BPP401k.com Newsletter 07.13.16
Following Brexit Vote, 401k Trading Spikes to End the Second Quarter Despite a slow start to 401k trading activity in June, data from Aon Hewitt showed the month ended with three days of higher-than normal trading activity following Britain’s vote to leave the European Union. Source: Aon.mediaroom.com
Saver’s Credit for 401k Plan Contributions You may be eligible for a tax credit called the “Saver’s Credit” if you make eligible contributions to your company-sponsored retirement plan or IRA. The credit is generally a portion of your contributions and favors low-income individuals. Source: Paychex.com
403(b) Plans
Auditing Distributed 403(b) (and 401(a)) Contracts The IRS took a significant step when it specifically recognized the termination of a 403(b) plans as being a “distributable event” in its 2007 regulations. This then permitted, for the first time, plans to distribute the assets of any 403(b) funds otherwise subject to distribution restrictions upon plan termination. This is all fine and dandy until you pay close attention to the details: how in the world do you effectuate an in-kind distribution of an annuity contract? Source: Businessofbenefits.com
Fiduciary and Plan Governance Material
Collective Investment Trusts Rise in Popularity Collective investment trusts have been capturing lots of attention and assets lately. CITs offer retirement-plan fiduciaries an attractive, generally lower-cost alternative to mutual funds. Assets invested in these vehicles have grown from about $900 billion in 2008 to over $1.5 trillion at the end of 2014, according to Pensions & Investments data. Source: Investmentnews.com (registration may be required)
The Three Things DC Plan Sponsors Need to Focus On As DC plans have grown in sophistication, many plan sponsors no longer have the resources, scale or expertise to properly manage them. Moreover, managing DC plans demands time and resources, two things often in short supply within the HR department or other parts of an enterprise given the demands of managing a DC plan. Author recommends three key things that plan sponsors need to target to can help. Source: Russellinvestments.com
Insight: Studies, Research and White Papers
Preparing for a DB to DC Plan Transition This 10-page paper discusses plan transition considerations from the standpoints of business strategy, human resources, and employee impact. As plan sponsors continue to shift away from DB plans in favor of more DC-based plan designs, like 401k and profit sharing plans, the accompanying reallocation of risk from the plan sponsor to its employees creates new issues to be resolved. Source: Wellsfargomedia.com
Unlocking Value From Effective Retirement Plan Governance This 20-page research report explores four areas critical to effective plan governance: risk management, levels of governance, strategy and the measuring of plan effectiveness. It notes three major trends emerge from the survey findings. Source: Willistowerswatson.com
Items of Special Interest to Service Providers
Developing 403(b) Service Strategies Now May Pay Off Some DC plan providers see big opportunity ahead in helping higher education institutions prepare their workforces for retirement via 403(b) and 457 plans. Source: Planadviser.com
Plan Automation
Managing Plan Costs in Automatic Programs Plan sponsors today are faced with unprecedented challenges in offering effective retirement plans. Achieving plan objectives in an environment of constrained budgets, talent competition, and increasingly complex fiduciary requirements can sometimes seem like a difficult balancing act. However, with the right combination of plan design and automated program features, retirement plan effectiveness can often be improved within reasonable budget levels. Source: Troweprice.com
Advances in Automatic Savings Program Design Defined contribution plans have experienced significant growth in the adoption of automatic savings programs since the 2006 introduction of the Pension Protection Act. While these programs have generally delivered laudable results, their progress can be hindered by certain plan designs. Source: Troweprice.com
Unintended Consequences Can Result From Job-Jumping Millennials Auto-services are widely touted as positive developments that drive better participant outcomes. Until now, however, they have been deployed on a very company-loyal demographic. How effective are those same services for a generation that changes jobs every few years? Source: Troweprice.com
Automatic Plan Features in DC Plans: What’s in It for Plan Sponsors? This 14-page white paper highlights several potential benefits of automatic plan features to the employer and profiles plan sponsors who have experienced these benefits. Additionally, it provides a roadmap for implementation that suggests strategies a plan sponsor may employ to implement automatic plan features over a multi-year period. Source: Dciia.org
Court and Other Legal Issues
American Century Employees Sue for Excessive 401k Fees Employees of American Century, parent of asset management firm American Century Investments, have sued over the firm’s 401k plan. This is the latest in a string of lawsuits targeting financial services companies for their own retirement plans. Source: Investmentnews.com (registration may be required)
ERISA Class Action Targets Fujitsu’s 401k Plan Fees A new ERISA class action accuses Fujitsu Technology & Business of America Inc. of breaching its fiduciary duties by designing and administering one of the most expensive large 401k plans in the country. Source: Bna.com
ERISA Litigation Continues a Plaintiff-Friendly Trend An unmistakable trend in the world of employee benefit plan litigation is underway, and that trend is decidedly in favor of plaintiffs. The trend has manifested itself in several ways. Employee benefit plan sponsors, their owners and risk managers, should take note of these trends, which show no signs of reversing. Source: Truckerhuss.com
Delta Employees Sue Fidelity for ‘Illegal Kickbacks’ From Financial Engines In an ERISA lawsuit that even has attorneys scratching their heads, employees of Delta Air Lines are suing Fidelity for breaching its fiduciary duty in accounts in which it has farmed out the fiduciary portion of the service bundle. The case may turn on whether Fidelity, by acting as recordkeeper and administrator, qualifies as a fiduciary and therefore breached its duty as it accepted Financial Engines’ advice fees. Source: Riabiz.com
Disney Retirement Plan Committee Sued Over Sequoia Investments A former Orlando-based Walt Disney Co. employee has sued the committee that deals with workers’ retirement plans, saying it made unwise investment decisions. Specifically, the federal lawsuit targets the Disney committee over its investment in the Sequoia Fund, which lost $2 billion after one of its biggest stocks tanked. Source: Orlandosentinel.com
Edison Executives Beat ERISA Challenge to Stock Losses Two Edison International Inc. executives convinced a federal judge to dismiss a lawsuit attacking their decision to offer workers Edison stock in the company’s 401k plan. Source: Bna.com
Target-Date Twist in Latest 401k Fee Lawsuit In a departure from similar ERISA class action suits filed previously, the complaint says that the fiduciaries breached their duties by imprudently designing and implementing the plan’s target-date funds. Source: 401kspecialistmag.com
State-Based Private-Sector Retirement Programs
State-Run Retirement Program in Maryland Takes Effect Last Friday marked not only the start of a new month, it was also the day on which Maryland became the latest state to activate a program that provides retirement benefits to private-sector employees whose employers do not. Source: Napa-net.org
DOL’s Final Fiduciary Rule
Solicitor’s Fees at Risk Under DOL Fiduciary Rule Referral fees are commonplace, with centers of influence the most valuable source of new business for advisors, whether that includes CPAs, TPAs, attorneys, HR consultants or even other advisors who are not ERISA specialists. But, is referring or recommending an advisor a fiduciary act under the new DOL rule? Source: Napa-net.org
DOL Officials Resolute, But Flexible, on Fiduciary Rule Perez noted that there are lawsuits that have been set in motion against the fiduciary rule, pledging that the DOL will fight them “vigorously.” He reportedly added that he contends that the department is “on the right side of history” in promulgating the rule. Source: Asppa.org
Employee Benefits Innovators Roundtable: Fiduciary Update and the DOL Fiduciary Rule The DOL’s new fiduciary rule is aimed at financial advisors, including brokers, who provide retirement plan services. However, the new rule will impact compliance obligations and potentially, costs for plan sponsors, as highlighted in the following presentation. Source: Mwe.com
Technical Corrections to BIC and Class Exemption The Federal Register for Monday, July 11, is scheduled to contain technical corrections to the Department of Labor’s fiduciary regulations package. Specifically, these are technical corrections to the Best Interest Contract Exemption and the Class Exemption for Principal Transactions. Source: Ascensus.com
Compliance and Regulatory
IRS Releases Additional Guidance on Determination Letter Program Changes Rev. Proc. 2016-37 provides new guidance on changes to the IRS’s determination letter program for individually designed, qualified retirement plans. Source: Haynesboone.com
IRS Provides Determination Letter Guidance in Revenue Procedure 2016-37 The IRS released Revenue Procedure 2016-37, which provides new determination letter processes and remedial amendment periods for individually designed qualified retirement plans. The Revenue Procedure also makes certain modifications to the six-year remedial amendment cycle system for pre-approved qualified retirement plans. Source: Practicallaw.com
DOL Increases Civil Money Penalties The DOL issued an interim final rule to adjust the amounts of civil penalties assessed in its regulations, as required under the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Contains charts of fees. Source: Practicallaw.com
Number of Plan Audits Should Be a Wake Up Call for Clients Nearly one-third of respondents to a Willis Towers Watson survey have had their retirement plans audited by the IRS or DOL, and the rate is even higher among large plans. Source: Planadviser.com
IRS Issues Rev. Procedure Describing Its Determination Letter Program The IRS has issued Rev. Proc. 2016-37, its periodic update on the determination letter program for qualified retirement plans. But this year there is a twist, the IRS is curtailing the program for individually designed plans. Rev. Proc. 2016-37 summarizes the new rules for individually designed plans as follows. Source: Erisalawyerblog.com
A Whole New World for Qualified Plans: Revenue Procedure 2016-37 This wide-ranging article addresses the modifications to the determination letter program and ongoing compliance for individually designed qualified plans. Source: Drinkerbiddle.com
Form 5500 Responsibilities: Everything You Need to Know According to ERISA, plan sponsors of retirement plans need to file a Form 5500 annually with the Department of Labor. Here is a quick fact sheet detailing everything you need to know regarding your responsibilities with the Form 5500. Source: Paychex.com
The Disappearing Determination Letter: How Plan Sponsors Can Cope IRS will indeed end the cyclical (5 year) cycle for individually-designed plans, providing determination letters only on plan adoption, plan termination, and on request in special situations. Moving to pre-approved plans might seem like an appealing alternative to these plan sponsors, but it really isn’t. Source: Cohenbuckmann.com
Which Plans Are Targeted for Regulatory Review? Despite the plethora of recent headlines about excessive fee lawsuits, regulatory audits, not litigation, is cited as a key risk in a recent plan sponsor survey. Large plans appear to be particularly targeted, but a certain type of plan design seems to be drawing a particularly high level of scrutiny. Source: Napa-net.org
Does My Retirement Plan Need an Audit? The end of July is creeping closer for calendar year plans and usually arrives sooner than expected for 401k plan sponsors. As an employer, it’s important to be familiar with the plan audit requirements before it’s time to file your Form 5500. You need to be prepared well in advance of the filing deadline if an audit is required. Source: Kushnerco.com
Administrative 401k Mistakes Now Cost More The Labor Department has increased the civil monetary penalties assessed to retirement plans, due to an inflation adjustment the government is mandating for federal agencies. Source: Investmentnews.com (registration may be required)
Determination Letter Rationing: IRS Reveals the Brave New World A favorable IRS determination letter is a kind of document “qualification insurance” for an employer-sponsor. Curtailing the availability of such letters will significantly complicate plan administration, the making greater uncertainty of both required and discretionary plan amendments, due diligence in merger and acquisition transactions and, in general, the tax and ERISA exposure in the maintenance of qualified plans. Source: Benefitslawadvisor.com