Experts in Personalized Retirement Plan Design & Administration Newsletter 01.30.17

Choosing Individual 401k Plans: All That Glitters Is Not Gold  Individual 401k plans or Solo 401k plans have gained popularity over the last couple years, especially among owner-only businesses and self-employed professionals. Did you ever wonder why some institutions offer Solo 401k plans free of cost whilst others charge a fee? Source:

How to Avoid Borrowing From Your Retirement Plan  Have you ever borrowed from your retirement plan? When you need cash in a hurry, it can be tempting. However, there are a couple of reasons why this may not be the best idea. Source:

Industry Veterans Answer: Shall We Praise the 401k or Bury It?  Are we burying the 401k to dredge up the rotted carcass of an extinct notion, or are we burying it as we bury a seed, to feed it, to nurture it, so it may grow into a mighty tree that bears fruit when we need it. Source:

The Divorce Penalty: This 401k Fee Can Add Insult to Injury  As more wealth accumulates in defined-contribution plans and divorcing baby boomers move to split it up, more retirement savers are getting to know a little abbreviation that packs a big punch in frustration and exasperation: QDRO. Source:

Seven Essential Retirement Rules for Anyone Over 50  The Pew Research Center estimates that 10,000 baby boomers are expected to retire each day until 2030. Whether retirement is close or a bit further out on the horizon, consider these seven tips to ensure you are ready for retirement. Source:

Roth 401k Deferrals – Answers to Common Questions  If your 401k plan allows Roth deferrals, now is a great time to give them a fresh look. The new White House administration and Congress have both indicated a desire to cut personal income tax rates. If that happens, Roth deferrals will be more affordable than ever. You can use this FAQ to help decide if Roth 401k deferrals are right for you. Source:

Rise in Self-Employed Boosting Solo 401k, SEP IRA Usage  As the number of self-employed workers in this country grows, so does the demand for more versatile retirement savings options. Many people don’t realize they can still have a retirement savings plan if they work for themselves. Contractors and freelancers can set up a Simplified Employee Pension IRA or a self-employed 401k plan. Source:

What’s the Right 401k Contribution Rate?  NerdWallet shared a study recently that concluded a 22% 401k contribution rate is appropriate for millennials. Previous studies, by T. Rowe Price and Vanguard, indicated that participants should target a 15% 401k contribution rate to achieve retirement readiness. Why the big difference and what is the right contribution rate? Source:

403(b) Plans

The Birth of the First Ever IRS Pre-Approved 403(b) Plan Documents  On January 13, 2017, the IRS issued Revenue Procedure 2017-18 which provides Employers with a three-year remedial amendment period (RAP) that ends 3/31/2020. So now we are on our way, but we still have a number of items to receive from the IRS, namely more guidance and of course the actual approval letters. This is the first RAP for 403(b) documents in the history of these plans. Source:

Can Funds From an Inherited 403(b) Be Rolled Into an IRA?  Suppose an advisor has a 68-year old client whose uncle died, and she directly transferred his 403(b) account to an inherited IRA. She has her own 403(b) account and would now like to roll that 403(b) account into her inherited IRA. Is she permitted to do that? Source:

Fiduciary and Plan Governance Material

In the Complicated World of ERISA, a Fiduciary Checklist Can Help  Checklists. Doctors use them. Engineers use them, Pilots use them. A checklist is a tool to manage complicated jobs. Now let’s put that concept into the context of an individual who has fiduciary responsibilities for an ERISA plan. A checklist can help ensure that you are meeting all your responsibilities and accomplishing the plan’s objective. Source:

Six Questions to Ask at Your Next Investment Committee Meeting  Every plan, and every investment committee, is unique, and yet, conducted properly, there are inevitably areas of commonality. Here are some questions that could enhance the discussion, if not the outcome, at your next investment committee meeting. Source:

For DC Plans, Lowest Fees Aren’t a Panacea  There’s no question fees are a hot topic for defined contribution plan sponsors. But one risk of focusing too tightly on fees is creating a distortion that addresses cost while possibly overlooking other retirement-saving factors. With so many equal or greater concerns, it’s important for plan sponsors to keep a broad perspective and maintain a comprehensive approach to their fiduciary duties. Source:

Insight: Studies, Research, and White Papers

401k Plans Make Big Fund Changes Following New Money Market Rules  Employers have drastically mixed up the “safe” investment options offered in their defined contribution plans in response to new rules that came into effect last year regarding money market funds. Source: (registration may be required)

Using Science to Reach Participants and Inspire Positive Actions  How do we get participants’ attention to help them get on track toward retirement and then stay there amid all the noise? Vanguard has developed a three-pronged approach to driving positive participant actions: Create an individualized experience for each participant, provide a clear recommendation for increasing retirement readiness, and use proven communication techniques. Source:

How Plan Sponsors Can Help Boost Participant Savings  Now that we face reduced return expectations, plan sponsors and providers cannot rely on the old way of thinking: that returns will take care of themselves. The time has come to rethink our approach to helping participants build and manage their retirement readiness. Here are three steps that plan sponsors may want to consider to help boost participant savings. Source:

Items of Special Interest to Service Providers

More Disruptive Than the Fiduciary Rule?  Sure, you’ve spent a year getting ready for the fiduciary rule, but are you ready for this? Tax reform is the topic du jour in the nation’s capital. The headlines have been filled with promises from both President Trump and nearly every one of his cabinet appointees to do something about tax reform. Source:

401ks a Tough Nut to Crack for ETFs  DC plan platforms were set up with mutual funds in mind, and for the most part haven’t been able to handle the intraday trading of ETFs. The big question is whether the DOL’s fiduciary rule or other market trends will help get more ETFs on these DC platforms. Source:

Target-Date Funds

Target Date Fund With Annuity That Restricts Transfers May Be Prudent Default Investment (but not QDIA)  The DOL recently concluded that a target date fund with a fixed guaranteed annuity restricting transfers or withdrawals for a 12-month period does not meet the qualified default investment alternative requirements. But noting the need for lifetime income as a public policy issue, DOL said a fiduciary could prudently select a default investment that complies with all requirements of the QDIA regulation save the liquidity and transferability rules. Fiduciaries may be hard-pressed, however, to select such an investment as a plan default investment because it does not protect them from liability for investing contributions on behalf of employees. Source:

A Better Methodology for Monitoring Target-Date Funds  Plan sponsors are challenged to create a prudent process for selecting and monitoring the plan’s target-date fund, and for benchmarking their selection against other options available in the market, relative to performance, risk and fees. Cammack introduces their TDF methodology in this paper. Source:

Is Your Proprietary Target-Date Fund a Trojan Horse for Underperforming Managers?  Recognizing that not all managers excel in all asset classes, the marketplace has evolved and today most plans employ an open-architecture approach to core menu construction. In fact, it is unusual for a plan’s menu to use the same investment manager for more than two or three different asset classes. Yet, with target-date funds expected to represent 48% of defined contribution assets by 2020, are sponsors unknowingly reverting to an antiquated plan design? Source:

Plan Automation

The Next Step for 401k Innovation: Auto-Portability  A new “auto” aims to drive retirement savings higher. It’s called auto-portability, and it would enable a separating employee to easily roll assets into a new employer’s plan. While the notion has been percolating for some time, a growing body of research is highlighting the benefits of consolidating employee assets so they can better grow their retirement nest eggs. Source:

Court and Other Legal Issues

Another Provider Charged With Self-Dealing in Its 401k Plan  A new lawsuit challenges not only the use of allegedly more expensive proprietary funds, but with no longer offering a stable value fund, and of being negligent in its deployment of a self-directed brokerage account option. The suit, brought by plaintiff Christopher W. Severson, alleged that “the Schwab Fiduciary Defendants imprudently and disloyally larded the Plan with unnecessary, expensive and poorly performing investment products and services offered and managed by the Schwab.” Source:

JPMorgan Sued for Self-dealing in Its 401k Plan  JPMorgan has been sued by a participant in its 401k plan for allegedly causing employees to pay millions of dollars in excessive fees through a scheme motivated by “self-interest.” The plaintiff claims JPMorgan, as well as various board and committee members, breached their fiduciary duties by, among other things, retaining proprietary mutual funds from the bank and affiliate companies for several years, despite the availability of nearly identical, lower-cost and better-performing funds. Source: (registration may be required)

State-Based Retirement Programs

State Retirement Savings Initiatives Do More than Enhance Retirement Security for Private Sector Workers  As states look at programs to build retirement savings, they are also asking how a population better prepared for retirement would affect public safety-net programs. Medicaid is the program in which there is the greatest interest in estimating potential savings associated with greater retirement savings because it continues to be a major and growing piece of state budgets. Source:

DOL’s Fiduciary Rule

Trump Administration and the State of the DOL Fiduciary Rule  This brief represents the current understanding of the new administration’s plan, but there are a couple of key steps that have yet to be fully explained. Nevertheless, it provides the latest information at this time. Source:

Delay Seems Likely, But Confusion Remains on DOL Fiduciary Rule Future  Conflicting media reports have started to circulate, some to the effect that a delay of the DOL fiduciary rule has already been effectuated, but others are skeptical that this is even possible. Source:

Did President Trump’s Executive Order Push Back the Fiduciary Rule?  On Jan. 20, President Trump signed a regulatory freeze pending review, but did that affect the timing of the fiduciary rule? Source:

SEC Guidance Update and the DOL’s Fiduciary Rule  The SEC issued Guidance Update No. 2016-06. The update provides disclosure and procedural guidance to address potential issues for mutual funds responding to the Department of Labor’s adoption of the Conflict of Interest Rule. Source:

Proposed Best Interest Contract Exemption for Insurance Intermediaries  On January 19, 2017, the DOL issued a proposed class exemption from certain prohibited transaction restrictions of ERISA and the Internal Revenue Code. If granted, the exemption would permit certain insurance intermediaries, and the agents and companies they contract with, to receive compensation in connection with fixed annuity transactions that may otherwise give rise to prohibited transactions as a result of the provision of investment advice to retirement plan participants and beneficiaries, IRA owners, and certain plan fiduciaries. This update describes the conditions and requirements of the proposed class exemption. Source:

Is Trump a Threat to the Fiduciary Rule?  While the DOL’s fiduciary rule is scheduled to take effect April 10, some experts predict that President Trump will somehow, someway put the kibosh on the rule that requires financial advisers to act in their client’s best interest, adhering to a fiduciary standard with respect to retirement accounts such as IRAs and 401ks. Source:

Compliance and Regulatory

IRS Relaxes Rules on the Use of Forfeitures to Fund Safe Harbor Contributions  The IRS has provided the retirement plan community with a belated holiday gift in the form of proposed regulations that permit forfeitures to be used to fund safe harbor contributions, QNECs, and QMACs. This guidance reverses the IRS’s relatively recent (and many would argue, strained) interpretation of statutory language to require that such contributions be nonforfeitable at the time they are contributed to a plan. Source:

Using Forfeitures for Corrective Contributions: Look Before You Leap  On January 18, 2017, the IRS changed course by publishing a proposed regulation requiring that QNECs and QMACs be 100% vested only when they are allocated to an account, and need not be 100% vested when originally contributed to a plan. This means that forfeitures may be used to make QNECs and QMACs if the underlying plan document permits. Caution is advised, however, for plan sponsors wanting to make immediate use of forfeiture accounts for QNECs and QMACs. Source:

2017 401k ERISA Compliance Calendar  This compliance calendar highlights critical compliance deadlines for DC retirement plans. Some deadlines apply only to particular plan types and there may be additional deadlines associated with individual plans that are not covered here. Also, plans with non-calendar plan years may be subject to different deadlines. Source:

Puerto Rico Treasury Issues New Guidance on Rules and Procedures for Qualification of Retirement Plans  The Puerto Rico Department of the Treasury issued Tax Policy Circular Letter No. 16-08. CL 16-08 establishes new rules regarding the validity of retirement plan qualification letters and the procedures that employers and service providers must follow to request such qualification letters. It also repeals PR Treasury’s Circular Letter 11-10 and Letter 13-02. Source:

Puerto Rico Treasury Department Issues Updated Guidance on Retirement Plans  The Puerto Rico Treasury Department recently issued Circular Letter of Tax Policy No. 16-08 (CLTP 16-08) to update and clarify the: (i) rules regarding the effective dates of favorable determination letters issued under Section 1081.01(a) of the Puerto Rico Internal Revenue Code of 2011 (PR Code), and (ii) due dates and procedures for requesting determination letters for retirement plans intended to be qualified under the PR Code. Source:

Participant Plan Transfers and Account Consolidation for the Advancement of Lifetime Plan Participation  The 2016 ERISA Advisory Council followed up on issues identified and recommended for further study by the 2014 and 2015 Council’s work on facilitating lifetime plan participation related to plan-to-plan transfers and account consolidations. Based on these past recommendations, the Department of Labor asked the 2016 Council to study further the challenges involved with plan-to-plan transfers and account consolidations, and to make recommendations to facilitate these processes for the advancement of lifetime plan participation. Source:

Cybersecurity Considerations for Benefit Plans  The 2016 ERISA Advisory Council examined cybersecurity considerations as they relate to pension and welfare benefit plans. The 2016 Council focused on information that would be useful to plan sponsors, fiduciaries and their service providers in evaluating and developing a cybersecurity program for their benefit plans. Source:

DOL Updates Guidance on Proxy Voting and ESG  The DOL’s new guidance for ERISA plans withdraws prior guidance and supports ERISA plans in voting proxies, engaging with companies and incorporating environmental, social and governance factors into decision-making. ERISA plans may wish to review and update their proxy voting policies, statements of investment policy and investment manager contracts to reflect the new guidance. Source:

Share This!

Leave a Reply

Protected by WP Anti Spam

Subscribe to BPP401k

Enter your email address:

Hide Buttons