PENSION UPDATE
NATIONAL PENSION
STUDY GROUP
SUMMER 2012
ON THE HILL
HOUSE AND SENATE CONFEREES
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JUNE 28, 2012
House and Senate conferees have agreed to
changes to pension funding stabilization legislation,
including most of the provisions previously passed
by the Senate.
If passed the segment rate for funding will be
increased, lowering the 2012 MRC.
May elect to use for 2012, required to be used for
later years.
HOUSE : FSA USE IT OR LOSE IT
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6/7/12: Despite a White House veto threat,
the House approved legislation that would
amend a 28-year-old rule requiring flexible
spending account users to forfeit their
unused balances.
The bill also lifts restrictions on using FSAs
and health savings accounts for over-thecounter drugs.
HOUSE KILLS FSA USE IT OR LOSE IT
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Under the measure, employers can allow employees
to withdraw taxable money up to $500 that's sitting in
unused FSA balances at the end of the plan year or
at the end of a grace period. The law also overturns
a health reform provision that prohibits FSA and HSA
users from getting reimbursement for OTC drugs
without a prescription. Distributions for drugs without
a prescription face a 20 percent federal tax.
OVERHAUL OF THE TAX CODE
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House Republicans call for overhaul of
tax code in 2013
As part of a year-end budget deal, House
Republicans are urging adoption of “fasttrack procedures” to force lawmakers to
complete a sweeping overhaul of the U.S. tax
code in 2013.
OVERHAUL OF THE TAX CODE
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House Ways and Means Committee chairman Dave
Camp (R-Mich.) said Thursday that he has two goals
with respect to the tax code: “One, block massive,
job-killing tax increases” at the end of the year, when
the George W. Bush-era tax cuts are set to expire.
“And two, enact — not just pass — comprehensive
tax reform.”
Per Camp: “There is strong support to use the
expiration of the [Bush tax cuts] as leverage to force
action in 2013 on comprehensive tax reform.”
LETTER SENT TO CONGRESS
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The undersigned organizations, which represent thousands of
pension plans providing retirement benefits to millions of
workers and retirees, urge immediate Congressional action to
stabilize funding interest rate rules for private-sector pension
plans. Without legislation to adjust for current economic
conditions, the current plan funding regime will undermine job
retention and growth and limit companies' ability to invest in
capital improvements needed to be competitive worldwide and
to maintain the economic recovery here at home. Moreover,
failure to address on-going funding issues will threaten the
long-term retirement security of workers and retirees.
Sent May 15, 2012 urging the provisions in the Highway Bill of
pension reform be adopted.
HIGHWAY INVESTMENT, JOB
CREATION AND ECONOMIC ACT
INTRODUCED 2/7/12


In order to create revenue to pay for the Bill it
changes the interest rates to determine the MRC.
Under the new provision, for purposes of
determining the minimum required contribution,
segment rates are confined to a 15% corridor around
a 10-year average of the rates. Since this
“stabilization” will not apply for purposes of
417(e)(3), we had expressed concern
HIGHWAY INVESTMENT, JOB
CREATION AND ECONOMIC ACT
INTRODUCED 2/7/12
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Change would require 2012 valuations to be
redone as the MRC would go down.
Bill has now been stalled as the prior law,
which was to expire, was extended.
SENSE OF THE CONGRESS
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In light of the Obama’s 2013 budget plan
which calls for a rollback in 401(k) deferrals
and DC limits.
More than 100 Representatives of the House
signed a letter expressing that they support
the current tax incentives in 401(k) plans.
HR 4049 INTRODUCED
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Bill would require employers that do not have
a QP to provide an Auto IRA plan for
employees.
Not a new idea.
HR 35661 INTRODUCED
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Small Business Pension Protection Act of 2011.
Introduced 12/5/2011.
Later valuation date for MRD and more time to make
the payment (from 70 ½ to 75).
Earnings for self employed will include the IRA or QP
deduction.
Repeals the excess tax on over contributions to QP.
Bill has not gotten much attention and will die in the
Ways and Means Committee.
PRES. PRESENTS HIS BUDGET

"Under current law, there is already a
$250,000 cap on compensation that can be
used to calculate contributions to 401(k)
plans. The President's proposal effectively
doubles down on this limit for 401(k) plans,
and takes an axe to the tax incentives that
encourage small business owners to offer
these types of plans at work." (ASPPA)
PRES. PRESENTS HIS BUDGET
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Has an add on which would eliminate the
possibility of spreading payments of Inherited
IRA over the lifetime of the Beneficiary.
Would require payment of all assets within 5
years.
The additional revenue will help pay for the
rest of the bills provisions.
FROM THE COURTS
DEFENSE OF MARRIAGE ACT
UNCONSTITUTIONAL

On May 31, 2012, the US Court of Appeals
for the First Circuit held in Massachusetts
v. United States Department of Health &
Human Services that the definition of
marriage as being between one man
and one woman in the Defense of
Marriage Act (DOMA) is unconstitutional
on equal protection grounds.
DEFENSE OF MARRIAGE ACT
UNCONSTITUTIONAL
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Section 3 of DOMA states in part that under federal law, "'marriage' means only a
legal union between one man and one woman as husband and wife." Although
DOMA does not invalidate same-sex marriages in states where same-sex marriage is
legal, it does prevent same-sex married couples from receiving federal benefits that
are otherwise available to heterosexual married couples, including Social Security
survivor benefits and health insurance benefits for federal employees.
In these consolidated cases, the plaintiffs, seven same-sex couples lawfully married
in Massachusetts, sued to enjoin federal agencies and officials from enforcing
DOMA to deprive them of federal benefits available to different-sex married couples
in Massachusetts. The Commonwealth of Massachusetts brought a companion case,
fearing the law would revoke federal funding for programs tied to DOMA's definition
of marriage.
The district court found Section 3 of DOMA unconstitutional under the Equal
Protection Clause, and in the companion case held Section 3 violated the Spending
Clause and the Tenth Amendment of the US Constitution. Although the district court
enjoined federal officials and agencies from enforcing Section 3, it stayed injunctive
relief pending the defendants' appeals.
NEW JERSEY DOES NOT HAVE TO
PAY COLAs
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5/30/2012, The decision Superior Court
Judge Douglas Hurd upholds part of the
state's new pension law, which denies the
adjustments until the retirement systems
reach targeted funding levels.
NJ ED Assoc. spokesman said it's unfair to
deny retirees the payments they have
bargained and planned for, which is a reason
why unions like his challenged the law.
NEW JERSEY DOES NOT HAVE TO
PAY COLAs

A federal judge in March threw out another
lawsuit brought by New Jersey teachers,
police officers, firefighters and other public
workers challenging a portion of the law
requiring them to pay more for pensions and
health benefits. U.S. District Court Judge
Anne Thompson dismissed the lawsuit on
jurisdictional grounds.
SUPREME COURT DECISION OF LAST
YEAR CIGNA VS AMARA USED
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Federal Appeals Court Rejects Equitable
Remedies When SPD Promises More Generous
Benefits Than Pension Plan Document.
The Ninth Circuit held that the terms of the more
generous SPD were not enforceable under any of
the theories advanced by the plaintiffs.
Uses the Supreme court ruling of last year to make
this decision.
10% TAX APPLIES TO IRA
WITHDRAWAL FROM ROLLOVER

At age 56, a partner left his law firm and elected to roll his
balance in the firm 401(k) over into an IRA. Subsequently, he
took a pre-age 59½ distribution from the 401(k) and was
assessed with the additional 10% tax. The U.S. Tax Court
upheld the additional 10% tax. The U.S. Court of Appeals for
the Seventh Circuit upheld the Tax Court. The court held that
the taxpayer would not have been subject to the 10% tax if he
had taken the distribution directly from the 401(k) plan upon
termination because of the exception in section 72(t)(2)(A)(v) of
the Internal Revenue Code for post-separation distributions to
an employee who has attained age 55, but because he chose
to roll over his balance, the exception no longer applied to a
distribution from an IRA. Kim v. Comm’r of Internal Revenue,
No. 113390 -10 (7th Cir. May 9, 2012).
EXEMPT ORG. NOT LIABLE FOR
EXCISE TAX
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U.S. Tax Court ruled that a 501(c)(3) ORG was not
required to pay a 20% reversion tax even though it
had paid a tax on unrelated business income (a
position that has been taken by the IRS for many
years).
The Org. had filed a Form 5330 and paid the excess
tax then sued to recover the reversion tax paid.
However, even though there was an overpayment of
an excise tax, the court lacked jurisdiction under
Sec.6512(b) to award a refund.
What do we learn from this case?
NEW SUITS OVER DO-IT YOURSELF
IRAs (May 2012)
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Equity Trust Co. and Entrust Group Inc. accused of
touting the security and safety of self-directed IRA.
Equity Trust Co. apparently sent out statements
reflecting assets that have become worthless.
In addition several investment advisors have been
sued for misuse of investments in self-directed IRAs.
Expect future legislation to strengthen the law to
protect assets of Self-directed IRAs.
TUSSEY VS ABB INC.
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April 24, 2012 Missouri federal court rules
that the fiduciaries were libel for 35M in
damages for failure to properly monitor the
third-party administrative costs.
Courts ruled the fiduciary failed to monitor
recordkeeping costs, failed to negotiate
rebates for the plan, selected more
expensive share classes, and permitted fees
in excess of market rates.
MORGAN KEEGAN PAYS MORE THAN
$630,000
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April 2012, Morgan Keegan a full service
brokerage firm agrees to pay to 10 ERISA
plans.
Courts ruled it violated its fiduciary duty when
it recommended certain hedge funds, that
then paid revenue-sharing and other fees to
the broker.
Company Hit for $35 Million in 401(k) Fee
Case
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IN THE FIRST CLASS ACTION OVER 401(K) FEES
TO BE TRIED AND DECIDED ON ITS MERITS, A
MISSOURI FEDERAL DISTRICT COURT RULED
ON MARCH 31 THAT MANUFACTURER ABB INC.
BREACHED ITS EMPLOYEE RETIREMENT
INCOME SECURITY ACT (ERISA) FIDUCIARY
DUTIES. THE COURT’S OPINION IS A MUST
READ FOR ALL PLAN SPONSORS AND SERVICE
PROVIDERS.
Company Hit for $35 Million in 401(k) Fee
Case

The company must pay $35.2 million to the
plaintiff class for (1) failing to monitor the
recordkeeping fees and revenue-sharing
payments made to the plan’s trust company, (2)
failing to negotiate rebates to offset or reduce
the cost of providing administrative services to
plan participants, and (3) replacing an actively
balanced mutual fund with the trust company’s
target date fund that generated more in revenue
sharing for the trust company.
KRAFT SETTLES CLAIM
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March 2012, Kraft will pay $9.5 M to settle
claim that it mismanaged employees’
retirement plan causing accounts to lose
more than $80M.
After 5 years of litigation Kraft settled rather
to continue to deal with more attorney fees
and litigation, while continuing to deny any
wrong doing.
FROM THE IRS
ELIMINATION OF LUMP SUM OPTION
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Proposed Reg. issued 6/21/2012.
Proposed regulation would provide a limited
exception under Section 411(d)(6)(B) to permit a
plan sponsor that is a debtor in a bankruptcy
proceeding to amend its single-employer defined
benefit plan to eliminate a single-sum distribution
option (or other optional form of benefit providing for
accelerated payments) if certain conditions are
satisfied.
ELIMINATION OF LUMP SUM OPTION
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Condition: the court overseeing the bankruptcy case has issued an
order, after notice to each affected party (within the meaning of section
4001(a)(21) of ERISA) and a hearing, finding that the adoption of the
amendment eliminating that optional form of benefit is necessary to
avoid a distress termination of the plan pursuant to section 4041(c) of
ERISA or an involuntary termination of the plan pursuant to section
4042 of ERISA before the plan sponsor emerges from bankruptcy (or
before the bankruptcy case is otherwise completed).
PBGC has issued a determination that the adoption of the amendment
eliminating that optional form of benefit is necessary to avoid a distress
or involuntary termination of the plan before the plan sponsor emerges
from bankruptcy (or before the bankruptcy case is otherwise
completed) and that the plan is not sufficient for guaranteed benefits
within the meaning of section 4041(d)(2) of ERISA.
NRA GOVERNMENT PLANS
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Notice 2012-29 [issued April 18, 2012], the IRS and Treasury
have signaled their agreement with many in the governmental
plans community that the requirements of the 2007 Final
Normal Retirement Age Regulations should not be imposed on
governmental retirement plans that do not provide for in-service
distributions.... [A] governmental plan that does not 'provide' for
in-service distributions before a participant's attainment of age
62 does not need to contain a definition of normal retirement
age; alternatively, a governmental plan that does not make inservice distributions may contain a definition of normal
retirement age that does not conform to the requirement of the
2007 Final Normal Retirement Age Regulations that normal
retirement age not be attainable until the participant has
reached a specified chronological age."
NEW FORM SS-4 ISSUED
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Effective 5/22/2012 they will issue only one
EIN per day to each "responsible party",
whether online or by phone, fax or mail. This
is to ensure "fair and equitable treatment for
all taxpayers".
FORM 5558 INSTRUCTIONS
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May 3, 2012 IRS advises that a separate
5558 must be filed for each request for an
extension. A list of plans may not be
attached.
The form has room for three such requests.
Any form submitted with a list, will not be
returned but will simply be ignored by the
IRS.
FORM 5558 INSTRUCTIONS
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Many users submit the forms in a single mailing with a cover
sheet listing all the forms enclosed. The Service stated that the
cover sheet will not serve as part of the request for an
extension.
When submitted this way, at times, only the top form gets
processed, or one or more of the attached forms get lost.
Signatures are still required for extension to file 5530 or 8955SSA. Only enrolled people are allowed to sign the form.
See ASPPA for common mistakes when filing the form.
FORM 5558 AND FORM 8955-SSA
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Although there is no requirement to have Form 5558 signed to
request an extension to file Form 5500, no such exception
exists if requesting an extension to file Form 8955-SSA.
Many applications to extend the deadline for the 8955-SSA
have been returned.
ASSPA in November 2011 requested that Treas. Reg. 1.6081111 be expanded to include the 8955-SSA.
6/20/2012: Proposed guidance to eliminated the signature
requirement on Form 5558, when requesting an extension of
Form 8955-SSA, (still required to file extension of Form 5330).
FORM 5558 AND FORM 8955-SSA
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Per a member of the IRS, they intend to issue a proposed Reg.
that would eliminate the signature requirement for the 5558
when requesting an extension to Form 8955-SSA.
See ASAP 12-10.
On June 11, 2012, several members of GAC met with
individuals from the Treasury Department and the IRS. At the
meeting, ASPPA was notified that regulations will be issued that
will allow the Form 5558 to be filed to extend the due date for
filing Form 8955‐SSA without a signature. ASPPA was also
informed that regulations are expected to be issued before the
end of July 2012.
MISSED THE DEADLINE OF 4/30 TO
RESTATE YOUR DB PLAN

Service on May 5, issues a “kit” that can be used
under the VCP to submit late adopters.

This kit is designed for plan sponsors who failed to restate
their pre-approved defined benefit retirement plan
documents for EGTRRA by the April 30, 2012, deadline.
Defined benefit plan sponsors who use pre-approved plan
documents (i.e., documents that are reviewed by the IRS
and sold to plan sponsors through law firms, banks, brokers,
other financial institutions, or plan administrative firms) were
generally required to sign new plan documents, amended to
reflect the Economic Growth and Tax Relief Reconciliation
Act of 2001 (commonly referred to as “EGTRRA”), by April
30, 2012.
MISSED THE DEADLINE OF 4/30 TO
RESTATE YOUR DB PLAN
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Fee Schedule: Number of Participants Fee if submitted on or before
April 30, 2013, and you have no other qualification failures other than
your failure to timely restate your plan for EGTRRA by the April 30,
2012 deadline
Fee if submitted after April 30, 2013, or if you
are reporting additional failures
20 or fewer
$375
$750
21 to 50
$500
$1,000
51 to 100
$1,250 $2,500
101 to 500
$2,500 $5,000
501 to 1,000 $4,000 $8,000
1001 to 5,000 $7,500 $15,000
5,001 to 10,000
$10,000 $20,000
Over 10,000 $12,500 $25,000
IRS's surprising position on 415 limits
could mean lower pension benefits

A new IRS interpretation of Section 415 limits could
sharply reduce pension benefits for some defined
benefit plan participants whose distributions begin
before normal retirement age or are paid as a
qualified joint and survivor annuity. So far, agency
officials have expressed only informal, individual
views, but authoritative guidance confirming the new
interpretation may be published soon. If so, the
guidance would mark a fundamental break with the
long-standing, widely held understanding of how
Section 415 limits work.
IRS's surprising position on 415 limits
could mean lower pension benefits
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This is a large plan issue, and most small
plans limit the NRB to the 415 limit then
actuarially reduce that benefit for early
commencement. Rather than reduce the
benefit first then limit it to the 415 Max.
benefit. Apparently a common practice for
large plans.
IN MY OPINION THE Service is correct
NEW POA FORM
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March 2012, IRS issues yet another new
POA form.
A separate form must now be completer for
each taxpayer/plan of the Er.
Will need a separate form for the Er. and one
for the Plan and perhaps even one for the
Trust.
NEW POA FORM

Special language now required if the authorization is
to be able sign a form: This power of attorney is
being filed pursuant to Treasury regulation section
16012-1(a)(5). Which requires a power of attorney to
be attached to a return if the return is signed by an
agent by reason of {enter the specific reason listed
under (a), (b), or (c) under Authority to sign your
return, earlier}. No other acts on behalf of the
taxpayer are authorized.
LAW SUIT AGAINST THE IRS
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Filed 3/12/2012
Challenges federal licensing of Tax
Preparers.
Suit claims the law is unwarned and
designed to benefit big tax preparers.
IRS CAUTIONS AGAINST “SHAM”
RETIREMENTS

In PLR 201147038 the Service, once again,
expresses its opinion that retirement may not
be before age 62. In Service distributions
prior to age 62 may be consider as a
inappropriate retirement age and the plan
disqualified.
GUIDANCE ON LIFETIME INCOME
OPTIONS
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2/2/2012 Four different sets of regulatory
guidance issued.
1)Proposed guidance: RIN 1545-BJ55 would
substantially decrease the complexity of
having a partial lump sum and annuity with
the rest of the benefit (bifurcated benefit) by
amending the final regulations under 417(e).
Would remove the requirement that 416 also
apply to the benefit as well as the lump sum.
GUIDANCE ON LIFETIME INCOME
OPTIONS

2)Proposed guidance would provide that any
investment in a QP or IRA that is a longevity
annuity (an annuity which provides for the
commencement of benefit at a later age i.e.
80 or 85), would not be considered when
determining the MRD.
GUIDANCE ON LIFETIME INCOME
OPTIONS
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3) RR 2012-3: clarifies that when a
participants invests in a deferred annuity
contract under a DC plan, the participant’s
account is not subject to the QPSA
requirements before the participant
affirmatively elects to commence annuity
distributions.
See ASAP 12-04.
GUIDANCE ON LIFETIME INCOME
OPTIONS


RR 2012-4: Rollovers from DC plans to DB
plans.
Participants may roll their DC money to the
DB plan and receive a actuarially equivalent
annuity from the DB plan.
403(b) FEE DISCLOSURE
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
The new participant fee disclosure rules do
not apply to 403(b) plans.
ASPPA announces, 2/7/2012, that it has,
along with several other entities, produced a
fee disclosure form for 403(b) plans.
BIG CHANGES TO THE DL PROGRAM


IRS ANNOUNCEMENT 2011-82. See ASAP #12-09,
also see Revenue Procedure 2012-6.
Can no longer ask for a determination regarding
testing, or coverage testing under 401a4. Demos 5&
6 of Sch Q have been eliminated). You are on you
own and only upon audit will you find out for sure if
the IRS agrees with the way you passed any
discrimination test.
BIG CHANGES TO THE DL PROGRAM
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

Prototype plans may no longer be submitted
for approval. The employer must rely on the
letter provided by the Prototype Sponsor.
Form 5307 now limited to VS plans that
modify a Pre-approved plan.
And only when the modifications are not so
extensive as to cause the plan to be treated
as an Individual Designed Plan.
FROM THE DOL
DOL ISSUES AN ADVISORY OPINION
ON OPEN MP QP


Advisory Opinion 2012-04A, Issued, 5/25/21012 to
Law office of Robert Toth, Jr., regarding a MP plan
set up by 401(K) Advantage and TAG Resources a
registered investment advisor.
“It has been the Departments’ consistent view that
several unrelated employers merely execute
identically worded trust agreement or similar
document as a means to fund or provide benefits, in
the absence of any genuine organizational
relationship between the Employers, no employer
group or association exists for the purpose of ERISA
section 3(5).
DOL ISSUES AN ADVISORY OPINION
ON OPEN MP QP

The fact that the participation agreements were in
the form of a MEP does not change the conclusion.
Instead of having a single ERISA plan, it is “an
arrangement under which each participating
employer establishes and maintains a separate
employee benefit plan for the benefit of its own
employees.” The DOL specifically rejected every
argument generally advanced in support of the
arrangement being treated as a single plan.
DOL ISSUES AN ADVISORY OPINION
ON OPEN MP QP


“Rather than acting in the best interest of any
employer with respect to the plan, Advantage and
TAG appear to be acting more as a service provider
to the plan, much like a third party administrator or
investment advisor. As a result, in the Departments
view, neither Advantage nor TAG would constitute an
employer for purpose of section 3(5) of ERISA that is
capable of sponsoring the plan as a single “multiple
employer” plan.”
See ASPPA 12-12
DOL ISSUES AN ADVISORY OPINION
ON OPEN MP QP

"The most immediate implication of this ruling
is that arguably open MEPs must file
separate Forms 5500 (or 5500-SF or -EZ) for
each adopting employer. If an employer has
more than 100 participants, there would need
to be a separate audit. This takes away two
of the benefits open MEP promoters have
long claimed for their arrangement. However,
other benefits remain." (SunGard Relius)
DOL ISSUES AN ADVISORY OPINION
ON OPEN MP QP


Next day response from TAG Resources
"TAG Resources has provided plan management services to
401(k) plan sponsors since 2004, and will continue to do so in
accordance with the guidance issued to us by the United States
Department of Labor.... TAG Resources welcomes this
guidance and the certainty it brings to the marketplace. With
just a few adjustments which our model was designed to
accommodate, this opinion enables us to continue to provide
the professional plan management services to a broader
spectrum of the market which had heretofore been
uncomfortable with the lack of clarity under MEP
arrangements."
403(b) SAFE HARBOR EXCLUSION
FROM ERISA COVERAGE

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
Advisory Opinion 2012-02A
A 403(b) plan does not fail to comply with [this] 'safe harbor' merely
because the employer maintains a separate plan qualified under Code
section 401(a). Nor does compliance with the safe harbor preclude an
employer from taking employee participation in the 403(b) plan
(including salary reduction contributions) into account in ensuring that
employer contributions to the other plan meet tax qualification
requirements in the Code. It is the view of the Department, however,
that conditioning employer contributions to the separate pension plan
on the employee making salary reduction contributions to the 403(b)
plan would be inconsistent with the limited employer involvement
permitted by section 2510.3-2(f)(3) of the safe harbor, and would also
conflict with the requirement in section 2510.3-2(f)(1) that employee
participation in the 403(b) plan be 'completely voluntary.
See ASAP 12-13
COMBINATION OF TERMINATED OR
ABANDONED PLANS


Advisory Opinion 2012-03A, NRP a Minnesota Corp. established to
take over terminated or abandoned plans, then merge the plans into
the NRP plan to administer.
DOL rules: There is no employment-based common nexus that is
unrelated to the provision of benefits between the NRP Plan and the
employers of employees that benefit from the abandoned plans or
among the different groups of employees that participate in these
plans. Rather than acting i n the interest of an employer with respect to
the plan, NRP appears to be acting more as a service provider to the
plan, much like a third party administrator or investment advisor....
[Therefore] it is the view of the Department that the NRP Plan does not
constitute a single employee benefit plan for purposes of Title I of
ERISA. Rather, the Department would view the NRP Plan as a
collection of separate, albeit apparently abandoned, employee benefit
plans.
DOL TAKES A STAND ON OPEN MEPs


May 17,2012 case deals with a welfare plan, but the DOL, as it has so often in
its advisory opinions, views the ERISA definition of employer as being the same
between retirement and welfare plans (as indeed it is).
The DOL states the arrangement was not a single "multiple employer plan"
pursuant to ERISA. This is because there was no commonality of employmentbased interest among the participating employer sponsors of the plans apart
from the provision of retirement benefits, and there was no control of the
program by the participating employers such that it qualified as a "group" or
"association" of employers as required to be a single plan covering multiple
employers for purposes of ERISA section 3(5). Thus, it failed to qualify as a
single "pension plan" for purposes of ERISA section 3(2), since it was not
established or maintained by an "employer" for purposes of that section.
Instead, each of the employers that signed up with the arrangement individually
established a separate plan subject to Title I of ERISA for the purpose of
providing pension benefits to its own employees.
DOL TAKES A STAND ON OPEN MEPs


The DOL's litigation position in a single case is not the same as an opinion letter, but it
certainly gives an indication of where the DOL is going, and it is not going well for open
MEPs. This could also be seen from the testimony of Phyllis Borzi (Assistant Secretary of
Labor) to a Senate committee on March 7, when she said:
While it is clear from my testimony that the Department supports efforts to expand small
business coverage, it is just as important that ERISA's protections for workers' pensions be
maintained. In that regard, the Department has more recently become aware of promoters
marketing multiple employer plans, or "MEPs," that do not involve collective bargaining with
an employee representative. These arrangements, often called "open MEPs," purport to
allow totally unrelated businesses to join together to offer a collective pension plan.
Promoters claim that these arrangements relieve businesses of their ERISA reporting and
fiduciary obligations in connection with administering the plan or monitoring the plan
investments and service providers. Proponents say such arrangements can provide the
participating employers with a way to pool resources and reduce administrative costs.
There are several bills pending in Congress which call for the Department, in coordination
with the Treasury Department, to provide fiduciary relief and simplified administrative,
reporting and disclosure obligations for multiple employer plans. We are currently analyzing
these
RULING OF STATE RUN PLAN FOR
PRIVATE EMPLOYERS


4/27/2012 THE DOL issues an advisory
opinion (2012-01A) stating that participation
of a private non profit employers in
Connecticut's’ state health plan would
adversely affect its status as a governmental
plan under ERISA.
State then does not pass legislation to
implement such a program including a state
run pension plan for private Employers.
FEE DISCLOSURE Q&A


On May 7, 2012, the U.S. Department of Labor issued Field
Assistance Bulletin 2012-02, which includes Questions and
Answers on the participant-level fee disclosure regulation under
ERISA § 404(a)(5) and the fiduciary-level fee disclosure
regulation under ERISA § 408(b)(2). The Field Assistance
Bulletin covers topics that include disclosures related to
administrative expenses, brokerage windows, benchmarks,
comparative formats, and model portfolios.
A DOL press release on this guidance is available at
http://www.dol.gov/ebsa/newsroom/2012/EBSA050712.html
and the Field Assistance Bulletin itself is available at
http://www.dol.gov/ebsa/regs/fab2012-2.html.
FEE DISCLOSURE Q&A



What is a designated investment alternative
(DIA)?
A DIA is any investment alternative
designated by the plan into which
participants may direct the investment of
assets . This includes :brokerage windows,
self-directed brokerage accounts.
See ASAP 12-14
2010-02 Q&A 30 CREATES PROBLEMS



6/24/2012 Phyllis C. Borzi Assistant Sec. States that
Q&A 30 is nothing new and Fiduciaries have always
been responsible for monitoring and evaluate NonDesignated Investment Alternatives (brokerage
account or window).
Ms. Borzi said her agency addressed brokerage
windows in plans after finding "a disturbing trend"
among plan sponsors seeking to avoid ERISA
responsibility by 'just giving choices.'"
6/24/2012 ASPPA along with many other
organizations sent letter to Borzi:
LETTER TO BORZI OF 6/25/12


Questions the DOL statement that “the failure
to designate a manageable number of
investment alternatives raises questions as
to whether the plan fiduciary has satisfied its
obligation under ERISA”.
Questions the failure of the DOL to provide
guidance as to when or how any fiduciary
would comply with this newly created
fiduciary principle.
LETTER TO BORZI OF 6/25/12


Questioned the DOL authority to issue new
regulations without first proposing them or asking for
public comment but simply stating them in a form a
Q&A, (Such an approach was struck down by the
Supreme Court in a similar case).
Q&A-30 suggestion that plan sponsors may need to
look through brokerage windows to determine
whether any particular investment is popular enough
with plan participants to be considered a “designated
investment alternative” is surprising and even more
concerning is the statement in Q&A 30 which states
LETTER TO BORZI OF 6/25/12


“If, through a brokerage window or similar
arrangement, non-designated investment
alternatives under a plan are selected by a
significant number of participants and beneficiaries,
an affirmative obligation arises on the part of the plan
fiduciary to examine these alternatives and
determine whether one or more such alternatives
should be treated as designated for purposes of this
section.
Full text of letter can be found at ASPPA website.
DOL QUESTIONS 5500 FILINGS


March 2012, the DOL sent over 600 large
plan filers (over 100 participants) a letter
questioning the lack of information provided
on Sch. C.
See ASAP 12-7
DOL Files Lawsuit Against Plan
Sponsor Over Investment in Ponzi
Scheme

On Feb. 9, 2012, the DOL filed a lawsuit against
John J. Barrett III, the owner of Dynasty Construction
Inc., and Dynasty Construction Inc. for breach of
fiduciary duty. The DOL seeks to recover more than
$775,000 which the company’s 401(k) invested in
Transcontinental Airlines Employee Investment
Savings Account, an alleged Ponzi scheme, in 2006.
Dynasty Construction Inc. ceased operations in
2007.
DOL files Suite

The DOL’s lawsuit alleges that “the
defendants failed to adequately or prudently
research the credentials of the financial
representative they retained, and failed to
adequately or prudently research or analyze
the investment of plan assets in the
Transcontinental Airlines Employee
Investment Savings Account”.
FINAL 408(B)(2)- FEE DISCLOSURE




ISSUED 2/4/2012; EFFECTIVE 7/1/2012; 109 PAGES.
Also has the effect of delaying initial employee level disclosure
for CY plans to 8/30/2012.
“Addresses disclosure that must be furnished before plan
fiduciaries enter into, extend or renew contracts or
arrangements for service to certain pension plans.”
“The Department believes that plan fiduciaries need this
information, when selecting and monitoring service providers, to
satisfy their fiduciary obligations.”
FINAL 408(B)(2)- FEE DISCLOSURE


The furnishing of goods, services, between a
plan and a party in interest is a PT under
406(a)(1)(C) of ERISA unless except under
408(b)(2).
408(b)(2) provides that contract for services
must be reasonable, the services be
necessary and no more that reasonable
compensation be paid.
FINAL 408(B)(2)- FEE DISCLOSURE



In July 2010 the DOL added that in order to
be reasonable certain information must be
disclosed to the fiduciary.
These final regulations describe the
information that must be disclosed.
Interim final regulations were published in
July 2010.
FINAL 408(B)(2)- FEE DISCLOSURE



Covers arrangements between a “Covered
Plan” and a “Covered Service Provider”
Covered Plan: excludes SEP; SRA, IRA.
Covered Service Provider: a service provider
that enters into a contract or arrangement
that is expected to receive 1,000 or more in
direct or indirect compensation. Three
different categories of Service Providers are
described.
FINAL 408(B)(2)- FEE DISCLOSURE



If several providers under one contract, only
one required to disclose all fees.
The discloser must be clear and
understandable; indicated were the
compensation will come from.
At the current time no requirement that the
discloser be in a certain format. But the DOL
intends to do so at a later date.
FINAL 408(B)(2)- FEE DISCLOSURE



Sample guide to discloser provided in appendix. Can
be delivered electronically.
Discloser must be delivered “reasonably in advance”
of the date the contract or arrangement is entered
into, or July 1, 2012 if later. There is a 60 day
standard to advise as to any changes in the
discloser.
Regulations require that the DOL be notified of any
Service provider that fails to meet the disclosure
requirements.
FINAL 408(B)(2)- FEE DISCLOSURE

Failure to comply: will result in the plan being
subject to a PT and the service provider
being consider a disqualified person and
subject to an 15% excise tax for participating
in a PT (see IRC 4975).
FROM THE PBGC
PASSWORD CHANGES REQUIRED

Federal information security regulations require the
PBGC to strengthen the password requirements for
My PAA (My Plan Administration Account), which is
used by practitioners to electronically file premiums
to the PBGC. Active account holders will receive an
email about the change; and you do not need to rush
to change your password. You may continue to
access My PAA according to your normal schedule;
and My PAA will prompt you to change your
password at the appropriate time.
ROBS

No matter how many times the IRS raises a red flag
about [Rollovers as Business Start-ups ('ROBS')]
arrangements, they keep popping up in the popular
press.... Earlier this year, the IRS ... said that while
some of the ROBS were successful, many of the
companies studied by the IRS had gone out of
business within the first 3 years of operation, with the
owners experiencing significant monetary loss,
bankruptcy, personal and business liens, or had their
corporate status dissolved by the Secretary of State,
either voluntarily or involuntarily."
FOREIGN PARENT LIABLE



Asahi Tec Corp. a Japanese company, was
assisted controlled group liability over a
underfunded terminated plan of a YS
subsidiary.
Asahi filed a motion to dismiss.
U. S. Court for the District of Columbia ruled
that Asahi was liable and the PBGC had
grounds for the claim.
AMERICAN AIRLINES




2/6/2012 announces that as part of its reorganization it plans to
terminate all its DB plans. Which would require PBGC to take
over the $10B unfunded liabilities.
PBGC requires AA to justify the plan termination. Which to date
they have failed to do.
If it does happen there will be cutback in benefits, due to PBGC
maximums of over $1B.
Congress gave American Airlines an estimated $2.1
billion in pension funding relief over the past six
years, nearly double an earlier estimate, the PBGC
announced on 2/6/2012.
Misc TOPICS
NEW ACCOUNTING FOR PUBLIC
PLANS


6/25/2012:The Governmental Accounting Standards Board (GASB) today voted
to approve two new standards that will substantially improve the accounting
and financial reporting of public employee pensions by state and local
governments.
Statement 68 ["Accounting and Financial Reporting for Pensions"] replaces the
requirements of Statement No. 27, Accounting for Pensions by State and Local
Governmental Employers and Statement No. 50, Pension Disclosures, as they
relate to governments that provide pensions through pension plans
administered as trusts or similar arrangements that meet certain criteria.
Statement 68 requires governments providing defined benefit pensions to
recognize their long-term obligation for pension benefits as a liability for the first
time, and to more comprehensively and comparably measure the annual costs
of pension benefits. The Statement also enhances accountability and
transparency through revised and new note disclosures and required
supplementary information (RSI).
NEW ACCOUNTING FOR PUBLIC
PLANS

The Statement calls for immediate recognition of more pension
expense than is currently required. This includes immediate
recognition of annual service cost and interest on the pension liability
and immediate recognition of the effect on the net pension liability of
changes in benefit terms. Other components of pension expense will
be recognized over a closed period that is determined by the average
remaining service period of the plan members (both current and former
employees, including retirees). These other components include the
effects on the net pension liability of (a) changes in economic and
demographic assumptions used to project benefits and (b) differences
between those assumptions and actual experience. Lastly, the effects
on the net pension liability of differences between expected and actual
investment returns will be recognized in pension expense over a
closed five- year period.
NEW ACCOUNTING FOR PUBLIC
PLANS

The provisions in Statement 67 are effective for
financial statements for periods beginning after June
15, 2013. The provisions in Statement 68 are
effective for fiscal years beginning after June 15,
2014. Earlier application is encouraged for both
Statements.
Statements 67 and 68 will be available for download
at no cost from the GASB website in early August.
GM MOVES $26B OF LIABILITIES INTO
A PRUDENTIAL ANNUITY CONTRACT



110% of the pension liability will be turned
over to Prudential who will then pay the
benefits.
It will cover 118,000 retirees, with about
42,000 also given the option to take a lump
sum.
Largest transaction ever of this type.
STATE AND LOCAL PLANS IN THE
NEWS



New accounting procedures directed at
liabilities.
Most states and local governments starting to
realize that there must be changes, their
agreed upon plans have or will place a unpayable debt on the tax system.
What about the federal plans?
CAMPAIGN TO LAUNCH NEW DB
PLAN




A campaign to launch a series of hybrid cash balance-defined benefit
(CBDB) pension plans across all 50 states is taking shape, in an effort
that would target small employers with a new option for delivering
employee retirement benefits.
The new initiative from the National Conference on Public
Employee Retirement Systems would introduce the same type of
CBDB pension plans that several states have added or are
considering.
Based on the national trade association’s plan, the system could bring
new mandates and opportunities to asset managers and institutional
consultants.
The association’s Secure Choice Plan aims to provide small business
owners and employees with the same type of retirement security
traditionally reserved for large corporations and public entities.
CAMPAIGN TO LAUNCH NEW DB
PLAN







The basic structure entails pooling the retirement assets of private employees from multiple businesses into a centrally
managed defined benefit plan, but doing so through a cash balance vehicle that allows portability of accounts for individual
retirees. It would do so through the build-out of new trusts established at the state or regional level that would give small
businesses and their employees the option to contribute to the plan, whose assets are then pooled and invested in a group
fashion.
Cash balance generally plans are similar to traditional defined balance plans in that funds are typically managed as pooled
assets, but differ in the distribution of liabilities. Such a system is being proposed for the Kansas Public Employees Retirement
System, as reported.
While the model requires some state interaction – namely, each fund would be established by the legislature and ideally
overseen by boards of trustees composed of state, business and employee representatives – the funds would operate
separately from existing public pensions.
“The thought is, particularly at inception… that it could partner with the state employee public system and then be able to coinvest with that plan,” Kim explains. As such funds would mature, their assets would be managed alongside – but not comingled
with – those of existing state public employee retirement systems. “That way, the Secure Choice Plans could get price breaks
and economies of scale that the larger public plan has because of its size,” Kim adds.
For private sector employers, it could offer a simple, affordable, sustainable, portable and flexible retirement option for their
staffers. Small businesses traditionally have struggled to offer this type of retirement benefit, Kim says.
NCPERS says it sees support for the Secure Choice Plan model. In a recent survey of 500 California-based small business
owners – classified as having fewer than 50 employees – the organization found that 82% support the idea of a retirement plan
that “would offer employees a guaranteed monthly pension payment for life after they stop working.” Further, about 69% of those
respondents indicated they would adopt that type of plan.
“One of the things that we found out from our polling is that small business owners, unlike Wall Street banks, really do care
about their employees,” Kim says. “Intuitively, that makes sense. Small business owners know their employees by sight; they
might even know their families. And what they feel is they have a moral obligation to provide a retirement for their employees,
but under their structure, they really don’t have the ability.”
CAMPAIGN TO LAUNCH NEW DB
PLAN







The concept goes against the grain of what’s been a lasting trend among larger or longer-established private sector pensions,
which have generally looked to close out or freeze defined benefit plans and offer new employees defined contribution and
options, such as 401(k) plans, as an alternative.
“The biggest reason for a corporation to do so is primarily financial statement risk,” says John Meier, managing director at San
Francisco-based investment consultant Strategic Investment Solutions. “There’s some significant risk to their balance sheet or
their income statement [in an area] that’s not their core competency. It can be a major driver, and what they are trying to do is
take that risk off their shoulders and put that risk on the shoulders of their employees through a DC plan.”
As with Kansas’ proposed CBDB plan, the Secure Choice Plan could change the way liabilities are distributed, and employees
would be able to take accrued savings with them if they were to leave the small business where they are employed, Kim says.
For the system to take off, Kim says, it would first have to clear several hurdles, notably state legislature signoff and potentially
changes to the existing federal tax code, along with some amendments to the Employee Retirement Income Security Act, or
ERISA, under which the Secure Choice model falls.
“What we know we need is support from small businesses,” Kim says. “And we think we have that. We know that we need
enabling legislation at the state level.”
California is among the first states considering the Secure Choice Plan, Kim says, with the model clearing three significant
legislative hurdles in the past six weeks or so. He was anticipating a Senate vote this week, which if successful, would move a
California Secure Choice Plan bill to the California State Assembly for approval.
“We have been having conversations with a number of other states,” Kim says. “New York is one, and a handful of others are
having conversations about the feasibility. I think at the state level what you’re really seeing is this percolation of activity
because they recognize the crisis that is out there. And they are not really waiting for the federal government to act.”
ERPA RENEWAL

If you are an ERPA whose Social Security number
ends in 7, 8 or 9 your application renewal period
ends on June 30, 2012. You will not receive a letter
from the IRS prompting you to renew so please
remember to renew by the deadline. Until further
notice from the IRS, please make a note of when
you need to renew. To renew, you must file Form
8554-EP, Application for Renewal of Enrollment to
Practice before the Internal Revenue Service as an
Enrolled Retirement Plan Agent (ERPA) (revised
March 2011), either electronically or by paper by
June 30.
THE HOT PENSION ARRANGEMENT



The floor offset cash balance plan, or the CB plan
that provides a benefit for the HCE and a benefit for
the NHCE of the PS account.
The later does not work for lots of reasons and most
of the floor offset arrangements will not work either.
However, there seems to be a major sales
advantage to tell the owner he is “the only one
getting a benefit from the CB plan”. In the long run,
even if done correctly, it will probably cost the client
more money.
OHIO PUBLIC RETIREMENT SYSTEM
NEEDS OVERHAULED


$72 billion. That's the collective unfunded
liabilities of Ohio's five defined-benefit publicpension plans. That's more than Ohio's
biennial budget. Under current law, three out
of the five plans never will be able to pay off
those liabilities.
It’s not just Ohio, most states are in the same
boat and now realizing what something must
be done.
A NEW WAY TO REDUCE PENSION
RISK??


Ford announced on April 27 that it will offer A lump
sum option to about 90,000 eligible U.S. salaried
retirees and salaried former employees. If someone
chooses to receive the lump-sum payment they will
lose their COLA’s.
For plan sponsors, the ability to provide retirees a
lump-sum offer provides greater flexibility in
managing their retirement plans, including the ability
to better manage the size of the plan relative to
ongoing operations, as well as the ability to more
efficiently administer the plan on an ongoing basis
A NEW WAY TO REDUCE PENSION
RISK??


Bob Shanks, Ford's executive vice president and chief financial
officer, said in the statement that the move is part of the
company's long-term strategy to "de-risk" its global funded
pension plans. Driving the decision is Ford's strategy to
continue improving the underlying strength of its balance sheet,
he added.
Jon Waite, an expert on the management of corporate pension
plans and chief actuary at SEI, a provider of outsourced
fiduciary management investment services in Oaks, Pa., says
it's not certain that Ford's strategy is the start of a larger trend.
But from an HR perspective, it provides an option and strategy
alternative to the inactive population.
401K PARTICIPANTS SHOW HIGH
AVERSION TO RISK

Schwab's survey found that 35 percent of Americans
consider protecting retirement assets more important
than growing those assets, while only eight percent
consider growing retirement assets more important
than protecting them.... The 2008 downturn may
have had a particular impact on younger Americans
[because the] survey found 29 percent of those age
18-34 plan to pull money out of the market, with only
11 percent of older Americans indicating they would
take this action." (Charles Schwab)
GOV. RUN PENSION FILES
BANKRUPTCY



May 2012; Northern Mariana Islands, a US
Commonwealth, has its public pension fund declare
bankruptcy. (located about 5,000 miles off the cost of
Ca.)
This is the first time such a plan has declared
bankruptcy, and could set a precedent for more
plans to do the same.
Several plan participants sue saying that Chapter 11
does not cover governmental units. Case currently
being heard in the federal court of the Northern
Mariana.
GOV. RUN PENSION FILES
BANKRUPTCY


June 2012
"The [Commonwealth of the Northern Mariana
Islands, a U.S. Territory,] may be small, but this case
has ramifications for much larger pension funds all
across the U.S. that are facing shortfalls.... The
judge wrote that the Northern Mariana Islands
Retirement Fund is 'a 'governmental unit' and
therefore 'not eligible for relief under Chapter 11 of
the Bankruptcy Code.'" (National Public Radio)
NEW IDEA ON PENSIONS



Use the States Pension system to provide retirement
benefits to Employees of Employers in the Private
sector. News article 3/28/2012 in New York Times.
Massachusetts legislature passes bill to establish a
State run 401(k) plan for small non profits. ASPPA
tells the Governor to veto or at lease limit the use.
State of CA. once again proposes a state run Cash
Balance plan for the Private Sector.
New Fee Disclosure For 403(b)


2/1/2012:New Fee Disclosure Solution Released by NEA,
NTSAA & ASPPA Joint 403(b) Taskforce.
With the new 403(b) Model Disclosure form, teachers and
other school district staff will for the first time, have a
simple uniform tool to make apples-to-apples comparisons
among their 403(b) retirement plan investment options. The
form is designed to offer public school employees simple
and clear information about the services and fees
associated with their retirement savings choices, so they
can make the best decisions about their 403(b) retirement
savings.
ON THE LIGHTER SIDE


State of Kentucky Senate votes to retire the
Confederate pension fund.
There will no longer be a $50 per month
pension provided to Civil War veterans and
the $100 death benefit will be eliminated.
ON THE LIGHTER SIDE



CB plan intended to be an on cycle
submission (2/1/2011 to 1/31/2012 cycle), is
submitted 1/27/2011.
Letter confirming receipt received 2/17/2011.
Letter from IRS dated 2/12/2012 received. It
returned the submission saying it was
submitted off cycle (received prior to
2/1/2011, and it should be submitted during
the correct cycle.