Employee Benefits Update: February/March 2017

This issue’s topics include:

Get your fiduciary house in order
DOL’s newest regulations require plan sponsor action

The majority of the U.S. Department of Labor’s complex regulations mandating fiduciary status for individuals dealing with retirement investment decision-making involve investment advisors. But the regulations, which are scheduled to take effect on April 10, 2017, also require plan sponsors to take certain steps. Remember, plan sponsors are always the fiduciary, and the regulations expand the definition of fiduciary status. A sidebar discusses the distinction between investment education and investment recommendations or advice.

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Who’s to blame?
Court equitably apportions fiduciary misdeeds

When a fiduciary breach occurs, some fiduciaries may be more culpable than others. And when that’s the case, the court can order those parties to indemnify other fiduciaries who were, despite their technical status as fiduciaries, without blame. This article summarizes a recent case of the U.S. Court of Appeals for the Seventh Circuit where the court equitably apportioned relief in a fiduciary duty setting.

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Hardship withdrawal programs require strict administration

While not required, most 401(k) plans offer a hardship withdrawal option. The IRS recently updated its guidance on how plan sponsors can remedy errors in the administration of hardship withdrawals. This article highlights the basics of hardship withdrawals and how to correct mistakes when administering a hardship withdrawal program.

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2016 vs. 2017 retirement plan limits

This chart contains updated retirement plan limits for 2017.

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Compliance alert

This feature lists a few key tax reporting deadlines for February through April.

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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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Join our Employee Benefit Plan Resources group on LinkedIn for more frequent updates on recent developments and best practices and discuss related topics with your peers.

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Employee Benefits Update: Year End 2016

This issue’s topics include:

Using eligibility rules to control plan enrollment

Plan sponsors have more flexibility than they may realize when it comes to setting eligibility rules for 401(k) plan participants. Even though ERISA sets many rules for eligibility, plan sponsors have leeway to meet the demands of the employment market. This article offers some thoughts for plan sponsors to consider when determining plan enrollment.

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Too many investment options may increase litigation risk

Giving plan participants a wide range of investment options is a good thing — but only to a point. That’s one of multiple allegations in recent class action lawsuits filed against several prominent universities. This article reviews recent litigation, and offers a cautionary note for plan sponsors who offer a high number of investment options.

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Where’s Waldo?
Locating missing plan participants

It’s not uncommon for previously active employed plan participants to fall off the radar screen. They include retirees and former employees that move away without informing the plan administrator. Before anyone realizes it, they become “lost” participants. This article sets out the steps to take when dealing with these participants.

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IRS permits high-earner Roth IRA rollover opportunity

As highly compensated employee (HCE) 401(k) plan participants approach retirement, a potentially useful tax-efficient IRA rollover technique may be a valuable savings tool. This brief article reviews IRS rules about how HCEs can allocate both pretax and after-tax employee contribution 401(k) assets between standard and Roth IRAs.

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Compliance alert

This feature lists a few key tax reporting deadlines for December and January.

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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.

Want to learn more?

Join our Employee Benefit Plan Resources group on LinkedIn for more frequent updates on recent developments and best practices and discuss related topics with your peers.

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FLSA Overtime Rule Blocked by Federal Judge

The federal overtime rule scheduled to take effect on December 1, 2016 has been blocked by U.S. District Judge Amos Mazzant III, who issued a preliminary injunction on Tuesday. The Department of Labor (DOL) rule would have essentially doubled the Fair Labor Standards Act (FLSA) salary threshold for overtime pay exemption.

To learn more about what this recent development means for you and your business, click here for an informative article from the Society for Human Resource Management.

 

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At Insero, we make it our business to stay abreast of the latest trends and technical updates and we understand how important timely updates are to our clients. We hope that you find these informative and useful, and invite you to reach out to us if you have any questions.

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.

Want to learn more?

Join our Employee Benefit Plan Resources group on LinkedIn for more frequent updates on recent developments and best practices and discuss related topics with your peers.

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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.

Want to learn more?

Join our Employee Benefit Plan Resources group on LinkedIn for more frequent updates on recent developments and best practices and discuss related topics with your peers.

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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?

Join our Employee Benefit Plan Resources group on LinkedIn for more frequent updates on recent developments and best practices and discuss related topics with your peers.

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