Administration May 3, 2013

Decrease in Funded Status of Corporate Pensions

May 3, 2013 (PLANSPONSOR.com) – The funded status of the typical U.S. corporate pension plan fell during April, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).
Reported by

Specifically, the average funded status fell 1.8 percentage points in April 2013 to 80.8% as liabilities posted their sharpest gains of the year. The year-to-date funded ratio is up 4.5 percentage points.

Liabilities for the typical corporate plan rose 4%, which ISSG attributed to a decline in Aa corporate bond yields. Those yields declined 25 basis points to 3.84%. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Assets for the typical corporate plan increased 1.7% as equity markets rallied in reaction to diminishing concerns regarding the Cyprus banking situation, according to the BNY Mellon Pension Summary Report for April 2013.

“Interest rates fell as investors expect the Federal Reserve will affirm its commitment to bond purchases in its efforts to spur the economy,” said Jeffrey B. Saef, managing director, BNY Mellon Investment Management, and head of the ISSG. “Pension plans continue to feel the effect of the Fed’s quantitative easing program, as the growth in liabilities more than doubled the growth in assets during April.”

Compliance May 3, 2013

ASPPA Recommends Changes to Pre-Approved Plan Programs

May 3, 2013 (PLANSPONSOR.com) – The American Society of Pension Professionals & Actuaries (ASPPA) and the National Tax Sheltered Accounts Association (NTSAA) requested changes to pre-approved plan programs.
Reported by

In a statement from Craig P. Hoffman, general counsel and director of Regulatory Affairs of ASPPA to the Internal Revenue Service (IRS), the groups requested that the Master & Prototype (M&P) and Volume Submitter (VS) components of the pre-approved plan program be combined into a single program and recommended certain modifications to the defined benefit and 403(b) pre-approved plan programs.  

The IRS currently maintains a program for the ‘pre-approval’ of plans qualified under sections 401, 403(a) and 403(b) of the Internal Revenue Code. ASPPA requested the modification of substantive and procedural distinctions between certain terms within the pre-approved plans program under sections 401 and 403(a), and ASPPA and NTSAA together requested modifications to the defined benefit and 403(b) pre-approved plan programs.  

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

“To streamline the pre-approved plan procedures for plans qualified under sections 401 and 403(a), ASPPA recommends that the IRS eliminate the procedural and substantive distinctions between the M&P and VS programs by incorporating the best current features of both programs into a single pre-approved plan program,” Hoffman stated. “ASPPA’s experience indicates that most employers adopting and maintaining qualified retirement plans are chiefly concerned with whether the plan is pre-approved by the IRS. The distinctions between M&P and VS are irrelevant to them and create confusion. As a preliminary recommendation, ASPPA suggests eliminating the terms ‘master and prototype plan’ and ‘volume submitter plan’ under the relevant revenue procedures and instead use ‘pre-approved plan’ or a similar term.

“In response to changing realities in the plan environment concerning defined benefit plans, ASPPA and NTSAA recommend that cash balance provisions now be included as options within a pre-approved defined benefit plan. Most of the existing cash balance plans are based on provisions that are consistently and repeatedly used, often already using pre-approved defined benefit plan language (with the exception of the limited cash balance-specific provisions).  

“In addition, to streamline IRS processes regarding 403(b) plans, ASPPA and NTSAA recommend that the IRS extend the 403(b) plan submission deadline from April 30, 2014, to January 31, 2015, to allow time for new plans to be fully established, as well as enable the IRS and practitioners to analyze and resolve issues with the LRMs that have already been identified and more that may be identified as the drafting process begins.”  

Hoffman concluded with, “We believe adoption of these recommendations will result in a reduction in administrative costs for both the IRS and practitioners, all to the benefit of plan participants and plan professionals alike.”  

The groups’ letter about pre-approved defined benefit and 403(b) plans is here.  

ASPPA’s letter about combining M&P and VS pre-approved plans programs is here. 

«