PLANSPONSOR - February/March 2018 - 9

Employees Retirement System (CalPERS) defined benefit (DB)
plan. The difference in the approach is that workers who leave
state employment would be able to take with them the entire
balance in their retirement plan-including both the employee
and employer contributions and investment gains. They could
then invest that money with their new employer or on their
own. Under current law, employees who leave state service
before retirement can receive refunds of their own contributions,
plus interest. The change could also make pension obligations
more predictable for the state because it would not be
at risk of an unfunded liability for employees who chose the
new option. Currently, the unfunded liability for CalPERS is
estimated at about $140 billion. This is the projected cost of
pensions that the state has promised employees but not fully
funded. The system has only about 68% of the money needed
to fulfill all of its obligations.
Open-End Fund Liquidity
Classification Extended
The Securities and Exchange Commission (SEC) has voted to
extend by six months the deadline by which open-end funds
must comply with certain elements of the commission's
liquidity risk management program rule. According to the
SEC, the new compliance date will provide funds additional
time to complete implementation of the final rule's classification
requirement, along with specified other elements that
are tied to it. The rules require mutual funds and exchangetraded
funds (ETFs) to establish classification of the liquidity
of fund portfolio investments and a highly liquid investment
minimum. Other provisions of the rule that provide important
investor protection benefits, including the requirements
to adopt a liquidity risk management program and to limit
illiquid investments to 15% of the fund's portfolio, will go into
effect as originally scheduled. The deadline for the formation
of liquidity risk programs and the 15% cap on illiquid securities
remains unchanged, being December 1 for larger fund groups
and June 1, 2019, for smaller fund groups.
IRI Calls for Mandatory 401(k) Legislation
The Insured Retirement Institute (IRI) has issued a Retirement
Security Blueprint, meant to guide the IRI's dialogue with
Congress and the Trump administration about improving
Americans' retirement outlook. The organization has proposed
the following: to maintain and enhance the current tax treatment
for retirement savings; for the government to expand opportunities
for Americans to save for retirement; for Congress to pass
a bill that would increase the automatic deferral rate to 6% and
permit automatic escalation up to 15%; for the Department of
Labor (DOL) or Congress to clarify employer fiduciary responsibility
for choosing lifetime income products, in order to increase
Americans' access to them; and for the government to help savers
make decisions about their finances, help financial advisers
protect their older clients from financial exploitation, and
increase federal appropriations to state adult protective agencies.
ERISA Doesn't Pre-empt State 'Slayer' Laws
Anka V. Miscevic killed her husband, Zeljko, who was a participant
in the Laborers' Pension Fund. The fund asked a court to
determine the proper beneficiary of Zeljko's pension benefits.
Miscevic claims she is the proper beneficiary, but the estate of
Anka and Zeljko's minor child says Miscevic is barred from
recovering from the fund due to the Illinois slayer statute,
which provides that " a person who intentionally and unjustifiably
causes the death of another shall not receive any property,
benefit or other interest by reason of the death. " The 7th Circuit
looked further at the statute and noted that although Anka was
found not guilty by reason of insanity, the statute applies to
anyone who " intentionally and unjustifiably causes the death of
another. " The appellate court concluded that the Illinois slayer
statute bars Anka from getting Zeljko's pension benefits.
Fraudulent Loans
The U.S. Department of Labor (DOL) has entered into a settlement
agreement with U.S. Fiduciary Services and three of its
subsidiaries that provides for payment of more than $7 million to
42 retirement plans that suffered losses as a result of investments
in fictitious loans made by First Farmers Financial LLC (FFF),
headquartered in Florida. The agreement and anticipated future
payments from a pending receivership estate case involving FFF
are expected to compensate the retirement plans fully for approximately
$16 million in losses. FFF created the fictitious loans and
forged documents stating that they were guaranteed by the U.S.
Department of Agriculture. Forty-two retirement plans invested
in a fund exposed to the fraudulent FFF loans through subsidiaries
of U.S. Fiduciary Services.
Multiemployer Pension Reform
The Bipartisan Budget Act of 2018 has created a joint select
committee to solve the multiemployer pension crisis. Senator
Chuck Schumer, D-New York, stated that plans such as the
Central States, Southeast and Southwest Areas Pension Plan are
in dire financial trouble. The act requires that the joint select
committees hold public hearings and vote on their findings
and legislative recommendations by November 30. If approved,
those recommendations would be submitted for consideration by
the House and Senate. The select committees will be dissolved
no later than December 31. The Pension Benefit Guaranty
Corporation (PBGC) has reported that its multiemployer pension
plan program is expected to run dry by the end of 2025. -PS
For in-depth coverage of these topics and more, go to
plansponsor.com/compliance.
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