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Experts in Personalized Retirement Plan Design & Administration

BPP401k.com Newsletter 03.20.13

SEC Clarifies Social Media Requirements For advisors, sending that next tweet might be a little less stressful thanks to new guidelines from the Securities and Exchange Commission. Source: Financial-Planning.com

How to Invest a Lump Sum for Retirement Retirement can be a stressful time of transition, but it doesn’t have to be. Your routine will change and you might not know what to do with all your spare time. On top of that, you will need to figure out how to make your money last throughout retirement. One big situation many of us will face is how to invest a lump sum from our 401k or pension payout. Source: Yahoo.com

Getting the Facts Straight on Retirement Age Author write, “On the front page of the Washington Post on March 11, 2013, Michael Fletcher connects different the life expectancies of the poor and rich to the debate over whether Social Security should provide more years of retirement support as people live longer. He mistakenly leaves the impression that adjusting the retirement age for increases in life expectancy hurts the poor the most. In fact, such adjustments take more away from the rich. Let me explain how.” Source: Governmentwedeserve.org

Tips on Using the Fee and Investment Information From Your Retirement Plan To help you use the investment-related information provided by your plan, this publication describes some of the key information you will receive from your plan and provides tips on using this information in evaluating your investment choices in your plan. Source: U.S. Department of Labor

How to Take 401k Withdrawals Thinking of taking a withdrawal from a retirement account while you’re still working? There’s a lot to consider. Think long and hard before you take money out of your retirement nest egg. Consider contacting a financial adviser and a tax adviser to talk through your overall plan before making any decisions. Source: Smart401k.com

Targeting Generational Issues in Retirement Education Beyond the general education about how to much to save and how to invest, retirement plan participants have issues at different life stages that need to be addressed — there are many issues that are not “one size fits all.” Source: Planadviser.com

Dollar-Cost Averaging’s Powerful Role in 401k Investing Thanks to a fancy investment term know as dollar-cost averaging, along with the effects of compounding, getting started ASAP can be your strongest ally in the fight to reach your retirement goals. So, what exactly is dollar-cost averaging and how does it help the 401k investor over time? Source: Smart401k.com

Americans Concerned About Retirement Security: Time for a DB Comeback? A recently published article by the National Institute of Retirement Security found that a whopping 85% of Americans surveyed are concerned about their retirement prospects. Also, 83% of Americans surveyed report favorable views of pensions and 82% indicate they believe that those with DB plans are more likely to a have a secure retirement. What is also interesting is that about 59% of Americans surveyed say the availability of pensions was a factor in their decision to work for their current employer. Source: Retirementtownhall.com

Is it Worth Paying for 401k Advice? Many employers are adding professional investment management services to their retirement plans. Studies do suggest that investors who use advisers do get better returns than individuals going at it alone, but there is no reason that should be true if an investor does some basic research. Source: USAtoday.com

403(b) Plans

403(b) Plan Sponsors Can Mitigate Risk by Taking Proactive Steps Under New EPCRS Guidance IRS provides guidance in Revenue Procedure 2013-12. This article explains more about the new guidance for 403(b) plan sponsors, and how they may mitigate risk in the event of an audit by taking some proactive steps. Source: Employeebenefitslawreport.com

Voluntary Corrections of Retirement and Section 403(b) Plan Failures, as Described by IRS Officials In these videos, two officials of IRS Employee Plans have teamed up with Alston & Bird and Bloomberg BNA to share the important details of the Employee Plans Compliance Resolution System that was updated in Revenue Procedure 2013-12, effective April 1. Source: Bloomberg BNA

403(b) Correction: Universal Availability Requirement The IRS sends a compliance questionnaire to a 403(b) plan sponsor explaining the universal availability requirement. The questionnaire then asks the plan sponsor to respond to several specific and pointed questions to determine whether they are in compliance with the requirement. If the plan is not in compliance it needs to indicate whether it is taking steps to correct the failure. If the plan does not respond, the IRS will likely select the plan for an examination. Source: Relius.net

Fiduciary Material and Insight

Fee Information Has Been Delivered – Now What? The Aftermath of 408(b)(2) To protect themselves against potential fiduciary liability, plan sponsors should conduct a fiduciary review of all plan fees and investment expenses as soon as practicable, if they have not done so already. The plan-level fee disclosures are an ideal starting point for such a review. A well-documented review of the reasonableness of these fees and expenses helps demonstrate that the plan sponsor has prudently fulfilled its fiduciary duties under ERISA. Source: Wagner Law Group (PDF File)

Retirement Plan Sponsors Have More to Fear Than Fear Itself While Chicken Little isn’t telling plan sponsors that the sky is falling, there are enough issues out there that retirement plan sponsors can clearly avoid by reviewing their plans and hiring retirement plan providers that take great care of them. This article is about the actual fears that retirement plan sponsors should anticipate and how good practices can help minimize the threat of those fears. Source: Rosenbaum Law Firm PC

Red Alert for Fiduciaries on Plan Financial Reports Plan fiduciaries are more vulnerable than ever on a lot of legal and regulatory fronts, including the financial statements included with their 5500 filings. In an era when 5500 forms and their attachments quickly enter the public domain online to anyone — including an enlarged army of DOL inspectors hunting for anomalies, fiduciaries need to be on the top of their game. Source: Benefitnews.com

Target-Date Funds

DOL’s TDF Guidance ‘Mischaracterizes the Market’ The DOL recently issued general guidance to assist plan fiduciaries in selecting and monitoring TDFs. In it, the DOL suggests plan fiduciaries inquire about whether a custom or non-proprietary TDF would be a better fit for their plan than a pre-packaged TDF product. Jennifer Eller, principal at Groom Law Group was “surprised and a little disturbed” by the DOL’s guidance. Source: Plansponsor.com

Tips for Kicking the Tires on Target-Date Funds As is the case when selecting any plan investment option, plan fiduciaries must establish a process and guidelines for comparing and selecting target-date funds as well as a process for periodically reviewing them. Article discusses in more detail. Source: Alliancebernstein.com

Target-Date Funds to Gain Lion’s Share of DC Plan Allocations Target-date funds could claim the largest share of defined contribution plan asset allocations within the next five years based on the funds’ current growth rate, said Lori Lucas, executive vice president and defined contribution practice leader at Callan Associates. Source: Pension and Investments (free registration may be required)

Items of Special Interest to Advisors

Advisers Pitching 401k Plans: Do Your Homework As more financial advisers jockey for 401k business, they will have to find ways to stand out and win plans. Research shows plan sponsors turn to referrals from peers to find advisers with whom they would like to work, rather than responding positively to cold calls. Source: Investmentnews.com (free registration may be required)

Spicing Up the 401k Bond Menu Expect fixed-income diversification to become the next focal point as 401k plan advisers try to protect participants from rising interest rates and inflation, along with fears of a bond bubble. Low yields on bonds are pushing plan advisers to look into other options for 401k menus. Source: Investmentnews.com (free registration may be required)

Insights: Studies, Research and White Papers

2012 a Model Year for 401k Savings Screaming headlines of dubious reports purporting that 401k plan participants raiding their retirement savings are au courant these days. But a Bank of America Merrill Lynch study suggests an opposite trend, and the fact that Merrill’s retirement plan management encompasses 2.5 million total plan participants and plan assets of $98.1 billion gives weight to the study’s quite upbeat conclusion: that 2012 was a model year and that Americans are fortifying their retirement readiness. Source: Benefitspro.com

Mutual Fund 401k Trustees Still Favor Own Funds, Study Says It might seem obvious that letting a mutual fund firm administer a 401k plan and also provide the investment options is as bad as letting a fox guard the henhouse. The risk, of course, is that the mutual fund recordkeeper would recommend its own funds. It might also seem obvious that the industry trend for plans with open architecture — giving participants equal access to virtually every investment option in the marketplace — has solved this problem. Actually, nothing about that whole relationship is what it seems, according to a new academic paper. Source: Institutionalinvestor.com

It Pays to Set the Menu: Mutual Fund Investment Options in 401k Plans This paper investigates whether mutual fund families acting as trustees of 401k plans display favoritism toward their own funds. Using a hand-collected dataset on retirement investment options, we show that poorly-performing funds are less likely to be removed from and more likely to be added to a 401k menu if they are affiliated with the plan trustee. We find no evidence that plan participants undo this affiliation bias through their investment choices. Source: Indiana University (PDF File)

DC Plan Providers Go Mobile Two-thirds of defined contribution plan providers have launched mobile initiatives focused on plan participants, with more companies planning them, according to a new LIMRA research report, Moving Ahead With Mobile: Mobile Technology Initiatives Among Defined Contribution Plan Providers. Source: Limra.com

2013 Top Five Global Employer Rewards Priorities Survey Since 1994, Deloitte has been surveying HR professionals about their rewards priorities. This year, the survey expanded internationally to include employers from 27 countries across the Americas, EMEA and Asia-Pacific. One key finding: In contrast with other areas of the world, more than one in three U.S. employees, or 34 percent, said they plan to delay retirement, according to a new survey by Deloitte. Source: Deloitte.com

The Benefits of Mandatory Distributions: A White Paper Small 401k accounts of former employees increase plan costs, expand administrative obligations and extend fiduciary responsibilities. Plan sponsors should consider distributing these accounts under a well-defined process and regulatory safe harbors, and advisers can provide a valuable service to their clients by educating them on the benefits of mandatory distributions and helping them set up a routine process for sweeping out small accounts. Source: Fredreish.com

Longevity Risk and Reward for Middle-Income Americans Living longer has its rewards. Middle-income retirees say they are having experiences in retirement that they never imagined, such as travel and volunteering. However, longevity also comes with risk, the two primary concerns being declining health that is associated with age, and the ability to create a sustainable retirement income that may need to last 20 years or more. Paper looks at longevity’s impact on the retirement experience of middle-income Americans and their view on the role Social Security plays as the cornerstone of retirement income. Source: Center for a Secure Retirement (PDF File)

Employer, Employee 401k Participation Holds Steady The number of employers offering a sponsored retirement plan slightly increased in 2012 from four years prior, while matches and employer contributions remained near constant, according to a survey released today by WorldatWork and the American Benefits Institute. Source: Benefitnews.com

Stable Value Study Finds Most Plan Sponsors “Staying the Course” According to MetLife’s 2013 Stable Value Study, the vast majority (86%) of plan sponsors have been offering stable value as an investment option in their defined contribution plans for more than two years, and more than 78% are not planning to make changes to their stable value offerings within the next year. Among those plan sponsors that added stable value as an investment option in their DC plan in the past two years, 47% said they did so to provide participants with a “capital preservation fund,” 37% said stable value “offers higher interest rates than other, comparable investments,” and the same percentage said “it was recommended by their recordkeeper/TPA.” Source: 401khelpcenter.com

Trends in 401k Plans and Retirement Rewards Even through volatile economic conditions, employers have demonstrated an unwavering commitment to the 401k system according to a study released today by WorldatWork in partnership with the American Benefits Institute. Despite anecdotal reports of companies suspending or eliminating their 401k match to cut costs during the depths of the recession, 88% of respondents said their company maintained matching contributions during the previous five years. Source: Worldatwork.org (PDF File)

Court, Legislative and Washington DC

More on Moench Stock drop claims alleging imprudence on the part of plan sponsors and other fiduciaries in maintaining employer stock as a plan investment option have become a common type of litigation involving 401k plans. Relying on the leading case of Moench v. Robertson, a number of courts have held that a fiduciary investing in company stock is entitled to a presumption that it acted consistently with ERISA. Two recent Circuit Court of Appeals cases, decided one day apart last September, apply this presumption in contradictory ways. Source: Wagner Law Group (PDF File)

Stock-Drop Cases Reinforce Need for Due Diligence Because of the fiduciary implications, the inclusion of company stock within a retirement plan has been a frequent target of litigation in recent years. A substantial body of case law has been developed regarding the standards that apply to judicial review of fiduciaries’ decisions regarding company stock. A trio of cases from last year, however, underscore that courts may take different approaches in reviewing fiduciary actions. Source: Vanguard.com

Second Circuit Reviews the Applicability of the Presumption of Prudence for Fiduciaries Investing in an Employer Stock Fund The presumption dictates that, where applicable, a fiduciary’s decision to invest an employer’s retirement plan in the employer’s own stock, or to offer plan participants the option to so invest, is a presumptively prudent decision in compliance with ERISA, and thus the decision to invest in the employer’s stock is reviewed only for an abuse of discretion. Source: ERISAlawyerblog.com

Compliance and Regulatory Related

What Happens If I Don’t Update My Plan Document? Did you know that failing to timely amend your plan document for changes in Federal tax laws can affect your plan’s status as a tax-qualified plan? Companies often engage third party service providers to ensure that these amendments are made in a timely fashion, but this is not always the case. This item provides a few helpful tips on how to stay current with the applicable tax codes that might affect your plan. Source: 401kfiduciarynews.com

IRS Correction Program: A Whole New Ballgame While most aspects of the EPCRS as set forth in the revenue procedures are technical expressions of the rules for and permissible methods of correction, plan sponsors should be pleased with the updates in Rev. Proc. 20013-12. The existence of EPCRS and its SCP and VCP components should strongly encourage plan sponsors to conduct or engage others to conduct self-audits of the internal management and administration of their qualified retirement plans and other eligible plans with emphasis on uncovering and correcting any compliance failures. Source: Warner Norcross & Judd LLP

Form 5500: Filing Deadlines for Your 401k Plan Most 401k plans require that you file an Annual Form 5500. This is an informational return that reports the financial information for your retirement plan for the year and does not require the payment of any taxes. The plan must file the Form 5500 and any accompanying schedules by the last day of the seventh month following the close of the plan year. Source: 401k-employee-benefits.com

IRS Requires Complete Restatements for Determination Letter Requests The Internal Revenue Service has issued its annual revenue procedures for requesting determination letters for qualified retirement plans. Starting February 1, 2013, plan sponsors must submit a restated plan rather than a “working copy” with their determination letter request. Source: Towerswatson.com

Updated IRS Correction Program Guidance – What’s New and What Isn’t The new guidance does not address the correction of important auto-enrollment issues, such as the failure to provide the safe-harbor notice before the start of the plan year, or Roth account issues; like the prior guidance, IRS requests comments on the these topics, as well as on the failure to implement an auto-escalation provision. Nor does the new guidance expand relief for plan loans or provide any exceptions to the ban on retroactive plan amendments. The most significant changes (and some disappointments) are described in this article. Source: Groom Law Group (PDF File)

Retirement Plan Sponsors Navigate New IRS Procedures in Correcting Plan Failures The IRS’s Revenue Procedure 2013-12 provided dozens of revisions and additions to the prior procedure for plan sponsors to voluntarily correct plan failures. IRS’s Employee Plans division has been on the stump educating the retirement plan community on what the new procedure means to plan sponsors when it becomes effective April 1. Meanwhile, retirement plan practitioners have begun coming to terms with the requirements of the procedure, which was revised from the version issued in 2008. This is a six page review. Source: Bloomberg BNA (PDF File)

Guidance Needed on New Roth 401k Conversion Since provision 902 of the bill was a last minute decision, the U.S. Department of the Treasury and Internal Revenue Service must issue some guidance, said Bob Kaplan, vice president and national training consultant at ING Investment and a member of the government affairs committee for the American Society of Pension Professionals & Actuaries, in a webinar this week. Source: Benefitspro.com

The American Taxpayer Relief Act of 2012: Roth In-Plan Conversion ATRA broadens participants’ ability to make Roth conversions in certain DC plans, and eases previous restrictions, which means that plans may now allow participants to convert any portion of their plan assets at any time. This article looks at the implications for plan sponsors. Source: Vanguard.com (PDF File)

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