Experts in Personalized Retirement Plan Design & Administration Newsletter 03.26.18

401k Education Best Practices  Many experts don’t believe that 401k employee education works. The challenges of educating adults, who may not be excited to learn more about their 401k plan, are sometimes difficult to overcome. What can plan sponsors do to make their 401k employee education sessions more effective? Source:

401k Catch-Up Contributions and How They Work  For employees who have attained their 49th birthday by December 31 of the previous year, an additional “catch-up” contribution for the calendar year may be made. The catch-up limit is subject to annual Cost of Living adjustments. For 2018, the calendar year limit is $6,000. The catch-up limit applies not only to the Section 402(g) limit, but also to any other limit imposed by the Plan or the IRC. Source:

Fiduciary and Plan Governance Material

Evaluating Weighted Average Plan Fees  A new feature of Callan’s DC IndexTM, the DC Fee Analysis chart examines the effects of plan size, participant allocations, and vehicle utilization on investment management fees. The data can help plan sponsors compare their fees to peers and can provide guidance on how to restructure their plan options to reduce fee levels. Source:

Video: Plan Sponsors Maximize Outcomes Relying on Plan Advisor  There are times when plan sponsors just fail to receive value from their service providers. Mark Albers, plan administrator for this company’s 401k retirement plan made it very clear that his firm relies on the expertise of their retirement plan advisor. Source:

Marcia Wagner: How to Avoid 401k “Share-Class Chaos”  Share class confusion is an increasing concern and focus of regulators. While it might seem like an evergreen and ongoing issue for the investment industry, a new wrinkle in the form of the fiduciary rule is adding a frenzied air. Source:

Should You Include a Managed Account Option in Your 401k?  As is the case with so many aspects of running a 401k, a managed account option may or may not be a good fit for your plan. It depends on you and your employees. If a large percentage of your employees have complex finances and own considerable assets outside the 401k, you may decide that the managed account approach justifies the cost. Source:

Bitcoin: Should Plan Sponsors Consider It for Retirement Plans?  Bitcoin is a digital currency or cryptocurrency not tied to a sovereign or bank. Used primarily as a tool for transactions and trading, it is most popular with people on the leading edge of technology, and a number of large investors, rather than the everyday consumer. Is bitcoin an appropriate investment vehicle for retirement plan sponsors? Source:

Insight: Studies, Research, and White Papers

Debt Levels for Households Nearing Retirement Decreasing, but Still High Compared to Past Generations  Evidence paints a mixed picture of trends relating to debt levels of families with a “near elderly” head, those ages 55 to 64. By many measures, the debt burden has improved for this demographic group since the Great Recession. At the same time, in many ways, this family cohort shows higher levels of indebtedness than families with older heads. Source:

Retirement Income Solutions in a DC World  The need for a withdrawal plan is compelling. Unfortunately, most retirees are ill-equipped to decide on which path to take. Much time and resources have been expended on the pre-retirement investment and contribution aspects of retirement savings, but little effort has been put into post-retirement withdrawal planning. Plan sponsors and financial intermediaries need to examine their educational focus and expand it to include resources for this important aspect of retirement planning. Source:

Study Finds Fewer GenXers Have Retirement Savings  With only ten years until the eldest of the cohort turn 65, the majority GenXers believe their savings will cover their basic expenses and allow for leisure and travel in retirement. However, this confidence is misguided as forty percent of GenXers have no retirement savings, an increase of 5 percent from the previous study. Source:

DB Plan Performance Still Ahead, but DC Plans Catching Up  While many would argue that comparing the returns of DB and DC plans is not an apples-to-apples analysis, a new report examines the plan performance gains that DC plans have made against DB plans. Source:

Roth 401k Contributions: Gaining Popularity, Looking to increase Tax Diversification  As a retirement planning tool, Roth 401k contributions can offer 401k plan participants a more nuanced approach to retirement saving than a traditional 401k plan can on its own. The different tax status of Roth 401k withdrawals gives plan participants more flexibility and opportunities to broaden their retirement planning strategies and turbocharge their retirement plan outcomes. Source:

403b Plans

The IRS Has a 403b MEP Problem  There has been increasing interest in the market to put together Multiple Employer Plans for 403b plans, and with good reasons. But a 403b MEP is really complicated when you get down to it because — like anything 403b it seems — the devil that exists in the details. Source:

Target-Date Funds

Will Your Target-Date 401k Fund Blow Up Your Retirement?  Like self-driving vehicles, TDFs are still loaded with bugs. Some take too much stock market risk. Some not enough. What happens if a bear market tanks your stock holdings a year or two before retirement? Will you have time to recover? Source:

Court and Legal

Prudential, Morningstar Beat Robo-Adviser Lawsuit  Prudential and Morningstar have escaped a lawsuit claiming their 401k plan robo-adviser intentionally steered investors toward higher-cost funds that pay fees to Prudential. Source: (registration may be required)

Morningstar and Prudential Win RICO Suit Dismissal  The U.S. District Court for the Northern District of Illinois, Eastern Division, has dismissed a lawsuit filed against Morningstar and Prudential. The unsuccessful challenge was viewed as somewhat unique amid the glut of retirement industry litigation because it cited the Racketeer Influenced and Corrupt Organizations Law of 1970, known as RICO. Source:

Cybersecurity Issues

Defend Your Retirement Plan From Cyberattacks  Retirement plans are notorious targets for these attacks because they involve a high volume of sensitive information that is invaluable to criminals with malicious intent. Plan participant and financial information is generally shared with many different parties, making it more vulnerable to such threats. This article discusses current risks as well as some useful tips for protecting plan participants’ information. Source:

State-Based Retirement Programs

Washington State Launches Retirement Marketplace  The Washington State Department of Commerce announced the launch of the state’s Retirement Marketplace, a virtual marketplace in which financial services firms will offer low-cost retirement savings plans to businesses with fewer than 100 employees, including sole proprietors and the self-employed. Source:

Fiduciary Rule

What the Fiduciary Rule Decision Means for Your Retirement  The Fifth Circuit on March 15 vacated DOL regulations that redefined the circumstances in which a person who provides invest. advice in connection with a retirement plan or individual retirement arrangement acts as a fiduciary under ERISA. The opinion came two days after the 10th Circuit the same regulations. Source:

Fifth Circuit Strikes Down DOL Fiduciary Rule  The Fifth Circuit on March 15 vacated DOL regulations that redefined the circumstances in which a person who provides invest. advice in connection with a retirement plan or individual retirement arrangement acts as a fiduciary under ERISA. The opinion came two days after the 10th Circuit the same regulations. Source:

DOL Puts Fiduciary Rule Enforcement on Hold  The industry may be wondering what’s next in the wake of last week’s federal court decision vacating the fiduciary rule, but, for now anyway, the DOL says it is taking a pause. Source:

DOL Rule Struck Down in Court: Will Fiduciary Standards Prevail?  The Fifth Circuit Court put the kibosh on the Department of Labor fiduciary rule. According to the court, the rule “overreached” and was “unreasonable.” Clearly, that stirs up a lot of uncertainty. Source:

How the Product Distribution Industry Beat DOL’s Fiduciary Rule  It’s about recognizing that brokers and registered representatives fulfill a sales role that is functionally different than actual advisors, and therefore it’s about giving consumers a clear choice between advice and sales. All the while ensuring that the industry uses proper titles and labels in their advertising and other marketing that clearly convey and disclose to the consumer not just the nature of the products they may be purchasing, but the nature of the relationship itself. Source:

Just like that, the Fifth Circuit Strikes Down the New Fiduciary Rule  In Chamber of Commerce of the United States v. United States Department of Labor, No. 17-10238, the Fifth Circuit Court of Appeals struck down the “Fiduciary Rule” promulgated by the U.S. Department of Labor in April 2016. Source:

Fifth Circuit Strikes Down Obama-Era Fiduciary Rule  The 5th Circuit Court of Appeals vacated as arbitrary, capricious, contrary to the law, and in excess of its authority DOL’s expanded definition of fiduciary and newly created prohibited transaction exemptions, putting the brakes on the application of the fiduciary rule in its entirety, nationwide. Source:

Labor Dept. Won’t Enforce the Obama-Era Fiduciary Rule  The Labor Department won’t be enforcing the fiduciary rule — at least for now — after a federal appeals court in Louisiana vacated the rule, a department spokesman told Bloomberg Law March 16. Source: (registration may be required)

Will SCOTUS Decide the Fate of the DOL Fiduciary Rule?  Some ERISA attorneys argue the Fifth Circuit decision last week to vacate entirely the DOL’s fiduciary rule expansion makes a Supreme Court decision on the matter inevitable; others are less sure that a decisive SCOTUS decision could be forthcoming, instead expecting the SEC to take the lead; still others admit they have little idea how the regulatory picture will shake out, recommending patience and ongoing compliance. Source:

Fifth Circuit Vacates Controversial DOL Fiduciary Rule  The decision in Chamber of Commerce v. U.S. Department of Labor represents a major victory for industry participants who raised concerns that the rule had unintended collateral effects that would render investment and retirement services more costly and potentially inaccessible for certain individual investors. The Fifth Circuit’s decision further muddles the rule’s already uncertain future, while simultaneously providing an even greater impetus for the SEC to adopt its own rule. Source:

Fifth Circuit Vacates DOL Fiduciary Rule  Although the fate of Fiduciary Rule is not entirely certain, the Fifth Circuit’s decision provides the Trump Administration a clear pathway to undoing the Fiduciary Rule and reinstating the prior definition of “invest. advice.” This article discusses the implications of the decision and next steps. Source:

Circuit Court Fiduciary Rule Decisions Raise Important Process Questions  While the Fifth U.S. Circuit Court of Appeals has vacated the DOL fiduciary rule expansion, one attorney warns the rule is still technically in effect, at the very least until the court issues a “mandate” opening a limited period during which the Department of Labor can choose to contest the decision; he also questions whether the circuit courts are in fact split on the matter, as some are suggesting. Source:

The Fiduciary Standards Conversation is Just Beginning  The running debate about the standards of care in the financial services industry is beginning in earnest. Pete Swisher provides a discussion of current fiduciary law and the country’s options with respect to standards of care. Source:

Supreme Court May Have to Decide Fate of DOL Fiduciary Rule  The future of the DOL’s fiduciary rule could land on the docket of the U.S. Supreme Court now that a federal appeals court has vacated the rule, including the expanded definition of fiduciary and associated exemptions. Another possibility would be a stay of the case for a Supreme Court appeal. Source:

Fifth Circuit Vacates DOL Fiduciary Rule “In Toto”  In a 2-1 decision, the US Court of Appeals for the Fifth Circuit struck down the DOL’s fiduciary rule, deciding in favor of several leading financial services industry trade associations. This article examines the impact of this decision and provide suggestions on what financial institutions should be thinking about. Source:

Compliance and Regulatory

Which 401k Plan Fees Can Be Paid Out of Plan Assets?  Are we allowed to pay 401k plan-related expenses out of the plan assets? This is another one of those questions with a short answer and a longer answer. The short answer is yes, it is perfectly allowable for some 401k plan expenses to be paid out of plan assets, but the flip side of that is that there are some expenses that are not allowed to be paid from the plan. Source:

The DOL and Other Agencies Focus on Plan Efforts to Locate Missing Participants  The DOL has drastically increased audits of retirement plans with participants — or beneficiaries — who cannot be located in conjunction with the distribution of owed benefits. This short article summarizes a plan’s duty to search for missing participants. Source:

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