Experts in Personalized Retirement Plan Design & Administration Newsletter 04.23.18

Plan Design Has Made Us Better Investors  Thanks to a decade of advancements in plan design and the rise of target-date investments, plan participants are better investors today than ever before. Source:

How Plan Sponsors Can Improve 401k/403b Participant Education Efforts  Traditional methods of educating the workforce about the value of saving money for the future are not entirely sufficient. Levels of understanding about investment concepts are not homogeneous. One approach does not work for everyone. So, efforts to improve education for those eligible to participate needs to reach out to them at their level through engaging, relevant and useful information that drives change. Source:

Self-Employed Should Consider a SEP IRA for Retirement Savings  How should the self-employed save? One option to consider is a simplified employee pension individual retirement account. A SEP IRA resembles an IRA account for the self-employed, but with some extra perks. Source:

American Retirement Association Announces E-delivery Initiative  American Retirement Association CEO Brian Graff unveiled plans to address the expensive and outdated ERISA requirement to disclose information to 401k participants in paper form. The ARA’s proposal would essentially flip the current orientation of the DOL’s ERISA regulations, which emphasize providing paper disclosures to plan participants. Source:

Fiduciary and Plan Governance

Fiduciary Duty Yellow Flags for Proxy Season  Proxy voting and company engagement practices are moving from a mere compliance issue to an integral component of investment and risk management. The old “set it and forget it” approach which relies on off-the-shelf proxy voting processes has become a risky practice. Fiduciaries are well advised to re-evaluate how their legal obligations relate to use of proxy voting in this changing environment. Source:

TPA Due Diligence Requires Weighing More Than Fees  Engaging a TPA for plan document design, compliance and government reporting services should include more due diligence. If a TPA makes an error, it can be very expensive for the plan sponsor and investment advisor. Another way of stating this issue: If price is the only criteria for investment advisors and plan sponsors, what else do they have on their due diligence files? Source:

Three Things to Think About Besides Retirement Plan Investments  Plan sponsors often have an unhealthy obsession with assembling the ideal array of plan investments. However, investment array selection, as well as the inherent agonizing over which funds to put on watch, which to replace, etc., should be relatively low on a plan sponsor’s list of priorities. Source:

ESG and Retirement Plans: The Case for Greater Compatibility  While considering Environmental, social and governance (ESG) investing strategies, it is an important part of plan fiduciary oversight to assess them thoughtfully and consistent with ERISA’s fiduciary requirements. This paper’s goal is to provide an assessment to help you understand the impact of ESG solutions and the potential benefits and risks for your retirement investment program now and going forward. Source:

Insight: Studies, Research, and White Papers

Is Retirement Plan Participation Underreported?  A study confirmed that the apparent underreporting of retirement plan participation in the US Census Bureau’s Current Population Survey increased substantially following a recent revision to the household survey’s questionnaire. The CPS participation rate dropped sharply beginning in 2014, the first data collected using the new questionnaire. In contrast, the tax data show that the retirement plan participation rate has held steady since 2008, according to ICI. Source:

Defined Contribution Consulting Support and Trends Survey  PIMCO asked the nation’s top retirement consultants: How can defined contribution plan participants and sponsors achieve financial security over the long haul? Download the 24-page report here. Source:

Items of Special Interest to Service Providers

Eight Mistakes Advisors Can Make When Approaching a Retirement Plan  When approaching a retirement plan, not heeding these eight tips can be a major mistake for retirement plan advisors. Source:

Revenue Sharing — The Horse and Buggy of the Retirement Plan  If you currently handle plans with revenue sharing, take a hard look at other arrangements. As an advisor, if you run across a plan with revenue sharing, bring up the points mentioned here to the plan sponsors. You may have just found a new client. Source:

403(b) Plans

Ignore Those Form 5500 Instructions: 403b Plans Do Not Use Form 5330 for Late Deposits  One of the continuing confusions in how 401a rules apply to 403b plan involves the reporting rules related to the correction and reporting on the 5500 of one of the most common errors in any elective deferral plan: the late deposit of those deferrals into the plan. Neither non-ERISA or ERISA 403b plans will ever file a Form 5330. Ever. Even when the VFCP program is being used to correct the late deposit. Source:

Brief in University of Pennsylvania 403b Lawsuit Points Out Differences From 401ks  An amici curiae brief filed by the American Council on Education and other higher education associations details the history of higher education 403b plans. The Council points out that the retirement system for higher education has always looked different than the system for industrial, corporate America. Source:

Target-Date Funds

Target-Date Fund Benefits — Beyond Returns  Beyond the obvious benefit of having a professional manager and rebalance portfolios, the HR manager believes that target-date strategies relieve employee stress and burden of having to select and manage funds themselves. Source:

Court and Legal

401k Lawsuits Being Brought More Aggressively Against Retirement Plan Advisers  Retirement plan advisers are increasingly being drawn into 401k lawsuits, as litigation creeps down market and plaintiffs’ lawyers test out new legal theories to ensnare advisers, according to a panel of litigation experts. Source: (registration may be required)

AARP Wants Great-West’s 401k Victory Reversed  The industry group representing Americans 50 and older wants the U.S. Court of Appeals for the Tenth Circuit to revive a class action by 270,000 people who invested in Great-West’s guaranteed investment annuity contracts. Investors say that because Great-West kept the difference between the rate of return they received and the returns actually earned by the investment, the company essentially set its own compensation. Source: (registration may be required)

401k Plan Participants Challenge Principal’s Management of TDFs  The lawsuit alleges Principal used proprietary investment vehicles, rather than other investment vehicles, and share classes with higher fees for the underlying TDF investments, to produce more income for itself and its subsidiaries. Source:

State-Based Retirement Programs

Illinois’ State-Sponsored Retirement Program Enters Pilot Phase  It’s been more than three years since then-Governor Pat Quinn signed legislation creating the Secure Choice program. But the retirement savings program for workers whose employers don’t offer one is finally becoming a reality. Source:

Fiduciary Rule

SEC Proposes Revised Conflict of Interest Standards for Brokers and Advisers  It will take time for the fully detailed picture to emerge, but the SEC voted late Wednesday to propose new conflict of interest standards for how broker/dealers and financial advisers label themselves and sell products under various fee structures to retail clients. Source:

SEC Rolls Out Best Interest, Fiduciary Proposal  The SEC release for public comment a set of proposals to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving access to a variety of types of advice relationships and investment products. Source:

SEC Fact Sheet on Proposed Best Interest Standard  Under proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer. In addition to its proposed regulation, the SEC also issued this Fact Sheet on its proposed best interest regulation. Source:

SEC Proposed Interpretation of Best Interest Standard of Conduct  Along with the issuance of its proposed regulations, the SEC is also publishing a proposed interpretation of the standard of conduct and request for comments. Source:

SEC Proposed Rule on Best Interest Standard  The SEC has issued a proposed regulation establishing a standard of conduct for broker-dealers and those associated with broker-dealers when making recommendations of securities transactions or investment strategies involving securities to retail customers. Source:

SEC Proposes Best Interest Standards  Addressing themes similar to those in the DOL rule, the SEC proposal aims to better protect retail investors by raising the standard of conduct for broker-dealers providing recommendations to retail investors and reaffirming/clarifying the terms of the relationship between retail investors and investment professionals. The proposed package of guidance is reviewed. Source:

SEC Rolls Out Best Interest, Fiduciary Proposal  The SEC voted 4-1 to release for public comment a set of proposals to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving access to a variety of types of advice relationships and investment products. Source:

SEC’s Fiduciary Rule Could Erase Question of Labor Dept. Appeal  The SEC unveiled its take on a fiduciary rule late April 18, and the proposed rule includes elements that echo the DOL’s embattled fiduciary rule. That could make it easier for the DOL to walk away from its own fiduciary rule and not appeal a recent court decision that vacated it, sources told Bloomberg Law. Source: (registration may be required)

It’s Not Deja Vu, It’s a Brand New Best Interest Rule Making Debate  The release of a thousand-page “best interest” rule making package by the SEC applying to all brokers and investment advisers is being hailed as a victory by some and a deep disappointment by others; either way, it’s the start of another long chapter in the epic industry battle over federal conflict of interest regulations. Source:

Secretary Galvin Slams SEC Fiduciary Rule “Fail”  High-profile regulator and Massachusetts Secretary of Commonwealth William Galvin pulled no punches in his view of the SEC’s proposed fiduciary rule remake. Source:

Compliance and Regulatory

Protect Your Qualified Plan From RMD Failures  Qualified retirement plans are subject to Required Minimum Distribution rules which, very generally, require that a minimum amount of benefit commence no later than April 1 following the year when a participant attains age 70 1/2. It is important to protect your qualified plan from RMD failures to avoid potential tax consequences. Source:

Budget Act Brings Much Needed Hardship Relief for Plan Participants  The Bipartisan Budget Act of 2018 brings important relief for plan sponsors and recordkeepers for tax-qualified retirement plans. This relief includes (1) relaxed hardship withdrawal rules, (2) expanded rollover for improper federal tax levies, (3) California wildfire relief for plan distributions, and (4) a special Congressional committee to address the major funding concerns for multiemployer plans. Source:

DOL Increases Fines, Conducts Fewer Retirement Plan Audits  The DOL has been able to achieve these higher fines with fewer audits mainly due to two factors. One is an increase in the amount for fines. The other is EBSA’s use of data algorithms that can scour Form 5500s and other sources (such as filings for bankruptcy, news reports of companies going out of business and complaints from plan participants) to find discrepancies that raise red flags for an audit. Source:

IRS Updates Substantiation Procedures for Hardship Distributions  None of the IRM requirements for substantiating hardship distributions have been set forth in formal regulations that have been subject to notice and comment. But, the IRS believes substantiation that a distribution is for one of the safe-harbor hardships is required to determine that a hardship distribution is deemed to be on account of an immediate and heavy financial need. As a result, plan sponsors seeking to avoid disputes with IRS auditors may wish to follow the hardship substantiation requirements outlined. Source:

IRS Requests Input on Possible Expansion of Determination Letter Program in 2019  In Notice 2018-24, the Treasury Department and IRS request comments on the potential expansion of the determination letter program for individually designed plans during 2019. As part of their commitment to annually review the scope of the program, they are looking for comments on the types of plans that should be allowed to seek a determination letter as well as specific issues for those plans that would justify the need for review. Source:

401k ACP Test: Why Your Employees’ Actual Contribution Percentage Matters  In 401k language, a plan with widespread benefits is non-discriminatory. That is, the benefits are not skewed toward certain employees. A series of annual tests is used to decide whether or not a plan discriminates. If the plan fails a test, the company must take corrective action until the plan is no longer discriminatory. Source:

Tips for Handling Combined DB/DC Plan Testing  Nondiscrimination testing has been likened to rocket science. And that’s in reference to just one flavor of plan. So imagine how exponentially those complexities must increase when the testing involves both defined benefit and defined contribution plans. Source:

Keep Track of 401k Participants So They Don’t Go Missing  Increased job-hopping and frequently forgetting to update their contact details with previous employers are two reasons why participants in 401k and similar employer-sponsored retirement plans may “disappear.” Creating a “missing-participant program” can help plan sponsors comply with the requirement that they make sure former employees can access their savings. A proposed legislative remedy also could be on the way. Source:

Reporting Delinquent Contributions on the Schedule of Delinquent Participant Contributions  There are two different ways to compute the late deferrals to report as prohibited transactions, depending on whether you are completing the Form 5330 (Return of Excise Taxes Related to Employee Benefit Plans) or answering the questions on Form 5500, Schedule H, and its related supplementary schedule. There is a correct way for each situation. Source:


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