Experts in Personalized Retirement Plan Design & Administration Newsletter 10.08.14

2015 Projected Retirement Plan Limits Based on the current CPI information through August, here are the projected 2015 retirement plan limits as calculated by a number of reliable sources. The IRS will release the official numbers on or about October 22, 2014. Remember, these are just projected 2015 numbers. Source:

Three Ways to Increase Employee Participation in Your 401k Plan Helping educate your employees about the benefits of a 401k plan, and in the process debunking common plan myths, can go a long way towards getting more employees to enroll. But there are other ways you can help increase participation too. Article takes a brief look at three of them. Source:

How to Help Millennials Save for Retirement: Four Tips for Plan Sponsors But let’s face it: learning about and using their employer’s retirement program is just plain boring or worse yet, scary, to Millennials. So how can plan sponsors support and engage this fast-growing critical group of employees? Article provides four tips. Source:

Beyond Auto-Mania: The Future of 401k Plan Design The movement toward auto-enrollment appears to have hit a plateau; the share of plans adopting it has stabilized at around 50 percent. Article discusses where we go beyond this “auto-mania” and new developments can we expect to see on the horizon. Source:

Secrets for Getting High Earners to Save More Through Retirement Plans Plan advisers have a new arrow in their quiver when it comes to wooing new employer clients: plan designs aimed at helping highly-paid personnel save even more for retirement. Enter the cash balance pension plan and the profit-sharing plan, which can work alongside a 401k. Source:

Infographic: The Boomerang Generation’s Retirement Planning There are several steps Millennials can take to secure a better retirement. This infographic features 12 tips Millennials should consider when developing their retirement strategy. Source:

Considering a 401k Loan? Weigh Your Options Before Borrowing Nearly one million 401k investors initiated a loan from their account during the past year. To help pay back these loans, many investors reduce or stop saving in their 401k altogether. But there can be long-term consequences for investors who stop saving, including the potential loss of up to hundreds of dollars in monthly retirement income. Here is a good review on the issue. Source:

The Bill Gross & PIMCO Saga

How the Bill Gross Hire Completes the PIMCO-ization of Janus For nearly a decade and a half, Janus Capital Group has been trying to shed its gunslinger image and has clearly developed a deeply felt PIMCO-envy. Now with Janus’s chairman, chief executive and superstar seats filled by ex-PIMCO guys, the dream is coming true. Source:

Retirement Plan Advisers Set to Flee PIMCO After Gross Exit About 27,000 of the largest corporate 401k plans in the country had money in the Total Return Fund as of the end of 2012. The roster includes Wal-Mart’s $18 billion plan, as well as Raytheon’s and Verizon’s. Bill Gross’s sudden departure from PIMCO was the last straw for many advisors and they are advising clients to head for the exit. Source:

Morningstar Yanks Gold-Level Rating on PIMCO Total Return Fund As if making up for lost time, Morningstar lowered its rating on PIMCO’s Total Return Fund by two full levels, from gold to bronze, citing the departure of Bill Gross from PIMCO and the unintended consequences of that sudden exit. Still, Morningstar’s Jacobsen tried to write positively of the situation throughout his report, almost belying his stark bottom-line rating. Source:

How to Reassure Retirement Plan Participants in Light of PIMCO Moves For many, if not most 401k plans, the PIMCO Total Return Bond Fund is one of their fixed income options. Most plan participants close to retirement use the Fund as the cornerstone of their retirement investment strategy. If you offer the Fund in your plan, you will probably have some nervous participants and may wish to share the information suggested in this article. Source:

Do We Need to Fire PIMCO? Thousands of institutional investors, 401k investment committees, plan advisors and wealth managers are faced with one of the most uncomfortable questions imaginable: Do we need to fire PIMCO? Here are the thoughts of one advisor. Source:

Bill Gross Announces His Departure From PIMCO; Here’s What it Means for Your 401k Plan Plan fiduciaries with plan investments in the PIMCO Total Return fund are now faced with making a thoughtful decision on retention and monitoring of the fund. This decision is not a simple one and requires careful consideration of the IPS, governing plan documentation and, ultimately, what is perceived to be in the best interest of plan fiduciaries. Source:

The Bill Gross Ripple Effect The departure of Bill Gross from Pacific Investment Management Company (PIMCO) set off a chain of events. Here’s a brief overview. Source:

PIMCO Is Losing Assets to Doubleline, Metwest, Blackrock and Others Right or wrong, the market has been loud and clear over the past week that it believes Bill Gross’ sudden departure from PIMCO marked the ultimate sell signal for the PIMCO Total Return Fund. The big issue now is where that money will land and why. Source: (free registration may be required)

Fiduciary and Plan Governance Material

Issues With Hiring a Mutual Fund Company as Your 401k TPA In the 401k retirement plan space, the top mutual fund companies and insurance companies offered bundled retirement plan services where they serve as the plan’s custodian, third party administrator, and top choice of plan investments. Bundled 401k services offered by a mutual fund company or insurance company can be a great fit for some plans, but not all, and, according to this article, there are some issues that retirement plan sponsors should consider when considering a bundled TPA. Source:

Assigning Fiduciary Responsibilities Through a Cofiduciary Arrangement Can an investment manager or other provider relieve you of part of your fiduciary responsibility? “Cofiduciary” is an approach to fiduciary responsibility that some may consider. But what does it really mean, and is there reason for caution? Outlined here are some of the questions you should be asking when considering a possible cofiduciary arrangement. Source: (PDF File)

Is the IPS Just Ammunition for a Lawsuit? Having a written investment policy statement just makes it easier for my clients to sue you. You’ve probably heard that argument before, right? But that’s only true if you are either unwilling or unable to follow what’s in the IPS. Source:

What’s in an Investment Policy Statement? At its core, an IPS is a document that reflects what a client and advisor have agreed to regarding how the money is to be managed. A good IPS should help each party clearly understand the other’s expectations and should therefore help to avoid surprises. To consider what should go into an IPS, imagine what you or your client would not want to be surprised about what the other is doing. Those are the topics that should be documented. Source:

Why Retirement Plan Fiduciaries Need to Be More Engaged For the 3rd consecutive year, Chatham Partners has conducted its ‘TPA Satisfaction and Needs Assessment Study’; surveying 199 TPAs and gathering their opinions on 22 leading retirement service providers. The study assessed TPAs’ attitudes and perceptions of leading retirement service providers, including their levels of satisfaction with providers’ TPA support services, personnel, technology, product and service offering, and overall impressions. This is an overview of the findings. Source:

Role of the Independent Fiduciary This is a seven page overview of the role of the independent fiduciary including background principles, common situations where an independent fiduciary is either legally required or advisable, the duties of an independent fiduciary and some practical pointers regarding what to expect when employing such a fiduciary. Source: (PDF File)

Steps the 401k Fiduciary Can Take to Avoid Poor Plan Design A poorly designed 401k plan, rather than promoting employee savings, actually dampens it. Poor plan design, specifically, leakage and weak savings, is the main villain in this drama. This article reviews a number of design alternatives. Source:

Insight: Studies, Research and White Papers

Employers Looking to Enhance 401k Investment Structures, Survey Finds Employers are enhancing the investment structures of their 401k plans, according to a new survey by Towers Watson. This includes replacing single, stand-alone investment options with multi-manager, white-label choices, implementing custom target-date fund solutions and outsourcing all or portions of their 401k plan oversight. Source:

The Slow Rise of the Tablet App for Retirement Plans Apps that are created for use on tablets offer the potential for greater functionality than a typical mobile app, Corporate Insight says in its recent report “Retirement on the Move: Tablet Edition,” an overview of retirement plan tablet apps. In the defined contribution world, users could view account balances and analyze fund data or asset allocations on the move, and the larger screens of tablets would make certain tools easier to use and multimedia resources more accessible. Source:

Will ERISA Be Balkanized? Despite its success, the private retirement system has been subject to the criticism that it is not sufficiently accessible to low wage workers, which has resulted in numerous proposals that would establish government-sponsored retirement savings arrangements for private-sector workers. Before signing off on these parallel systems, this article suggests that one should carefully examine the security of the funds they would control and whether their special rules would undercut support for the current system. Source: (PDF File)

ICI Study Examines Who Gets Retirement Plans An updated study released today by the Investment Company Institute finds that most workers who are likely to have the ability to save and to be focused primarily on saving for retirement have access to an employer-provided retirement plan. In Who Gets Retirement Plans and Why, 2013, ICI uses the most recent data on pension coverage to update its analysis of the employee characteristics that make some employers more likely to offer, and some workers more likely to seek, compensation packages that include retirement benefits. Source:

Items of Special Interest to Service Providers

Chatham Partners Release TPA Benchmarking Study For the 3rd consecutive year, Chatham Partners has conducted its ‘TPA Satisfaction and Needs Assessment Study’; surveying 199 TPAs and gathering their opinions on 22 leading retirement service providers. The study assessed TPAs’ attitudes and perceptions of leading retirement service providers, including their levels of satisfaction with providers’ TPA support services, personnel, technology, product and service offering, and overall impressions. This is an overview of the findings. Source:

Re-Proposal of DOL Fiduciary Advice Regulation The DOL has pushed back the date for the re-proposal of the fiduciary advice regulation to January of next year. In addition, the SEC is working with the DOL to help determine the impact of an expanded fiduciary advice regulation on the ability of investors to continue to receive adequate investment services. Finally, the White House is also evaluating the potential impact of a regulation that expands the definition of fiduciary advice. The big question, of course, is what does all of this mean? Source:

Target-Date Funds

Do Customized Target-Date Funds Hit the Target? As automatic enrollment becomes a staple of 401k plan design, the resulting deferrals are increasingly invested in target-date funds. But a growing issue for plan sponsors is whether off-the-shelf TDFs are robust enough for their growing role in retirement plan investing. Article discusses the question of whether there are a better option for participants than the off-the-shelf TDFs offered in most 401k plans. Source:

Court, Legal, Legislative and Washington DC

Third Circuit Serves up Big Win for Retirement Plan Service Providers The U.S. Court of Appeals for the Third Circuit recently issued an important decision in one of the many cases alleging that financial services companies breached fiduciary duties under ERISA by charging allegedly excessive fees. This type of litigation has grown more prevalent in recent years. However, most appellate courts, including now the Third Circuit, have found these claims unmeritorious. Source:

Third Circuit Affirms Dismissal of Excessive Fee Claims Against John Hancock The plaintiffs alleged that the insurer acted as an ERISA fiduciary and violated ERISA by charging excessive fees, including fund advisory fees, sales & service fees, 12b-1 fees, and revenue sharing. The U. S. Court of Appeals for the Third Circuit affirmed dismissal of all claims against the defendant insurance company in a case challenging 401k plan fees. Source:

John Hancock Dodges ERISA Class Action — An Analysis of the Bigger Picture Author writes, “The open question from these cases is whether 3(21)(A)(iii) requires the actor to actually exercise their discretion or not, i.e. it’s a fiduciary breach to be both malfeasant and nonfeasant. The reason this has not been as prominent is that in most instances, the allegations are centered around the investments which generate the fees and they have little to do with plan administration. The chances are high that allegations against the large service providers in the future will involve claims under 3(21)(A(iii), even if the investments are the core of the conduct, i.e. revenue sharing.” Source:

Does It Matter That the 401k Service Provider Is Not a Fiduciary? Stephen Rosenberg comments here on the Third Circuit’s decision last week in Santomenno v. John Hancock, in which the Court held that John Hancock’s role as an advisor and service provider for a company 401k plan, by which it helped select fund options and administer participant investments, did not render it a functional fiduciary under ERISA for purposes of an excessive fee claim. Source:

High Court to Hear ERISA Fiduciary Breach Case Lower courts have held that Edison International employees could not sue their 401k plan administrator for breach of fiduciary duty because their claims were time-barred under ERISA. Now the U.S. Supreme Court has agreed to consider the case. Source:

Supreme Court Grants Cert in Tibble v. Edison On October 2, 2014, the United States Supreme Court granted the Plaintiffs’ Petition for Writ of Certiorari in Tibble v. Edison International. Oral arguments in Tibble have not yet been set but currently the Court has availability in January. If heard that late, we can expect a decision sometime between late spring and the end of June when the term ends. Source:

Compliance and Regulatory Related

IRS Mandates Electronic Filing by Large Retirement Plans IRS issued final regulations requiring employer retirement plan sponsors or administrators that file at least 250 returns in a calendar year to submit Form 5500 annual reports and other plan-related documents electronically. The regulations are effective Sept. 29th. Source:

401k Plan Fee Disclosure Matters to the DOL In speaking at the 2014 Washington Update presented by the New England Employee Benefits Council, Kristen Zarenko, Senior Law Specialist of EBSA’s Office of Regulations and Interpretations, noted that EBSA enforcement actions will continue to require plan sponsors to provide copies of annual fee disclosures from covered service providers. Zarenko also observed that a surprisingly large number of plan sponsors have not been able produce the required documents during the first two years of enforcement. Source:

New Guidance on Locating Missing Retirement Plan Participants Although FAB 2014-1 applies specifically in the context of a terminated defined contribution plan, the guidance is helpful in determining appropriate procedures for locating missing participants in other circumstances. Best practices would dictate that, at a minimum, the four required search steps be undertaken in all cases. Source:

Terminating a Retirement Plan Retirement plans must be established with the intention of continuing indefinitely. However, you may terminate your plan when it no longer suits your business needs. This IRS piece outlines the general steps you need to take to terminate a retirement plan. Source:

Have You Had Your Retirement Plan Check-Up This Year? A retirement plan needs regular care to keep it operating properly. Your plan’s care should include a regular review of your plan’s basic operations. These one-page checklists are a quick way to start your review. Each checklist links to a Fix-It Guide with tips on how to find, fix and avoid each potential error. Source:

Video: Are Your Loan Repayments Processed in a Timely Manner? “Sufficiently Similar” are the words that the Department of Labor used when describing a Plan’s requirements to remit participant loan repayments on a timely basis. Watch this one minute video to learn what that means. Source:

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