BPP401k.com Newsletter May 25

The Graduating Student’s Guide to Managing Finances and Tackling Debt If you are like most graduating college students, you probably have a few thousand dollars in credit card debt and even more in student loans. In fact, total outstanding student loan debt in the US has surpassed total outstanding credit card debt for the first time ever, and is projected to hit $1 trillion by 2012. In this post, I will explore simple ways graduating students or recent graduates can take more control of their finances and pay down debts faster by doing a reality check, automating, and keeping expenses down while saving. Source: Lifehacker

Ten Reasons People Fail to Plan for Retirement David Letterman has made "Top Ten Lists" very popular. Here is another one: Ten Reasons People Fail to Plan for Retirement. Source: NASDAQ.

Say Hello to the Roth IRA’s Big Brother — The Roth 401(k) Most anyone who’s thought of starting a retirement account knows about Roth IRAs.  But there’s another option that’s also available in many 401(k) plans called the Roth 401(k).  It can be a great way to hedge your bets against future tax rate increases or a higher tax bracket you may fall-into as you get closer to retirement. Source: Forbes

Lawmakers look to tighten the 401k tap Aim to get rid of debit cards for the retirement plan, reduce number of loans workers can take. Source: Investment News

30% of job switchers unaware of 401(k) rollover options Many investors are unaware of the options available for their 401(k) account left with a previous employer, Fidelity Investments found. Nearly one-third (30%) who made a job transition are unsure of what to do with their workplace retirement savings. Source: Employee Benefit News

How to Locate a Missing Plan Participant Many employers discover that finding missing participants can be next to impossible. However, plan sponsors are required to take all reasonable means to locate a participant. One option available to a sponsor is the IRS's Letter Forwarding Program. Another option is the National Registry. Source: 401khelpcenter.com.

How the Changing Definition of Fiduciary Might Change Your Practice If the proposed regulations were finalized in their current form, brokers currently advising 401k plan sponsors and participants in a non-fiduciary capacity would undoubtedly need to change their service model and redefine their role as plan advisers. To avoid fiduciary status, they would effectively be forced to furnish written disclaimers to plan clients stating that they are not providing impartial advice, as contemplated under the proposed DOL guidance. Source: The Wagner Law Group (PDF File).

How DB Plans Became DC plans: An Introduction At some point the popularity of defined benefit (DB) pension plans gave way to defined contribution (DC) plans. This is perhaps best exemplified by the numbers of 401k plans, which so many employees are now contributing to on a regular basis. This article looks into some of the factors behind this shift. Source: Milliman.

Alternative Retirement Plan Designs - Hybrid Plans Over the last decade, economic, demographic, and political pressures have led state and local governments to consider alternatives to their traditional defined benefit (DB) pension plans. While a few have switched to defined contribution (DC) plans, others have turned to hybrid approaches that combine DB and DC plan features. Hybrid plans can help governments reallocate retirement costs and risks while continuing to provide sustainable lifetime retirement benefits. They are also of interest to corporate plan sponsors. Source: Gabriel, Roeder, Smith (PDF File).

Is Your Investment Policy Statement Still Using Outdated Language? If you're a 401k Plan Sponsor, take another look at your IPS. Are your investment goals updated to reflect the language of the modern investment environment, or is your IPS just a travel agent with no clue about Tahiti? Source: Fiduciarynews.com

Beneficiary Designations Under Qualified Plans The designation of beneficiaries under qualified plans, both a primary beneficiary and a secondary beneficiary, is an important part of a participant's retirement planning and estate planning, but the rules relating to beneficiary designations for plans are often complicated and confusing. Source: Foster Swift Collins & Smith PC.

Practical ERISA 408(b)(2) Guidance for Service Agreements The Department of Labor has now given us all a little more time to prepare, with the new effective date of January 1, 2012, for 408(b)(2) disclosure and service agreement requirements. While you have been given a slight reprieve, the job of updating your service agreements still exists – so let's take a practical approach to help you get that accomplished. What exactly do you, as a TPA and/or recordkeeper, need to consider when drafting your new service agreements in order to disclose all of the information that will be required? Source: Centre for Fiduciary Excellence (PDF File).

12th Annual Transamerica Retirement Survey This survey -- conducted among 4,080 American workers -- found that for many Americans, the foundation of their retirement strategy is simply to not retire or to work considerably longer than the traditional retirement age of 65. Overall, American workers' confidence in their ability to achieve a financially secure retirement is low. Source: Transamerica Center for Retirement Studies (PDF File).

Asset Allocation Fund Usage Rising in 401k Plans In research recently completed by Spectrem Group with defined contribution plan participants about 72% of investors had some form of asset allocation fund offered within their plan. While some had Lifestyle Funds, many had Target Date Funds, but the largest percentage (34%) had both types of funds available in the plan. Source: The Spectrem Group.

Plan Participants Double the Investment Funds They Use Individuals participating in 401k and other defined contribution plans generally invest in an average of 5.3 funds in 2011. This compares to investing in only 2.7 plans in 1996. Source: The Spectrem Group.

New Data From Shows Impact of Automatic Enrollment in 401k Plans Client data from The Principal shows that plans with an automatic enrollment feature defaulting at 3 percent produce an average deferral of 6.3 percent. This is lower than the average deferral of 6.8 percent for plans without an automatic enrollment feature. In contrast, the average deferral is 7.1 percent for plans that have a 6 percent default automatic enrollment feature. Source: Principal Group.

Leakage of Participants' DC Assets: How Loans, Withdrawals, and Cashouts Are Eroding Retirement Income Savings leak out of the retirement system before participants retire further eroding retirement readiness. More than 1.8 million employees were examined across over 110 large defined contribution plans to explores the magnitude of the problem, the impact to participant savings and ideas to curb these behaviors. Source: Aon Hewitt (PDF File).

The SEAL Act: A Senate Bill Designed to Reduce 401k "Leakage" Bill is designed to help stop "leakage" in the retirement system. Among other things, bill would allow for a greater period of time for a plan loan to be paid back after an employee terminates employment thereby helping families pay back the loan and allowing the funds to be put back into their retirement savings and avoid the tax penalty. Source: 401khelpcenter.com.

Failure to Act Triggers ERISA Liability Instituting prudent procedures in the ongoing operation of 401k and other retirement plans is paramount in managing not only investment and expense risks, but also fiduciary and organization reputational risk as shown in a recent decision by a federal appeals court that underscores that retirement plan fiduciaries must address financial issues brought to their attention. Source: CFO.com

Supreme Court Ruling Impacts ERISA Class-Action Cases On May 16, 2011, the Supreme Court clarified how much harm a participant must demonstrate in order to win damages on a lawsuit involving a Summary Plan Description (SPD) that conflicts with the terms of its underlying plan document. The Supreme Court explained that the requisite level of harm for a particular case will be dependent upon the applicable equitable theory of relief. Source: Employee Benefit News.

Retirement Plan Trustee Not Responsible for Adviser Fraud A federal appeals court has ruled that UMB Bank is not responsible for losses to retirement plan accounts from investments directed by participants’ investment adviser. Source: Plansponsor.com

401k Rights Trumped by ERISA In a recent case (Cajun Industries LLC v. Robert Kidder, et al.), the court ruled that despite having previously named his three children as beneficiaries of his 401k plan, a deceased plan participant's 401k balance will pass to his new wife. The court determined that under the terms of the participant's plan, a spouse's right to plan assets is immediately vested upon marriage, and since no spousal waiver was obtained, the default beneficiary is the spouse, even though she was not the named beneficiary. Source: Investmentnews.com (free registration may be required).

Common Mistakes in Voluntary Correction Program Submissions The IRS's Employee Plans Compliance Resolution System provides correction programs to keep your retirement plans compliant. One of these is the Voluntary Correction Program. On this page the IRS outlines some of the common mistakes made in VCP submissions. Source: IRS.

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