Retirement Savings Reform – a focus for the Trump Administration and Congress

Money House

On August 31, 2018, President Trump issued an Executive Order directing the Department of Labor (DOL) and Treasury Department to take action to “promote retirement security for America’s workers” by, among other things, expanding access to Multiple Employer Plans (MEPs).  Specifically, within 180 days of the issuance of the Executive Order, DOL must “consider…whether to issue a notice of proposed rulemaking, other guidance, or both, that would clarify when a group or association of employers or other appropriate business or organization could be an ‘employer.’”  Within that same timeframe, the Treasury Department must “consider proposing amendments to regulations or other guidance… regarding the circumstances under which a MEP may satisfy the tax qualification requirements…including the consequences if one or more employers that sponsored or adopted the plan fails to take one or more actions necessary to meet those requirements.”

In response to that Executive Order, DOL on October 23, 2018, published a Notice of Proposed Rulemaking (NPRM) in the Federal Register that “would make it easier for small businesses to offer retirement savings plans to their workers through Association Retirement Plans, which would allow small businesses to band together to offer 401(k) plans to their employees.”  Specifically, under title 29 of the Code of Federal Regulations, DOL’s NPRM seeks to clarify the circumstances under which an employer group or association or a professional employer organization (PEO) may sponsor a workplace retirement plan. In particular, the NPRM clarifies that employer groups or associations and PEOs can, when satisfying certain criteria, constitute “employers” within the meaning of section 3(5) of ERISA for purposes of establishing or maintaining an individual account “employee pension benefit plan” within the meaning of ERISA section 3(2). As part of the NPRM, DOL is requesting comments on whether it should address, by regulation or otherwise, whether there are other types of entities that should be treated as an “employer,” within the meaning of ERISA section 3(5), for purposes of sponsoring a MEP. Importantly, the NPRM would apply solely to defined contribution plans.

Under the NPRM, an employer generally would be required to execute a participation agreement or similar instrument that lays out the rights and obligations of the MEP sponsor and the participating employer before participating. However, these employers would not be viewed as sponsoring their own separate, individual plans under ERISA. Rather, the MEP, if meeting the conditions prescribed in the NPRM, would constitute a single employee benefit plan for purposes of title I of ERISA. Consequently, the MEP sponsor – and not the participating employers – would generally be responsible, as plan administrator, for compliance with the requirements of title I of ERISA, including reporting, disclosure, and fiduciary obligations. Continue Reading

2019 AGM season – the Investment Association sets the bar

The Investment Association has published its annual letter to Remuneration Committee chairs and updated Principles of Remuneration (“Principles”) for the next AGM season. Most of the changes reflect the new UK Corporate Governance Code and the Investment Association (“IA”) has updated the Principles to make them “clearer and sharper”.

That certainly describes the tone taken in the annual letter. The IA makes it clear that companies which fail to respond to shareholder views, or do not take the time to understand those views, will find investors have no choice but to vote against their remuneration proposals. Reflecting the hardening mood on director pay, the IA warns that executive remuneration is a reputational issue for the company, individual Remco members and those executive directors who receive remuneration from contentious arrangements. Any boards still taking the view that pay is a contractual matter only and that fairness in remuneration is a woolly, nice to have, concept have been given a very clear warning that the landscape has changed.

These priorities are clear in the IA’s key issues for the 2019 AGM season, which include:

  • Encouraging companies to report their CEO pay ratio in 2019 (even though the new requirements apply from 2020 for most companies), and to adopt Option A as this is the most statistically robust calculation method.
  • Highlighting that engagement between Remuneration Committees and investors remains key, although some IA members have found Remuneration Committees are “overly considerate” of the management perspective and so do not give sufficient weight to the views of investors.
  • Making clear that shareholder consultations should be a genuine process of obtaining shareholder views on a company’s complete remuneration structure (not just proposed changes) and not a validation exercise.
  • Reiterating that “ordinary pension savers” want to understand why investors support remuneration pay-outs, and so investors must be able to link pay and performance through transparency on financial and non-financial targets in order to justify their support.

The key changes to the Principles mostly reflect the new UK Corporate Governance Code. In summary: Continue Reading

Pensions through a crystal ball

crystal ball

The benefit of hindsight is a wonderful thing. The benefits of a fully functional crystal ball to see the future would be much better. All pensions lawyers (and scheme actuaries) would add it to their gift list!

I will attempt to take a look at the pensions related announcements in Monday’s budget from a future (perhaps optimistic) vantage point.

So here we are, nearing the end of 2023…

1. Dashboards

Five years ago, in October 2018, Philip Hammond, Chancellor of the Exchequer, announced £5m support for the pensions dashboards (note the plural) project with the statement “The government is taking steps to support the launch of the Pensions Dashboards, innovative tools that will for the first time allow an individual to see their pension pots, including their State Pension, in one place….DWP will work closely with the pensions industry and financial technology firms.”

Many doubted that this would ever get off the ground – but yet I see myself in 2023, asking my smart-watch to show my latest pension figures – whilst my children laugh at the fact that I still find this a novelty. Continue Reading

Keep calm and carry on!

Keep Calm And Carry On Sticky Note With Pin

Some of the questions we have been asked this week in relation to GMP equalisation, include –

Do we have to equalise for GMPs?

How do we do this?

Do we have to make back payments?

What should we tell our members?

How do we deal with outstanding and new cash equivalent transfer value requests?

These are all valid questions.  Unfortunately, not all of them can (or should) be answered immediately!

First of all, a bit of background

Prior to 6 April 2016, pension schemes could be contracted-out of the state second pension. Between the years 1978 and 1997, the contracted-out element of a member’s pension was called the guaranteed minimum pension (GMP). This was broadly equivalent to the amount of state pension being given up by the pension scheme member via contracting-out in return for the payment of lower national insurance contributions. Continue Reading

PPF standard guarantee survives attack in the courts

Pop art comics style superhero fighting - PowIt was inevitable that at some point the Pension Protection Fund standard guarantee would be put to the test in the courts. That’s exactly what happened when a guarantee in favour of the Caribonum Pension Scheme was triggered by sponsor insolvency. Although not a surprising outcome, trustees of pension schemes which have Type A PPF guarantees in place can now sleep easier in the light of the court’s ruling granting summary judgment to the Scheme, notwithstanding the construction and abuse of process arguments put forward by the guarantor. The latest edition of the “Purple Book” says that 452 schemes currently certify Type A guarantees for PPF levy reduction purposes; but there will be many other schemes where such a guarantee is in place but is no longer certified. For further discussion and analysis of the case please see Pensions Disputes partner Garon Anthony’s blog on the case.

#How2DoPensions

How2 Do Pensions

Starting on #Pensions Awareness Day in September, our #How2DoPensions education campaign involves sharing a bank of quick guides with clients, contacts and the wider pensions industry. Each Tuesday, we publish on our website a quick guide on a topical pensions issue and share a link on the main social media channels. The guides are short and informative but, more importantly, demystify some complicated pensions issues. The campaign is proving a hit, with lots of feedback to say how useful the guides are.

This week’s #How2DoPensions guide looks at How to Run a Trustee Meeting and includes some practical tips and best practice pointers for trustees.

Continue Reading

Shouting from the rooftops – a “more vocal” Pensions Regulator

As promised, The Pensions Regulator (TPR) has been raising its voice since publishing its 2018-2021 corporate plan setting out how it will be “more vocal” in its “clearer, quicker and tougher approach” to driving up standards in the pensions sector. Our blog examines TPR’s recent activity. Continue Reading

TPR set to get new powers

The DWP is consulting on new powers for The Pensions Regulator (TPR). The consultation covers:

  • Notifiable events framework
  • Declaration of intent (new)
  • Voluntary clearance
  • Engagement with other regulators
  • Fines
  • Contribution notices and financial support directions

Of particular note are the new civil and criminal sanctions. The DWP is proposing that TPR should be able to issue a civil fine of up to £1 million and that unlimited fines and custodial sentences would be available under criminal sanctions.  Anybody could fall foul of the new fines – employers, directors, connected and associated persons and even pension trustees.

Insolvency professionals will be particularly concerned by one of the proposed new notifiable events, which would be triggered when a sponsoring employer takes independent pre-appointment insolvency or restructuring advice. For further reading, please click here.

 

Back to Basics

Back to basic

“You need to get the basics right, including giving us up-to-date information about the scheme, and we will take action if you fail.”  The Pensions Regulator’s (TPR) move towards being a “clearer, quicker and tougher regulator” is apparent from this statement, taken from its most recently published compliance and enforcement bulletin.

TPR has recently fined the trustees of an unnamed pension plan for failing to comply with s.62 of the Pensions Act 2004, which requires trustees to “take all reasonable steps” to notify it of changes to registrable information “as soon as reasonably practicable”. In this case, the trustees had failed to notify TPR of the appointment of a professional trustee, which came to light after an investigation was opened following a failure to submit the scheme return. Continue Reading

A lot of crossing out

Plan BThe writing may not always be on the wall in terms of validating scheme amendments where historic documentation is scarce and in terms of recovering overpayments to pensions. An interesting case involving the BIC UK Pension Scheme (yes, “BIC” as in the pen that you may be holding) highlights a new way forward for trustees struggling with limitation periods and gives further hope to schemes wanting to rely on employer agreement to changes that took place in times of more informal recording keeping. Continue Reading

LexBlog