CEBS: GBA/RPA 3 (new curriculum)

ERISA

Employee Retirement Income Security Act 1974

SOC Reports

Service Organization Controls: for external vendors

SOC 1

Internal Controls & Financial reports; used by auditors

SOC 2

Security, availability, processing integrity, confidentiality and privacy controls;used by management, regulators, and others under an NDA

SOC3

Same as SOC2, but available for public use.

Tribble V Edison

Landmark court case re fiduciary responsibility pertaining to reasonableness of fees. Also, allowed 6 yr statute of limitations to be based on most recent time fees were applied rather than when fund was added. Greater exposure for plan sponsor.

SPD-renewals

Renew every 10 yrs, every 5 years if changes; provide to ppts no later than 210 days after plan year in which changes were made ends.

QLAC

Qualified Longevity Annuity Contract; individual purchases contract. Allows individual to delay withdrawing money from retirement account. Must start by distributions by age 85; Amt of QLAC is not included in amount determined for an RMD

Plan document should include:

(a) The name(s) of the plan fiduciary(ies)

(b) Policies and procedures relating to plan administration

(c) Funding requirements

(d) A description of how benefit payments will be made

(e) Claims and appeals procedures

(f) Plan amendment and termination authority and procedures

(g) Method for distribution of plan assets upon plan termination

(h) A statement that plan assets can be used to pay reasonable costs of plan

administration.

Plan Document

No set requirements; include plan name, fiduciary, claims review procedures; funding; eligibility

Summary of Material Modification (SMM)

Must be delivered within 210 days after the end of the plan year, or within 60 days after a "material reduction" in benefits of a group health plan. penalty up to $110/day for not delivering within 30 of ppt/beneficiary's request

Social Insurance-Fully Insured

40 credits/quarters of coverage

1 credit for each $x earned (2017-$1300)

Adjusted for inflation

Must be fully insured to be eligible for retirement benefits

Currently Insured

At least 6 credits in last 13 calendar quarters ending with quarter of death, disability, or entitlement to retirement benefits.

Disability Insured

Two work tests: 1) recent work test; depends on age at disability. and 2)duration of work test (doesn't require work within a certain period of time)

FASB ASC 960

Defined Benefit Plans; establishes the accounting and financial reporting standards.

Under DOL

ERs can file one set

FASB ASC 960-which plans

All ongoing plans-Funded and Unfunded that provide pension benefits

a) plans subject to ERISA

b) plans not subject to ERISA

c) plans without intermediary funding agencies or plans financed through trusts, contracts of insurance or a combination thereof

DOES NOT APPLY to gov sponsored SS plans

FASB ASC 960-Acctg and Reporting

a) accrual basis, include statement of net assets available at the end of the year and a statement of a change in assets

b) plan investments- FAIR value except for insur contracts

c) info on actuarial PV and sig changes

d) accumulated plan benefits one of three options:

-face of statement

-net assets available for benefits

-separate statements or in notes of fin statements

e) actuarial PV of accumulated plan benefits baed on EE earnings

2014 DOL Audit quality study

Almost 40% of benefit plan audits had unacceptable major deficiencies

3 types of deficiencies/weaknesses

1)Internal Plan Processes

2)Regulatory requirements

3) Outside Service Providers

Deficiency-408(b)(2)

Lack of proper monitoring of service provider fees and disclosures. Impt b/c a service provider is a party in interest. If not written down, they are considered unreasonable

Two types of fraud

1)Misappropriation-illegal use of property or funds of another for one's own use or unauthorized purpose

2)Financial statement fraud-area of biggest concern; deceive plan participants

Three types of fraud risk

1) incentives to commit fraud

2) opportunities to carry out fraud

3) attitudes and rationalizations to justify the fraud

Common methods of detecting fraud

Internal Audit

Management review

Reconciliations

External Audit

Surveillance

Confessions

Depts most/least likely to have fraud

MOST likely: Accounting, operations, upper management

LEAST likely: HR, legal, BOD

SOA/SCL-Retirement Income Generators (RIGs)

1) SWP

2) Guaranteed lifetime annuities through insurance

3) Temp payout from plan assets that delays SS in order to increase total retirement income

Due Diligence-convert DC assets to retirement income

a) assess needs and responsibilities

b)learn about RIGs

c)learn what can be supported by current plan sponsor

d) develop criteria for retirement income program, and assess how each RIG meets criteria

e) develop a timetable

QLAC-which plans

Only DC plans (401k, 403b, IRAs, 457b)

QLAC-Maximum Premium

Lesser of $125k of 25% of aggregate account balance

QLAC-prohibited features

Variable contracts, indexed contracts, contracts with commutation benefits or cash surrender values. Restrictions on death benefits

MPT and diversification requirement

Risk/reward. MPT is a bedrock tenet of ERISA, the diversification aspect is impt; reduces risk of large losses.

IPS for Innovative Investments

Not required, but good practice

-more detailed

-flexible

-not too detailed that it requires updates

-designed so as not to increase risk of failure

-carefully drafted

-written in context of meeting needs of ppts

Sulyma v Intel

Intel Plantiffs said fund underperformed a passive index and said it was imprudent. Prudent investing is NOT judged on results in hindsight, but by the process to investigate and monitor the investment.

Mutual Funds

a) Liquidity: redeemable shares; liquid in normal market

b) not subject to direct ERISA regulation, but under Investment Company Act of 1940; must meet regulatory standards of liquidity

c) must provide required disclosure documents

Closed End, Open End, and ETF

Close End Funds: Generally DO NOT redeem shares, but may at certain intervals. Investors sell shares on the market to other investors---PROBLEM for ppt directed plans. Tend to be actively managed and therefore more expensive

Collective Investment Trust

pooled investment funds offered by a bank that acts as a trustee and is managed by the trustee or a professional investment manager Offered ONLY to benefit plans. Similar to mutual funds---subject to ERISA, but not to disclosure requirements

Fiduciary duties for annuity contracts purchased by ERISA plan

Document conclusions on how annuity provider meets criteria outlined in the regs.

Items included in an Investment Management Agreement

-guidelines for investment and proxy voting

- identification of any special brokerage arrangements or restrictions

-manager's compensation

-representation of manager regarding fiduciary status and professional qualifications

-protection of confidentiality of info

-Indemnity provision

-Identification of threshold insurance requirements

-Recordkeeping expectations

-Amendment/Term provisions

White label funds

Separate accts that invest directly in stocks, bonds, or other types of individual securities instead of a pooled fund. Plan manager.

White label funds-concerns

-significant cost and burdens; higher recordkeeping feeds, audit fees, manager fees

-more time required to manage

-special regulatory issues

-make sure disclosure materials meet ERISA requirement

Investment Advice 3(21) arrangement

Investment advice with final decision making authority resting with the plan's named fiduciary

Investment Management-3(38) arrangement

Involves a bank, insurance company, or registered investment advisor that has acknowledged fiduciary status in writing and has authority to make decisions without further involvement from the fiduciairy.

Provision of Investment Data

Plan fiduciary retains all decision making; other players (plan sponsor, advisor) merely collect/store the information.

Donovan v Dillingham

Severance agreements under ERISA- reasonable person must be able to ascertain. A) intended benefits. B) intended beneficiaries c) source of financing d)procedure to follow to receive benefits

Fort Halifax Packing V Coyne

Covered by ERISA if benefit package implicates an ongoing admin scheme. Not much admin is needed

Delaye v Agripac

9th circuit. Monthly payments over a two year period did not require an ongoing admin scheme

Heimeshoff v Hartford

Scotus gave blessing to contractual limitations period, as long as it's a reasonable length and not subject to a controlling statute to the contrary.

Top hat plan and fiduciary duties

Opposing standards. De novo or defer to plan admin decision unless it's unreasonable

ERISA plans

A) medical surgical or hospital

B) benefits for sickness accident death or UE

C) vacation benefits

D)apprenticeships

E) day care centers

F) scholarship funds

G) prepaid legal services

Plans exempt from ERISA

A) govt plans

B) certain church plans

C) plans subject to state law incl WC, disab, and UE

D) foreign plans established primarily for non resident aliens

E) unfunded excess benefit plans

F)unfunded payroll practices - vacation, sick or PTO

G)voluntary insurance if certain criteria are met

ERISA issues for multi jurisdictional employers

Gobielle V liberty mutual-upheld ERISA preemption over state law

Interplay of ERISA and leave laws when leave laws are more generous than state laws

502(c)(1)(b)

Penalties for failure to produce documents timely. $110 raised to $149. Distinct from civil action to recover benefits due under the plan. Only ppts and beneficiaries may recover these civil penalties. Purpose is to induce plan administrators to comply. Not to compensate ppt/beneficiaries

Docs subject to 502(c)(1)

SPD, annual report, terminal rpt, bargaining or trust agreement or contract, instruments under which plan was established

Requirements to invoke 502(c)(1)h

Written request

Request of plan administrator only

Clear notice of docs sought

Courts discretion in assessing penalty for 502

Nature of plan administrators conduct in repose

Whether plaintiff suffered prejudiced from failure to receive doc.

Intentional misconduct

Standard defenses to 502(c)(1)

Statute of limitations

Lacks standing to request docs

Sent request to wrong person

Docs requested not covered by 502

Failed to make clear notice

Failure to respond beyond control.

Smith v Ageon

Enforce dependents venue selection clause

Top Hat Plans

SMI

Medicare: Supplemental Medical Insurance Traditionally "Part B" now inlcudes Part D, too. Separate trusts for each account.

HI

Medicare: Hospital Insurance

Inpatient Hospital

Skilled Nursing Facility

Home Health Agency

Hospice

Medicare Eligibility

Age 65

Those eligible for SS or Railroad Retirement disability benefits for at least 24 months

People 65+ who aren't eligible, but pay premiums

Most people with End Stage Renal Disease

Those with ALS can waive 24 mos waiting period

SNF

Through Part A if within 30 days of a hospital stay of at least 3 days; similar to inpatient hospital services; Limited to 100 days, copay for days 21-100

HHA

Covered by Parts A and B; Balanced budget act shifted from Part A to Part B those home health svcs not associated with a hospital/SNF stay. 20% coinsurance for durable medical equipment

Benefit Period

Starts: Enters hospital

Ends: 60 days after end of hospital/SNF stay

Max: 90 days; coinsurance from days 61-90

onetime lifetime reserve of 60 days

Medicare Advantage (Part C)

Includes Parts A and B

Offered by private sector

Provide all the same svcs, except hospice

May also cover dental, vision, hearing

Types of Part C plans

Local Coordinated Care Provider (LCCPs)

Regional PPOs-26 regions

Private Fee for Service

Special needs plans-- medicare & medicaid eligible

Medicare Part A Payroll Financing

Payroll Taxes

Mandatory: 1.45% each EE/ER (both for self-empl.)

Additional .9% for those who earn >$200k ($250k for joint filers)

Medicare Part A other financing

Taxes levied on SS benefits paid to high earners

Premiums fr those otherwise not eligible who pay

Reimbursement from US Treasury general fund

Interest earnings on invested assets

Other small miscellaneous income sources

Financing for SMI

Largest source for Parts B & D are general funds

Both roughly 75%

Part D also receives funding from states-helps to defray costs for Medicaid Rx services.

Medicaid is no long primary payor for Rx

Part A-ppt costs

HOSPITAL: 1 time deductible per benefit period

Covers 1st 60 days

Copayment for days 61-90

SNF: fully covers first 20 days

Copayment for days 21-100. After 100 days, medicare pays nothing

Part B costs

annual deductible

copays, coinsurance (20-50%)

Certain services-no deductible (clinical lab tests, HHA, preventive)

Beginning Administration of medicare claims

From the outset, claims processed by non-gov orgs under contract b/t providers and Fed govt. Goal to maintain records, estab controls, safeguard against fraud and abuse, assist providers and beneficiaries--Fiscal intermediaries

Medicare Administrative Contractors (MACs)

Legislation-replaced old system

Processes all Part A and B claims for a given region

Selected through a competitive process

Single point of contact for all claims related issues

Economies of Scale

Challenges Facing Medicare

Solvency of HI trust

Long range health of HI trust

Rapid growth of SMI costs as a % of GDP

Reduction in Part B physician payment rates

ACA rates won't be viable in the long run

3121 agreement

In the U.S., if the employee transfers to an affiliate host jurisdiction employer,

the U.S. employer can file a Section 3121(l) agreement with the Internal Revenue

Service (IRS) that allows the employee to continue paying payroll taxes into the

U.S. system. IRS permits this because the affiliate in the host jurisdiction is

considered to be merely an extension of the U.S. employer. However, the U.S.

employer may not want to utilize a Section 3121(l) agreement, and employees

will work for a separate host jurisdiction employer that has its own social

insurance contribution program.

Totalization

Social security totalization agreements provide relief from dual social security

coverage and taxation under both systems and integrates or synchronizes the

benefits earned under more than one system. Generally, the employee will be

taxed only by the jurisdiction where his or her services are performed.

Acquired rights

Acquired rights labor laws exist in most international locations with multinationals. Essentially, these laws make it difficult or

impossible for a plan sponsor to amend existing plans in order to introduce cost containment

features, since these measures are seen as taking away benefits already earned by the employees. This effectively reduces the employer's ability

to fight the annual medical trend through plan design changes.

Anglo-Saxon countries-Retirement Plans

An open-architecture, broad-investment choices system where the

administrative provider offers a large range of funds from which employers and

employees can select.

Germany and Belgium-Retirement Plans

A government-mandated or collectively bargained guaranteed-return system in

which insurance contracts provide set returns on participant savings

Chile and New Zealand-Retirement Plans

A government- or state-approved provider system where employees may have a

degree of investment choice

Czech Republic and Israel-Retirement Plans

Personal pension brokered markets in which participants use DC savings to

purchase individual pensions through brokers

Morocco and Pakistan-Retirement plans

A state insurance market in which participants make payments into the state's

insured funds

Issues when a global company tries to manage retirement plans separately in each country

(a) There is the possibility that the plans may not suit the enterprise's overarching goals and culture.

(b) Hazards may creep in if individual plans do not provide the degree of governance needed by the parent company.

(c) Opportunities might be missed to improve efficiency and reduce costs bycapitalizing on economies of scale.

Goals of Retirement Plans

(1) Paternalism. This is the desire, or perhaps the feeling of obligation, to help employees prepare adequately for retirement.

(2) Competitive benefits. In many markets, a retirement plan of some sort is necessary to attract and retain workers.

(3) Strategic workforce management. Supporting employees' ability to retire when the time is right for both the employee and the employer is another key goal.

Global DC plans-opportunities for efficiencies

(1) Investment-reduce costs by negotiating global

investment management fees with large asset managers.

(2) Cross-border plan structures. Pooling assets across borders is becoming increasingly feasible in certain regions. This may allow a corporation to use a single vehicle rather than a large number of separate DC plans.

(3) Employee administration. Some recordkeepers are starting to move toward cross-border efficiencies, in particular by developing pan-European capabilitiesthat include multilanguage member platforms and call centers.

(4) Communication. Using a single set of communication materials across markets

would be tremendously convenient and efficient for plan sponsors.

Reasons for SS to be fully funded

(a) program will operate indefinitely and not terminate in the predictable future, full funding is unnecessary.

(b) Social Security program is compulsory, new workers will always enter the program and pay taxes to support it.

(c) The federal government can use its taxing and borrowing powers to raise additional revenues if the program has financial problems.

(d) From an economic viewpoint, full funding would require substantially higher Social Security taxes, which would be deflationary and cause substantial unemployment.

Eligibility for SS Retirement Benefits

(a) Retired workers. paid at full retirement age

to a fully insured worker. Reduced benefits @ 62

(b) Spouses of retired workers if is at least aged 62 and has been married for at least one year. A divorced spouse is also eligible for benefits

based on the retired worker's earnings if she or he is at least 62 and the marriage lasted 10 yrs

(c) Unmarried children younger than the age of 18.

(d) Unmarried disabled children if they were

severely disabled before the age of 22 and continue to be disabled.

(e) Spouses with dependent children younger than the age of 16 (or disabled child)

Increase SS benefits by working longer

(1) Each additional year of work adds another year of earnings to his or her Social

Security earnings record.

(2) A delayed retirement credit is available if a person delays receiving retirement

benefits beyond full retirement age. The primary insurance amount will be

increased by a certain percentage from the time he or she reaches full retirement

age until the start of benefits, or until the age of 70. For workers born in 1943 or later, the primary insurance amount is

increased 8%

SS Survivor benefits

(a) Unmarried children younger than the age of 18.

(b) Unmarried disabled children.

(c) Surviving spouse with children younger than the age of 16.

(d) Surviving spouse aged 60 or older. The deceased worker must be fully insured. divorced spouse aged 60 if the marriage lasted ten years.

(e) Disabled widow or widower the ages of 50 through 59. .

(f) Dependent parents. Dependent parents aged 62 and older The deceased worker must be

fully insured.

(g)A lump-sum death benefit of $255 can be paid when a worker dies. The benefit, however, can be paid only if there is an eligible surviving widow, widower or entitled child.

SS Disability benefits

(a) A disabled worker under full retirement age receives a benefit equal to 100% of the primary insurance amount. The worker must meet the

definition of disability, be disability insured and satisfy a full five-month waiting period.

(b) Spouse at any age of a disabled worker at caring for a child younger than the age of 16 or a

child disabled before the 22 and is receiving. If no eligible children are present, the spouse

must be at least the age of 62 to receive benefits.

(c) Unmarried children younger than the age of 18. .

(d) Unmarried disabled children.