BPP401k.com Newsletter 03.21.12
Why Your Employees May Balk at Their 401k Fees In the months ahead, when employees across the country open the quarterly statements from their 401k retirement savings plan, the executives overseeing those plans may face some tough questions. Source: Washington Post
Current Challenges and Best Practices for ERISA Compliance for 403(b) Plan Sponsors The 2011 ERISA Advisory Council studied the current challenges for ERISA compliance for 403(b) plan sponsors and heard testimony supporting the proposition that there is a need for additional clarification and guidance for plan sponsors who maintain and/or offer 403(b) plans. The objectives of this report are to (1) identify areas where guidance is confusing or lacking relating to complying with the new 403(b) regulations and (2) to determine what actions the DOL could take to enhance compliance with the regulations issued by DOL, as well as to ease certain regulatory burdens for 403(b) plan sponsors, especially smaller employers. Source: U.S. Department of Labor.
Are You Ready for a DOL Audit? 401k and Pensions Plans are in the Crosshairs Plan administrators often prepare for IRS audits by doing their own plan compliance audits, but fewer prepare for a possible DOL audit in the same way, even though these audits are becoming more common. Source: Littler Mendelson PC
401k Outsourcing: The Next Big Thing Outsourcing is the hiring of a consultant from outside the company to complete a task or provide a service that they are better suited to do then your own employees. Many small to mid sized plans are beginning to outsource 401k fiduciaries. Source: Forbes
Eight Steps to Reduce Risk Through Good Governance of Benefit Plans Employers take risks every day in the normal course of their businesses. But the employer who sponsors an employee benefit plan, such as a 401k or medical plan, assumes additional risks. Here are eight steps to a sound governance process that will help reduce the risk. Source: Warner Norcross & Judd LLP
Conerly on the Economy for March 2012 “Conerly on the Economy” displays charts of the most important economic indicators, with Bill’s comments on the charts and the outlook. Bill Conerly connects the dots between the economy and business decisions, helping corporate executives and small business owners make more profitable decisions. Source: Conerly Consulting
Re-Enrolling: Doing Well While Doing Good The article notes that in recent years, plan sponsors have become aware of the importance of improving the quality of participant investing. As plan sponsors have focused on this issue, many have learned that the most effective and immediate way to improve participant investing is to “re-enroll” the 401k plan. Source: John Hancock
America’s Dying Corporate Pension System Corporate pension plans have been undergoing a massive change in the last twenty to thirty years. Instead of funding a pension plan, which rewards a career of service with a lifetime of payments when a retiree reaches a certain age, companies are funding 401k plans, which place the employee in control of his or her financial future. What do these changes mean? Source: U.S. News & World Report
Administration’s Budget Proposals Would Limit Some Retirement Deductions President Obama’s fiscal 2013 budget proposal, unveiled on February 13, 2012, would trim the deductions for certain retirement plan contributions by upper-income taxpayers. Source: CCH
How Early is Too Early to Make a Matching Contribution Is it a matching contribution if the employer makes the contribution before the participant makes the elective deferral for that pay period? Source: Pension Protection Act Blog
Complexity of Design in Target-Date Funds Plan sponsors now are expected to apply the same process to target-date funds that they apply to other investments. Because of the complexity of the design of TDFs, that job is more difficult than with traditional investments. Source: Plansponsor.com
PIMCO Deploys Derivatives in Race for Target-Date Fund Investors Invesco and Pacific Investment Management Co. are adding riskier assets and complicated strategies in target-date funds as they seek to gain ground on Fidelity Investments and Vanguard Group Inc. in this fast- growing segment of the U.S. retirement market. Source: Bloomberg
Privacy and Security Issues Affecting Employee Benefit Plans The 2011 ERISA Advisory Council studied Privacy and Security Issues Affecting Employee Benefit Plans (other than health care benefit plans). The Council focused on the privacy and security of benefit data and personal information in light of the dramatic changes in technology and its use in the last decade in employee benefit plan management. The Council examined issues and concerns about potential breaches of the technological systems used in the employee benefit industry, the misuse of benefit data and personal information, and the impact on plan sponsors, service providers and participants and beneficiaries. Source: U.S. Department of Labor.
Hedge Funds and Private Equity Investments The 2011 ERISA Advisory Council examined the investment of ERISA plans in hedge funds and private equity funds, the risks associated with these investments, and the process plan sponsors are taking to evaluate their appropriateness as investments in pension benefit plans. The purpose of the Council’s examination is to provide recommendations to the Department of Labor on guidance for plan sponsors, such as suggested best practices, for purposes of evaluating the investment strategies for and monitoring the investment of retirement plan assets in these investment options in a manner that is consistent with the obligations of plan sponsors as fiduciaries under ERISA. Source: U.S. Department of Labor.
VIDEO: EBRI’s Dallas Salisbury Discusses the Future of Retirement EBRI’s Salisbury discusses the future of retirement including the latest data from the largest integrated DC and IRA databases, the 21st Retirement Confidence Survey. Source: Pensions & Investments
IRS Provides Tips on How to Determine If a Plan Loan’s Interest Rate Is “Reasonable” When a retirement plan allows participant loans, that loan is an investment of plan assets and must bear a “reasonable” rate of interest. In the latest issue of Retirement News for Employers, the IRS provides guidance on how to determine if a retirement plan loan interest rate is reasonable. Source: CCH
District of Columbia Revises New Withholding Rule for Retirement Plan Distributions The District of Columbia has revised its recent requirement regarding increased withholding from retirement plan distributions to D.C. residents, making this rule applicable only to lump sum distributions. Source: Seyfarth Shaw LLP
Labor Department Will Continue to Focus on Disclosure Initiatives The Semi-Annual Regulatory Agenda released by the Labor Department reflects a continued emphasis on disclosure. With the issuance in January 2012 of final regulations under ERISA Section 408(b)(2) that govern the disclosure of compensation received by plan service providers, the Agenda reveals that further regulatory action will be focused on the Annual Funding Notice, Target Date Fund disclosures, a guide for the Section 408(b)(2) disclosures, and Pension Benefit Statements. Source: Benefitslink.com
Form 5500 Filing Rejections For the past couple of years, significant attention has been paid to complying with the electronic filing requirements of EFAST2. Far less attention, however, has been paid to how the DOL will handle the more immediate access to Form 5500 information. Source: Sungard/Relius
DOLs Exemption for Use of Proprietary Mutual Funds Recently, the DOL published a proposed exemption for the Principal Financial Group. The proposed exemption is important because it modifies or clarifies existing relief afforded by class Prohibited Transaction Exemption (PTE) 77-4 and permits Principal to invest client plan assets into proprietary mutual funds through target-date funds or other insurance company pooled separate accounts. Source: Plansponsor.com
IRS Issues Interim Report on 401k Compliance The results of an extensive survey of 401k plan sponsors have been published by the IRS in an interim report and provide a snapshot view of the design and operation of plans across the country. Highlights of the interim report are illustrated in this article for easy comparison to your own plan. Source: Warner Norcross & Judd LLP
Time to Prepare for Participant Fee Disclosures With Department of Labor guidance now complete and a new firm deadline in place, it is time for plan administrators to start preparing to distribute fee disclosures to all plan participants. This article explains the new deadline, summarizes the disclosure requirements, and describes the options for paper or electronic distribution of the disclosures. Source: Davis Wright Tremaine LLP
A Checklist for Participant Fee Disclosure The fee disclosure regulations for participants are dense and contain an overwhelming amount of information. It seems likely, particularly in multivendor situations, that there will be plenty of participant confusion leading to questions of the plan sponsor. As the industry drives towards the implementation of these new regulations, plan sponsors might wish to speak with their advisors to understand the disclosure information for responding to participant questions and to confirm that they are on track to fulfill their fiduciary responsibilities. Source: Society for Human Resource Management
Just How Much Are You Paying for Your 401k? If you work for a small employer, you’re likely paying more for your 401k than you would be if you were working for a large employer. That’s because small employers don’t get the economies of scale that large employers get. Source: Yahoo Finance
When 401k Fees Become Transparent After more than four years of deliberation, public comments and delays, the Labor Department’s disclosure rule is finally set to take effect July 1. But the 70 million plan participants won’t see the results until they receive their 401k statements for the third quarter in late fall. The question is: What will they do with this new information? And how will financial advisers respond to the questions that will be triggered? Source: Investmentnews.com
The 403(b) SPARK Standard Is Not a DOL Disclosure Solution There appears to be a number of parties that are touting SPARK’s ISA standards as the solution to 408(b)2 and 404a-5-compliance; that the SPARK standards will provide a solution to these new DOL disclosure rules. Source: Business of Benefits
FSI Lays Into Labor Department on Fiduciary Proposal The Financial Services Institute and the Financial Services Roundtable have upped the volume in their latest exchange with the Labor Department over its plans to expand the fiduciary universe. This time, the advocacy groups are demanding a progress report from the federal agency. Source: Investmentnews.com
White Paper Addresses Issue of Broker-Dealers as Fiduciaries Citi announced it has released a white paper on the top issues that financial advisors will likely face in the wake of potential new rules recommended in an SEC Staff study on uniform fiduciary standards for both broker-dealers and registered investment advisors, entitled “Broker-Dealers as Fiduciaries? How the SEC Staff’s Study Could Raise the Bar for Investment Advice.” Source: 401khelpcenter.com
Broker-Dealers as Fiduciaries? The shift from a suitability standard to a fiduciary one recommended by the SEC staff study is more than a cosmetic change. Potential changes could have a profound impact on business practices. This white paper reviews the issue. Source: Citi Group
Employers Open to Higher Defaults and Auto Escalation in DC Plan Design Small and midsize employers are willing to adopt higher default deferral rates and to include automatic escalation in DC plan design if it will increase plan participation, according to a Harris Interactive poll. Source: Pensions & Investments
US Stock & Bond Mutual Funds See Net Inflows of $46B in February 2012 – Summary: An uptick in confidence amid positive indicators on the economy meant that investors cautiously put an estimated $46 billion in net inflows into stock and bond mutual funds in the US in February 2012. That marked an increase from January. Source: 401khelpcenter.com
Vanguard Reports Target-Date Fund Usage Continues to Skyrocket Among 401k Participants Nearly one in four 401k participants invest solely in target-date funds — a six-fold increase over the past five years, according to new Vanguard research. Adoption among new participants is considerably higher, with 64% of employees entering their plan for the first time investing in a single target-date fund. Source: 401khelpcenter.com
Target-date Fund Adoption in 2011 In 2011, one-third of all Vanguard participants were invested in a single, professionally managed account option, including 24% in a single target-date fund. Use of target-date funds in defined contribution plans continues to grow rapidly. At the end of 2011, 82% of plans offered a target-date fund, 47% of participants had a position in the funds, and the funds accounted for 27% of total contributions. This Vanguard research note examines the factors behind the growing popularity of TDFs and their impact on participant portfolios. Source: Vanguard
Retirement Confidence at Near Record Low The survey found that 14% of workers and 21% of retirees are very confident of having enough money to live comfortably throughout their retirement years, down substantially from confidence level highs of 27% and 41%, respectively, in 2007. Source: Financial-planning.com
The 2012 Retirement Confidence Survey Americans’ confidence in their ability to afford a comfortable retirement is stagnant at historically low levels in the face of more immediate financial concerns about job uncertainty and debt, according to the 22nd annual Retirement Confidence Survey (RCS), the longest-running annual survey of its kind in the nation. Source: Employee Benefit Research Institute
March 2012 ERISA Litigation Newsletter Lead article discusses the Sixth Circuit’s recent decision in Pfeil v. State Street Bank & Trust, a potentially significant opinion in the field of employer-stock litigation. The article examines the Pfeil court’s suggestion in dicta that the presumption of prudence — i.e., a presumption insulating plan fiduciaries’ decisions to permit participant employer-stock investments where plan terms permit or require them — does not apply at the motion to dismiss stage. Source: Proskauer Rose LLP
Massachusetts Creating Country’s Largest Open Multiple Employer Plan The Massachusetts Senate passed HB 3754, which authorizes the Massachusetts State Treasurer to set up a multiple employer plan for not-for-profits in Massachusetts containing employee and employer contributions. If HB 3754 becomes law, it has the potential to create the largest open multiple employer plan in the country. The bill is a little light on details. Source: Pension Protection Act Blog
Massachusetts Bill Will Allow a Multiple Employer 401k Plan for Nonprofits The Massachusetts state legislature passed a bill that would allow the state treasurer to set up a 401k plan for not-for-profit agencies. The bill gives the state treasurer the power to do research regarding the status of retirement programs available to not-for-profit employees and see if there is any appeal to creating a program for their benefit. Source: Benefitspro.com
Employer and Owner Liable for Failing to Roll Over Employee’s Money In a recent case, a Federal District Court in New York found an employer, its sole owner & plan fiduciary, and the 401k plan sponsored by the employer, liable for damages for failing to roll over an employee’s 401k account in a timely manner. Source: Benefit Consultants Group
Purchaser Need Not Duplicate Shut-Down Benefits When Mirroring Seller’s Pension Plans In Shaver v. Siemens Corporation, 2012 U.S. App. LEXIS 4081 (3d Cir. Feb. 29, 2012), the U.S. Court of Appeals for the Third Circuit issued a precedent-setting opinion addressing the complex relationship between ERISA’s anti-cutback rules and common corporate transactions. This decision is important for employers considering acquiring another employer’s assets and workforce because it addressed the employee benefits issues related to the common practice of providing transition benefits under the seller’s pension plan after the closing date of an asset purchase. Source: Littler Mendelson PC