BPP401k.com Newsletter 08.29.12
Five Tips for Advisors in a Post-Fee Disclosure World As participants begin to delve into the new fee disclosures of their retirement plans, what can you do to reduce the backlash and support greater participant success? Here are five of the best strategies for coming out on top in a post-fee disclosure universe. Source: Benefitspro.com
DOL Interest in Brokerage Window-Only Plans to Depend on Election Results If President Obama wins a second term, Department of Labor officials will address their concerns about brokerage windows, at least with respect to 401k plans that offer a brokerage window and no other selected investments, a benefits attorney told BNA Aug. 20. Source: Bloomberg/BNA
Use These Five Tips To Head Off Problems With 401(k) Clients Financial planners who advise on 401(k) plans need to get out in front of sponsors and plan participants to explain new disclosure rules, says this retirement plan expert. Source: Financial Advisor
ERISA Service Provider Disclosures: What Plan Sponsors Need to Do Now July 1 was a watershed date in the ERISA world. By that date, covered service providers to ERISA-governed retirement plans had to provide written disclosures about their services, fiduciary status and compensation to the “responsible plan fiduciary” for all their existing plan clients. Failure to do so made their service arrangements prohibited transactions under ERISA. Source: Drinker Biddle
Time for Workers to Demand the 401k Plans They Deserve: Here’s a Model A nationally-offered “model” low-cost, conflict-free 401k plan which employees can ask for by name and employers can easily provide is long overdue. It’s not hard to devise retirement plans that are good for workers—provided all parties involved (including employers and vendors) are committed to that goal. Source: Forbes
Employee Retirement Statements Get a Fee Makeover The annual statements that employees participating in defined contribution plans such as 401k’s receive this time of year may look different thanks to new rules that aim to help workers understand the costs of each investment in the plan. Source: Workforce.com
New 401k Expense Reports Greeted With Yawns The only problem with the new reports, alas, is that all those tens of millions of 401k participants may not notice or care about them. People have been numbed by years of impenetrable employer communications. How will they know these reports are any different? Source: U.S. News & World Report
Four Ways to Take Advantage of New 401k Transparency Rules Because of new federal rules that expand and reinforce existing regulations and reverse years of lax enforcement, you’ll soon be informed of exactly how much money is being deducted from your 401k plan to pay fees of service providers. This article shows four ways to take advantage of these new transparency rules. Source: ABCnews.com
Help for Retirement Plan Participants – FAQ Part One Participants in retirement plans often have questions about their plan, and sometimes it’s difficult to find a quick answer to those questions. A TPA has put together this set of Frequently Asked Questions to help find a quick answer to several basic questions. Source: Benefit Resources
Business Owners … Keep an Eye on Your 401k Administrator Many small business owners give little thought to their company’s 401k plans. Often, employers use third party administrators to administer the plan, and once it is in place, they forget about it. This can be a costly mistake. Here are five of the most common mistakes small business owners should consider. Source: Pittsburgh Post-Gazette
Target-Date Investors Get More Low-Cost Options Investors are increasingly cost conscious and providers of target-date mutual funds are responding. They’re rolling out a greater number of low-cost options. These inexpensive funds come in two main varieties: those that rely on index funds and others with ETFs added in. Source: USA Today
New 401k Statements Disclose Management Fees For the first time, the Department of Labor is requiring employers to explain the 401k fees that have chipped away at workers’ retirement nest eggs. The information comes in two phases. The deadline for the first is the end of this month. Here is what to expect. Source: USA Today
Fiduciary Related Items
Single Fiduciary Standard From SEC, DOL Would Create Multiple Problems The financial industry and members of both parties of Congress have urged the agencies to combine their efforts and “harmonize” the controversial rule making in order to produce consistent guidance for investment firms. That would be a bad idea, according to a letter to lawmakers from fi360, a firm that provides fiduciary-duty training. Source: Investmentnews.com
Fiduciary Rule Could Be Years Away, Experts Say While there is a small chance that SEC Chairwoman Mary Schapiro will issue a proposed rule to put brokers under a fiduciary mandate by year-end, the most likely scenario is that, in the short term (over the next three to four years), we aren’t going to see any fiduciary rule with teeth according to Knut Rostad, president of the Institute for the Fiduciary Standard. Source: Benefitspro.com
Bogle, Volcker Look to Get Fiduciary Rule Back on Track Former Federal Reserve Chairman Paul Volcker, mutual fund pioneer John Bogle and former Securities and Exchange Commission Chairman Arthur Levitt will be among those lending their signatures to an effort to revive stalled federal regulations that would strengthen investment-advice rules. Source: Investmentnews.com
Insights: Studies, Research and White Papers
2012 HR Service Delivery and Technology Survey Report Facing growing pressures to deliver HR services more efficiently and effectively, an increasing number of global organizations expect to change the structure of their HR functions within the next couple of years, according to an annual survey conducted by global professional services company Towers Watson. Source: Towers Watson
The Best Practices of Retirement Plan Committees This article provides a step-by-step process for starting, structuring and managing a 401k plan committee. Even if your company already has a similar committee, you may find that some of the suggestions described on the following pages offer more effective use of this group’s collective time. Source: Planadvisortools.com
Best Practices for Investment Committee Members Investment Committee members are responsible for managing the plan in the best interests of the participants; failing that will give rise to potential personal liability. This paper identifies best practices for 401k investment committee members in order to reduce potential personal liability as a result of being plan fiduciaries. Source: Brightscape Investment Centers
Wells Fargo Sees Increase in Participant Loans An analysis of 1.9 million participants in employer-sponsored 401k plans recordkept by Wells Fargo found a 10% year-on-year uptick in the number of loans. Source: Planadviser.com
Plan Participants Who Do Everything Themselves Are Less Diversified Do-it-yourself retirement plan participants tend to be less diversified than those who participate in target-date funds. The Principal Financial Group looked at 2.4 million defined contribution plan participant accounts to see how the do-it-myself investors compared to TDF investors. Source: Benefitspro.com
Is Now the Time to Invest in Target Date Funds? Research found that generally, do-it-myself participants were less diversified by asset class and number of investment options, rarely used automatic rebalancing to meet their investment goals, and at young ages, frequently had much less exposure to equities. Source: Financial-Planning.com
Yale Study: A Few Extra Words Can Make a Major Difference for 401k Investors One of the biggest factors in achieving retirement comfort is to invest early and often in a retirement plan. This suggests 401k plan sponsors should adopt policies and procedures which encourage such behavior on the part of their employees. A Yale study released earlier this year suggests nudging employees towards such self-serving actions might be as simple as adding a few words to their quarterly report. Source: Fiduciarynews.com
What Small Business Employees Want From Their Benefits, and How Employers Can Show They’ve Heard There is mounting evidence that small business owners’ insights into their employees’ attitudes about their workplace benefits may be inaccurate on a number of counts. This whitepaper explores these misperceptions. Source: MetLife
Second Quarter 2012 401k Wellness Scorecard Plan sponsors are actively seeking ways to make their 401k plans more effective. Each quarter Bank of America Merrill Lynch provides this scorecard of plan participant behavior and sponsor adoption of new plan design features and services from within their 401k book of business. Source: Bank of America Merrill Lynch
Employees Perplexed by Benefits Choices More than half (56 percent) of employees throughout the U.S. estimate they waste up to $750 annually because of mistakes made with benefits elections, according to the 2012 Open Enrollment Survey of the Aflac WorkForces Report, a study of 2,500 U.S. consumers conducted in July 2012. Source: Society for Human Resource Management
Morningstar Target-Date Series Research Paper Relying on Morningstar’s extensive database of information on target-date funds, target-date series, and target-date underlying holdings, this report seeks to define the state of the industry as of year-end 2011. The report examines target-date fund flows, risk and return traits, portfolio attributes, and fee rankings, as well as data related to the quality of the people running target-date funds and the parent companies that sponsor them. Source: Morningstar
Retirement Savings Picture Improves a Tad Americans have made some headway with their retirement savings after the last few disastrous years. Nearly one-fifth of Americans (18 percent) are saving more for retirement this year than last year, according to Bankrate’s August Financial Security Index. When we asked this same question in 2011, 15 percent said they were saving more than the previous year — not a significant difference. Source: Bankrate.com
Benefits Communication Still Work in Progress, Survey Shows In an era of easy access to real-time information on a daily basis, employers understand that more frequent benefits communication is expected. But recent research shows they’re struggling to achieve key objectives in this area. Source: Employee Benefit News
Some Items of Interest to Advisors
Survey Identifies Improvement Opportunities for TPAs In an era of easy access to real-time information on a daily basis, employers understand that more frequent benefits communication is expected. But recent research shows they’re struggling to achieve key objectives in this area. Source: Plansponsor.com
Court and Legislative Items
Supreme Court Petitioned to Hear Appeal of 401k Fee Suit Involving Insurers’ ERISA Plans The petitions for certiorari seek review of Santomenno v. John Hancock Life Insurance Company, decided by the Third Circuit in April. In that case, Ms. Santomenno and her fellow former plan beneficiaries brought claims against John Hancock under ERISA and the Investment Company Act, claiming that John Hancock charged their retirement plans excessive fees on annuity insurance contracts offered to plan participants. Source: Insurereinsure.com
Court Finds Transfer to QDIA Does Not Violate ERISA In Bidwell v. University Medical Center, Inc., the 6th U.S. Circuit Court of Appeals held that University Medical Center did not breach its fiduciary duty to plan participants when it transferred participant account balances to the plan’s newly selected qualified default investment alternative (QDIA) without actual consent. Source: Prudential
Background on the Retirement Savings Security Act (H.R. 3656): Why 401k Plan Loans Do Not Need Credit Insurance In January, a bill has been introduced in the House of Representatives that would default certain participants in 401k plans into purchasing credit insurance to cover the balance of their 401k plan loans. The company advocating this insurance says that it is necessary to protect the participant and/or his or her heirs from the loss of retirement funds and payment of income or excise taxes on a defaulted loan repayment. According to this American Benefits Council memorandum, the need for this proposal is not supported by the arguments. Source: American Benefits Council
Regulatory Related Items
DOL’s Focus on Brokerage Windows Implicates Hecker v. Deere Precedent Although DOL has now revised its guidance on Brokerage Windows to withdraw the more controversial aspects of its guidance, the position expressed in the FAB is consistent with DOL’s litigation positions and, if the Administration is re-elected, may be revived. Source: Schiff Hardin LLP
Five Steps to Accommodate Major 401k Compliance Deadline Looming Employers face rigors surrounding the plan fee disclosures of the coming weeks. If you haven’t started working on disclosure, you are behind schedule. Article discusses five steps to deal with these challenges. Source: Smart Business Network
The “Tussey Twist” to the DOL’s Disclosure Rules The actual amount of revenue sharing generated by the vast majority of plan investments is exempt from disclosure under Schedule C as long as the prospectus describing the revenue sharing formula is delivered to the trustee. One court’s decision may throw a monkey wrench into this disclosure scheme. Source: Businessofbenefits.com
DOL Clarifies Fee Disclosures for Brokerage Windows Although new Q&A 39 provides some relief, the DOL gave plan administrators some cautions. It reiterated its statement in prior Q&A 30 that a failure to designate investment alternatives, for example to avoid fee disclosures, raises questions about compliance with ERISA’s duties of loyalty and prudence. Source: Bryan Cave
Retirement Groups Urge SEC to Stay Out of Money Market Funds Financial services trade groups, including the Investment Company Institute and the Financial Services Institute, sent a joint letter to the Securities and Exchange Commission asking the agency to not pursue its proposed changes to money-market funds, saying they would jeopardize Americans’ retirement savings. Source: Benefitspro.com
DOL Clarifies Guidance on Brokerage Windows in DC Plans The DOL recently issued Field Assistance Bulletin 2012-02R which modifies guidance previously issued in Field Assistance Bulletin 2012-02. This new guidance clarifies the DOL’s position regarding the treatment of brokerage windows and other similar arrangements in participant-directed defined contribution plans under DOL Rule 404a-5. Source: Prudential
DOL Issues Guidance on “Open” MEPs The DOL recently issued Advisory Opinion 2012-04A, concluding that “open” multiple employer plans (MEPs) are not considered single retirement plans for purposes of ERISA. Instead, “open” MEPs are arrangements under which each adopting employer has established a separate ERISA plan. Source: Prudential
404(a)(5) Fee Disclosure: When Participant Means All Employees With the 404(a)(5) fee disclosure deadline approaching fast, there are a lot of questions about what must be disclosed, when it must be disclosed by, and who it must be disclosed to. One of the trickier parts of new Labor Reg. 2550.404a-5 is answering the “who” question. Source: Pension Protection Act Blog
Schapiro Raises the White Flag on Money Funds The asset-management industry scored a victory yesterday as U.S. Securities and Exchange Commission Chairman Mary Schapiro abandoned her quest to impose tougher rules on money-market mutual funds. Source: Investmentnews.com