By Denise Foster

While pension plans offer many employers some challenges today, the fact remains that they will be the primary reason many of the older Baby Boomers stay afloat. Flash forward a generation or two, and for any individuals who must rely on Social Security, a 401(k) plan, and perhaps some personal savings, what does their retirement look like? What does it mean for the strength of our nation? Pension plans are a stabilizing factor.

The 2010 Retirement Confidence Survey, sponsored by the Employee Benefit Research Institute (EBRI), the American Savings Education Council (ASEC), and Mathew Greenwald & Associates (Greenwald), paints a grim picture of the average person’s ability to save for the future.

Here’s an excerpt:

“More than half of workers report they have less than $25,000 in total savings and investments (excluding their home and defined benefit plans) (54 percent). One-quarter have less than $1,000 (27 percent, up from 20 percent in 2009).

Read more about the 2010 Retirement Confidence Survey findings here.

Defined benefit Denise Foster

By Employee Benefit Research Group

Milliman issued a benefit alert today:

The IRS recently issued guidance on the in-plan Roth transfer option permitted by the “Small Business Jobs Act of 2010.” This option permits plans to be amended to allow participants to transfer eligible pretax 401(k) or 403(b) contributions and vested employer contributions into a designated Roth account within the same plan. If you choose to add this feature in 2010, plan participants may take advantage of special tax treatment available for conversions made in 2010 only.

Read more…

Roth IRS, Roth Conversions

By Employee Benefit Research Group

Milliman today issued this benefit alert:

The IRS has provided a much-welcomed extended deadline for you to amend your qualified defined benefit plans for provisions included in the Pension Protection Act (PPA) and other recent laws. In Notice 2010-77, the IRS has extended the deadline to the last day of the first plan year that begins on or after Jan. 1, 2011. For calendar-year plans, the new deadline is Dec. 31, 2011.

(Note, however, that the extended deadline does not apply to certain other amendments that plan sponsors must make by the end of this year, such as those under the “Heroes Earnings Assistance and Relief Tax Act” (HEART Act), relating to benefits for employees who are serving in the military. See Client Action Bulletin 10-25.)

The notice extends the deadline for the following:

• amendments relating to funding-based limits on benefits and benefit accruals under single-employer plans (under sections 401(a)(29) and 436 of the Internal Revenue Code (IRC));
• amendments relating to vesting and other special rules applicable to cash balance and other hybrid plans under IRC sections 411(a)(13)(C) and 411(b)(5); and
• a plan’s eligibility under an interim plan amendment for the anticutback relief under IRC section 411(d)(6), as described in IRS Notice 2009-97.

Plans must continue to satisfy the operational compliance requirements as a condition of the extended deadline.

In addition, the notice states that the IRS will not take into account the requirements of IRC sections 401(a)(29) and 436 when the agency reviews determination letter applications submitted before Feb. 1, 2012. The IRS will consider the requirements of sections 411(a)(13) and 411(b)(5)–including those provisions in the Oct. 19, 2010, final rule–when reviewing determination letter requests filed after Jan. 31, 2011, under a standard of “reasonable interpretation” of the statute.

If you have any questions about the IRS’s extended amendment deadline, please contact your Milliman consultant.

Defined benefit IRS

By jeremy.engdahl-johnson

U.S. News & World Report looks at the challenge facing retirees and the role actuaries might play in surmounting this challenge. Here is an excerpt:

There are roughly 110 million middle-class households. According to financial planning research, at most two million, or about 2 percent, receive financial planning services. The Society of Actuaries (SOA) hardly sounds like the group that would be riding to the rescue of the other 108 million. Think again. Actuaries specialize in analyzing and understanding the financial consequences of risk. What better skills could you have in fashioning and executing a successful financial plan for retirement?

In two recent studies sponsored by the SOA, it has assembled a wealth of research and practical advice aimed at middle income retirement needs.

Read the full article here.

Uncategorized

By Employee Benefit Research Group

The U.S. Department of Labor (DOL) issued this announcement today:

The Department published in the Federal Register of October 24, 2007 a final regulation (the qualified default investment alternative regulation) providing relief from certain fiduciary responsibilities for fiduciaries of participant-directed individual account plans who, in the absence of directions from a participant, invest the participant’s account in a qualified default investment alternative. On October 20, 2010, the Department published a final regulation that requires the disclosure of certain plan and investment-related information, including fee and expense information, to participants and beneficiaries in participant-directed individual account plans (the participant-level disclosure regulation).

This proposed regulation contains proposed amendments to the qualified default investment alternative regulation to provide more specificity as to the information that must be disclosed in the required notice to participants and beneficiaries concerning investments in qualified default investment alternatives, including target date or similar investments. This document also contains a proposed amendment to the participant-level disclosure regulation that would require the disclosure of the same information concerning target date or similar investments to all participants and beneficiaries in participant-directed individual account plans.

Written comments on the proposed regulation should be received by the Department of Labor no later than 45 days after publication of the regulation in the Federal Register. The proposed regulation is scheduled to be published on November 29, 2010.

Investment

By Employee Benefit Research Group

New guidance out today:

The IRS has issued Notice 2010-84 providing guidance under § 402A(c)(4) of the Internal Revenue Code, relating to rollovers from § 401(k) plans to designated Roth accounts in the same plan (“in-plan Roth rollovers”), as added by § 2112 of the Small Business Jobs Act of 2010 (“SBJA”), P.L. 111-240. The guidance in this notice also generally applies to rollovers from § 403(b) plans to designated Roth accounts in the same plan.

The guidance, in the form of 20 questions and answers, discusses what amounts are eligible for in-plan rollovers, plan loans, tax consequences of an in-plan rollover and specific issues regarding plan amendments.

Find the full guidance here. You might also find this useful.

Benefit News Roth rollover

By jeremy.engdahl-johnson

Bloomberg looks at how low interest rates are driving corporate decision-making:

Companies facing the biggest pension deficit since at least 1994 are selling bonds at the fastest pace in more than seven years to plug the hole, betting that future returns will exceed their borrowing costs.

United Parcel Service Inc., the world’s largest package- delivery business, Dow Chemical Co., Northrop Grumman Corp. and PPG Industries Inc. sold at least $5.25 billion of investment- grade U.S. corporate bonds in November to fund their pensions, making it the busiest month since June 2003, according to data compiled by Bloomberg.

The Federal Reserve’s effort to hold down interest rates to stimulate the economy has caused corporate pension obligations, which are pegged to bond yields, to rise by $105.8 billion this year to $1.44 trillion as of October, according to Milliman Inc. Now, companies are taking advantage of borrowing costs at about the lowest on record as Goldman Sachs Group Inc. says interest rates will rise as the global economy recovers.

“They’re fighting fire with fire,” John Lonski, chief economist at Moody’s Capital Markets Group in New York, said in a telephone interview. “They’re being victimized by low bond yields, so why not go ahead and use them as an offset?”

Defined benefit

By Employee Benefit Research Group

This is from the U.S. Department of Labor (DOL); the full proposed regulations are available here:

The Department of Labor has issued a proposed regulation that, on adoption, would implement the annual funding notice requirement in the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Pension Protection Act of 2006 (PPA) and the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA).

As amended, section 101(f) of ERISA generally requires the administrators of all defined benefit plans, not just multiemployer defined benefit plans, to furnish an annual funding notice to the Pension Benefit Guaranty Corporation (PBGC), participants, beneficiaries, and certain other persons. A funding notice must include, among other information, the plan’s funding target attainment percentage or funded percentage, as applicable, over a period of time, as well as other information relevant to the plan’s funded status.

The document also contains proposed conforming amendments to other regulations under ERISA, such as the summary annual report regulation, which became necessary when the PPA amended section 101(f) of ERISA. The proposed regulation would affect plan administrators and participants and beneficiaries of defined benefit pension plans, as well as labor organizations representing participants and beneficiaries and contributing employers of multiemployer plans.

Comments on this proposed regulation should be received on or before 60 days after the date of publication in the Federal Register. Publication of the proposed regulation is scheduled for November 18, 2010.

Defined benefit

By Employee Benefit Research Group

If you haven’t seen it yet, this announcement from Honeywell offers an interesting instance of a large company taking some innovative steps with its pension.

Defined benefit Honeywell

By jeremy.engdahl-johnson

Milliman released its latest monthly Pension Funding Index (PFI) today. The 100 corporate pensions tracked in the PFI experienced a second consecutive strong month, with funded status improving by $79 billion in October.

Pension and Investment has the story; here is an excerpt:

John Ehrhardt, Milliman principal, consulting actuary and co-author of the Milliman 100 Pension Funding Index, said in an interview that it was one of the more impressive two-month improvements since the inception of the index but that pension plans have “a long way to go” before reaching full funding. The pension plans were up a combined $67 billion in September.

“It’s almost two years before we get back to 100% funding,” he said, noting that if pensions can maintain a 12.1% annual return and steadily increasing interest rates from 5.25% to 6.5%, then the plans would reach full funding by summer 2012. October ended with a discount rate of 5.27%.

Defined benefit John Ehrhardt, Pension Funding Index