BPP401K.com Newsletter 02.10.16
Why Rolling a 401k Into an IRA Is a Bad Idea Suzanne Woolley shared some new research and a number of reasons why 401k rollovers are a bad idea. Source: Benefitnews.com
Using HSAs to Fund Retirement If you offer a High-Deductible Health Plan to your employees, they probably have the ability to contribute to Health Savings Accounts. Author believes that nearly everyone eligible to contribute to a HSA should max out their HSA contributions before making any 401k retirement plan contributions. Source: Lawtonrpc.com
Six Steps Towards Retirement for the Late Starter It’s never too late to start saving for retirement. However, if you feel as though you are getting a late start and need to catch up on your retirement savings, here are six things to remember. Source: Brightscope.com
Why Are We Third-World America When It Comes to Retirement? Author suggests that contrary to her assertions, Deputy Treasury Secretary Sarah Raskin’s recent post on President Obama’s plan to provide new retirement savings at work isn’t going to create “inclusive prosperity.” Source: Huffingtonpost.com
Fiduciary and Plan Governance Material
Video: Eight Simple Steps to a Great Retirement Committee This webinar shares eight best practices for a great retirement plan committee. About 35-minutes including a Q&A session. Source: Greenspringwealth.com
The Rise of the Checklist Fiduciary Discusses the trend among some Sec. 3(16) fiduciaries to commoditize and dumb down the essential fiduciary functions to the level of completing one or more checklists. Source: Erisafiduciaryadministrators.com
Insight: Studies, Research and White Papers
A Study on the Psychology Behind Leakage of Retirement Plan Assets Survey of 5,000 retirement plan participants sheds light on leakage patterns, as well as on the thought process of job changers who are confronted with the challenge of “rolling in” retirement savings from a former employer. Source: Dciia.org
Research Uncovers the Benefits of Formal Written Retirement Plans A new LIMRA Secure Retirement Institute study finds that pre-retirees and retirees (ages 55-75 with financial assets of $100,000+) who have a formal written retirement plan are more likely to feel more confident they are saving enough for retirement and more than twice as likely to feel very prepared for retirement than those without one. Source: Limra.com
American Views on Defined Contribution Plan Saving This survey polled respondents about their views on DC retirement account saving and their confidence in 401k and other DC plan accounts. Survey responses indicated that households value the discipline and investment opportunity that 401k plans represent and that households were largely opposed to changing the tax preferences or investment control in those accounts. Report is 32-pages. Source: Ici.org
Items of Special Interest to Service Providers
Do HR People Really Care About Their Company’s Retirement Plan? We tend to assume that HR professionals inherently care about their DC plan, but is that really true? And if not true, how do we engage HR and benefits professionals in their retirement plan? Source: Napa-net.org
Target-Date Funds
Target-Date Funds: The Next Generation, but Not a Silver Bullet Target-date funds are the new normal. Industry data indicates 72% of plan sponsors selected target-date funds as the qualified default investment alternative within in their respective plans. Despite wide-spread utilization, a surprising number of plan participants misunderstand this investment vehicle. Source: Francisinvco.com
Target-Date Fund Designs and Participant Outcomes Research is designed to help plan sponsors and their advisors better understand how different types of target-date fund designs may lead to dramatically different retirement outcomes, in part from how a particular glide path is likely to respond to various market conditions and in part from how participants are actually interacting with their plans. Source: Jpmorgan.com
Target-Date Funds Post First Annual Loss Since 2008 A positive fourth-quarter performance was not enough to pull target-date funds out of negative territory for the year, as the Callan Target-Date Index posted a 2015 return of -0.86%, its first annual loss since 2008. Source: 401khelpcenter.com
Infographic: Does Your TDF Stand Up to Scrutiny? This information graphic includes three steps that focus on target-date fund costs, stability, and investor focus in the industry. Source: Vanguard.com
Most Target-Date Fund Investors Not Using All-In Approach Most defined contribution participants fail to use target-date funds properly because they invest in other options as well as the target-date funds, said a research report by Voya Investment Management. Only 15% of target-date users put all of their retirement money in these funds in 2015. Source: Pionline.com
Legislative and Washington DC
Bill Introduced for New Type of Retirement Plan Sen. Jeff Merkley has introduced the American Savings Account Act of 2016, which is legislation that would create for certain private sector workers a portable retirement savings arrangement to be known as the “American Savings Account.” Source: Ascensus.com
White House Retirement Plan Budget Proposal Buzz Fizzles Flat With Experienced Pros The new White House budget contained many retirement plan items intended to “solve” the retirement savings problem. But, according to many experienced professionals, these appear to have missed the greater point that the vast bulk of the proposed “solutions” either ignore the current reality of the retirement plan landscape or, worse, are trying to solve the wrong problem. Source: Fiduciarynews.com
Court and Legal
Provider of 401k Investment Platform Held Not to Have Fiduciary Liability Earlier this month the U.S. Court of Appeals for the Eighth Circuit decided McCaffree Financial Corp. v. Principal Life Insurance Co., and affirmed the dismissal of all claims against Principal. In McCaffree, Principal had been retained as a provider of the platform for the Plan’s investment options and to provide a number of other Plan-related administrative services. Source: Edechert.com
Excessive Fee Lawsuit Reaches Further The law firm Schlichter, Bogard, & Denton filed yet another in what is becoming a long list of class action lawsuits against retirement plan sponsors. This lawsuit, however, caught the eye of many industry observers because it seems to be pushing the envelope of what a plan sponsor can be sued for further than seen before. Source: Pension-Consultants.com
DOL’s Re-Proposed Fiduciary Rule
Fiduciary Opponents Still Fighting DOL’s Proposed Rule Opponents of the DOL’s contentious fiduciary proposal in Congress aren’t wasting any time. Less than a week after the department sent its rule outlining stricter requirements for advisors working with retirement plans and investors to the White House for a final review, lawmakers voted to pass two measures that could derail that effort on to the full House for consideration. Source: Financial-Planning.com
Compliance and Regulatory
Mid-Year Changes to Safe Harbor Plans and Safe Harbor Notices This notice provides guidance on mid-year changes to a safe harbor plan under Sections 401(k) and 401(m) of the Internal Revenue Code. The notice provides that a midyear change either to a safe harbor plan or to a plan’s safe harbor notice does not violate the safe harbor rules merely because it is a mid-year change. Source: Irs.gov
DOL Targeting the Failure to Timely Commence Retirement Plan Benefits to Participants The DOL is now specifically investigating retirement plans to determine whether their plan sponsors have timely begun paying vested benefits to retirement-eligible participants. Source: Sgrlaw.com
Correcting Missed Required Minimum Distributions Failure to distribute an RMD may result in plan disqualification and/or the imposition of a 50% excise tax on the participant or beneficiary. This article will explain the correction process that is available when a qualified plan fails to timely distribute an RMD. Source: Kravitzinc.com
ADP Test Basics The ADP test uses mathematical equations to compare the participation and contribution rates of the HCEs to the NHCEs in order to determine whether the plan is discriminating in favor of the HCEs. The basics of the test are covered here. Source: Legacyrsllc.com
A Primer on SEC Money Market Fund Reform New SEC regulations, effective October 2016, are designed to address MMFs’ susceptibility to heavy redemptions in times of stress, improve MMFs’ ability to manage and mitigate potential contagion from such redemptions, and increase transparency of the risks associated with investing in MMFs. Article outlines the expected changes. Source: Cammackretirement.com
Why Should I Care About Retirement Plan Compliance, Anyway? Plan compliance sounds great, but is there really any risk of being audited? The answer is yes and article addresses the issue of why your retirement plans should be in compliance. Source: Cammackretirement.com
Highly Compensated Employee Identification In retirement plan administration, it is sometimes necessary to use prior year data to make certain determinations. Using prior year data sometimes produces results that clients find counterintuitive. One example is the identification of Highly Compensated Employees. Source: Belfint.com
Part-Time Employees in 401k Plans More and more businesses are hiring part-time, seasonal or temporary employees. Employers believe the advantages to using this alternative workforce include lower wages and significant savings in terms of not providing employee benefits to these individuals. Unfortunately, many 401k plan sponsors are under the misconception that all part-time employees can automatically be excluded from participation. This article describes the minimum service requirements for 401k plans and the effects of improperly excluding part-time employees. Source: Pinnacle-Plan.com
IRS Notice 2016-16 Clarifies Permissible Mid-Year Changes to Safe Harbor Plans In Notice 2016-16, the IRS clarifies permissible mid-year amendments to safe harbor plans. The Notice is intended to alleviate concerns that earlier IRS guidance suggested certain mid-year changes were unacceptable. Source: Practicallaw.com