http://www.watsonwyatt.com Latest Watson Wyatt Insider Articles en-us Copyright 2005 Watson Wyatt Worldwide http://backend.userland.com/rss091 7/4/2009 4:52:49 PM 20 On May 20, the Securities and Exchange Commission (SEC) voted 3-2 (along party lines) to give some shareholders access to the corporate proxies used to nominate board directors. SEC Chairwoman Mary Schapiro believes companies and boards need to be more responsive to shareholder interests — such as compensation structures and risk management — and wants shareholders to have a “meaningful opportunity to effectuate the rights that they already have under state law to nominate directors.”http://www.watsonwyatt.com/search/parser.asp?ID=21628Under regulations proposed by the IRS, an employer undergoing a substantial business hardship can reduce or suspend 401(k) safe harbor nonelective contributions during a plan year. The rules give employers an alternative to terminating their safe harbor plans. The regulations are proposed to be effective for amendments adopted after May 18, 2009, but employers may rely on the proposed regulations for guidance in the meantime. If the final regulations are more restrictive than those proposed, the stricter provisions will not be made retroactive.http://www.watsonwyatt.com/search/parser.asp?ID=21571The push for health information technology (IT) has prompted concerns about keeping health information private, and the American Recovery and Reinvestment Act of 2009 (ARRA) expands the privacy protections under the Health Insurance Portability and Accountability Act (HIPAA). The 2009 act imposes new notification requirements for breaches of unsecured protected health information (PHI), establishes new disclosure requirements for electronic health records, and strengthens enforcement and penalties for violations. It also includes provisions aimed at encouraging greater use of health IT. http://www.watsonwyatt.com/search/parser.asp?ID=21572The adoption of International Financial Reporting Standards (IFRS) is advancing in fits and starts. The Securities and Exchange Commission (SEC) proposed a roadmap to IFRS in late 2008, but SEC Chairwoman Mary Schapiro expressed misgivings about the plan during her confirmation hearing earlier this year. Moreover, the SEC has received roughly 200 comments on its roadmap, some voicing support but others — including many from corporations and two from members of Congress —forcefully objecting to the proposed reporting regime. The Financial Accounting Standards Board (FASB) supports the goal of international reporting standards but has expressed some reservations and recommendations for modifications to the roadmap. http://www.watsonwyatt.com/search/parser.asp?ID=21573Representative John Tierney (D-Mass.) has reintroduced the Emergency Retiree Health Benefits Protection Act (H.R. 1322), which would prevent employers from reducing or eliminating health benefits for retirees or their dependents. The bill has been around for years but has attracted more attention since it appeared in a pension bill last year. http://www.watsonwyatt.com/search/parser.asp?ID=21534Representative Rosa DeLauro (D-Conn.) has reintroduced the Healthy Families Act (H.R. 2460), which would require employers with more than 15 employees to provide paid sick leave to employees who work more than 30 hours per week. Senator Edward Kennedy (D-Mass.) is sponsoring the legislation in the Senate (S. 1152). Senator Kennedy had considered an earlier version of the legislation a top priority at the start of the 2007-2008 legislative session, but the act stalled. Supporters hope the recent flu outbreak will bolster support for legislation that could encourage sick workers to stay home. http://www.watsonwyatt.com/search/parser.asp?ID=21535The Equal Employment Opportunity Commission (EEOC) has released an opinion letter saying an employer’s health risk assessment program violates the Americans with Disabilities Act (ADA). While many employers have moved forward with health risk assessments and other mandated wellness arrangements, the EEOC’s letter is a reminder of the importance of considering ADA implications before instituting a wellness program. http://www.watsonwyatt.com/search/parser.asp?ID=21536The legislative push for new fee disclosure requirements for defined contribution plans is gaining momentum on Capitol Hill. Key lawmakers have brought back fee disclosure bills they sponsored during the 2007-2008 legislative session. Representatives George Miller (D-Calif.) and Rob Andrews (D-N.J.) reintroduced the 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984). Senators Herb Kohl (D-Wis.) and Tom Harkin (D-Iowa) reintroduced the Defined Contribution Fee Disclosure Act (S. 401). And on June 10, Representative Richard Neal (D-Mass.) introduced a modified version of the Defined Contribution Plan Fee Transparency Act (H.R. 2779). http://www.watsonwyatt.com/search/parser.asp?ID=21537Comments on the risk characteristics of target-date funds that were presented by Mark J. Warshawsky, Director of Retirement Research at Watson Wyatt Worldwide, at a joint hearing of the U.S. Department of Labor (DOL) and the Securities and Exchange Commission (SEC) in Washington, D.C., on June 18, 2009.http://www.watsonwyatt.com/search/parser.asp?ID=21521Congress is in a flurry of decision making and debate as it scrambles to get health care reform bills ready before the August recess. The next few months will be critical as lawmakers try to work out important and contentious issues — including individual and employer mandates, a health insurance exchange, a public plan option and subsidies to help individuals and families purchase coverage. President Obama has asked Congress to present a bill for his signature by Oct. 1 — which would be an impressive feat, given the upcoming Independence Day and August recesses.http://www.watsonwyatt.com/search/parser.asp?ID=21483The recently released annual reports from the trustees on the financial state of Social Security and Medicare show the current deep recession is taking a toll on the financing of both programs. The adverse consequences will occur in the short run — as outlays rise somewhat and, more significantly, revenues from payroll taxes fall — and in the long run, as the trust funds are smaller than expected. While the unsustainability of Medicare — caused mainly by rapidly rising health care costs — has been well known for some time, the imminent likely cash flow shortfall in Social Security’s finances is a more surprising and possibly more important development. http://www.watsonwyatt.com/search/parser.asp?ID=21461In 2008, the value of investments held by defined benefit (DB) pension plans dropped precipitously. Provisions of the Worker, Retiree and Employer Recovery Act (WRERA), judicious elections of valuation methods and the recent IRS announcement on the “applicable month” will ameliorate the impact of the market decline on 2009 required contributions. However, DB plan sponsors also face a steep increase in their variable-rate premium (VRP), which is paid to the Pension Benefit Guaranty Corporation (PBGC) to insure vested employee pension benefits. http://www.watsonwyatt.com/search/parser.asp?ID=21297A fundamental principle of modern financial theory is the inherent trade-off between risk and reward. To be attractive, riskier projects or investments must hold out the prospect of bigger rewards. At the corporate level, this risk premium is reflected in lower share prices for stocks and higher interest rates for bonds. But risk premiums and credit spreads are linked to attitudes toward risk and returns. When investors and companies are more willing to accept higher risks in pursuit of greater rewards, risk premiums and credit spreads tend to fall and aggregate risk levels rise. http://www.watsonwyatt.com/search/parser.asp?ID=21310The IRS has finalized regulations addressing the nondiscrimination safe harbor for certain qualified automatic contribution arrangements (QACAs) in defined contribution plans. The regulations also explain how employees automatically enrolled under an eligible automatic contribution arrangement (EACA) can opt out during the first 90 days and obtain a refund of contributions without being subject to the 10 percent early withdrawal tax. The final regulations make some changes and clarifications to the proposed regulations. http://www.watsonwyatt.com/search/parser.asp?ID=21223The Employee Free Choice Act (EFCA) — also referred to as "card check" — was reintroduced on March 10. The act would allow the National Labor Relations Board (NLRB) to certify a union once a majority of employees sign authorization cards and would establish strict and mandatory deadlines for reaching an initial bargaining agreement. But the act is currently stalled in Congress and lacks the 60 votes required to overcome a filibuster.http://www.watsonwyatt.com/search/parser.asp?ID=21131In the wake of the financial crisis, defined benefit (DB) funding relief has become a critical issue for many plan sponsors. The Worker, Retiree and Employer Recovery Act of 2008 (WRERA) allowed sponsors of underfunded plans to rely on their 2008 funded status to avoid plan freezes, phased in the Pension Protection Act funding targets and made other changes. In late March, the IRS offered additional relief by permitting plan sponsors to use a reasonable interpretation of the law (in the absence of final regulations) in selecting a yield curve for determining plan liabilities. This will provide options that can reduce required DB plan contributions for the 2009 plan year and also dim prospects for further relief from Congress, at least in the near term. However, the potential for steep contribution hikes for the 2010 plan year may fuel a renewed push. http://www.watsonwyatt.com/search/parser.asp?ID=21132The health care reform debate began taking shape in March and intensified in April. In early March, President Obama convened a forum at the White House, which was followed by regional forums across the country. Lawmakers hope to move legislation through the House and Senate during the summer and to pass final legislation this year. It is an ambitious agenda — and one with important cost, design, compliance and other implications for employer-sponsored health plans. http://www.watsonwyatt.com/search/parser.asp?ID=21133During this severe recession, many companies are trying to trim costs where they can to stay afloat, and the cost-cutting measures include layoffs, hiring freezes, furloughs, salary freezes and even salary reductions. Employers are also looking at ways to lower retirement plan costs. Many are opting for a short-term solution — cutting company contributions to defined contribution (DC) plans.http://www.watsonwyatt.com/search/parser.asp?ID=21034The Health Insurance Restrictions and Limitations Clarification Act of 2009 passed the House on March 31 with overwhelming support. The bill aims to provide more transparency about benefit exclusions in group health plans to health care consumers. http://www.watsonwyatt.com/search/parser.asp?ID=21070On March 23, the U.S. Department of the Treasury outlined its Public-Private Investment Program aimed at removing troubled assets from the balance sheets of financial institutions, thereby reopening credit flows. The Treasury Department is particularly encouraging pension plans, insurance companies and other long-term investors to participate. http://www.watsonwyatt.com/search/parser.asp?ID=21071