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Experts in Personalized Retirement Plan Design & Administration

BPP401k.com Newsletter 12.04.13

Another Step Forward for DC Plans: Managing Volatility More defined contribution plan sponsors are looking at a variety of ways to help their participants manage volatility — and the accompanying anxiety and doubts that can often push participants to abandon their long-term investing goals. Large plans have led the way with incorporating ways for participants to manage volatility, but the search has also picked up in midsized plans. Source: Alliancebernstein.com

Saver’s Credit Helps Low- and Moderate-Income Workers Save for Retirement Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit this year and in the years ahead, according to the Internal Revenue Service. Source: 401khelpcenter.com

Is Age 70 Retirement the “New Normal”? As Americans live longer, end-of-life expenses — health care and, especially, long-term care — are becoming a bigger part of the “adequacy equation.” Working longer doesn’t reduce those costs, unless you work until you die. Source: Octoberthree.com

Understand the Facts About Target-Date Funds Target-date funds are supposed to provide simple solutions for people seeking an all-in-one fund that is diversified. Yet, a tremendous amount of confusion surrounds these seemingly basic asset allocation tools. Furthermore, not all target-date funds are created equal so it’s essential to first look under the hood if target-date funds are a part of your investment plan for retirement. Source: Financialfinesse.com

Retirement Planning for Mobility & Talent Globally For multinational companies, growing a business means leveraging the right talent in the right place. In the world of “global nomads” — expatriates and third country nationals who spend much of their working lives away from their home country — the provision of future financial security becomes ever more important. To attract and retain the right talent willing to move across borders, whether on a temporary or permanent basis, employers need to provide competitive compensation packages that include a retirement savings component. This paper details how to address retirement security for a mobile workforce. Source: 401khelpcenter.com

403(b) Plans

Whose 403(b) Money Is It Anyway? Typically, an ERISA plan is written with a procedure for beneficiary designation. The terms of the plan are supposed to govern. A typical plan provides that a participant designates a beneficiary for his/her plan balance. Any new beneficiary designation would override prior designations. Service providers often solicit these beneficiary designations. This could cause a great deal of confusion if a participant designates different beneficiaries with different providers, and then these have to be reconciled to the terms of the plan. Source: Principal.com

Fiduciary Related Material and Insight

Two is Better Than One: Protecting Fiduciaries and Optimizing Committee Performance Traditionally, benefit plan committees oversaw administration and investments — everything to do with maintaining an employer-sponsored plan. However, as financial responsibilities have changed, so have committee dynamics, according to Nancy Gerrie, partner at McDermott Will & Emery LLP. She added that now it is best to have one committee for administration oversight and a separate committee for investment selection and oversight. Source: Plansponsor.com

Suitability vs. Fiduciary Standards In the investment field, there are two primary parties who are able to offer investment advice to plan sponsors. These parties are investment advisors and investment brokers who work for brokers-dealers. Many clients may consider the advice they receive from each party as similar, but there is a key difference that may not be completely understood. The difference pertains to two competing standards that advisors and brokers must adhere to, and the distinction has important. Source: Investopedia.com

Are Plan Sponsors Required to Provide Fiduciary Training to Their Fiduciaries? Neither the provisions of ERISA or interpreting regulations require fiduciary training, but that doesn’t mean a plan sponsor shouldn’t. Author thinks it is a best practice to offer training routinely (at least annually) and when internal fiduciaries are appointed. Source: Fiduciaryplangovernance.com

Why Service Providers Don’t Make Good Fiduciaries With the emergence of a market for ERISA Section 3(16) fiduciary services, one might well ask a few questions. Do ERISA’s standards of fiduciary responsibility mean what they say? Are plan sponsors and service providers committed to the shared vision of fiduciary responsibility allocated among persons who are qualified and unconflicted? Source: Erisafiduciaryadministrators.com

Brokerage Window Issues Still Open Offering a brokerage window investment option in a defined contribution retirement plan allows plan participants to set up retail accounts with investment brokers of their choice and they can access a wide variety of investment vehicles. The idea is to give plan participants ultimate investment control. Concerns have arisen though, because, under ERISA, all retirement plan investment options must be monitored and evaluated. Therefore, how do plan fiduciaries monitor and evaluate all the investments selected by participants who use these accounts? Source: Plansponsor.com

The Fiduciary Component of TRO For plan sponsors that manage multiple retirement plans — whether two or more defined contribution plans, a mix of defined benefit and defined contribution plans, or defined contribution and non-qualified deferred compensation plans — industry experts agree that total retirement outsourcing (TRO) may offer benefits in terms of services and user experience for both those sponsors and plan participants. Although the decision to move all retirement plans may not be fraught with the same fiduciary responsibilities as selecting retirement plan investments, it still requires care. Source: Plansponsor.com

How Does One Demonstrate That a Service Provider Arrangement Is Reasonable? There are two primary methods for making this reasonableness determination: 1) a request for proposals (RFP) process, or 2) utilizing a benchmarking service. The RFP process is more formal and results in numerous proposals that are consistent in how the information is provided. This allows for a straight forward, apples to apples comparison of fees and services that are available to the plan. However, it is also time consuming and expensive. Benchmarking is an acceptable and less formal alternative that, for many, is a more practical approach; primarily because it saves time and money. Source: Fi360.com

408(b)(2) — The New Fiduciary Paradox While the new fee disclosure rules are a step in the right direction, placing the onus of enforcement on plan sponsors just causes a new paradox. Although it might be reasonable for an inexperienced plan sponsor to engage an independent expert, now that inexperienced plan sponsor must identify a second expert to ensure the first expert is expertly performing their responsibilities. In other words, despite the panacea of 408(b)(2), plan sponsors and their employees acting in a fiduciary capacity, the touchstone is still caveat emptor. Source: Dalbar.com (PDF)

408(b)(2) Related Contractual Considerations for Service Provider Contracts For those plans that intend to rely on the statutory prohibited transaction exemption under ERISA Section 408(b)(2) in order to enter into the contract with the service provider, this is a non-exhaustive list of exemption-related contract considerations plan fiduciaries should consider. Source: Winston.com

Revisiting 401k Fees in a Post-Disclosure World More than a year after DOL rules took effect requiring 401k service providers to report their fees to plan sponsors using standardized tables, employers have new opportunities to look more closely at their existing fee structures. This has allowed sponsors to identify new ways to reduce plan costs and ensure that their plans are getting the level of service that participants need, especially from the recordkeeping firm that oversees plan transactions and any vendor that might provide sponsors with investment management advice. Source: Shrm.org

Insights: Studies, Research and White Papers

Study Reveals Effectiveness of Custom, Target-Date Investment Structures Transamerica Retirement Solutions announced the results of a year-long analysis on the effectiveness of custom, target-date investment structures for participants in employer-sponsored retirement plans. The analysis focused on participants’ personalized rates of investment return versus their investment risk, and examined the actual account performance for over one million plan participants during the course of 2012. Source: 401khelpcenter.com

Survey Shows Companies Changing 401k Investment Approaches Determined to help employees improve their financial security at retirement, a growing number of employers are placing greater emphasis on improving and institutionalizing their 401k investment lineups to boost participant returns and increase savings levels, according to a new survey by Aon Hewitt. Source: 401khelpcenter.com

The Impact of Market Recoveries on Retirement Preparedness The latest analysis by the CRR indicates that, despite a strong rebound in the stock market and a modest rebound in housing, Americans’ retirement prospects have not meaningfully improved. Recent research sponsored by Prudential found that employers share the concern. Sixty-five percent of finance executives believe that a significant portion of employees will have to delay retirement due to inadequate savings. Source: Prudential.com (PDF)

Workers Shy From Savings Amid Retirement Health Worries US employees who save for retirement through their employers’ 401k plans are not planning to save more for retirement over the next year as compared to last year. And those closest to retirement are decreasing their planned savings, despite increasing concern about health care costs in retirement. So says the 2013 Mercer Workplace Survey. Source: Mercer.com

Most Workers Finds Retirement Projections Helpful, but Many Don’t Understand Them A new study by the LIMRA Secure Retirement Institute (SRI) reveals that 9 in 10 U.S. workers find retirement income projections somewhat or very helpful. The study also uncovered workers’ concerns about the validity of and calculations behind the projections. Source: 401khelpcenter.com

That Retirement Crisis? Not So Bad, After All Don’t look now, but some of the same folks who have been spreading fear about the woeful lack of retirement readiness among American workers have something new to say on the subject: a financial industry study that asserts that we’re doing a lot better than we think. Source: Reuters.com

Paper Illustrates Important Role 401ks Play in U.S. Retirement System Transamerica Retirement Solutions announced the results of a year-long analysis on the effectiveness of custom, target-date investment structures for participants in employer-sponsored retirement plans. The analysis focused on participants’ personalized rates of investment return versus their investment risk, and examined the actual account performance for over one million plan participants during the course of 2012. Source: 401khelpcenter.com

Our Strong Retirement System: An American Success Story The U.S. retirement system has many components: Social Security provides a strong base, complemented by employer — sponsored retirement plans, IRAs, annuities, and other savings. A growing component of that system is employer — sponsored defined contribution arrangements, such as 401k plans. These plans are popular and successful with employees and employers. With consistent contributions over time, defined contribution plans can generate substantial retirement benefits, especially when combined with Social Security. This report brings to bear the most recent statistical data and the results of rigorous academic research. Source: Acli.com (PDF)

Which States Have the Highest Retirement Plan Participation? Physical location appears to have an effect on participation in an employment-based retirement plan, according to a new report from the nonpartisan Employee Benefit Research Institute. The report explains that while various demographic factors affect the probability of workers participating in an employment-based retirement plan, their geographic location also has an impact. Source: Ebri.org (PDF)

Survey Reveals Sponsors May Be Getting Too Comfortable As target-date funds become more sophisticated and build a history of performance, plan sponsors are gaining confidence in their target-date funds and other qualified default investment alternative offerings. However, with this confidence, there seems to be less concern regarding fiduciary risk, according to a 2013 survey of DC plan sponsors. Source: Janus.com (PDF)

Items of Special Interest to Advisors

Developing Your Investment Adviser’s Compliance Calendar for 2014 To help manage the ongoing compliance process, registered investment advisers should consider developing a compliance calendar that can serve as an effective and proactive tool to assist the investment adviser with meeting its ongoing compliance requirements. Developing a compliance calendar can help strengthen an investment adviser’s written compliance policies and procedures that must be developed pursuant to Rule 206(4)-7 of the Investment Advisers Act and similar state rules to detect, prevent, and correct possible regulatory violations that can occur throughout the year. Source: Ria-compliance-consultants.com

DC Investment Only Providers It’s important that advisors to select DCIO partners that have the commitment, experienced staff, support and value added services that can really help advisors to build, grow and service their business. NAPA Net’s DC Investment Only list is provided here, updated in December 2013. There have been some significant changes in the industry since the list was last updated in May. Source: Napa-net.org

Seven Deadly Sins Every Retirement Plan Provider Should Avoid There are many mistakes that retirement plan providers make that are essentially deadly sins because they threaten the existence of that provider. This article is about seven deadly sins that plan providers should avoid if they want to stay in business. Source: Jdsupra.com

Customization Seen as Top TDF Trend “The trend of customizing target-date funds to the needs of plans and participants seems to be gaining steam,” says Marek Pfeil, managing director of investment research for SageView Advisory Group. “However, with customization options, as well as glide paths and the choice of products, you need to determine whether the benefits of going with a new set of target-dates funds outweigh the benefits of your current setup.” Source: Planadviser.com

Court, Legislative and Washington DC

Appeals Court Allows Boeing 401k Plan Case to Proceed as Class Action On November 26, 2013, the Seventh Circuit Court of Appeals rejected the Boeing Company’s request to appeal the order of Chief Judge David R. Herndon of the United States District Court for the Southern District of Illinois, which granted class certification to participants in Boeing’s 401k Plan for their claims that Boeing personnel responsible for managing the plan breached their fiduciary duties under ERISA. Source: Prweb.com

Solicitor General Asks High Court to Strike Pro-Fiduciary Presumption of Prudence The U.S. Supreme Court should strike down the pro-fiduciary presumption of prudence that some federal courts have used to shield fiduciaries of employer stock plans from liability for declining share value, the U.S. solicitor general said in a brief filed with the high court (Fifth Third Bancorp v. Dudenhoeffer, U.S., No. 12-751, brief filed 11/12/13). Source: Bna.com

Fiduciary Questions in MassMutual Case Recent lawsuit raises questions about a company providing its own products and services to its own employees in its own qualified retirement plans. Source: Morningstar.com

Compliance and Regulatory Related

2013 Plan Year: Year-End Compliance Reminders 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. This information applies to qualified defined contribution plans and 403(b) plans that are subject to Title I of ERISA. Source: Prudential.com (PDF)

Why a Plan Review Shouldn’t Be Treated Like a Trip to the Dentist Plan sponsors treats reviews of their plan like a trip to the dentist and it doesn’t have to be that way. A plan review can help root out issues that could be problems later down the line. This article is about why retirement plan sponsors shouldn’t treat their plan reviews like a trip to the dentist. Source: Jdsupra.com

Electronic Disclosures: It is Not as Simple as Sending an E-mail In light of all the PPACA disclosure requirements, and with the year-distributions required for retirement plans, employers tend to want to distribute benefit plan notices electronically. Maybe companies want to post them on a company website or e-mail them to employees, but there is no question that mailing paper notices to employees is the least preferred method for employers. Unfortunately, it is the preferred method for plan communications from a regulatory perspective. ERISA does permit the electronic disclosure of certain plan communications under certain circumstances. But employers should be very careful to follow these rules. Source: Foxrothschild.com

401k’s: Time for a Checkup Employers can help new and current participants make the best choices by giving their 401k plans a thorough checkup. To help them with this task, author asked experts on defined-contribution plans for their advice on plan goals, fund mix, automatic enrollment, fees and more. Here are their suggestions. Source: Cfo.com

How Safe Is Your ADP/ACP Safe Harbor? Plan sponsors are interested in actual deferral percentage (ADP) and actual contribution percentage (ACP) safe harbor designs primarily because they can eliminate the need for ADP and/or ACP testing and ensure that highly compensated employees can maximize deferrals under the plan. There are many nuances to ADP/ACP safe harbor requirements that present traps for the unwary, which can render them unsafe, but the same complexity that creates these traps also creates planning opportunities. Source: Aon.com (PDF)

SEC Puts Fiduciary Duty on 2014 Agenda as ‘Long-Term Action’ The Securities and Exchange Commission is pursuing a rule that would raise investment-advice standards for brokers — just not in the near future. The SEC put the rule on a 2014 regulatory agenda that included 43 items. It was slated for “long-term action” without a specific timetable. Source: Investmentnews.com (free registration may be required)

DOL Releases Advance Copies of 2013 Form 5500 Annual Report The U.S. Department of Labor’s Employee Benefits Security Administration, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation today released advance informational copies of the 2013 Form 5500 annual return/report and related instructions. Modifications to the Form 5500 and Form 5500-SF and their schedules and instructions for plan year 2013 are described under “Changes to Note” in the 2013 instructions Source: Dol.gov

ASPPA Recommends Simplified Guidance on Same-Gender Spouses in Employee Benefit Plans The DOL expanded the definition of ‘spouse’ in ERISA-covered employee benefit plans to include legally married, same-gender spouses in the wake of the Supreme Court’s Windsor decision this summer, and promised further guidance addressing specific provisions of ERISA and its regulations at a later date. In a letter to the DOL submitted December 3, 2013, ASPPA made six recommendations that it feels will mitigate uncertainty for plan sponsors and plan administrators related to participants with legally married, same-gender spouses. Source: 401khelpcenter.com

Buyer Beware: The Cost of 401k Fee Deflation Now that 401k fee disclosure regulations under ERISA 408(b)(2) have been fully implemented, fee deflation appears to be the new norm. Although Plan Sponsors and participants will ultimately benefit from this fee deflation, Plan Sponsors need to be more sophisticated in the selection and monitoring of service providers so as to not land themselves in hot water, or find themselves stuck with a retirement program that fails to meet their objectives. Source: 401kfeedisclosure.com

Video: Are You Following Your Investment Policy Statement? What’s better? Having an investment policy statement and not following it or not having an investment policy statement? Watch this quick video to find out. Source: Erisasunscreen.com

DOL Clarifies the QPAM Exemption’s Anti-Criminal Rule The U.S. Department of Labor clarified that a deferred prosecution agreement entered by an affiliate of a QPAM will not in itself jeopardize the QPAM’s status under DOL’s QPAM exemption, PTE 84-14. Source: Groom.com (PDF)

DOL Lists Fiduciary Re-Proposal, Project On Brokerage Windows on Regulatory Agenda The Department of Labor’s Employee Benefits Security Administration projected that its rule on the redefinition of the term “fiduciary,” also known as its conflict-of-interest rule, will be re-proposed in August 2014, and also indicated its intentions to start on a project related to brokerage windows, according to the DOL’s fall 2013 regulatory agenda. Source: Bna.com

Best Practices for Beneficiary Designations in Retirement Plans Issues for plan sponsors to consider when it comes to beneficiary designations are very broad. There is no “one-size fits all” answer when designing a retirement plan to deal with beneficiary designations. The right approach for your plan will be based on a number of facts and circumstances. Article covers some issues plan sponsors should consider when administering beneficiary designations. Source: Multnomahgroup.com

Qualified Retirement Plan Distributions Are Exempt From Net Investment Income Tax Effective for 2013 and later tax years, Section 1411 of the Internal Revenue Code imposes a 3.8 percent net investment income tax on the net investment income of individuals, estates and trusts. The definition of NII is complex, but generally NII does not include any distribution from a qualified retirement plan under Code Section 401(a), or from a Code Section 403(b) or 457(b) plan or an individual retirement account. Source: Mcguirewoods.com

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