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Correcting Retirement Plan Mistakes - Summer 2015 Updates
August 4, 2015 WEBCAST
(IRS [Internal Revenue Service])

Retirement Plan Insights Seminar
September 1, 2015 in OH
(McKay Hochman Co., Inc.)

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Text of DOL FAB 2015-02: Selection and Monitoring under the Annuity Selection Safe Harbor Regulation for Defined Contribution Plans
"Similar to selecting plan investments, choosing an annuity provider for this purpose is a fiduciary function, subject to ERISA's standards of prudence and loyalty. The Safe Harbor Rule requirements are satisfied if the plan's fiduciary: [1] Engages in an objective, thorough and analytical search for the purpose of identifying and selecting providers from which to purchase annuities.... [2] Appropriately considers information sufficient to assess the ability of the annuity provider to make all future payments under the annuity contract; [3] Appropriately considers the cost (including fees and commissions) of the annuity contract in relation to the benefits and administrative services to be provided under such contract; [4] Appropriately concludes that, at the time of the selection, the annuity provider is financially able to make all future payments under the annuity contract and the cost of the annuity contract is reasonable in relation to the benefits and services to be provided under the contract; and [5] If necessary, consults with an appropriate expert or experts for purposes of compliance with these provisions.... The Safe Harbor Rule also provides that when an annuity provider is selected to offer annuities that participants may later choose as a distribution option, the fiduciary must periodically review the continuing appropriateness of the conclusion that the annuity provider is financially able to make all future payments under the annuity contract, as well as the reasonableness of the cost of the contract in relation to the benefits and services to be provided. The fiduciary is not, however, required to review the appropriateness of its conclusions with respect to an annuity contract purchased for any specific participant or beneficiary." (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])

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Treasury, PBGC Begin to Wrestle with Multiemployer Pension Plan Reforms (PDF)
"The success of the law will turn, first, on whether a political backlash dissuades plans from utilizing it and, second, whether the argument that limited cuts now are better than bigger cuts later will persuade participants not to vote down proposed reductions. Both of these considerations come together in the case of the 'systemically important' Central States plan. If participants disapprove a benefit suspension, will the Treasury Department overrule them? One recourse unhappy participants apparently do not have is litigation. MPRA denies them standing to challenge benefit suspensions in court, leaving perhaps only a potential constitutional challenge." (Steptoe & Johnson LLP)

IRS Shuts the Door on Lump Sum Windows for Retirees (PDF)
"This change in position is likely tied to government concerns that retirees are ill-prepared to manage lump sum distributions and the view that continued lifetime pension payments are a critical part of an individual's financial security during the retirement years. [The authors] suspect the Notice is primarily a result of continued lobbying by retiree groups to get some action at a policy level to slow this trend.... As a result of this Notice, plan sponsors can no longer transfer the risks of increased longevity and investment loss to participants already in pay status." (Groom Law Group)

The Ax Falls on Defined Benefit Plan Lump Sum Cash-Out Programs
"This change of position effectively prohibits lump sum programs targeted to plan participants in pay status. However, it does not affect programs that are targeted to terminated participants who have not yet commenced benefit payments.... The notice indicates that future determination letters generally will not express any opinion on the consequences of a lump sum program on the plan's tax-qualified status." (McGuireWoods LLP)

IRS Expands Its Plan Correction Program with Two New Revenue Procedures (PDF)
"[T]hese new procedures [1] provide additional flexibility for correcting automatic enrollment and elective deferral failures (including automatic escalation failures), [2] provide reduced filing fees for loan and minimum required distribution corrections, [3] provide helpful clarification that plan overpayments may, in certain circumstances, be corrected via a plan amendment or without having to seek repayment from the participant, [4] extend the self-correction period for repeated Code Sec. 415 violations, and [5] offer additional relief in other miscellaneous areas.... These new correction options are more favorable and cost-effective than prior preapproved correction methods, and therefore plan sponsors should remember to incorporate these new correction options into their arsenal for addressing plan operational failures going forward." (Groom Law Group)

EBSA Fact Sheet: Retirement Initiatives Announced at White House Conference on Aging
"The regulation that the Department will propose by the end of 2015 will clarify how states can move forward with state-sponsored retirement savings programs, including with respect to requirements to automatically enroll employees and for employers to offer coverage, in ways that are consistent with federal laws governing employee benefit plans.... As part of a broader initiative designed to increase awareness and availability of lifetime income options in defined contribution plans, the Department of Labor's Employee Benefits Security Administration ... published a Field Assistance Bulletin clarifying the duty of an employer in selecting and monitoring an annuity provider for benefit distributions from 401(k) and other defined contribution plans under its Annuity Selection Safe Harbor regulation." (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])

Lehman Exec Defeats Employee Lawsuit Over Retirement Losses
"A U.S. federal judge on Friday dismissed a lawsuit by former Lehman Brothers Holdings Inc. employees seeking to hold onetime Chief Executive Richard Fuld liable for their retirement plan losses as the Wall Street bank plunged into its 2008 bankruptcy. U.S. District Judge Lewis Kaplan in Manhattan rejected claims that Fuld breached an obligation to share what he knew about Lehman's fast-deteriorating finances with officials who oversaw the plan, where Lehman stock was an investment option. The judge also rejected claims that those officials breached their fiduciary duty to employees by letting them invest in Lehman stock, resulting in millions of dollars of losses." [ In re Lehman Brothers Security and ERISA Litigation , No. 08-cv-05598 (S.D.N.Y. July 10, 2015)] (Insurance Journal)

District Court Rules Privately-Held Stock Plan Fiduciary May Have Affirmative Duty to Disclose
"Central to the court's decision was the fact that the plan participant was 'in a vulnerable position' because he did not receive any warning that 'investment in a non-diversified single stock fund was risky' and because he did not 'have the benefit of the open market determining the value of his SLI stock.' ... [T]he court pointed to evidence that the defendants communicated false information to him regarding the actual value of SLI stock and management's plans about the future of the company, either of which the court held could have been actionable as affirmative misrepresentations." [Wagner v. Stiefel Laboratories, Inc., No. 12 Civ. 3234 (N.D. Ga. June 18, 2014).] (Proskauer's ERISA Practice Center)

Multiemployer Funds, PBGC Face Hurdles with Partitions
"Unlike the old partition program, which just took financial responsibility for participants in orphaned plans and left a healthy plan intact, plans must now cut benefits for all participants.... It is also not a simple -- or inexpensive -- calculation to figure out whether applying for partitioning will be enough to save a plan ... Explaining it to plan participants could be equally daunting, especially along with benefit cuts.... PBGC officials estimated they could take on up to $60 million in payments and process up to six applicants per year." (Pensions & Investments)

Pluses and Minuses of Buying Longevity Insurance (QLACs)
"Investment underlying annuity contracts are essentially bond investments and for QLACs, long bond investments. If you believe that long-term interest rates and long-bond yields will rise significantly in the future, then it is probably best to wait to buy a QLAC. On the other hand ... the longer you wait, the less income you will receive from a given level of premium if interest rates remain unchanged. An alternative strategy to buying a QLAC that still involves significant longevity risk pooling benefits is to simply wait until an older age to buy an immediate annuity." (Ken Steiner, FSA Retired)

Northwestern Mutual Planning and Progress Study 2015
"Working Americans expect to retire at age 68 -- a full decade later than when current retirees left the work force, according to our latest round of findings. Notably, 62% of U.S. adults anticipating working beyond the traditional retirement age of 65 say it will be from necessity, with the vast majority (79%) citing insufficient savings and lack of confidence in social safety nets as leading concerns. Results also suggest that poor communication may be a contributing factor to delaying retirement involuntarily. Four in 10 adults state that they have not discussed retirement with anyone while a full third (35%) do not have any sense of how much income they will need to retire." (Northwestern Mutual)

How Custom Investment Options Improve Participant Outcomes (PDF)
"[I]nvestment lineups in most DC plans are structured in a way that reduces participants' likelihood of implementing well-diversified and age-appropriate investment strategies.... It is increasingly feasible for plan sponsors to 'customize' their target date funds... For participants who elect out of the target date funds, plan sponsors should provide a streamlined menu of diversified objective-based funds, each of which protects against a specific risk participants face." (Aon Hewitt)

Questions to Ask a Plan Sponsor About Its Retirement Plan
"This short list of questions seeks to inquire about all aspects of the plan's administration and current providers, from the financial advisor to the investment platform." (Retirement Management Services)

Federal District Court Permits Federal Government's Garnishment of Retirement Plan Benefit
"Other courts have also permitted the federal government to enforce a judgment against a qualified retirement plan to collect a participant's criminal fine ... The exceptions to the anti-alienation rules are narrow, so we suggest that plan administrators exercise caution when faced with a government levy[.]" [ U.S. v. Wilson , No. 3:09-cr-00161-FDW-DCK (W.D.N.C. June 10, 2015)] (Thomson Reuters / EBIA)

Pension Rights Center Applauds Treasury Department/IRS for Protecting Retirees by Banning Lump-Sum Buyout Offers
" 'We are gratified that Treasury has moved to stop these lump-sum buyouts, which are truly among the most cynical and dangerous pension abuses we've seen,' said Norman Stein, senior policy advisor to the Pension Rights Center and a law professor at Drexel University.... 'The offer of a lump sum can create considerable confusion and anxiety for older Americans, who are often not in a position to appreciate the risks they face and the losses they might suffer,' says Stein. 'Retirees who choose a lump sum have to invest the money at the same time they are drawing it down, which is even harder than investing money before retirement. They will have to pay new fees, which will reduce their account balance, and fluctuations in the markets can destroy their investment portfolio with no time to make up the losses.' " (Pension Rights Center)

Congress Significantly Increases Penalties for Information Return Failures (PDF)
"Among other things, these increased penalties will apply to Forms W-2 and the 1099- series, as well as ACA-required employer shared responsibility and minimum essential coverage reporting forms.... [This article includes] a table summarizing the amendments (which amounts are subject to indexing)." (Groom Law Group)

Under-the-Radar Provision More than Doubles IRS Information Reporting Penalties
"[T]he law increases the penalty from $100 per failure to $250 per failure under each of sections 6721 and 6722, which impose a penalty for each incorrect information return filed with the IRS and each copy sent to the payee or recipient, respectively. In other words, a single error on a 2015 information return (filed in 2016) may result in a $500 penalty unless the taxpayer is granted abatement on reasonable cause or other grounds. Similar increases were made to the reduced penalties for errors that are corrected within 30 days or before August 1." (Miller & Chevalier)

SEC Proposes Controversial Rule Requiring Companies to Adopt No-Fault Clawback Policies
"One criticism of the proposal, such as that stated by dissenting Commissioner Daniel M. Gallagher, is that the rule places a strict liability standard on executives where Congress did not mandate one in the Dodd-Frank Act.... A second point of controversy is the definition of 'executive officers.'... According to Commissioner Gallagher and other critics, the rule's no-fault standard, coupled with the broad definition of who the rule applies to, 'creates the potential for substantial injustice' because 'the rule sweeps far more broadly than the group of individuals ultimately responsible for the financial reporting of the entire issuer." (Sutherland Asbill & Brennan LLP)

SEC Issues Proposed Clawback Rules
"Issuers should consider doing the following: ... Add provisions to any new incentive-based compensation plans and agreements explicitly subjecting the compensation to any clawback policy that the issuer adopts. Note that this could result in unfavorable financial accounting consequences for equity awards if done wrong ... Review the charter of the compensation committee to determine whether clawback policy compliance language should be inserted as a compensation committee responsibility in light of the contemplated rule requirements." (Wilson Sonsini Goodrich & Rosati)

SEC Proposes Clawback Rules (PDF)
"The following causes for an accounting restatement do not trigger the recovery provisions of the proposed clawback rules: [1] Retrospective application of a change in accounting principle; [2] Retrospective revision to reportable segment information due to a change in the structure of a company's internal organization; [3] Retrospective reclassification due to a discontinued operation; [4] Retrospective application of a change in reporting entity; [5] Retrospective adjustment to provisional amounts in connection with a prior business combination; and [6] Retrospective revision for stock splits." (ExeQuity)

Benchmarking Study on Trends in Advisory Firm Hiring, Typical Employee Benefits, and Average Advisor Compensation
"[T]he most common employee benefit is the typical offering of vacation time, offered by a reported 90% of firms (along with 81% who provide sick time, 57% that provide bereavement leave, and 46% offering maternity leave).... From there, the next most common employee benefit was health insurance, offered to staff in 75% of advisory firms (and paired with a Health Savings Account in 33% of firms, and a Flexible Spending Account in 25% of firms).... When it comes to employer retirement plans, there were 67% of firms offering a 401(k), another 14% of firms using a SIMPLE IRA, 10% providing a pension, and 3% using a SEP IRA.... the next most common employee benefit was covering the cost for licensing and exam fees, at 68% of firms, followed closely thereafter by financial support for professional development (e.g., conferences) at 61%, and financial support for designations/technical training at 56%." (Michael Kitces in Nerd's Eye View)

The Crackdown and Costs of Independent Contractor Misclassification
"Over the last half-dozen years, employers have seen a crackdown on the misclassification of employees as independent contractors. Part I of this article will first address how this form of misclassification has arisen and what its consequences are for companies caught in the crackdown. Part II will next detail how regulators, legislators, plaintiffs' class action lawyers and union organizers have sought to counter businesses that are believed to engage in independent contractor misclassification. Finally, Part III will discuss how businesses can minimize or avoid the risks of this type of misclassification." (Pepper Hamilton LLP)

Governmental Plans: Moving Forward After the Obergefell Decision
"The Obergefell decision will now impact state level eligibility and benefit plan designs that are not governed by the qualification requirements of the Internal Revenue Code.... [T]he Supreme Court relied on the Fourteenth Amendment to find that state laws prohibiting same-sex marriage was unconstitutional.... For governmental plan administrators that have not yet extended same-sex spousal coverage under their health and welfare plans, the time may be ripe to consider amending these plan provisions." (Ice Miller LLP)

Supreme Court Agrees to Determine Whether ERISA Preempts Vermont Healthcare Database Reporting Mandate
"[Recent certiorari] filings discuss how to apply the presumption that the basic thrust of the ERISA preemption clause was to provide for the nationally uniform administration of employee benefit plans by avoiding a multiplicity of plan regulation. None of cert filings highlight the challenges to such presumption or the incoherence of the Supreme Court's ERISA preemption decisions ... Nor do the filings discuss the conflicts between those decisions and the terms of ERISA. There are important questions about the extent to which ERISA preempts a state-law reporting, record-keeping, or disclosure mandate, or any other state law." [ Gobeille v. Liberty Mutual Ins. Co. (2d Cir. Feb. 4, 2014, cert. pet. granted June 29, 2015)] (Albert Feuer, via SSRN)

Mercer Wins Bell Ringer Awards for Total Wellness Education and Employee Communications Campaigns Mercer

White House Recognizes Clorox for 'Best in Class' Retirement Plan Clorox Company

Financial Engines Partners with the Social Security Administration to Simplify Retirement Planning Financial Engines, Inc.

Heestand Company Expands Ownership Group Heestand Company

Hub International Announces the Acquisition of Assets of Kansas-Based Group Benefit Specialists HUB International

Bank of America Merrill Lynch Introduces Groundbreaking Initiative to Empower Companies With a Deeper Understanding of the Longevity Revolution and Its Impact on Employees Bank of America

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