Experts in Personalized Retirement Plan Design & Administration Newsletter 06.27.12

Earn an Extra 500k: Why that Tax Refund Might Save Your Retirement Here’s a look at how investing that tax refund can pay you back in spades. Source: Under 30 CEO

You Might Have a Problem With Your Retirement Plan If … This article won’t tell you if you might be a redneck, but will tell you tell when you retirement plan may have some serious problems. Source: Rosenbaum Law Firm

Discretionary Vs. Directed Trustee Explains the difference between a discretionary and a directed trustee. Source: Nyhart Actuary & Employee Benefits

Defined Benefit Plans – How Would Your Plan Fare in an IRS Audit? In its June 8, 2012 edition of the Employee Plans News, the Internal Revenue Service (“IRS”) gave interesting insight into areas of non-compliance revealed in a targeted audit of defined benefit pension plans. These audit findings create a helpful checklist for defined benefit plan sponsors to review the status of plan compliance efforts. Source: Bryan Cave LLP

Puerto Rico Retirement Plans: Issues Employers Should Think About in 2012 Puerto Rico and U.S. laws affecting retirement plans have changed extensively in the last few years. Puerto Rico adopted a new tax code in 2011, and both the U.S. and Puerto Rico Treasury Departments issued a number of rulings that have a significant impact on employers that sponsor retirement plans benefiting Puerto Rico employees. Action is required on many of these changes by the end of 2012 or early 2013. Source: McDermott Will & Emery

Service Provider Contracts Deserve and Require Employers’ Attention With so much focus on the disclosure of fees charged to plans, it’s easy to miss that new Department of Labor (DOL) rules, effective July 1, 2012, specify several other requirements for a contract or arrangement with a retirement plan service provider to be reasonable. Source: Warner Norcross & Judd LLP

Target-Date Funds Not Equally Safe Investors don’t realize that there can be a dramatic difference between two funds with the same year in their name. Some TDF’s want to avoid large losses close to retirement and others want to ensure that you don’t outlive your money during 30 years of retirement. To address these challenges, you need to start by looking under the hood of your target-date fund. A growing number of people are. Source: New York Times

403(b) Plan Items

IRS Discusses 403(b) Plan Written Plan Failures and Audit Examinations In Employee Plans News, June 8, 2012, Monika Templeman , Director of Employee Plans Examinations at the Internal Revenue Service, discussed the temporary guidance that the IRS has given to examination agents auditing 403(b) plans for the 2009 plan year and forward. Source: ERISA Lawyer Blog

DOL Issues Guidance on Non-ERISA 403(b) Plans The DOL recently issued Advisory Opinion 2012-02A to provide guidance regarding the status of a non-ERISA 403(b) plan where the employer also maintains a separate qualified plan into which matching contributions are made based on the employee’s salary deferrals to the 403(b) plan. Source: Prudential

DOL Advisory Opinion Affects Status of 403(b) Plans The DOL issued an Advisory Opinion (2012-02A) that may surprise many 403(b) plans. In this Advisory Opinion the DOL has taken the position that because there is an employer match, even though it is contributed to another plan, participation in the 403(b) plan is not completely voluntary. This causes the 403(b) to be an ERISA covered plan. Source: Sentinel Benefits

Fiduciary Related Items

How One CEO Worked With His Team to Accomplish a Complete Fiduciary Strategy Overhaul The interview presented in this article tells the story of an increasingly pervasive fiduciary experience — an abrupt recognition that certain policies, vendors and expectations that have been the status quo are no longer in line with current fiduciary standards — and the subsequent renovation of fiduciary processes in order to fulfill a new age of stewardship and fiduciary responsibilities. Source: Roland|Criss

Will the New ERISA Fee Disclosure Rule Make You a Better Fiduciary? Plan sponsors are not well equipped to navigate this new fee disclosure landscape. But, working with expert fiduciary support partners, hopefully the new rules provide the motivation and tools for mobilizing plan sponsors toward elevating their fiduciary practices. Source: Roland|Criss

Make Fees for Investment Management Consistent Practice 4.4 is all about the fiduciary obligation to monitor the fees being paid for investment management to ensure they are consistent with service agreements and with the law. This can be accomplished by 1) carefully documenting all parties being compensated, 2) periodically examining fee payments to ensure consistency with service agreements, and 3) comparing fees to benchmarks. Source:

Some Items of Interest to Advisors

DOL’s Fiduciary Rules Could Send Many in the Retirement Industry Packing The Department of Labor’s re-proposal of the definition of fiduciary should be finalized sometime in 2012, and that has the industry abuzz. But recent legal decisions, like the one that was handed down in March in Tussey v. ABB, Inc., could be the new norm, and not everybody wants that kind of responsibility. Source:

Advisors Look to Build Expertise in Retirement Income In its most recent quarterly survey of financial advisors, Russell Investments found that advisors are dedicating more time to learning about retirement income strategies with more than 98% saying they are trying to build their expertise in the subject matter. However, there seems to be no consensus on the right resources to consult. Source:

Insights: Studies, Research and White Papers

National Retirement Risk Index: How Much Longer Do We Need to Work? The brief’s key findings are: 1) Working longer is the key to financial security, but it does not mean working forever; and, 2) Half of today’s households are ready to retire at age 65, but more than 85 percent would be prepared by age 70. Thus, five years of additional work would solve the problem for the bulk of the population. Source: Center for Retirement Research at Boston College

Half of U.S. Households Aren’t Ready to Retire Half of all American households are not ready to retire, new research reveals. The Center’s National Retirement Risk Index shows that about 50 percent of U.S. households are not ready to retire, up from 30 percent in 1989. But the report also finds that by working five years longer than the assumed retirement age of 65, the percentage of American households prepared to retire increases to 86 percent. Source:

Financial Benefits Important for Attracting, Retaining Talent Nine out of 10 employers in the U.S. believe that financial benefit plans that help employees save for the future, including 401k-type defined contribution plans and health savings accounts, are equally or more important to potential hires in 2012 than five years earlier, and half believe such benefits to be more important than ever, according to Bank of America Merrill Lynch’s 2012 Workplace Benefits Report, an annual study of the role financial benefit plans play in employers’ talent management strategies. Source: Society for Human Resource Management

Court and Legislative Items

Court Awards Maximum Statutory Penalty for Failure to Timely Honor Request for SPD The court dealt harshly with this employer, observing that it was not entirely clear whether the employer “ever intended to cure the deficiencies” in its initial disclosure. The case is a good reminder to plan administrators to be diligent about preparing and distributing SPDs or SMMs when plans are amended, and to be ready, with current documents in hand, to respond within 30 days after a participant’s request. Source: Thomson Reuters/EBIA

ABB Blockbuster The second excess fee case to be tried recently was Tussey v. ABB, Inc., which not only resulted in a $36.9 million judgment for the plaintiffs, but revealed a mother lode of conflicted dealings that call into question the thesis of the Deere case that the market is capable of policing the relationship between plan sponsors and investment providers. Source: Wagner Law Group

Estate Can Sue Recipient of 401k Plan Proceeds After Distribution, Court Says Plan administrators must distribute funds even when there is a dispute between an estate and an ex-spouse who waived beneficiary rights, says the 3rd U.S. Circuit Court of Appeals. It recently ruled in Kensinger v. URL Pharma, that a decedent’s estate could directly sue the recipient of ERISA-governed 401k plan funds after the funds have been distributed. Source: Thompson Publishing

Congress Considering Change to ERISA 3(2) for Multiple Employer Plans Congress is considering changing ERISA section 3(2) to counter the DOL’s Advisory Opinion 2012-04A – Multiple Employer Plans. The SAVE Act of 2011 was introduced by Rep. Ron Kind (WI) on April 14, 2011 and is currently pending before the House Subcommittee on Health, Employment, Labor, and Pensions. Source: Pension Protection Act Blog

Sixth Circuit Rules That State Law Claims Against a Custodian Are Preempted By ERISA; Claims Dismissed As to the dismissal of the ERISA claims, the Court found that Regions was not a fiduciary of the defrauded accounts, and therefore could not be liable to them for damages under ERISA. The issue in determining whether Regions was a fiduciary is whether Regions exerted any authority or control respecting management of plan assets, within the meaning of section 3(21)(A) of ERISA. Source: ERISA Lawyer Blog

An ERISA Lesson Learned the Hard Way: Tussey v. ABB, Inc. The devil is in the details and may bring costly damages to unsuspecting companies. Recent ERISA fee litigation, the new Department of Labor service provider and participant disclosure rules and the development of new revenue sharing and fee allocation models within plans are all resulting in a new focus on three issues. Source: Warner Norcross & Judd LLP

ERISA Suit Filed Against Chesapeake Energy Zamansky & Associates, LLC filed a class action lawsuit on behalf of all employee and former employee participants in the Chesapeake Energy Corporation’s Savings and Incentive Stock Bonus Plan. The lawsuit was filed in the United States District Court for the Western District of Oklahoma and covers all current and former employees of Chesapeake Energy Corporation who purchased or held company stock in the Plan from July 31, 2008, to the present. Source:

Regulatory Related Items

Retirement Plan Service Provider and Investment Fee Disclosures: More Work to Be Done Plan sponsors cannot simply review and file the provider disclosure. The prohibited transaction rules require that the fees be reasonable. In addition, the regulations require that the provider disclose its fiduciary status. To fulfill their duties, plan sponsors must perform at least the following four tasks. Source: Warner Norcross & Judd LLP

American Benefits Council Expresses Concern About Money Market Fund Regulations The American Benefits Council told the Securities and Exchange Commission in a letter this week that it believes proposed changes to how money market funds are regulated will have a negative effect on work-sponsored retirement plans and workers’ ability to prepare for retirement. Source:

Removing the Veil From 401k Fees New Labor Department rules will require more disclosure about fees charged on 401ks effective with the quarter beginning July 1, 2012. This is an interview with ERISA attorney Brenda DeSaro that covers topics like “What is the purpose of the new rules?” and “Which plans are included and which plans are excluded?” Source: Metropolitan Corporate Counsel

Proposed Regulations Remove Signature Requirement for Form 8955-SSA Extension Plan administrators and their advisors will be relieved to have the extension procedure for Form 8955-SSA simplified to conform to the Form 5500 rule, eliminating a detail that was especially easy to overlook since the extension filing requirements for the two forms are otherwise so similar. Source: Thomson Reuters/EBIA

Borzi: Critics ‘Overreacting’ to New Rules for 401k Brokerage Accounts Assistant Labor Secretary Phyllis Borzi fired back at retirement plan industry members who claim the agency’s attempt to clarify fee-disclosure rules on 401k options amounts to formulating new rules for brokerage windows. Borzi says plan sponsors have duty to monitor investment menu, even self-directed accounts. Source: (Free Registration May Be Required)

401k Plan That Covered Employees of Multiple Unrelated Employers Was Not Single “Multiple Employer” Plan A 401k plan that covered employees of multiple unrelated employers was not a single “multiple employer” plan for purposes of ERISA, according to an EBSA advisory opinion letter. Instead, the plan was an arrangement under which each participating employer established and maintained a separate employee benefit plan for its employees. Source: CCH

DOL Self-Directed Brokerage Account Guidance Stuns Plan Sponsors The Labor Department’s attempt to clarify upcoming defined contribution plan fee-disclosure regulations amounts to creating a new regulation for brokerage accounts without using the proper process, industry experts contend. “This is coming out of left field,” said Edward Ferrigno, vice president for Washington affairs at the Plan Sponsor Council of America. Source: (Free Registration May Be Required)

ERISA Advisory Council Meeting Roundup: Annuities Witnesses urged the Department of Labor June 13 to facilitate the use of annuities as lifetime income options at an ERISA Advisory Council meeting on examining income replacement for retirees with defined contribution plans, but stated that fiduciary duties relating to annuities remain uncertain. Source: Bloomberg/BNA

ERISA Advisory Council Roundup: Disability Benefits in DC Plans Witnesses pushed for defined contribution plans to incorporate qualified disability benefits June 12 at an ERISA Advisory Council meeting on the interaction between disability and security in retirement. Source: Bloomberg/BNA

ERISA Advisory Council Roundup: Beneficiary Designation Safe Harbor Practitioners encouraged the Department of Labor June 14 to adopt a safe harbor standard that offers liability protection to plan fiduciaries with respect to beneficiary determinations. Witnesses testified during an ERISA Advisory Council meeting on current challenges and best practices concerning beneficiary designations in retirement and life insurance plans. Source: Bloomberg/BNA

Borzi Addresses Concerns Raised in Guidance Regarding Brokerage Windows DOL issued its first set of FAQs on disclosures May 7, primarily addressing disclosures required under Section 404 of the ERISA. Borzi said that, since the release of the FAQs, there has been some “over-reading and overreacting” to Question 30, which deals with brokerage windows. Source: Bloomberg/BNA

DOL’s Borzi Hints at Relaxed Introduction to Fee Regulations Speaking to this year’s SPARK National Conference in Washington D.C., EBSA’s assistant secretary, Phyllis Borzi, offered a bit of insight on the motivations and directions for this summer’s impending free disclosure regs, but readily admitted that the pace of action has necessitated a slightly phased-in approach. Plan sponsors may breathe a slight sigh of relief with news that they’ll have a year to massage the details on their fee disclosures. Source:

Benefits Briefing Slides: Retirement Plan Fee Disclosure Guidance This is a copy of the presentation slides used by Kent Mason and Michael Hadley, Davis & Harman LLP, in their recent benefits briefing on Retirement Plan Fee Disclosure Guidance & FAB 2012-02. Source: American Benefits Council

New DOL Rule Effectively Kills Off Open-Architecture Option Favored By Some Big Plan Participants — and Sets Off the 401k Industry The 401k industry remains up in arms after getting blindsided by an eleventh-hour move by the Department of Labor requiring that self-directed brokerage accounts receive the same level of monitoring as other investments in a 401k plan. Source:

DOL Fiduciary Alert: 401k Plan Brokerage Windows What has caught plan advisers off guard is that the DOL is appearing to take the position that plan sponsors and fiduciaries have a duty under ERISA to monitor and review the investment selections that participants are making through brokerage windows in their 401k plans-not just the investment funds offered by the plan. Source: Smith, Gambrell & Russell LLP

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