Marcia Wagner has
been named one of the top 100 most influential people in 401(k)
industry by 401kWire for the eighth consecutive year, moving up to
#15 on the list.
A Checklist for the
Ever Evolving Employer-Employee Relationship - David Gabor, Employment Law Webinar, February
26, 2015 from 4:00 p.m. - 4:30 p.m. ET
Kickoff for Investment Advisers and Broker Dealers - Steve Wilkes, Investment Management Law Webinar,
February 19, 2015 from 1:00 p.m. - 1:30 p.m. PT
Sharing Arrangements: Avoiding Plan Asset Status, Complying With Due
Diligence Requirements - Marcia Wagner, Strafford Webinars, March 11,
2015 from 1:00 p.m. - 2:30 p.m. ET
Benefits Litigation - Stephen Rosenberg, American Conference
Institute's ERISA Litigation Conference (Chicago, Illinois), April,
Use Steve's name for
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We've received a number of questions about benefit
plans' responsibilities regarding the Anthem data breach. In the
article below, you'll find some guidance regarding the
responsibility of plans.
We've also included questions and answers on the
impact of the new actuarial tables.
As always, if you have any questions or comments,
please call us at (617) 357-5200 or email a member of our team.
2,470 people following Marcia on Twitter for the
latest ERISA and employee benefits updates.
Plans' Responsibilities re Anthem Data Breach
Inc., one of the country's largest health insurance companies,
announced on February 5, 2015 that approximately 80 million
customers have had their account information stolen. Such
information included names, birthdays, medical IDs, Social Security
numbers, street addresses, e-mail addresses and employment
information, including income data.
Anthem president and CEO Joseph Swedish stated that
"Anthem was the target of a very sophisticated external cyber
Anthem has indicated that it will notify each
individual whose information has been accessed and will provide
free credit monitoring and identity protection. Anthem is referring
customers to the following dedicated Web site for further
In the meantime, are there any steps that employers
should be taking with respect to their group health plans and their
With respect to fully insured plans, Anthem has the
obligation to notify participants and is completely liable for the
breach. Anthem may communicate general information to plan sponsors
(e.g., steps being taken to address the breach). Some
employers may want to send additional communications to employees
to ease their fears.
For self-insured plans, Anthem, as a business associate, must
notify the plan sponsor regarding the scope of the breach (i.e.,
identify those participants who have been affected). Because Anthem
will communicate directly with the participants, the plan sponsor
does not need to notify them of the breach. Some employers,
however, may want to send an additional communication to affected
employees to ease their fears. In accordance with servicing
agreements and the business associate agreements, Anthem should be
liable for the breach.
In the coming days and weeks, Anthem should communicate directly
with plan sponsors to tell them how it plans to proceed, when
employee communications will be sent, what information will be in
the communications, steps that will be taken to mitigate harm and
steps that will be taken to prevent future breaches.
Even though Anthem has indicated that it will provide free credit
monitoring and identity protection, affected employees should be
reminded to be vigilant and to monitor their credit reports, credit
cards, etc. Also, depending on the length of the identity
protection provided by Anthem, affected employees should consider
purchasing identity theft protection (e.g., Identity Guard,
Life Lock, TrustediD, and IdentityForce) for a longer period.
Finally, affected employees should, during the coming weeks, check
Anthem's website regularly for additional information.
Wagner Law Group is expert in security and privacy matters and this
case demonstrates the need to be not just vigilant, but also to
have policies and protocols in place to mitigate likelihood of
breach and to minimize the effect and downside if a breach were to
from Marcia Wagner on Impact Of New Actuarial Tables
On October 27, 2014, the Society of Actuaries
("SOA") issued the final version of new mortality tables
(RP-2014) for use by defined benefit pension plans. The
new tables were accompanied by new mortality improvement scales
(MP-2014) that project the rates at which future mortality is
expected to decrease.
What will the general impact of
these new mortality assumptions be once they are implemented by
defined benefit plans?
The new assumptions, which are based on a study that
began in 2009, confirm the intuitive observation that life
expectancies in the United States have been increasing. This
makes sense, because fewer people smoke and medical care has
improved. As a result, the assumptions underlying the new
mortality tables show that in comparison with the existing tables
in RP-2000, the age-65 life expectancy for males has increased from
19.6 years to 21.6 years. For age-65 females, the
corresponding increase has been from 21.4 years to 23.8
years. The respective percentage increases for males and
females are 10.4% and 11.3%.
As life expectancy increases, so does the cost of
pension annuity payments. The SOA predicts that retirement
liabilities could increase from 4% to 8%, while some actuarial
firms estimate that overall cost increases will be at the high end
of this range.
What specific plan calculations
are affected by RP-2014?
Tax rules require the use of specified mortality
assumptions to calculate plan funding, as well as lump sum
In the case of funding, IRS regulations currently
provide for sex-based mortality assumptions developed from the
tables in RP-2000 and adjusted for mortality improvement in
accordance with the improvement scales that preceded MP-2014.
IRS Notice 2013-49 contains tables based on the old mortality
tables (RP-2000) that incorporate these old-style adjustments and
can be used in calculating a plan's minimum required contribution
for 2014 and 2015. Therefore, the earliest the IRS will
require use of the new tables is a valuation date in 2016.
When the new assumptions go into effect in 2016 or later, required
plan contributions are likely to increase and funding ratios will
go down. Of course, the magnitude of these changes will be
affected by the age, sex and other characteristics of a particular
The tax code mandates that the present value of
certain pension benefits must not be less than the accrued
benefit's present value using applicable interest rates and an
approved mortality table. This includes the calculation of
lump sums. However, for this purpose and in contrast to
funding requirements, a unisex blend of male and female mortality
assumptions is used. Notice 2013-49 specifies the unisex
tables to be used for 2014 and 2015. When these tables are
replaced, the longer life expectancy assumptions reflected in the
new tables will mean larger lump sums. Plan sponsors will
have an incentive to encourage lump sums before RP-2014 becomes
effective for tax purposes.
Are there any other
consequences to the issuance of RP-2014?
There certainly are, starting with financial
reporting. In valuing pension obligations, company auditors
look to the plan sponsor's best estimate with respect to mortality
assumptions. So the issue becomes whether RP-2014 represents
a best estimate and is, therefore, to be favored over older tables.
Since the SOA believes that the new tables are needed to accurately
measure pension obligations, there will be pressure from auditors
for their immediate adoption for accounting purposes,
notwithstanding the timing issues that would be involved if used
for 2014 year-end measurements.
The updated mortality assumptions are also relevant
with respect to meeting plan obligations to disclose to
participants the relative value of optional forms of benefit.
Plan sponsors should ensure that the assumptions used for this purpose
remain reasonable in light of the SOA's research on longevity
Many defined benefit plan sponsors have adopted a
de-risking investment strategy involving increased allocations of
plan assets to fixed income as the plan's funded status, determined
on the basis of accounting liabilities, improves. If RP-2014
causes the plan's funded status to drop, plan sponsors may need to
reevaluate scheduled allocations to fixed income.
An increase in funding liabilities can also result in
higher PBGC variable rate premiums.
When will the IRS adopt the new
The conventional wisdom is that the IRS will mandate
use of the RP-2014 mortality tables for 2016 after the expiration
of the term set in Notice 2013-49. Certain large corporate
and public plans would be entitled to use plan-specific tables,
even after 2015, due to their size.
This view on timing may be oversimplifying things,
because the IRS cannot require use of the new tables merely by
issuing a notice and will have to implement the changes by amending
its regulations. The regulatory process, including
publication of proposed regulations and a period for public comment
could delay adoption of the new mortality table until 2017 or 2018.
The IRS is under a statutory obligation to review
applicable mortality rates for qualified plan funding purposes at
least every 10 years, but this does not mean that adoption of the
latest SOA tables are required and there are countervailing factors
that may apply. For example, the methodology and data of the
SOA study that resulted in the new assumptions was criticized by
other actuarial groups, such as the Academy of Actuaries, which
suggested that the SOA's new tables might overstate life
expectancy. This debate could be rejoined when proposed
regulations adopting the new assumptions are opened to public
Further, the end result of the SOA's conclusions
regarding improved life expectancy is to increase required
contributions, thereby contradicting the objective of recent legislation,
such as the Highway and Transportation Funding Act of 2014 which
sought to reduce contribution requirements. This raises the
possibility that Congress could act to delay the impact of updated
mortality assumptions on pension funding. It is important to
realize that the SOA's final report and updated tables do not
constitute new rules and regulations.