Experts in Personalized Retirement Plan Design & Administration Newsletter 12.18.17

Behavioral Finance: How Participants Make Decisions Behavioral finance research shows most 401k participants are not active decision-makers. In fact, most participants are dominated by five key behavioral traits: inertia, procrastination, choice overload, endorsement and framing. Dr. Greg Kasten of Unified Trust explains these behaviors and how appropriate strategies can be enacted to allow for participant success despite these behaviors. Source:

How Anchoring Hurts 401k Retirement Savers With the introduction of the concept of anchoring, Tversky and Kahneman opened the door to a new way of thinking about and addressing the financial decision-making process. For more than four decades, subsequent research has expanded upon their idea. Yet, plan sponsors and participants continue to remain uninformed of the dangers of anchoring. Source:

Fiduciary and Plan Governance Material

Employer Fiduciary Exposure/Risks to Employers in Vendor Agreements The topic is the fiduciary risk to plan sponsors in vendor contracts as a result of the DOL Fiduciary Rule. Source:

Retirement Plan Sponsors Can’t Afford to Be Cheap Paying reasonable plan expenses isn’t about paying as little as possible, so it means that plan sponsors don’t need to be cheap. They can’t afford to be cheap because being cheap can cost a plan sponsor a lot more in the long run. Source:

Insight: Studies, Research, and White Papers

Changes, Trends and Best Practices for 401k Administration in 2018 It’s important for HR to understand 2018’s changes and trends in 401ks, but its just as important to ensure that your workforce understands what you’re offering and how best to use it to meet their current and future needs. Source:

Successful Financial Wellness Programs Require Behavioral Changes, Not Just Literacy Wellness programs that merely teach employees financial literacy aren’t as successful as those that encourage change in their behavior, according to Aon Hewitt’s 2017 Hot Topics in Retirement and Financial Wellbeing. In the study, 59% of respondents said they would be very likely to focus on employees’ financial well-being beyond retirement issues. Source:

2017 Stable Value Study This 30-page study explores plan sponsors’ familiarity with the SEC’s MMF reform and the extent to which they have taken steps to evaluate the use of money market funds in their DC plans. The study also looks at other trends, such as the use of stable value in target-date funds. Source:

Study Finds Money Market Funds Losing Favor in DC Plans One year after the SEC’s money market fund reform rules went into effect, there has been meaningful movement away from money market funds as a capital preservation option in defined contribution plans, with just over half of plan sponsors now offering money market as a capital preservation option (52%), down from 62% in 2015, according to MetLife’s 2017 Stable Value Study. Source:

Canadian Plans Sponsors Not Measuring Impact of DC Pensions Few Canadian employers are tracking the impact of their DC plans or measuring their outcomes, according to new research by Willis Towers Watson. It found only 26 percent of survey respondents measure the retirement readiness of their employees at least every three years, while 30 percent monitor it periodically and 40 percent take no action at all. Source:

18th Annual Transamerica Retirement Survey The Annual Transamerica Retirement Survey explores attitudes about retirement and retirement readiness among American workers. The latest findings highlight differences and similarities among Baby Boomers, Generation X and Millennials. The study had more than 6,000 respondents. It was conducted by Harris Poll. Source:

DC Plan Sponsor Priorities for 2018 Mercer details priority areas of focus for defined contribution plan sponsors as they manage their plans and seek to enable participant success. Sponsors look to improve plan participant outcomes, mitigate excessive fee litigation risks, and manage fiduciary responsibilities. Source:

Items of Special Interest to Service Providers

How Merrill Lynch ‘Shot to Hell’ the RIA Fiduciary Citadel The DOL’s fiduciary rule has created an oddity in the 401k business where 401k RIAs are the giants protecting market share against upstart RIAs. The result, in the case of Merrill Lynch at least, is a new effort that has all the hallmarks of innovation and all the resources of the fatted cow. Source:

403b Plans

Spousal Consent/J&S Issues Under 403b Plans May Trigger Document Conflicts The application of the Spousal Consent and Joint and Survivor Annuity rules is an issue which needs to be considered. Article deal with documenting the rules as they apply to 403b plans. Source:

Court and Legal

Aon Hewitt Can’t Escape Safeway’s 401k Fee Lawsuit Aon Hewitt Investment Consulting must defend allegations that it acted imprudently by selecting and monitoring certain investment options, including JPMorgan’s target-date funds, in Safeway’s 401k plan. Source: (registration may be required)

Participant Alleges Design Flaw in Proprietary Fund Suit An alleged “built-in” flaw in fund design has drawn a fiduciary breach suit by a plan participant. The suit (Birse v. CenturyLink, Inc., D. Colo., No. 1:17-cv-02872, complaint filed 11/30/17) was filed in the U.S. District Court for the District of Colorado. Source:

ERISA Stock Drop Cases Since Dudenhoeffer: The Pleading Standard Has Been Raised This article analyzes the Dudenhoeffer pleading standard and “stock drop” cases. Some ERISA commentators initially viewed Dudenhoeffer’s overruling of the Moench presumption of prudence as a win for plaintiffs in ERISA stock drop cases. As the lower federal courts have applied Dudenhoeffer’s revised pleading standards, however, it has become clear that this is not the case. Source:

Excessive Fee Suit Targeting Fujitsu Results in Sizable Settlement The lawsuit contended that among defined contribution plans with more than $1 billion in assets, the average plan has costs equal to 0.33% of assets per year; in 2013, total fees for the Fujitsu plan amounted to approximately 0.88% of plan assets. Source:

Legislative and Washington DC

Automatic Retirement Plan Act Proposes Mandatory Retirement Plans Rep. Richard Neal recently introduced the Automatic Retirement Plan Act of 2017. ARPA would require many employers to maintain an automatic contribution plan. In addition, ARPA would enhance employers’ ability to participate in multiple employer plans, limit formation of new state-sponsored automatic-enrollment IRA programs, and propose certain other miscellaneous retirement plan provisions. Source:

Nearly Half Would Save Less if Tax-Deferral in 401k Is Eliminated Forty-six percent say they would “save less” or “stop saving” in their 401k if the tax deferred status of their plan was taken away, whereas 42 percent say they would “save the same amount.” This is according to a recent The Wells Fargo/Gallup Investor and Retirement Optimism survey. Source:

The Senate Tax Bill and Last-Minute Controversy Over – 403b? Senator Collins had succeeded in removing all 403b contribution limit provisions from the final Tax Reform bill. Neither the Senate nor House bills contain any provisions that negatively affect 403b or other types of retirement plans to any significant degree. Source:

Legislation Permitting E-Delivery of Plan Information Introduced Bipartisan legislation that would allow for electronic delivery of pension and retirement plan information was introduced in the U.S. House of Representatives Dec 11. Source:

Lawmakers Introduce Legislation to Increase Plan Access and Lifetime Income U.S. House Representatives Ron Kind and Dave Reichert introduced The Small Businesses Add Value for Employees (SAVE) Act of 2017, H.R. 4637. In addition to expanding access to MEPs, the bill would facilitate lifetime income disclosure and clarify the current annuity selection safe harbor. Source:

Cybersecurity Issues

Thwarting Cyber Attacks on Retirement Plans A stolen identity, a few clicks, and there it is, a handsome retirement plan balance, ripe for the picking. If only someone had done something to prevent it all. A recent blog entry offers some ideas on how to do that, as does the IRS. Source:

Evolving Cybersecurity Landscape Pressures Plan Sponsors Being fiduciaries under ERISA, retirement plan officials are tasked with monitoring and managing cybersecurity risk as they invest participant dollars. As outlined in a new report from Corporate Insight, “Trends in Online Security: 1996 to Today,” this is no simple task, and it has grown markedly more complex in the last two decades as the role of big data technology has ramped up in the retirement industry. Source:

State-Based Retirement Programs

New U.S. State Retirement Plans Are Welcome, but Why So Expensive? Now that the first state plans are under construction, an unfortunate reality is coming into view: These retirement accounts are not going to be cheap for account holders, at least not in the early going. Source:

Seattle Mayor Proposes City-Run Plan for Private Sector Workers Seattle workers whose employers do not offer a retirement plan will have access to one through the city if a proposal by Mayor Jenny Durkan is enacted. Source:

DOL’s Fiduciary Rule

Advisors Win in Aftermath of DOL Fiduciary Rule Among those familiar with the fiduciary rule, most reported their impression of advisors was unchanged and an additional 27% cited that their perception of advisors had actually improved, evidence that preparation efforts toward compliance with the rule were not in vain, even amid the extensions and delays recently announced with fiduciary rule efforts. Source:

Summary of Legal Actions Against the DOL Fiduciary Rule Since the DOL put the final rule redefining an investment advice fiduciary under ERISA into effect, there have been six lawsuits filed in four federal courts. The goal? To vacate the fiduciary rule in whole or at least in part. This chart reviews what has happened with these lawsuits. Source:

Compliance and Regulatory

Why It’s Dangerous to Ignore Undeliverable Mail Sent by Your Retirement Plan Plan sponsor’s usually find out a participant is missing when a required notice is sent back as undeliverable. Not being able to locate plan participants is a compliance issue when those participants reach age 70 1/2. And the IRS and DOL have recently made RMD compliance a focus of their audits and investigations. Source:

The Importance of Internal Controls and Audit and Investigation Readiness Diane Wasser, partner-in-charge of EisnerAmper’s Pension Services Group, recently sat down with Callan Carter, special counsel at Trucker Huss, APC, a firm of ERISA and employee benefits attorneys, to discuss common retirement plan errors and how to avoid them. Source:

Plans Should Get Rid of Those Forfeitures Forfeitures that occur when people terminate service from retirement plans is usually a problem when the plan sponsor and their providers forget about them. Whether forfeitures are used to pay expenses, reduce employer contributions or is reallocated is specified in the plan document. The problem is when they just left there to collect dust. Source:


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