Experts in Personalized Retirement Plan Design & Administration Newsletter 05.22.17

Retirement Benefits and Divorce, Top Tax Issues  If a couple has a joint investment in a retirement plan the plan account can be divided to give each spouse their fair share. To divide the plan account without either spouse incurring a massive penalty for early withdrawal from the account, the couple will need to have a Qualified Domestic Relations Order (QDRO) prepared. Source:

Which of the Three 401k and 403(b) Service Models Is Right for Your Plan?  To most outsiders, the defined contribution market appears confusing and complicated. But there are just three service models for 401k and 403b plans to choose from. This article reviews the different models and which might be best for your plan. Source:

Managed Account Use Poised to Jump in 401k Plans  Mergers of 401k recordkeepers, such as the combination of Great-West Financial, Putnam Investments and J.P. Morgan Retirement Plan Services into Empower Retirement, are part of the equation that’s driving an increase in the number of employers offering managed accounts in their plans. Source: (registration may be required)

Listen to Your Participants: Don’t White Label 401k Investment Funds  The author writes, “Plan sponsors, if you would like to frustrate, annoy and confuse your 401k plan participants, then ‘white label’ your 401k plan investment funds.” Source:

Simple Standard to Evaluate 401k and 403b Plan Advisors — ELI Rating  It’s hard for many 401k or 403(b) plan sponsors to determine whether their plan advisor is doing a good job, just as it is difficult to find a new one. Along with the right experience and training, defined contribution sponsors need to determine if the advisor is the right fit. To do so, plan sponsors can deploy a simple, common sense standard called the ELI rating. Source:

Your Retirement Plan: Set It, But Don’t Forget It  When it comes to planning for retirement, there are three commonly automated arrangements that warrant a one-off, stop-and-think review from time to time: beneficiary designations, plan participation and investment allocation. Source:

Five Time-Tested Tactics to Save for Retirement  Kiplinger’s Personal Finance distilled their best advice on how to build, protect and enhance your wealth throughout your life starting with these tips to save more for retirement. Source:

Could a Switch to Roth Be Good for Retirement Security?  There’s been a lot of rumbling on and around Capitol Hill about a potential shift to Roth contributions for 401k plans as part of tax reform. So, how might that weigh on — or boost — retirement savings? Source:

Bundled or Unbundled?  FRA PlanTools CEO and Managing Director David Witz recently surveyed third-party administrator clients as well as professionals who once were part of TPAs regarding why one may want to work with a TPA. Some mentioned bundled providers and discussed the plusses and minuses they entail. Source:

Fiduciary and Plan Governance Material

Free Guide: “The Intelligent Fiduciary”  Fiduciaries can’t insulate themselves from being sued, but they can minimize their risk and be in a good position to defend a lawsuit if they follow good fiduciary practices. Attorney Carol Buckmann has been writing on the topic for years and has now compiled some of her more popular works in this free booklet. Source:

Podcast: Health Savings Accounts in the Fiduciary Process  While the direction of health care is nearly impossible to predict, the rise in health savings accounts appears to be inevitable. And under the DOL fiduciary rule, advice on these accounts will be considered a fiduciary act. In this podcast, Blaine Aikin and Duane Thompson discuss HSAs and what advisors need to know when considering these accounts for their clients. Source:

Small 401k Plans Have Bigger Problems Than Larger Plans  Thanks to the quirks of the retirement plan business and how it prices products and services, it’s the smaller plans that will have larger problems in terms of compliance and cost. This article is all about letting small 401k plan sponsors learn why they can’t ignore their role as a plan fiduciary. Source:

Heeding the Call of (Fiduciary) Duty  Sometimes the “basics” get so shopworn they lose their punch, like the solemn performance of fiduciary duty and its importance to every retirement plan sponsor and nonprofit institution and their investment committees. This is a brief refresher. Source:

Insight: Studies, Research, and White Papers

Dangerous Flexibility — Retirement Reforms Reconsidered  Flexible retirement is supposed to increase labor supply of older workers without touching the third rail of pension politics, the highly unpopular increase of the retirement age. While this may have intuitive appeal, this paper shows that it might be wishful thinking. Economic theory tells us that flexible retirement policies can have a zero or positive effect on labor force participation while the effect on hours worked can be positive or negative depending on the distribution of leisure preferences. Thus, the overall effect is ex ante unclear. Source:

Take Action: Five Ideas for DC Plan Sponsors  Last year was full of surprises and the macroeconomic trends seem likely to continue in 2017. This article suggests five investment themes to guide plan sponsors in navigating the challenges ahead. Source:

How 401k Plan Design Can Increase Retirement Savings  You can and should assist participants by providing them with a good investment menu and by adopting plan features that help participants save. Here are eight suggestions for how to provide even those who aren’t applying the lessons of the education program with support to accumulate an adequate 401k account. Source:

A Forgotten Part of Participant Financial Wellness: Loan Defaults  With all the industry focus on financial wellness, it begs the question. Why do plans ignore an ongoing source of retirement plan leakage: defined contribution plan loan defaults? Source:

Trends in the Expenses and Fees of Funds, 2016  On average, expense ratios for long-term mutual funds have declined substantially over the past 20 years. In 1996, equity mutual fund expense ratios averaged 1.04 percent, falling to 0.63 percent in 2016. Bond mutual fund expense ratios averaged 0.84 percent in 1996 compared with 0.51 percent in 2016. Hybrid mutual fund expense ratios averaged 0.95 percent in 1996, falling to 0.74 percent in 2016. Source:

Short-Term Financial Considerations Prioritized Over Retirement Savings  The lack of retirement savings could in part be due to prioritizing short-term financial considerations. Americans report they are more concerned about affording unexpected expenses (44%), health care costs (41%) and taking desired vacations (36%) than they are about having adequate retirement savings (32%). Source:

Items of Special Interest to Service Providers

Fidelity’s Approach to DOL Fiduciary Rule Rankles Some 401k Advisers  Their ire stems from changes that Fidelity is making to its business in relation to compliance with the DOL’s fiduciary rule. Fidelity is taking on fiduciary responsibility for both plan-level and participant-level advice in some DC plans, which itself may not seem out of the ordinary since the conflict-of-interest regulation is creating a massive shift in the way retirement plan providers operate. The way Fidelity is going about it, though, is where there’s tension. Source: (registration may be required)

Alignment of Wealth and Health … The HSA and 401k  A recent trend that is getting a significant amount of attention is the alignment of wealth and health. Specifically, 401k Plans and HSAs and how this impacts the role and opportunity for financial advisers. Source:

How 401k Advisers Can Create Effective Financial Wellness Programs  For all the buzz employer financial wellness programs are receiving, they may be short-lived. When our team at Duke University’s Common Cents Lab evaluates financial wellness programs, we focus on one key area: Is the program using proven methods to change behavior? Sadly, most financial wellness programs get a very low score. Source: (registration may be required)

What Plan Sponsors Look for in a 401k Adviser  A recent survey of plan sponsors found 53% are satisfied with their adviser and 55% are satisfied with the value they receive. But experts say sponsors now want even greater value, which can take the form of lower costs, more services or, typically, a combination of both. Source: (registration may be required)

Advisers Struggle to Get 401k Plan, Participant Data From Recordkeepers  There is a fight brewing between DC recordkeepers and advisers over access to plan and participant data which could determine the fate of retirement security for Americans. Without access to plan and participant data, advisers, broker-dealers, and RIAs will have limited ability to help workers in DC plans maximize retirement savings. Source: (registration may be required)

The Effect of Rising Rates on Stable Value Accounts  These lower-risk accounts can be a smart choice for the conservative fixed-income portion of a portfolio, as they avoid the losses likely to hit bond funds, while delivering higher returns than money market funds. These accounts are specifically designed to protect principal in DC plans, regardless of interest rate fluctuation. Source:

Issue of Lifetime Income

DOL Throws New Lifeline to Lifetime-Income Solutions  An advisory opinion published by the DOL in late December 2016 is a big step forward by the government: it embraces a more holistic outlook on retirement savings issues. Source:

Perspective on Annuities for Accumulation in DC Plans  If an investor’s expected Social Security and defined benefit income will not offer sufficient longevity protection, partially annuitizing retirement assets might help. However, using annuities to accumulate income in defined contribution plans could have drawbacks, including higher costs and limited flexibility and liquidity relative to mutual funds and other investments. Source:

Court and Other Legal Issues

Duke Is Second School to Lose Round in Retirement Plan Lawsuits  A lawsuit accusing Duke University’s retirement plan of high fees and poor investments is moving forward after a federal judge issued a mixed ruling on the school’s motion to dismiss. Source: (registration may be required)

Breach of Fiduciary Duty Case Against University Survives Motion to Dismiss  The U.S. District Court for the Northern District of Georgia issued the highly anticipated first ruling in the university breach of fiduciary duty cases. In Henderson v. Emory University, the court ruled that, for most of the claims asserted, the plaintiffs had properly stated a claim that survives the defendants’ motion to dismiss. Source:

TIAA to Pay $5M in 401k Excessive-Fee Suit  TIAA agreed to pay $5 million to settle a lawsuit alleging the firm breached its fiduciary responsibilities in two retirement plans it provides to its employees. Source: (registration may be required)

Lawsuit Rulings Provide Hope for Plan Sponsors  A recent ruling in Brotherston et al v. Putnam Investments is significant because many DC plan lawsuits that have been filed against the fiduciaries of retirement plans have included Vanguard as the standard by which the fees of the investments in question have been compared. By acknowledging the difference in both the type of investment, active versus passive, and the model used by the investment provider, the District Court’s opinion should be helpful to the defendants in these lawsuits. Source:

Courts’ Interpretations of 401k Fiduciary Laws Are Changing  It appears that laws of fiduciary prudence under ERISA are evolving. A recent district court decision, in Lorenz v. Safeway, demonstrates this point. The prudence requirement in being gauged based on the portfolio in aggregate but also on individual investment options. Source: (registration may be required)

Update on University Section 403(b) Cases: Inconsistent Rulings  A novel theory proceeding in both the Duke and Emory cases is the claim that the defendants were imprudent to hire multiple recordkeepers, where consolidating services with one recordkeeper could have resulted in lower fees for participants. Source:

Legislative and Washington DC

Financial CHOICE Act Passes House Financial Services Committee  The House Financial Services Committee passed the Financial CHOICE Act of 2017 (H.R. 10), which would make significant financial regulatory changes including the repeal or replacement of certain key provisions of the Dodd-Frank Act. It would also eliminate DOL’s fiduciary duty rule and require the SEC to promulgate its own fiduciary duty rule. Source:

Open MEPs, Fiduciary Delay Dominate Hearing  A congressional hearing on “Regulatory Barriers Facing Workers and Families Saving for Retirement” ran the gamut from the fiduciary regulation to multiple employer plans to state-run programs. The hearing, by the House Education and Workforce Committee’s Subcommittee on Health, Employment, Labor & Pensions, heard from four witnesses on a handful of retirement topics, and in the process showcased that partisan differences have only calcified in the 115th Congress. Source:

State-Based Retirement Programs

California Says It Doesn’t Need Safe Harbor for State-Run Auto IRA Program  President Trump may have signed legislation pulling back the Obama administration’s ERISA safe harbor guidance for state-run auto IRAs, but California officials say they don’t need it. In a press release, California State Treasurer John Chiang and Senate President Pro Tempore Kevin de Len said that California’s Secure Choice program remains on track, and they have a legal opinion backing them up. Source:

State Auto IRA Plans Moving Forward Despite Loss of ERISA Exemption  Even though state auto-IRA plans will not be exempted from ERISA as Congress moved to rescind the protection granted by the DOL in August 2016, it appears that states are still planning to move forward. Source:

Defying Trump, Another State Passes Retirement Plan  Forget what Trump says, individual states are plowing forward with their own retirement plans meant to cover workers who lack access from private-sector employers. Vermont is the latest to pass a bill securing a state-sponsored public option for small businesses. Source:

Fiduciary Rule Debate Impacts State-Run Plans for Private Sector  A new bill introduced by Senate Democrats, seeking to protect ERISA exemptions for state- and city-run retirement plans for the private sector, would likely be made redundant with the removal of the Obama-era fiduciary rules. Source:

Compliance and Regulatory

Acquisition or Merger? Don’t Overlook the Seller’s 401k Plan  If you’re a business considering the purchase of another company, the last aspect of the deal you’re probably considering is the seller’s 401k plan. However, it’s important for you to have a strategy for that plan in place before your deal is closed. Otherwise, you could be stuck with a 401k plan that includes costly protected benefits or uncorrected defects. Source:

New IRS Guidance Allows Plan Sponsors to Use Forfeitures for Safe Harbor Contributions, QNECs and QMACs  Earlier this year, the IRS released proposed regulations which permit employers to use forfeitures to fund safe harbor contributions, QNECs, and QMACs. Source:

The Participant Disclosure Regulation: A Guide for Plan Sponsors  The DOL’s Participant Disclosure Regulation imposes an entirely new disclosure regime on plan administrators, which is intended to provide participants with information to assist them in making informed decisions regarding the management of their plan account. You should consider these requirements on a continual basis, as well as when changes to your plan are contemplated, to ensure you are complying with the Regulation. Source:

IRS Spells Out Two Available Plan Loan Computations  The IRS clarified the two ways DC plans can calculate maximum participant loan amounts in a memo that should bring some relief to plan sponsors and administrators. Source:

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