BPP401k.com Newsletter 08.08.12
DOL Revises FAQs Clarifying Treatment of Brokerage Windows Field Assistance Bulletin No. 2012-02R clarifies that fiduciaries of plans covered by these rules that offer brokerage windows, self-directed brokerage accounts or similar arrangements are not required to treat these arrangements as designated investment alternatives. Source: Practicallaw.com
The Need for Enrolled Retirement Plan Agents (ERPAs) An interview with Monika A. Templeman, Esq., Director, Employee Plans Examinations, IRS, on a subject of the Enrolled Retirement Plan Agent program. Monika has championed this program since its inception. Source: McKay Hochman
Why Plan Sponsors Shouldn’t Have Too Much Loyalty to Their Plan Providers Some plan sponsor places too much loyalty in their plan providers, to the detriment of the plan. This article is trying to tell plan sponsors why they shouldn’t attach too much loyalty to their plan providers. Source: Rosenbaum Law Firm
Concerns Over Annuities in Retirement Plans Persist More plan sponsors may include longevity annuities, or products with similar goals, in their plans if new regulations are drafted to support their concerns and employees start demanding guaranteed-income options. Source: Employee Benefit News
Same-Sex Marriage Laws Present Challenges for Retirement Plan Sponsors Sponsors of retirement programs that are subject to ERISA are technically only required to comply with the federal DOMA rules when identifying participants’ spouses for various plan purposes. However, plan sponsors that have large employee populations in any of the states that recognize same-sex marriages, civil unions, or domestic partnerships that are the equivalent of marriage, may want to voluntarily incorporate those rules to the extent possible. Source: Prudential
Is It Time to Consider a Cash Balance Plan? By any reasonable measure, traditional defined benefit pension plans are on the decline. However, some argue that 401k plans alone may not be enough to help employees secure their retirement. For a small but growing number of companies, cash balance plans offer a third alternative. Source: Businessfinancemag.com
Correcting Retirement Plan Errors Plan sponsors may not realize that even small failures can result in devastating cost as a result of the disqualification of a plan sponsor’s retirement plan. Fortunately, the IRS does make available some correction programs which, if used voluntarily and before the errors are caught by the IRS, may allow the sponsor to avoid disqualification. Source: Benefitsforward.com
Maximum Compensation for Elective Deferrals Can 401k pretax deferrals be deferred on compensation earned above the 2012 compensation limit of $250,000? Source: McKay Hochman
Are Americans ‘Winging’ Their Retirement Plans? When it comes to retirement savings, many Americans seem to be “winging it” — or heading for retirement without a realistic plan of how to fund it. Or so suggests a recent survey by the Transamerica Center for Retirement Studies. The survey indicates that “retirement planning” is a very loose concept among Americans. In many cases, the approach could be better described as wishful thinking. Source: Foxbusiness.com
403(b) Plan Items
Rollover of Active Accounts from 403(b) to 401k Question: “Effective January 1, 2009, we added a 401k feature to the profit sharing plan and no further 403(b) contributions were made on or after that date. Can we now allow 403(b) accounts to be rolled over into the 401k if an employee with a 403(b) account is still employed by our organization?” Source: Plansponsor.com
Fiduciary Related Items
Managing Service Provider Disclosures Received – or Not – Under ERISA Section 408(b)(2) Fiduciaries are now responsible for confirming that all appropriate disclosures have been received and that those disclosures contain all the information required by DOL regulations. They must send written requests for any missing information and report disclosure failures to the DOL. In some cases, fiduciaries will have to terminate contracts with service providers. Source: Buck Consultants
How to Properly Mitigate Risk for Plan Fiduciaries The Tussey v. ABB ruling raises the importance of implementing a fiduciary ‘circuit-breaker’ for plan sponsors that wish to off-load fiduciary responsibility for the selection, monitoring, and replacement of a plan’s investment options. Source: Morningstar.com
Revenue-Sharing Fee Analysis Now Available at Participant Level It is up to a plan’s investment committee to determine whether the cost of reimbursing revenue-sharing fees to each participant is effective — or prohibitive. That was the consensus from a webinar hosted by retirement plan provider Diversified, on “New Fiduciary Exposure: Unfair Fund Revenue Sharing.” Source: Planadviser.com
Insights: Studies, Research and White Papers
Stable Value Assets Surge; Cerulli Cautious About Sector Stable value funds, a capital preservation vehicle popular with 401k, reached an all-time high of $646 billion at the end of last year, according to a report released Monday by Cerulli Associates. In a review of the mutual fund and ETF market, Cerulli gave a few reasons for the value funds reaching these heights, but also cited a few caution signs for advisors to note. Source: Financial-planning.com
Employers With DB Plans Remain Committed to Them A significant number of U.S. employers that still offer defined benefit (DB) pension plans say they remain committed to providing those benefits to new salaried employees, according to a survey by Towers Watson. The survey also found that employers are adding features to their defined contribution (DC) plans that mirror DB plan design to help close possible savings gaps created by the shift from DB to DC plans. Source: CCH
Most CFOs Expect Employees to Delay Retirement Even employees who have traditional pensions will be working longer than they planned — and their bosses know it. In a recent survey conducted by CFO Research in collaboration with Prudential Financial, about 70% of senior finance executives said they believe their companies’ employees will be forced to delay retirement because of insufficient savings. Source: CFO.com
Employee and Employer 401k Contributions Edge Higher in 2nd Quarter Fidelity Investments announced that employee and employer 401k contributions continued to increase during the second quarter, compared to the same period in recent years. Source: 401khelpcenter.com
Broadening the Approach to Preparing for Retirement Young Americans are hoping for an early retirement. However, many have not taken the important first steps of knowing how much money they will need and starting to save, according to this report issued today by the BMO Retirement Institute, Broadening the Approach to Preparing for Retirement. Source: BMO Retirement Institute
How Are 401k Investment Menus Changing? Plan sponsors’ approach to DC investment design is becoming more refined. They continue to strive to offer participants a choice of investments with competitive fees, various objectives and strategies, and a spectrum of risk/return potential to meet their retirement goals. Source: Cogentresearch.com
Some Items of Interest to Advisors
How Advisors Can Increase Client Loyalty Among DC Plan Sponsors Advisors who provide services to 401k and other defined contribution plan sponsors can boost client loyalty through greater plan support and oversight, according to a study by market intelligence firm Cogent Research. Source: Bankinvestmentconsultant.com
ERISA Newsletter for Retirement Service Providers This is a newsletter for service providers to ERISA-governed retirement plans. While this newsletter focuses on legal issues faced by service providers-such as investment advisers, broker-dealers, third party administrators, recordkeepers, and banks and trust companies, it also contains valuable information for plan sponsors and fiduciaries. Source: Drinker Biddle & Reath LLP
Court and Legislative Items
Bank That Failed to Detect TPA Mismanagement of 401k Account Funds Not Subject to Suit Under ERISA The custody of plan funds and the receipt of fees pursuant to a depository agreement with a third-party administrator (TPA) did not confer fiduciary status on a bank sufficient to allow for suit under ERISA, the U.S. Court of Appeals in Cincinnati (CA-6) has ruled. Source: CCH
Harkin Retirement System Proposal Gets Mixed Reviews The heart of his plan is a new system of privately-run hybrid pension plans, which incorporate many of the benefits of traditional pensions while substantially reducing the burden on employers. Harkin’s proposal requires that individuals who are not covered by an employer-sponsored retirement plan be automatically enrolled in regulated, privately-run retirement funds. This concerns David John, senior research fellow at the Heritage Foundation. Source: Plansponsor.com
Sen. Harkin’s Plan to Boost Retirement Savings: Praised and Criticized Sen. Tom Harkin’s proposal to help shore up America’s retirement system, which would give future generations a better shot at retiring with adequate savings, has reignited the debate over America’s retirement crisis. Source: AARP
Suit Against Ex-spouse Who Waived 401k Benefit in Divorce Both the trial court and appellate court in the Kensinger case agreed that plan fiduciaries must abide by a deceased participant’s beneficiary designation form and pay benefits to that beneficiary. That issue was not disputed on appeal. The issue on appeal was whether a state court lawsuit by the estate of the deceased participant to recover benefits paid to his ex-spouse per a common law agreement is permissible under ERISA. Source: Benefit Consultants Group
Groups Plead to Preserve Plans’ ERISA Discretionary Authority Four groups — the ERISA Industry Committee, the American Benefits Council, the U.S. Chamber of Commerce and the Business Roundtable — filed an amicus brief July 26 to urge 2nd Circuit judges to support the principle of deference to plan administrators’ decisions over benefit plans. Source: Thompson.com
Commentary and Opinion
Time for 401k Sponsors to Take a Stand The DOL’s Rule 408(b)(2) now requires service providers to divulge those sometimes hidden fees that can pose such peril to 401k investors. Unfortunately, the DOL has not come up with an easy-to-read template for service providers to follow. Instead, much to the confusion of many plan sponsors, particularly those in smaller plans, service providers have found creative ways to “technically” disclose fees without making them easy to find. Source: Benefitspro.com
The Senate’s Plan for Our Retirement: Inadequacy for All The changes? No reforms at all to the drastically underfunded 401k plans. Employers who don’t offer a 401k plan would have to set up a retirement plan in which employers must withhold an unspecified portion of their employees’ pay and deposit it to “privately-run, hybrid pension plans.” In addition, employers would have to make “modest contributions” to employee accounts. And Social Security payments will be boosted by a measly $60 a month. This is bold? Source: Huffingtonpost.com
Regulatory Related Items
DOL Retracts Unwieldy Brokerage Window Disclosure Rule In response to intense questions and criticism from the industry, the DOL retracted this controversial disclosure rule by reissuing FAB 2012-02 as FAB 2012-02R. Source: Kelly, Hannaford & Battles
Labor Department Drops Brokerage Window Provisions The DOL clarified that brokerage windows are not considered designated investment alternatives and that the regulation doesn’t prohibit the use of these brokerage accounts. The agency said that plan fiduciaries, however, still have a duty of prudence and loyalty to participants who use the brokerage window — including taking into account the nature and quality of services provided. Source: Pensions & Investments
DOL Provides Help for Tardy Vendor Fee Disclosures The new procedure continues to permit paper or electronic submissions, but enhances the existing procedures by providing a dedicated P.O. box address (U.S. Department of Labor, Employee Benefits Security Administration (EBSA), Office of Enforcement, P.O. Box 75296, Washington, DC 20013) and a web-based tool that will assist plan sponsors in ensuring that all required information is submitted and providing immediate confirmation that notices have been received by the department. Source: Society for Human Resource Management
Experts Advise 401k Plan Sponsors on 408(b)(2) Fee Disclosure Template Perhaps this has been the biggest complaint about 408(b)(2). In promulgating the Rule, the DOL initially promised to offer a disclosure template. That never materialized, and service providers were left to their own creativity. Source: Fiduciarynews.com
Field Assistance Bulletin No. 2012-02R Released July 30th, this Bulletin supplements the DOL’s participant-level disclosure regulation by providing guidance on some of the most frequently asked questions concerning the participant-level disclosure regulation and how it may be implemented. Source: U.S. Department of Labor
DOL Clarifies 401k Brokerage Window Arrangements More information regarding the issue of brokerage windows in 401k plans – designed to allow more investment-savvy participants the option to self-manage more of their retirement savings – was released Monday by the DOL. Source: Benefitspro.com
Participant Fee Disclosure FAQs This article summarizes the first ten questions and answers of FAB 2012-02 with commentary. Source: McKay Hochman
DOL Backs Off Controversial Brokerage Window Plan The industry had complained that the DOL had ushered in a new requirement on brokerage windows in its original Field Assistance Bulletin, but the EBSA issued a revised Field Assistance Bulletin which is a turnaround from its position in the old FAB under Q&A number 30 that plan fiduciaries have a duty to look at the investing patterns inside individual brokerage accounts and possibly designate some of the commonly held investments. Source: Advisorone.com
Full Disclosure: The Impact of the Final 408(b)(2) Regulation on TPAs Only TPAs that receive indirect compensation are “covered.” Nevertheless, we stated earlier that covered TPAs must describe both their direct and indirect compensation. This is because the DOL has made it clear that if a service provider is “covered,” it must comply with all of the requirements of the regulation, not just the parts that cause it to be covered. Source: ASPPA
What to Make of DOL’s Backtrack After the Riled 401k Industry Cried Foul The policy reversal on self-directed accounts is a win for white-collar workers but the agency’s mandating-by-bulletin was equally troubling to some observers. Industry confusion, resistance and vocal opposition had an impact. Source: RIAbiz.com
New DOL Guidance Provides Relief, But Concerns Remain Plan fiduciaries will hopefully find relief in new guidance about participant fee disclosures for brokerage windows, but experts say concerns loom for brokerage window-only plans. Source: Plansponsor.com