Four in 10 employers expect to devote more time addressingretirement plan governance issues over the next two years.

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This is one finding from a new Towers Watson surveyconducted in April and May.

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“Managing and governing retirement plans has become increasinglydifficult and time-consuming for plan sponsors over the past fewyears, especially as costs have risen and regulations have grownmore complex,” said David Speier, Towers Watson’s Benefits Advisoryand Compliance director. “Additionally, employers are growingconcerned over many of the risks associated with their retirement plan governance. However, it appears that relativelyfew employers are proactively taking steps to address theseconcerns, particularly with respect to their defined contributionplans.”

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The survey found that among respondents expecting to spend moretime on plan governance, more than 80 percent cited regulatorycomplexity as a major reason, while two-thirds (67 percent) plan doto so as part of a greater emphasis on corporate governance.

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The survey also asked respondents to identify the greatestretirement plan governance challenges they expect to face in thenext two years. The top two challenges were retirement benefit costand regulatory complexity. Just over three-fourths (77 percent)placed retirement benefit costs among their top challenges, whileslightly fewer (73 percent) cited regulatory complexity.Retirement plan governance

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American BenefitsCouncil President James Klein, testifying June 14 before theHouse of Representatives Committee on Education and the Workforce’sSubcommittee on Health, Employment, Labor, and Pensions, saidregulatory requirements imposed on plan sponsors is prescribed byan “alphabet soup” of federal agencies. He urged lawmakers tochange the status quo, providing plan sponsors and planparticipants with predictable, clear and consistent guidance.

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Specifically Klein, a former manager of pension and health carepolicy for the U.S. Chamber of Commerce Pension, advised:

  • Congress needs to assert greater oversight on agencies thatissue regulations clearly inconsistent with legislative intent. Anexample of this relates to hybrid plans. The statute requiresinterest crediting rates not to exceed a market rate of return. Theproposed Treasury/IRS rules specify a certain interest rate andstate that any other higher rate will violate the law. So even ifthe plan is able to get a higher rate in the market it cannot useit. This will force employers to reduce the rate at which itcredits plan accounts, to the detriment of participants.
  • Agencies need to give adequate time for employer plan sponsorsto comply with new rules. The DOL recently announced an applicabledate extension new fee disclosure rules between service providersand employers and the corresponding transition period for employersto comply with new participant fee disclosure rules. While theextra time is much appreciated, a two-fold problem remains: Theservice provider to plan sponsor disclosure rules have not yet beensent to the Office of Management and Budget for final vetting,likely leaving little time at the end of the year for compliance.Moreover, ideally a separate set of rules relating to electronicdisclosure should be effective prior to the new participant feedisclosure guidance. This seems very unlikely to happen.
  • Plan sponsors should be held to appropriate standards of carein their various government reporting functions. But when employersare penalized for what are obviously innocent mistakes, itundermines their willingness to continue to sponsor plans. Anexample of this is where the PBGC has sought significant additionalpremiums from companies that actually paid the correct amount ofpremium on time, but made simple clerical errors when submittingthe premiums through the agency’s new electronic submissionsystem.
  • Sponsoring a pension plan is a costly endeavor, which manyemployers are willing to shoulder if they can plan accordingly. Butpension funding rules – such as those prescribed under the PensionProtection Act – are highly sensitive to minor changes in interestrates or the stock market. This volatility erodes the ability ofemployers to continuing sponsoring plans – especially during tougheconomic times. Plan sponsors need predictability.

According to the Towers Watson survey, more than 80 percent ofdefined benefit and defined contribution plan sponsors identifiedregulatory compliance and investment volatility as the top risksover the next two years. However, while a majority of respondentsare very concerned with compliance, only one in four (26 percent)schedule regular compliance reviews.

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“Unfortunately, it appears that most plan sponsors generallywait until compliance issues emerge rather than take action toavert them,” said Robyn Credico, a senior consultant with TowersWatson. “Employers can take proactive measures to deal with riskissues. By conducting more regular compliance reviews, forinstance, employers can get ahead of concerns over regulatorycomplexity and vendor quality.”

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A total of 245 U.S. employers representing a broad range ofindustry sectors participated in the survey, Towers Watson reports.Eighty-one percent of respondents sponsor both defined benefit anddefined contribution retirement plans. More details about thesurvey are available at www.towerswatson.com/governance-survey.

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