Experts in Personalized Retirement Plan Design & Administration

August 5, 2013

Compounding: The 401k Equivalent of Cruise Control  For retirement investors, the power of compounding, most particularly tax-deferred compounding, performs the same way cruise control does for a car. Once you get into first gear — once you’re saving at the right rate — you’ll be amazed how compounding can really turbo charge your asset growth. Source:

Retirement Plan Expenses: Employees Do Little to Change High Fees  It’s been about a year since the U.S. Department of Labor required employers to tell their workers how much their 401k plans were costing them. Fee disclosure was supposed to be a game changer in bringing down high 401k fees. Now that employees have had a chance to look at the numbers, only a handful have done anything to lower plan costs. Source:

Detroit Raises Retirement Risk  With Detroit headed to bankruptcy, the decisions made about this case could have an impact on the retirement of state and municipal employees everywhere. A key question to be decided is whether pensions are protected from bankruptcy. Source:

Supercharging the 401k  Retirement savings took a beating in the downturn, leaving many in what is understandably a state of high anxiety about the best ways to ensure everyone gets the most they can out of the 401k. Article explores a number of changes that could make 401ks more robust. Source:

The Worst May Be Over for DB Plans  The sudden jump in bond yields in the past two months may signal a major shift for DB pension plans. If bonds have truly bottomed out, the next 30 years may offer up a reversal of almost all the significant negative pension-related events that we have witnessed over the past 30 years. Source:

403(b) Plans

403(b) Pre-Approved Plans Resource Page  Sponsors can obtain IRS pre-approval of a 403(b) prototype or volume submitter plan document as complying with Internal Revenue Code Section 403(b). An employer that adopts a 403(b) pre-approved plan generally has assurance that its plan document complies with IRC Section 403(b). This is an IRS resource page to help employers do so. Source:

Fiduciary Material and Insight

The Value in Participant Education  If participant education encourages individuals to participate who otherwise might not have, or to increase their contribution rates to achieve financial goals they didn’t previously understand, paying a reasonable fee for those services will be well worth it to both the plan sponsor and the participant. They key considerations for a fiduciary will be determining what constitutes a successful education program and monitoring that program to ensure positive results are being achieved. Source:

Seven Reasons Plan Sponsors Need Retirement Plan Advisors  Fiduciaries to retirement plans are looking for advisors’ support. There are seven main functions that a retirement plan advisor must perform to satisfy plan sponsors, according to a white paper released by Strategic Benefit Services. SBS is a retirement plan and employee benefit consulting firm. Source:

How to Have a 401k Your Employees Will Love and Litigators Will Hate  Do you know how your employee’s are doing in saving for retirement? If not, you could be facing a ticking time bomb of liability. Monitoring puts you in a better position to defend your decisions on investments, fees, etc. is in the best interest of your employees. Focusing on outcomes puts you in the lowest risk category as a responsible plan fiduciary. Source: 401k Advisor Digest

A Word Retirement Savers Must Learn: Fiduciary  Consumers must make major decisions about their retirement plans. And they receive enormous amounts of advice from investment and fund managers and brokers. Very little of this advice is provided by professionals who are defined as fiduciaries under current retirement rules. Why is that important? Source:

Insights: Studies, Research and White Papers

Many of the “Known Truths” of Retirement Industry Are Simply Myths  Report takes stock of how current trends are impacting American’s ability to retire, and the short term and long term implications of those trends. Looks beyond conventional wisdom to understand the real influences of corporate and individual behavior while understanding how changes in the market have long reaching implications. Source: New York Life

DB Plans Outperform DC Plans Again  DB plans outperformed DC plans in 13 of the 17 years analyzed. But in 2011, the performance gap between DB and DC plans narrowed by nearly 50%, primarily due to strong DC investment results in 2009. What are the implications for finance executives tasked with making efficient use of their benefit budgets? Source:

EBRI’s 401k vs. DB Analysis Mischaracterized  Last month EBRI published an analysis of a direct comparison of the likely benefits under specific types of 401k plans and defined benefit (DB) pension plans. The EBRI report took pains to not only select but to explain the key assumptions in our analysis. However, some of the reporting and commentary that followed its publication suggest that some either did not read with care the entire analysis, or chose to ignore the totality of the report. Source: Employee Benefit Research Institute

Items of Special Interest to Advisors

Building a 403(b) Business: Where the Opportunity Lies  In the retirement plan world, change equals opportunity for financial professionals, and change has been a constant among 403(b) plans since the Internal Revenue Service passed significant regulations. But the biggest opportunity for change right now lies in one key segment of the 403(b) market: private higher education. Source:

Target-Date Fund Performance: The Impact of Rising Interest Rates  TDFs may be the most over analyzed and over criticized investment in history. Black Swan events occur with regularity and while the majority of TDFs have delivered returns consistent with the needs of most plan participants, that may be changing. Source:

BrightScope Defends Its Business Model  Some advisors are upset about BrightScope’s sales methods and online business model, others in the advisor industry say that’s exactly how the website is supposed to work. BrightScope CEO Mike Alfred sees the Advisor Pages site catching fire as more consumers check out advisors online. Source:

Why the Fallout From a Yale Law Professor’s Letter Remains Radioactive  The threatening, finger-pointing nature of the letter recently sent by Yale law professor Ian Ayres to 6,000 plan sponsors was the sucker punch, the lack of a remedy to the attack from New Haven keeps the wound from healing according to many. Source:

Lessons to be Learned From a Flawed 401k Fee Study  Professor Ayers indicates in his letter, and in the draft study, that he used 2009 data from Forms 5500. As a result, the draft of the study posted online is coming under fire from many sources for a variety of reasons. Based on what is known of the study, it appears to have several significant flaws. Source:

Article on Failure of Target-Date Funds Rebutted  Target-date funds are increasingly the retirement plan product of choice because they can serve as the automatic default investment for companies’ 401k plans — QDIAs. Author believes they continue to hold the potential to do the greatest good for the greatest number of individuals. Source:

So You Want to Be a 401k Financial Advisor?  A 401k advisor who will do it right by doing their job and making sure their clients do their job will find the 401k plan business very rewarding. This article is for financial advisors who want to start or improve their lot as a 401k financial advisor. Source:

Court, Legislative and Washington DC

Retirement Plans Catch the Attention of Congress (Again)  The Secure Annuities for Employee (SAFE) Retirement Act of 2013 is the latest attempt by lawmakers to address the retirement crisis in America. Senate Finance Committee Ranking Member Orrin Hatch (R-Utah) introduced the bill with the intention of helping to strengthen America’s public and private retirement systems. The bill addresses three main areas of reform. Source: Arnerich Massena

No Fiduciary Status for 401k Plan Service Provider  John Hancock Life Insurance Company is the most recent 401k plan service provider to prevail in a case by the plaintiffs’ bar asserting ERISA fiduciary breach claims based on allegations that it charged excessive 401k plan fees and received excessive revenue sharing payments. Source:

Appeals Court Holds Prenup Doesn’t Waive Spousal Rights to 401k  Can a marital agreement (like a pre- or postnup) override a spouse’s right to be a retirement plan beneficiary? The U.S. Court of Appeals for the Eighth Circuit recently said no — in one specific case, at least. The ruling illustrates that overriding spousal rights to a client’s retirement plan may be more difficult than expected. Source:

Ninth Circuit Amends Tibble v Edison Opinion on Rehearing  A three judge panel amended their opinion and explicitly rejected any further attempts by the Plaintiffs in Tibble v Edison to seek redress in the 9th Circuit. Although, as explained here, the judges tweaked their opinion regarding the application of Firestone deference, the opinion remains effectively unchanged. Source:

Compliance and Regulatory Related

DOL Extends Deadline for Providing Annual Comparative Chart of Investment Alternatives  The DOL announced a temporary enforcement policy that provides the administrators of individual account retirement plans such as 401k or 403(b) plans some additional flexibility regarding when they have to provide plan participants and beneficiaries the annual comparative chart of investment alternatives. Source:

New Wrinkle on Timing Requirements for Plan Investment Disclosures  The DOL announced a temporary enforcement policy. Under the enforcement policy, the DOL will deem the 2013 comparative chart to be timely delivered so long as delivery is made no later than 18 months after the date on which the 2012 comparative chart was delivered. Employers should discuss with their recordkeepers the potential advantages of utilizing the comparative-chart delivery delay for 2013 or 2014, as appropriate. Source:

ASPPA Calls for Enhancements to Schedule C and Its Instructions  This is a statement from Craig P. Hoffman, General Counsel and Director of Regulatory Affairs of the ASPPA, to the United States Department of the Labor requesting modification of Schedule C of Form 5500 to better apply new disclosure requirements while improving consistency in the reporting of indirect compensation. Source:

Are ERISA Budgets Plan Assets? The DOL Sheds Some Light  The DOL recently issued Advisory Opinion 2013-03A, which addresses several legal issues surrounding ERISA budgets. The Opinion provides important clarification concerning when such amounts are considered plan assets, and provides important reminders to plan fiduciaries of their responsibilities when analyzing and structuring these arrangements. Source:

SPARK Responds to DOL’s Lifetime Income Illustration Comment Request  The SPARK Institute has responded to the DOL’s Advance Notice of Proposed Rule, making regarding lifetime income illustrations. Their letter here urges the DOL to issue guidance expressly stating that furnishing lifetime income illustrations (1) is participant education, (2) will not constitute the provision of investment advice or any other fiduciary act under ERISA, and (3) does not constitute the offering or promise of any benefit under a plan. Source:

Overview of the SEC’s Proposal to Amend Rules Governing Money Market Funds  If adopted, the proposal would not only have a tremendous impact on the money fund industry, but also on chief compliance officers and other compliance professionals of money funds and their investment advisers and distributors. This article reviews the proposal and discusses potential issues for CCOs and compliance professionals. Source:

Reasonable Interest Rates for Participant Loans  401k participant loans have become the subject of increased attention by the DOL and IRS. The regulations promulgated by both agencies require that certain conditions be satisfied in order for the provision of such loans to be permitted without any financial or other penalties. This includes the requirement that the loans bear a reasonable rate of interest. How to determine what is “reasonable” has been a frequent question among plan practitioners and sponsors. This article seeks to clarify the issue. Source:

Partial Plan Terminations  If the employee turnover rate reaches at least 20%, the IRS presumes that a partial plan termination has occurred. In Revenue Ruling 2007-43, the IRS describes the process for including and excluding the participants taken into account in determining whether the 20% level has been met or exceeded. Source: McKay Hochman

Electronic Signature of Retirement Plan Documents  In the retirement plan arena, many participant level transactions including investment changes, distribution requests, etc., are done electronically, but there apparently is little use of e-signatures in signing retirement plan documents and amendments. Because IRS procedures may require every retirement plan to be amended as often as each year, use of e-signatures could make the retirement plan industry more efficient and possibly help reduce plan administration costs which in most cases are ultimately borne by plan participants. Source:

Surviving and Avoiding DOL Service Provider Investigations  During a webcast, Bruce Ashton, a partner in Drinker Biddle & Reath’s Los Angeles office, reminded attendees that here are practices that can trip up retirement plan providers and make them susceptible to DOL investigations, and there is some negotiating that can be done. Source:

Lifetime Income Illustrations Come of Age  A key retirement security goal of the Obama administration is to reduce the risk that retirees will outlive their savings and to promote the conversion of 401k plan assets into guaranteed lifetime income products. To this end, the DOL, IRS, and Treasury Department requested information regarding lifetime income options for participants in retirement plans. The request addressed a range of topics including participant education, tax-qualification rules, selection of annuity providers, ERISA Section 404(c), and QDIA relief from fiduciary liability and required disclosure of the lifetime equivalent of account balances. Source:


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