By Employee Benefit Research Group

More retirement-related regulatory news for plan sponsors, including links to detailed information.

DOL pension service provider compensation/expense information based on 2010 Form 5500s
The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor (DOL) published a bulletin providing information on administrative expenses of pension plans with 100 or more participants.

“Schedule C Bulletin – Service Provider Information, an Abstract of 2010 Form 5500 Private Pension Annual Reports” provides information on direct and indirect compensation paid to service providers. The information is provided in aggregate, but is broken down by single-employer and multiemployer plans, defined contribution (DC) and defined benefit (DB) plans, amount of assets, industry, number of participants, and type of service provided.

To read the entire report, click here.

IRS closed May 24 and four other days due to sequester; filing/payment deadlines unchanged
The Internal Revenue Service (IRS) has announced additional details about the closures planned for May 24, June 14, July 5, July 22, and August 30, 2013.

Due to the current budget situation, including the sequester, all IRS operations will be closed on those days. This means that all IRS offices, including all toll-free hotlines, the Taxpayer Advocate Service, and the agency’s nearly 400 taxpayer assistance centers nationwide, will be closed on those days. IRS employees will be furloughed without pay. No tax returns will be processed and no compliance-related activities will take place.

For more information, click here.

Student loan interest rate bill includes retirement savings distribution requirement
The Student Loan Affordability Act (S.953) introduced today to freeze the 3.4% student loan interest rate for two years (on subsidized Federal Direct Stafford Loans) includes a provision that would generally require retirement savings accounts to be distributed to a non-spouse beneficiary within five years of the death of the account holder. The student loan interest rate is set to double to 6.8% on July 1; Congress last year enacted a one-year extension and is expected to address this issue before the rate-change deadline.

The required distribution from retirement savings accounts would raise about $4.6 billion in revenue (over 10 years) and help pay for the student loan provision, along with two other offsets (subjecting oil from tar sands to the taxes that support the oil spill liability trust fund, and tightening the limitation on the deductibility of interest paid by an expatriated entity to related persons) contained in the president’s FY2014 budget proposal. The retirement savings account distribution requirement would not apply if a beneficiary is: within 10 years of the account holder’s age; or an individual with special needs or disabled. A beneficiary who is a minor would be allowed to receive payments up to five years after they attain the age of majority.

May 2013 EBRI notes: IRA withdrawals
The Employee Benefit Research Institute (EBRI) recently published the May 2013 EBRI Notes article, “IRA Withdrawals: How Much, When, and Other Saving Behavior.”

Here is an excerpt from the executive summary:

• Households between ages 61 and 70 that made withdrawals even though they were not yet required to take IRA distributions (i.e., not subject to the required minimum distribution rules, or RMD) made larger withdrawals than older households, both in absolute dollar amounts as well as a percentage of IRA account balance.

• The bottom-income quartile of this age group had a very high percentage (48 percent) of households that made an IRA withdrawal, and that their average annual percentage of account balance withdrawn (17.4 percent) was higher than the rest of the income distribution.

• Among households between ages 71 and 80 that are subject to RMDs, those that have a withdrawal exceeding the RMD amount had average withdrawal amounts that were more than double the amounts taken by those that withdrew only the RMD amount. The percentage of account balance withdrawn was also much larger for households that withdrew more than the RMD amount.

• Younger households (61 to 70) that made IRA withdrawals spent most of it, while for those between 71 and 80 there was some increase in savings (in CDs and similar holdings) associated with an IRA withdrawal.

Read the entire article here.

Benefit News DoL, EBRI, IRS, Regs and guidance

By Ryan Hart

The Milliman Pension Funding Index (PFI) published this month demonstrated that while the top 100 pension plans in the United States saw an optimistic $106 billion cumulative increase in funding in the first quarter of 2013, these pension plans have seen a $37 billion decrease in funded status for April 2013. Simply put, pension benefit obligations are increasing, while growth in assets, either by employer contributions or investment return, has failed to keep pace. This market volatility in the investment return experienced over the past five years is driving some plan sponsors to review plan design with an eye towards increasing stability. Many are considering a move to fixed cost defined contribution (DC) plans, while some are also considering variable annuities (VA). Although still not common, variable annuity pension plans have been in existence since 1953.

Milliman recently published a white paper by Mark Olleman, Kelly Coffing, and Ladd Preppernau, “Variable annuities: A retirement plan design with less contribution volatility,” which demonstrates how, with a variable annuity structure, both single and multiemployers as well as their employees share many of the advantages of both traditional defined benefit (DB) and defined contribution plans. The following chart highlights both important advantages and disadvantages of defined contribution and traditional defined benefit plans, as well as the advantages shared by variable annuity plans.

	Defined Contribution Plan	Traditional Defined Benefit Plan	Variable Annuity Plan
For   Employees	Employees have complete freedom over their   retirement planning. Employees often outlive their benefit. Investment risk in a market downturn is borne 100% by employees.	Employees are guaranteed lifelong income. Income is static for the duration of the benefit, so   inflation reduces purchasing power over time.	Employees are guaranteed lifelong income that may   increase to offset inflation. Investment risk is borne by the employee, as income   adjusts to the asset performance of the plan. Income increases when assets   perform well. Income decreases when assets don’t perform as expected.
For   Employers	Stable plan costs assure the sustainability of   offering retirement benefits to employees. The same benefit tends to cost more than if provided   through a defined benefit plan.	Investment risk is borne by the employer, leading to   large swings in plan costs. Volatile markets increase the difficulty in funding   a defined benefit plan, and may stretch the limits of offering retirement benefits   to employees.	Stable plan costs assure the sustainability of offering retirement benefits to   employees. The same benefit tends to cost less than if provided through a DC plan,   which is due to longevity pooling and higher investment returns.

Many of us have focused on the “guaranteed benefits” of traditional defined benefit plans for a long time. It may be time to change our focus to “lifelong” benefits, where the exact dollar amount is not guaranteed, but participants are assured that they will not outlive their benefits and some inflation protection may be provided instead.

Note that although similar in name, these variable annuity plans are not your typical annuity product offered by an insurance company, although companies or individuals seeking to transfer investment risk may wish to purchase them.

Defined benefit, Pensions defined benefit, defined contribution, lifelong benefits, Ryan Hart, Variable annuities

By Employee Benefit Research Group

More retirement-related regulatory news for plan sponsors, including links to detailed information.

DOL posts lifetime income illustration and fact sheet
Workers participating in defined contribution (DC) plans, such as 401(k) or similar savings plans, are responsible for managing their retirement savings while employed and during their retirement years.

As described in an advance notice of proposed rule-making (ANPRM), the U.S. Department of Labor (DOL) is considering proposing a rule that pension benefit statements include the participant’s account balance as a single sum as well as an estimated lifetime income stream of level payments using both the participant’s current account balance and the projected account balance at retirement. For married participants, the statement also must include joint and survivor lifetime income payments.

Using assumptions described in the ANPRM (noted below), this calculator illustrates an annuitization approach to estimate the monthly lifetime income streams based on both the participant’s current account balance and on the projected value of the account balance at retirement. For both balances, the calculator develops two level lifetime payments: one for the life of the participant (with no benefits to any survivors) and the second for the joint lives of the participant and the spouse with a 50% survivor’s benefit for the spouse’s lifetime.

This calculator uses a simplified computation (e.g., annual contributions, mid-year retirement). Depending on the comments received in response to the ANPRM, the next version of the calculator may provide a more precise computation (e.g., monthly contributions, retirement in a specified month).

For a copy of the fact sheet, click here. For the calculator, click here.

DOL issues ANPRM on pension benefit statements
The U.S. Department of Labor (DOL) has issued an advanced notice of proposed rule-making (ANPRM) regarding the pension benefit statement requirements under section 105 of ERISA, as amended. The ANPRM describes certain rules the DOL is considering as part of the proposed regulations.

The rules being considered are limited to the pension benefit statements required of defined contribution (DC) plans. First, the DOL is considering a rule that would require a participant’s accrued benefits to be expressed on his pension benefit statement as an estimated lifetime stream of payments, in addition to being presented as an account balance. Second, the DOL also is considering a rule that would require a participant’s accrued benefits to be projected to his retirement date and then converted to and expressed as an estimated lifetime stream of payments. This ANPRM serves as a request for comments on specific language and concepts in advance of proposed regulations.

Comments are due on or before 60 days after publication in the Federal Register. The ANPRM was published on May 8, 2013.

Federal Reserve: Early withdrawals from retirement accounts during the great recession
Three economists at the U.S. Federal Reserve released a paper titled “Early Withdrawals from Retirement Accounts During the Great Recession,” which shows that for every dollar workers contributed to their pensions and individual retirement accounts in 2010, taxpayers younger than 55 took nearly half—45 cents—as a taxable distribution. Here is an excerpt:

“For families headed by someone younger than age 55, about 45 percent of total new contributions to retirement accounts in 2010 were offset by early withdrawals, but that number was 30 percent in 2004, and some of that increase is attributable to declining contributions. The analysis here of factors associated with early withdrawals in 2010 suggests that propensities to receive cash-outs or to take taxable withdrawals is higher for lower-income families, because lower-income families are much more likely to experience the sorts of shocks that lead to withdrawals and slightly more likely to take a withdrawal when they experience those shocks. These findings may help to explain why the observed cross-section distribution of retirement account balances—even within the covered population, and relative to contributions—is skewed towards higher income families.”

Read the entire paper here.

IRS PLR extending 60-day rollover period because of bank error
The Internal Revenue Service (IRS) has issued a private letter ruling (201319034) dealing with the 60-day rollover period.

The ruling concludes:

“The information and documentation submitted by Taxpayer A is consistent with the assertion that the failure to accomplish a timely rollover of Amount 1 was due to a mistake by Bank D. Therefore, pursuant to section 408(d)(3)(l) of the Code the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from IRA B.”

Read the entire private letter ruling (PLR) here.

SEC, FINRA issue investor alert on pension or settlement income streams
The U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) recently issued an investor alert entitled “Pension or Settlement Income Streams – What You Need to Know before Buying or Selling Them.”

The investor alert informs investors about the risks involved when selling their rights to an income stream or investing in someone else’s income stream. The alert urges investors considering an investment in pension or settlement income streams to proceed with caution.

Anyone receiving a monthly pension or regular distributions from a settlement following a personal injury lawsuit may be targeted by salespeople offering an immediate lump sum in exchange for the rights to some or all of the payments the person would otherwise receive in future. Typically, recipients of a pension or structured settlement will sign over the rights to some or all of their monthly payments to a factoring company in return for a lump sum amount, which will almost always be significantly lower than the present value of that future income stream.

The investor alert contains a checklist of questions to consider before selling away an income stream:

• Is the transaction legal? Federal law may restrict or prohibit retirees from “assigning” their pensions to someone else.
• Is the transaction worth the cost? Find the discount rate that the factoring company has applied to your income stream and compare this rate to alternatives such as a bank loan.
• What is the reputation of the company offering the lump sum? Check the factoring company’s record with the Better Business Bureau, and research the firm on the Internet and with a financial professional.
• Will the factoring company require life insurance? The factoring company may require you to purchase a life insurance policy, which will add to your transaction expenses and reduce your payout.
• What are the tax consequences? The lump sum payment you collect may be taxable.

For a copy of the investor alert, click here.

JCT summarizes tax reform proposals/Ways and Means working with retirement incentives
The U.S. Joint Committee on Taxation (JCT) issued a “Report to the House Committee on Ways and Means on Present Law and Suggestions for Reform Submitted to the Tax Reform Working Groups” (JCS-3-13). The 568-page document summarizes current law, key tax reform proposals, and formal submissions to the House of Representatives Ways and Means Committee working groups on tax reform. Among the tax incentives that are discussed, those dealing with the employer-sponsored retirement system are discussed specifically.

Download a copy of the report here.

Benefit News DoL, Federal Reserve, FINRA, GAO, IRS, Joint Committee on Taxation, Regs and guidance, SEC

By Mira Copeland

I had a chance recently to watch the piece about 401(k) plans by Martin Smith on the PBS program Frontline, “The Retirement Gamble.” The piece takes a critical look at the 401(k) plan as the central retirement savings vehicle for most Americans. Smith covers a brief history of the 401(k), the market turmoil that has shaken confidence in it, and the various points of confusion and conflicts of interest that can occur in the 401(k) marketplace. In short, it paints a worrisome picture of the retirement industry.

In general, this is good information for 401(k) participants to have. Lack of participant engagement is a dominant force in the retirement readiness arena that we retirement plan professionals work hard to counteract. Smith’s work to stoke the ire of 401(k) plan participants may inspire some of them to actually open and read the statements and fee disclosure notices we diligently send them. Cautionary tales about not dipping into your plan are important at a time when many people are doing just that.

However, Smith’s piece only paints part of the picture—saving for retirement doesn’t have to be such a gamble. He says next to nothing about what people can or should actually do to improve their retirement accounts besides keep working, and dream of winning the lottery. The advice to participants to request formal acknowledgment from their financial advisors of their status as a “fiduciary” is dubious at best (for one problem, it’s unlikely the average participant could draft a meaningful fiduciary contract). Smith’s piece does not reflect the recent legislative and litigation efforts—enhanced fee disclosure, increased fiduciary responsibilities—which, while slow to develop and long overdue, are nonetheless beginning to address the very problems Smith laments.

So, for participants who were left wondering, and for plan sponsors who are fielding questions, what can each of us do to improve our odds at a secure retirement?

1) Start saving! If you haven’t started already, or perhaps stopped as a result of recent economic turmoil, it’s critically important to set aside money for savings on a regular basis. How much? Typical recommendations range from 6% to 20% depending on age, investment style, current savings, and other factors. Many employers contribute regularly to 401(k) plans, as well, to help participants reach that target savings rate. A retirement income calculator such as Milliman’s PlanAhead for Retirement® tool is a great way to hone in on an amount to save.

2) Choose a diversified investment strategy. This doesn’t have to be hard. Selecting a target date fund counts as a diversification strategy.

3) Understand your plan’s investment and transaction fees (and the impact thereof) by reading the annual disclosure notice and the fees section of account statements. An HR representative can help with most questions. Employers are required to act as fiduciaries and should have additional resources for any questions they can’t answer themselves. Use this information to fine-tune #1 and #2 above.

Defined contribution, Retirement planning 401(k), Mira Copeland, PBS Frontline, retirement preparedness

By John Ehrhardt

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest corporate defined benefit (DB) pension plans. In April, these pension plans experienced a $37 billion decrease in funded status based on a $60 billion increase in the pension benefit obligation (PBO) and a $23 billion increase in assets.

We knew that the funded status improvement that has characterized these 100 pension plans so far in 2013 couldn’t last forever. We saw a $106 billion improvement during the first quarter of 2013, thanks to strong investment performance and cooperative interest rates. The strong investment performance continued through April, but interest rates were less cooperative, dropping below 4% for the first time this year and driving a $60 billion increase in the pension benefit obligation.

In April, the discount rate used to calculate pension liabilities decreased from 4.22% to 3.98%, increasing the PBO from $1.651 trillion to $1.711 trillion at the end of the month. The overall asset value for these 100 pension plans increased from $1.367 trillion to $1.390 trillion.

Looking forward, if these 100 pension plans were to achieve their expected 7.5% median asset return and if the current discount rate of 3.98% were to be maintained throughout 2013 and 2014, their pension funded ratio would improve from 81.2% to 84.2% by the end of 2013 and to 89.3% by the end of 2014.

Milliman also hosted a live broadcast on Google+, with Zorast Wadia discussing the latest Pension Funding Index.

Defined benefit interest rates, John Ehrhardt, Pension Funding Index, PFI, Zorast Wadia

By Javier Sanabria

Outsourcing a defined benefit (DB) plan’s administrative tasks could be advantageous for some companies. The process of gathering data, calculating pension amounts, preparing retirement paperwork, and setting up payments may become too cumbersome for in-house personnel to maintain. In addition, the vast array of regulations may be too much for some administrators to keep up with.

In David Benbow’s recent Plan Consultant article, “Replacing Betty: Why DB Plan Outsourcing Makes Sense,” Betty characterizes the sole manager of many plan sponsors’ internal pension administration system.

Here is an excerpt:

As if complicated laws weren’t enough, DB calculations depend on extensive data. Usually, the longer a plan has existed, the more data are needed to calculate the pension and, if the plan has changed hands through mergers or acquisitions, this data may not be centralized or easy to obtain. Companies that have administered their DB plans in-house often have one key person—let’s call her “Betty”—who has been calculating the pensions for 35 years. Betty has all the historical knowledge; she knows which employee groups are special and why; she remembers when she has to go look someone up in the red binder to get the frozen amounts that are listed in it. Betty is friendly, reliable and indispensable. And Betty is 62.

As impossible as it may be to imagine life without Betty, we know her days are numbered and someday she’ll retire. So far, cloning Betty isn’t an option and training others isn’t really Betty’s strong suit, but we have to find a way to take the knowledge out of Betty’s brain and document it for posterity.

Could it be time to think about outsourcing the DB plan? Outsourcing sounds expensive, and our culture has always been to take care of our own employees. Then again, we may be forced to take the plunge.

It’s very common for a pension plan to have some data-related skeletons in the closet, and experienced pension administrators have seen it before. By looking at samples of Betty’s calculations, they can identify the key pieces of data, store them in a central, accessible location, and have the mysterious red binder keypunched so it can be automated. Betty will still be around to use as a resource, but with the processes automated instead of sitting between Betty’s ears, there won’t be any surprises when she retires.

The article also discusses the scope of outsourcing DB plans and provides two examples demonstrating how outsourcing can help streamline administrative tasks.

Read more…

Defined benefit David Benbow, defined benefit, Jean Smith, outsourcing, pension administration

By Employee Benefit Research Group

More retirement-related regulatory news for plan sponsors, including links to detailed information.

FASB proposes deferral of certain disclosures for nonpublic employee benefit plans
The Financial Accounting Standards Board (FASB) has issued a proposal to defer indefinitely the effective date for certain disclosures about investments held by a nonpublic employee benefit plan in the plan sponsor’s own equity securities. Stakeholders are asked to provide comments on proposed Accounting Standards Update, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04, by May 31, 2013.

The proposal seeks to address stakeholder concerns about certain disclosure requirements that would potentially provide proprietary information about private companies through the dissemination of their employee benefit plans’ financial statements on the plan regulator’s website. The deferral would allow time for discussions between the regulator(s) and stakeholders about the specific quantitative disclosures and their potential effect on the plan sponsor as a result of making that information public.

The proposed deferral would be effective upon issuance of the final Update. That final Update is expected to be issued in June 2013.

Read the entire proposal here.

PBGC requests OMB approval of multiemployer plan guaranty program survey
The Pension Benefit Guaranty Corporation (PBGC) intends to request that the Office of Management and Budget (OMB) approve, under the Paperwork Reduction Act, a voluntary collection of information for a survey to assist PBGC in modeling potential outcomes of pension plans insured under its multiemployer program. This notice informs the public of the PBGC’s intent and solicits public comment on the collection of information.

PBGC is researching the effects of potential changes to its multiemployer program. PBGC’s objective is to quantify the effect of potential policy proposals on multiemployer plans that are or could enter critical status with respect to projected dates of insolvency, amount of financial assistance that PBGC would be required to provide, and the benefit changes plan participants would experience. To assist in this research PBGC intends to request that OMB approve a survey of multiemployer pension plans, their actuarial service providers, and their stakeholders, including unions and relevant professional and trade organizations.

IRS issues final regulations updating employer identification numbers
The Internal Revenue Service (IRS) has issued final regulations that require any person assigned an employer identification number (EIN) to provide updated information to the IRS in the manner and frequency prescribed by forms, instructions, or other appropriate guidance. These regulations affect persons with EINs and will enhance the ability of the IRS to maintain accurate information as to persons assigned EINs.

The final regulations will be applicable as of January 1, 2014, so that the IRS can publish the relevant form and instructions in advance of the applicability date.

IRS posts tips to avoid processing delays with VCP submissions
The IRS has posted five tips to avoid processing delays with Voluntary Correction Program (VCP) submissions under Revenue Procedure 2013-12.

To read the tips, click here.

GAO report: State and local governments’ fiscal outlook (April 2013 update)
Declines in state and local pension asset values stemming from the 2007 to 2009 economic recession could also affect the sector’s long-term fiscal position. Pension asset values increased by almost 22%, from $2.3 trillion at the end of 2008 to $2.8 trillion at the end of 2011. However, as of 2011, values have not recovered to match or exceed the 2007 value of $3.2 trillion. Furthermore, pension asset values varied throughout 2011, ending the year approximately $82 billion below the fourth quarter 2010 value. In our prior work, we reported that while most state and local government pension plans have assets sufficient to cover benefit payments to retirees for a decade or more, plans have experienced a growing gap between assets and liabilities. In response to this gap, state and local governments are taking steps to manage their pension obligations, including reducing benefits and increasing member contributions.

To read the entire Government Accountability Office (GAO) report, click here.

U.S. Bureau of Labor Statistics: Differences in union and nonunion compensation (2001 to 2011)
Union workers continue to receive higher wages than nonunion workers and have greater access to most employer-sponsored employee benefits. During the 2001 to 2011 period, the differences between union and nonunion benefit cost levels appear to have widened.

For more information, click here.

Benefit News BLS, FASB, GAO, IRS, PBGC, Regs and guidance

By Mike Peatrowsky

As part of the proposed federal fiscal year 2014 budget, President Obama included a cap on the amount of retirement savings an individual could accumulate in tax-deferred retirement plans. The total accumulation amount for an individual includes all qualified tax-deferred savings plans such as traditional defined benefit (DB), cash balance, money purchase, profit sharing, 401(k), and 403(b) plans, as well as funded governmental 457(b) arrangements and Individual Retirement Accounts (IRAs), both traditional and Roth.

The proposal is most likely a result of the presidential campaign last year, during which it was reported that Governor Mitt Romney had qualified accounts in excess of $100 million. However, the administration’s budget proposal would not tax accumulated accounts in excess of the cap. If the accumulated accounts exceed the cap, the individual would not be allowed to make future deferrals or receive any future employer contributions under any retirement plan.

The proposal would essentially cap tax-advantaged retirement plans to an amount necessary to provide the maximum annuity permitted under a defined benefit plan. The current limit is $205,000 payable annually at age 62. The annual annuity amount would be increased by a cost of living adjustment.

After converting the annuity to a present value using current interest rates, the total accumulation amount is approximately $3.0 million to $3.4 million. Because of the current low interest rate environment, that total accumulation amount is inflated. If interest rates return to a historical level, the maximum accumulated amount could be as low as $2.2 million to $2.4 million for an individual age 62.

No real details are available on how account values would be reported or how the cap would be calculated. There is a concern small business owners could eliminate their retirement plans if they were at the accumulated cap, because they would not receive the benefit of tax-deferred treatment. As a result, retirement savings vehicles for many rank and file employees could be eliminated. As an alternative, consideration could be taken to limit only employee deferrals under the proposal or a portion of employer-provided contributions, allowing small business owners some incentive to keep their retirement plans.

Under the proposal, it is estimated that the accumulation cap would result in approximately $9 billion in additional federal tax revenue over the next 10 years beginning October 1, 2013. On the flip side, it has not been determined how much tax revenue would be lost in future years as a result of smaller account balances for these taxpayers. All distributions from qualified retirement plans (other than Roth accounts) are taxed at distribution.

It will be interesting to see if this proposal will gain traction with lawmakers.

Defined contribution, Pensions 401(k), 403(b), 457(b), Mike Peatrowsky, retirement savings cap

By Employee Benefit Research Group

The Internal Revenue Service (IRS) issued Revenue Procedure 2013-22, which establishes the procedures the agency will follow when issuing opinion and advisory letters for 403(b) preapproved plans that may be adopted by tax-exempt organizations, public schools, and church-related organizations. Beginning June 28, 2013, sponsors of preapproved 403(b) plans may apply to the IRS for an opinion letter (prototype plans) or an advisory letter (volume submitter, including mass submitter, plans).

The revenue procedure explains:

• The requirements that the preapproved plans must satisfy
• The preapproved plan sponsors’ responsibilities
• The procedures for applying for opinion and advisory letters
• The conditions under which an eligible employer that adopts a preapproved 403(b) plan can rely on the plan documents meeting the tax code and regulatory requirements under section 403(b)

The IRS guidance also includes a remedial amendment provision that allows eligible employers to retroactively correct their plans to satisfy the 403(b) requirements. The new procedures permit the retroactive remedial amendment of 403(b) plans in order to satisfy the written plan requirements and to correct any form defects. This generally would be automatically satisfied if the employer retroactively adopts a 403(b) preapproved plan. Although employers may retroactively amend individually designed plans to correct any defects, the IRS at this time is not offering determination letters for individually designed plans.

Sample language that preapproved 403(b) plan sponsors may use in preparing to submit their plans to the IRS for approval is posted on the agency’s website.

For more information about the IRS’s new procedures for opinion and advisory letters for preapproved 403(b) plans, please contact your Milliman consultant.

Benefit News 403(b), IRS, Regs and guidance

By Jinnie Regli

As we wrap up the first quarter of 2013, we are receiving several inquiries from plan sponsors regarding InvestMap^TM, Milliman’s retirement glide path technology.

Let me start with some background. Model portfolios offer risk-based options to participants consisting of asset allocations comprising many of the core funds already in the plan. Target date funds are portfolios designed to achieve returns based on a participant’s target retirement date; those closer to retirement will typically have less exposure to equities and commensurate expectations of lower investment returns, while those further from retirement will be exposed to more risk and a higher potential investment return.

InvestMap is a great solution for participants and employers alike because it brings together the benefits of both target date funds and model portfolios. Conceptually, target date funds are a good idea, but product orientation and lack of customization have underscored their limitations. Specifically, target date funds take somewhat of a “catchall” approach at the plan level.

InvestMap is designed to work at the participant level, incorporating the best aspect of target date funds (the automated glide path for which equity exposure is reduced over a period of several years). However, personal risk attributes of individual participants are incorporated as well. This sophisticated “marriage” between risk-based models and an age-based target date glide path, coupled with an open architecture investment platform, provides the best of both worlds for plan sponsors and participants.

The core funds are still available for participants to select their own asset allocations if they choose not to participate in InvestMap.

Advantages to the plan sponsor:

• InvestMap offers fiduciary protection for the construction of the models
• Can be used as the plan’s qualified default investment alternative (QDIA)
• Investment management fee transparency and no additional costs

Advantages for participants:

• Investment education that is easily understood
• Personalized strategies for each participant’s individual risk tolerance
• Hands-off management from initial enrollment to retirement

Please contact your Milliman representative for more information on how InvestMap could benefit your plan.

Investment, Retirement planning glide path, Jinnie Regli, retirement strategy, target date funds