applies to the entire adviser-client relationship, and reflects a Congressional intent to 'eliminate, or at least to expose, all conflicts of interest which might incline an investment adviser -- consciously or unconsciously -- to render advice which was not disinterested.' The duty comprises both a duty of care and a duty of loyalty."
Shearman & Sterling LLP

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[Guidance Overview]

SEC Adopts Broker-Dealer Standard of Care and Guidance on Investment Advisers' Fiduciary Standard

"The Commission's interpretation first outlines the framework of the fiduciary duty that investment advisers owe to their clients ... Specific obligations that flow from the adviser's fiduciary duty depend upon what functions the adviser has agreed to assume. The guidance notes, however, that the contract between the client and the adviser cannot negate or waive the adviser's federal fiduciary duty, regardless of the sophistication of the client."
Shearman & Sterling LLP

SEC Approves Regulation Best Interest: The Broker-Dealer Standard of Conduct

"One issue left unaddressed by the SEC is whether state fiduciary rules would be preempted by the federally promulgated Regulation BI. Instead, the SEC deferred that issue to the judicial branch ... Adding to the confusion is that several state financial regulators look to be passing stronger investor protection rules at the state level[.]"
King & Spalding

What Crayola Color of 3(16) Does Your Vendor Provide? (PDF)

67 presentation slides. Topics: [1] What is a fiduciary (considering risk, ERISA intent, and roles)? [2] Which kind are they (ERISA section 3(16) plan administrator or ERISA section 3(16) service provider)? [3] An advisor value-add: monitoring the prudence of a 3(16) selection.
Unified Trust Company, for fi360

Traveling Union Workers Score Victory in Court of Appeals

"Travelers are union workers who pursue work outside their home state.... When the traveler works in another jurisdiction, the pension contributions can either be made directly to the plan maintained by the foreign jurisdiction or the contributions can be sent back, 'reciprocated,' to the pension plan in the travelers' home state.... [T]he 9th Circuit held that PPA (Pension Protection Act) contributions made to a pension plan in rehabilitation status cannot be kept by the foreign pension fund and must be reciprocated to the Travelers' Home Fund. The effect of this decision is to increase the pension of these traveling workers." [Lehman v. Nelson, No. 18-35321 (9th Cir. Jun. 12, 2019)]
Davis Wright Tremaine LLP

Jander v. IBM: An Aberration or the Start of a Plaintiff-Friendly Trend in Stock-Drop Cases?

"[T]he more specific factual allegations in IBM highlight a potential roadmap for plaintiffs: [1] Allege that plan defendants knew that the company stock was overvalued due to a failure to disclose some adverse information.... [2] Allege that the plan fiduciaries had the power to disclose the truth and correct the artificial inflation, but did not.... [3] Allege that the company stock traded on an efficient market ... and that earlier disclosure of the accounting fraud ... would have reduced the risk of over-correction.... [4] Allege that the plan fiduciaries knew that disclosure of the truth was 'inevitable.' " [Jander v. Retirement Plans Committee of IBM, No. 17-3518 (2d Cir. Dec. 10, 2018; cert. pet. granted Jun. 3, 2019)]
Thompson Hine, via Lexology; free registration required

A Proposal to Strengthen the PBGC's Multiemployer Insurance Program with a Benefits-Based Premium (PDF)

"This paper explores an additional option for addressing the solvency crisis: the introduction of a new PBGC premium assessed as a percent of benefits in pay status [benefits-based premium (BBP)], applicable across all solvent multiemployer plans.... Across the multiemployer system as a whole, $45 billion in benefits were paid out in 2017. [The] model projects that this amount will gradually rise across the next ten years as the system continues to mature. Therefore, a BBP rate of 10% would be expected to generate upwards of $4.5 billion of additional premiums each year."
The Pension Analytics Group

Summary of the Quarterly Survey of Public Pensions for 2019: Q1

"For the 100 largest public-employee pension systems in the country, assets totaled $3,858.2 billion in the first quarter of 2019, increasing by 6.2 percent from the 2018 fourth quarter level ... Compared to the same quarter in 2018, assets for these major public-pension systems increased 1.8 percent ... The main driver of the increase in assets is gains on investments, which totaled $230.9 billion during the first quarter of 2019."
U.S. Census Bureau

Mayor to Propose State Takeover of Chicago's Severely Underfunded Pensions

"[Chicago Mayor Lori Lightfoot] is pitching nothing less than a state takeover of the city's cash-short pension funds, which under current law will require upward of $1 billion in new city tax hikes over the next three years to reach a path to full actuarial funding. Her proposal would consolidate city pension money with smaller downstate and suburban pension funds in a new statewide system. In some cases, those non-Chicago funds are even worse off than the city's."
Crain's Chicago Business

[Opinion]

Annuities in 401(k)s Won't Solve the Retirement Crisis

"Employers have shied away from including annuities in retirement plans over liability issues -- participants might sue if an insurance company in the plan goes belly up or fails to pay claims. The [SECURE Act] gives employers a 'safe harbor'' that limits their liability.... The advantage of annuities is that they offer investors guaranteed retirement income not exposed to market fluctuations or vulnerable to poor investment choices.... The rap on annuities is that, yes, while some are low cost, others come with high commissions and high fees that eat into the benefits."
Barron's

[Opinion]

The Nebulous Concept of Fiduciary Duty

"In reality, fiduciary duty means different things in different jurisdictions and in different contexts and, as a blanket statement of legal obligations, implies little more than a special relationship that has trust and confidence at its heart. Although fiduciaries have certain duties imposed on them by law, and may face tougher consequences if they breach those duties, the precise nature and extent of their duties can vary considerably. It is perhaps not surprising, therefore, that final guidance on the meaning of fiduciary duty issued this month by the [SEC] has revealed some disagreement among market participants."
Debevoise & Plimpton LLP

Benefits in General

Seventh Circuit: Substantial Compliance with Disability Claims Deadlines Is Not Enough

"[T]he court takes a stringent view of when noncompliance with the claims regulations' regulatory deadlines results in de novo review of a decisionmaker's benefit denial. Because loss of the more deferential standard of review can make the difference in whether a decisionmaker's denial will be upheld on review, the Seventh Circuit's ruling underscores the need for timely benefit claims decisions." [Fessenden v. Reliance Standard Life Ins. Co., No. 18-1346 (7th Cir. Jun. 25, 2019)]
Thomson Reuters Practical Law

Editor's Pick A Low-Growth World: Implications for the Insurance Industry and Pension Plans (PDF)

124 pages. "Impact of low growth on insurance and pension assets would include lower real returns on all asset types ... This would increase the cost of benefits, increase the likelihood of product feature changes, and potentially change how interest-rate guarantees on liabilities are determined. Low growth would be expected to adversely affect mortality and morbidity rates, with adverse effects to insurance companies for life/health insurance liabilities and potential benefits to pension and annuity liabilities."
Society of Actuaries

Executive Compensation
and Nonqualified Plans

EVA as a Performance Measure in Executive Incentive Plans (PDF)

"ISS recommends the use of [economic value added (EVA)] as a tool to assess the alignment of pay and performance and indicates that during the 2019 proxy season it will be including in its proxy reports to investors a set of metrics based on EVA.... Adoption of EVA as the basic metric for a company's long-term incentive plan would mean, for many companies, a shift from a metric based on stock market price to a metric based on value of the enterprise."
McCarter & English

Selected Discussions
on the BenefitsLink Message Boards

Blackout Notice Not Sent to One Participant

A plan is transitioning into our platform from another provider. We provided blackout notices to (mostly) everyone. Due to a census snafu, a terminated participant was not included in the notice distribution. Now he's calling the broker saying no one told him his money was moving. The broker is yelling at us saying we're in violation of ERISA. (BTW, we provide 3(16) Administration.) What's the remedy besides sending out the notice and typing up a mea culpa? The violation isn't self-reported, is it? Do you think we are on the hook for $131/day?
BenefitsLink Message Boards

Wrong EIN Used on Form 5500 for 2017; Now Want to File a Final Form

Took over a client whose 5500-SF for 2017 was filed using an incorrect EIN. They have terminated the plan after only two years (no money). I assume I need to amend 2017 before I file the final 5500 for 2018 using the correct EIN. If I fix only the 2018 form and mark it as final, would that result in great confusion at the DOL/IRS and a commensurate hassle?
BenefitsLink Message Boards

Creative Solutions for Handful of HCEs in 1,800-Employee Company

A prospect has 1800 employees, mostly in lower paid jobs in a service industry, 12 of whom are HCEs. They've been presented a standard 401(k) plan with a safe harbor match to cover everyone, and have rejected it. What they say they want is a deferral-only 401(k) plan for the NHCEs and a separate "carve out" plan (their terminology, not mine) that benefits only the HCEs for which the company would be willing to provide a match. We're skeptical that such a nonqualified design will make the HCEs happy, when we explain the risks. With respect to the world of tax-qualified plans, are we missing some cutting edge, new plan design possibility?
BenefitsLink Message Boards

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Lois Baker, J.D., President  loisbaker@benefitslink.com
David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
Holly Horton, Business Manager  hollyhorton@benefitslink.com

BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2019 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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