Compliance September 23, 2016

Senate Committee Approves Bill Allowing Open MEPs

The bill also would provide a fiduciary safe harbor for selection of lifetime income solution providers.
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The U.S. Senate Committee on Finance has approved a bill that would open the door for employers to participate in open multiple employer plans (MEPs), as well as provide nondiscrimination testing relief permanently to closed defined benefit (DB) plans and a fiduciary safe harbor for selection of lifetime income solution providers.

According to a summary of Committee Chairman Senator Orrin Hatch’s (R-Utah) modifications to the Retirement Enhancements and Savings Act of 2016, the bill would provide that small businesses could join MEPs to share the administrative burden and costs of a retirement plan. It would prevent all businesses participating in a MEP from losing their tax-preferred status if one business fails to meet the necessary criteria, and would allow for one Form 5500 to be filed for MEPs.

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The proposal applies to years beginning after December 31, 2019, and to Forms 5500 for plan years beginning after December 31, 2019.

The bill also would specify measures that a plan fiduciary may take with respect to the selection of an insurer and a guaranteed retirement income contract in order to assure that the fiduciary meets the prudent man requirement.  The measures under the proposal are an optional means by which a fiduciary will be considered to satisfy the prudent man requirement with respect to the selection of insurers and guaranteed retirement income contracts and do not establish minimum requirements or the exclusive means for satisfying the prudent man requirement.

Research has shown plan sponsors may be hesitant to offer in-plan guaranteed retirement solutions in part due to a lack of safe harbor from the Department of Labor (DOL).

The bill would also make permanent the nondiscrimination relief provided for closed DB plans.

Other provisions in the bill would clarify that employees of nonqualified church-controlled organizations, in addition to employees of churches and qualified church-controlled organizations, may be covered under a section 403(b) plan that consists of a retirement income account; establish Pension Benefit Guaranty Corporation (PBGC) premiums for Cooperative and Small Employer Charity (CSEC) pension plans; change the after-death required minimum distribution rules applicable to defined contribution (DC) plans and IRAs; allow earnings on elective deferrals under a section 401(k) plan, as well as qualified nonelective contributions and qualified matching contributions (and attributable earnings), to be distributed on account of hardship.  In addition, the bill provides that a distribution is not treated as failing to be on account of hardship solely because the employee does not take any available plan loan.

More information is here.
Compliance September 23, 2016

California Pensions Must Disclose Fees Paid to Alternative Managers

Starting in 2017, public pension funds in California must disclose fees paid to private equity, hedge, venture and absolute return fund managers.
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California Governor Jerry Brown signed AB 2833, sponsored by State Treasurer John Chiang, requiring public pension funds to disclose fees paid to private equity investment firms.

According to the bill, “for new contracts entered into on and after January 1, 2017, and for existing contracts for which a new capital commitment is made on or after January 1, 2017, would require a public investment fund, as defined, to require alternative investment vehicles, as defined, to make specified disclosures regarding fees, expenses, and carried interest in connection with these vehicles and the underlying investments, as well as other specified information.”

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The bill defines “alternative investment” as an investment in a private equity fund, venture fund, hedge fund, or absolute return fund. “Alternative investment vehicle” is defined as the limited partnership, limited liability company, or similar legal structure through which a public investment fund invests in an alternative investment.

The disclosure requirements will apply to the California Public Employee Retirement System (CalPERS), the California Teachers Retirement System (CalSTRS), county and city retirement systems, the University of California Retirement System and all independent retirement systems.

“California taxpayers and pension beneficiaries will now get to go behind the curtain to view the previously hidden fees and charges paid to Wall Street firms,” said Chiang. “This is important because every dollar paid in fees is one less dollar available for promised pension benefits.”

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