Employee Benefits Update August/September 2019

This issue’s topics include:

Is it time to give a fresh look at “alts” in retirement plans?

Are many plan participants gaining the benefit of a truly broad diversification of retirement portfolio assets? The answer might depend on whether they’re covered by a defined benefit (DB) plan or a defined contribution (DC) plan. This article takes a look at why DB plans offering “alternative” investments, also known as alts, may make a big difference.

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Time for class

Widening the scope of training for retirement plan committee members

Learning the ropes of overseeing a retirement plan isn’t a “one and done” exercise. Periodic training updates for retirement plan committee members acting in a fiduciary capacity is a prudent approach to ensuring that they maintain the current knowledge essential to carry out their duties. This article reviews why it’s important to ensure that new committee members get a strong grounding in plan operations and their responsibilities promptly on being appointed to a plan committee, if not before. A sidebar discusses whether following the “prudent man rule” is sufficient for retirement plan fiduciaries to perform their duties effectively.

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DB plan de-risking strategies in full swing

Private sector employers have been retreating from the defined benefit (DB) pension model for decades. This is largely motivated by a desire to “de-risk” the company from a financial obligation that’s as variable as financial market behavior. More recently, holdouts on that trend have been given new motivation to depart from the DB design: escalating Pension Benefit Guaranty Corporation (PBGC) premiums. 2015 legislation set the stage for annual increases through 2019, after which the increases will be indexed for inflation. This article examines what plan sponsors of DB plans need to know about de-risking their plans.

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Make your SPDs user-friendly

The text of a summary plan description (SPD) is usually the product of a tug-of-war between cautious ERISA attorneys who worry about the use of general, simple statements, and human resources professionals familiar with their average employees’ reading level. The attorneys often tug harder, and the result is a document that many employees pick up, glance at, and promptly toss. This article discusses why that’s not a good outcome.

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Compliance alert

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

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adults business meeting, training for retirement plan committee members

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Employee Benefits Update June/July 2019

This issue’s topics include:

Help retirees plan their retirement spending, survey says

Long after defined benefit (DB) plans became scarce in the private sector, many employees still mourn their departure. With DB plans, participants are given an estimate of their monthly benefit at retirement. However, with defined contribution (DC) plans, participants often lack confidence in their understanding of how much their DC plan will provide in monthly income when they start drawing down their accounts. This article discusses why more and more 401(k) plan sponsors are beginning to try to address this concern in various ways — without revisiting the DB plan model. A short sidebar provides some statistics for plan sponsors on keeping plan assets from being transferred out of the plan.

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ERISA disclosure 101: A quick overview of plan sponsor obligations

Qualified retirement plan sponsors are subject to many disclosure requirements. This article provides a “top ten” (and thus incomplete) list of key required defined contribution plan disclosure documents from the Department of Labor (DOL), offered to reinforce a general understanding of those requirements. A note of caution: This list doesn’t include IRS disclosure requirements. Also, while disclosures are generally directed to plan participants, a plan beneficiary, in the case of a participant’s death, typically would also be covered by the disclosure rules.

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Not every plan that benefits retirees is an ERISA plan

The fact that a compensation arrangement can provide a substantial source of income in retirement doesn’t make it subject to ERISA. That was the result the U.S. Court of Appeals for the Second Circuit delivered to three former partners of Booz Allen, a consulting company. This article reviews the case, which serves as a helpful primer on the definitional limits of an ERISA “retirement” plan.

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Appeals court sacks spouse’s attempt for QDRO

What makes a domestic relations order a qualified domestic relations order, or QDRO? The distinction is essential for retirement plan administrators when deciding whether to accept a state court’s instructions to turn over some portion of a plan participant’s (or, in some cases, a deceased participant’s) retirement plan assets to an “alternate payee.” This article briefly looks at this difference, as it was part of a legal battle waged by the former spouse of a deceased professional football player covered by the NFL’s retirement plan.

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Compliance alert

This feature lists a few key tax reporting deadlines for June and July.

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People sitting at a table plan for retirement

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 Employee Benefit Plan Services, please feel free to contact me directly.

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Employee Benefits Update April/May 2019

This issue’s topics include:

Proposed IRS regs liberalize rules for hardship withdrawals

How hard should a hardship be to justify a hardship withdrawal from a 401(k) plan? Proposed IRS regulations could, according to the agency itself, enable eligible plan participants “to access their money more quickly with a minimum of red tape.” This article provides a short summary of several key provisions of the detailed proposed regulations. A sidebar looks at different ways employers might respond to the changes.

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Fiduciary liability
First Circuit shifts burden of defending a fiduciary breach claim

A recent ruling could set the stage for a definitive U.S. Supreme Court opinion regarding retirement plan fiduciaries’ liability on the subject of monitoring plan expenses. The U.S. Court of Appeals for the First Circuit’s ruling in Brotherston v. Putnam Investments shifts a key aspect of the burden of proof of a fiduciary breach from the plaintiff employees to the plan sponsor defendant. This article reviews the case and the court’s decision.

Brotherston v. Putnam Investments, No. 17-1711, October 15, 2018 (First Cir.)

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Have you outgrown the need for matching 401(k) contributions?

Administrating a retirement plan is an evolving process. For example, many plan sponsors provide matching contributions on participant 401(k) plan deferrals without realizing there’s an alternative: making substantial nonelective contributions instead of matching contributions. It’s not a strategy that will work for all employers, but there is nothing to lose — and perhaps much to gain — by at least considering it.

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Take a close look at your plan expense categories

Keeping a sharp eye on your 401(k) plan’s expenses — a fundamental duty of fiduciaries — can require the use of a magnifying glass, at least metaphorically speaking. Take the case of what’s paid out of retirement plan investment funds, as opposed to paid directly by the plan or the company as the plan sponsor. Individual pieces can be measured in basis points (hundredths of one percent), but they add up. This article briefly explains some common contributors to a plan’s gross expense ratio and how even small distinctions can substantially affect participant investment returns over time.

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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 Employee Benefit Plan Services, please feel free to contact me directly.

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Employee Benefits Update October/November 2018

This issue’s topics include:

Why target date fund oversight matters

Money management giant Vanguard began tracking the popularity of funds with professionally managed allocations — primarily target date funds (TDFs) — in 2003. Over the years, the organization has reported a steady growth of their prevalence in defined contribution retirement plans. As of the end of 2017, 58% of participants invested in a TDF, and Vanguard projects that number will hit 77% by 2022. This article discusses the reasons behind the TDF explosion, and a short sidebar covers some tips from the Department of Labor.

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Investment option overload?

A cautionary tale from Yale University

When it comes to defined contribution plan investment options, giving participants an abundance of choices can backfire. Yale University recently dodged a bullet in this regard when it beat back — at least initially — a class action lawsuit accusing the institution of an ERISA breach. This article discusses why the case is instructive for plan sponsors.
Vellali et al v. Yale, Civil No. 3:16–cv–1345 (AWT), 03/30/2018

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Pointing to agenda analysis of chart for investing and planning

Investing in HSAs for long-term retirement goals

Retirement plans are about saving for the cost of living in ― retirement. And typically one significant expense for retirees is medical bills. Actuaries at Fidelity Investments estimate that a typical 65-year-old couple retiring in 2018 will incur $280,000 in combined out-of-pocket health expenses during their retirement, excluding the cost of long-term care. This brief article discusses Health Savings Accounts, when employers can offer them to participants and why participants may be interested in them.

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New IRS preapproved plan regime takes effect

Last year, in Revenue Procedure 2017-41, the IRS announced a new regulatory regime for defined contribution plans. The regime was issued to encourage employers with individually designed plans to convert to the preapproved format. This article discusses what employers should know going forward to meet the October 1, 2018, deadline for prospective submitters of “preapproved” defined contribution plan documents.

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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 Employee Benefit Plan Services, please feel free to contact me directly.

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Employee Benefits Update August/September 2018

This issue’s topics include:

Charging plan expenses to participants correctly

Shaving a few basis points off plan participants’ annual returns on their retirement plan accounts can put a significant dent in their asset accumulations by the time they’re ready to retire. For that reason, the question of which plan expenses are charged to participants, and which must be borne by the plan sponsor, is a critical issue to resolve correctly. Improperly allocating expenses to participants could be a serious fiduciary breach. This article summarizes the difference between administrative and settlor functions and which can be charged as plan expenses.

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Keep your eye on the ball

Plan forfeitures must match plan document

It’s a routine matter for employees to forfeit retirement plan benefits. Even so, plan sponsors can’t afford to become blasé about it; ERISA demands more than an “easy come, easy go” attitude about the matter. This article reviews how plans can forfeit benefits and when benefits are forfeited. A short sidebar covers what plans can do with forfeited funds.

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New rules affect disability benefit claim denials in retirement plans

Retirement plans (or other ERISA-regulated benefits, including nonqualified “top hat” plans) containing a disability benefit are affected by the new DOL rules that took effect in April 2018. The new regulations, in the works since 2015, pertain to disability claims and the processes governing appeals of a denial of disability benefits. This article reminds sponsors of 401(k) plans and defined benefit pension plans with disability benefits that they have until the end of this year to amend their plans to reflect the new rules.

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Do you know what to do with an SOC report?

Service organization control (SOC) reports come in several varieties. They generally pertain to service organizations, like retirement plan recordkeepers or third party administrators (TPAs). The American Institute of Certified Public Accountants (AICPA) determines the scope of each SOC report. This short article reviews the types of SOCs and the reason for their use.

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Compliance alert

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

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notebook planning, person writing

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 Employee Benefit Plan Services, please feel free to contact me directly.

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Employee Benefits Update June/July 2018

This issue’s topics include:

Is your retirement plan successful?

Which criteria tell the real story
Do retirement plans do the job of preparing participants for retirement? And how do employers benchmark their plan’s performance? This article takes a closer look at what criteria to use when benchmarking a plan’s performance, and ways to communicate with participants and keep them on track toward retirement. A short sidebar summarizes a recent report on participants’ retirement readiness.

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Plan documents: Be proactive to defuse possible landmines

Sometimes overseeing a retirement plan might feel like navigating a minefield. With proper precautions, however, plan sponsors can get through safely. Case in point: Making sure plans operate consistently with their plan documents. This article discusses ERISA requirements and various applicable documents that can be considered plan documents.

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Stem plan leakage by upgrading your 401(k) loan rules and practices

“Plan leakage” refers to participants allowing their account balances to shrink, because of either loans or hardship withdrawals. Plan loans don’t always result in permanent leakage when they’re repaid, but they still can have adverse long-term consequences for participants. This article reviews how plan loans cause leakage, why plans allow loans, and how employers can help plug the leaks.

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Using targeted education to narrow the gender gap in retirement savings

In employment settings in which women save less for retirement than men, an aggressive educational program can help to narrow the gap. This short article highlights a recent study from the Center for Retirement Research that looked at an initiative in Wisconsin to close a retirement saving gender gap among state employees.

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Compliance alert

This feature lists a few key tax reporting deadlines for June and July.

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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 Employee Benefit Plan Services, 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 April/May 2018

This issue’s topics include:

Tax Cuts and Jobs Act gives ― and takes away

While early drafts of the Tax Cuts and Jobs Act proposed significant changes to qualified retirement plans, the version that passed has minimal impact on them. However, the Tax Cuts and Jobs Act (TCJA) did make some notable adjustments to the tax treatment of other types of employee compensation and benefits, for both employers and employees. Here’s a closer look at how corporate compensation and family and medical leave tax incentives are affected. A short sidebar discusses the TCJA’s impact on employee achievement awards, moving expenses and transportation fringe benefits.

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Green Tax Reform Binder with information on the Tax Cuts and Jobs Act of 2017

Cash balance plans growing at a double-digit clip

The hybrid pension design known as the cash balance plan is on a roll. An analysis of the most recent IRS Form 5500 filings available reveals a 17% jump in the number of cash balance plans in 2015, while 401(k) plan formation growth was a meager 3%. This article examines which businesses may be interested in this type of plan.

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Interpretation or statutory violation?

Why it matters when deciding remedies
Do ERISA plan participants who believe a plan has treated them unjustly have to exhaust their administrative remedies before filing an action in court? Last year, the U.S. Sixth Circuit Court of Appeals joined all but two other circuits in finding that plan participants don’t have to do so. This article examines the split between the circuits and the Sixth Circuit’s conclusion.
Hitchcock, et al. v. Cumberland Univ., et al., No. 16-5942 (6th Cir. 2017).

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DOL increases scrutiny of defined benefit plans

Defined benefit plan sponsors might be facing tighter scrutiny from the U.S. Department of Labor (DOL). Last year the DOL’s Employee Benefits Security Administration ramped up pension audit operations in its Philadelphia office, and later decided to do so elsewhere, the agency announced at an ERISA Advisory Council meeting. This short article highlights what the DOL is focusing on in their audits.

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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 Employee Benefit Plan Services, 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 February/March 2018

This issue’s topics include:

Identity theft threat puts plan participants and sponsors at risk

News of commercial database hackings involving millions of people’s personal information seems commonplace. While many of these stories focus on bank and credit card accounts, many plan sponsors and participants don’t realize that 401(k) plan assets may be at risk — which can be a problem not only for participants, but sponsors as well. While no sponsor wants to see participants sustain financial hits, this article covers when, depending on how a cybertheft unfolds, sponsors could be left holding the bag. A sidebar offers tips for avoiding being a victim of fraud.

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Fiduciary rule’s tortured path to implementation

What this means for plan sponsors
Controversy, complicated legal wrangling and legislative maneuvering have been swirling around the Department of Labor’s “fiduciary rule” governing financial advice given to retirement plan participants. Delays, modifications, phased effective dates, and the involvement of the Securities and Exchange Commission have left confusion and headaches in their wake. This article briefly reviews what plan sponsors need to know.

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Tax cut law a mixed bag for retirement plan sponsors

Despite early indications that Congress was prepared to do much more, the Tax Cuts and Jobs Act (TCJA) that was passed in December largely left retirement plans unscathed, save for changes pertaining to plan loans and IRA conversions. This article reviews areas that are affected, as well as what could be ahead.

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2017 vs. 2018 retirement plan limits

This chart contains updated retirement plan limits for 2018.

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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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