Experts in Personalized Retirement Plan Design & Administration Newsletter February 13

Four Signs of a Lousy 401k Plan It is important that you make the most of any workplace retirement plan available to you. New required disclosures about the costs of the plan and the underlying investments were introduced in 2012 and are a good start. However, 401k plans are still a mystery to many of the workers who participate in them and sadly too many of the employers sponsoring these plans. Here are 4 signs that your 401k plan might be lousy. Source: Chicago Financial Planner

Mutual Fund Industry Playing Defense on 401k’s The mutual fund industry is getting a little nervous about all the Washington talk about limiting tax loopholes and perceived shortcomings of the current retirement system. Source:

How and Why Your 401k is Changing Employers are getting smarter about how they run retirement plans. They are making some moves that are good for younger workers, including automatically enrolling new employees in 401k plans and defaulting their savings into target-date funds. Other choices are raising eyebrows. Source:

Rethinking Savings Plans as Struggling Americans Raid 401k For too many lower-income people, their hard-earned 401k accounts become go-to emergency funds when they are faced with unexpected cash needs. These trends, coming amid potential changes to Social Security, government budget pressures and the nation’s growing wealth gap, are raising concerns about the potential increased risk of poverty facing Americans as they age and prompting calls for possible policy solutions aimed at low-earning workers. Source:

The Truth about 401k Loans and Withdrawals Larry Zimpleman, chairman, president and chief executive officer of the Principal Financial Group writes, “A new report on 401k plan loans and withdrawals has spurred a number of articles in the media and, in some cases, significant misunderstanding. One article in particular in the Washington Post paints a distorted picture alleging that ‘widespread breaching’ of 401k accounts is on the rise and is ‘undermining’ retirement security. Hold on a second.” Source:

Seven Simple Saving Secrets Every 401k Investor Should Know What are these simple savings secrets? Why do they work? And how can you take advantage of them? We each have our own shorthand for these secrets. How we refer to them depends on our upbringing, our education and, to some extent, our own personal values. Here are 10 important simple savings secrets every 401k investor should know. Source:

403(b) Plans

Forfeiting Missing 403(b) Plan Participant Balances Though not a common feature of retirement plans, some 403(b) plans that contain language in their documents that would permit benefits that are payable to indeed be forfeited. This language is based on Treas. Reg. 1.411(a)(4)(b)-6 which permits such forfeitures, provided that the benefit can be reinstated should a participant or beneficiary make a claim for the forfeited benefit in the future. However, the reason that the provision is uncommon is that are a lot of practical and regulatory difficulties associated with the administration of this provision. Source:

403(b) Advisor Releases Winter Issue The theme of the winter edition of 403(b) Advisor is this: It’s no longer sufficient for a successful 403(b) advisor to be simply a purveyor of retirement products. Or even just an expert on investments and financial markets. In order to cut through the clutter of financial advice that comes at us from the media, both mass and social, he or she must go into some unfamiliar, even surprising territory. Source: ASPPA

Fiduciary Information and Insight

New ERISA Fiduciary Concern When Employer Stock Offered as 401k Plan Option Plan sponsors offering employer stock funds should evaluate whether they should separate the SPD/prospectus into two documents. The Dudenhoefer decision increases the risk that plan fiduciaries may be held responsible for a breach of fiduciary duty in the event statements in the SEC filings (that are incorporated by reference in the SPD) are found to be misleading or incorrect. Separating these documents increases the likelihood that a court would view the SEC filings as distinct from an ERISA document. Source: Drinker Biddle & Reath LLP

An IPS Can Demonstrate Reasonable Diligence The quintessential document governing investment decision making by fiduciaries is the investment policy statement. Brokers acting in a non-fiduciary capacity, on the other hand, typically haven’t treated the IPS as an important tool of their trade, as they never have been required to develop thorough customer profiles and consider portfolio strategies to justify the suitability of transactional recommendations. That may change, however, under the Financial Industry Regulatory Authority Inc.’s expansion of responsibilities for brokers under new Suitability Rule 2111. Source:

Class Action Litigation Settlements and ERISA: What Does PTE 2003-39 Really Mean? This article addresses the considerations that should be taken into account by plan fiduciaries when the class action litigation settlement involves a party in interest to the plan, including the DOL’s Prohibited Transaction Exemption 2003-39, which provides procedural guidelines for ensuring that a settlement will not be treated as a prohibited transaction under ERISA. Includes suggested guidelines and practices. Source:

Some Items of Interest to Advisors

Fiduciary Duty Has Legs but Adviser SRO Lame The Securities and Exchange Commission is expected to issue a concept release as early as this summer on how to establish a uniform fiduciary duty for brokers and financial advisers. But a congressional call to establish a self-regulatory organization for advisers appears to be on a fast track to nowhere. Source:

Retirement Plan Outlook 2013: Potential for Tax Reform, Fiduciary Rule Re-Proposal on Practitioners’ Minds The possibility of tax reform will be on everyone’s minds in 2013 and retirement issues are bound to get swept up in the tide, practitioners told BNA in a series of interviews in the first half of January about their predictions for this year. Source:

Fidelity Target-Date Funds Draw Fire From Consulting Firm Taking a conservative tack with glide path management could be too much of a good thing for Fidelity Investments. The Center for Due Diligence posted an analysis of the mutual fund giant’s target-date funds, including Fidelity Advisor Freedom and Fidelity Freedom, versus similar offerings from the company’s competitors, including Vanguard and T. Rowe Price. Source:

Insights: Studies, Research and White Papers

Blue Prairie Group Releases Updated Stable Value Database Summary Every quarter, Blue Prairie Group updates its stable value database based on questionnaire results from 17 leading stable value providers. They have just released their most recent findings summarized here. Source:

Survey Reveals Digital Divide in How Participants Interact With Plans Younger retirement plan participants are more likely to use online retirement calculators, interactive charts and mobile apps in preparing for retirement than older counterparts. OneAmerica announced new results from its retirement participant survey that reveal this digital divide when it comes to the use of technology in preparing for retirement. Source:

Survey Reveals More Employers Likely to Add DC Roth Features in 2013 A new survey by Aon Hewitt reveals an increasing number of U.S. employers are planning to add Roth features to their defined contribution plans in 2013. This comes on the heels of new legislation that makes it easier for DC investors to convert balances within their savings plan into Roth accounts. Source:

Target-Date Fund Assets Continue Ascent Target maturity funds picked up more than $13 billion in the fourth quarter of 2012, bringing the industry’s total assets to some $485 billion, a 29% increase from a year ago, according to data from Ibbotson Associates. Source:

Advances in Automatic Savings Program Design Managing Plan Costs in Automatic Programs Early automatic programs were an important first step to overcoming employee inertia. The next step is to evolve these programs and combine them in ways that produce greater results per dollar of employer cost. This paper explores the merits of solutions that involve the following: Auto-enrollment for employees at higher initial default rates; Auto-enrollment for employees who are not currently enrolled; Auto-increases in deferral rates on an opt-out basis; and, Auto-investing in a qualified default investment alternative (QDIA). Source:

Court, Legislative and Washington DC

Ongoing Monitoring of Funds Cannot Constitute a “Transaction” for ERISA Purposes Fourth Circuit holds that the limitations period for ERISA claims of imprudent plan investments commences with initial fund selection and does not continue with ongoing monitoring of funds, absent material change in circumstances. Source:

Another Indication of Skepticism Towards “Stock Drop” Cases District Court requires evidence that alleged breach of fiduciary duty caused plaintiffs’ loss at pleading stage. This decision further signals a general skepticism among the courts with respect to ERISA stock drop claims. Source: Seyfarth Shaw LLP

Participants Sue Fidelity for ‘Fiduciary Self-Dealing’ Participants in three 401k plans have sued Fidelity Investments, alleging the record keeper engaged in “fiduciary self-dealing,” thus violating the Employee Retirement Income Securities Act, according to the lawsuit filed in U.S. District Court in Boston. Source:

Compliance and Regulatory Related

The Delinquent Filer Voluntary Compliance Program: Now With EFAST2 The new DFVCP is fully integrated into the EFAST2 electronic filing system for filing Form 5500s, meaning that all forms must be submitted electronically. In general, delinquent filers must use the most current year forms and schedules available for filing in EFAST2. However, the new DFVCP provides specific rules concerning the attachment of schedules relating to the Form 5500. Source:

401k Plan Corrections – Can Your Company Benefit From the New IRS Guidance? The EPCRS program enables companies that sponsor qualified retirement plans to correct plan errors that could adversely affect the qualification of the plan resulting in adverse tax consequences for both the company and each individual employee. The four major types of issues that are correctable under EPCRS include plan document, operational, demographic and employer eligibility failures. Source:

In-Plan Roth Transfers: Taxation FAQs This technical update addresses the tax rules of in-plan Roth transfers based on what we know today. The IRS will issue guidance affecting some of these issues and that guidance may differ from interpretations contained in this article. Source:

In-Plan Roth Transfers: Implementation FAQs The IRS is working on guidance for the new Roth provision, but because it is immediately effective, practitioners are being asked questions by clients now. This article assembles a number of the frequently asked questions and responses. Source:

Treasury, IRS Seek Input on Coming Guidance on Roth Transfers Whether and, if so, how to apply vesting rules to in-plan Roth transfers are among questions that a working group will try to answer as the Treasury Department and Internal Revenue Service prepare guidance on a new tax code provision created by recent fiscal cliff legislation. Source:

Legislative and Regulatory Landscape: 2013 2013 is likely to be a year in which federal regulators, particularly at the DOL, will continue to be busy addressing plan investment, disclosure, and fiduciary responsibility issues. Lawmakers will maintain their focus on deficit, spending, and tax issues, which will potentially threaten retirement savings incentives. This is a chart identifying the issues T. Rowe Price expect to attract attention in 2013. Source:

DOL May Require ERISA-Governed DC Plans to Provide Retirement Income Projection The Department of Labor has recently published its rule-making agenda for the 2012-2013 fiscal year. While several of the regulatory projects will impact retirement plans and their service providers, one proposed regulation is of particular importance to the retirement income community. That is, the DOL is working on guidance that could require ERISA-governed defined contribution plans to provide retirement income projections to participants. Source:

DOL Settlement Regarding Trading Error Correction Gains The $5.2 million settlement with ING Life Insurance and Annuity Co. resulted from an investigation conducted by the Employee Benefit Security Administration’s Boston Regional Office. The DOL alleged that ILIAC’s failure to disclose its policy on reconciling transaction processing errors to retirement plan clients was a violation of the ERISA. Source: Groom Law Group

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