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BPP401k.com Newsletter 03.19.14

Tips for couples: How to have the retirement talk People say they talk to their significant other 14 times a year about retirement planning. Source: USA Today

Public Pensions: Brace Yourself, Says Buffett The news about public-sector pension plans has not been good, and a reputable crystal ball does not see improvement in sight. Source: NAPA Net

401k Employee Education Tip — Overcoming Worry  Researchers found that the more frequently investors reviewed their portfolios, the more they became aware of short-term volatility and the impact it had on their balances. Fear of additional loss causes many to realize losses by selling equities and electing a more conservative allocation. How can plan sponsors help overcome participant worry? Source: Lawtonrpc.com

Employer 401k Matching Gets Passing Grade  Employers are open now, more than ever before, to making the most of their 401k matching, according to two retirement advisers. Bloomberg News issued a report in mid-February that hundreds of employers were pulling back their company matches and setting lower limits on annual payments, but many small- to mid-size employer matches are continuing to develop a long-term plan. Source: Benefitnews.com

Fixing the Holes in Your 401k  Prodded by Washington, the 401k industry has in recent years cut fees, increased participation, and made it generally easier for Americans to invest in these tax-advantaged retirement accounts. Still, shortcomings remain. Source: Cnn.com

In 401k Plans, a Little More Makes a Big Difference  The design of 401k plans can vary significantly, and even small differences can add up to hundreds of thousands of dollars over the course of a career. Companies that stint on matching contributions not only make it harder for employees to accumulate enough for a retirement nest egg, but they also may discourage their workers from saving. Source: Businessweek.com

403(b) Plans

Does Your 403(b) Plan Need a Financial Statement Audit?  Many nonprofits who sponsor ERISA 403(b) plans are not aware that they need an audit, because counting participants involves much more than knowing how many full-time employees the organization has or how many account balances are in the plan. Especially in the case of nonprofit organizations, the universal availability rules and the ability to exclude certain contracts pursuant to DOL Field Assistance Bulletin 2010-1 add a layer of complexity that requires the employer to give careful consideration to the participant count. Source: Belfint.com

The Paradox of 403(b) Vesting Schedules  Although the Internal Revenue Code requires 403(b) plan accounts to be non-forfeitable, some 403(b) plans provide for employer contributions subject to a vesting schedule. How is that possible when the non-forfeitability requirement is so clear and so absolute? Source: Fidelity.com (PDF File)

Fiduciary and Plan Governance Material

What’s Wrong with Benchmarking?  A favorable comparison can make plan sponsors feel good, but does benchmarking in the traditional sense — that is, the simple comparison of one plan to other plans — really makes any difference for the company and for the lives of its workers. The focus on comparison rather than outcomes is misguided, and comparing one plan to another can be pointless, says Josh Itzoe, partner and managing director of Greenspring Wealth Management. Source: Planadviser.com

ERISA Plan Fiduciaries — Are Your Conversations With Counsel Privileged?  It is generally understood that communications between clients and lawyers are privileged and that the substance of those conversations may not be divulged to third parties except in the rarest of circumstances. In the employee benefits world, however, plan sponsors and fiduciaries are often surprised to learn that this cardinal rule does not always apply. In fact, many communications between plan fiduciaries and plan counsel must be divulged to plan participants and beneficiaries. Source: Erisapracticecenter.com

Small Retirement Plan Fiduciaries Drowning in New Fee Disclosures  As the Labor Department prepares to ask small retirement plan fiduciaries about their experience with fee disclosures, advisers are confirming one of the agency’s major suspicions: They are still too long, information is split up among multiple documents, and the legalese is mystifying. Source: Investmentnews.com (free registration may be required)

Fiduciary Process in Evaluating In-Plan Guarantees  This white paper discusses the fiduciary process for selecting in-plan lifetime income guarantees. Discusses the steps for a prudent process for selecting a guaranteed lifetime income solution under ERISA and similar state laws applicable to government plans, and offer a proposed fiduciary checklist to assist in that process. Source: Drinkerbiddle.com (PDF File)

Speakers Say Liability Can Be Minimized When Giving Participants Investment Advice  Pension plan trustees can offer participants much-needed individual investment advice in their participant-directed accounts without undue fear of liability, speakers said during a conference. Source: Bna.com

Insight: Studies, Research and White Papers

Most Households Favor Retaining Tax Incentives for DC Plans: ICI Survey  A strong majority of U.S. households favored preserving tax incentives for 401k plans and other defined contribution plans, according to a recent survey released by the Investment Company Institute. The survey, conducted from mid-November 2013 through mid-December 2013, covered a total sample of 3,021 American adults. Source: Wolterskluwerlb.com

Americans Spend Less Time Planning IRA Investment Than Choosing a Restaurant  More Americans spent less time in the last year planning for an IRA investment for their retirement years than choosing a restaurant, flat screen TV or tablet, according to an annual survey by TIAA-CREF. Source: 401khelpcenter.com

Infographic on the “Retirement Crisis”  This is an interesting infographic that offers a perspective on the “retirement crisis” in the US. Source: 401khelpcenter.com

Eighth Annual Study of Employee Benefits Today & Beyond  The Eighth Annual Study of Employee Benefits: Today & Beyond was fielded via the Internet during August and September 2013 and consists of three distinct surveys: one among employers, another among employees, and the third among group employee benefits brokers and consultants. Source: Prudential.com (PDF File)

Items of Special Interest to Advisors

Perez: DOL Moving Forward on Fiduciary Redraft  Labor Secretary Thomas Perez said that the Department of Labor would release “in the coming months” its fiduciary redraft, stating that it was a “very important rule” and that DOL would continue its “due diligence” on the rule making. Source: Thinkadvisor.com

Labor Department Offers Glimpse Into New Fiduciary Plan  A DOL official on Wednesday offered a sneak peek into a controversial plan to tighten regulation of retirement financial advisers, saying it will both minimize conflicts and still permit brokers to earn a living. Source: Reuters.com

Target-Date Funds

Report on Target-Date Fund Adoption in 2013  TDFs continue to grow in importance in DC plan investment menus. The funds replace the complex task of portfolio construction with a simplified choice — the choice of an expected date of retirement — and provide automatic age-based rebalancing over time. Because of the growing use of target-date options, Vanguard anticipate that nearly 6 in 10 participants and 80% of new plan entrants will be invested in a professionally managed option by 2018. Source: Vanguard.com (PDF File)

Getting the Target Date Right: What Plan Sponsors Need to Know  This research supports several conclusions. First, it shows that target-date funds are widely expected to play an increasingly important role in workplace retirement plans. Second, the survey uncovered evidence that in evaluating target-date funds, plan sponsors tend to focus on metrics such as performance and expenses while placing less emphasis on an investigation of the workings of the glide path, or dynamic asset allocation, that the funds employ to achieve their objectives. Third, research found that plan sponsors generally desire to reduce risk to participants’ retirement income, but they have not adopted a disciplined approach for implementing relevant safeguards. Source: Putnam.com (PDF File)

Vanguard Reports That 55% of 401k Participants Own a Target-Date Fund  According to Target-Date Fund Adoption in 2013, 86% of 401k and other defined contribution plans at Vanguard offered a target-date fund, 55% of all participants held a position in TDFs, and TDFs accounted for one-third of total plan contributions. Source: 401khelpcenter.com

Decisive Demographic Drives Target-Date Fund Selection  Fiduciaries are instructed to choose their target-date funds on the basis of workforce demographics. So says the Department of Labor and prominent ERISA attorneys like Fred Reish and Marcia Wagner. The demographics that are frequently cited include salary, savings and age. In principle, demographics are supposed to lead the fiduciary to an appropriate glide path: the establishment of appropriate risk for young people and how that risk should adjust through time as an employee ages. This paper describes the decisive demographic that should drive the selection of target-date funds. Source: Targetdatesolutions.com (PDF File)

Court, Legal, Legislative and Washington DC

Eleventh Circuit Joins Fourth Circuit in Rejecting Continuing Breach Approach to ERISA’s Statute of Limitation  As the Fourth Circuit Court of Appeals was careful to do in Alphin, the Fuller Court declared that it was declining to decide “whether a fiduciary had an ongoing duty to remove imprudent investment options from a Plan in the absence of a material change in circumstances.” Rather, it described its ruling as limited to the prevention of a “continuing violation theory,” which could thwart the purpose of ERISA’s six-year statute of repose. Source: Southeastern ERISA Watch

Plan Sponsor Sued Over $6 Million Paid to Broker  A class action ERISA lawsuit, Kruger v. Novant Health, Inc., was filed in the Middle District of North Carolina by a group of current and former participants in two 401k plans sponsored by Novant Health, Inc., a major hospital system in the southeast. The plaintiffs allege that the plans’ fiduciaries violated ERISA by (1) allowing excessive fees to be paid to the plans’ broker, D.L. Davis & Company, Inc., (2) allowing excessive fees to be paid to the plans’ recordkeeper Great West, and (3) including more expensive share classes for all of the plans’ mutual funds. Source: Fraplantools.com

Compliance and Regulatory Related

Retirement Plan Beneficiary Designations Shouldn’t Be One and Done  Circumstances of retirement plan participants change and those changes can affect beneficiary designations, so they should be reviewed on a regular basis. Also, retirement plan beneficiary designations are not governed by a will. Source: Retirementplanblog.com

Safe Harbor 401k Plan Notices: Fixes From the IRS  The Internal Revenue Services has posted “Fixing Common Plan Mistakes – Failure to Provide a Safe Harbor 401k Notice.” Plan sponsors of safe harbor 401k should read this list of common mistakes and the IRS’s recommended fixes to help ensure their plans remain in compliance and thereby, maintain their tax qualified status. Source: Badenrps.com

Safe Harbor 401k Plans: IRS Position on Mid-year Amendments  In November 2013, the IRS issued final regulations regarding the mid-year reduction or elimination of safe harbor 401k employer contributions (exiting rules). The new regulations also made a change in the provision relating to other mid-year amendments to safe harbor 401k plans. Although this change received far less attention than the exiting provisions, the modification may be equally significant. Source: Relius.net

DOL Proposes Requiring 401k Fee Disclosure Guide From Covered Service Providers  The U.S. Department of Labor today requested public comments on a proposed rule that would require pension plan service providers to furnish employers and other plan fiduciaries with a guide to assist them in navigating fee disclosure documents. Source: 401khelpcenter.com

DOL Proposes 408(b)(2) Disclosure Guide  The DOL published in the Federal Register a proposed amendment to its disclosure requirements for “covered service providers” to retirement plans under ERISA § 408(b)(2) that would require a separate “guide” if those disclosures are contained in multiple or lengthy documents. Under the proposal, a guide would be required if a covered service provider’s 408(b)(2) disclosures are contained either in more than one document or in a document in excess of a specified number of pages. Source: Sutherland.com

DOL Tightens Noose on 401k Providers That Flout DOL Fee Disclosure  The DOL’s Phyllis Borzi is troubled by 401k providers that are circumventing her demands for clear fee disclosures in 401k plan documents, speaking at a media telephone press conference, she said her hand was being forced about creating rules about how to abide by existing rules. Source: Riabiz.com

New Guide to Service Provider Fee Disclosures Required Under DOL Proposed Rule  The DOL issued a proposed rule that would amend its final service provider fee disclosure regulation under ERISA Section 408(b)(2) to require certain covered service providers to pension plans to provide a guide to assist plan fiduciaries in reviewing the disclosures required by the final rule. One area of particular interest is the DOL’s request for comments on the number of pages or length of document that will trigger this guide requirement if the initial disclosures are furnished in a single, lengthy document. Source: Practicallaw.com

Explaining Discrimination Test Refunds to HCEs  It is not surprising that highly compensated employees (HCEs) are shocked to hear that they are not permitted to contribute as much as they elected. The refunds they receive when their employer’s plan fails the Actual Deferral Percentage (ADP) and Aggregate Contribution Percentage (ACP) tests leave them puzzled and confused. Source: Belfint.com

DOL Proposes Amendment Requiring Content Guide for Fee Disclosures to Plan Fiduciaries  The DOL has published a proposed amendment to previously issued final regulations on service provider fee disclosures to retirement plan fiduciaries. This new guidance reveals EBSA’s intention to require a detailed guide to the whereabouts of various items of information contained within these disclosures. Source: Ascensus.com (PDF File)

EBSA Fact Sheet on Proposed Regulations on Fee Disclosure Guide  Regulations under section 408(b)(2) of ERISA require covered pension plan service providers to furnish detailed disclosures to plan fiduciaries before entering into, extending or renewing contracts or arrangements for services. The Department is proposing to amend these regulations to require covered service providers to furnish a guide along with the required disclosures, if the disclosures are contained in multiple or lengthy documents. This is the EBSA’s Fact Sheet on the proposal. Source: Americanbenefitscouncil.org (PDF File)

DOL Proposes that 401k Service Providers Furnish Fee Guides  Employers struggling to decode the service provider fee disclosures from their retirement plans may be getting some relief. Nearly two years after the U.S. Department of Labor published a proposed rule requiring covered service providers to disclose the cost of what they do for employer-sponsored 401ks, the agency is requesting more help for plan sponsors trying to navigate this detailed information. Source: Thompson.com

401k Distributions and Hardship Withdrawals  Provides a short overview on two questions: “What restrictions apply to distributions from 401k plans?” and “What requirements apply to hardship withdrawals from a 401k plan?” Source: Thinkadvisor.com

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