Experts in Personalized Retirement Plan Design & Administration Newsletter 01.25.17

The 401k Problem We Refuse to Solve  For all the people arguing that some dire problem in one of these three retirement systems urgently requires that we switch to another kind at once, the major problem with all three is the same. They’re badly underfunded, but it’s easy to fix. Source:

Dividing Qualified Retirement Plan in Divorce Via a Qualified Domestic Relations Order  Fortunately for divorcing couples, there is a mechanism called a Qualified Domestic Relations Order which can be used with qualified retirement plans to divide the assets between divorcing spouses without the funds losing their favorable tax treatment and without application of any early-withdrawal penalties. Source: (registration may be required)

A Proposal: One Defined Contribution Account (NIRA) to Rule Them All  Undue complexity reigns in our statutory law and the regulations that govern defined contribution plans. Often this is due to a mishmash of legislation adopted over time, amplified by the regulations that follow. This creates unnecessary administrative costs for employers. In this article, Ron Rhoades proposes “one defined contribution retirement account to rule them all.” Source:

403(b) Plans

Roth IRA vs 403(b)  You may have a 403(b) retirement plan available, but all income earners also have the option to save for retirement in a Roth IRA. So, which one makes more sense? This article explains how they work and the differences. Source:

Correcting the “Best Guesses” on 403(b) Plan Terms  The IRS has announced the end of the first remedial amendment period for 403(b) plan documents, in Revenue Procedure 2017-18. The last day of that RAP will be March 31, 2020. Now, what do you do with it? Source:

Fiduciary and Plan Governance Material

Could Fiduciary Standards Be Lowered to Encourage ESG?  Groom Law says the strong push in international bodies such as the European Commission and OECD to encourage pensions to take into account environmental, social, ethical and governance (ESG) factors could spill over to the United States. Source:

Enhancing DC Plan Processes and Outcomes in 2017  With a backdrop of an uncertain regulatory environment and heightened litigation activity with a significant increase in not only the volume, but also the breadth of claims, 2017 provides an opportunity to double down on fundamentals. In short, this is an opportunity to go back to the basics, revisit process, past decisions and documentation. Source:

Understanding Your Retirement Plan Fee Methodology  Understanding your retirement plan’s fees is not only a good practice, it’s a fiduciary requirement. The principal reason fees have been thrust into the limelight is that plan participants often bear most, if not all the cost of running the plan. This article does not discuss how to determine if fees are reasonable, but instead explores a relatively new debate over which fee assessment methodology is fairer. Source:

Insight: Studies, Research, and White Papers

Fewer Options = Better Investment Decisions?  Decisions, decisions. In a land of plenty, there are myriad options in almost everything. And that often includes how one’s retirement plan funds are to be invested. But a recent paper suggests that at least, in that case, less may be more. Source:

Mercer Unveils Canadian Retirement Outlook for 2017  Mercer launched its 25th Annual Retirement Outlook and Fearless Forecast series with an event in Toronto, projecting the retirement industry is poised for change in 2017 as more employers look at new approaches to meet the evolving pension landscape and employee demands. Source:

What’s the Most Common Match?  The most common DC match turns out to not be the one that participants were more likely to get, according to a new report. Altogether, the most common match rates for employee contributions (with various limits on the maximum employee contribution matched) were 50% and 100%, both used by about 37% of plans, while the most common percentage of employee contributions matched (with a variety of limits on the percentage of the contribution matched) was 6%, used by 34.3% of plans. Source:

Items of Special Interest to Service Providers

Winning Retirement Plan Business  To be successful in the retirement plan space, the advisor must bring plan design ideas to the table and put forth a viable action plan to improve the success of the company’s retirement program. One way to do that is to partner with a TPA. Source:

How to Sell Investment Services  The term “consultative selling” was first used by author and sales expert Mack Hanan. The concept is simple. Know what your customer needs and offer them solutions to their problems. The process is a two-way street. Both buyer and provider are actively involved and should communicate clearly and with respect. Source:

Firms Charge Ahead Regardless of Trump Policies  Retirement industry executives overseeing one of the largest recordkeeping businesses around say they are optimistic for the future of DC retirement planning, whatever policies emerge from Washington. Source:

Plan Automation

Auto-Enrollment Pushes Retirement Plans Higher  Plan assets for 401k plans and similar types of defined contribution plans have topped $7 trillion due to continued growth in employee contributions. Part of this increase is not due to employees consciously saving more; it is due to the continued growth of both auto-enrollment and auto-escalation features in a growing number of retirements plans. Source:

Court and Other Legal Issues

How to Make Your 401k or 403(b) Plan a Litigation Target  Sometimes it seems as if these defendant fiduciaries were almost asking to be sued since the practices being described in the complaints are so vulnerable to challenge. These lawsuits keep proliferating, so fiduciaries of 401k and 403(b) plans would be well advised to learn from what the defendants were alleged to have been doing wrong. Source:

Are Forum Selection Clauses Valid Under ERISA?  The Supreme Court, for the second time, has now taken a pass on ruling on whether ERISA plans can contain forum selection clauses. A number of courts have enforced forum selection clauses in ERISA-governed plans, essentially treating them the same in that context as they would be treated in an action involving a typical private contract, where parties are generally free to select a forum for their disputes. Source:

Franklin Resources Can’t Get 401k Fee Lawsuit Dismissed  Franklin Resources lost its bid for quick dismissal of a lawsuit claiming that it stuffed its workers’ 401k plan with in-house mutual funds that carried excessive fees and performed worse than competitors’ funds. Source: (registration may be required)

Legislative and Washington DC

Trump’s Department of Labor Pick Puzder Ready to Bail?  President-elect Donald Trump’s choice to be labor secretary has voiced second thoughts in recent days, because of a relentless barrage of criticism from Democrats, labor unions, and other liberal groups, says CNN, citing a business ally and GOP sources. Source:

State-Based Retirement Programs

Most Small Employers Oppose State, Federal Government As Auto-IRA Sponsors  While the vast majority of small-business owners support the idea of offering auto-IRAs to their employees, most oppose the plans being sponsored and administered by the state or federal government, according to a survey conducted Pew. Source: (registration may be required)

Updated Proposed Rules for Oregon Retirement Savings Plan Filed  The Oregon State Treasury has updated proposed rules for the Oregon Retirement Savings Plan. The Treasury announced on Jan. 17 that it has filed the updated proposed rules with the Oregon Secretary of State. Source:

DOL’s Fiduciary Rule

Level Fee Fiduciary — Past and Future  The label “Level Fee Fiduciary” has been used for many years with one meaning, but the Best Interest Contract Exemption has used it for a different purpose and, depending on your reading, a different definition. Source:

The DOL Fiduciary Class Action Lawsuit That Will Really Transform Financial Advice  Right now there is no universally accepted minimum competency standard for financial advice, though certainly recognized rigorous designations that include both education and an advice process provide a likely path of safety for Financial Institutions. Which means in the coming year, there may soon be explosive growth in programs like the CFP and RMA, as Financial Institutions recognize and then try to minimize their exposure to a class action lawsuit for failing to meet the fiduciary duty of care. Source:

401k Advice in a Post-Fiduciary World  Numerous surveys conclude that individual company 401k retirement plan participants want independent, third-party investment advice from an investment advisor who acts in their best interests regarding their retirement plan assets. The DOL fiduciary rule provides you exactly that opportunity now. Source:

DOL Releases Second Set of FAQ Guidance on Fiduciary Rule  The DOL issued a second set of Frequently Asked Questions providing guidance on DOL’s rule re-defining who is a fiduciary because of providing invest. advice for a fee. This second set of FAQs addresses interpretive questions about the Fiduciary Rule itself, including several of the important exceptions to fiduciary status included in the rule. Source:

DOL Fiduciary Rule Will Be Undone in a Cruel Twist  Perhaps the biggest legislative effort since 1940 to put client interests ahead of Wall Street will be allowed to effectively die in a Texas court at the hands of what was once deemed to be a two-bit lawsuit, according to Jason Roberts, CEO of the Pension Resource Institute in Los Angeles. Source:

Two New Sets of DOL Fiduciary Rule FAQs  The DOL has released two new sets of frequently-asked-questions (FAQs) regarding the conflict of interest final rule on fiduciary investment advice. One of the new sets of FAQs focuses on the new definition of fiduciary investment advice itself. Source:

Warren Asks Financial Services Firms Where They Stand on Fiduciary Rule  One of the fiduciary regulation’s strongest proponents has reached out to the financial services sector for some support. Sen. Elizabeth Warren has written to nearly three dozen financial services firms, firms that her letters suggest have “already announced” positive steps to ensure that their advisers are offering investment products that are in the client’s best interest. Source:

Compliance and Regulatory

Qualified Retirement Plans in 2017 and Beyond: Resources and Considerations for Employers  The IRS published its first Required Amendments List in early December, providing an opportunity to develop procedures for maintaining qualified status in 2017 and beyond. This article discusses some resources and considerations that may help to inform plan sponsor. Source:

2017 Key Administrative Dates and Deadlines for Calendar-Year DC Plans  This is a 4-page retirement plan chart and 2017 calendar for defined contribution plans, published Milliman. The document provides key administrative dates and deadlines for calendar-year plans. Source:

Workers Who Are Excluded From 401k Plans  A recent GAO survey found that some groups of employees, including short-term, part-time and young workers, are often excluded from the company 401k plan or denied company contributions. Here’s who might not be eligible to save in a 401k plan or keep an employer match and how much it’s costing them in lost retirement savings. Source:

IRS Proposes Changes to QMAC, QNEC Definitions  Under the proposal, employer contributions to a plan would be able to qualify as QMACs or QNECs if they satisfy applicable nonforfeitability and distribution requirements at the time they are allocated to participants’ accounts not when they are contributed to the plan. Source:

IRS OKs Use of Forfeitures as QNEC/QMAC/Safe Harbor Contributions  Proposed IRS changes to 401k regulations will allow employers to use forfeitures as qualified nonelective and qualified matching contributions to help pass nondiscrimination tests and as safe harbor contributions. The change is proposed to be effective after it is finalized, but can be relied on now, great news for employers who have long operated using this logical approach. Source:

DOL Announces Annual Adjustments to Many Employee Benefit Plan Penalties  The DOL has issued the first annual adjustment of civil monetary penalties for a wide range of benefit-related violations. The adjustments just announced are effective for penalties assessed after January 13, 2017, with respect to violations occurring after November 2, 2015. Source:

SEC Publishes 2017 Examination Priorities  The SEC’s Office of Compliance Inspections and Examinations published its examination priorities for 2017 for broker-dealers and investment advisers. The priorities generally reflect practices, products, and services that OCIE believes may present heightened risk to investors and to the integrity of the US capital markets. OCIE’s 2017 priorities cover three broad areas. Source:


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