Experts in Personalized Retirement Plan Design & Administration Newsletter 04.26.17

Are Your Old 401k Accounts Home Alone? In the process of terminating employment, an employee’s 401k account is often neglected or forgotten about. However, leaving these accounts unmanaged could be detrimental to the funds accrued in them. This article reviews your options. Source:

Employee Miscommunication — the Wall That Divides Employee miscommunication, confusion, and apathy all play a factor in why employees don’t understand or don’t seem to care about your efforts to provide them with benefit information. Removing barriers can feel like an uphill climb in the middle of a blizzard. How does a well-intentioned HR professional overcome employee miscommunication, apathy, and confusion over benefits? Source:

Roth Elective Deferrals in a 401k Plan Before an employer decides to offer Roth deferrals in their 401k or 403(b) plan, careful consideration should be given to what is needed to properly administer the participant accounts. Source:

Retirement Isn’t Free, but Your 401k Match Is Retirement savers, are you making the most of your company’s 401k match? Even though a quarter of the year has gone by, you can take steps to make the most of your company’s 401k match. Each year, Americans leave billions of dollars in 401k company matches on the table. Here’s how to avoid becoming one of the estimated one-of-four employees who misses out on free money. Source:

Divorce & Retirement Because pension and retirement benefits are not automatically split in a divorce, this short guide emphasizes the importance of these benefits and offers valuable information on marital property, negotiating an agreement, and getting a qualified domestic relations order (QDRO). Source:

New Comparability 401k Plans – Are They Right for Your Small Business? One of the most common goals for a small business 401k plan is maximizing owner contributions up to the legal limit. Often, the cheapest way to meet this goal is using a new comparability profit sharing contribution. Unlike other types of 401k profit sharing, these contributions permit an employer to allocate multiple contribution rates to different employee groups, making larger contribution rates to business owners possible. Source:

403(b) Plans

403(b) Plan Design and Operation This wide-ranging guide discusses the rules that apply when eligible tax-exempt organizations establish tax-sheltered annuities, custodial accounts, or retirement income accounts, as described in Section 403(b) of the Internal Revenue Code (403(b) plans). Source:

Iowa Bill to Open Teachers’ 403(b) Plan to More Competition The bill requires the Iowa Department of Administrative Services to include up to 30 insurance and investment companies in the 403(b) plan so long as they are approved by the Iowa Insurance Division and registered with the federal Securities and Exchange Commission. Source:

Roth IRA vs 403(b) If you work for a public-school system, a ministry, an institute of higher education or another nonprofit, then you may have the option to set aside money for retirement using an account called a 403(b). All income earners (or spouses of income earners) also have the option to save for retirement in a Roth IRA. So, which one makes more sense? Source:

PODCAST: 403(b) Plan Fee Litigation Update Employee Benefits attorneys Eric Altholz and Chris Lockman provide a brief update on class action lawsuits alleging various breaches of fiduciary duties under ERISA pending against a dozen major universities. These lawsuits are related to the administration of the 403(b) plans maintained by the universities, but these issues are not limited to higher education institutions. Source:

Fiduciary and Plan Governance Material

Automated 401k Rollover May Shine as Fiduciary Solution Automated rollovers, which move 401k assets into an IRA at a certain level of account inactivity or when an employer terminates their plan, should be seen as a behavioral solution for better 401ks. Source:

Navigating Investment Responsibilities In this 8-page paper identifies three approaches a plan sponsor may take for selecting and managing plan investments. Along the way, it outlines five important questions to consider as they contemplate engaging a 3(21) or 3(38) fiduciary to manage their plans more effectively or outsource some of their fiduciary risk. Source:

401k Plan Trustees: How Do You Monitor and Select Investments? The resident plan fiduciaries (the company officers and key employees who act on behalf of the sponsor as plan administrator or trustee) have a legal duty to “select and monitor” plan investments and, in the case of sponsors who have hired investment professionals, to monitor not only investment performance but also the performance of the investment professionals. So, how do you “select and monitor”? Source:

The Annual Retirement Plan Checkup: An Exercise in Preventive Medicine The primary reason that medical professionals recommend an annual checkup is that problems found early, especially when they are minor, generally are easier to fix. Similarly, a comprehensive retirement plan checkup can help plan sponsors identify existing or potential issues that, if neglected, may result in significant compliance problems or negatively impact plan participants. Source:

Insight: Studies, Research, and White Papers

Hispanic Retirees: Low Saving, Long Life Just one in three native-born and immigrant Hispanics working in this country has a retirement plan through their employer which contributes to a low retirement savings rate. Low rates of saving are compounded by the fact that elderly Hispanics and Latinos will need more money over their longer-than-average retirements. But there is some cause for optimism. Source:

Total Wellbeing After Retirement Having a sense of purpose, being financially fit and having strong social ties and a meaningful connection to the communities within which we spend our time are all pillars of our wellbeing. There is recognition that for much of our lives, the workplace can be the foundation these pillars are built upon, providing people with the tools to be well throughout their careers. So, what happens when individuals retire? Source:

Survey: In Whose Best Interest? This survey from Financial Engines shows that Americans overwhelmingly favor the intent of the DOL’s fiduciary rule. According to the survey, 93 percent of Americans think financial advisors who provide retirement advice should be legally required to put their clients’ best interest first. However, more than half of respondents (53 percent) mistakenly believe that all financial advisors are already legally required to put the best interests of their clients first. Source:

Top 10 Recordkeepers of Defined Contribution Plans The largest defined contribution plan recordkeepers all experienced positive asset growth last year, according to Pensions & Investments’ annual recordkeeper survey. Source: (registration may be required)

DC Plan Sponsors Driven by Member Retirement Goals and Litigation Risk: Survey Meeting plan members’ retirement goals and managing litigation risk are the top factors driving defined contribution pension plan sponsor decision-making, according to new research by global investment manager PIMCO. Source:

The Changing Nature of Retirement Today’s grandparents and great-grandparents are generally comfortable in their retirement. They worked hard for many years and were rewarded for it; they have employer-provided pensions and retiree health care plans. However, with each subsequent generation, the scale has started to tip away from rich employer-provided retirement benefits. Source:

The Top 7 Reasons Almost 33% of American Workers Have Saved Nothing for Retirement According to research, almost 33% of American workers have saved nothing for retirement. That spells trouble for the entire economy down the road. Knowing the reasons for people not saving is a start, this way you may be able to identify a few solutions. Source:

Items of Special Interest to Service Providers

401k Vendors Innovating to Thrive in a Competitive Market Interview with Joe Valletta, co-founder of 401k Source, on the market dynamics in the 401k plan services industry. Source:

Colorado Proposes Cybersecurity Rule for Investment Adviser Firms The Colorado Division of Securities recently proposed two new rules that would require investment adviser firms and broker-dealers to assess cybersecurity risks and implement written policies and procedures “reasonably designed to ensure cybersecurity.” Source:

Impartial Conduct Standard: More Than Meets the Eye While the explicit compensation requirement of the ICS is that advisers and financial institutions cannot receive more than reasonable compensation, the DOL is saying that a financial institution’s compensation structures cannot promote investment recommendations that are not in the best interest of the investor. Source:

Target-Date Funds

Consultants Say Target-Date Review Tops Plan Sponsor Priority List Retirement plan consultants list reviewing target-date strategies as the top priority for their plan sponsor clients, according to the 11th annual PIMCO Defined Contribution Consulting Support and Trends Survey. Source:

Answers to Your Target-Date Fund Questions Morningstar recently released its annual report on target-date funds. This year’s report highlights the major trends and developments in the target-date fund space by addressing some of the questions most frequently asked by investors, investment consultants, and the like. Source:

2017 Target-Date Fund Landscape Target-date funds’ clear outlook for growth has resulted in an ever-changing landscape, as managers vie for market share by attempting to set themselves apart from one another. The changing landscape undoubtedly spurs questions in the minds of investors, and this year’s report aims to deliver insight into the trends in the target-date fund space and provide added perspective by answering questions that frequently arise. Source:

Court and Other Legal Issues

Fear of Litigation Looms Over DC Plans In a list of the most important factors driving decision-making at defined contribution plans, litigation risk ranked second only to meeting participant retirement goals. Investment fees and plan costs are a top concern for defined contribution plan sponsors, according to PIMCO’s annual consultant survey. Source:

JPMorgan Stable Value Fund Lawsuit Gets Class Treatment Thousands of workers who invested their retirement savings in JPMorgan’s stable value funds got approval to sue the company as a certified class. Source: (registration may be required)

Legislative and Washington DC

What’s Cooking in Congress for Retirement Plans? For those of you who are concerned about tax reform and other possible future legislation, here is an interview with Preston Rutledge, Tax and Benefits Counsel at the Senate Finance Committee. Source:

Cybersecurity Issues

Data Breach Risks for 401k and Retirement Plans There has been a recent spike in attacks on 401k and retirement plans by cyber criminals. A data breach is a disruptive event. For plan fiduciaries, there are several factors that create heightened risk. Source:

State-Based Retirement Programs

Oregon’s State Retirement Savings Plan Infringes on ERISA The Oregon Retirement Savings Board approved final rules that apply to the operation of OregonSaves, the state-run mandatory retirement plan. Oregon is the first state, of the seven other states that have passed legislation to implement these plans, to provide regulatory guidance. This is a statement from Will Hansen, Senior Vice President of Retirement and Compensation Policy, The ERISA Industry Committee, on the Oregon move. Source:

DOL’s Fiduciary Rule

ARA Weighs in on Fiduciary Rule Delay Proposal The American Retirement Association’s Government Affairs Committee has filed comments with the Department of Labor regarding a proposed regulation to extend by 60 days the applicability date for the “Conflicted Advice” regulation. Source:

June 9th: Strict Fiduciary Obligations to Arise? According to Ron Rhoades, the adoption of the DOL’s “definition of fiduciary” and “impartial conduct standards” — now effective June 9, 2017 — will have larger impacts on financial services than many might imagine. Source:

Early Evidence on the Department of Labor Conflict of Interest Rule In response to the DOL’s fiduciary rule, investment management companies are creating two new share classes for their mutual funds. This 10-page paper examines the potential of these new share classes to help investors save for retirement. Source:

DOL Pressed to Hold Applicability Date for New Analysis Republican members of the House Committee on Education and the Workforce are pushing to see that the applicability date of the fiduciary regulation is fully postponed until the impact has been reassessed. Source:

Compliance and Regulatory

Is DOL Already Backing Away From 401k Fiduciary Enforcement? While normally bullish on filing amicus (friend-of-the-court) briefs in federal appeals court cases involving 401k fiduciary issues, the department declined last week to do so in a case filed against Transamerica Life Insurance. This move could signal a shift in DOL enforcement priorities. Source:

Partial Plan Terminations A plan termination often occurs due to the closing of the company or because of a financial hardship that prevents the employer from being able to continue to cover the cost of operating the plan. However, many employers are unaware that a partial plan termination can occur even while the retirement plan is still active and operating. Source:

Participant Loan Refinancing Allowing more than one participant loan in a retirement plan is not a black-and-white determination. The plan sponsor and its service providers must ensure that additional loans or refinanced loans are properly administered in accordance with the plan document and the loan regulations. Source:

Are 401k Plan Loans Double Taxed? Are 401k plan loans double taxed? The author believes that the principal amounts of 401k loans that are distributed at retirement are taxed at a rate that is more than double that of a participant’s incremental tax rate. Source:

Common Errors and Corrections in Retirement Plan Loans Although retirement plan loans can increase administrative responsibilities, many plan sponsors include them as a plan feature with the idea that offering participant loans can help to encourage a higher participation rate. Despite your best efforts, loan mistakes can happen. Knowing what resources are available to fix errors can help. Source:

401k Hardship Withdrawal Guide Plan sponsors may also elect to add a “hardship withdrawal” option for employees in their 401k or 403(b) plan. This is an optional provision that must be outlined in the plan document before it is available to the participants of the plan. Source:

Locating Missing Participants in Your Retirement Plan It’s always a good idea to keep your retirement plan as clean as possible by maintaining good employee records. In the event you do lose track of a plan participant, here are some suggested ways to locate former employees. Source:

Puerto Rico Modifies Retirement Plan Qualification and Trust Requirements Several of the modifications create new disparities between rules under the Puerto Rico and U.S. tax codes. Hacienda is expected to issue clarifying guidance and information on deadlines for plan amendments and determination letter requests. Dual-qualified plans should pay particular attention to the changes that create discrepancies between the U.S. and Puerto Rican tax codes. Source:

The Challenges of Forgotten Retirement Benefits Forgotten retirement benefits pose unique challenges for employees, former employers, and plan administrators. Many retirement accounts are unwittingly left with the former employer. And if the employee moves and fails to send an updated address, the money goes unclaimed and is often permanently lost. Source:

Employee Benefit Plan Considerations for M&As No matter whether it’s a billion-dollar transaction or something much, much smaller, employee benefit plans are a critical component of the deal. They can impact the purchase or sale price, and create both financial and compliance risks if comprehensive due diligence is not completed. This article provides some tips that will be helpful as you consider the employee benefits component of the deal, no matter which side of the table you’re on. Source:

DOL Recovers More Than $41k for St. Paul-Based 401k Plan An investigation by the DOL found from at least Feb. 1. 2010, to May 27, 2015, the company withheld $35,363.86 from employee’s pay for voluntary contributions to the 401k Plan. During that same period, the company retained approximately $29,058 of those contributions in the company’s corporate bank account and used them for general operating expenses. Source:


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