BPP401k.com Newsletter 10.29.14
Maximize Your Retirement Savings – Tips on Using the Fee and Investment Information From Your Retirement Plan While there are a number of factors to consider in making sound investment decisions, start with the information provided by your plan. Your plan administrator should provide you with key information about certain investment options offered by the plan every year. This information is provided in a format that allows you to compare the investment options. To help you use the investment-related information provided by your plan, this article describes some of the key information you will receive from your plan and provides tips on using this information in evaluating your investment choices in your plan. Source: Dol.gov
What a 401k Plan Really Owes Employees If you had a choice between two share classes of the same mutual fund — the only difference being that one class charged higher fees and was therefore guaranteed to have poorer returns — the choice would not seem to be difficult. But trustees of one 401k plan decided to take the one that charged higher fees. Article deals with the trustees responsibilities. Source: Nytimes.com
How to Lower 401k Costs in a Buyer’s Market Changes in technology have “flipped the field” for 401k plan services. New technologies offer better and cheaper ways to deliver traditional plan services. These technologies are cheap, scalable and available to all plans. As a result, plan sponsors are in the power position when selecting retirement plan professionals, regardless of the number of employees or total assets in the plan. Source: Marketwatch.com
Five Ways Employers Can Improve Their 401ks 401k’s and similar plans play a vital role in the American retirement system by helping workers save and invest for retirement. Yet, workers need to save more to achieve a financially secure retirement and a few plan design changes could help them do so. Here are five suggestions. Source: 401khelpcenter.com
Fiduciary and Plan Governance Material
Fiduciary Considerations — The Post-Dudenhoeffer Era In the past, many plans with employer stock investments have been subject to class-action lawsuits alleging a breach of fiduciary duty from holding and/or allowing further investment in employer stock after a precipitous decline in its value. A key defense for employers in these “stock-drop” cases was the so-called “Moench presumption” of prudence. This presumption meant that a plan fiduciary’s decision to remain invested in employer stock was presumed to be reasonable. In Dudenhoeffer, the Supreme Court held that there is no such presumption. In this article, Marcia Wagner discusses the implications. Source: Wagnerlawgroup.com (PDF File)
Interview: Jerry Schlichter Reveals Three Ways 401k Plan Sponsors Can Avoid a Fiduciary Breach Jerry Schlichter has made a name for himself and his firm as lead attorney on numerous cases on behalf of employees and retirees involving claims of excessive fees and fiduciary breaches in large 401k plans. Here, he talks about how plan sponsors might reduce their fiduciary liability while helping retirement savers have the best chance to enjoy a comfortable retirement. Source: Fiduciarynews.com
To Have an Expert or Not: A Fiduciary’s Quandary Generally, the only real requirement for someone to act as a fiduciary of a benefit plan under ERISA is that they be a “reasonably prudent person” and that they act with diligence and due care. That is the essence of ERISA Section 404. However, Section 404 includes that the measurement of care is based on a reasonable person “familiar with such matters.” Thus, the law recognizes that someone could possibly have to look outside of their own knowledge in order to be acting reasonably. Author talks about what this means. Source: Foxrothschild.com
Five Tips for a Successful Advisor RFP Process A well-run advisor RFP process can help plan sponsors identify and prioritize their most important issues, gather intelligence on advisory services available in the market, help simplify decision making and document an important fiduciary process. The following article shares five tips and best practices that can help make what might seem like a daunting process seem much more manageable. Source: Captrustadvisors.com (PDF File)
Insight: Studies, Research and White Papers
A Look at Private-Sector Retirement Plan Income After ERISA The importance of private-sector DB pensions in providing retirement income is often exaggerated. The time before the emergence of 401k plans in 1981 has been characterized by many as the golden age of the golden watch: a time when most private-sector workers retired with a monthly pension check that replaced a significant portion of their pre-retirement income. Against this standard, 401k plans are judged to be falling short. The facts support a different narrative. Source: Ici.org (PDF File)
Nearly Half of Americans Surveyed Think They Pay Zero Retirement Investment Fees A new survey commissioned by retirement investment advisory firm Rebalance IRA finds that many full-time employed baby boomers do not have a clear understanding of the fees they are paying in their retirement accounts. When asked what they pay in retirement account fees, 46 percent believed that they do not pay any fees at all. Source: 401khelpcenter.com
401k Index Shows Higher-Than-Normal Movement Away From Equities According to the Aon Hewitt 401k Index, which tracks the 401k trading activities of nearly 1.3 million participants, representing nearly $160 billion in collective assets, five of the first 11 trading days of October saw “moderate” or “high” levels of 401k trading activity. Source: 401khelpcenter.com
Saving for Retirement Not Happening for a Third of Middle Class Saving for retirement is a formidable challenge for middle-class Americans, with 34% not currently contributing anything to a 401k, an IRA or other retirement savings vehicle, according to the fifth annual Wells Fargo Middle-Class Retirement study. Forty-one percent of middle-class Americans between the ages of 50 and 59 are not currently saving for retirement. Nearly a third (31%) of all respondents say they will not have enough money to “survive” on in retirement, and this increases to nearly half (48%) of middle-class Americans in their 50s. Source: 401khelpcenter.com
Frequently Asked Questions About 401k Plans The Investment Company Institute has updated their FAQ on 401k retirement plans. Some of the questions covered are: How large is the 401k market? How many Americans have 401ks? What is the average 401k plan account balance? What role do mutual funds play in 401k plan investing? Source: Ici.org
Preliminary Information on IRA Balances Accumulated as of 2011 In 2014, the U.S. federal government will forgo an estimated $17.5 billion in tax revenue from IRAs. Congress limited annual contributions to IRAs to prevent the tax-favored accumulation of unduly large balances, but concerns have been raised that tax benefits accrue primarily for higher -income individuals. This GAO report provides observations based on ongoing work on information on IRA balances in terms of reported fair market value aggregated by taxpayers. Source: Gao.gov
State of U.S. Employee Retirement Preparedness Financial Finesse has released its annual research report on the state of U.S. employee retirement preparedness for 2014. This 15 page report finds employers are taking the right steps to improve retirement plan preparedness, but economic and market uncertainty may be creeping into the national psyche. Source: Financialfinesse.com (PDF File)
Retirement ‘Not Happening’ — For Those With No Retirement Plan Having access to a 401k also seems to positively impact a sense of what is possible. Nearly 6 out of 10 (58%) non-retirees without access to a 401k plan say “it is not possible” to pay bills and “still” save for retirement, compared with about a third (32%) of those who have access to a plan but say they can’t save and pay bills at the same time. Source: Napa-net.org
Items of Special Interest to Service Providers
Borzi Taking a Back Seat on Fiduciary Rule The leading player in the DOL’s effort to raise investment advice standards for retirement plans is patiently waiting on the sidelines while her boss talks to opponents of the measure. Labor Secretary Thomas Perez has been meeting with industry representatives to hear their qualms about the measure, which would expand the definition of fiduciary under federal retirement law to include more advisers, such as brokers who sell individual retirement accounts. Source: Investmentnews.com (free registration may be required)
Fees Can Be Touchy Subject for Advisers No one wants to talk about it, but everyone wants to know: How do other retirement plan advisers arrive at a fee for their plans? The basis of compensation — flat fee or using a percentage of plan assets — is one of the biggest dividing lines in determining fees. Here, some advisers weigh in on their methods. Source: Planadviser.com
Tips for Effective Retirement Practice Marketing Marketing skill is essential in building up a retirement advisory practice, says Sean Ciemiewicz of Retirement Benefits Group, but public relations can be overwhelming for the unprepared. The first marketing lesson Ciemiewicz shares with advisers, both independents and those affiliated with a larger firm, is that it is possible to be successful in marketing without spending all that much time on it. Source: Planadviser.com
How Mariner Holdings Is Angling to Become a $3-billion 401k Company Overnight Marty Bicknell has catapulted his company into the 401k business with advised assets of $3 billion and a very senior staff, and another RIA may get nicked for $2 billion in the bargain. The chief executive and founder of Mariner Holdings in Leawood, Kan. accomplished this feat by poaching a good portion of the Kansas City team that was formerly part of SageView Advisory Group. Source: Riabiz.com
Court, Legal, Legislative and Washington DC
Venue Selection Clause in Retirement Plan is Enforceable According to Sixth Circuit On October 14, 2014, in Smith v. AEGON Companies Pension Plan, the US Court of Appeals for the Sixth Circuit held that a venue selection clause in a retirement plan governed by ERISA that limited venue to a specific district court was enforceable. Source: Practicallaw.com
Edison International Case Highlights a Needed Reform: Share Class Restrictions in 401k Plans The author suggests that, although the case is interesting, a more fundamental issue that needs to be addressed. “The use of multiple share classes for mutual funds in 401k plans is confusing the heck out of just about every small business retirement plan sponsor in America.” Source: Employeefiduciary.com
Compliance and Regulatory Related
Lifetime Income Guidance on Target-Date Funds Issued by IRS and DOL The Internal Revenue Service issued Notice 2014-66 and the Department of Labor issued an Information Letter from Phyllis C. Borzi to Mark J. Iwry which together enable defined contribution plans to provide lifetime income by offering target-date funds that include deferred annuities available only to older participants. This is a detailed overview. Source: Practicallaw.com
IRS Simplifies Rules for Participants in Canadian Plans — Or Does it? Under the US-Canada Income Tax Treaty, U.S. taxpayers who participate in Canadian registered retirement savings plans and registered retirement income funds are not required to pay tax on the annual income and investment gains on their accounts. Tax is owed only when distributions are received from the accounts. However, in order to claim this special tax treatment, participants were required to file Form 8891 annually. Many haven’t and the IRS has issued a ‘solution.’ Source: Pensionsbenefitslaw.com
Retirement Plan Reporting and Disclosure Requirements The IRS has updated its Retirement Plan Reporting and Disclosure Requirements Guide. The Guide was prepared as a quick reference tool for certain basic reporting and disclosure requirements for retirement plans under the Internal Revenue Code and provisions of the ERISA administered by the IRS. Source: Irs.gov (PDF File)
IRS OK Annuities in 401k Target-Date Funds IRS approval on Friday of the use of annuities in target-date funds in 401k plans, including as a default investment, will make lifetime-income features more popular and help ensure that droves of baby boomers don’t outlive their nest egg, industry officials and experts say. Source: Investmentnews.com (free registration may be required)
IRS: Deferred Annuities in 401k’s Are Fine Plan sponsors can offer target-date funds that include deferred-income annuities to older, higher-income earners without breaching ERISA’s non-discrimination requirements, the IRS said Friday in a special ruling. The ruling is expected to boost the popularity of lifetime-income options, helping employees hedge against the potential of running out of money in retirement. Source: Benefitspro.com
Washington Tweaks Retirement Fund Policy to Encourage Annuities The U.S. Treasury Department said on Friday it was tweaking its policy for retirement funds to encourage savers to buy annuities, a measure aimed to keep them from outliving their savings. The DOL and the Internal Revenue Service will let retirement funds offer long-term deferred annuities as a default investment in 401k retirement accounts. Source: Reuters.com
Lifetime Income Provided Through Target-Date Funds in 401k Plans This IRS notice (#2014-66) provides a special rule that enables qualified defined contribution plans to provide lifetime income by offering, as investment options, a series of target-date funds that include deferred annuities among their assets, even if some of the TDFs within the series are available only to older participants. Source: Irs.gov (PDF File)
IRS Announces 2015 401k Plan Contribution Limits On October 23, 2014, the IRS announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015. Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Source: 401khelpcenter.com
Longevity Insurance in DC Plans — Paving the Way for QLACs The IRS’s QLAC regulations are a step in the right direction toward helping individuals better manage longevity risk. This is a seven page detailed review of the 2014 regulations on qualifying longevity annuity contracts and plan sponsor considerations. Source: Aon.com (PDF File)
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