Experts in Personalized Retirement Plan Design & Administration Newsletter 10.17.12

Changes in 401k Plans Spur Higher Participation More U.S. companies and participants are putting money into 401k plans, and they are doing so at higher rates than in previous years. The continued upward trend in participation and contribution levels is a result of the ongoing, sustained efforts of plan sponsors to effectively communicate their plan and educate their participants on the benefits of enrolling and staying in the plan. Source: Society for Human Resource Management

Plug the Drain: 401k Leakage and the Impact on Retirement This is a recorded webinar explaining the impact of “leakage” on DC plans, including how plan sponsors can reduce plan leakage, and initiatives underway by the Department of Treasury in preventing plan leakage. Source: Defined Contribution Institutional Investment Association

The Triumphant Return of the DB Plan? With all of the prevailing data as proof, it might seem slightly insane to suggest that defined benefit pension plans could make a gigantic comeback – and emerge again as America’s predominant retirement strategy. But, rising interest rates and high bond yields could bring pension plans back as a preferred retirement strategy. Maybe. Source:

The World’s First 401k Cash Back Rewards Program What makes SaverNation a truly game-changing innovation is that it totally eliminates the painful save-or-spend dilemma facing nearly every employee? For the first time ever, everyone can contribute a lot more, every month, effortlessly, without having to sacrifice even a penny more of spending. Here’s how it works. Source: NAPA Net

Saving for Retirement: IRA vs. 401k With all the different retirement accounts out there — 401k, 403(b) or 457 plans at work, traditional IRAs, Roth IRAs, regular brokerage accounts, deferred annuities — it can be hard to know which are best for you, and in what combination. Source: Schwab

A 401k Must Read: Mutual Fund Expense Ratio Myth Busted One of the most pervasive myths in the investing universe – and one that impacts the world of 401k plan sponsors and investors the most – states that “lower expense ratio mutual funds perform better than higher expense ratio mutual funds.” Source:

End of Year Action Items – Plan Now for 2012-2013 Compliance With year-end fast approaching, now is the time for plan sponsors to review their employee benefit plans to ensure that they have been updated for any changes in the law, that required notices have been distributed, and to take other actions required by December 31, 2012. Here are a few items that you should be thinking about. Source: Poyner Spruill LLP

Keep Your Sanity During Open Enrollment Open enrollment can be a stressful time for HR professionals who work with benefits. Often, management doesn’t have a true picture of the time and effort that go into making this event successful. This article has a few simple suggestions to help maintain your sanity. Source: Society for Human Resource Management

403(b) Plans

What You Need to Know About ERISA 403(b) Plans in 2012 The disclosures and guidance provided in 2012 will most likely result in more changes in how ERISA 403(b) plans are governed, evaluated and judged than in any year since 1986. It is time to upgrade the 1980’s model 403(b) retirement plan for the more efficient, safe and user friendly 2012 model. Source: Flautt Hare Davis

Plan Design in Higher Education: Best Practices for Improving Retirement Readiness Fidelity Investments published this best practices guide for plan sponsors in higher education. The insights in the report are based on plan data and millions of employee-level transactions from 415 higher education plans, representing more than $52 billion in assets and over one million participants. The report’s purpose is to illustrate ways that America’s academic institutions can improve retirement readiness among employees. Source: Fidelity

Fiduciary Related

Let’s Be Reasonable: 408(b)(2) Fee and Service Evaluations Due to 408(b)(2), we are living in a new age of responsibility for determining the “reasonableness” of fees and services in ERISA retirement plans. After the distraction of formatting and distributing the 404(a)(5) disclosures to employees, it is now time to turn our attention back to the required evaluation of reasonableness of services and fees. But what is “reasonable”? Source: Flautt Hare Davis

An Employer’s Guide for Selecting Retirement Plan Financial Advisors When it comes to your role as a retirement plan sponsor, outside of hiring a TPA, the most important plan provider that you need to hire is a financial advisor. This article is intended to act as a guide for you as you select a financial advisor for your retirement plan or to review the incumbent advisor as part of your fiduciary responsibility. Source: Rosenbaum Law Firm PC

How Will November Affect the Fiduciary Debate? There is no clarion call in the national party platforms of Republicans and Democrats for a robust fiduciary standard, or even the faintest hint of one anywhere in the presidential campaign. Trying to find a discernible pattern in congressional votes or agency decisions continues to reaffirm studies concluding that the standard remains grossly misunderstood by the public, notwithstanding its critical importance to society. Thus when we look at the election results on Nov. 6, we should not read too much into them with regard to the fiduciary standard. Source:

Proper Advisor Benchmarking Values Facts Over Opinions Plan sponsors that have hired an advisor without a documented process to support the hire are vulnerable to claims of fiduciary breach of loyalty and prudence as well as potential claims of self-dealing and conflicts of interest. Although not anticipated, ERISA 408(b)(2) and 404(a)(5) may become the death knell for lifetime members of the “good old boy network” that have relied on their relationships — instead of the knowledge, experience and skill — to secure retirement plan engagements. Source: Fiduciary Risk Assessment

A Case Study of a Fiduciary Breakdown A recent case offers several lessons for Plan Sponsors and Service Providers. One of the most critical issues in the case was the failure of the company to follow its own Investment Policy Statement. This case illustrates the need for plans to create a proper process for Fiduciary Risk Management – emphasizing the Investment Policy Statement as the foundation for a prudent process. Source:

Plan Sponsors Should Create a Realistic IPS The court case in question can teach valuable lessons, according to Janus Capital’s white paper, including that fiduciaries should routinely review and revise the IPS to ensure that their fiduciary actions are consistent and the IPS is up to date and reflects both the plan sponsors’ intent and the new regulatory environment. Source:

Fiduciary Responsibilities for a Plan With Self-directed Brokerage Accounts Only Many small self-directed retirement plans provide each participant with his/her own self-directed brokerage account (SDBA) rather than a platform of funds from which to choose. The approach is particularly popular in small professional practices. This article addresses the specific issues that apply to a plan that provides the SDBA as the only investment option. Source: Sungard/Relius

Insights: Studies, Research and White Papers

Govt Accountability Office Releases Report on Multiple Employer Plans The report is an interesting read because it does a good job summarizing the MEP industry at this point in time, and discusses the issues caused by lack of coordination between the IRS and the Dept. of Labor in regulating MEPs, including how the DOL issued two recent advisory opinions finding that open MEPs are not single employer benefit plans under Title I of ERISA, while the IRS has found at least one open MEP, operating since 2003, qualified for preferential tax treatment. Source: Pension Protection Act Blog

Retirement Plan Access More Widespread Than Many Believe Concerns about whether enough Americans have access to retirement savings plans regularly drive alarmist headlines and heated Capitol Hill hearings, but two recent studies indicate that workers’ access to such plans is, in fact, widespread. Source:

Report Says Upping Starting Contribution Increases Secure Retirement Workers’ likelihood of a financially viable retirement would, not surprisingly, be significantly improved by setting a higher starting point for 401k contributions, new research from the Employee Benefit Research Institute shows. Source:

MEP Reflections Following the GAO Report The GAO issued its long awaited study on Multiple Employer Plans. It is nicely written and informative for those who with an interest in such matters. The report demonstrates a few key points outlined here. Source:

401k Plan Design Important for Increasing Employee Investments Because employers are scrambling to make their retirement plans more effective, plan design has become even more important. Research has shown that better outcomes can result from plan design strategies that drive such positive participant decision-making as enrolling, contributing and improving financial wellness. Source:

The Evolution of Investment Menu Design The structure of retirement plan investment menus continues to evolve, from “more choice is better” to “less is more.” By incorporating the science of behavioral finance, we arrive at the new evolution of investment menu design: Tiered Investment Menus. Source:

Retirement Plan Types of Fortune 100 Companies in 2012 Large employers have been reassessing their retirement offerings for some time now. Over the past decade, most have shifted from traditional DB plans to either account-based DB plans or DC plans. The shift is motivated by several factors, including employers’ desire to reduce overall retirement costs, perceptions that workers prefer more portable plans, market trends and the belief that such a shift reduces financial risk. Source: Towers Watson

PSCA’s Annual Survey Shows Company Contributions Are Bouncing Back The Plan Sponsor Council of America (PSCA) announced the release of its 55th Annual Survey of Profit Sharing and 401k Plans. The most significant finding of this year’s survey is that more companies and participants are putting money into their plans, and they are doing so at higher rates than in previous years. Source:

Highlights of PSCA’s 55th Annual Survey of Profit Sharing and 401k Plans The Plan Sponsor Council of America’s 55th Annual Survey of Profit Sharing and 401k Plans reports on the 2011 plan-year experience of 840 plans with 10.3 million participants and $753 billion in plan assets. The survey contains 156 tables of data on important topics. This article reviews the study highlights. Source: Plan Sponsor Council of America

Success by Plan Design: Improving 401k Plan Health and Employee Wellness For most employees, their 401k plan will be the sole source of retirement funding. In this paper, Bank of America Merrill Lynch highlights historically proven actions that can help improve 401k plan health and employee financial wellness. They also propose solutions to challenges that are preventing some sponsors from taking action. Source: Bank of America Merrill Lynch

Majority of Fortune 100 Companies Offer Only DC Plans to New Hires The latest annual survey of Fortune 100 companies’ retirement plan types confirms the familiar shift to defined contribution plans by most of the largest U.S. firms. Source:

Inventing the Wheel: The Disclosure Management Cycle As public companies continue to encounter an increasing amount of regulatory requirements for disclosure reporting, the Disclosure Management Cycle is evolving into an extremely relevant and “hot” topic. Analysts in the space are beginning to produce research on Disclosure Management. Source:

Some Items of Interest to Advisors

What RIAs Must Know About Fees in Serving As Fiduciaries to a 401k Being sued or assessed monetary sanctions is an effective but expensive way for 401k advisors to become familiar with the Labor Department’s way of viewing things. There’s a better way: learning from the mistakes of other plan sponsors and financial advisors. Perhaps nowhere is this more true than in the nettlesome area of fees — hidden ones, excessive ones and ones that fit the revenue-sharing mold. Source:

Do Plan Advisers Understand Their Risks? New federal regulations mandating fee and compensation disclosure are the latest reminder to plan advisers and fiduciaries of the perils of providing services to ERISA-regulated benefit plans. Many investment advisers are unaware of how recent rule changes affect their duties as fiduciaries. Source: (Free Registration May Be Required)

Court and Legislative Items

Eleventh Circuit Becomes Latest Circuit to Adopt Rebuttable Presumption That Fiduciaries Act Prudently This article explains a recent United States Court of Appeals for the Eleventh Circuit case that adopted the view that ERISA plan fiduciaries do not abuse their discretion by investing in employer stock according to plan terms, as long as it was reasonable to do so under the circumstances. Source: Jenner & Block

Regulation and Regulatory Related

How to Capitalize on 2012 Regulations to Improve Your Retirement Plan The disclosures and guidance provided in 2012 will most likely encourage more changes in how 401k and 403(b) plans are evaluated and judged in any one year since the rise of their popularity in the early 1980’s. This paper reviews eight ways that you can improve your retirement plan in 2012. Source: Flautt Hare Davis

Money-Market Fund Reform Down, Not Out Those who oppose further money-market fund reform should refrain from cheering: the failure of Securities and Exchange Commission chair Mary Schapiro to push through new safety measures in August is not the last word from regulators. Source:

Are Self-Directed Brokerage Accounts Subject to Participant Fee Disclosure Regulations? The reasons for the confusion are manifold as practitioners are struggling to absorb and understand two difficult sets of fee disclosure regulations and a complicated Form 5500, Schedule C. In this Technical Update, Sungard will address how the participant fee disclosure regulations apply to a plan with self-directed brokerage accounts. Source: Sungard/Relius

401k Paperwork Gets Mixed Grades on Clarity A lot is riding on the 401k industry’s new disclosure rules, which the Department of Labor hopes will give small business owners a plain-English explanation of what their retirement plans cost to run. But while some of these new forms are getting high marks, others appear to be adding to the confusion. Source:

DOL Enforcement Update The cases summarized in this article highlight the DOL’s commitment to a rigorous enforcement of the law and underscore the need for competent guidance on ERISA compliance. Source: NAPA Net

The 408(b)(2) Trap for Plan Sponsors Plan sponsors, and their officers who make 401k decisions, face lawsuits and penalties if they do not take steps to comply with new regulatory requirements. The Department of Labor’s (DOL) 408(b)(2) regulation imposes two significant duties on plan sponsors. This article describes the two duties and generally discusses the steps that must be taken to comply with the regulation. Source: Centre for Fiduciary Excellence

Checklist for Required 2012 Puerto Rico Qualified Plan Amendments Sponsors of qualified retirement plans covering employees who are bona-fide residents of Puerto Rico, or who perform labor or services primarily within Puerto Rico, regardless of residence for other purposes (Puerto Rico Employees), are required to amend their plans before the end of the 2012 plan year (December 31, 2012, for a plan with a calendar plan year) in compliance with qualification requirements of the Puerto Rico Internal Revenue Code of 2011 (PR Code). Source: Groom Law Group

‘Plain English’ on 401k Fees Often Reads More Like Gibberish Tom Schwab, the owner of a 15-employee mortgage company in Seattle, is used to dealing with complex financial forms. But when he opened a mailing detailing the costs of his company’s 401k plan, he was perplexed. His inability to make sense of the paperwork was all the more confusing because this was one of the new “plain-English” fee disclosures. Source: Wall Street Journal

New Retirement Fee Rules Allow Better Provider Comparison Final regulations issued by the Department of Labor required covered service providers to provide fiduciaries with information about their compensation, the services they provide and their fiduciary status. Why? Because these covered service providers are only permitted to be paid from the plan assets if both the contract/arrangement and the compensation for services are reasonable. Source: Cedar Brook Financial Partners

Class Warfare in Your 401k Employers — spurred by the Department of Labor and a string of lawsuits — have been trying to wring waste out of the system and improve transparency. But, perhaps inadvertently, some experts say the shift is also undermining plan features that usually leave wealthier investors subsidizing less-affluent ones, sparking a discussion among experts about the “fairest” way to allocate fees. Source:

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