Beneficiary Designation Forms Can Cause Headaches for Benefits Administrators Benefit administrators, 401k vendors, recordkeepers and benefits professionals regularly recommend that participants in qualified retirement plans periodically review and update their beneficiary designation forms. What could be simpler that merely indicating to whom or to what entity a participant wishes their assets to be transferred in the event of death? Unfortunately, numerous issues arise in connection with the simple task of designating a beneficiary. Source: Employee Benefit News.
Additional Expenses Qualify for Safe Harbor Hardship Withdrawals Plan sponsors of 401k and 403(b) plans that use the 401k safe harbor hardship withdrawal rules for determining if an employee has an immediate and heavy financial need, will need to consider breast pumps and other lactation supplies as medical expenses that may be eligible for hardship withdrawal. In addition, amounts paid to repair damage to personal residences due to corrosive drywall building materials would be considered deductible costs for repairing a principal residence that also may qualify for hardship withdrawal. Source: Prudential
Baby Boomers' Emotions Threaten Retirement Security Near-retirees and retirees are feeling uncertain about the future, fearful of poverty, not confident in their investing abilities, and distrustful of unscrupulous financial services and insurance firms, according to a new white paper issued by Financial Engines. Source: 401khelpcenter.com.
How To Rollover A 401k You don't always have to move an old workplace plan, but making the move can help you better keep track of your finances. The average person holds 11 jobs from the age of 18 to 44, according to the Bureau of Labor Statistics, and for many of us that means 11 or more workplace retirement accounts. Because not all employer plans require you to leave the plan when you leave the company, you could end up with several, disparate retirement accounts. Source: Smart Money
Despite High Participation, Automatic Enrollment is Hindering Contribution Rates Forty-one percent of participants who were automatically enrolled are not saving enough to receive the full match from their employers, compared to only 25 percent of participants who proactively enrolled. Source: 401khelpcenter.com.
30% of Job Switchers Unaware of 401k Rollover Options Many investors are unaware of the options available for their 401k account left with a previous employer. Nearly one-third (30%) who made a job transition are unsure of what to do with their workplace retirement savings. Source: Employee Benefit News.
Trends in Pension Plan Management: The Annuity Dilemma This article examines some key issues facing late-career employees who are desperate for information about payout options from defined benefit and defined contribution plan assets. In particular, it assess the three key questions. Source: Mercer
Compliance Checklist for Retirement Plans Subject to ERISA This Checklist as a "quick glance" resource to help you meet plan reporting and disclosure requirements for plans subject to the reporting and disclosure requirements of ERISA. This easy-to-follow Checklist should help you provide timely and complete information to individuals and appropriate government agencies. Source: Prudential
Retirement Plans Struggle With Annuity Issue Helping retirees convert their own lifetime savings into a regular paycheck is proving a challenge for retirement-plan sponsors. One solution involves having the retiree buy some kind of annuity, but some plan sponsors fear that could create a legal liability for them. While they have held off, other sponsors have moved ahead, offering annuities that employees can invest in gradually as they build their 401k nest eggs. Source: Marketwatch.com.
Outsourcing: SAS 70 Superseded for Service Provider Control Reporting By SSAE 16 Prior to 2011, entities who engaged third-party service providers to perform functions and/or processes that impacted the user entities' internal control over financial reporting (ICFR) typically required Statement on Auditing Standards (SAS) No. 70 Type 2 reports from service organization auditors. Going forward, where the service organization's services affect the user entity's ICFR, user entities should require in their outsourcing services contracts that service organizations provide Service Organization Control 1 Type 2 reports under SSAE 16 rather than SAS 70 Type 2 reports. Source: Sutherland Asbill & Brennan LLP
New 403(b) Survey Shows Resilience of Sponsors and Participants Despite a potentially crushing recession and a spate of complex new regulations, the 403(b) retirement plan system appears to be healthier than ever. That is the findings of the just-released 2010 403(b) Plan Survey from the Profit Sharing/401k Council of America. Survey highlights revealed. Source: 401khelpcenter.com.
403(b) Plans Increase Use of Advisers and Online Communications The latest 403(b) plan sponsor survey from the Profit Sharing/401k Council of America (PSCA) reveals sponsors are increasingly asking for help from investment advisers and their plan providers and are rolling out more online communications to participants. Source: Plansponsor.com.
403(b) Plan Termination Guidance An updated summary and overview of 403(b) plan termination guidance. Source: McKay Hochman.
Due Diligence, Best Practices Tips for RIAs While Congress, the SEC and individual states continue to work out the precise definition of a fiduciary and precisely what his or her requirements will be going forward, RIAs and other financial services professionals still need to take it upon themselves to implement best practices that will ensure they'll be in compliance whenever these new regulations are finalized. Source: Onwallstreet.com.
New Survey Findings on Investment Committee Leadership Styles While leadership styles on investment committees may vary, the democratic style is most common, according to a new Vanguard survey. Source: Vanguard.
Fiduciaries Required to Document Prudence of Retaining Unitized Stock Fund Plan fiduciaries may have breached their fiduciary duties by failing to deliberate and make a documented reasonable decision regarding means of reducing investment and transactional costs associated with a unitized company stock fund, according to the U.S. Court of Appeals in Chicago (CA-7) in George v. Kraft Foods Global, Inc. Source: CCH.
Door Closes on SPD-Based Benefits Claims, but Plaintiffs See New Hope for Relief The U.S. Supreme Court this week issued a decision that closes the door on benefit claims based on the language of summary plan descriptions (SPDs), but opens up the possibility of a much less restrictive judicial approach to the type of equitable relief available under ERISA Section 502(a)(3). Source: Ballard Spahr LLP.
Court Tells Participants That Door to Monetary Awards Against Fiduciaries is Opening The Supreme Court on May 16, 2011, issued a major ERISA remedies decision in CIGNA Corp. v. Amara holding that ERISA's authorization of suits by pension plan participants "to recover benefits due" or to "enforce [their] rights" under the terms of the plan is not authority for courts to enforce the terms of a summary plan description or to revise the plan to conform it to representations made in the SPD. More importantly, however, the Court appeared to use the case to signal that it has rethought the scope of "other appropriate equitable relief" available under ERISA's catch-all remedial provision. Source: Trucker Huss.
BP Accused of Mismanaging Retirement Plans BP Plc, BP's North American unit was accused in a lawsuit by its employees of mismanaging their retirement savings plans by investing heavily in its own stock before last year's Gulf of Mexico oil spill. Source: Benefitspro.com.
Fourth Circuit Recognizes ERISA Fiduciary Exception to the Attorney-Client Privilege Adopting the rule applied by several other appellate courts, the Fourth Circuit has recognized a fiduciary exception to the attorney-client privilege in the case of a DOL investigation of two multiemployer plans (collectively bargained plans, administered by a separate board of trustees, under which more than one employer contributes on behalf of its employees). Source: EBIA.
Sixth Circuit Affirms Trustee's Conduct Was Within ERISA § 404(c) Safe Harbor In this case, the participants chose their investment advisor, relied solely on the advisor for their investment decisions, directed the trustee to implement those investment decisions, and were unable to establish that the trustee had prevented them from exercising “independent control.” Since they were unable to collect any of their losses from the investment advisor, they attempted this unsuccessful claim against the plan's trustee. It is notable that the participants also were ordered to pay the trustee's litigation costs. Source: EBIA.
Restrictive IRS Guidance for 457(f) Plans Likely to be Issued in 2011 After a lengthy period of silence, it appears that the IRS is getting ready to issue the long-anticipated regulations governing Internal Revenue Code (Code) Section 457(f) plans. Source: Drinker Biddle & Reath LLP
IRS Rules That Annuity Payouts With Automatic Increases Are Not "Substantially Equal Periodic Payments" The IRS ruled that nonqualified annuity payouts that automatically increase by a fixed percentage are not within the "substantially equal periodic payment" (SEPP) exception to the IRC § 72(q) premature distribution 10% penalty tax. Although the ruling applies by its terms only to nonqualified annuities, its conclusions implicitly extend to the comparable exception under the § 72(t) premature distribution penalty for qualified retirement plans. Source: Sutherland Asbill & Brennan LLP
For more information about custom retirement plan design and how Benefit Plans Plus can help make your business more successful visit www.bpp401k.com
5.23.2011
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.
For more information about custom retirement plan design and how Benefit Plans Plus can help make your business more successful visit www.bpp401k.com
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.
For more information about custom retirement plan design and how Benefit Plans Plus can help make your business more successful visit www.bpp401k.com
5.18.2011
BPP401k.com Newsletter May 18
401k Fee Disclosures: What They Mean and What's at Stake The DOL issued final regulations that will soon require investment companies to disclose the hidden fees they are charging investors participating in 401k plans and other defined contribution plans. This new regulation will require plan providers to report to investors, typically the employees of plan sponsors, the direct and indirect compensation received in connection with account services and will take effect July 16, 2011. What do these regulations mean and what's at stake for the investor, the plan sponsor and the investment company? Source: Benefitspro.com.
So Many Types of 401(k)s. Which is the Perfect Match for Your Business? When small business owners decide to start a retirement plan, they’re often surprised by how many different types there are to choose from and can have trouble discerning which one’s right for their particular business. Source: Forbes
Average 401(k) Balance Hits a Record High Fidelity Investments reports today that the average balance in its 401(k) accounts has — finally — regained the high-water mark that was set before the big bear market of 2008-09. The average balance was a record $74,900 on March 31, up 12 percent in the past year and 58 percent in the past two years. Source: STLToday.com
Annuities in 401k Plans: What a Plan Sponsor Should Keep in Mind Few 401k plans provide for annuities and plan sponsors have been reluctant to expand their menus of plan investments to cover annuities primarily because there has not been significant interest by participants, there are additional administrative issues and because employers are uncomfortable with the possibility of fiduciary risk. In particular, employers and fiduciaries are concerned that they may be sued if the annuity carrier is unable to satisfy its obligations over extended periods of time. As a result, plan sponsors must consider many factors and ask many questions before and after deciding whether to offer annuities. Here is a detail review of the issues. Source: 401khelpcenter.com.
Don't Trip Over Basic 401k Hurdles The hurdles races are some of the most interesting events to watch at a track meet. Highly trained sprinters not only have to run fast but also must jump over the obstacles at set distances to win the race. The athletes could stumble at any time and never finish close to their goal. The challenges are similar for defined contribution plan participants. Source: Forbes.
Autopilot Helps Participation, but Saving Rates May Still be Running Low Three-quarters of the Vanguard-recordkept DC plans using auto enrollment continue to default participants at contribution levels of 3% of pay or less. In the last five years, plans most commonly defaulted at the 3% deferral rate (50% to 60% of auto enrollment plans). The result: employee-employer savings rates that are potentially too low to meet the needs of participants in retirement. Source: Vanguard.
Q&A About the New Roth Rollovers in 403(b) Plans Here are some things you need to help your clients understand the statutory provisions, explanations, and IRS guidance governing the new in-plan Roth rollovers. Source: 403b-advisor.net.
Few Plan Providers Manage to Satisfy Affluent Participants According to a new report released by Cogent Research, less than half of affluent investors are satisfied with their current employer-sponsored retirement plan provider. Source: 401khelpcenter.com.
AUDIO: Recordkeeping and TPA Services: A Conversation with Steve Cronin from Ascensus A conversation with Steve Cronin from Ascensus about recordkeeping/TPA in today's changing 401k landscape. Source: Advisorsaccess.com.
Defined Contribution Plan Participants' Activities DC plan assets are a significant component of Americans' retirement assets, representing more than one-quarter of the total retirement market and almost one-tenth of U.S. households' aggregate financial assets at year-end 2010. To measure participant-directed changes in DC plans, ICI has been tracking participant activity through recordkeeper surveys since 2008. This report updates results from ICI's survey of a cross section of recordkeeping firms representing a broad range of DC plans. Source: Investment Company Institute (PDF File).
Benchmarking of Retirement Plan Expenses This paper is provided to help plan sponsors, service providers and professional advisors understand how expense data may be collected, collated and analyzed to help plan fiduciaries to make better decisions and reduce fiduciary risk. The data reflected in this analysis is not from a survey - what a service provider might charge a client, but instead actually identifies what a service provider has charged a client for the categories of services listed. Source: PlanTools LLC (PDF File).
ERISA Litigation Newsletter - May 2011 In this newsletter two articles highlight the unique limitations contained in ERISA's civil enforcement mechanism. First, article discusses the evolution of case law addressing the ability of ERISA plans to recover mistaken payments from participants pursuant to a plan's reimbursement or offset provisions, or in circumstances involving errors or participant wrongdoing. A second article examines the viability of a different category of claims under 502(a)(3) – those seeking monetary relief where a participant claims to have incurred expenses due to mistaken advice from plan representatives. Source: Proskauer Rose LLP.
Congressional Democrats Want Agencies to Revise Fiduciary Rule A group of nearly 30 congressional Democrats has written to the leaders of the Labor Department, the Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission expressing concern over a recent proposed rule redefining the meaning of the term “fiduciary,” saying it would have a negative impact on people with Individual Retirement Accounts and other retirement and savings plans. Source: AccountingToday.com.
DOL Considers Changes to Electronic Disclosure Rules The Department of Labor has finally determined that it may be time to update the rules regarding electronic disclosures (the current rules were published back in 2002). Accordingly, they have issued a Request for Information soliciting views, suggestions, and comments to determine whether to expand or modify the rules regarding electronic distribution of employee benefit plan information under ERISA. Source: Verrill Dana LLP.
Federal Register on Exemptions From Certain Prohibited Transaction Restrictions This document contains exemptions issued by the Department of Labor from certain of the prohibited transaction restrictions of ERISA, including those related to Wachovia Corporation, Robert W. Baird and Co., Security Benefit Mutual Holding Company and Security Benefit Life Insurance Company, and The Parvin Nahvi, M.D. Inc. 401k Profit Sharing Trust. Source: U.S. Department of Labor (PDF File).
IRS Reduce User Fees for Enrolled Retirement Plan Agents The IRS has issued final amendments to regulations relating to enrolled agent and enrolled retirement plan agent user fees. The final regulations separate the enrolled retirement plan agent user fees from the enrolled agent user fees and lower the initial enrollment and renewal of enrollment fees for both enrolled agents and enrolled retirement plan agents. Source: CCH.
For more information about custom retirement plan design and how Benefit Plans Plus can help make your business more successful visit http://www.bpp401k.com/
5.09.2011
BPP401k.com Newsletter May 11
AARP reports 401(k) participants are unaware of fees An AARP survey found that many 401(k) plan participants are largely unaware of the fees they pay to their plan providers.
When asked, more than seven in ten (71 percent) 401(k) plan participants incorrectly reported that they did not pay any fees and six percent said that they did not know whether or not they pay fees. AARP has also launched a 401k Fee Calculator. Source: Business Examiner
5 Characteristics of a Good 401(k) Plan The 401(k) has become the main retirement savings plan for many Americans. As such, it is important to both employees and the sponsoring organization that they have access to a solid plan that offers participants the opportunity to amass the money they need for a comfortable retirement. With that in mind, here are five characteristics of a good 401(k) plan. Source: US News
New 401k Rules Pose a Challenge for Small and Midsize Companies CFOs at small and midsize companies should monitor new 401k plan disclosure requirements. There are several new or forthcoming rules, and one in particular — ERISA Section 404(a)(5) — could cause headaches. Plan fiduciaries have new obligations that carry substantial penalties and are likely to impose new costs. Source: CFO.com.
Nothing is Simple Regarding Beneficiary Designation Forms In the area of employee benefits, we have learned that nothing is simple. Even beneficiary designation forms can create significant issues. Some practitioners have taken the approach that beneficiary designation forms should automatically become void upon divorce. This article is a review of court rulings and provides some practical advice. Source: Employee Benefit News.
5 Ways to Make 401(k) Plans More Like Pensions The annual Retirement Confidence Survey from the Employee Benefit Research Institute finds hat Americans’ confidence in their ability to afford a comfortable retirement has hit a new low. Here are the best ideas to emerge. Source: Reuters
Helping Employees Save More Of those participants who are not contributing the maximum to their 401k, nearly nine in ten admitted that they could afford to increase their annual contribution by 1% of their salary. Here are some practical tip for the employees who often say, "I know I could save more, but...." Source: Milliman Blog.
Mutual Fund Analyzer Tool “401K Generator” Announced The American Wealth Investing Institute is pleased to announce it has launched the 401K Generator to make its Mutual Fund Analyzer Tool accessible to more Americans. Source: San Francisco Bay Area Today
Companies That Cut 401k Match Are Rethinking Move History suggests that CFOs will again confront difficult decisions about rescinding and restoring company 401k contributions. In each recession that occurred after IRS Rule 401k took effect in 1980, some companies put their matches on hold. But did CFOs learn anything this time around that will help them decide what to do next time? Source: CFO.com.
ERISA and KISS: Strange Bedfellows or Marriage Made in Heaven? Simplicity should be a key goal in plan design, plan objectives and participant communications. Regulations make this challenging, but the benefits of simplicity are many. Source: Employee Benefit News.
Basic Questions and Answers About Lump-Sum Distributions The ins and outs of lump sum distributions, and whether to take them or not, are among the most common conundrums facing new retirees. Here are a few questions about the basics that are heard frequently and the answers. Source: Milliman Blog.
New IRS Review of Higher Ed's 403(b) Plans: An Expensive and Serious Matter The IRS's Employer Plans Compliance Unit is in the process of issuing a 21 question questionnaire, Form 866a, to a sampling of colleges and universities, aimed at testing whether or not there is compliance with 403(b)'s "universal eligibility rule." Source: Business of Benefits.
How Business Officers Use Expanded Fiduciary Responsibilities to Improve Benefits Even sophisticated school business officers can feel unpleasantly surprised to learn that insurance companies and mutual funds do not accept fiduciary responsibility for 403(b) plan investments. As for executing that responsibility themselves, business officers may not be confident about exercising necessary control over plan investments and fees. With the right type of support, however, a school can efficiently satisfy its fiduciary responsibility and act appropriately in the best interests of the plan and its participants. Source: 403bwise.com (PDF File).
Tougher 401k Rules Seen as 'Full Employment Act' for RIAs As the Labor Department prepares to issue stricter rules for the retirement fund industry, financial advisers at RIA firms are licking their chops over the prospect of poaching business from broker-dealers and insurance agents. Source: Investmentnews.com (free registration may be required).
Setting Retirement Savings Goals Leads to Increased Engagement and Savings According to a new Diversified survey, when people set a goal for their retirement savings, they tend to be more engaged in actively planning for their retirement. This includes increasing the amount they actually save and staying on top of news associated with their specific retirement plans. Source: 401khelpcenter.com.
Fifth Annual Study of Employee Benefits Two factors figured prominently in this year's trends-the slowly recovering economy, and the passing of a landmark health care reform bill in March. As a result, not only are employers offering fewer benefits, but they are shifting more of the associated costs to employees. This trend may slow once the economy recovers, but study findings indicate that it is unlikely employers will revert to a "pre-recession" benefits model, where employers paid most or all benefits costs. Source: Prudential (PDF File).
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle Focusing on a "safe withdrawal rate" and then deriving a "wealth accumulation target" to achieve by the retirement date may not be the best way to approach retirement planning. Such a formulation isolates the working (accumulation) and retirement (decumulation) phases. The focus of retirement planning should be on the savings rate rather than the withdrawal rate. Source: Journal of Financial Planning.
Defined Contribution Pension Participation and Contributions by Earnings Levels Many observers question how the shift from defined benefit to defined contribution retirement plans affects workers with different compensation levels. To advance the empirical basis for understanding pension outcomes, this study estimates DC plan participation and contribution rates both by the worker's current earnings and by the annual average of real earnings over the 10-year period 1997-2006. Source: U.S. Social Security Administration (PDF File).
Court Rejects 404(c) Defense in Certifying Stock Drop Suit Class A U.S. District Court has certified as a class action a suit against YRC Worldwide that claims it offered company stock as a 401k investment option when it was no longer prudent. Source: Planadviser.com.
Proposed DOL QDIA Rules and Notice Requirements The DOL's Employee Benefit Security Administration has issued proposed changes to the content required in the qualified default investment alternative (QDIA) notice. The changes are designed to provide enhanced information about investments in target date funds to participants and beneficiaries. Source: McKay Hochman.
For more information about custom retirement plan design and how Benefit Plans Plus can help make your business more successful visit www.bpp401k.com
5.03.2011
BPP401k.com Newsletter May 4
Top Four Things to Make Your Retirement Plan More Effective When it comes to the best strategies for the most effective defined contribution plans, one key is to worry less about factors you can't control, such as market performance, and focus on what you can control. Four of the most influential areas of overall plan and investment design for plan sponsors are: Savings adequacy, asset allocation, costs and retirement income solutions. Source: Vanguard.
401k Participants' Awareness and Understanding of Fees Successfully using a 401k plan to prepare for retirement requires knowledge of investment opportunities, types of plans and their mix of investments, knowledge of risk, and awareness of the costs associated with maintaining a plan. Despite the need for knowledge, seven in ten are not aware that they pay fees to their 401k plan provider to maintain their account. When told of these fees, six in ten are not aware of the amount they pay in fees to maintain their account. Source: AARP (PDF File).
Don't be a delinquent; take advantage of DOL compliance program It is important that all employers, even those who did not report delinquent contributions, determine whether they have complied with the governing DOL regulations. DOL has made this issue a priority, and it is a common issue for examination on audit. Source: Employee Benefit News
So Many Types of 401ks. Which is the Perfect Match for Your Business? When small business owners decide to start a retirement plan, they're often surprised by how many different types there are to choose from and can have trouble discerning which one's right for their particular business. For those ready to add a 401k plan to their business, knowing the general ins and outs of each type of 401k can alleviate uncertainty and make selecting the plan that's right for your business much, much simpler. Source: Forbes.
Limited Scope Audits Misunderstood by Some The 2010 ERISA Advisory Council found that deficiencies in limited scope audits of retirement plans may be due to some misunderstandings. Source: Planadviser.com.
Shift From DB to DC Plans Impacts Middle Class With a DC pension, nearly all the risk is passed to the employees. DC plan forces them to make a set of decisions, such as their contribution rate and their asset allocation, for which they may not be equipped. A very large proportion of the population has no interest, knowledge or time to direct their 401k plans. They are known as the unengaged majority. Source: The Economist.
Retirement Income: Solving a Very Real Problem The plan sponsor community is increasingly mindful of the challenges their employees face in retirement in a defined contribution world. Yet just 3% of defined contribution sponsors say they very likely will add in-plan annuity or insurance products in 2011. This article covers five things to consider when evaluating retirement-income products. Source: Plansponsor.com.
Women Still Far Behind in Retirement Plans We've all seen headlines calling out the retirement savings crisis facing American workers and the need for them to take steps to protect their financial futures. One aspect of this issue that deserves more attention is the role gender can play in retirement readiness. When planning for retirement, there are three main obstacles women must overcome. Source: Thestreet.com.
Resolving the 401k Fiduciary Dilemma How can CFOs perform their sometimes-conflicting duties to both plan participants and company shareholders? Some CFOs are questioning how long they can continue to act as retirement plan fiduciaries in light of their personal liability, but balancing conflicts of interest that can lead to being sued is not impossible. Source: CFO.com.
Stable Value Funds: Conservative Values As a conservative option that has been an important cog of 401k plans for more than three decades, stable value is receiving plenty of interest of late. The financial downturn of 2008-2009 motivated many participants to shift assets from equity into fixed income, and stable value has offered significantly stronger returns than the money market, cash, and intermediate-term bonds over the past three years. In addition, Baby Boomers nearing retirement age have been lured to the guaranteed feature of stable value to protect assets they have accumulated over the years. Source: Plansponsor.com
Participant Advice: Plan Sponsor Liability and Responsibility The industry is awash in information about participant advice and plan sponsor liability. Opinions vary widely and while well intended, much of this content is in reality misinformation. In short, the most pertinent questions remain unanswered. Do sponsors who facilitate or offer sponsor selected participant advice increase their liability? Additionally, if they do facilitate or provide participant advisory services, what are their duties and responsibilities as fiduciaries? Source: Center for Due Diligence.
Many Sponsors Evaluating the Key Aspects of Their QDIAs At its most basic level, a QDIA evaluation should jibe with everything in a plan's investment policy statement. Yet, there are elements to a QDIA, because you are defaulting people into it, that are different. This article reviews five key aspects of a QDIA analysis. Source: Plansponsor.com.
When Smaller Menus are Better: Variability in Menu-Setting Ability and 401k Plans Economists love menus, which can be used to help understand people's choices. For example, do we prefer more choices (larger menu) or fewer (shorter menu)? But the menu itself has to be pre-selected. This research by David Goldreich (Rotman School of Management) and Hanna Halaburda (Harvard Business School) focuses on the menu setter's decisions about what to include, and how large a menu to construct in the context of 401k plan choices. Source: HBS Working Knowledge.
Private Pensions: Some Key Features Lead to an Uneven Distribution of Benefits Despite sizeable tax incentives, private pension participation has remained at about 50 percent of the workforce. For those in a pension plan, there is concern that these incentives accrue primarily to higher income employees and do relatively little to help lower income workers save for retirement. This is a just released GAO report on the issue. Source: Government Accountability Office (PDF File).
Target-Date Funds Win Assets as Criticism Abates Target-date funds are an increasingly popular choice for Americans' retirement savings, especially as the funds' performance has rebounded in the bull market. Source: Morningstar.
Target-Date Series Research Paper: 2011 Industry Survey In this annual Target-Date Industry Survey, Morningstar shines a sweeping light across target-date funds, which have become a primary tool for Americans' retirement savings. The 2011 Industry Survey updates much of the data from the 2010 edition while providing new features on asset allocation, performance attribution, and portfolio composition -- particularly among retirement-income funds, the terminal funds in many target-date series. Source: Morningstar (PDF File).
Seventh Circuit Affirms Trial Court's ERISA Stock Drop Judgment In Peabody v. Davis, a trial court granted judgment in favor of a former employee of a closely-held securities trading firm on his claims that the firm's owners breached ERISA's standard of prudent care by not disposing of company stock held through the firm's ERISA-covered savings plan before the firm collapsed. Earlier this month, the United States Court of Appeals for the Seventh Circuit affirmed the trial court's judgment on that point. In doing so, however, the Court of Appeals emphasized both the narrowness of its ruling as well as the unique circumstances involving Peabody's former employer and their plan. Source: Groom Law Group (PDF File).
The Presumption of Prudence Persists: In re UBS ERISA Litigation In the UBS case the Court found that one of the UBS plans expressly provided that the employer stock fund would be included in the fund line up. The other UBS plan did not include explicit language mandating the inclusion of the fund, but references to the stock fund appear throughout the document and effectively presupposed that the fiduciaries would make the fund available to participants. These provisions were sufficient, in the Court's view, to warrant applying the Moench presumption because the fiduciaries lacked the effective ability to remove the funds as a matter of discretion. Put another way, at least in the case of one UBS plan, a plan amendment would be necessary to remove the fund. Source: Verrill Dana LLP.
Failure to Amend for EGTRRA Causes Disqualification of Profit-Sharing Plan Failure to amend a profit-sharing plan to reflect recent tax law changes results in disqualification, even for a one-person plan, ruled the U.S. Tax Court in Christy & Swan Profit Sharing Plan v. Commissioner. The Tax Court wrote, "The requirements that a plan must satisfy for qualification under Sec. 401(a) must be strictly met." Source: CCH.
408(b)(2) Amendments 'Fully Drafted' at DOL The amendments to the 408(b)(2) regulation mandating disclosures of compensation and conflicts of interest by retirement plan service providers “have been fully drafted” by the Department of Labor, says Fred Reish, partner and chair of the Financial Services ERISA Team at Drinker Biddle & Reath. Source: Advisorone.com.
IRS Issues Important Reminders for Retirement Plans The Internal Revenue Service recently issued three reminders addressing the new submission period for determination letter and other rulings, fee changes, and certain corrections through the IRS's Voluntary Correction Program. Source: Hodgson Russ LLP.
For more information about custom retirement plan design and how Benefit Plans Plus can help make your business more successful visit www.bpp401k.com
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