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BPP401k.com Newsletter 06.17.15

How Retirement Advisors Really Add Value to 401k Plans Most people believe that the value of the retirement advisor is the ability to enhance returns, but the value of the retirement advisor is far greater than marginal investment returns. Understanding the real value requires stepping away from the investment itself and focusing on the outcome if the retirement advisor was not in the picture. Source: Fiduciaryregistry.com (PDF File)

Vanguard Set to Gather $300 Billion in 2015 The giant asset vacuum cleaner that is The Vanguard Group Inc. sucked in a record-breaking $215 billion worth of inflows in 2014, and the Malvern, PA-based firm says it’s on track to hit the $300-billion mark for asset inflows in 2015. But, could it succumb to its own success? Source: Riabiz.com

Fiduciary and Plan Governance Material

Two Important Items to Consider when Terminating a Retirement Plan If you don’t start the plan termination process before the acquisition takes place, you may be responsible for the plan. Consider these two important items when acquiring a company with a qualified retirement plan. Source: Principal.com

What Retirement Plan Committees Should Know and Discuss Retirement plan committees need knowledge and continuing education about a number of key subjects. And they need ongoing support to stay abreast of industry regulations and trends. Source: Plansponsor.com

The Duty of Prudence and the Net Cost of Investments The Supreme Court decision in Tibble v. Edison International held that 401k plan fiduciaries have a duty to prudently monitor a plan’s investment options … in this case, whether retail or institutional share classes were prudent for the Edison plan. What does that mean for 401k plans? Source: Drinkerbiddle.com

403(b) Plans

A Way Around Costly 403(b) Plans In so-called ‘open vendor’ states, high-cost 403(b) plans may be side-stepped by turning to 457(b)s, explains plan-participant advocate Steve Schullo. Source: Morningstar.com

Insight: Studies, Research and White Papers

Participation in 401k Plans Rises as More Companies Automatically Enroll Wells Fargo announced an uptick in the percentage of employees participating in 401k plans administered by the firm. The data show increasing participation rates among younger employees, new hires and lower-earning workers over the past four years. Participation in the 401k plan among millennials has reached 55% compared to 45% in 2011. Source: 401khelpcenter.com

Redefining the Retirement Plan This paper is a guide to trends and strategies to help employers get the most out of their defined contribution programs. Defined benefit plans and Social Security were the simple answer to retirement for the past century. Life expectancy has improved though and an added strain has been placed on plan sponsors to help their employees replace their incomes in retirement. Fortunately, employers are equipped with more tools than ever before to help their employees retire with dignity. Source: Axiaadvisory.com (registration may be required)

Locked Out of Retirement: The Threat to Small Business Retirement Savings The DOL is expanding the definition of fiduciary investment advice under a federal law known as ERISA. The result would be that many traditional forms of compensation, such as commissions that vary from one investment to another, for financial advisors could become illegal under special provisions in that law called “prohibited transactions.” According to this 13 page paper, a number of aspects of the proposal appear unworkable in actual practice, and would negatively impact how advisors assist small businesses in providing retirement benefits for their employees. Source: Centerforcapitalmarkets.com (PDF File)

Items of Special Interest to Service Providers

The Problem With SIMFA’s ‘Best Interest’ Proposal Ron Rhoades writes, “A close analysis of broker-dealer lobbying group SIFMA’s new ‘best interests’ standard reveals highly disturbing aspects of the proposal that would, in essence, negate important consumer protections.” Source: Financial-Planning.com

401k Service Models: The Complete Guide As you move up-market, you have to provide a more robust suite of services in order to be competitive, provide the additional support larger plans need, and keep your competition out. But how do you create a service process that’s appropriate for the market you’re in? Source: 401kbestpractices.com

DOL Pushing to Finalize Conflict of Interest Rule by May 2016 The DOL intends to finalize its re-proposed rule defining a fiduciary in May of next year, Groom Law Group Chairman Steve Saxon said on June 8. Saxon made his remarks at the SPARK Institute’s annual conference in Washington, DC. Source: Asppa.org

66,000 401k Plans Up for Grabs in 2015, Cogent Reports Just over one in ten (11%) of 401k plan sponsors report they are very likely to replace their current recordkeeper sometime over the next 12 months. The likelihood of switching is highest among Mid-sized (13%), Large (20%) and Mega (18%) plans. These figures put the total estimated number of current plans likely to turn over at 66,000. Source: 401khelpcenter.com

Fiduciary Rule Could Impact Brokers the Most The proposed fiduciary rule will have a major effect on the retirement industry and brokers could be the most affected group. “They’re going to be impacted by this probably greater than anyone else,” said Managing Consultant Scott Brogan, one of three BridgePoint Group, LLC panelists that discussed the proposal’s potential impacts. Source: Benefitnews.com

SEC Proposes Changes to Form ADV The SEC proposed amendments to Form ADV and Rule 204-2 under the Investment Advisers Act of 1940. The proposed amendments would require investment advisers to provide additional information on Form ADV. Source: Thompsonhine.com

Supreme Court Decision in 401k Case May Have Profound Effect on Fiduciary Debate At issue in Tibble v. Edison was whether an ERISA fiduciary has an ongoing duty to manage plan assets for statute of limitations purposes. The Court’s ruling, while in line with the recent push toward a higher standard for those rendering investment advice to retail customers, appears to be at odds with the DOL’s newly proposed rule expanding the definition of fiduciary under ERISA. Source: Investmentnews.com (registration may be required)

Issue of Lifetime Income

Which Is Better for 401k Retirees: Lifetime Annuities or Structured Withdrawals? Far more workers are relying on 401k-style retirement plans than in years past. And while we know how to pay in to this new generation of retirement plans, we have not yet determined how best to structure the payouts. This paper examines the two basic methods put forth in professional literature and practice as opposing solutions to this problem facing retired households. Source: Mercatus.org

Legislative and Washington DC

Is Your State Getting Into the Retirement Business? At least 15 other states have also considered legislation that would create some kind of state-sponsored retirement plan for private sector employees to close the retirement savings gap. Source: Nbcnews.com

Court and Legal

SCOTUS Invites Solicitor General to Submit Its View on ERISA Venue Selection Provisions With a petition for certiorari pending, the U.S. Supreme Court has asked the Solicitor General to file a brief expressing the government’s views on whether “ERISA’s special venue provision and a plaintiff’s choice of venue under that provision, may be abrogated by a more restrictive venue-selection clause in an ERISA plan.” Source: Erisapracticecenter.com

Stuck in the Mud or Road to Success? DC Plans and Fee Lawsuits The message is clear for DC plan sponsors: follow best practices established for plan fees or risk getting stuck in a costly and time-consuming lawsuit. In this article, Callan describes select fee lawsuits and best practices to help plan sponsors stay on the path to success. Source: Callan.com (PDF File)

Eighth Circuit Rules That Taxpayer Engaged In a Prohibited Transaction In Ellis v. Commissioner of Internal Revenue, the taxpayers were appealing from the decision of the tax court finding a deficiency in their income taxes and imposing related penalties. Upon reviewing the case, the Eighth Circuit Court of Appeals concluded that taxpayer engaged in a prohibited transaction when he used an IRA to fund a business which paid him wages. Source: Erisalawyerblog.com

The Supreme Court Upsets Precedent in Fourth and Eleventh Circuit The Eleventh and Fourth Circuit Court of Appeals definitively rejected the “continuing breach” theory in recent disputes involving statute of limitations deadlines in ERISA cases alleging fiduciary breach claims. This precedent was short-lived. Source: Southeastern ERISA Watch

Compliance and Regulatory Related

Safeguarding Your Plan From Fraud Have you reported a plan loss due to fraud or dishonesty on your annual Form 5500 return? The Internal Revenue Service found that Plan Sponsors are, in fact, reporting such losses on the Form 5500 at a troubling rate. Source: Consultrms.com

Deadlines to Correct for Failed ADP and ACP Testing While a plan may occasionally miss the March 15th distribution deadline, the 10% excise tax is usually not a big issue- especially if the required refunds are small. However, going beyond 12 months to correct can result in severe and costly consequences for plans due to the disaggregated testing method no longer being available and the additional contribution that must be made for the NHCEs. Source: Consultrms.com

Death, Taxes and Plan Errors Nothing can be said to be certain, except death, taxes, and retirement plan operational errors. Two decades of plan audits have shown time and time again that even the most accurate plan sponsor is not immune from making one of the common errors. The IRS has recently streamlined the correction of certain retirement plan defects. Source: Belfint.com

On Float Generated by Funds Awaiting Disbursement From 401k Plans Whether or not float generated by Funds awaiting disbursement is treated as a plan asset, plan sponsors and their advisors should be aware that this float will continue to be viewed as a component of a service provider’s compensation. Accordingly, plan sponsors always will have a duty to ensure that this compensation, including float, does not exceed reasonable levels. Source: Wagnerlawgroup.com (PDF File)

Small 401k Plans Have More Problems Than Larger Ones When it comes to 401k plans, most people would assume that larger plans would have more problems than smaller plans because of size and complexity. But, for many reasons, smaller 401k plans have more problems than larger plans. This article covers the reasons why. Source: Jdsupra.com

Is Your ERISA Fiduciary Liability Insurance Up to Date? ERISA fiduciary liability insurance policies protect fiduciaries and trustees of ERISA plans from personal liability. Companies should evaluate their policies and consider, depending on their needs, whether the items noted in this article are covered and/or should be covered under their policies. Source: Haynesboone.com

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