Experts in Personalized Retirement Plan Design & Administration

July 22, 2013

Will Your 401k Last You For Life?  Say you have a $150,000 401k retirement savings account balance — that’s the average account balance for participants age 55 and older in the 20,000-plus plans Fidelity Investments administers. What does that mean in terms of how much you can expect to take out each year when you’re retired? Source:

Target-Date Fund Misses: A Participants Guide  When investors choose target-date funds, they don’t necessarily get what they think they ordered. In fact, different funds with similar names and identical target dates have wildly different allocations and results. Before blindly choosing a TDF and assuming that it handles asset allocation the best way for you, look deeper. Source:

The Lessons of First Data Corp’s Suspension of 401k Contributions  We have seen for years the abandonment of pensions in favor of 401k’s and similar plans that remove long term funding and investment risks from the sponsor/employer, and transfer those obligations and risks to employees. That is old news. What is new about the First Data story is that it takes that transitioning of retirement risk from a company to its employees one step further, by replacing the cash contribution by the plan sponsor with the entirely speculative and risky grant of private stock. Source:

The Small Stuff That Retirement Plan Sponsors Can’t Afford to Neglect  It is often said that you shouldn’t sweat the small stuff, but neglecting the small things can put a plan sponsor in peril. This article is about the small stuff that plan sponsors should take care of before they become a larger problem. Source: Rosenbaum Law Firm

Greater Fee Disclosure Has Little Impact on Plan Members  New 401k fee disclosure regulations have had a negligible effect on members of employee-sponsored retirement plans, according to a study. Conducted by BMO Retirement Services, the survey polled 416 sponsors of U.S. plans. Eighty percent of them say the new rules mandating full disclosure of retirement plan fees and expenses have had little or no impact on their plan participants’ behavior or perception of their retirement savings benefit. Source:

Three Reasons You Should Consider an In-plan Roth Transfer  An in-plan Roth transfer is a conversion of an amount from a non-Roth account in a 401k, 403(b) or 457(b) plan to a Roth account in the same plan. Here are three reasons you may want to consider an in-plan Roth transfer. Source:

Balancing Retirement Plan Fee Allocations  How do retirement plan sponsors ensure that the actual fees paid by each plan participant are fair when compared to other participants within the plan? Many sponsors aren’t aware of the choice they have when it comes to assessing fees from their retirement plans. Source:

Top 10 Worst 401k Plan Practices  Implementing “best practices” is important to the success of any 401k plan, but just as important is the need to call out the bad stuff and tell plan sponsors and our peers what not to do. Here are the top 10. Source:

Top 10 Summary Plan Description Issues Not Addressed in the ERISA Regulations  ERISA requires employee benefit plans to provide a summary plan description to participants and beneficiaries and also sets forth the minimum required information that must be disclosed in an SPD. This article reviews 10of the most important issues to consider when drafting and amending an SPD that are not directly addressed in ERISA. Source:

A Coming Employer Crackdown on 401k Loans?  401k borrowing is all too common. Out of the 12.3 million employees in Fidelity plans, one out of every five 401k plan participants has a loan outstanding. Employees’ 401k balances are being decimated by allowing serial loans — half of borrowers take more than one loan. What actions might employers take? Source:

Why Aren’t You Using Your Roth 401k?  One in two employers now offers a Roth 401k. But we’re a long way from one in two workers taking advantage of the chance to sock away after-tax money to their Roth 401k — slightly less than 9% of workers who have an employer-sponsored Roth 401k plan at contributing money to that plan. Source:

403(b) Plans

Retirement Plans FAQs regarding 403(b) Tax-Sheltered Annuity Plans  These frequently asked questions and answers provide general information and should not be cited as any type of legal authority. They provide the user with information responsive to general inquiries. Because these answers do not apply to every situation, yours may require additional research. Source: IRS

In-plan Roth 403(b) Conversions and Transfers  The American Taxpayer Relief Act of 2012 introduced an in-plan Roth transfer conversion for 403(b) plans that does not require a distributable event. Prior to ATRA, in-plan Roth rollover conversions within a 403(b) were only permitted when a participant or beneficiary became eligible for a distributable event. This article highlights the original law which introduced in-plan Roth conversions and the provisions made available under ATRA. Source: McKay Hochman

Fiduciary Material and Insight

Turning to Outside Fiduciaries for Relief  When plan sponsors offer a 401k plan for their employees, they take on a fiduciary responsibility for the performance and welfare of the plan. Until recently, qualified plan sponsors have been bearing the burden on their own. But now, a growing number of DC sponsors have been hiring an outside fiduciary in a trend that’s only expected to grow. Source:

Goldilocks and the Three Fiduciaries – Part 1  As more companies promote a third option for plan sponsors to reduce their fiduciary liabilities — the 3(16) fiduciary — it’s important to remember that reality may not align with our expectations. Making the right decision comes down to critical thinking, not — like Goldilocks did — simply trusting that the third choice is “just right.” Source:

Goldilocks and the Three Fiduciaries – Part 2  In this article, you’ll learn why fiduciary responsibility is more complex than it may at first seem — and why the option for an ERISA 3(16) fiduciary may not be the storied “third choice” we subconsciously desired. Source:

Non-ERISA Fiduciary Responsibilities  Non-ERISA fiduciaries don’t have ERISA fiduciary responsibilities, but what are non-ERISA fiduciaries’ responsibilities? Only by first knowing his or her specific responsibilities can a fiduciary try to meet those responsibilities and manage liability risk by either performing them or delegating them. The challenge for many fiduciaries is in the details. This article summarizes non-ERISA fiduciary responsibilities. Source:

Insights: Studies, Research and White Papers

Roth 401k Usage on the Rise Among Younger Participants  Wells Fargo announced today that in the first quarter 2013, 10 percent of all participants in Wells Fargo administered defined contribution plans chose to contribute to a Roth 401k, when available, up from 8.9 percent reported in the first quarter 2012. Notably, 16.9% of participants under age 30 contributed to a Roth 401k (up from 15.2% one year ago) as compared to 4% of participants in their 60s. Source:

Retirement Security: Challenges and Prospects for Employees of Small Businesses  Despite efforts by the federal government to develop new plan designs and to increase tax incentives, plan sponsorship remains low among small employers. MEPs, a type of arrangement involving more than one employer, have been suggested as a potential way to increase coverage. GAO looks at the challenges facing small employers and how to improve oversight and coordination for MEPs. Source: U.S. Government Accountability Office

Retirement Plan Design Features Significantly Increase Participation  New research from the Principal Financial Group shows retirement plan participation rates increase dramatically — up to 70 percent — when plans use key design features. Employee participation rates increase as employers add more of the key features — automatic enrollment, automatic increases, online deferral changes or employer contribution. Retirement plans with at least two key features of any combination have an average total participant savings rate of 11 percent, which is more than double the average participant savings rate. Source:

Shift Away from Traditional Pensions Creates Unintended Consequences  In the retirement industry, no change has been more significant than the shift from a defined benefit (DB) pension system to a defined contribution (DC) system. This major change brings with it unintended consequences. Source:

Choices That Affect Retirement Income Adequacy  A wide variety of internal and external forces influence the retirement readiness of Americans, and a recent policy forum sponsored by the nonpartisan Employee Benefit Research Institute examined those factors, as well as a series of strategic and tactical decisions that can mitigate their impact. Source:

Safe Harbor Investments  When examining retirement plan design, sponsors naturally have many questions. What investments should be offered to plan participants? Are the participants legally protected? Are you, as a plan sponsor, legally protected? A decision that speaks to all of these questions is whether to choose a qualified default investment alternative or a non-QDIA investment as the default investment for plan participants. Source:

Defining Expense Accounts  What is a Plan Expense Account, also known as an ERISA Account, ERISA Budgets Account, or Revenue-Sharing Account to name a few? Simply put, it’s an account to which your plan provider/recordkeeper deposits the excess revenue sharing dollars they collect from the investment products used by your plan. Sound interesting? Source:

Access to Employee Benefits in March 2013  In private industry, 64 percent of employees had access to retirement benefits in March 2013. That was significantly less than the 89 percent of state and local government employees with access to retirement benefits. Source: Bureau of Labor Statistics

Items of Special Interest to Advisors

Much Ado About Nothing…or Is It?  Recently, Yale Law School professor Ian Ayres mailed what could amount to thousands of letters to retirement plan sponsors informing each of them that they have “a potential high-cost plan.” Read more about the plan fees and fee structures, compliance with ERISA’s fiduciary duties, and the potential impact of Ayers’ letter in this article. Source:

401k Industry Flummoxed Over Yale Professor  Industry leaders are furious at a Yale Law professor who has mailed 6,000 letters to plan sponsors warning them they are paying too much for their 401k plans and encouraging them to make changes — or else. The eclectic academic says he’ll go public targeting alleged ‘high-cost plans’ as sponsors flood phone lines of advisors and recordkeepers and BrightScope is drawn into the fray. Source:

Letter to 401k Plan Sponsors on Fees Has Advisers Doing Damage Control  Advisers are rushing to do damage control with plan sponsor clients who received letters that appear to be from a professor at Yale Law School claiming that their 401k plans are too expensive. Advisers working with the plans that have received the letters have a huge mess on their hands. Source: (free registration may be required)

Yale Law Professor Sends Letters to Plan Sponsors Alleging Potential Fiduciary Breach  In an article published this morning on by Brian Graff, CEO/Executive Director of ASPPA and NAPA, the retirement industry has learned that a Yale law professor is sending out letters to plan sponsors claiming that he has identified their sponsored retirement plan as a “potential high-cost plan.” The response of the industry to these letters and study will be interesting. Source:

New Challenge Facing Plan Sponsors: Yale Law School Professor  Recently ASPPA learned that a Yale Law School professor has sent a letter to thousands of 401k plan sponsors. The professor is doing a “study” on the financial impact of plan fees and has identified the employers receiving the letter as sponsoring a “potential high-cost plan.” According to the letter, this determination is based on Form 5500 data. ASPPA says the tone of these letters is shocking. Source:

Court, Legislative and Washington DC

Cigna’s $35M Settlement on 401k Fees Includes Investment Review  Cigna has agreed to settle for $35 million a class-action lawsuit brought by current and former employee participants in the health insurance company’s 401k plan, alleging they were charged excessive fees. As part of the settlement Cigna pledged to hire an independent consultant to monitor and suggest changes for the 401k’s stable value fund and its overall investment management. Source:

DC Plan Re-Enrollment Litigation  This article reviews litigation coming out of the 2008 global financial crisis that addresses re-enrollment programs. It begins with a brief discussion of what re-enrollment programs are and the authorization of them under the DOL’s Qualified Default Investment Alternatives regulation. Then discuss two cases — Bidwell et al. v. Univ. Med. Ctr. et al. and Falcone v. DLA Piper — that address re-enrollment programs that took place (in connection with QDIA regulation compliance). Source:

Group Seeks Guidance on DOMA Decision  “In the aftermath of the U.S. Supreme Court’s decision to strike down key provisions of the Defense of Marriage Act (DOMA), employers who sponsor health and retirement benefit plans for workers and their spouses are in urgent need of guidance indicating how to comply with federal law,” American Benefits Council President James A. Klein said today. Source:

Questions Remaining About DOMA After the Windsor and Perry Cases  The Windsor and Perry cases have held invalid one section of DOMA, permitting a federal estate tax marital deduction. While neither case dealt with the point, filing of joint federal income tax returns by same-sex couples now seems valid. Furthermore, the cases did not give a broad ruling affecting all states. Thus many unanswered questions remain. Source:

“Blank Slate” Seen as Threat to Retirement Saving  The “blank slate” approach they propose for reforming the tax code will eliminate all tax deductions, no matter how worthy, and force the defense of any measure by advocates who wish to see them retained. This includes pension and retirement savings tax breaks. Source:

Compliance and Regulatory Related

Revenue Sharing Payments as Plan Assets  The DOL recently delivered welcome news in an advisory opinion addressing whether certain “revenue sharing” payments constitute “plan assets” under ERISA. On the facts presented, the DOL concluded that the revenue sharing amounts received by Principal are not plan assets for ERISA purposes. The Advisory Opinion also discusses a number of significant issues of interest to service providers and their plan clients. Source: Groom Law Group

401k Fees: What Everyone is Not Talking About!  While the additional transparency serves a purpose now and in the future, most of the discussions seem to stop short of the next industry hurdle. That is, how do 401k plan sponsors not only ensure that fees in total are in check, but also how do plan sponsors ensure that the actual fees paid by each participant are fair and reasonable when compared to other participants within the plan? Source:

DOL Opines on Plan Expense Reimbursement Credits  In Advisory Opinion 2013-03A, the Department of Labor opined that revenue sharing and similar amounts carried on the books of a retirement plan service provider as a credit due the plan, if properly structured, are not ERISA “plan assets” prior to receipt by the plan. The Advisory Opinion expressly does not address fiduciary issues related to the selection of plan investment options that do or do not provide revenue sharing or to the allocation of credits received by the plan to plan expenses or participant accounts. Source:

Sharing the Wealth — DOL Clarifies Treatment of Revenue Sharing Under ERISA  The DOL recently issued Advisory Opinion 2013-03A which addresses implications under ERISA surrounding certain revenue-sharing payments. The Opinion was issued in response to an application filed on behalf of a certain insurance company and relates to the Applicant’s provision of various administrative services to 401k and similar participant-directed retirement plans, and the affiliated and unaffiliated investment options made available by the Applicant. Source: Dechert LLP

Sample Automatic Enrollment and Default Investment Notice  Although this sample notice is designed for use in satisfying the QACA and EACA notice requirements, and the notice requirements under ERISA sections 404(c)(5) and 514(e)(3), plan sponsors may also find the sample notice to be helpful in drafting an employee explanation for an automatic contribution arrangement that is neither a QACA nor an EACA. Source: IRS

A DOL Opinion on Revenue Sharing That Didn’t Set the World on Fire  Principal Life Insurance Company wanted an advisory opinion regarding revenue sharing, probably because of concerns with how these payments are used to offset plan expenses as well as changes dealing with plan expenses and Form 5500. Did this Advisory Opinion change the world? Not particularly for plan sponsor because they always had that duty to review plan expenses. For plan providers, it is some comfort. Source: Rosenbaum Law Firm

DOL Will Re-Propose Fiduciary Rules in October  The Department of Labor’s Employee Benefits Security Administration will re-propose its fiduciary rules in October, according to the DOL’s Semiannual Agenda of Regulations. The fiduciary rule, which was initially proposed in 2010, would take into account current practices of investment advisors and the expectations of plan officials and participants who receive investment advice. Source:

Fee Disclosure Regs Spur DC Plan Sponsors to Make Changes  More than one-third of plan sponsors intend to change their mix of investments in the coming year, according to new data from Cogent Research. Those who plan to make a change will typically swap an existing option with another manager without changing the number of investment options offered. Source:

DOL Mulls ‘Lifetime Income’ Illustrations for DC Benefit Statements  The Department of Labor has released an “Advance notice of proposed rulemaking” describing changes to rules for defined contribution plan benefit statements that it is considering. The new rules would require that DC benefit statements include disclosure of an estimated lifetime stream of payments based on (1) the participant’s current account balance and (2) the participant’s account balance projected to retirement. Source:

Additional Time for Employers to Amend and File Puerto Rico Qualified Retirement Plans  The Puerto Rico Treasury Department recently issued Circular Letter No. 13-02, extending the deadline for employers that sponsor qualified retirement plans benefiting Puerto Rico employees to adopt amendments and file for determination letters on the qualified status of their plans under the 2011 Puerto Rico tax code. Source: McDermott Will & Emery

401k Fee Disclosure One Year Later: What We’ve Learned  With twelve months of DOL’s mandatory 401k Fee Disclosure behind us, what have we learned? Several leading thinkers in the 401k realm have weighed in on this question. You might be surprised by their verdict. Source:

When Changes to 404a-5 Participant Fee Disclosure Data Requires Additional Participant Notifications  The aspect of the rules focused upon in this article is what to do if the information disclosed within the mandatory annual notice changes. If you haven’t asked yourself this question yet, you should. Why? Because certain changes require not only the issuance of additional notifications but also that such notice be issued well in advance of the effective date of the change. Source:

Ongoing Participant Fee Disclosure Obligations for Retirement Plan Sponsors  For most 401k plans, the first annual fee disclosure notices were initially required by August 30, 2012, and many plans distributed this disclosures in August 2012. As a result, the second round of annual notices will be due by the first anniversary of the date that the first annual notices were distributed, which for most plans will be in August 2013. Source: Patterson Belknap Webb & Tyler LLP

Preparing Clients for DOL Audits  The chances that one (or more) of your retirement plan clients could be tapped for a Department of Labor audit are greater than ever. That’s because the DOL is stepping up audits of plan sponsors. The best thing you can do now is to prepare yourself and your clients ahead of time. Source:

Retirement Plan Participant Disclosures Upcoming Summer Deadline  The DOL regulations require that employers also distribute certain fee disclosures every 12 months. For most plans, participants should receive the annual disclosures again on or before August 30, 2013.This chart shows the required disclosures and the timing of distribution to participants. Source:

Revenue Sharing Payments Retained by 401k Plan TPA Are Not Plan Assets (but May Raise Other Issues)  Rather than subjecting revenue sharing payments to ERISA’s plan asset rules — which could raise a host of trust and other issues for plans and TPAs — the DOL highlights ERISA’s existing prohibited transaction and fiduciary rules, which require reasonableness in, and disclosure of, service provider compensation. Source: Thomson Reuters/EBIA

The 401k Plan Recordkeeper and “Revenue Credit Accounts” — DOL Advisory Opinion 2013-03A  Are revenue sharing amounts received by the recordkeeper and deposited as general assets of the recordkeeper considered “plan assets” under ERISA? In general, recognizing that facts may vary, the DOL in Advisory Opinion 2013-03A concluded that the 401k plan asset is the plan’s contract right with respect to the bookkeeping credited amount. However, the actual revenue sharing payments received by the recordkeeper generally are not plan assets. Source:

ERISA Recapture Account Guidance  The DOL issued Advisory Opinion 2013-03A, which discusses whether a bookkeeping account for revenue sharing payments constitutes “plan assets” under ERISA. In the opinion, the DOL also takes the opportunity to outline the responsibilities of plan fiduciaries in deciding whether to approve revenue sharing arrangements on behalf of their plans. Sponsors and fiduciaries of plans that participate in revenue sharing arrangements should review the arrangements to confirm that the factors described by the DOL have been taken into account. Source:

DOL Clarifies Revenue Sharing Fiduciary Responsibility Issues  The DOL issued Advisory Opinion 2013-03A, which discusses whether a bookkeeping account for revenue sharing payments constitutes “plan assets” under ERISA. In the opinion, the DOL also takes the opportunity to outline the responsibilities of plan fiduciaries in deciding whether to approve revenue sharing arrangements on behalf of their plans. Sponsors and fiduciaries of plans that participate in revenue sharing arrangements should review the arrangements to confirm that the factors described by the DOL have been taken into account. Source:

Cross-Tested 401k Safe Harbor Plan  A 401k plan design that combines a safe harbor non-elective contribution with a cross-tested profit sharing allocation formula may permit certain plan sponsors to increase contributions to highly compensated employees, while simultaneously satisfying compliance testing. Maximizing contributions to valuable employees is frequently a plan sponsor’s goal. This article covers the basic principles of a cross-tested safe harbor non-elective plan design and the advantages it offers. Source: McKay Hochman

Safe Harbor 401k Eligibility Issues  Safe harbor plans are typically viewed as having less compliance testing requirements since they can be designed in a manner that allows them to be exempt from both top-heavy rules and from nondiscrimination testing. This article will discuss testing issues that can arise with safe harbor 401k plans that permit an employee to enter the plan immediately for elective deferrals, but requires one year of service before eligibility for a safe harbor contribution. Source: McKay Hochman

Video: Funding Safe Harbor Contributions With Forfeitures?  ASPPA’s General Counsel Craig Hoffman discusses why the IRS should change its policy to allow forfeitures as permissible sources of funding for safe harbor contributions. Source:


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