Thursday, August 28, 2014

Retire at 65This recent Reuters article paints a rosy picture of the phased retirement offering that the federal government is extending to its employees.  It sounds like a great win-win.  The government saves money; employees get to continue to save for retirement, but also get to cut back on hours.

However, the article goes on to lament the “slow” employer response:

Worker interest in a flexible glide path to retirement is strong, and it’s not limited to the federal payroll. A survey this year by the Transamerica Center for Retirement Studies found that 64 percent of workers – of all ages – envision a phased retirement involving continued work with reduced hours….

The Society for Human Resource Management reports that 11 percent of employers provide some version of phased retirement, with only 4 percent having formal programs.

What the article fails to discuss is that tax code nondiscrimination rules make phased retirement a hard sell for many employers.  Under those rules, if employers want to use their existing tax-qualified pension plans for this purpose, they can impose some eligibility conditions, but they generally have to be careful to make the program available to a significant section of non-highly compensated employees.

In some cases, where “brain drain” is the concern, employers would like to offer a program to keep employees with certain skill sets around (especially if the alternative is losing them), but they also may not want a mass partial-exodus of their non-highly compensated workforce.  Often, the rules make drawing a workable line practically difficult.  For federal government employees who have been “frozen” in place without promotion, there is hope that many senior people will phase out in order to open up their positions for advancement by others.

Phased retirement may not be attractive to many employees, too.  Employees need to consider the value of phased retirement to them personally.  It makes sense for many people to enjoy phasing out of a job over time instead of going “cold turkey” into retirement.  However, if the employee is covered by a final pay average defined benefit plan, there may be a consequential reduction in the employee’s retirement benefit resulting from part-time pay during the phase out period.  Lower pay during the phase out years for those participating in defined contribution plans often means smaller employer and employee contributions for people who have not yet saved enough for retirement.

The federal government, of course, sets the rules and therefore does not have to play by the ones they choose to avoid.  Which is why, as the article notes, “Each federal agency will write its own eligibility rules, and phased retirement won’t be a guaranteed right for all workers.”  There is no analog for this type of slicing and dicing in the private sector.  And, of course, there is no way yet to gauge the popularity of the new rules that go into effect on November 6, 2014.

This is not to be critical of the federal program or even the nondiscrimination rules.  Those rules serve a very good purpose in ensuring that retirement benefits go to a broad group of employees.  But if the government wants phased retirement to take off in the private sector, it will need to liberalize the existing rules as they relate to phased retirement to provide employers with the flexibility they need to implement these programs.

Wednesday, August 27, 2014

The so-called “contraceptive mandate” saga continues.  Since the passage of the ACA in Spring 2010, its preventive care requirement mandating coverage of all FDA-approved contraceptive drugs, devices, and related services – and at no cost to women – has been […]

Friday, August 22, 2014

According to the Investment Company Institute, approximately 18%% of all mutual fund assets are invested in money market mutual funds.  An even higher percentage reflects the investment in money market mutual funds held by participant-directed defined contribution plans.  Many of […]

Thursday, August 21, 2014

Institutional Shareholder Services, or ISS, invites U.S. companies to verify the data it uses to evaluate proxy statement equity plan proposals.  ISS previously announced a move to a “balanced scorecard” approach for its evaluation of equity plan proposals.  Data verification […]

Monday, August 18, 2014

Last week, the DOL released Field Assistance Bulletin 2014-01 which updated its 10-year-old guidance on how to deal with the accounts of missing or unresponsive participants and beneficiaries in a terminating defined contribution plan that does not have annuity options.  […]

Thursday, August 14, 2014

Last Friday, the President signed the highway trust funding bill.  One part of the debate over the bill was how it would be funded.  Ultimately, the bill was paid for using  so-called “pension smoothing” that some decried as a “gimmick.” […]

Wednesday, July 30, 2014

Broker-dealers and financial advisers may have gained some breathing room as a congressional battle to broaden ERISA’s definition of “fiduciary” loses steam.  In the following discussion, we will summarize the current state of that battle. At issue is the innocuous-sounding […]

Tuesday, July 22, 2014

You may have heard about the potentially crippling blow to ACA (as some have described) dealt by a three-judge panel of the D.C. Circuit Court of Appeals today in Halbig v. Burwell.  Basically, a group of individuals and employers challenged […]

Monday, July 21, 2014

In the scheme of things, it was not that  long ago that defined benefit pension plans were the main retirement plan game in town.  But now – for better or for worse – 401(k) plans rule in the private arena.  […]

Friday, July 18, 2014

Late yesterday, the DOL released an FAQ in response to the Hobby Lobby decision. Basically, the FAQ said that an elimination of any contraceptives from coverage under a plan is a considered a “material reduction” in covered benefits triggering the […]