Daily News Digest - Updated Throughout the Day
This digest contains a wide variety of source material dealing with current trends, opinion, news, legislative action, investments, marketing, sales, consulting, and legal issues regarding 401k, 403(b) and other retirement plans. Each listing contains a headline (hyperlinked to the source document), description, source of the item, and the month and year posted to this digest.
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Summary: Investment advisers and other financial advisers who create asset allocation recommendations based solely upon the belief that a client's time horizon is the most important investment factor should go ahead and call their E&O carriers and put them on notice. The argument commonly advance in favor of time horizon being the most important factor in asset allocation claim that time reduces risk. Various studies have shown that that simply is not true.
Source: Prudent Investment Adviser, March 2014
Summary: Four years after the launch of its Lifetime Income Analysis experience, participants in Putnam Investments-administered 401k plans continue to take significant steps forward in increasing their level of retirement preparedness.
Source: Plansponsor.com, March 2014
Summary: The receipt by the third-party 3(38) of compensation from the recordkeeper for rendering non-3(38) services to the recordkeeper calls into question the very independence of the third-party 3(38) and raises doubts about whether the 3(38) is free from constraining outside influences.
Source: Morningstar.com, March 2014
Summary: A recent survey shows that pilots are focused on saving, engaged in planning to reach their retirement goals and looking to take full advantage of all their retirement plans have to offer. Like other well compensated, more sophisticated professionals, many pilots are good at putting money aside for retirement, allocating their assets and rebalancing their portfolios.
Source: 401khelpcenter.com, March 2014
Summary: The Eleventh Circuit recently dismissed a participant's fiduciary breach claims against SunTrust's 401k plan fiduciary committee members on the ground that the claims for imprudently selecting certain investment options was time barred by ERISA's six-year statute of limitations.
Source: Erisapracticecenter.com, March 2014
Summary: Last year, a Yale law professor publicized a study of 401k plan fees that suffered from a "world is flat" flaw; he used data from 2009 and seemed uninformed about the impact of subsequent developments have resulted in reductions in fees. However, much of the benefits community know that the increased attention on plan sponsor responsibilities that resulted from the "world is flat" Yale-study was a good thing.
Source: Pensionsbenefitslaw.com, March 2014
Summary: If you are a public company and your qualified retirement plan offers company stock as an investment option or makes company matching in company stock, you may not want your plan's summary plan description and prospectus to be combined into one document. Recent cases indicate that incorporating filings made with the Securities Exchange Commission into your plan's SPD could raise the risk that you could face a breach of fiduciary duty claim under ERISA if SEC filings are later found to be misleading or inaccurate.
Source: Mckennalong.com, March 2014
Summary: Behavioral finance studies have shed new light on how investors make decisions. Study results from 2013 have illustrated the concept of regret as it relates to decision making. Investors experience "action regret" when making a poor investment decision. In contrast, they experience "inaction regret" when choosing to do nothing when given an opportunity to make an investment that proves to be successful.
Source: Lawtonrpc.com, March 2014
Summary: The decline in marriage, rise in women's labor force participation, and transition away from defined benefit plans to defined contribution plans have resulted in changes in the types of retirement benefits households receive and increased vulnerabilities for some.
Source: Gao.gov, March 2014
Summary: Recent developments suggest that FINRA, the SEC and the DOL are working together -- or, perhaps, have independently reached the same conclusions. These changes impact broker-dealers, RIAs and their representatives. Less obviously, they also impact the rollover services of recordkeepers. Bottom line -- the rules are changing. Much more attention must be given to practices and disclosures in the distribution and rollover process.
Source: Fredreish.com, March 2014
Summary: It is a question in which policymakers, lawmakers, employers and individuals all have a stake: How many will have sufficient financial resources for retirement expenses? The answer depends on a number of variables, but according to an updated analysis of the EBRI Retirement Readiness Ratings, approximately 56.7 percent of Early Baby Boomers, 58.5 percent of Late Boomers, and just under 58 percent of Gen Xers are projected to not run short of money in retirement.
Source: Ebri.org 
, March 2014
Summary: Mergers and acquisitions of companies are usually driven by economic or strategic reasons. The benefits plans are an afterthought, but can wreak financial havoc if not planned for carefully before the transaction is complete.
Source: Benefit-Resources.com, March 2014
Summary: 401k plan providers continue to innovate their offerings with more automated and customized features to accommodate the reluctant investor. Employers and advisers looking for a competitive edge should take note.
Source: Benefitnews.com, March 2014
Summary: On February 28, 2014, ASPPA and ACOPA submitted comments to IRS/Treasury in response to a request in Notice 2014-5 regarding possible alternatives to the current rules for DB/DC plans tested on the basis of equivalent benefits.
Source: Asppa.org , March 2014
Summary: Judy Diamond Associates released an analysis of the best states in which to have a 401k plan. Those states with the highest concentration of top plans have higher participation rates and more employer generosity than their peers.
Source: 401khelpcenter.com, March 2014
Summary: This resource discusses whether plan sponsors of 401k plans should consider adding an in-plan Roth rollover to their plan. The in-plan Roth rollover permits participants to rollover their eligible non-Roth accounts to a Roth option within the same plan so that participants do not have to remove funds from their employer's plan to participate in a Roth account.
Source: Practicallaw.com, March 2014
Summary: On January 30, 2014 Senator Harkin (D-IA) introduced the USA Retirement Funds Act. The bill includes Senator Harkin's USA Retirement Funds proposal and a variety of other proposals. This article focuses on two of the major parts of the Act: the USA Retirement Funds proposal itself and provisions on hybrid plans. It also summarize briefly other provisions of the Act.
Source: Octoberthree.com, March 2014
Summary: According to the Department of Labor, 401k plan sponsors aren't complying with ERISA standards adequately. Of the plans audited by the DOL last year, 75 percent resulted in sponsors being fined, penalized or forced to make reimbursements for errors. But the question remains: will smaller businesses with limited resources find the prospect of compliance so onerous that they stray from plan sponsorship altogether? A culture of "compliance fear" could have far-reaching consequences.
Source: Benefitspro.com, March 2014
Summary: Fourth quarter 2013 data for defined contribution (DC) plans administered by MassMutual shows that Gen X and Gen Y savers (born between 1965 and 1995) are serious about saving for retirement. According to MassMutual's data, 58.4% of total DC participants are in the Gen X and Gen Y cohort, and are continuing to gain on numbers of Baby Boomers who now account for just 38.5% of participants on MassMutual's platform.
Source: 401khelpcenter.com, March 2014
Summary: When AOL CEO Tim Armstrong announced that the company would switch from matching employee 401k contributions each pay period to providing a lump-sum match at the end of each year, the way he framed the announcement could not have been worse. So what can other employers learn from AOL's experience? Plenty.
Source: Shrm.org, March 2014
Summary: The elapsed-time method of determining eligibility is an alternative to the hours of service method. The elapsed-time method provides an administrative convenience that may be used by employers with workers in jobs where counting hours is not always easy or possible. How does the elapsed-time eligibility method work?
Source: Mhco.com, March 2014
Summary: When terminating a defined contribution plan, may the plan cash out a participant who has a vested balance of over $5,000 who can not be located?
Source: Mhco.com, March 2014
Summary: Why bother getting ready for an exam? There are two reasons. First, despite the low odds, exams do happen. Second, if an adviser understands the modus operandi of examiners and prepares accordingly, the process will force the adviser to think deeply about how well the firm's business model is defined and identify opportunities for the firm to improve its business.
Source: Investmentnews.com (free registration may be required), March 2014
Summary: When clients get an audit request letter from the EBSA, they are usually surprised at the amount of information being requested. Sometimes, the requested documentation may not be available, which creates its own set of issues. For planning purposes, this article provides a list of required information you may be asked to produce.
Source: Foxrothschild.com, March 2014
Summary: For all those out there looking to retire in the near future, here are some of the most important action steps you can take now to prepare for retirement.
Source: Financialfinesse.com, March 2014
Summary: As with most aspects of running a plan, the ultimate responsibility and liability for filing annual 5500 returns is with the plan sponsor. You may have the most trusted and competent professionals working on your plan. But the old mantra from many years ago of "trust but verify" seems apt here.
Source: Fiduciaryplangovernance.com, March 2014
Summary: Last year, Ian Ayres, William K. Townsend Professor at the Yale Law School and University of Virginia School of Law associate professor Quinn Curtis teamed up and threatened to disclose 401k plan sponsors who breached their fiduciary duty. They promised to reveal a study to back up their contention. The industry struck back and Ayres and Curtis suddenly faded from the scene. But, they're back.
Source: Fiduciarynews.com, March 2014
Summary: The fundamental objective of a DC plan is to accumulate assets that will ultimately be withdrawn as a source of retirement income. Yet, the majority (96%) of plan sponsors do not know how much income their DC plan may be designed to yield. Moving forward, DC plans should be designed to target a percentage of an average earner's final net pay as an income replacement goal. Plan design is critical to helping participants with the key levers that contribute to better long-term outcomes such as participation, savings rates, and age-appropriate asset allocation.
Source: Fidelity.com , March 2014
Summary: New analysis of historical survey results reveals that plan sponsors have enhanced key features of their retirement benefits over the last several years. Plan design features that saw aggregate improvements include employer matching contributions, formulas, schedules and vesting.
Source: 401khelpcenter.com, March 2014
Summary: Author writes, "While it sounds like a nice idea, advisers who can select retirement plan investments at their discretion cannot single-handedly solve the problem. In my opinion, this crisis has nothing to do with investment selection. It can only be addressed by 1) workers saving more money, 2) more effective participant communication, and 3) perhaps by plan design."
Source: Planadviser.com, March 2014
Summary: While most of the news about 401k plan fiduciaries and their responsibilities is about plan expenses, plan investments, and participant education, there is very little topic about the one issue that is important that most plan sponsors don't consider. That consideration is the selection of the plan's third party administrator (TPA) because the difference between a good and bad TPA can make or break a plan sponsor's required resolve to uphold their responsibility as a plan fiduciary.
Source: Jdsupra.com, March 2014
Summary: Defined contribution record-keeping assets surged to a record $5.06 trillion for the 12 months ended Sept. 30, as tracked by Pensions & Investments' annual survey of the largest recordkeepers. The latest results represent a 13.7% increase from the year-earlier $4.45 trillion.
Source: Pionline.com, March 2014
Summary: The next level of retirement plan service and risk management is here: establishing fee policy statements for 401k plans. Forward-thinking advisers are looking at the fee policy statement -- a document that spells out how fees ought to be allocated among all the players within a 401k plan -- and helping their plan sponsor clients get the most out of it.
Source: Investmentnews.com (free registration may be required), March 2014
Summary: The Massachusetts Securities Division targeted many of the wrong firms in questioning 401k recordkeepers about employers moving to an annual match instead of contributing each pay period.
Source: Pionline.com, March 2014
Summary: Cerulli estimates that Target-Date Funds make up about 20% of 401k assets today and capture 42% of 401k contributions. Those numbers will grow to 35% and 63%, respectively, by 2018, the research firm projects. Advisers, particularly those serving in a fiduciary capacity for retirement plan sponsors, need to ensure that the sophistication of their analysis and oversight keeps pace with that growth.
Source: Investmentnews.com (free registration may be required), March 2014*
Summary: In the Fall 2013 issue of the Journal of Retirement, Robert Arnott questions the wisdom of target-date fund glidepaths that reduce equity exposure through time, arguing that a reverse approach with increasing equities delivers greater ending wealth, even at the lower tail of the wealth distribution. This is a rebuttal to Arnott's "Glidepath Illusion...."
Source: Targetdatesolutions.com , March 2014
Summary: The FASB's Accounting Standards Update 2011-09, which essentially became effective for non-public entities for calendar year 2012, required entities that participate in multi-employer plans to provide more robust disclosure in their financial statements. Watch this quick, two-minute video to learn examples of this requirement.
Source: Erisasunscreen.com, March 2014
Summary: It is almost unthinkable to fire $25 billion of 401k clients that you paid more than $100 million for. But decisions need to be forward-looking and take into account changed circumstances. This turn of events at Schwab is a reminder just how much the 401k market has changed and why RIAs need to be alive to its possibilities.
Source: Riabiz.com, March 2014
Summary: Ian Ayres, a lawyer and economist serving as the William K. Townsend Professor at Yale Law School, may be familiar to industry members and observers from a curious series of events that unfolded in mid-2013. The professor is again making waves in the retirement industry with the release of a study arguing plan sponsors tend to establish investment menus that encourage under performance.
Source: Planadviser.com, March 2014
Summary: As major employers tweak their 401k matching contribution schedules, opting for an annual lump-sum payment rather than per pay period, advisers are calling for more conversations with their employer clients to discuss plan design and benefit restructuring.
Source: Investmentnews.com (free registration may be required), March 2014
Summary: In the event the plan document allows forfeitures to be utilized by plan sponsors to pay plan expenses or fund employer contributions, forfeitures are often "found money" that helps the company's cash flow. But, there may be consequences for plans that do not properly dispose of forfeitures according to the terms of the plan document.
Source: Eisneramper.com, March 2014
Summary: A retirement committee of members who have a thorough knowledge of the plan and its provisions enables the plan sponsor to demonstrate compliance with fiduciary requirements. No matter the size of your retirement plan, it is a good idea to form a retirement plan committee. This article provides a few suggestions for items of discussion by committee members.
Source: Consultrms.com, March 2014
Summary: Savings Incentive Match Plans for Employees (SIMPLEs) are frequently mentioned as a low cost alternative to 401k Safe Harbor Plans for providing employees the opportunity to save for retirement. This chart compares the differences between SIMPLE IRAs and Safe Harbor 401k Plans.
Source: Consultrms.com , March 2014
Summary: Seventy-five percent of the 401ks audited by the DOL last year resulted in plan sponsors being fined, penalized or forced to make reimbursements for plan errors. And those fines and penalties weren't cheap.
Source: Cfodailynews.com, March 2014
Summary: Employees who change jobs can have a major negative impact on defined contribution systems, according to a report by the Boston Research Group. When employees leave, plan sponsors face increased costs, risks and potential liability resulting from cash-outs, stranded accounts and missing participants.
Source: Benefitspro.com, March 2014
Summary: This infographic provides insights into what most people really don't know about the effects of investment-related costs in 401k plans, and what you can do about it.
Source: Americasbest401k.com, March 2014
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