INDUSTRY AND REGULATORY NEWS YOU CAN USE

Read recent articles and other information of interest to employers, plan sponsors, participants and industry professionals. 

21 Dec 2014 07:27:28 Z

"[The] United States District Court for Southern District of New York provided the long-anticipated introduction, or more specifically the judicial verification, of Vanguard's funds' fees as a comparative basis for assessing excessive of fund fees was established. While the case is not binding on other courts, the rationale used by the court is persuasive and will undoubtedly be referenced by plaintiffs' attorneys in both 401(k) and other cases where breach of fiduciary issues involving fee issues are involved.... More importantly, the court's decision provides further support for the relevance of intrinsic costs and returns in analyzing both investment recommendations made by financial advisors and investment options offered by 401(k) plans and other retirement plans." [Leber v. The Citigroup 401(k) Plan Investment Committee, No. 07-CV-9329 (S.D.N.Y. Sept. 30, 2014)] (The Prudent Investment Adviser Rules)

21 Dec 2014 07:27:28 Z

"ESOP participants will be allowed the opportunity to prove in court that plan fiduciaries acted imprudently in continuing to offer company stock as an investment option when they knew or should have known that the stock price was artificially inflated ... The participants will also be permitted to rely on documents incorporated by reference in plan summary plan descriptions to establish a breach by the plan fiduciaries of their duty to provide the participants with material information related to the investment in company stock.... The case is one of the first to be adjudicated in the wake of the invalidation by the U.S. Supreme Court of the presumption of prudence." [Harris v. Amgen, Inc., No. 10-56014 (9th Cir. Oct. 30, 2014)] (Wolters Kluwer Law & Business)

21 Dec 2014 07:27:28 Z

"This Technical Update is written for institutions which hold and administer IRA funds. It is written at the level of the IRA investor, and can be used to explain the new rollover rules to the investor." (SunGard Relius)

21 Dec 2014 07:27:28 Z

"[1] Evaluate the impact of competing financial priorities on employees' ability to prepare for retirement.... [2] Examine options designed to respond to participants' retirement security needs.... [3] Conduct an in-depth analysis of your current, or future, managed account provider.... [4] Design a structure that is based on the investment behaviors of your participants rather than general market assumptions.... [5] Monitor participants' progress against their retirement goals.... [6] Reconfirm the capital preservation option in your DC plan remains the most appropriate for participants.... [7] Consider the impact disability could have on employees' ability to accumulate funds for retirement ... [8] Customize the plan's auto-features to improve participant outcomes.... [9] Consider the appropriateness of liquid alternatives within the plan.... 10. Complete an annual four-point tune-up of design, fees, operation, and compliance." (Mercer)

21 Dec 2014 07:27:28 Z

"[F]or nearly nine-in-ten (89 percent) of retirement plan participants, honesty and trustworthiness are the most important criteria in choosing a financial advisor. Eighty-five percent of retirement plan participants surveyed ... place the highest premium on a financial advisor's transparency and being kept in the look on what they are doing in regard to their investments. For eight-in-ten, a financial advisor's investment track record and fees or commissions charged are the most important factors in choosing an advisor. Other factors retirement plan participants consider important when choosing an advisor include having access to products from a variety of different companies (73 percent), website and online services offered (63 percent) and the renown of the financial advisor's brand or company (61 percent)." (Spectrem Group)

21 Dec 2014 07:27:28 Z

"On average, at year-end 2013, 66 percent of 401(k) participants' assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock.... More 401(k) plan participants held equities at year-end 2013 than before the financial market crisis (year-end 2007), and most had the majority of their accounts invested in equities.... Seventy-one percent of 401(k) plans included target-date funds in their investment lineup at year-end 2013." (Employee Benefit Research Institute [EBRI])

21 Dec 2014 07:27:28 Z

"For many years 50% of the first 6% was the most common matching formula.... [L]eading edge employers have stretched their matching contributions to 25% of the first 12% ... Just as auto enrollment became commonplace in large plans in recent years, expect annual re-enrollment to become the norm in the next few years.... Expect to continue to see personalized education migrate to predominately online venues.... [E]xpect many more employers to offer Roth 401(k) contribution ability and an in-plan conversion feature.... As employer cost pressures continue, expect more employers to pass on all plan related costs to participants." (Lawton Retirement Plan Consultants)

21 Dec 2014 07:27:28 Z

"Here is my problem with these 'magic' MEPs. At what level do we achieve 'scale?' And what will be the investment vehicle -- mutual funds? If mutual funds are used, how much will small plan sponsors save? Very few funds have significant minimum purchase requirements, so the savings would be limited. True savings would come from aggregating about $1 billion and hiring institutional investment managers directly -- just like the large pension and endowment plans do now." (Employee Fiduciary)

21 Dec 2014 07:27:28 Z

"Participants should be permitted to enforce the fiduciary duty to review and replace imprudent investments more than six years after the funds were chosen in light of the mechanics of the market for mutual funds available to 401(k) plans. Participants in plans managed by fiduciaries who do not comply with the duty to review and replace imprudent investments will pay unnecessarily high fees on their retirement savings. Further, insulating fiduciaries from claims challenging their failure to monitor mutual fund expenses after six years will reduce competition over fees and raise the cost of mutual fund investments in 401(k) plans, thereby eroding the retirement savings of American workers." [Tibble v. Edison International, No. 13-550 (9th Cir. Aug. 1, 2013; cert. pet. granted Oct. 2, 2014)] (Pension Rights Center)

21 Dec 2014 07:27:28 Z

"[A]mong private-sector employees who are offered a DC plan at work, 79 percent participate, up two percentage points from 2013. Eighty percent of public-sector employees eligible for a DC plan participate, up from 79 percent a year earlier. The research also reveals a continued decline of defined benefits in the private sector: in 2014, just 16 percent of employers offered them. While 401(k)s are wildly popular, over 40 percent of employees eligible for them at work are also saving for retirement outside of work." (LIMRA)

21 Dec 2014 07:27:28 Z

"The recommendations focus primarily on getting terminating participants to leave their retirement savings in their (former) employer's plan. This has been presented by many as a solution to the 'leakage' problem. It's unclear, however, whether sponsors actually want to retain the assets of terminating participants. And the changes in sponsor practice which the [ERISA Advisory Council] proposes to encourage participants to do this -- post-termination loan initiation, brokerage and mutual fund windows, lifetime income options and stable value funds, allowing consolidation of multiple accounts and providing access to financial advice -- all come with a cost." (October Three Consulting)

21 Dec 2014 07:27:28 Z

"Mike Alfred, CEO of Brightscope ... says 401(k) plans have become something of an afterthought at many companies ... probably because they do nothing to boost the company's bottom line. In the worst cases, funds can be chosen by mid-level employees who have little experience selecting investments and are often no match for a fund company's salespeople. Alfred says this is especially prevalent in the small plan market, where people tend to buy the products that are put in front of them. 'They don't oftentimes spend a lot of time analyzing alternatives,' he says. 'If they like the person that presented the product and the sales pitch is good, a lot of times that's the product that gets purchased.' " (MPR News)

21 Dec 2014 07:27:28 Z

"CFS's experience in advising and counseling ERISA fiduciaries and its knowledge and understanding of prevailing and evolving best practices and 3 standards of care yields four key observations: [1] many plan fiduciaries, especially among large plans, already follow good monitoring practices, meaning that reversing the Ninth Circuit will not result in increased costs for these fiduciaries or their employers; [2] the cost of regular monitoring includes a small amount for 'benchmarking' plan fees in all service categories -- investment, administration, trustee, consulting, and the like, and is, in many cases, largely born by plan participants, not employers or fiduciaries; [3] the Ninth Circuit's decision threatens to erode the past decade's progress on fee reductions in defined contribution plans, driven in part by private lawsuits, which has saved plan participants billions of dollars ; and [4] the Ninth Circuit's standard of 'material' changed circumstances is unworkable and illogical." (Cambridge Financial Services, LLP via CEFEX)

21 Dec 2014 07:27:28 Z

"Many aspects of the U.S. income tax system discourage savings and investment by individuals, thereby hindering long-term growth. Tax reform should result in a tax system that actually encourages people to save and invest.... We have spent a lot of time in recent years defending the gains we have achieved in the 401(k) system. But in 2015 we can, and in my opinion should, go on offense. Toward that end, we must encourage employers who don't sponsor plans to set them up.... I believe the Starter 401(k) plan in my legislation could help to revolutionize retirement savings for employees of small businesses throughout the country." (U.S. Senate Committee on Finance)

21 Dec 2014 07:27:28 Z

"With growing acknowledgment that lifetime income is critical, and largely missing from most workers' plans, it seems odd that so many workers would value a 401(k) over a traditional pension. This may be because guaranteed income doesn't seem so important while you are still at work or, as has lately been the case, the stock market is rising at a rapid pace. It may also be that the 401(k) is the only savings plan many young workers have ever known, and they value having control over their assets." (TIME)

21 Dec 2014 07:27:28 Z

"Using administrative data from eleven companies that added a Roth contribution option to their existing 401(k) plan between 2006 and 2010, we find no evidence that total 401(k) contribution rates differ between employees hired before versus after the Roth introduction, which means that the amount of retirement consumption being purchased by 401(k) contributions increases after the Roth introduction. A survey experiment suggests two behavioral factors play a role in the unresponsiveness of contribution rates to their tax treatment: [1] employee confusion about or neglect of the tax properties of Roth balances and [2] partition dependence." (National Bureau of Economic Research [NBER])

21 Dec 2014 07:27:28 Z

"[T]he Ninth Circuit appears to have confused two distinct requirements imposed by ERISA's duty of prudent investing: the duty to be prudent in the selection of plan investment options, and the duty thereafter prudently to monitor the selected investment options, to ensure that those options remain prudent choices.... Contrary to congressional intent, this interpretation of ERISA's six-year statute of limitations insulates fiduciaries from liability for imprudent behavior -- namely, omitting to provide prudent monitoring -- with regard to ongoing plan investment options, as long as that imprudent behavior occurs more than six years after the initial investment selection." [Tibble v. Edison International, No. 13-550 (9th Cir. Aug. 1, 2013; cert. pet. granted Oct. 2, 2014)] (Eight Law Professors Specializing in ERISA, via American Bar Association)

21 Dec 2014 07:27:28 Z

"Here's how to make the most of a 401(k) plan as a short-term employee: Sign up as soon as the waiting period ends.... Watch out for 401(k) match delays.... Meet savings requirements.... Don't leave before you're vested.... Simplify your accounts.... Avoid cashing out." (U.S. News & World Report)

21 Dec 2014 07:27:28 Z

8 pages. "Since 2005, the incidence of company stock in defined contribution (DC) plans ... fell from 11% to 8%, a relative decline of 27% ... The fraction of participants offered or investing in company stock declined by even larger amounts. Importantly, the percentage of participants with a concentrated stock position (greater than 20% of their total account balance) dropped by about half ... Between December 2005 and June 2014, about one-third of company stock funds were closed to new money and/or eliminated from the plans[.]" (Vanguard)

21 Dec 2014 07:27:28 Z

"[T]he only 'MEP' Reform really needed is a modest change to the Form 5500 rules which would permit employers which aggregate their investments and allocations to also pool their Form 5500s.... Those who are familiar with the small end of the 401(k) market know of the pressure to adopt proprietary funds with the highest expense loads; the limited access to competing fund families; the lack of affordable expertise; and the often-lousy level of services which accompany the lack of scale.... [S]mall employers do need to be able access the buying power which is only available with scale, and it is still far too hard for them to obtain. The question is how it will most effectively be done." (Business of Benefits)

21 Dec 2014 07:27:28 Z

"[T]he DOL indicated that the series of TDFs with deferred annuities can serve as a qualified default investment option (QDIA). The information letter contemplates that the TDF investment manager would have the fiduciary duty to prudently select the annuity provider and indicates that the DOL safe harbor for selecting annuity providers and contracts is available. The plan sponsor's only obligation would be to prudently select and monitor the investment manager. The notice appears to be effective immediately and may be relied on for any plan year." (Towers Watson)

21 Dec 2014 07:27:28 Z

"Average asset-weighted total plan costs for 401(k) plans dropped to 39 basis points in 2012 vs. 49 basis points in 2009 ... For plans with more than $1 billion in assets, the average cost dropped to 28 basis points from 32 basis points during the period, a decline of 12.5%. For plans with less than $1 million in assets, the average cost fell to 164 basis points from 204 basis points, a drop of 19.6%." (InvestmentNews)

21 Dec 2014 07:27:28 Z

"Employees often reduce or stop saving in their 401(k) accounts after taking out a loan from that source, which can endanger their future retirement income.... [At] small companies (with fewer than 500 employees) that had both options, only 9 percent of employees took out new 401(k) loans when an ESPP was also available. At smaller companies with only a 401(k) option, 14 percent had taken 401(k) plan loans." (Thompson SmartHR Manager)

21 Dec 2014 07:27:28 Z

"The IRS has declared that it will begin to enforce the new aggregation-based IRA rollover rules in 2015, with a special transition rule that will still allow old 2014 rollovers to cause a 1-year waiting period for just the accounts that were involved and not all IRAs. Nonetheless, going forward advisors and their clients will need to be more cautious than ever not to run afoul of the rules when engaging in multiple 60-day rollovers over time -- or better yet, simply ensure that IRA funds are only moved as a trustee-to-trustee transfer to avoid the rules altogether!" (Michael Kitces in Nerd's Eye View)

21 Dec 2014 07:27:28 Z

8 pages. 20 Q&As, including: "What is the impact of 'required minimum distribution' rules on QLAC purchases under these regulations? ... Is there a limit to the amount that may be paid as QLAC premiums within a 401(k) or similar plan or IRA and still meet the requirements of these regulations? ... What happens if a contract holder accidentally exceeds this limit?.... What is the impact of a Roth IRA on the amount an individual can place in a QLAC? ... Are these regulations a 'safe harbor' for plan sponsors with regard to offering annuity products in their retirement plans? ... Are there any conflicts between these Treasury regulations and [DOL] rules? ... Do these regulations apply to defined benefit plans?" (Defined Contribution Institutional Investment Association [DCIIA])

21 Dec 2014 07:27:28 Z

"About 41% of 401(k) plan participants now invest in [target date funds], compared with 20% five years ago ... And among those that manage target-date funds, 14% had allocations to hedge fund strategies, up from 10.5% three years ago ... The median target date fund allocation to hedge fund strategies rose to 5% in 2013, from 1.86 percent in 2011." (CFO)

21 Dec 2014 07:27:28 Z

"From 2006 to 2012, the percentage of 401(k) plan assets invested in target date funds also saw a drastic increase. The percentage of plan assets in TDFs went from 3% in 2006 to more than 13% in 2012. Cerulli Associates ... expects those target-date assets to capture almost 90% of 401(k) contributions by 2019.... Mutual funds held 46% of 401(k) plan assets in 2012.... Mutual funds accounted for more than half of the assets in all but the largest plans, where collective investment trusts accounted for a somewhat larger share of assets than mutual funds." (ThinkAdvisor)

21 Dec 2014 07:27:28 Z

"The focus on cost as the primary selection criteria for target date funds continues to accelerate. Focusing primarily on cost fails to take into account three important considerations: ?[1] Decision making on cost alone is not prudent [2] Low cost usually requires risk/ reward trade-offs [3] Cost and value are not the same thing" (J.P. Morgan Asset Management)

21 Dec 2014 07:27:28 Z

"Just because a product may be 'pro-consumer' doesn't mean consumers will be pro-product. Longevity Annuities face the same stark behavioral hurdles as other annuities and long-term investing in general.... [O]nce you solve for the insurance product risks, once you get around the financial risk, once you eliminate the behavioral disincentive, you still have to deal with the investment risk." (Fiduciary News)

21 Dec 2014 07:27:28 Z

"Employers should work with their vendors to develop an education strategy ... specifically designed to direct the efforts of the vendors as they provide education services to employees on the importance of retirement savings and the value of the contributions made by the [employer]. Understanding that individuals learn differently, the key elements of these efforts should be focused on the four key drivers of successful retirement plan education programs: Plan participation; Employee deferral rates; Asset allocation; [and] Income replacement." (Multnomah Group)

21 Dec 2014 07:27:28 Z

"Employers that don't offer Roth contributions should consider doing so.... Once you have [benchmarking] data in hand, it becomes much easier to make positive changes to your plan.... Some providers now allow you to see how many of your plan participants are on track to retire, and how far off track the rest are. Previously, plan sponsors knew that much of their work force was not adequately prepared for retirement, but they didn't have the granularity these new services provide." (CFO)

21 Dec 2014 07:27:28 Z

16 pages. "The study revealed that plan sponsors: [1] View their most important goal as striving to ensure financial security for their participants. [2] Value participant communication and education programs but feel these efforts have fallen short. [3] Underestimate how much intervention participants want and expect from them. [4] Count on the expertise of their advisors and will look to advisors for even more help in the future." (American Century Investments)

21 Dec 2014 07:27:28 Z

"Reducing the core investment lineup to three or four options may be too extreme for many plan sponsors -- particularly if they are concerned about being perceived as taking away choice.... Simplifying a menu can help participants make better selections and improve their ability to stay the course -- rather than chasing performance or, more likely, fleeing an investment, and thus locking in losses if the market suddenly drops. Combining investment strategies and styles may help dampen abrupt swings in performance." (PIMCO)

21 Dec 2014 07:27:28 Z

"The planning device under consideration involves using employee contributions to bring a participant up to the 415 limit who otherwise would not be able to reach that limit because of the deduction and deferral limitations.... Can an employer use this technique if the plan covers other employees, including NHCEs? ... Are the employee contributions subject to the 25% deduction limit or the penalty for nondeductible contributions? ... Are the employee contributions subject to the 415 limit? ... Is there a reason to roll the after-tax contributions to a Roth IRA rather than making an in-plan Roth rollover? ... What plan amendments are needed to implement this strategy? What is the deadline for those amendments?" (SunGard Relius)

21 Dec 2014 07:27:28 Z

"Two months ago, the IRS released important guidance, Notice 2014-54, on the treatment of after-tax money distributed or rolled over from retirement plans. The guidance has ignited a firestorm of interest in using after-tax contributions, particularly in owner-only plans.... This update addresses sources and testing of after-tax funds." (SunGard Relius)

21 Dec 2014 07:27:28 Z

"In 2012, the average 401(k) plan offered 25 investment options, of which about 13 were equity funds, three were bond funds, and six were target date funds.... [A]bout 70 percent of plans offered a suite of target date funds.... [T]he percentage of participants that were offered target date funds increased from 39.5 percent of participants to 69.8 percent between 2006 and 2012, and the percentage of assets invested in target date funds increased from 3.0 percent to 13.4 percent.... Forty percent of 401(k) plans had a simple match formula in 2012 ... Seventeen percent of plans had no employer contributions." (BrightScope and Investment Company Institute [ICI])

21 Dec 2014 07:27:28 Z

"[I]nvestors could get a clearer picture of whether they are nearing their retirement-savings goals by focusing less on the dollar amounts they've accumulated and more on how much income that money can generate in the future. A lump-sum figure, the thinking goes, doesn't tell you much more than how well your portfolio has fared and how much you have saved. The new approach -- known as projected income -- would show instead what your current balance would pay out as income beginning at a certain age." (The Wall Street Journal; subscription may be required)

21 Dec 2014 07:27:28 Z

"The DOL seems to think that an employer-fiduciary has a minimum affirmative duty to construct a core fund menu that is superior to what is available in the market. Too many choices are 'unmanageable.' This approach creates an either-or of problems. [A small plan sponsor] is (obviously) not a sophisticated investor. So he will either [1] unwisely rely on the advice of someone with obvious conflicts or [2] unwisely choose the core fund menu without that advice. Or, he just won't set up a plan ... Because adequately living up to his DOL-imposed fiduciary obligation simply costs too much." (Michal Barry, via PLANSPONSOR)

21 Dec 2014 07:27:28 Z

"[This information collection request (ICR) seeks] authority for focus groups to be used for evaluating the effectiveness of [ERISA] section 408(b)(2) disclosure requirements.... This ICR is designed to explore current practices and effects of a final regulation published in the Federal Register on February 3, 2012, to implement section 408(b)(2) and to gather information about the need for a guide, summary, or similar tool to help a responsible plan fiduciary navigate through and understand the disclosures. The EBSA intends to use information collected from the focus groups: [1] To assess responsible plan fiduciaries' experience in receiving the disclosures the 408(b)(2) regulations require; [2] to assess the effectiveness of the disclosures in helping plan fiduciaries make decisions; [3] to determine how well plan fiduciaries understand the disclosures, especially in the small plan marketplace (100 participants or less); and [4] to evaluate whether, and how, a guide, summary, or similar tool would help a fiduciary understand the disclosures. The focus group results will be used to inform and support a notice of final rulemaking for the guide requirement." [Updated Supporting Statements, Supplementary Documents, and previously filed Comment Letters are also available.] (Employee Benefits Security Administration [EBSA], U.S. Department of Labor)

21 Dec 2014 07:27:28 Z

"An RMD amount cannot be rolled out of a plan and go to an IRA.... [W]hen the plan sends the entire plan balance to you or to an IRA account without sending you a check for the RMD, what you end up with is an excess contribution in the IRA. You can't fix this by just taking out the RMD amount. You must tell your IRA custodian that you are removing an excess contribution. In order to remove an excess contribution, you must also remove the earnings attributable to the excess contribution." (Slott Report)

21 Dec 2014 07:27:28 Z

8 pages. "U.S. Treasury and government money market mutual funds are exempt from the structural aspects of the 2014 money market regulatory changes. All prime (and municipal) money market mutual funds will be subject to redemption restrictions that could hinder distributions, exchanges, rebalancing, loans, and a number of other retirement plan recordkeeping functions. Additionally, prime funds categorized as institutional will have a floating net asset value." (Fidelity Investments)

21 Dec 2014 07:27:28 Z

"For the results to be reliable, the plan must be benchmarked against other plans that are similar in size by plan assets and participant count. The more similar, the more accurate the benchmarking results.... Taking short cuts in the collection and evaluation of pertinent data, subjects benchmarking results to criticism the process was imprudent." (FRA PlanTools)

21 Dec 2014 07:27:28 Z

"The goal to help individuals maintain an income stream throughout the golden years is laudable. The idea of allowing an exception to the RMD calculation for a QLAC certainly is one way to help meet that goal. However ... the final regulations contain numerous requirements and possible traps in order to achieve the requisite status under the RMD rules. Given all of these requirements and the overall complexity of explaining annuities generally to participants, it remains to be seen how quickly plan sponsors adopt these vehicles in their plans and even if they are permitted under the plan, how quickly participants embrace these products." (Thompson Coburn)

21 Dec 2014 07:27:28 Z

"The GAO reviewed the offerings of eight providers of these types of investment management services and estimated that those providers represent over 95% of the managed account industry in defined contribution plan ... They identified these broad areas of concern ... [1] Providers structure managed accounts differently, which can harm participants.... [2] Managed accounts offer advantages for some participants but fees and lack of standardized reporting requirements from DOL can offset these advantages.... [3] Absent guidance, sponsors face challenges in selecting and overseeing managed account providers." (Thompson Coburn)

21 Dec 2014 07:27:28 Z

"[F]ees for recordkeeping and administration services continue to be overwhelmingly oriented to asset levels. Either plan sponsors have negotiated with their providers a 'revenue requirement' calculated as a percentage of assets, or vendors' revenues are determined based on revenue sharing paid by the investments available in the plan. The challenge with both models of asset-based pricing is that investment options often provide disparate levels of revenue sharing.... As a result, participant-specific recordkeeping costs differ dramatically based on asset allocation. An increasing number of plan sponsors and providers have developed solutions to 'equalize' revenue sharing amounts." (Multnomah Group)

21 Dec 2014 07:27:28 Z

"Buck has developed an automated process for redoing the calculation for each person each year -- or even on demand, if a plan sponsor wishes -- to make that available to participants. The updated calculation takes into account actual investment results, changes in pay, revised assumptions as necessary and other variable factors.... The firm is also working on a 'robo-advisor' feature that will, based on all information known about the employee, automatically allocate assets across the spectrum of funds offered in the plan." (CFO)

21 Dec 2014 07:27:28 Z

"Every year, plan sponsors must make sure their plans meet certain compliance requirements ... This publication identifies the materials you need to review and will help you prepare for year-end." (Prudential)

21 Dec 2014 07:27:28 Z

"[L]ongevity pooling -- which is one of the defining features of annuities -- makes providing retirement income easier because it means you only need to worry about the aggregate mortality of a large group of people, and that is much more predictable than the mortality experience of one individual. But when DC took over from DB as the new retirement superpower, longevity pooling got lost in the process. So there was a step back from the goal of providing not just a savings vehicle, but a retirement income vehicle. That's what is driving the interest in this area." (Russell Investments)

21 Dec 2014 07:27:28 Z

"When investigating whether plan administrative expenses are reasonable, the DOL analyzes whether: [1] there is a legitimate service being provided to the plan or participants, [2] the services provided are actually necessary for administration of the plan, [3] the same service is being provided by multiple service providers ... and [4] the cost of such service is reasonable for the size and design of the plan." (Drinker Biddle, via BNA Pension & Benefits Daily)

21 Dec 2014 07:27:28 Z

"[A] tiered approach to menu design, with each tier targeting a different type of participant demographic, can help plan fiduciaries create a prudently structured investment menu. Equally important is a strong education program, which effectively communicates each tier and how each works, to help participants create an effective asset allocation. Finally, incorporating an appropriate QDIA for participants who fail to make an investment election will provide a safe harbor and help in managing the liability of plan fiduciaries." (Manning & Napier)

21 Dec 2014 07:27:28 Z

"The new rules are effective for distributions after December 31, 2014. A plan can choose to operate under the new rules (or the old rules) for periods prior to that date, but the new rules cannot apply to distributions from a designated Roth account prior to September 18, 2014. The IRS has issued a proposed regulation to delete from the Roth 401(k) regulations the sentence requiring separate distribution treatment, and will later issue revised special tax notices. Seldom, if ever, would there be a need for a plan amendment to implement the new rules." (SunGard Relius)

21 Dec 2014 07:27:28 Z

"On January 2, 2015, the authority to prepare revenue rulings, revenue procedures, announcements, and notices, and to issue technical advice (including technical advice memoranda (TAMs)), certain letter rulings, and certain information letters on matters involving exempt organizations, qualified retirement plans, and IRAs will be shifted to TEGE Counsel. TEGE Counsel will be responsible for the issuance of letter rulings except for the letter rulings listed [in this announcement]. In addition, TEGE Counsel will be responsible for ruling on issues involving employer deductions for contributions to welfare benefit funds.... The Employee Plans office of TE/GE (Employee Plans) will retain the authority to issue determination letters and the Exempt Organizations office of TE/GE (Exempt Organizations) will retain the authority to issue determination letters, including determination letters on the exempt status of organizations under Sections 501(c) and 521." (Internal Revenue Service [IRS])

21 Dec 2014 07:27:28 Z

"[W]hat if you could mimic the outcome of having a deferred income annuity in a target-date fund without ever having to lock into an insurance contract or wait for record keepers to catch up with this innovation? ... [T]he same result (a more reliable retirement income stream) can be achieved by using what's called a liability-driven investment, or LDI. Put simply, the way LDIs work is you invest in bonds with varying maturities and immunize the portfolio by matching the durations of the fixed-income assets with the liabilities. This duration-matching strategy can cushion the impact of interest-rate changes and major market swings on a retirement investor's net worth." (Allianz Global Investors)

21 Dec 2014 07:27:28 Z

"The percentage of 401(k) and profit-sharing plans using auto enrollment rose to 50.2% last year, up from 47.2% in 2012, said the latest annual survey by the Plan Sponsor Council of America ... [A] greater percentage of defined contribution plans offering auto enrollment moved away from the traditional 3% default deferral rate. Last year, the percentage of plans offering more than 3% rose to 40.2% vs. 35.2% in 2012 ... 47.1% of plans offered the 3% deferral rate last year vs. 51.8% in 2012." (Pensions & Investments)

21 Dec 2014 07:27:28 Z

"[1] Review and update the plan document.... [2] Confirm all required plan disclosures have been made.... [3] Review (and remove if possible) legacy participants.... [4] Encourage maximum year-end contributions.... [5] Required distributions reminder." (Fiduciary News)

21 Dec 2014 07:27:28 Z

"[T]he new model notices include the following modifications: [1] Provide for the rollover of automatic contributions that are withdrawn upon the request of the employee within 90 days of enrollment; [2] Provide for the penalty-free distribution of amounts rolled over to an IRA to pay for certain health insurance premiums; [3] Update the summary of the tax treatment of rolled-over after-tax contributions; and [4] Update the summary of the tax treatment of rollovers to Roth IRAs." (Bradley Arant Boult Cummings LLP)

21 Dec 2014 07:27:28 Z

"[H]igher-equity glide paths offer greater efficacy for lifetime income replacement, while lower-equity glide paths offer greater efficacy for more stable account balances, with lower risk of large capital losses.... Two sponsors with similar plan demographics and benefit structures might rationally select different glide paths if they have different risk preferences.... [The authors] illustrate the trade-offs between the two goals using a series of hypothetical glide paths spanning the range of those available on the market today [and] show the directional impact that differing characteristics -- such as salary levels, contribution rates, and post retirement withdrawal horizons -- have on these trade-offs." (T. Rowe Price)

21 Dec 2014 07:27:28 Z

"[T]he biggest shortfall of target date funds is that they assume everyone has the same risk tolerance level. To counter this shortfall, [the authors] encourage plan sponsors to include core options, risk-based model portfolios and target date funds in their investment line up.... [R]isk-based model portfolios [are] an optimum choice for those participants that understand their risk tolerance level. Target date funds are a nice alternative for those participants that aren't focused on risk, do not want to bother with understanding their risk tolerance or just want a simple 'do it for me' solution." (Bronfman E.L. Rothschild)

21 Dec 2014 07:27:28 Z

This report shows change in average account balances grouped by age and tenure, from January 1, 2013 through December 1, 2014, for "consistent" participants (those who had an account balance as of December 31, 2012). (Employee Benefit Research Institute [EBRI])

Verisight: truthful insight.
"Veri" stems from veritas, Latin for truth.
"Sight" derived from "insight", the ability to perceive clearly and deeply.


WHAT'S NEW?

November 18, 2014
Verisight, Inc., a recognized leader in comprehensive retirement plan services and consulting solutions, announced today that Laura Ramanis will join the organization’s leadership team as Chief Operating Officer, effective November 17, 2014. Read the full release.

October 24, 2014
The 2015 Cost of Living Adjustments have been released by the Internal Revenue Service. Each year, the IRS is required to review and adjust the dollar limitations on benefits and contributions under qualified retirement plans to account for cost of living increases. Some limitations will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment. However, other limitations will increase for 2015. View the 2015 limits.

October 23, 2014
Verisight will be hosting a series of 401(k) Boot Camps in November for our 401(k) plan sponsor clients.  Invitations to this 3 part series can be downloaded here.

This program will provide tools to help in-house plan sponsor staff operate their retirement plan correctly. Over the course of 3 webcasts, Verisight will cover basic in-house 401(k) operations from the employer’s perspective to give your team information to help avoid common operational errors.

October 15, 2014
The Newport Group, Inc. and Verisight, Inc. today announced they will be joining forces to increase the size, scale and reach of their respective businesses. Under the terms of the agreement, the holding company of Verisight. Read the full release.