Experts in Personalized Retirement Plan Design & Administration

July 29, 2013

Debate Over Fees Clouds Real Issue  A year after the federal government enacted 408(b)(2) regulations on defined contribution plan fee disclosure, debates continue to rage over whether actively managed mutual funds are better than passive funds for plan participants’ retirement readiness. But many experts believe those debates are distractions from the real issue: Whatever their investment elections, workers simply aren’t saving enough for retirement. Source:

401k Plans, Retirement Readiness, and the Love Letter From Yale  Ian Ayres, the William K. Townsend Professor at Yale Law School, shook up the 401k world by sending about 6,000 letters to sponsors stating the he and Quin Curtis, a professor at Virginia School of Law, have “identified your plan as a potential high-cost plan…We will make our results available to newspapers” in the spring of 2014. What questions should 401k fiduciaries and advisors be asking themselves? Source:

The “Yale Professor Letters”: What Sponsors Need to Know (and Do) Now  Over the past two weeks, a Yale Law School professor has sent letters to approximately 6,000 sponsors of 401k plans implying that they may have breached their fiduciary duties with respect to plan costs and investments. These letters and the professor’s study findings will likely garner attention from lawmakers, plaintiff’s attorneys, plan participants and the Department of Labor. In short, this issue should be taken seriously. Source:

A Plan Sponsor Guide to Advisor Selection  As the complexity of fiduciary responsibility grows, reliance on an advisor as co-fiduciary becomes an increasingly desirable objective. The right partner for your plan can save you time and improve the retirement outcomes of all of the employees. It’s an opportunity you shouldn’t miss. Article reviews the process in selecting an advisor. Source:

Why Women Business Owners Need a Retirement Plan  For women who own their own businesses, there are many choices of company retirement plans available to contribute the maximum allowed by law, in addition to receiving substantial tax deductions for plan contributions. With so much tax assistance, it is almost costlier for a small business to NOT maintain some type of qualified retirement plan. Source:

The Five Big Lies of Retirement Planning  When it comes to retirement planning, there’s no shortage of conventional wisdom, even if there is a shortage of actual savings. But often what passes for wisdom amounts to little more than wishful thinking. Recognize the five big lies of retirement planning and make sure they don’t undermine your own retirement. Source:

‘Orphans’ Cost Plan Sponsors Billions  According to one of the more reliable estimates, from Charles Schwab, 43 percent of assets held by 401k participants who left their jobs in the first quarter of 2008 had not been moved a year later. This is creating a multibillion-dollar headache for employers who have to manage these accounts. Source:

No Matter Your Age, Human Capital is an Important Asset  When it comes to investing retirement assets, there are a couple of fundamental rules everyone knows: “Don’t put all of your eggs in one basket,” and “the closer you get to retirement, the more conservative you should become.” There also is an important, but lesser known, economic principle that underlies both of these strategies. Source:

Professor Puts the Scare in Plan Sponsors  Ian Ayres of Yale University has the 401k marketplace fuming. Using data provided to him by a firm that collects information on 401k plans, BrightScope, Professor Ayres has calculated the fees paid to plan providers by 46,875 companies. He has mailed letters to several thousand plan sponsors that have above-average costs in his study, warning them that he will publish this data in spring 2014. Now might be a good time for those companies to clean up their acts, he suggests. It’s understandable that the 401k marketplace dislikes the letter’s implicit threat. Source:

The Lessons of Detroit for Private Sector Retirement Plans  Detroit’s bankruptcy demonstrates the importance of managing retirement risk for employers, and the manner in which the failure to do so in a timely manner can spell disaster down the road, for both the employer and its retired employees. Source:

Why Target-Date Funds Fail in the One Area They’re Supposed to Succeed  Target-date funds are experiencing rapid growth as baby boomers approach and enter retirement, growing by an average of 30% per year. Usually, one would expect a product in a fast-growing market to have a great reputation among the consumers buying the product and the professionals who provide, recommend and sell it. The odd thing here is that its growth may be largely attributable to ignorance. Source:

Bogle’s Three Ways to Fix 401ks  John Bogle, founder of Vanguard Group, was interviewed recently by Morningstar about the future of 401ks and how to fix the problem of most people not saving enough for retirement. He made three retirement planning points. Source:

401k Loans, Minus the Tax Headaches  Most people who save for retirement using a 401k plan rarely worry about such things as hardship distributions or 401k loans. But some people do they should not overlook the potential problems associated with these kinds of loans. Source:

Fiduciary Material and Insight

401k Fee Controversy Goes Viral: What Should Fiduciaries Really Be Looking At?  The web was on fire this past week with reports from advisers whose clients had received some very unusual letters from a Yale law professor who doesn’t teach an ERISA course. But has the professor used the right criteria to select his targets? Here are some of the shortcomings of the methodology. Source:

Eight Things to Know About Fiduciary Liability  Regulators are soon expected to unveil a new fiduciary standard that will dramatically change how financial professionals do business. Because a stricter fiduciary standard will doubtlessly increase compliance costs, all agree that it’s critical that advisors know the rules of the game. Amid all of the teeth-gnashing, here’s a look at eight questions that are central to the debate. Source:

401k Ethicist — The Moral Hazard of Too Big to Jail  In this paper, the author argues that Wall Street and FINRA are deepening the moral hazard for retirement plan sponsors and making it that much more difficult for plan sponsors to fulfill their fiduciary and ethical responsibilities. Source:

Interview with Tamar Frankel: DOL Should Return to ERISA’s Original Definition of Fiduciary  Professor Tamar Frankel has written and taught in the areas of securitization, mutual funds, financial system regulation, fiduciary law and corporate governance. She is a recognized authority on all things fiduciary and shares her views on the issues here. Source:

More ERISA Plan Sponsors Hire Third-Party Fiduciaries  A current trend is expected to grow in the field of managing 401k plans: hiring third-party fiduciaries. In a Franklin Templeton/Chatham Partners study, 81 percent of plan sponsors in the survey reported that their investment advisors acted as the fiduciaries of the benefit plans. Source:

Insights: Studies, Research and White Papers

Many Haven’t Noticed 401k Fee Disclosures, Most Haven’t Made Changes  Employers that sponsor a retirement savings plan are now required to provide information about the expenses connected with the various investment options offered within the plan and the amounts deducted from participant accounts to cover the cost of administering the plan. While workers are now getting more information about their 401k fees, those disclosures don’t seem to be making much of an impact. Source:

Like Most, Texans Not Confident About Retirement  Are Texans’ perceptions of personal wealth and readiness for retirement holding or folding? Residents from Texas’ three largest cities believe they have accrued more wealth than their parents did when they were their age. However, many are not confident they will have enough money for retirement and plan to work until they are no longer able, according to a new survey by Wealth Enhancement Group. Source:

Survey: Fee Disclosure Has Little Impact on 401k Participants  New fee-disclosure regulations that took effect in August 2012 have had a negligible effect on workers participating in employer-sponsored retirement plans, according to a BMO Retirement Services survey of 416 plan sponsors. In the survey, 80 percent of participating organizations reported that the new rules mandating full disclosure of retirement plan fees and expenses had little or no effect on plan participant. Source:

Ten Ways to Save More for Retirement  Whether it’s due to bear-market setbacks, getting off to a late start, or other reasons, a lot of people are trying to catch up on their retirement savings. Fortunately, there are plenty of actions you can take right now — and even after retirement — to help maintain a standard of living you’re comfortable with. Source:

Retirement a Growing Priority for Small Business Owners  After weathering a recession that forced many to curb, cut and sometimes even tap into employee retirement savings plans, small business owners are offering and investing in 401k plans at rates considerably higher than five years ago, according to national survey by ShareBuilder 401k. Source:

Corporate America Anxious About Providing Pensions and Benefits  The rising price tag of healthcare and the risks and costs associated with funding pension plans weigh heavily on corporate finances, according to “Balancing Costs, Risks, and Rewards: The Retirement and Employee Benefits Landscape in 2013,” new research released by Prudential Financial. Source:

More Small Businesses Offering Retirement Plans  According to a nationwide survey of small business owners, nearly one-quarter (24%) of small businesses now offer a 401k plan (compared to 10% in 2008). Eighty-nine percent of small business owners with more than one employee that offer a 401k plan said it is an important factor for attracting and retaining the best talent. Source:

The Future of Retirement: A New Reality  This 23 page report is based on a survey of more than 15,000 consumers in 15 global markets. It shows how aspirations for retirement are largely consistent across the world. However, the findings also show how the desire to remain in work is an important aspiration for 35% of respondents, which suggests that the traditional view of retirement has already changed for many people. Source:

Shift Away From DB Expected to Accelerate  The shift away from defined benefit to defined contribution may be accelerating. Nearly 60 percent of companies questioned have either frozen accruals for all participants or closed their defined benefit plans to new entrants and many more are likely to do the same within the next two years. Source:

Claim That 401k’s Beat Defined Benefit Plans Stirs Controversy  A basic — and increasingly nostalgic — assumption in the private pension world has long been that the financial payouts of defined benefit plans are much better than those of defined contribution plans, and it’s too bad that defined benefit plans seem to be heading for extinction. Now an Employee Benefit Research Institute study has cast doubt on the conventional wisdom. The study compared the tens of thousands of 401k plans in EBRI’s long-term database with two current defined benefit plan models. Source:

Decisions, Decisions: Choices That Affect Retirement Income Adequacy  EBRI convened its 72nd biannual policy forum where a wide range of national experts on U.S. retirement policy offered the roughly 200 attendees insights on topics such as the impacts of a sustained low-interest-rate environment on retirement savings and retirement income, the influences of the employer match in 401k plans, and suggestions on how to help plans and participants optimize their distribution choices – in particular rollover, draw down, and annuity options. This paper presents key findings discussed at the policy forum. Source:

Items of Special Interest to Advisors

Deadline for Service Provider Fee Disclosures  The DOL just provided an extension to the required annual participant disclosures under regulation 404a-5. The question has been asked about how this relates to service provider fee disclosures under regulation 408b-2. Bottom-line, there is no extension for the service provider disclosures. This FAQ should clarify this point. Source:

Not Your Ordinary TPA (Part 1)  Although retirement services companies and TPA firms are often small firms, the principles of business are the same as very large businesses: (1) identify who you and your customers are, (2) listen to what they say and value, and (3) repeat (1) and (2) regularly. This article is Part One of a three-part series on how not to be an ordinary service provider. Part 1 explores who you are and how to identify your customers. Source:

Court, Legislative and Washington DC

The Braden-Tibble-Tussey Trilogy — The ERISA Excessive Fees and Revenue Sharing Playbook  The recent decisions in the Braden-Tibble-Tussey trilogy suggest that a LaRue-like epiphany may be occurring to provide defined contribution participants with much-needed information to allow them to make the “fully informed investment decisions” promised to them as part of ERISA 404(c) plans, and to require plan sponsors and other plan fiduciaries to comply with their fiduciary duties of loyalty and prudence. Source: Prudent Investment Adviser

Video Insight: Effects of DOMA on Plan Sponsors  In this two-part video series, Groom Law Group’s Mark Nielsen explains the most important issues plan sponsors and administrators should consider after the Supreme Court ruling that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional. Source:

Senator Harkin’s USA Retirement Funds Proposal  Senator Harkin is retiring from the Senate in 2014, and his USA Retirement Funds proposal is widely considered his “legacy” contribution to the ongoing search for a better retirement plan paradigm. At this point, the proposal exists only in summary form — no bill has been introduced. This article summarizes the proposal and provide a preliminary evaluation. Source:

Second Circuit Dismisses Lehman Brother’s ERISA Stock-Drop Action  The Second Circuit recently affirmed the dismissal of former Lehman Brothers employees’ fiduciary breach claims relating to their investment in the Lehman Brothers stock fund through their 401k plan. Source:

Oregon Takes a Step Toward Retirement Security for All  Oregon recently took a step forward in the movement to expand retirement savings for its workers. Oregon’s state legislature passed House Bill 3436, which creates a task force to explore options for helping private-sector workers who lack access to a workplace retirement plan save for retirement. The bill is now awaiting the governor’s signature. Source:

Compliance and Regulatory Related

Loans From Tax Qualified Retirement Plans  This is a 19 page detailed review of the law around loans from tax qualified retirement plans including IRC Section 72(p) which provides guidance in designing and implementing a plan loan policy. Source:

IRS Provides Guidance On Contribution Limit  In Employee Plans News, Issue 2013-2, June 24, 2013, the IRS provides guidance on salary deferral limits when you participate in more than one retirement plan. Here is what the IRS said. Source:

Drafting Qualified Domestic Relations Orders  What is the best way to divide a participant’s pension benefits in a QDRO? How much can be given to an alternate payee through a QDRO? What are survivor benefits, and why should a QDRO take them into account? These are just a few of the questions discussed in this FAQ. Source: U.S. Department of Labor.

DOL Delays Obligation of 401k and 403(b) Plans to Distribute Annual Investment Related Information  The DOL released Field Assistance Bulletin 2013-2 granting plan sponsors of participant-directed individual account plans (such as 401k and 403(b) plans) the ability to delay this year’s disclosure of annual investment related information to plan participants and beneficiaries. Source:

DOL Field Assistance Bulletin on Required Annual Fee Disclosure (2013-02)  A plan administrator may now furnish the “2013 comparative chart” no later than 18 months after the prior comparative chart was furnished. The “2013 comparative chart” is the comparative chart that is due, according to the terms of the final 2012 fee disclosure regulation, “at least annually” after the first comparative chart that was furnished. For example, if a plan administrator furnished the first comparative chart on August 25, 2012, the “2013 comparative chart” would be due no later than August 25, 2013. But, now the DOL will take no enforcement action based on timeliness if the plan administrator furnishes the “2013 comparative chart” by February 25, 2014. Source: U.S. Department of Labor

DOL Provides Relief From Required Annual Fee Disclosure  The DOL announced in Field Assistance Bulletin No. 2013-02 that it was adopting a temporary enforcement policy that would offer plan administrators temporary relief from certain of the participant disclosure requirements in the form of a one-time “re-set.” Source:

Video: Forms 5500 and 5558 Filing Tips  Here are five tips from the IRS office of Employee Plans to make filing Form 5500s and related returns, including extensions to file the Form 5500s, more efficient. Source:

Fee Disclosures Review  Annual disclosure to plan participants is the plan sponsor’s obligation, not the recordkeeper’s. It must be distributed to all eligible employees whether they are participating in a plan or not; covers administrative expenses, and fees that apply on an individual basis (loans, qualified domestic relation orders, brokerage windows, etc.). Source:

DOL Gives Relief From Fee Disclosure Rules  Plan administrators under DOL regulations issued in 2010 were required to disclose to participants comparative charts of plan investment options by no later than August 30, 2012, and then “at least annual thereafter.” So if a plan administrator provided the comparative chart in August of 2012, it would have to do it again in August 2013. Fortunately, the DOL announced that it was providing temporary relief from certain of the participant disclosure requirements in the form of a one-time “re-set.” Source:

DOL Proposed Regulation Sent to OMB  The Office of Management and Budget has posted that it received a proposed regulation from the Department of Labor. Unfortunately, it is not the much-anticipated proposed regulation on fiduciary advice. Instead, it is a regulation that addresses the development of a “Guide or Similar Requirement for Section 408(b)(2) Disclosures.” Source:

Hit the Reset Button: Complying With Annual Investment Fee Disclosures  Many plans send the required ERISA Section 404(a) notifications closer to the end of the plan year. Acknowledging this practice and concerns raised over the cost of a separate distribution covering just this investment information, the Employee Benefits Security Administration issued Field Assistance Bulletin No. 2013-02, which grants a one-time “reset” option for the 12-month period. This “reset” option permits an employer to provide the “2013 comparative chart” after the original 12-month period required by the 404(a) regulations. Source:

Form 5500 Compliance Checks on the Rise  Most sponsors of qualified retirement plans subject to ERISA also sponsor an ERISA group health plan. Some employers that have filed a Form 5500 for their defined benefit or defined contribution plan but not for a group health plan have received a “Request for Clarification” from the Department of Labor. Source:

DOL Tweaks 2013 Investment Disclosure Deadline  The DOL announced in Field Assistance Bulletin 2013-02 that it was providing sponsors and administrators of participant-directed retirement plans with temporary relief from certain annual participant-disclosure requirements in the form of a one-time “re-set.” Source:

Retirement Plans Get One Chance to Change Annual Participant Fee Disclosure Deadline  On July 22, 2013, the DOL announced a one-time opportunity for administrators of participant-directed individual account plans such as 401k and ERISA-covered 403(b) plans to “re-set” their annual deadline for distributing plan-related information and the investment comparative chart required by the participant fee disclosure rules. Plan administrators now have an opportunity, in either 2013 or 2014, to reset the annual deadline to a date that is within 18 months from the date of the last fee disclosures to plan participants and beneficiaries. Source:


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