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BPP401k.com Newsletter 04.03.13

More Employees Driven to Auto-Enroll for Retirement Plans More employers are automatically registering workers for company 401k plans. But while more people are participating in 401k plans, the majority of employers only use three percent of employee pay to automatically initiate retirement accounts. That percentage is a far cry from the 10 to 12 percent of annual pay that many experts say needs to be contributed to 401k plans for people to be ready for retirement. Source: Workforce.com

Target-Date Funds Put Bull’s-Eye on Making Employees Retirement-Ready Now that defined contribution plans are the way most Americans save for retirement, and target-date funds are increasingly becoming the most popular investment in many 401k plans, many employers who offer the strategy say they will take a hard look at them this year. Source: Workforce.com

How Do You Know What Works in a Plan? As the industry talks about moving away from traditional benchmarks; how do plan sponsors assess the effectiveness of their plans? Alison Cooke Mintzer, editor in chief of PLANSPONSOR and PLANADVISER, asked panelists at PLANADVISER’s 2013 Top 100 Retirement Plan Advisers seminar to weigh in on outcome-based measurement. Source: Planadviser.com

Mind the Data to Improve Participant Outcomes At this year’s NAPA/ASPPA 401k SUMMIT, Nevin Adams of the Employee Benefit Research Institute, and Douglas Fisher of Fidelity Investments presented thought-provoking ideas on interpreting and utilizing the large amount of data on private retirement plans available in order to encourage better retirement outcomes. Source: Asppanews.org

Two Types of Annuities for Retirement Income After all your hard work saving for retirement, you’ll need to manage market risk and generate income that lasts. Annuities are one tool that can help — particularly if you’re seeking a stream of income that you know will be around as long as you are. There are two types of annuities we believe may be worth considering to generate income: immediate fixed annuities and variable annuities. Source: Schwab.com

Saying Goodbye to That Old TPA Can Be Difficult Divorce can be difficult, changing TPAs should not. It’s important for TPAs should maintain a high level of professionalism, especially when it comes to the time when the TPA is being replaced because it’s at those times that delineates the good TPAs from the bad ones. Source: Rosenbaum Law Firm PC

DC Plan Sponsors: Now’s the Time to Get More From Bonds Is it time for DC plan sponsors to review their core lineups given equity levels at historical highs and interest rates at record lows? To better manage risks and generate returns, it’s critical that plan members’ investments have appropriate diversification and flexibility. While paring equity offerings may be one step, reviewing fixed income lineups is another consequential move. The inclusion of active strategies with global exposure or additional income opportunities could help participants achieve successful retirement outcomes. Inflation-hedging assets also are fundamental for retirement savers and deserve their own place in DC core lineups. Source: Pimco.com

Eleven Things About 401k Plans We Need to Fix Author lists things that need correcting. The list includes: Not enough people even have a 401k plan, even those people with 401k plans can’t retire because employers don’t contribute enough, vesting doesn’t start right away so employees don’t “own” all employer contributions, and despite the Enron debacle, employers can still get away with matching in company stock. Source: CNBC.com

403(b) Plan Specific

IRS Establishes Program for Pre-approved 403(b) Plans in Revenue Procedure 2013-22 The Internal Revenue Service (IRS) issued Revenue Procedure 2013-22, which establishes a program for the issuance of opinion and advisory letters for Internal Revenue Code (IRC) Section 403(b) pre-approved plans. Under this program, the IRS will accept applications for opinion and advisory letters for prototype and volume submitter plans under IRC Section 403(b) starting June 28, 2013. Source: Practicallaw.com

IRS Revenue Procedure 2013-22: Opinion and Advisory Letter Procedures for Pre-Approved 403(b) Plans This revenue procedure sets forth the procedures of the Internal Revenue Service for issuing opinion and advisory letters for § 403(b) pre-approved plans. Under the program established by this revenue procedure, the IRS will accept applications for opinion and advisory letters regarding the acceptability under § 403(b) of the Internal Revenue Code of the form of prototype plans and volume submitter plans, respectively, starting June 28, 2013. Source: Americanbenefitscouncil.org

Fiduciary Material and Insight

The Tibble Decision – Three Valuable Lessons for Plan Sponsors and Other Plan Fiduciaries The courts, regulators and plan fiduciaries need to understand that with regard to a plan’s investment options, it is the quality of the investment options, in terms of the benefits provided to plan participants, not the quantity of the plan’s investment options or their absolute fees, that truly matter under ERISA. Source: Prudent Investment Adviser Rules

Another 10 Major Misconceptions Plan Sponsors Have About Their Retirement Plans Many retirement plan sponsors have misconceptions regarding their role, the role of their plans, and the role of the providers they select. These misconceptions can cost plan sponsors money if they breach their duty as fiduciaries. This article will debunk another 10 major misconceptions that retirement plan sponsors have about their retirement plans. Source: Rosenbaum Law Firm PC

Insights: Studies, Research and White Papers

Personality Traits and Economic Preparation for Retirement This paper assesses the effects of personality traits on economic preparation for retirement, wealth accumulation, and consumption, among persons 66 to 69 years of age. Among the five chief personality traits of neuroticism, extroversion, agreeableness, conscientiousness, and openness, paper focuses most on conscientiousness. Source: Michigan Retirement Research Center

The DC Trend Towards Daily Pricing and Trading: Has it Gone Too Far? This UK paper debates the pros and cons of daily liquid funds in DC plans. The reality is that this practice within DC plans effectively shuts the door on many alternative and less liquid asset or at least limits the availability of high-quality and efficient implementation vehicles. This means forfeiting both the investment efficiency that could otherwise be achieved through more effective diversification, as well as potentially additional sources of investment returns — both aspects which many DB plans do take advantage of. Source: Towerswatson.com

The Impact of On-line Calculators and Financial Advisors on Setting Adequate Retirement-Savings Targets This paper finds that both the use of on-line calculators and seeking the advice of financial advisors result in estimated savings targets that not only increase the estimated probability of retirement income adequacy, but also result in double-digit percentage-point increases for many of the groups when analyzed by relative income quartiles and family/gender combinations. Source: EBRI.org

401k Participants Who Use In-Plan Advice Have More Positive Retirement Outlooks Employees who say they use advisory services offered to them in their 401k plan have a distinctly more positive outlook about their future retirement versus those who do not, according to an analysis of data from the recent Mercer Workplace Survey. Nearly one-fifth (18%) of survey respondents say they engage with an online or in-person advisory service in their 401k plan. Source: 401khelpcenter.com

Emerging From the Economic Storm: Retirement Plans in the United States, 2007-2012 This White Paper evaluates how American workers and company-sponsored retirement plans have fared during these past five difficult years, and brings to light opportunities to improve our current retirement system. Source: Transamericacenter.org

Pension Plan Participation Significant changes have occurred in the kind of employment-based retirement plan in which private-sector workers participate. Source: EBRI.org

Retirement Assets Reach $19.5 Trillion in 2012 Total U.S. retirement assets hit a new record high of $19.5 trillion as of December 31, 2012, up 0.7 percent in the fourth quarter and up 8.6 percent for the year. As of the end of 2012, retirement assets were 44.4 percent higher than they were on March 31, 2009, when retirement assets hit a low during the recession, and 7.9 percent higher than their pre-recession peak on September 30, 2007. Source: ICI.org

Declining Interest Rates Produce Record Pension Deficit in 2012 Milliman today released the results of its 2013 Pension Funding Study, which analyzes the 100 largest US corporate pension plans. In 2012, these pension plans were once again defined by record-low discount rates, which led to record-high pension obligations and a $388.8 billion pension funding deficit—a $61.1 billion deficit increase in 2012. Source: Retirementtownhall.com

Items of Special Interest to Advisors

Five Entrenched Ruts in Which Advisors Are Idling The same themes keep coming up in regard to self-inflicted wounds that hold back an advisors practice. Here they are, along with prescriptions for how to start fixing them right away — unless you are a procrastinator, which is on the list. Source: RIAbiz.com

403(b) Plans: High Maintenance or Huge Opportunity? Many 401k plan financial professionals have already capitalized on the opportunity in the 403(b) market by leveraging their 401k plan skills, and being able to distinguish themselves by being savvy in the dynamics that make a 403(b) plan a little different. The market opportunities continue to exist for financial professionals. It pays to look past high maintenance impressions – you might like what you see on the retirement benefit menu. Source: Benefitnews.com

Fidelity-BlackRock Deal May Speed ETFs in 401k Plans The Fidelity Investments and BlackRock expanded partnership made waves in the exchange traded fund business, but it may also influence the retirement account market as well. The new deal could push more employers to work with Fidelity in including a self-directed brokerage option within their plans. Source: ETFtrends.com

Court, Legislative and Washington DC

Ninth Circuit: Plan Fiduciaries Breached Duty of Prudence by Failing to Investigate Possibility of Institutional Class Shares The U.S. Court of Appeals for the Ninth Circuit affirmed a District Court’s judgment that the fiduciaries of the Edison 401k Savings Plan breached their fiduciary duties by inadequately investigating the availability of institutional-class alternatives for three mutual funds offered as investment options. Source: Groom Law Group

It’s Not lights Out for Edison’s Investment Committee The recent Ninth Circuit opinion can assist counsel representing plan fiduciaries to know what evidence to present because had Edison made a showing that HFS the Plan’s financial consultant engaged in a prudent process in considering share classes this might have been a different case. The Ninth Circuit found that Edison did not present evidence on this issue and therefore the Edison fiduciaries breached their duty of reasonable reliance upon their consultants’ recommendation on class shares. Source: ERISA & Employee Benefits Litigation Blog

Judge Dismisses Lawsuits Over Morgan Stanley Retirement Plans A federal judge in Manhattan dismissed two lawsuits in which participants in Morgan Stanley’s retirement plan accused the firm of mismanaging some plans by allowing participants’ money to remain in its stock even as its performance faltered in 2008. U.S. District Judge Deborah Batts agreed with Morgan Stanley that continuing to offer its stock in the plans did not violate any duty of prudence. Source: Reuters.com

Same-Sex Marriage Cases: Are Your Benefit Plans Prepared? News articles, social media, protests, and lunchroom conversation were all dedicated to the two cases before the U.S. Supreme Court this week. Hollingsworth v. Perry and Windsor v. United States could potentially transform the treatment of same-sex married couples in the United States. The Supreme Court’s decision is expected in late June. In this advisory we summarize the cases and the issues that sponsors of employee benefit plans should be considering now in preparation for the decision. Source: Davis Wright Tremaine LLP

Compliance and Regulatory Related

DOL Smacks 401k Adviser for 12b-1 Fiduciary Breach. Plan Sponsors Next? Little more than seven months ago, the U.S. Department of Labor issued a press release it had reached a settlement with a Connecticut investment adviser for claims involved a breach of fiduciary duty. The August 23, 2012 release is entitled “USI Advisors of Glastonbury, Conn., agrees to pay $1.27 million to 13 defined benefit pension plans following US Labor Department investigation.” At the time, except for a few industry rags and a local Connecticut newspaper, very little attention was paid to that DOL release. Last week changed all that. Source: Fiduciarynews.com

Updated Employee Plans Compliance Resolution System: Impact on Employer-Sponsored Retirement Plans Revisions include changes and additional guidance with respect to correction methods as well as procedural changes for voluntary correction program submissions. This article discusses these changes with respect to qualified plans. Source: Drinkerbiddle.com

Monitoring Service Provider Compensation is Continued Focus of Audits and Litigation Reports of increased DOL audit activity, increased penalty amounts, and increased staffing for audits have recently surfaced. The risk of audit is a real one. Although no amount of prevention and due diligence will prevent a plan or plan service provider from being selected for an audit, those who document and follow procedural prudence in their operations will reduce the financial risks associated with audits and litigation. Source: Buckconsultants.com

IRS Updates and Expands its Retirement Plan Qualification Correction Program By and large, plan sponsors and administrators will welcome the changes made by the Service to both the substantive and administrative provisions of the correction program. IRS seems ready to continue to make the process both easier and less expensive for taxpayers. Source: Morganlewis.com

International Issues Affecting Retirement Plans International issues, including international tax compliance by large corporations and high-wealth individuals, are an IRS-wide priority. The Office of Employee Plans is focused on addressing existing abuse and preventing abuse going forward. Source: IRS

11(g) Retroactive Corrective Amendments A plan sponsor with a coverage or nondiscrimination failure must resolve such failures under voluntary correction program and pay the appropriate filing fee to the IRS. However, practitioners should be aware that a coverage or nondiscrimination failure does not result in immediate disqualification. Source: Relius.net

Form 5500 Audit Triggers In a recent ASPPA/IRS conference, an IRS official responded to a question regarding which responses on the Form 5500 will increase the likelihood of audit. The IRS official identified four situations that on which they will take special notice. This article lists the four items together with analysis. Source: Relius.net

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