Experts in Personalized Retirement Plan Design & Administration Newsletter 07.04.12

With 401k Disclosure, Some Fees Still Hidden You may have heard that new rules require employers to better disclose 401k fees. You could be disappointed when you see the results. Source:

Target-Date Funds Devour Nation’s 401k’s By 2016, 55% of 401k participants will have their whole retirement accounts invested in a single target date fund, up from 24% last year. That prediction is contained in a 94-page report the Vanguard Group released this week detailing the savings and investing habits of 3.2 million workers participating in the more than 2,000 retirement plans it administers. Source: Forbes

What’s Under the Hood of Your Target-Date Fund? There’s nearly $400 billion and growing invested in target-date funds, but these one-size-fits-all funds are neither as safe nor as simple as most people believe. Source: Reuters

State-Based Retirement Plans for the Private Sector There is a movement afoot to use the efficiencies of public retirement systems to administer new types of pension plans for private-sector workers. This is a brief summary of the plans being considered by State. Source:

How High Fees for Mutual Funds Whack Retirees Mutual fund costs will be Topic A this fall around many kitchen tables when workplace retirement savers start receiving the new government-mandated quarterly statements spelling out exactly what they are paying for their 401ks. But a kitchen table chat is also in order for retirees. Source: Reuters

Conducting a Vendor Search: Benefits and Best Practices This paper begins with a look at why conducting a vendor search may be necessary to satisfy several of a plan sponsor’s fiduciary duties under ERISA, followed by a discussion of the numerous practical benefits that result from a thorough vendor search. The second half of this paper will focus on twelve best practices that, if followed, will substantially alleviate the perceived burdens of conducting a vendor search and help guide the plan sponsor to a perfect-fit vendor. Source: Multnomah Group

Beyond Retirement Plan Disclosure How do you help plan sponsors make the best use of the disclosures they will receive? And with so much focus on the fee part of disclosure regulations, how do you combat the misperception that the lowest fees are the best value for the plan? Source:

How Collective Trusts Stack Up Against Institutional Funds Regulatory developments concerning fee disclosure have prompted many plan sponsors to take a closer look at the costs of their retirement plan investment options. As a result, industry reports continue to indicate an interest among plan sponsors in collective investment trusts as possible low-cost investment alternatives for defined contribution plans. Source: Vanguard

Defined Contribution Sponsors Tap Collective Investment Trusts Collective investment trusts are gaining traction among defined contribution plans. Besides offering uncorrelated, actively managed assets — everything from equities to real estate to commodities — these custom solutions can have lower fees than mutual funds. Source: Institutional Investor

403(b) Plan Items

Hardship Distributions in a Non-ERISA 403(b) Plan If an employer that sponsors a non-ERISA plan reviews and/or approves hardship distributions, the 403(b) plan will lose its non-ERISA status (this does not affect Governmental plans; they are always exempt from ERISA). As a way to remain a non-ERISA plan, the responsibility of administering the hardship distribution approval process is usually allocated to the investment vendor. Source: McKay Hochman

403(b) Benchmarking: Three Essential Steps to Hit the Deadline Plan sponsors of 403(b) retirement plans have made progress in the past couple of years in benchmarking themselves against plans of similar size, but there is more work to be done. Source:

Lessons Learned from 403(b) Peers The Plan Sponsor Council of America’s 2012 403(b) Plan Survey webinar addressed lessons that can be learned from the experiences of those sponsors responding to the survey. One quarter of 403(b) plan sponsors indicated they made changes to their plans in the past year, which PSCA president David Wray said is a very positive sign that companies are continuing to improve their plans. Source:

Fiduciary Related Items

The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice While the industry has suggested that fiduciary regulation will have an adverse impact on the industry, there are no existing empirical studies that examine the impact of a change in regulatory policy on the marketplace for financial advice. This study takes advantage of heterogeneity in broker-dealer regulation among states to test whether a relatively more strict application of a common-law fiduciary standard of care affects the number of registered representatives doing business within the state. Source: Financial Planning Association

Insights: Studies, Research and White Papers

The Savings Crisis of Working Americans: The Retirement Industry Call to Action Where, exactly, are working Americans going to get enough income to replace 80% to possibly 100% of their career-end compensation so they can retire, remain self-sufficient and contribute to the costs of health care — and do so without falling into financial ruin or, at the very least, significantly changing their lifestyle? Source: The Wagner Law Group

Study: How America Saves 2012 How America Saves is a 94 page analysis of Vanguard’s full-service recordkeeping plans. Along with looking at the overall retirement saving and investing behavior of Vanguard’s more than three million participants, How America Saves this year includes supplemental reports on participant patterns in the DC retirement plans of 12 specific industries. Source: Vanguard

Seeking the Investment Frontier This white paper explores frontier market investing and examines the following questions: What are frontier markets? What makes frontier markets attractive to investors? What are the risks of investing in frontier markets? Source: Arnerich Massena

2012 Employee Benefits Research Report SHRM’s 2012 Employee Benefits research report provides comprehensive information about the types of benefits U.S. employers offer to their employees. The report also examines trends in employee benefit offerings over the last five years. Source: Society for Human Resource Management

Stable Value Pooled Funds: Scenarios for Rising Rates and Cash Outflows Relatively low volatility makes stable value funds attractive to many defined contribution plans. In general, such funds have performed well during past market crises. However, in the current low-interest-rate environment, some investors and contract providers worry that adverse market conditions and cash flow activity could impair fund performance. Source: Vanguard

Recent Survey Indicates Retirement Confidence Remains Unchanged The Employee Benefit Research Institute released its 2012 Retirement Confidence Survey, which indicates that respondents’ confidence to be able to afford a comfortable retirement has remained unchanged. The survey also revealed that job security, debt and financial insecurity appear to be more pressing concerns for workers. Source: Schneider Downs

More 401k Participants Turning to Professionals for Help A third of Vanguard’s 401k plan participants turned their entire retirement account over to professional managers, either in the form of a target-date or balanced fund, or they enrolled in the company’s managed account program. Source:

Rising Number of 401k Participants Opting for Diversified, Professionally Managed Allocations One-third of all Vanguard 401k plan participants invested their entire account balance in a professionally managed asset allocation and investment option in 2011, according to Vanguard’s How America Saves 2012, an annual report on how U.S. workers are saving and investing for retirement. Source:

The Real Deal: 2012 Retirement Income Adequacy at Large Companies There is increasing concern over employees not having enough money to meet their retirement needs. Employees face the risk of having to work longer than desired or decreasing their living standards. Employers face workforce risks if employees are not able to retire as planned. This study looks at these issues. Source: Aon Hewitt

Regulatory Related Items

Making Sense of Fee Disclosures: A Participant’s Perspective Employers who are the most prepared to respond to the myriad of questions and demands they are likely to receive once 404(a) disclosures are delivered to participants will be the most successful in quieting potential discontent. A little proactive planning in this regard will go a long way. Source: Multnomah Group

IRS Discusses Vesting and Breaks in Service in a Defined Contribution Plan In Employee Plans News, June 8, 2012, the Internal Revenue Service reviewed a question involving vesting and breaks in service in a defined contribution plan. Source: ERISA Lawyer Blog

Group Letter to EBSA’s Phyllis Borzi Regarding FAB 2012-02 Q&A No. 30 Letter states that the positions set forth in Question and Answer 30 (“Q&A-30”) have potentially enormous costs and adverse effects on the retirement plan system — costs and impacts that the authors believe need to be further developed and considered as part of a public notice and comment process. Source: American Benefits Council

What 401k Plan Sponsors Can Expect from 408(b)(2) Service Provider Disclosures Fiduciary News interviews several firms who fall under the definition of a 408(b)(2) “service provider” and asked them what they intend to do regarding disclosure. Unfortunately, these disclosures appear to promise only a mixed bag, leaving some 401k plans sponsors befuddled. Source:

Most Plan Sponsors Ready for Participant Fee Disclosure; 25% Not Just weeks before the U.S. Department of Labor’s 401k participant fee disclosure requirements go into effect on August 30th, over 25 percent of respondents surveyed by Broadridge Financial Solutions are not fully prepared for the impending regulation. Source:

More Preparation Needed for 401k Disclosure Rules A vast majority (69%) of 401k plan providers and third party administrators feel prepared to meet the new fee disclosure requirements that go into effect Aug. 30, but even some of them have not finalized the processes to communicate with defined contribution plan sponsors and participants. Source: Financial Advisor

Lifetime Income Features in Retirement Plans There are two key pieces of guidance from the IRS and DOL. The first, from the IRS, was a series of guidance issued in February 2012 that is designed to facilitate the use of lifetime income features in the retirement plan system. The second, from the DOL, expected to be issued later in 2012, is guidance on disclosing the lifetime income steam value of a participant’s defined contribution account. This article discusses the IRS guidance and briefly discusses the potential parameters of the upcoming DOL guidance. Source: Groom Law Group

Disclosure Guidance for Plan Brokerage Accounts DOL Field Assistance Bulletin 2012-02 expands the disclosure requirements for plans that offer brokerage windows and self-directed brokerage account options to plan participants and beneficiaries. This article will summarize the five questions and answers that focus on what information must be disclosed related to brokerage windows and self-directed brokerage accounts. Source: McKay Hochman

Interest Rate for Participant Loans The IRS has specifically referred to the guidance provided in DOL Regulation §2550.408b-1(e) for determining a reasonable interest rate for a participant loan. This is the first time the IRS officially embraced the DOL’s approach to that determination. Source: McKay Hochman

New Rules Affect U.S. Employers With Puerto Rico Employees As a result of Puerto Rico’s recently changed tax code, U.S. employers with retirement plan participants in Puerto Rico must have their plans reviewed this year to incorporate the recent changes and file with the Hacienda in Puerto Rico next year to obtain an updated determination letter. Source:

What Happens If Disclosure Isn’t Made As Required Under 408(b)(2)? The covered service provider will be able to correct an error or omission as long as it was acting in good faith with reasonable diligence and it discloses the correct information as soon as practicable but no later than 30 days from the date it learns of the error or omission. Source: Nyhart Actuary & Employee Benefits

A 408(b)(2) Checklist for Reviewing Non-Registered Group Annuity Contracts Variable non-registered group annuity contracts are not simple investments. They have a number of moving pieces which can make them a challenge to review for 408(b)(2) purposes. And many of the insurance company disclosures are far more complicated than need be. Here is a list of issues related to these products under 408(b)(2). Source: Business of Benefits

Share This!

Leave a Reply

Protected by WP Anti Spam

Subscribe to BPP401k

Enter your email address:

Hide Buttons