The retirement issues affecting our aging population are not unique to the U.S. The American Association of Retired Persons, commonly referred to as AARP, has a Policy and Research group that specializes in a vast range of topics relating to older adults and aging both domestically and globally. They put together a collection of recently released international comparative resources on public, private and occupational pensions. Here is the link to it.
It’s official. 401(k) fees now on political radar screen
It started late last year with the beginning of the class action suits involving 401(k) fees (More storm clouding forming over 401(k) fees). Then followed by the publication of the General Accounting Office 401(k) Report commissioned by Rep. George Miller, D-Cal. Th e Congressman announced that the House Education and the Workforce Committee that he was in line to chair under the new Democratic-controlled Congress should hold hearings next year to examine the “fee issue” (Shoot fired across 401(k) industry bow).
And now, it’s official. 401(k) fees have become part of the political debate. Yesterday, the House Committee which Congressman Miller now chairs held hearings on 401(k) fees. The Democrats using verbiage such as “hidden fees erode retirement savings”, and the Republicans saying more information is confusing. What’s like to emerge under the new political alignment of Congress is legislation requiring less fees and more transparency – whatever that means.
What it means will be determined, of course, by the Department of Labor (DoL) who is working on regulations for reporting of fees, expenses, and revenue sharing on Form 5500; point-of-sale disclosures; a model notice under the fiduciary provisions of the Pension Protection Act, and what’s "reasonable compensation."
It’s something that all of us – plan sponsors and service providers – will be focused on more than ever before.
“Boomerang” workers and 401(k) plans
We used to call them “rehires” back in the day: those employees who quit and were hired back. And it didn’t happen all that often. Many companies had policies not to. But now it’s different. Different times, different economy. Employees who left the nest decide they want to come back, and employers desperate for qualified, talented workers are happy to have them back.
They’re now called “boomerang workers”, and according to Benefit News they comprise about one-third of the workforce Steve Jobs at Apple Computing is one of them, and they’re not just confined to the tech companies.
We’ve seen a number of these boomerang employees return to clients who have to deal with 401(k) issues such as eligibility, vesting, and forfeitures. It means picking up the plan document and reviewing those complicated rules to determine how to handle such ERISA matters as break-in-service, eligibility computation period, forfeiture, hour of service, vesting computation period, rule of parity, and year of service.
If you’re an employer rehiring former employees, here are some things to keep in mind:
- Make sure that your plan and your Summary Plan Description clearly spell out how returning workers are treated. It’s ERISA, and everyone has to be treated the same.
- Review how their vesting and forfeitures were handled when they left. Those same ERISA rules govern how non-vested benefits should be treated when an employee returns.
- Use the appropriate eligibility rules to bring these employees back into your 401(k) plan. Those ERISA rules referenced above may – or may not – allow them to come in immediately.
- Keep the recent changes to the Pension Protection Act in mind. The Act made changes to vesting schedules that may affect these employees.
And, of course, know how to handle the situation before – rather than after – the rehire.
Will participants in New Jersey public employees retirement plan become Kings of the Road?
New Jersey Gov. Jon S. Corzine has his eyes on the state’s toll roads as a new source of revenue to pay debt, reduce property taxes and fund unmet needs. The Governor’s idea was to turn over toll roads including the New Jersey Turnpike and the Garden State Parkway to private investors in a sale or lease. State lawmakers who don’t like the idea of losing control of the toll roads have come up with a creative alternative. The state pension fund with over $70 billion in assets would buy it as a pension plan investment, and receive the tolls as investment income.
State Senator Raymond J. Lesniak, who introduced a bill last month to authorize the state to negotiate a lease deal with private investors, endorsed the idea of letting the pension fund take over the toll roads. Sen. Lesniak said that it is:
consistent with the fiduciary responsibility of the pension fund to make investments that help New Jersey’s economy by reducing debt through a solid long-term investment, and contributing to the overall economic health of New Jersey.
If it happens, then it better pay off. New Jersey’s deficit for its largest public employee pension system grew to $7.2 billion last fiscal year, a $2.7 billion increase from the previous year.
Oh! Before you ask. Public employee pension plans are generally not subject to ERISA’s funding, vesting, disclosure and fiduciary rules
New survey reports 20 million U.S. workers own stock through their benefit plans
The National Center for Employee Ownership (NCEO) reports on a recent survey from the 2006 General Social Survey that 20 million American workers own stock in their company through a 401(k) plan, ESOP, direct stock grant, or similar plan, while 10.6 million hold stock options. his? That means that 17% of the total workforce own stock through some kind of benefit plan, while 9.3% of the workforce hold options.
The General Social Survey, one of the largest national surveys on work and other issues, is a project of the National Opinion Research Center. Funding was received from the National Bureau of Economic Research, the Employee Ownership Foundation, the Beyster Institute, the NCEO, and the Profit Sharing Council of America.
Do you know where your pension is?
You can lose many personal items in your lifetime – your gloves, your keys, or your glasses. They’re small and replaceable items. But your pension benefit is another matter. What if you lose your pension. Not because someone will take it away from you, but because you can lose track of it. It’s not unusual in an economy in which workers change jobs frequently, employers go out of business, move, or are acquired. Martha M. Hamilton writes in the on line addition of the Denver Post that tracking down pensions can be tricky for participants who have lost track of pension benefits owed to them.
The Pension Benefit Guaranty Corporation does have its Pension Search database, but it’s only useful to assist employees whose defined benefit pension plan the PBGC has taken over. There are other resources out there which Ms. Hamilton discusses, but the bottom line is you’re on your own.
So what’s the solution? One to consider is the approach taken by the U.K. and Australia. Each country has a central registry for the purpose of helping people find lost pensions. This approach is the subject of a discussion paper published by The Pensions Institute, Lost Pensions, Lost Pensioners: Is a National Registry of Pension Plans the Answer? (PDF) The Pensions Institute is the first and only academic research center focused entirely on pensions in the U.K.
The discussion paper written in 2001 by David Blake of the Pensions Institute and John Turner of AARP preceded the wave of defined benefit plan terminations and freezes. And with the shift to 401(k) plans – and automatic enrollments – there will be an increasing number of lost benefits. It’s time to address the matter.
Two classes of retirees emerging: those having government pensions and those that don’t
More and more, retirees are finding that it pays to have worked for the government instead of the private sector. That’s the headline of a recent article in USA Today reporting that retired government workers are twice as likely to get a pension as their counterparts in the private sector with a benefit more generous. Much has been written about the cost of these public sector plans and the decline in private sector pension plans. Two sides, of course, to the issue. Is it because of the decline in corporate pension plans or because of what public employee unions have been able to achieve? Or maybe both?
What to do when an independent contractor is really an employee
Recently I wrote about being careful to properly classify your workers: independent contractor or employee. But what if you make a mistake, and that independent contractor is really an employee. How do you fix it? Here’s how. There’s two aspects to the fix. From the retirement plan standpoint, you can use one of the correction programs offered by the Internal Revenue Service as part of their Employee Plans Compliance Resolution System (EPCRS). From the payroll tax standpoint, Accounting Web provides valuable Tips For Reporting Misclassified Employees. Not fixing it can be extremely expensive.
Big increase in pensions for former NBA players part of NBA All-Star Weekend hoopla
Last night’s media coverage in Las Vegas for the NBA’s All-Star weekend had it all: the Skills Competition, the Charles Barkley-Dick Bavetta race for charity ($50,000 going to the Boys and Girls Clubs of Las Vegas), optimistic talk of a NBA team coming to Vegas, legends of the game, celebrity sightings, etc. But there was little coverage of a significant event in professional sports on at least two levels: a significant increase in pension benefits for retired players and a contribution by the Players Association in paying for it.
Here is what was announced by NBA Commissioner David Stern in company with Billy Hunter, Executive Director of the Players Association. The joint plan gives a 50% increase in pension benefits to players who retired before 1965. Players with three and four years in the league are now eligible, instead of the previous five-year requirement. The plan is retroactive to July 1, 2005, and allows for a lump sum catch-up of $20,000 for the players who had three or four years in the league.
Quite a contrast to Super Bowl week.
The times they are a-changin’. Wire houses permitting reps to act as fiduciaries
Steve Rosenberg writing today in his Boston ERISA and Insurance Litigation Blog ends his post, Insurance Brokers As ERISA Defendents, by commenting that "… it might be something for any entity playing a role in an ERISA governed plan to consider at the outset of their retention: should they put themselves in a position to be a fiduciary subject to ERISA, or should they avoid that like the plague?"
Until recently, one type of entity, wire house brokerage firms, did exactly that by not allowing their brokers to act as fiduciaries. For years they required their reps to act under rules which required them only to recommend “suitable investments”. This suitability requirement differs markedly from that of the fiduciary requirement imposed on registered investment advisors (RIAs) and CFPs. Not surprisingly, there has been an ongoing battle between this difference in legal responsibilities.
But now, Lisa Shidler writing for Investment News, Wirehouses warm to fiduciary status, tells us that the times are indeed a-changin’. Wachovia, Smith Barney, and UBS have all confirmed that they have begun allowing the top brokers to act as fiduciaries for 401(k) plans under certain conditions. And while Merrill Lynch declined to comment on the matter, she reports that industry sources say that some Merrill reps are also being allowed to act as fiduciaries.
Why? To be competitive with the RIAs and CFPs and to respond to plan sponsors who want them to accept fiduciary responsibility.
