Employee Benefits Update: October/November 2017

This issue’s topics include:

Staging a comeback

Stable value funds are back in the spotlight

It’s been awhile since stable value funds reigned as a top investment choice for 401(k) plan participants. Very low prevailing interest rates and a booming stock market have diminished their status. Although no one is predicting they’ll unseat target date funds as the top investment election for retirement investors, stable value funds have staged a bit of a comeback recently. This article explores just what’s behind the renewed interest.

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Are you going to file Form 5500 on time?

Play it safe and avoid penalties

Missing filing deadlines for Form 5500, Annual Return/Report of Employee Benefit Plan, for retirement and health and welfare plans can be extremely costly. The best way to avoid trouble is to ensure that meeting filing deadlines never falls between the cracks. This article summarizes the penalties for delinquent filing of Form 5500 and whether plan sponsors can use the DOL’s Delinquent Filer Voluntary Compliance Program.

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Target date fund labels can obscure their investment strategy

The proliferation of target date fund (TDF) varieties can bewilder many plan sponsors. One survey found that, while 65% of plan sponsors consider investment performance the most important selection criterion when choosing a TDF, 54% aren’t confident about how to benchmark the TDFs against others in the marketplace. This article examines how to compare competing TDFs by segmenting them into logical categories.

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GAO report: Some plan designs may reduce retirement savings

Retirement plan sponsors have ways to limit their outlays for very young employees, and those that move to other employers soon after coming on board. The General Accountability Office (GAO) recently analyzed those plan design opportunities, and is sounding alarm bells. This short article highlights the GAO’s concerns that these options can reduce employees’ ultimate retirement savings potential.

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Compliance alert

This feature lists a few key tax reporting deadlines for October and November.

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As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

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Employee Benefits Update: August/September 2017

This issue’s topics include:

Voluntary Correction Program

How to correct 401(k) plan loan “failures”

“To err is human; to forgive is divine,” as the familiar saying goes. But the IRS will forgive errors involving 401(k) plan loans only when retirement plans use the Voluntary Correction Program (VCP). One of the biggest areas that trip up plan sponsors is plan loans. This article summarizes the three primary “failures” involving plan loans that require an IRS remedy: loan defaults, loans exceeding prescribed loan limits, and loan terms that exceed repayment limits. A brief sidebar reviews the accounting implications of loan defaults.

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Making age a factor in choosing QDIA options

Target date funds (TDFs), the most popular 401(k) qualified default investment alternative, were designed to meet the investment needs of typical plan participants, no matter what their age. The theory is that employees can essentially “set it and forget it,” as TDF portfolios are automatically adjusted from aggressive to more conservative as employees approach and proceed through retirement. That theory, however, has been challenged by research pointing to participants’ failure to use TDFs as intended. This article examines why this is, and what employee benefit plans can do about it.

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Active vs. passive investment funds: Should you let participants decide?

According to a report from Casey Quirk by Deloitte and McLagan, 72% of money invested into funds went into passive funds in 2015. While some may see this as a strong case for passive investing, the issue for plan sponsors isn’t clear-cut. This article summarizes recent data on the trend and whether passive or active funds are right for participants.

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Consider your options with nonvested participant forfeitures

Employee benefit plans provide a combination of vested and nonvested assets. When employees leave a company before their matching 401(k) contributions have vested, they forfeit those amounts. This brief article reviews the options available to plan sponsors when dealing with these assets.

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Compliance alert

This feature lists a few key tax reporting deadlines for September.

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As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

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Employee Benefits Update: June/July 2017

This issue’s topics include:

Is a safe harbor plan the right move?

This alternate approach can save headaches, but at a price
Many qualified retirement plan sponsors worry each year about whether their highly compensated employees will have “excess” salary deferrals returned to them because the plan failed the actual deferral percentage / actual contribution percentage (ADP/ACP) discrimination tests. Most small plan sponsors take advantage of “safe harbor” rules that, nearly always, eliminate the need to worry about passing these tests. This article looks at the pros and cons of this approach.

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Avoid litigation with attention to common red flags

Any size retirement plan can run into serious trouble when sponsors aren’t careful. With some planning, though, a qualified retirement plan doesn’t have to be the target of ERISA litigation. This article reviews some of the most common red flags leading to litigation and reminds plan sponsors of the importance of regularly reviewing fees and expenses.

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Employees who are approaching retirement age may be unaware of their required minimum distribution (RMD) obligations, which begin at age 70½ for both individual

Helping soon-to-be retirees understand RMD rules

IRAs and 401(k)s. This article summarizes what they need to know for financial and tax-planning purposes.

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IRS simplifies process for avoiding rollover penalties

The IRS has made it a lot easier for retirement plan participants (and IRA owners) to avoid penalties when they botch a rollover. This brief article discusses new IRS Revenue Procedure 2016-47, which allows participants to “self-certify” valid reasons to the receiving financial institution.

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Compliance alert

This feature lists a few key tax reporting deadlines for April and May.

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As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

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Employee Benefits Update: October/November 2016

This issue’s topics include:

Small employers on notice
Fiduciary focus important for any size employer

One recent lawsuit alleging fiduciary duty violations caught the attention of many in the employee benefits business not because of the nature of the charges, but instead because it involved a small employer. A string of large employers have faced similar charges and ultimately compensated participants. Even though the plaintiffs later withdrew their complaint, this article examines why the filing of this case matters. A sidebar offers several methods of allocating recordkeeping fees equitably among participants.

Damberg et al v. LaMettry’s Collision Inc., 0:16-cv-01335 (Minn. D.C. 2016)

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IRS places high priority on retirement plan internal controls

When IRS examiners check under the hood of many retirement plans, they often find a lack of sufficient internal controls. The consequences can be severe — even if an IRS audit doesn’t turn up any other problems. The worst-case scenario? Theft of plan assets that is financially damaging to participants and your company, and can also lead to plan disqualification. This article highlights the importance of internal controls for both retirement plan sponsors and their service providers.

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Fair Labor Standards Act update
New employee exempt status threshold rules affect retirement plans

Changes to the Fair Labor Standards Act (FLSA) that take effect December 1 could have implications for retirement plans. The changes affect what forms of compensation businesses use to calculate employer contributions to their qualified retirement plans and determine highly compensated employee (HCE) status. This article reviews the new exemption rules and how they affect retirement plans.

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Hybrid pension plan interest credit rule amendment deadline nears

The deadline for hybrid pension sponsors to adopt plan amendments bringing them into compliance with key provisions of final IRS hybrid plan regulations is fast approaching: January 1, 2017 (2019 for collectively bargained plans). This article reviews the deadline for transitional amendments to satisfy the regulations’ market rate-of-return rule.

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Compliance alert

This feature lists a few key tax reporting deadlines for October and November.

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As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

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What are you forgetting?

Reviewing commonly overlooked fiduciary duties

Although retirement plan fiduciaries take their jobs seriously, it can be hard to cover all the bases. That’s understandable, considering the broad scope of fiduciary responsibility as well as the dynamic nature of the retirement plan designs, investment management and legal interpretations of fiduciary duty. Some common pitfalls include failing to identify the plan’s fiduciaries, insufficiently training fiduciaries and spending too much time on inappropriate investments.

Don't forget!

Knowing your fiduciaries

Do you know the identities of all your plan fiduciaries? Fiduciaries should know who else carries the responsibilities. Having fiduciary status — and the liability associated with the role — is a powerful motivator to pay careful attention to the management of the retirement plan. However, the scope of your fiduciary duty varies according to the role taken. Let’s take a closer look at the types of plan fiduciaries:

Named fiduciaries. ERISA requires the existence of named fiduciaries. The plan document identifies the corporate entity or individual serving as the named fiduciary. If they aren’t immediately identified, the plan document will set the requirements for naming them. The named fiduciary can designate and give instructions to plan trustees.

Plan trustees. These are people who have exclusive authority and discretion to manage and control the plan assets. The trustee can be subject to the direction of a named fiduciary. These plan fiduciaries have a broad scope of responsibility.

Board of directors and committee members. ERISA considers individuals — typically the corporate board of directors, who choose plan trustees and administrative committee members — fiduciaries. The scope of their fiduciary duty focuses on how they fulfill that specific function, and not on everything that happens with the plan itself. The law also sees as fiduciaries people who exercise discretion in key decisions about plan administration, including members of an administrative committee, if such a committee exists.

Investment advisors. The named fiduciary can appoint one or more investment managers for the plan’s assets. People or firms who manage plan assets are plan fiduciaries. However, individuals employed by third party service providers can fall into different fiduciary categories. The investment manager who has complete discretion over plan asset investments (known as an ERISA 3(38) fiduciary) has the greatest fiduciary responsibility.

In contrast, a corporation or individual who offers investment advice, but doesn’t actually call the shots (an ERISA 3(21) fiduciary), has a lesser fiduciary responsibility. The advice can be about investments or the selection of the investment manager.

Service providers. If you use service providers, be sure the service agreement clearly specifies when a service provider is acting in a fiduciary capacity.

Anyone who exercises discretionary authority over any vital facet of plan operations falls under a catch-all category of a “functional fiduciary.”

Training your fiduciaries

Given the crucial role fiduciaries play, they must be properly trained for the role. This is a step that’s often neglected and can be of particular concern for company employees who don’t have full-time jobs related to running the plan.

Failing to properly train fiduciaries to carry out their roles may represent a fiduciary breach on the part of the other fiduciaries responsible for selecting them. The U.S. Department of Labor is known to focus on this when it reviews a plan’s operations. Also, have named fiduciaries (such as individually named trustees or members of plan committees) accept in writing their role as a fiduciary.

Providing proper insurance

A sometimes overlooked task includes properly protecting your plan’s fiduciaries against costly litigation and penalties with insurance designed for this purpose. Companies generally cover fiduciaries who also serve as corporate directors or officers through directors and officers or employment practices insurance policies. These generally don’t extend to fiduciary breaches.

And remember, ERISA fidelity bonds protect the plan’s assets from theft or fraud, not from fiduciary breaches. ERISA requires a fidelity bond, but not fiduciary liability insurance. However, given that anyone who is a fiduciary is personally liable for any violation of their fiduciary duties, you should have fiduciary liability coverage, often called an ERISA rider.

Focusing on the wrong investments

Stock market volatility and speculation about changes in Federal Reserve policies (and their resulting financial market impact) can lead plan fiduciaries to rely on retirement fund investment alternatives that focus on narrow sectors and strategies. This can divert fiduciaries’ attention from the investment options where most of their participants are parking the majority of their retirement savings: stable value and target date funds (TDFs).

Neglecting the big picture

Ultimately, retirement plans should prepare employees for retirement. How well that’s accomplished is often referred to as participant “outcomes.” Fiduciaries with broad responsibility for plans that ignore the big picture ultimately are failing participants, and possibly making themselves vulnerable to a charge of neglecting their fiduciary duties. Reviewing the common mistakes regularly can help you avoid making them.

Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

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Employee Benefits Update: August/September 2016

This issue’s topics include:

DOL fiduciary rule rocks plan investment advice landscape

When the final version of the U.S. Department of Labor’s fiduciary standards rule for advisors to retirement plans was issued in April, the wait for the long-anticipated regulatory package was over. With the benefit of the intervening months, the implications for plan sponsors have become clearer. This article highlights what plan sponsors need to know about the new rule. A sidebar looks at what constitutes investment “advice.”

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Seven Prominent Universities Sued Over 403(b) Plan Fees

The 403(b) community has become the target of retirement plan fee litigation. Lawsuits have been filed against Duke, Johns Hopkins, MIT, NYU, UPenn, Vanderbilt, and Yale on behalf of plan participants. The complaints allege that the plan sponsors failed to monitor excessive fees, did not replace expensive, poor-performing funds with cheaper ones, and generally failed to provide appropriate fiduciary oversight in the administration of their retirement plans. These complaints allege that these failures cost tens of millions of dollars in retirement funds. While 401(k) plan sponsors are more than familiar with these types of claims, this is the first time that nonprofit organizations have been targeted. Read more about the recent lawsuits here and here.

Prestigious Colleges and Universities Sued over Retirement Plan Fees

Are the services your plan receives reasonably priced? Knowing the answer is a vital fiduciary duty. ERISA expects more from plan fiduciaries than simply shopping around for plan providers offering rock bottom rates. Rather, the question turns on whether fees are reasonable in light of services provided. So, in addition to knowing how much the plan is paying, you must determine whether the level of service rendered is appropriate. As a plan sponsor, you should: (more…)

Employee Benefits Update: June/July 2016

This issue’s topics include:

DOL liberalizes views on economically targeted investments

The U.S. Department of Labor (DOL) has reversed guidance it issued in 2008 with respect to retirement plans’ allocating funds to economically targeted investments (ETIs) that consider environmental, social and governance factors. This article discusses the DOL’s about-face on this topic. A sidebar discusses whether plan fiduciaries are required to do anything new with respect to ETIs.

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Employee Benefits Update: April/May 2016

This issue’s topics include:

Plan fee benchmarking
Key fiduciary considerations when reviewing plan fees

Are the services a plan receives reasonably priced? Knowing the answer is a vital fiduciary duty. ERISA expects more from plan fiduciaries than simply shopping around for plan providers offering rock bottom rates. This article summarizes some key areas all fiduciaries must consider when benchmarking costs of their qualified retirement plan. A sidebar discusses a report that suggests ways employers can help current plan participants ease into retirement.

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Employee Benefits Update: February/March 2016

This issue’s topics include:

  • IRS eases pain for correcting certain plan administration errors
  • What are you forgetting? Reviewing commonly overlooked fiduciary duties
  • It may be time to offer annuity options to 401(k) plan participants
  • Shut the door: IRS ends defined benefit plan lump sum payouts

 Employee Benefits Update February March 2016 Click Here to Download

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

Want to learn more?

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