BPP401k.com Newsletter 08.01.12
Tax Reform and 401k Fairness A key element of the debate over comprehensive tax reform and retirement savings tax incentives will be the fairness of the current 401k system. This article reviews current fairness arguments and the data that opponents and proponents put forward in support of their views. Source: October Three
8 Traits of Highly Successful Advisors In Q2-Q3 of 2012, ByAllAccounts conducted a national online survey of 390+ advisors to identify and examine key traits of the most successful members of the industry. Source: By All Accounts
What to Do If You Didn’t Receive an ERISA 408(b)(2) Disclosure Hopefully, you, the responsible plan fiduciary to an ERISA retirement plan, are happily ensconced in your office, reviewing thorough and compliant ERISA Section 408(b)(2) disclosures from the plan’s covered service providers. But what if you didn’t receive the disclosure, or if it is inadequate? Source: Bryan Cave
Jury Still Out on 408(b)(2) Fee Disclosure Consequences The July 1 401k plan fee disclosure deadline came and went without a splash and industry experts predict that participant disclosures will be even more uneventful. Some of the largest plan service providers, like Fidelity, already have issued their participant-level disclosures, and there has been virtually no reaction. Source: Benefitspro.com
Take Control of Your 401k Plan With an Investment Policy Statement An Investment Policy Statement is a soup-to-nuts blueprint for the plan, its administration and its ongoing maintenance. But a good IPS doesn’t stop there. It is a living, breathing document that shifts with long-term investment market trends and changes in employee demographics. It should be constantly re-evaluated and slavishly adhered to. Source: Smart Business
Target-Date Retirement Funds Turn to ETFs Franklin Templeton Investments, Manning & Napier and Lincoln Financial Group are among a number of target-date fund managers turning to ETFs, something they say will help them to more easily manage volatile markets and access niche investment strategies and at lower costs than using mutual funds. Source: Reuters
COLAs Vanishing From Pension Plans Much like rotary phones, snail mail and pension plans in general, cost-of-living allowances are increasingly becoming a thing of the past, new research finds. But, for those organizations considering a COLA, experts say they should implement one on an age-segmented basis to the workforce. Source: HREonline.com
Common Mistakes Plan Sponsors Should Avoid Plan sponsors should use the “highest standard of care” when it comes to retirement plans, but according to one attorney, several common mistakes prevail. Source: Plansponsor.com
Unprepared for Retirement? A new book suggests that barely half of retirees think their lives improved after work, while the same percentages are able to comfortably adjust to this new lifestyle or adequately plan for it. Among the culprits: loss of identity, deterioration of marriage and social life, feeling disconnected to the world, a lack of structure and direction. Source: Employee Benefit News
Creating an Effective RFP Process This guide is designed to help organizations assemble a RFP team, develop a timeline, create the RFP, identify firms to respond to the RFP, distribute the RFP, review and score the RFP, interview potential firms, and make a final selection. Source: Vanguard
SEP Vs SIMPLE IRA 2012 Small business owners, who like the simplicity and low administrative costs associated with simplified employee pension (SEP) IRAs and savings incentive match plan for employees of small employers (SIMPLE) IRA plans, often find it hard to choose between the two. This reference guide provides a comparison of some of the key features and benefits of these plans. Source: Appleby Retirement Consulting
Get Beneficiary Designations in Order Designating a beneficiary is one of the most important administrative steps that should be taken with retirement accounts. Failure to designate a beneficiary can result in retirement assets being passed on to a party that the account owner (individual) may not want to receive the assets, and create discontent among survivors. This article provides some guidelines on beneficiary designations that can help to ensure that retirement assets are passed on to the right person. Source: Appleby Retirement Consulting
One More 401k Expense – Trading Costs Trading costs within 401k plans are important for at least two reasons. First, trading costs can be a substantial drag on performance, especially for very actively managed equity funds. Second, trading costs can transfer wealth among different types of investors within an investment fund. Source: Smartmoney.com
Are Defined-Benefit Retirement Plans Better for Small Businesses? While small business owners typically use defined-contribution plans with an elective deferral feature to provide retirement benefits to employees, defined-benefit plans may be ideal for small-business owners over 50 who are interested in saving a substantial amount of money for retirement in a short time period. Source: Accountingweb.com
Roth 401k Plans Give Investors More Options, Potential Employers have begun to broaden their retirement plan offerings by adding the option of a Roth 401k to their traditional plans. While the Roth 401k option is not for everyone, it is another tool that may help some savers leverage the tax-free growth offered to make the most of their retirement funds in the future. Source: The Times of Trenton
403(b) Plan Items
FAB 2012-2/ Q15′s Impact on 403(b) One of the more difficult questions that have arisen under the 404a-5 participant disclosure rules is related to those pesky “old” 403(b) contracts. In the multiple vendor ERISA world, where a number of vendors have been in and out of the plan over decades, the question becomes whether-and to what extent-the 404a-5 disclosures have to be made under those contracts into which deposits could no longer be made. Source: Businessofbenefits.com
Fiduciary Related Items
Plan Sponsor Responsibility to Covered Service Provider Disclosures Under ERISA 408(b)(2) The purpose of the disclosures are to make sure that the plan sponsor is aware of what everybody is making relative services they are providing to their plan, including indirect payments from others (revenue sharing). So, what is the plan sponsors responsibility with respect to this whole disclosure process? Source: Plan Design Consultants
Is There an Obligation to Protect Participants From Themselves A question was raised about a plan sponsor’s obligations to act where they see a participant has made foolish investment choices in their self-directed accounts. Is there a fiduciary obligation to tell a participant that they have made an unwise investment choice? Source: Fox Rothschild LLP
What Type of Fiduciary Are You? Fiduciary services continue to be in high demand by retirement plan sponsors that lack the experience necessary to fulfill their fiduciary responsibilities as a prudent expert. But there are different types of fiduciaries. The differences are important to understand in order to mitigate fiduciary risk, select the advisor with the skill set needed to assist in the prudent operation of the plan and adhere to ERISA’s fiduciary standard of care. Source: Fiduciary Risk Assessment
Insights: Studies, Research and White Papers
Target Maturity Funds Have Tough Second Quarter After the first quarter’s average return of nearly 9%, target maturity fund performance took a step back with the average target maturity fund losing 2.8% in the second quarter. For the 12-month period, the average return dropped into negative territory with a 0.5% loss. Source: Planadviser.com
Stable Value Funds: Considerations for Plan Sponsors Although stable value funds remain a popular choice for defined contribution plan participants, they may not be appropriate for every plan. Plan sponsors should evaluate these funds in the context of their individual plan’s design, participant demographics, and other key factors, according to this Vanguard research paper. Source: Vanguard
401k Auto Features Impact Communication Strategies There is hope that Americans will be better prepared for retirement, thanks to automatic features offered through 401k and other employer-sponsored defined contribution plans, according to Retirement Plan Communication in an Auto Features World, a study report from benefits provider Lincoln Financial Group and Retirement Made Simpler, a coalition to support employers who want to help their employees save more for retirement. Source: Society for Human Resource Management
Retirement Plan Communication in an Auto Features World Automatic features have become mainstays of many employer-sponsored retirement plans and represent a true paradigm shift in retirement plan design. Of primary interest to this study was to what extent communication strategies changed, or are likely to change, as a result of the shift to automatic features. Source: Lincoln Financial Group
Defined Contribution Plan Participants’ Activities, First Quarter 2012 To measure participant-directed changes in DC plans, ICI has been tracking participant activity through recordkeeper surveys since 2008. This report updates results from ICI’s survey of a cross section of recordkeeping firms representing a broad range of DC plans and covering more than 24 million employer-based DC retirement plan participant accounts as of March 2012. Source: Investment Company Institute
Retirement Security: Women Still Face Challenges Over the last decade, working women’s access to and participation in employer-sponsored retirement plans has improved relative to men. From 1998 to 2009, women surpassed men in their likelihood of working for an employer that offered a pension plan. Still, for women approaching or in retirement, becoming divorced, widowed or unemployed had detrimental effects on their income security. Source: Government Accountability Office
Retirement Security: Older Women Remain at Risk Women age 65 and over consistently had less retirement income on average and had higher rates of poverty when compared to men despite the fact that the composition of their income did not vary greatly over time. Source: Government Accountability Office
How to Beat the Retirement Savings “Action Gap” One of the State Street study’s conclusions for employers that sponsor 401k plans is that simplicity and repetition are key to engaging employees to help them close the action gap. Source: CBSnews.com
What’s Next for Target-Date Funds? Target-date fund providers are taking two steps forward and three steps back, according to a new report. On a positive note, the report revealed that some managers have significantly improved the prospectus language describing their funds. However, the report also noted that the trend toward more conservative glidepaths has slowed. Source: Financial-planning.com
Court and Legislative Items
The Retirement Crisis and a Plan to Solve It This paper lays out a two-part plan to solve the retirement crisis by making changes to the private retirement system and Social Security. The first part of this proposal would rebuild the private pension system by providing universal access to Universal, Secure, and Adaptable (“USA”) Retirement plan, a new type of private pension plan. Source: US Senate HELP Committee
Some Items of Interest to Advisors
401k Fee Disclosure Leading to Plan Conversion Activity Mandated retirement plan fee disclosure has been in effect for only a few weeks, but plan sponsors are already bailing on costly service providers, particularly group annuity insurance products. Source: Investmentnews.com (free registration may be required)
An Upcoming Boom in the Retirement Market There is some $9.5 trillion sitting either in IRAs, defined contribution plans or non-qualified mutual funds that may soon be looking for an investment option that provides a lifetime of guaranteed income. And annuity insurers are well-positioned to capture that burgeoning market, says a new report by Conning Research & Consulting. Source: Benefitspro.com
Commentary and Opinion
Reality “Checks” on Teresa Ghilarducci The voluntary system should be judged as just that, a voluntary system. The data makes it clear that voluntary employer-based plans are, in fact, leading to a great deal of real savings accumulated to supplement Social Security. Source: Employee Benefit Research Institute
Why 401k Plans Finally Work After years of frustrating trial and error, there is good news to report about 401ks. The savings system is beginning to work effectively. Most employees are now tucking substantial amounts into their accounts and the portfolios are properly diversified. Source: Thestreet.com
Regulatory Related Items
401k Plans, International Plan Compliance Among “Hot Issues” for IRS Employee Plans The 401k plan compliance area and international issues are among the top priorities for IRS Employee Plans Examinations (EP Exams), Monika Templeman, director, EP Exams, said at the Washington Update opening panel of the Enrolled Retirement Plan Agents Conference in Washington, DC. Source: CCH
DOL Advisory Opinions Only a Speed Bump for Open MEPs? While reducing the appeal of Open MEPs, the DOL’s position is not likely to stop their growth because the burdens on plan sponsors are increasing and the need for professional plan management that Open MEPs satisfy is real. Source: The Wagner Law Group
Labor Dept Looking Into JPMorgan Stable Value Fund The U.S. Department of Labor is looking into whether JPMorgan Chase & Co violated its fiduciary duty under ERISA in connection with one of its stable value funds. Many employers with 401k plans were unaware of the private mortgage component of the fund until after the 2008 market crash, according to retirement plan consultants who worked with companies that held the portfolios. Source: Reuters
DOL Improves Procedures for Plan Sponsors Seeking Relief Under New Fee Disclosure Rules The U.S. Department of Labor’s Employee Benefits Security Administration has announced improved procedures for plan sponsors who wish to obtain fiduciary relief for a service provider’s failure to comply with the department’s plan-level fee disclosure rule. Source: U.S. Department of Labor
Fixing a 408(b)(2) Fee Disclosure Failure By July 1, 2012, most plan fiduciaries and service providers complied with the Final 408(b)(2) Fee Disclosure Regulations by disclosing information about service provider compensation and potential conflicts of interest. For those that didn’t, the Final 408(b)(2) Fee Disclosure Regulations require responsible plan fiduciaries to file a notice with the Dept. of Labor to obtain relief from ERISA’s prohibited transaction provisions. On July 16, 2012, the DOL issued a Final Rule explaining where and how to file that notice. Source: Pension Protection Act Blog