GMP Equalisation Under the Microscope – Focusing in on Data Gaps

Human-Resources

“Big Data” is a topic that is frequently referred to in the news.  The traditional definition of Big Data is data that contains greater variety, arriving in increasing volumes and with ever-higher velocity.  Whilst this definition isn’t typically of direct relevance to trustees of UK occupational pension schemes, it does have some application in the context of guaranteed minimum pension (GMP) equalisation.

Trustees are already grappling with scheme data in connection with the submission of data scores to the Pensions Regulator as part of their scheme returns.  In addition, data issues are high on many trustee agendas, for example, when addressing data security and data privacy obligations, or looking ahead to the information to be provided to pension dashboards.  Following the recent High Court decision on the issue of GMP equalisation and historical transfers – a ruling commonly referred to as “Lloyds 3” – trustees have a potential further headache regarding scheme data to deal with.

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Free And Extended COBRA Coverage Under The American Rescue Plan Act Of 2021: Update

Section 9501 of the American Rescue Plan Act of 2021 (the “ARPA”)[1] requires certain employers to offer free COBRA coverage to certain individuals between April 1, 2021 and September 30, 2021.  The ARPA provides tax credits to employers to offset the cost of the COBRA coverage.  The right to free COBRA coverage extends to some individuals whose right to COBRA coverage previously ended.

The original version of this blogpost, written shortly after passage of the ARPA, reviewed eligibility free coverage and extended coverage, how the tax credits work, and potential issues pertaining to insurance coverages.  On April 7, 2021, the Department of Labor (the “DOL”) issued guidance on the law in the form of “Frequently Asked Questions” and various model notices that can be used in connection with the law.[2]  This post reflects the DOL’s recent guidance.

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GMP Equalisation Under the Microscope – Proactivity Under the Lens

Human-Resources

GMP Equalisation and Underpaid Cash Equivalent Transfer Values – Will Trustees Have to Trace and Compensate Members Proactively, or Can Trustees Wait for Claims?

Shortly after the High Court decision commonly referred to as “Lloyds 3”, which considered the issue of guaranteed minimum pension (GMP) equalisation and the extent to which past transfers out should be revisited, we published a summary of the decision and our initial reaction. We continue to look at some of the key issues raised by the Lloyds 3 decision in a series of blogs. In this blog, we will consider the question of whether, and to what extent, trustees have to be “proactive” in seeking, finding and topping up cash equivalent transfer values that were underpaid as a result of a failure to equalise for the effect of unequal GMPs.

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TPR Tightens the Governance Net in its New Code of Practice

Stacked TrianglesIf you were under the impression that the single code of practice would be a consolidation of existing codes, then the content of this blog will come as a surprise!

The Pensions Regulator (TPR) has published a consultation on the first phase of replacing the existing Codes of Practice with a single, online Code of Practice (the New Code). The first phase involves converting 10 of the existing Codes of Practice into 51 shorter, topic-based modules. The remaining five Codes of Practice (in relation to notifiable events, funding defined benefits, modification of subsisting rights, master trusts and the material detriment test) are expected to be added to the New Code in due course. TPR also plans to review its guidance in line with the New Code, starting later in 2021.

TPR decided to introduce the New Code in order to make its material easier to use and understand. The draft New Code also incorporates the new governance requirements set out in the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018 (the Governance Regulations). The New Code is not a straight consolidation of existing Codes of Practice – updates have been made throughout to tighten up on governance requirements and to clarify TPR’s expectations on how standards should be met and how compliance should be evidenced. It is not safe to assume that an existing policy, practice or procedure would meet the standards expected in the New Code.

This blog highlights some of the key points to note from the New Code.

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American Rescue Plan Tax Credits for Employers Who Voluntarily Provide FFCRA Leave – Supplement

This is a Supplement to our post on March 24, 2021 regarding Section 9641 of the American Rescue Plan Act of 2021 (the “ARPA”). This Supplement addresses state and local governmental employers.

Section 9641 of the Rescue Plan makes available tax credits to offset the costs borne by certain employers who voluntarily provide emergency paid sick leave and emergency paid family leave to employees for certain types of covered absences occasioned by the pandemic, from April 1, 2021 through September 30, 2021.

Prior to April 1, 2021, no tax credits were provided for state and local government employers who were either required to provide leave under the Families First Coronavirus Response Act (FFCRA) during 2020, or did so voluntarily from January 1, 2021 through March 31, 2021.

However, Section 9641 of the ARPA does appear to extend the availability of tax credits to state and local governmental employers who voluntarily provide FFCRA leave from April 1, 2021 through September 30, 2021.

It appears that a state or local governmental employer must meet all of the relevant provisions of the FFCRA, as amended by the ARPA, in order to qualify for the credits, including the “nondiscrimination” rules contained in Internal Revenue Code Sections 3131(j) and 3132(j). Please see our March 24, 2021 post for additional details.

As of this date, the IRS has not updated Questions and Answers on its web site pertaining to FFCRA credits to reflect the passage of the ARPA. Thus, we have not seen an official acknowledgement of the foregoing. Thus, state and local governmental employers should stay tuned for further guidance from the IRS.

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American Rescue Plan Tax Credits for Employers Who Voluntarily Provide Paid Sick Leave and Paid Family and Medical Leave

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the “Rescue Plan”).[1] This post reviews Section 9641 of the Rescue Plan, which makes available tax credits to certain employers who voluntarily provide paid time sick leave and family and medical act leave to employees for absences occasioned by the pandemic, from April 1, 2021 through September 30, 2021.

Section 9641 of the Rescue Plan is based on the paid sick leave and paid family and medical leave provisions that were effective April 1, 2020 through December 31, 2020, under the Families First Coronavirus Response Act (“FFCRA”).[2] Although the mandatory paid leave provisions of the FFCRA were not extended past December 31, 2020, the tax credits available under Section 9641 of the Rescue Plan are based on the framework of the FFCRA, with certain modifications.

This post will first review the FFCRA, and then explain how the Rescue Plan’s tax credits work.

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The Saver is at the Heart of TPR’s 15-year Strategy

Three_GenerationsTaking a look across the generations, The Pensions Regulator (TPR) has set out its blueprint for the future of pensions regulation in a 15-year strategy aimed at protecting savers in the short and long term. The strategy focuses on TPR’s commitment to evolve from a scheme-based view to one that puts the saver at the heart of all that it does.

Understanding Pension Savers

In order to move the focus to pension savers, TPR has adopted a new analysis based on different groups of savers by generation. TPR has recognised that each group is likely to have a different level of reliance on different pension systems and, therefore, face distinct challenges that will each require a tailored approach.

The four generations are set out below with a summary of their common characteristics and TPR’s focus for the future:

Saver Baby Boomers Generation X Millennials Generation Z
Year of birth 1946 – 1964 1965 – 1980 1981 – 1996 1997 – 2012
Timeframe for accessing pension Moving into retirement over the coming 15 years 15 – 30 years 30 – 45 years 45 years +
Common characteristics More exposure to DB schemes Mixture of DB schemes (albeit less than baby boomers), DC schemes and master trusts To the extent they are saving, most will be automatically enrolled and making the statutory minimum level of contributions For those that have commenced their working life, they will most commonly be automatically enrolled into a DC scheme
Risks Long-term economic volatility, as well as financial strain in the wake of COVID-19, has meant that many DB schemes are not sufficiently funded to meet promises made to these savers. These savers may have given little to no thought as to how they will manage financially in retirement. They may not be aware that a few years of statutory minimum contributions is unlikely to be sufficient. Changes to employment patterns, including zero hours contracts and “gig” economy work, could make pension saving a challenge and lead to a proliferation of small pots. This cohort may not have savings outside of pensions. Many of this generation have not yet started saving for retirement. They will face unique challenges, some of which are yet unknown.
Focus for the future Security

Ensuring value

Tackling pension scams

Enabling good saver decision-making

Market innovations

Regulatory developments that drive greater transparency and simplicity

Driving participation in workplace pensions

Ensuring value for money

Security

Encouraging innovation

Investing in analysis and insight to understand the needs of these savers as they emerge

Pensions Landscape

TPR has noted the significant structural shift in the pensions landscape from one that was largely dominated by DB schemes, to now having a vast majority of savers in DC schemes. While TPR considers that balancing the current and future needs of the two types of scheme is a central challenge, Charles Counsell OBE has commented that this shift “means that it is a natural evolution to go from a scheme and employer-centric approach to regulation, to one with savers at its heart.”

TPR has identified a set of eight overarching trends that it considers will shape the future of retirement savings:

  1. Changes in the nature of work and retirement mean that people are now earning money differently to the traditional employment models. This is expected to have an effect on pensions as people start saving later in life and, as a result, a growing number will work at least part time in retirement.
  2. Shift in the balance of the marketplace with fewer, more professionalised, trustees emerging in lieu of employer and member nominated trustees.
  3. Reduction in membership of DB schemes means that the priority will be on addressing funding gaps and putting in place clear plans to meet promises made to savers.
  4. Growth and consolidation of the DC market leading to opportunities for enhanced saver outcomes through better governance, administration and value.
  5. Suppliers will innovate and integrate with the anticipation that some providers will expand to operate across the full pension supply chain.
  6. Growth in the demand for stewardship as a means of delivering sustainable benefits, not only for pension savers but also for the economy, environment and society.
  7. Accelerating technology-driven change in the pensions industry. TPR considers that the pensions dashboard may act as a catalyst for driving these advances and is expecting to work with industry more widely to embrace and embed technology.
  8. Regulatory frameworks will evolve in line with the transformation of the marketplace and wider landscape.

Strategic Goals

In light of TPR’s aim to ensure savers’ pensions are enhanced and protected both now and in the future, TPR has set the following strategic goals:

  1. Savers’ money is secure. TPR aims to secure promises made to savers in DB schemes, as well as ensuring that DC schemes deliver good quality outcomes. TPR will work with partners across the pensions industry to act against pension scammers.
  2. Savers get good value for their money. TPR will actively pursue value for money throughout the pensions system, whether that be through investments or the costs and charges of administration, and intervene where expectations are not met. TPR will work with its regulatory partners, including the FCA, to bring out a consistent framework for assessing value for money.
  3. Decisions made on behalf of savers are in their best interests. TPR will scrutinise decisions made, as well as monitor those who are making the decisions that impact savers’ outcomes. TPR will intervene where it considers poor decisions may lead to bad outcomes for savers.
  4. Innovation to meet savers’ needs. TPR will encourage innovation by facilitating the development of technology and the sharing of good practice by collaborating across the market.
  5. TPR is a bold and innovative regulator. TPR aims to transform the way it regulates in order to put the saver at the heart of its work.

While the strategy sets out TPR’s 15-year vision, the detail behind the day-to-day work will be set out via three-year corporate plans. Keep an eye out for our communications detailing TPR’s more specific plans in the future.

Pension Schemes Act 2021 Under the Microscope – TPR Consultation on the new Criminal Sanction Powers

Human-ResourcesWill The Pensions Regulator (TPR) take a similar approach to the Financial Conduct Authority (FCA) when initiating criminal proceedings?

Background

The long-awaited Pension Schemes Act 2021 (the Act) received Royal Assent on 11 February 2021. Within the Act, new offences have been inserted into the Pensions Act 2004 (PA04) which include Section 58A (avoidance of employer debt) and Section 58B (conduct risking accrued scheme benefits), both carrying a risk of imprisonment for up to seven years.

On 11 March 2021, TPR published a draft policy outlining its approach on how it will use its new criminal powers to investigate and prosecute those who avoid employer debts or put member benefits at risk.

The approach will be subject to the consultation it has also published and the final policy will be issued later in the year. The criminal sanctions will not come into force until the autumn of 2021 and are not expected to have retrospective effect, although TPR has said that evidence pre-dating the implementation date may be taken into account, as regards the intent of the parties.

This blog covers some of the practical points that are worthy of note.

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Free And Extended COBRA Coverage Under The American Rescue Plan Act OF 2021

Section 9501 of the American Rescue Plan Act of 2021 (the “ARPA”)[1] requires employers to extend offers of free COBRA coverage to certain individuals for the period from April 1, 2021 through September 30, 2021.  The ARPA then provides tax credits as means of offsetting the costs of the free COBRA coverage.  The law also requires employers to extend offers of COBRA coverage to other individuals whose right to COBRA coverage previously ended.

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