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Experts in Personalized Retirement Plan Design & Administration

BPP401k.com Newsletter 08.06.14

“Robin Hood” of Fees Takes Aim at 401k’s Those worried about hidden fees in their retirement accounts might want to investigate FeeX, a service that was launched in the U.S. this spring. Free at the moment, eventually the company plans to introduce optional premium services for which it will charge. Source: Thinkadvisor.com

DB(k) Plans: A Good Idea at the Time A DB(k) Plan, formally called an “Eligible Combined Plan,” is a hybrid retirement plan that was created by Congress as part of the Pension Protection Act of 2006 under Section 414(x) of the Internal Revenue Code. But after the January 1, 2010 effective date for Section 414(x), DB(k)s didn’t take off. Since then, there have been very few DB(k) sightings. Was it a failure? Source: Retirementplanblog.com

Hybrid Retirement Plans Offer Pension-Styled Security Many companies have frozen their defined benefit plans to new hires. Others have abandoned their pensions in favor of a 401k or other defined contribution plan. But not everyone is happy with DC plans because they often leave participants to fend for themselves when most have never had to make investment decisions. Source: Benefitnews.com

Fiduciary and Plan Governance Material

Why a 401k Fiduciary Must Convince Retirement Investors to Avoid Thinking in Lump Sum Terms Without a sophisticated financial calculator, it’s hard for the professional, let alone the average person, to know when a lump sum is adequate to fund retirement. By looking at a monthly payout figure, people can more easily determine if it can cover their monthly expenses. Source: Fiduciarynews.com

Why Hire an Unbundled Service Provider? The perceived disadvantages of “unbundling” recordkeeping and administrative services generally fall into two areas: 1) the belief that adding more parties adds more cost, and 2) the belief that adding more parties adds more complexities for the employer. Article examines these perceptions and then considers the added benefits of an unbundled arrangement. Source: Consultrms.com

Letter to RMS About Dispelling the 3(16) Myth The majority of plans will be using outsourced 3(16) services within a decade. Service providers that don’t offer or provide due diligence on these services will lose business. MEPs and aggregated solutions are the easiest way to access 3(16) services today. Source: Linkedin.com

Which Fiduciary Should Plan Sponsors Hire: 3(16), 3(21) or 3(38)? There has been a lot of discussion about whether plan sponsors should contract with their administrative providers for section 3(16) fiduciary services. This article outlines the different types of fiduciary services available to plan sponsors. Source: Lawtonrpc.com

Changing Employee Benefit Plan Vendors? Tips for a Smooth Transition Regardless of the reason you seek to change your plan’s recordkeeper, trustee, or custodian, you face an increased risk of error if the change isn’t managed properly. As a result, if you’re debating a change in vendors for your benefit plan, it’s important to consider the potential risks to both the plan and its participants. Source: Mossadams.com

ERISA’s Service Provider Disclosure Rules and How to Comply With Them If you’re an employee benefit plan fiduciary, you’re likely familiar with ERISA Section 408(b)(2). These regulations, which became effective in 2012, address what most of us know as service provider disclosures. So what steps can you take to fulfill your duties and avoid penalties? Here are four best practices that can help you demonstrate compliance. Source: Mossadams.com

Investment Policy Statements An investment policy statement defines the processes that a company has adopted to make investment-related decisions with respect to the assets of an ERISA 403(b) and 401k plan. While the law does not require that a plan adopt an IPS, it may be the single most important task that a fiduciary performs. Here’s an overview of how to construct one. Source: Strategicbenefitservices.com

Do You Protect Against Vendor Conflicts of Interest? Hidden vendor conflicts of interest can result in higher fees and unforeseen costs for the plan sponsor and plan participants, so having a system in place to uncover potential conflicts is paramount. Source: Rolandcriss.com

Insight: Studies, Research and White Papers

Less Than Half of Plan Participants Over 50 Have Considered a Withdrawal Strategy for Retirement Assets Forty-three percent of retirement plan participants age 50 or older say they have considered a withdrawal strategy for their retirement assets according to a survey conducted by American United Life Insurance Company. Source: 401khelpcenter.com

GAO Questions Advantages of Managed Accounts A lack of information and consistent standards makes it difficult for 401k plan sponsors to gauge whether managed account services truly benefit participants over the long term, says a new report. Source: Plansponsor.com

Improvements Can Be Made to Better Protect 401k Participants in Managed Accounts GAO examined (1) how providers structure managed accounts, (2) their advantages and disadvantages for participants, and (3) challenges sponsors face in selecting and overseeing providers. Among other things, GAO recommends that DOL consider provider fiduciary roles, require disclosure of performance and benchmarking information to plan sponsors and participants, and provide guidance to help sponsors better select and oversee managed account providers. Source: Gao.gov

What Does Consistent Participation in 401k Plans Generate? At year-end 2012, the average account balance among consistent participants was 67 percent higher than the average account balance among all participants in the EBRI/ICI 401k database. The consistent group’s median balance was almost three times the median balance across all participants at year-end 2012. Source: Ebri.org (PDF File)

DC Plans Work When Backed by Social Security A new study of brand-new retirees with such plans finds they are, indeed, faring well, but only thanks to an additional big lift from Social Security income and a willingness to economize. Source: Onwallstreet.com

Transatlantic DC Participant Survey 2014 While the regulatory environment governing retirement plans can vary greatly among different countries, plan sponsors in Ireland, the United Kingdom and the United States often face similar challenges. Regardless of geography, almost all plan sponsors have an opportunity to do more. This survey shows that plan sponsors can improve retirement readiness by helping participants increase their savings, providing more financial education to workers and retirees, and designing retirement vehicles that are easy to understand and access. Source: Ssga.com (PDF File)

Items of Special Interest to Service Providers

Proposed Rule Re-defining ERISA Fiduciary Delayed (Still) Broker-dealers and financial advisers may have gained some breathing room as a congressional battle to broaden ERISA’s definition of fiduciary loses steam. This article summarizes the current state of that battle. Source: Benefitsbryancave.com

PPA Document Restatement Fees Survey Result A total of 57 TPA business owners or managers responded to this survey, conducted online from late June through mid-July. Nearly half of all respondent firms report serving >500 plans; the average was 650. Article reviews the survey results. Source: Tparesources.com

Target-Date Funds

Why Are Target-Date Funds so Popular with Plan Participants? The short answer to this question is, because their employers have chosen TDFs on their behalf. Or more precisely, advisors choose TDFs because employers rely on their advisors for this decision. Most assets are there by default. They belong to participants who can’t or won’t make an investment election. So why do financial advisors like them? Source: Paladinregistry.com

Target-Date Funds: Adviser’s Checklist Target-date funds should be a panacea for investors and advisers. Professional management, coupled with a preprogrammed asset allocation glide path to accommodate investors’ changing wealth, risk tolerance and liquidity needs, should make investing for retirement easier and more reliable. But a creative concept with clever packaging does not automatically produce a sound investment. By being mistaken for a retirement solution in a box for plan fiduciaries and participants, TDFs pose serious risks for both. Source: Investmentnews.com (free registration may be required)

GAO to Look at TDFs, Other QDIAs Following up on its calls for stricter oversight of managed account providers to 401k plans, the Government Accountability Office is undertaking a review of qualified default investment alternatives in 401k plans. Source: Benefitspro.com

Plan Automation

Can the Enrollment Experience Improve Participant Outcomes? Although automatic enrollment has been a boon for plan participation and encourages steady savings habits, more needs to be done. Automatic enrollment may not be a universal answer. Fidelity embarked on extensive employee research and testing to determine if a simplified, streamlined enrollment process could improve participation outcomes. This 12 page paper reviews the results. Source: Fidelity.com (PDF File)

Issue of Lifetime Income

Guaranteed Lifetime Withdrawal Benefits: Considerations for Plan Sponsors This article demonstrates that fiduciary standards applicable to offering GLWB products are no different than the standards applied to fiduciaries relative to the selections of any other investment or guaranteed lifetime income option. Using this roadmap in conjunction with other available guidance, plan fiduciaries should feel confident in their ability to construct a prudent process, consistent with their legal obligations, for evaluating, selecting, and administering GLWBs. Source: Iricouncil.org (PDF File)

Why Your 401k Likely Won’t Offer Longevity Annuity Longevity risk, the risk of outliving your retirement savings, is among retirees’ biggest worries these days. The Obama administration is trying to nudge employers to add a special type of annuity to their investment menus that addresses that risk. But here’s the response they’re likely to get: “Meh.” Source: Fa-mag.com

The New 401k Plan Annuity Option More than two years after soliciting comments, the Treasury Department issued final regulations making available the opportunity for retirement plan participants to purchase Qualified Longevity Annuity Contracts inside retirement plans. Some of the key provisions necessary for an annuity to qualify as a QLAC under the regulations are reviewed here. Source: Ascende.com

Court, Legal, Legislative and Washington DC

Fifth Third Bancorp et al. v. Dudenhoeffer Decided by Supreme Court The Supreme Court rejected the rule applied by many courts that ESOP fiduciaries had a “presumption of prudence” with respect to company stock investments. More importantly, however, it instructed the 6th Circuit to reconsider its rejection of the defendants’ motion to dismiss, on the principles that (oversimplifying somewhat) (1) fiduciaries with respect to publicly traded ESOP stock may generally rely on market prices, and (2) issues with respect to insider information may generally be better dealt with under the securities laws. This article reviews the Court’s decision. Source: Octoberthree.com

Overview of U.S. v. Windsor and Its Effect on Employee Benefits This article provides background on DOMA and the Windsor decision, subsequent guidance from federal agencies, and a discussion of Windsor’s impact on ERISA-governed employee benefits plans. Source: Bna.com

Compliance and Regulatory Related

Safe Harbor 401k Establishment Deadlines 2014 Although the greatest burden imposed on a plan sponsor who elects a safe harbor 401k plan design feature is usually perceived to be the funding of the safe harbor contribution, there are many other administrative requirements that must be satisfied in order to qualify for the ADP / ACP exemption. One such requirement relates to the plan year of a safe harbor 401k plan. Source: Legacyrsllc.com

IRS Provides New Safe Harbors for Validating Rollover Contributions When accepting a rollover contribution from an employee or on behalf of an employee, the plan administrator of the receiving plan must reasonably conclude that the contribution is a “valid rollover contribution.” Revenue Ruling 2014-9, which provides two simplified safe harbor processes that a plan administrator may use to confirm that a potential rollover contribution is a valid rollover contribution. Source: Prudential.com (PDF File)

Video: Establishing Written Daily Tasks Watch this video to learn one, sure-fire way to have constant improvement for your Employee Benefit Plan’s operations. Source: Erisasunscreen.com

New Requirements for Delinquent Retirement Plan Form 5500 Filers The IRS recently issued Notice 2014-35, which provides that Form 5500s filed under the Department of Labor’s Delinquent Filer Voluntary Compliance program since January 1, 2010 can file a late Form 8955-SSA without a penalty. Therefore, if an employer has failed to submit its paper Form 8955-SSA as required, now is the time to send it in. Source: Sgrlaw.com

Plan Language and Administration Can Clarify Beneficiary Designation Issues Determining the beneficiary of a qualified retirement plan after a participant’s death has legal ramifications. Plan sponsors should ensure that a plan’s benefit distribution language and plan administration meet federal requirements. Source: Milliman.com

Time to Restate 401k Prototype and Volume Submitter Plans In Announcement 2014-16, the IRS announced the opening of the PPA restatement window for defined contribution, including 401k, prototype and volume submitter plan documents. The PPA restatement documents must be adopted by April 30, 2016. Failure to complete the restatement by the April 30, 2016 deadline will jeopardize a plan’s tax-qualified status. The IRS also announced that it will begin to accept individual determination letter applications for the PPA restatement documents from May 1, 2014, through April 30, 2016. Source: Truckerhuss.com

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