February 2024 Digest

This digest contains a wide variety of the freshest 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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401k Fee Suits Tossed for Pleading Deficiencies Is Positive Trend for Plan Fiduciaries

While it is hard to reconcile Judge Griesbach's dismissal of three lawsuits in one day with his refusal to dismiss similar lawsuits several days later, the dismissals for failure to include appropriate comparator plans are a positive trend for 401k plan fiduciaries in the Seventh Circuit and has gained steam in the Sixth and Eighth Circuits as well. In these jurisdictions, plaintiffs are on notice that their complaints must provide allegations of meaningful comparator plans of similar size that received similar recordkeeping services to the plan at issue. Complaints lacking this specificity may face an early exit from litigation.

Source: Faegredrinker.com, February 2024

Retirement Savings System Under Fire at Senate Hearing

A hearing that was billed as "taking a serious look at the retirement crisis in America" with a focus on improving the defined benefit system ended with witnesses agreeing that some reforms are needed, but calling for drastically different measures.

Source: Asppa.org, February 2024

Merger and Acquisition Considerations for Employee Benefit Plans

In the context of mergers and acquisitions, an acquisition target's qualified retirement plans, health plans, executive compensation arrangements, and benefit programs can all be a source of significant liabilities. These benefit programs are promises that the target has made to its employees, and the buyer must ascertain whether it is liable to fulfill them and, if so, the dollar value of those promises. To avoid complications and liabilities, the parties need to understand the best deal structure based on the benefit program requirements and perform due diligence to carefully address any issues under both ERISA and the IRS early in the transaction.

Source: Wagnerlawgroup.com, February 2024

Long-Awaited IRS Proposed Regulations for Long-Term Part-Time Employees

On November 24, 2023, the IRS.) released proposed regulations concerning the long-term part-time employee rules beginning in the 2024 plan year. The LTPT employee rules were originally established under the SECURE Act of 2019 and then modified under the recent SECURE 2.0 Act of 2022. SECURE 2.0 made changes to shorten the initial LTPT eligibility requirements and expanded them to include 403b plans. The new guidelines help define LTPT employees and certain eligibility conditions. Here is a review.

Source: Tri-ad.com, February 2024

The 2024 Game Plan for In-Plan Annuities

The long road to winning over plan sponsors and participants has been an uphill one filled with roadblocks that have kept most players on the sideline to date. With a lot of hard work and lessons learned, components for a successful annuities-within-401k plans game plan now appear to be in place. Will 2024 finally be the year in-plan annuities turn the corner and win over the workplace retirement plan market?

Source: Qualifiedplanadvisors.com, February 2024

More Than Half of U.S. Workers Are Unaware of the IRS Tax Credit for Eligible Retirement Savers

Fifty-three percent of U.S. workers are unaware of a tax credit that may help them save for retirement and lower their tax bill, according to survey findings from the nonprofit Transamerica Center for Retirement Studies. The Saver's Credit, also referred to as the Retirement Savings Contributions Credit by the IRS, is available to millions of taxpayers who are saving for retirement.

Source: Prnewswire.com, February 2024

401k World: Recordkeepers, Advisers and "Coopetition"

Since recordkeepers and advisers in many ways rely on each other, the relationship was characterized as "coopetition" by consultancy Cerulli Associates in 2022, a phrase picked up and used at industry conferences and events. How this relationship sorts itself out in the coming years will have big implications for the industry, as well as the participants it serves. In this article are some of the key areas in which recordkeepers are currently playing, with the results still to come.

Source: Planadviser.com, February 2024

Recordkeepers Are Leaning in On Managed Account Offerings

The country's largest recordkeepers are continuing to bet on managed accounts as a key tool to personalize retirement savings for plan participants. In conversations with Fidelity Investments, Empower, the Vanguard Group, and Principal Financial Group, executives reported growth in both plan sponsor adoption and participant uptake of managed accounts as they continue to invest in further personalization and distribution.

Source: Planadviser.com, February 2024

The Major Unclaimed Retirement Benefits Problem and What to Do About It

Retirement benefits that go unclaimed is a major -- and growing -- problem, with recent headlines putting the total amount of lost or forgotten assets well north of a trillion dollars. The sheer size of the number has the retirement plan industry's attention, as well as concern from politicians and policymakers. There's an increasing consensus that something should be done.

Source: Penchecks.com, February 2024

Catch-Up Contributions and SECURE 2.0: What to Know and Next Steps

In its simplest form, catch-up contributions are exactly what they sound like, an opportunity for people 50 and older to "catch up" and save more money in their retirement accounts than what the usual annual contribution limits from the IRS allowed. This article discusses key facts to keep in mind about catch-up contributions ahead of SECURE 2.0 requirements that are coming in 2025, amounts and limits to know for you and your workforce, and how you can raise awareness about the changing landscape by informing and educating your workforce.

Source: Myubiquity.com, February 2024

American Views on Defined Contribution Plan Saving, 2023

With millions of US households personally directing their retirement savings, the ICI has sought to track retirement savers' actions and sentiments. This 24-page report, the 16th in this series, summarizes results from a nationally representative survey of Americans aged 18 or older. The survey polled respondents about their views on defined contribution retirement account saving and their confidence in 401k and other DC plan accounts.

Source: Ici.org, February 2024

Viewpoint: The US Retirement System: Working for America's Middle Class

The US retirement system is the envy of the world, thanks largely to the success of defined contribution plans -- such as 401ks -- and individual retirement accounts. Together with Social Security, employer plans and IRAs have helped build the middle class, giving millions of everyday Americans a financially secure retirement.

Source: Ici.org, February 2024

Actuary Company Reaches $4M Settlement in 401k Fee Class Action Suit

Insurance Services Offices Inc., an actuarial and underwriting company, has agreed to pay $4 million to settle a proposed class action lawsuit filed by ex-employees concerning its 401k Savings and Employee Stock Ownership Plan. The former workers alleged that ISO charged them excessive fees and failed to monitor the plan's investments in violation of ERISA.

Source: Hallbenefitslaw.com, February 2024

California District Court Denies Motion to Dismiss 401k Excessive Fee and Underperformance Claims

A California district court recently denied a motion to dismiss claims that the fiduciaries of a 401k plan breached their ERISA fiduciary duties of prudence and loyalty by selecting underperforming, high-cost investments and causing the plan to pay excessive fees for services. The decision is notable for illustrating how pleading standards in investment performance and excessive fee litigation vary depending on jurisdiction.

Source: Erisapracticecenter.com, February 2024

SIMPLE IRAs vs 401k Safe Harbor Plans: What are the differences? - 2024

Savings Incentive Match Plans for Employees are frequently mentioned as a low-cost alternative to 401k Safe Harbor Plans for providing employees the opportunity to save for retirement. In particular, SIMPLE IRAs carry a lower administrative burden than 401k Safe Harbor Plans, due to simplified plan documents, and no annual compliance testing or 5500 government reporting requirements. The purpose of this chart is to compare a SIMPLE IRA with a safe harbor 401k plan.

Source: Consultrms.com, February 2024

Asset Managers Should Rethink Their Approach to Advisors Servicing DC Plans

As broker/dealers actively encourage their advisors to lean into the retirement plan space, asset managers will need to adapt their approach to product distribution and advisor support in this evolving intermediary landscape, according to the latest Cerulli Edge -- U.S. Asset and Wealth Management Edition.

Source: Cerulli.com, February 2024

Compensation Requirements under Proposed Amendments to PTE 2020-02

Broker-dealers and their registered representatives providing services to private sector tax-qualified and ERISA-governed retirement plans, participants in those plans, and IRA owners are subject to several compensation rules. ERISA's fiduciary responsibility rules mandate that ERISA plans pay no more than reasonable compensation to service providers (including advisors). This article focuses on the compensation limitations in the DOL's proposed amendments to PTE 2020-02.

Source: Brokerdealerlawblog.com, February 2024

PLESA, Can I Have Some More?

The SECURE 2.0 Act of 2022 had many retirement plan provisions, including the pension-linked emergency savings account that lets workers contribute money to an account in a DC plan that can be used to cover unforeseen financial hardships. In consultation with the Treasury Department and the IRS, the DOL recently issued guidance regarding PLESAs in the form of FAQs. There are no earth-shattering revelations in the FAQs, but there are a few nuggets to glean from them.

Source: Benefitslawadvisor.com, February 2024

The National Retirement Risk Index: An Update From the 2022 SCF

The release of the Federal Reserve's 2022 Survey of Consumer Finances offers an opportunity to reassess Americans' retirement preparedness as measured by the National Retirement Risk Index. The NRRI estimates the share of American households that are at risk of being unable to maintain their pre-retirement standard of living in retirement.

Source: Bc.edu, February 2024

401k World: Retirement Plan and Wealth Advisement

According to surveying done by T. Rowe Price, 100% of large retirement plan advisories are now providing wealth management strategies to plan participants. According to some in the industry, that trend is likely to continue in coming years as participant wealth management needs grow. Offering both plan advisory and wealth management services makes sense from several perspectives, including higher profit margins than plan advisory work, according to the T. Rowe report.

Source: Planadviser.com, February 2024*

Industry Asks IRS to Limit Automatic Features in Merged Plans

The IRS's comment period for an interpretative notice related to several provisions of the SECURE 2.0 Act of 2022 resulted in responses that included requests for further clarification ahead of Tuesday's deadline. Specifically, commenters request that single-employer plans not required to have automatic features, should retain that status when joining a MEP or PEP.

Source: Planadviser.com, February 2024

Regulation Best Interest and Individual Retirement Accounts

The retirement security proposal, proposed by the DOL in October, would apply fiduciary duties under ERISA to rollovers to individual retirement accounts, among other transactions. Opponents of this proposal say that the SEC's Regulation Best Interest has been regulating these transactions since June 2020, and the DOL proposal is therefore unnecessary. This article reviews what Reg BI requires when it comes to rollovers.

Source: Planadviser.com, February 2024

Senate HELP to Hold Hearing on Confronting the "Retirement Crisis"

Amid the recent attacks on the 401k savings system, the key Senate committee with jurisdiction over ERISA plans to hold a hearing on Wednesday, Feb. 28 to examine what it describes as "confronting the retirement crisis facing working class Americans."

Source: Ntsa-net.org, February 2024

New Michigan Bill Would Create State Auto IRA

Michigan State Rep. Mike McFall introduced a bill this week that would create a state-run automatic IRA program. Under the plan, employees who don't have access to retirement savings plans through their employer would be automatically enrolled in a Roth IRA. The account would be owned by the worker, who could decide how much to contribute via payroll deduction or opt out of participating. The IRAs would move with workers when they change jobs.

Source: 401kspecialistmag.com, February 2024

Tips to Keep Your Retirement Plan in Compliance

A recent survey indicates that 45% of retirement plan sponsors do not realize they serve as fiduciaries to their organization's retirement plan. All fiduciaries need to follow best practices for ensuring their plans are operating according to the rules, regulations, and governing plan documents. This process can be accomplished by creating a compliance checklist for 2024.

Source: Usicg.com, February 2024

Three Themes Shaping the U.S. Retirement Landscape

Looking into 2024, retirement income, personalization, and diversification will be the key themes for DC plan sponsors and their consultants and advisors. This 2024 U.S. Retirement Market Outlook explores why it is expected that these topics will shape the retirement landscape in the coming years and outlines the underlying factors that are creating both challenges and opportunities for the retirement industry. The paper also provides action items or next steps for plan sponsors, consultants, and advisors.

Source: Troweprice.com, February 2024

Group Health Plan Fiduciaries May Now Be a Target of Lawsuits for Excessive Fees

Once the DOL's participant fee disclosure rules for retirement plans became effective in 2012, the plaintiffs' bar latched onto recordkeeping and investment fees paid by 401k plans, and the number of lawsuits claiming excessive fees exploded. Now, a recent lawsuit against the fiduciaries of a group health plan highlights what might be the next wave of fee litigation related to employee benefit plans.

Source: Sgrlaw.com, February 2024

Understanding Investments and Fees: A Key Part of Plan Committee Education

As retirement plan litigation has become more commonplace, plan committee members need to be prepared to defend themselves in case they are ever in a court situation. Many retirement plan lawsuits involve questions regarding plan investment and other fees, as well as the reasonableness of those fees. Therefore, educating plan committee members about investments and the importance of benchmarking investments and costs is a crucial part of fiduciary training, experts say.

Source: Plansponsor.com, February 2024

Prevent Problems by Using Auto Rollover IRAs for Force-Outs Below $1,000

Have you done something for a long time without really thinking about it, and when you finally do you realize you could be doing it better? Most service providers and plan sponsors continue to pay force-out distributions of less than $1,000 in cash via checks without recognizing there is a more efficient solution. Discussed here is why you should be using an automatic rollover IRA for all account balances: from $1 to $7,000.

Source: Penchecks.com, February 2024

DOL Gets Temporary Restraining Order Against TPA

The DOL has gone to court to protect retirement plan assets in a case of alleged embezzlement by a TPA. According to the DOL, RiversEdge is a third-party administrator of at least 240 retirement plans that hold millions of dollars in plan assets and acts as an agent to manage and administer plan assets, at least 229 of these retirement plans are covered by ERISA.

Source: Napa-net.org, February 2024

Asset Managers Should Reassess "Siloed Approach" to Advisors Serving DC Plans

With broker/dealers actively encouraging their advisors to embrace the retirement plan space, a new report by Cerulli suggests that asset managers will need to adapt their approach to product distribution and advisor support in this evolving intermediary landscape.

Source: Napa-net.org, February 2024

Five Things to Consider About the Fiduciary Rule Redux

There is a long road from a fiduciary proposal to a rule in force. By now, the proposed new fiduciary rule has been read, digested, analyzed, and the subject of countless articles, webinars, and more. So, where do you go now as an advisor? Advisors may want to look at the new rule through this framework.

Source: Napa-net.org, February 2024

Impact on ERISA Regulation if Supreme Court Throws Chevron Deference Overboard

Although Relentless and Loper Bright do not directly implicate ERISA, a repeal of Chevron deference would almost certainly affect how courts treat regulations under ERISA. Two current ERISA hot topics that come to mind are the proposed Retirement Security Rule and the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule. If the Court abandons or curtails the Chevron deference, ERISA regulations adopted by the DOL may be more heavily scrutinized, modified, or vacated by federal courts.

Source: Morganlewis.com, February 2024

New Rules Make Tracking Long-Term, Part-Time Employee Service a Full-Time Job

Most employers with impacted plans reviewed their eligibility-tracking processes some time ago in anticipation of the initial effective date of the new LTPT rule. However, with that new rule now effective -- and last-minute guidance available -- employers need to review those processes to determine if further changes are needed or desired. Eventually, it may become easier to think of service tracking under the new rule as a largely set-it-and-forget-it process. However, for now, employers will likely want to continue revisiting, reviewing, and refining their eligibility-tracking processes around the new rule.

Source: Mwe.com, February 2024

PR Treasury Announces Plan Contribution Limits for 2024

On January 30, 2024, the Puerto Rico Treasury Department issued Internal Revenue Circular Letter No. 24-01 notifying the retirement plan limits that will apply to retirement plans qualified for the year 2024, including the cost-of-living adjustments published by the IRS. Here are the retirement plan limits applicable for taxable years beginning on or after January 1, 2024.

Source: Mcvpr.com, February 2024

The IRS's Pre-Examination Pilot Program Enters Phase Two

The IRS announced earlier this month that it is extending its pilot program under which retirement plan sponsors are given 90 days' notice that their plan has been selected for examination, with the opportunity to avoid a full audit by correcting certain errors and demonstrating compliance with the applicable Internal Revenue Code rules by the end of the 90-day pre-examination period. The key features of the pre-examination pilot program remain the same.

Source: Groom.com, February 2024

The New Fiduciary Rule: Requirement to Correct Failures With PTE Conditions

When a person makes a "covered" recommendation to a "retirement investor" and the recommendation, when implemented, results in the person (or his or her firm or an affiliate) receiving additional compensation, a prohibited transaction will occur. One of the conditions in the PTEs is that any compliance failures must be corrected and, if need be, the retirement investor must be made whole. This article is the first in a series that will discuss the correction requirements in the proposed amendments to PTEs 2020-02 and 84-24. This article focuses on the requirement to report failures and corrections to the DOL.

Source: Fredreish.com, February 2024

2024 Highly Compensated Employees: What You Need to Know to Pass Your Non-Discrimination Tests

If you have been offering a company 401k for more than a year, then you know your plan requires a lot of testing to stay compliant. That's because one of the primary duties of employers offering a 401k is to ensure that it's designed to benefit all employees, not just owners and highly paid employees. A series of annual tests is used to decide whether or not a plan discriminates. If the plan fails a test, the company must take corrective action until the plan is no longer discriminatory.

Source: Forusall.com, February 2024

Comparing Seven Defined Contribution Plan Designs - 2024

Employers and their advisors should recognize that there is much more room for design enhancement than there was 10 to 20 years ago. Don't assume that the simplest design is always the best. The best design for any given situation will vary depending on employee ages and salaries, as well as company objectives. Here is a chart showing the results of comparing seven plans for a small business.

Source: Consultrms.com, February 2024

Pooled Employer Plans vs. SIMPLE IRA

There are now many different retirement plan options for employers. It is becoming more common to see Pooled Employer Plans and SIMPLE IRAs evaluated against one another. Both types of plans can be good options for the right situation. This chart takes a look at the differences between the two plans.

Source: Conradsiegel.com, February 2024

Calculating Earnings for 401k and 403b Plan Corrections: Do Your Best to Do Better

Practitioners tend to use the DOL's online calculator for late deferral deposits since EPCRS permits estimates, but to the extent one is being practical and making participants whole, the cheaper result of the online calculator should not prevail over the participant's, the plan's, or the default investment alternative's actual rate of return. Some other alternatives are presented here.

Source: Belfint.com, February 2024

Four Phases of Retirement. The Third One Is Not Much Fun

If you're not preparing emotionally and socially -- and many boomers aren't -- retirement will be a bumpy ride. Riley Moynes, a writer and public speaker, issues this warning in the video here. But he also offers sound advice on how to smooth things out. The advice is dispensed in his descriptions of the four phases of retirement: vacation, loss, experimentation, and the reward. He arrived at these phases after interviewing dozens of retirees.

Source: Bc.edu, February 2024

A More Enlightened Approach to Uncashed Distribution Checks

No retirement plan sponsor likes the idea of dealing with uncashed distribution checks, nor do they wish to draw unwanted regulatory attention or to become embroiled in costly litigation because of their uncashed check policies. Unfortunately, many plan sponsors place themselves in precisely that spot, becoming unnecessarily over-burdened with unresolved uncashed checks, while inviting unwanted regulatory scrutiny and/or legal challenges by embracing flawed uncashed check policies.

Source: 401kspecialistmag.com, February 2024

Exploring the Benefits and Challenges of ChatGPT and Other AI-Generated Content

AI-generated content is becoming an increasingly popular talking point among financial advisors as a means of creating engaging, targeted content with greater speed and efficiency. On the surface, it may appear to be an ideal solution; however, there are both pros and cons to leveraging artificial intelligence when producing content that should not be overlooked. This article explores the potential benefits and drawbacks of using AI technology to create content for financial advisors.

Source: 401k-marketing.com, February 2024

Smaller Accounts, Insurance Product Impact Debated at Hearing on Fiduciary Proposal

Opponents of the Department of Labor's retirement security proposal testified at a Congressional hearing Thursday that the proposal would dramatically decrease access to advice for smaller account holders, while proponents argued it is a necessary regulation to reduce and mitigate investor abuses.

Source: Planadviser.com, February 2024*

Consultants Advise Plan Fiduciaries to Vet DC Annuity Offers

With defined contribution annuity offerings proliferating in recent years among both providers and recordkeeper platforms, retirement plan advisers and sponsors must take a close look at the options to protect themselves and their participants, according to recent commentary from an annuity consultancy. ARC consultants cite "cause to question" language that requires assessing annuity offerings for qualified plan participants.

Source: Planadviser.com, February 2024

House Lawmakers Debate Merits of DOL's Proposed Fiduciary Rule

Coming slightly more than a month after its first hearing on the Department of Labor's proposed investment advice fiduciary rule, a second subcommittee of the House of Representatives debated the merits of the proposal, with the battle lines drawn between the two parties. The DOL is currently reviewing the thousands of comment letters that were submitted to it earlier. The DOL's unified agenda does not show a target release date for a final rule.

Source: Asppa.org, February 2024

After SECURE 2.0: Rethinking Roth 401k vs. Roth IRA

Did SECURE 2.0 change the decision-making regarding whether to contribute to a Roth 401k or a Roth IRA? Yes, and no. Participants should keep an eye on any actions a plan sponsor takes (or fails to take) in amending their 401k plan following SECURE 2.0. But most retirement savers can achieve the best outcome by leveraging the superior features incorporated in each account -- both the Roth 401k and the Roth IRA.

Source: 401kspecialistmag.com, February 2024

Nearly Three Quarters of Higher Ed Institutions List Retirement Readiness as Top Concern

A new study on retirement plans in higher education institutions likens the past year's challenges to those during the COVID-19 pandemic and highlights how continuing economic fallouts have marred retirement planning for participants. According to Transamerica's latest Pulse survey, 71% of institutions say retirement preparedness is one of their top concerns, yet 86% cite the cost of living and inflation as their leading worry.

Source: 401kspecialistmag.com, February 2024

Hiring an ERISA 3(16) Plan Administrator

This guide is designed to shed light on the crucial aspects of understanding your fiduciary responsibilities, how a 3(16) plan administrator can help you, as well as mitigate risks. While this choice may not be right for every retirement plan, it could be of tremendous value to those wishing to add support to their plans while mitigating risks and seeking to improve the financial well-being of plan participants.

Source: Planpilot.com, February 2024

Retirement Security Proposal Addresses "Significant Gaps," EBSA Official Says

Tim Hauser says the DOL's retirement security proposal, sometimes called the fiduciary proposal, is not the same as the proposal made in 2016, as some critics have suggested. The latest iteration of the proposal has been the subject of widespread debate and controversy since it was first proposed in October. Hauser, the deputy assistant secretary for program operations of the DOL's Employee Benefits Security Administration, offered insight into why the Department of Labor continues to pursue it.

Source: Planadviser.com, February 2024

EBSA Recovered $1.4B in Retirement, Health Benefits in '23

In an annual fact sheet summarizing recoveries from enforcement actions and complaint resolutions, EBSA, a division of the DOL, reported that $854.7 million in recovery came from 731 civil investigations, with 505 (or 69%) resulting in monetary resolutions or other corrective actions. Another $444.1 million came from resolving complaints, $61.2 million from recovering abandoned plan assets, and $84.5 million from its voluntary fiduciary correction program.

Source: Planadviser.com, February 2024

Driving Better Insights and Outcomes -- Securely -- With Artificial Intelligence

Many recordkeepers are embracing artificial intelligence to deliver a personalized participant experience necessary to support a comprehensive retirement strategy for workers nationwide. Are you able to take advantage? While this technology is intended to provide valuable insights and optimize retirement preparedness, it also introduces fundamental concerns for plan sponsors.

Source: Napa-net.org, February 2024

Honeywell Hit With Forfeiture-Related Fiduciary Breach Suit

Another suit has been filed against a large employer for allegedly not acting in participants' best interest in their use of forfeitures, but with some twists in the arguments. The target this time is the fiduciaries of the Honeywell 401k plan who, according to the participant-plaintiff, have (1) breached their fiduciary duties under ERISA, (2) violated ERISA's anti-inurement provision, and (3) engaged in "self-dealing and transactions prohibited by ERISA."

Source: Napa-net.org, February 2024

Index Funds Have Officially Won

The inevitable at last arrived. Last month, for the first time, passively managed funds controlled more assets than did their actively managed competitors. For the most part, the public discussion of indexing's ascension has been unhelpful. The prevailing argument, that indexing's success has distorted stock market prices, is both unprovable and improbable. The second claim is that a handful of index-fund providers have control of too many assets. Perhaps that is so, but what specific threat do they pose? At this stage, that concern is preliminary. Meanwhile, few outside of the occupation itself have commented on an actual and profound outcome: indexing's impact on the financial advisory business.

Source: Morningstar.com, February 2024

The DOL Fiduciary Proposal's Impact on Banks and Trust Departments

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments. In this newest episode, they look at the DOL's fiduciary proposal's impact on banks and trust departments.

Source: Spotlightonbenefits.com, February 2024

When It Comes to Vesting, the IRS Says Once a Long-Term, Part-Time Employee, Always a LTPT Employee

Under the SECURE Act and the SECURE 2.0 Act, employers must provide long-term, part-time employees the opportunity to make elective deferrals under their 401k plans and, beginning in 2025, their 403b plans. However, long-term, part-time employees are not required to be eligible for employer matching or profit-sharing contributions until they satisfy the regular plan rules. Despite this fact, one of the most salient issues surrounding the implementation of the new rule is how it impacts -- and complicates -- tracking when employees become vested in such contributions.

Source: Mwe.com, February 2024

IRS Confirms Long-Term, Part-Time Employees Excludible From Certain Nondiscrimination Testing

Under the SECURE Act and the SECURE 2.0 Act, employers must provide long-term, part-time employees the opportunity to make elective deferrals under their 401k plans and, beginning in 2025, their 403b plans. When this occurs, certain special rules apply to such employees that impact whether they must be included in annual nondiscrimination testing or receive required top-heavy vesting and benefits. As a result, employers need to understand these requirements, as they may impact how annual testing is performed and the results.

Source: Mwe.com, February 2024

Milliman Headed to Trial Over Its 401k

Late last week, the company's request to quash the case through summary judgment was shot down by the judge presiding over it, who scheduled a rare bench trial to begin April 1. Whether the case goes to trial is a question. Clearing motions to dismiss and defense motions for summary judgment are considered significant victories for plaintiffs, and getting over those hurdles adds pressure to settle.

Source: Investmentnews.com, February 2024

SECURE 2.0 Grab Bag: 401k's and De Minimis Financial Incentives

On December 20, 2024, the IRS released Notice 2024-2 (the "Grab Bag" guidance), which provided a Q&A format of guidance on certain provisions of the SECURE 2.0 Act of 2022. This article discusses the "de minimis" incentives for employees to defer, as outlined in SECURE 2.0 and for which the IRS just provided guidance in the Grab Bag. Here's how it may apply to your qualified plan.

Source: Ferenczylaw.com, February 2024

IRS Pre-Examination Retirement Compliance Pilot Program Is Extended

On February 7, 2024, the IRS announced the second phase of its Pre-Examination Retirement Compliance Program. Under this program, sponsors will be notified that their plan is selected for examination and will have 90 days to review and correct any plan document or operational errors, similar to the process for phase one. If a plan sponsor receives a letter notifying them of an upcoming examination, it is important to act quickly and loop in benefits counsel as soon as possible.

Source: Erisapracticecenter.com, February 2024

Wisconsin Federal District Court Issues Five Rulings on Motions to Dismiss 401k Investment and Fee Cases: Is There a Way to Reconcile Them?

Defense counsel frequently laments the difficulties of defending 401k investment and recordkeeping fee litigation when different judges render conflicting rulings on motions to dismiss seemingly indistinguishable complaints. For that reason, the author of the article thought it would be interesting to track the decisions by a single judge in the Eastern District of Wisconsin who rendered five rulings in this arena within one week. The hope was that the rulings would provide some insight as to distinguishing features that, at least for this judge, would drive the outcome of each motion to dismiss.

Source: Erisapracticecenter.com, February 2024

Student Loans and Retirement Preparedness

This study aims to provide better information on how student loan debt payments affect the 401k contributions of those who are contributing and what participants do with their contributions when their student loan payment status changes. It does so by looking directly at 401k plan recordkeeper data on balances and contributions of active participants linked with banking data from these same participants to see if they are making student loan payments.

Source: Ebri.org, February 2024

Long-Term, Part-Time Employee Contribution Roll-Out

Under the SECURE Act, plan sponsors with 401k plans are required to allow their "long-term part-time employees" to make elective salary deferral contributions beginning as of the first day of the plan year beginning on or after Jan. 1, 2024. Late last year, the IRS issued proposed regulations that sought to address certain lingering questions sponsors and practitioners had about how to implement the new long-term part-time employee requirement. This article is a summary of important provisions in the new proposed regulations.

Source: Bsk.com, February 2024

2024 Deadlines and Important Dates for Plan Sponsors

Sponsors of defined benefit and defined contribution retirement plans should keep these deadlines and other important dates in mind as they work toward ensuring compliance with their plans in 2024. Dates assume a calendar year plan. Some deadlines may not apply, or dates may shift based on the plan sponsor's fiscal year.

Source: Berrydunn.com, February 2024

Why Did IBM Reopen Its Defined Benefit Plan? Will Others Follow?

Enthusiasm seems to be growing to reopen -- or at least to stop closing and freezing -- defined benefit retirement plans. The most dramatic manifestation of this enthusiasm for reopening plans has been IBM's announcement to shift its 401k match to an automatic contribution to the cash balance component of its previously frozen defined benefit plan. This article lays out the implications of IBM's shift for the company and its employees and speculates about which companies might follow IBM's lead.

Source: Bc.edu, February 2024

401k Managed Account Users Out-Saving TDF Participants

Retirement plan participants utilizing managed accounts are out-saving non-users and participants utilizing a single target date fund, according to data from Edelman Financial Engines. During the past decade, the savings rates of EFE managed account users have consistently averaged higher than non-users.

Source: 401kspecialistmag.com, February 2024

Employees See 401k Plans as Prerequisite Instead of Perk

Access to workplace retirement plans is no longer considered a job perk to employees, but a necessity instead. A new study released today by Vestwell, which surveyed 1,200 employees nationwide on savings habits, evolving benefits, and challenges, finds that 85% of respondents expect their employer to offer retirement benefits, up from 72% last year. Additionally, 89% of survey respondents say they would be more likely to continue working for an employer that offers a retirement benefit.

Source: 401kspecialistmag.com, February 2024

Advisors and Participants Don't Agree on Retirement Readiness

While plan participants think they're ready for retirement, their advisors aren't so sure. A new Allspring Global Investments' retirement survey finds a disconnect between both parties, noting that 64% of retirees and near-retirees believe they are ready for retirement, while only 40% of advisors say their clients are. This divide is even greater when it comes to retirement themes.

Source: 401kspecialistmag.com, February 2024

How Sponsors Can Get the Most Out of DC Plan Design Changes

Building the optimal defined contribution plan design to support participant retirement readiness requires integrating flexible options to account for the consistent income stream workers will lose in retirement. Guaranteed lifetime income features -- annuity products -- are useful to sponsors, but retirement experts recommend that sponsors instead focus on Social Security optimization, automatic features, and other high-value and low-cost features to alter plan designs before moving on to annuities.

Source: Plansponsor.com, February 2024*

New Guidance on Pension-Linked Emergency Savings Accounts

Over the past several years, there has been a growing interest in enhancing employee benefit programs to help employees save for emergencies. To facilitate this, Congress included a provision in the SECURE 2.0 Act of 2022 intended to provide a framework for integrating emergency savings accounts into defined contribution plans. The IRS and DOL recently released guidance intended to clarify several open legal questions related to pension-linked emergency savings accounts. The guidance is summarized here.

Source: Groom.com, February 2024

Student Loan Payments Negatively Impact 401k Contribution Rates, Account Balances

Making student loan debt payments is harming both the average 401k employee contribution rate and account balance, finds a new report released today by the Employee Benefit Research Institute and J.P. Morgan Asset Management. Among those with incomes less than $55,000, the study found the average employee contribution rate of those making a student loan payment was 5.3% compared with 5.7% for those not making student loan payments. The difference is larger among those with incomes of $55,000 or more: 6.1% with payments vs. 7.3% without payments.

Source: 401kspecialistmag.com, February 2024

Climate-Friendly Initiative Aims to Retire Big Oil in 401ks

A new initiative is targeting the fossil fuel industry's relationship with America's 401k accounts. The Virtual March to Retire Big Oil, organized by 401k climate impact platform Sphere, looks to dismantle funds from U.S. oil, gas, and coal companies as the default investment in U.S. 401k accounts by encouraging participants to take their objections online.

Source: 401kspecialistmag.com, February 2024

Whatever Happened to CITs in 403bs?

403b plans still may not use collective investment trusts, an investment similar to a mutual fund that is subject to fewer regulations and requirements and often carries lower fees for defined contribution retirement plans. This is despite other defined contribution plans, such as 401ks and 457s, being able to use CITs and, according to recent data, doing so in greater volume every year. At the moment, the best chance in the near term for 403bs to access CITs is a bill in the U.S. House of Representatives that could come up for a vote in early March.

Source: Plansponsor.com, February 2024

Form 5500 Updates: Participant Count Win and Large Plan Filer Warning

The Form 5500 series was recently updated with a key change to the participant counting methodology for determining if the plan is a small plan filer or a large plan filer. Not as widely publicized but affecting all filers, the Department of Labor released adjusted penalty rates effective January 15, 2024, which include an increase of $84 per day for failure to timely file a complete Form 5500. Are you prepared for the changes to the filing requirements?

Source: Newfront.com, February 2024

Small Biz Owners Seemingly Unaware of 401k Start-up Credits

Despite the SECURE and SECURE 2.0 acts essentially making it free for small business owners to offer a retirement plan, new research finds that many are still harboring old excuses for not providing one. The report, "Small Business Retirement Survey: Policy Knowledge and Reasons for Offering or Not Offering a Retirement Plan," is the result of a survey of small businesses conducted to give a more current understanding of attitudes, concerns, and knowledge about retirement plans.

Source: Napa-net.org, February 2024

TDF Glidepaths and Managed Account Guide Paths: Podcast

To date, only one of the dozen or so suits filed against plans that had BlackRock's LifePath TDFs have gotten past the motion to dismiss, suits that charged plan fiduciaries with "chasing low fees" and being inattentive to poor performance. Nevin Adams and Fred Reish discuss those outcomes, the issue of TDF glide paths generally, and the possibilities -- and complexities -- with a managed account solution, and what they should include to be more than "just an expensive target-date fund."

Source: Napa-net.org, February 2024

Federal Auto-IRA Bill for Uncovered Workers Introduced in the House

House Ways and Means Committee Ranking Member Richard Neal introduced a bill to establish a federal auto-IRA for employers with more than 10 employees who do not currently sponsor a retirement plan. The Automatic IRA Act of 2024 (H.R.7293) would require employees to be automatically enrolled in either an IRA or some other "automatic contribution plan or arrangement," like a 401k. It would apply to plan years beginning after 2026.

Source: Napa-net.org, February 2024

IRS Confirms Same Hours-Counting Rules Still Add Up for Long-Term, Part-Time Employees

The new long-term, part-time employee rule has generated questions about whether all employers will now be required to track the actual hours all employees work to ensure compliance with this rule. The recently proposed regulations released by the IRS confirm that the answer is no. Employers do not need to change how they count periods of service toward plan eligibility. However, employers should revisit how such service is currently counted under their plans and consider the impact that may have on if and how the long-term, part-time employee rules apply.

Source: Mwe.com, February 2024

IRS Proposes Long-Term, Part-Time Employee Regulations

On November 24, 2023, the IRS proposed long-awaited guidance on the required coverage of long-term, part-time employees under the SECURE 1.0 and the SECURE 2.0. This first piece of guidance to squarely address the LTPTE provisions arrived just weeks before the January 1, 2024, required LTPTE entry date under SECURE 1.0. Here is the background and a review of the guidance.

Source: Morganlewis.com, February 2024

Puerto Rico Announces 2024 Limits on Qualified Retirement Plans

On January 31, 2024, the Puerto Rico Department of the Treasury issued Internal Revenue Circular Letter No. 24-01 announcing the applicable 2024 limits for Puerto Rico qualified retirement plans. Here are the applicable 2024 limits for qualified retirement plans in Puerto Rico.

Source: Littler.com, February 2024

Do What the Other 401k Plan Providers Are Not Doing

The author writes, "When I started my practice thirteen years ago, I knew that I wanted to be different. I looked at what the competition was doing and decided to do things differently.... I think to get ahead, you need to be creative and ahead of the curve. Do what the competition isn't doing, [that is what this] article is all about."

Source: Jdsupra.com, February 2024

American Views on Defined Contribution Plan Saving, 2023

This survey polled respondents about their views on defined contribution retirement account saving and their confidence in 401k and other DC plan accounts. Survey responses indicated that Americans value the discipline and investment opportunity that 401k plans represent and largely oppose changing the tax preferences or investment control in those accounts. A majority of respondents also affirmed a preference for control of their retirement accounts and opposed proposals to require a portion of retirement accounts to be converted into a fair contract promising them lifetime income from either the government or an insurance company. This 24-page report presents survey results that reflect individuals' responses collected during November and December 2023.

Source: Ici.org, February 2024

IRS Issues Guidance on Required Inclusion of Long-Term, Part-Time Employees in 401k Plans

SECURE 2.0, among other things, reduced the three-year requirement to two years, effective January 1, 2023, for such eligible long-term, part-time employees. This means, that for plan years beginning on or after January 1, 2025, an LTPT employee's eligibility will only require two consecutive 12-month periods of service of at least 500 hours, but less than 1000 hours and plans must begin counting hours to support this process as of January 1, 2023.

Source: Hansonbridgett.com, February 2024

Small Business Retirement Survey: Policy Knowledge and Reasons for Offering or Not Offering a Retirement Plan

Having access to an employment-based retirement plan is one of the most important factors in having income adequacy in retirement. However, employees working for small businesses (those with 100 or fewer employees) are much less likely to be covered by these retirement plans. This has been a persistent issue. The Employee Benefit Research Institute surveyed small businesses to give a more current understanding of their attitudes, concerns, and knowledge about retirement plans. This article highlights the findings from this survey.

Source: Ebri.org, February 2024

DOL Guidance: Pension-Linked Emergency Savings Accounts (PLESAs)

On January 17, 2024, the DOL issued guidance in the form of Q&As on PLESAs. Under the SECURE 2.0 Act, employers are permitted (but not required) to offer PLESAs in conjunction with their 401k plans, effective for plan years beginning after December 31, 2023. The DOL separately issued a news release generally describing the Q&As. Among other things, the release discloses that the DOL and the IRS consulted with each other in developing their respective guidance.

Source: Compliancedashboard.net, February 2024

The Fiduciary Rule's Foray Into Uncharted Territory

Generating over 19,000 written comments, the DOL's proposed fiduciary rule changes hit a "vein." Though the proposed changes are complex and multi-tiered, there are two of them that are particularly garnering most of the attention.

Source: Businessofbenefits.com, February 2024

You Don't Have To Go Home, But You Can't Stay Here

It's 2024, which means a new batch of provisions from SECURE Act 2.0 have gone into effect. One of the more significant ones is an increase in the "cashout" limit that a qualified plan can impose to kick former employees with small balances out of their plans. For a while, this limit was $3,500 and was increased to $5,000 by the Taxpayer Relief Act of 1997. SECURE Act 2.0 bumps it up to $7,000 as of January 1, 2024. Plans aren't required to have a force-out provision, but nearly all do, and for good reason.

Source: Benefitslawadvisor.com, February 2024

The Maximum Contribution May Be Lower Than You Thought: ADP and ACP Test Basics for 401k and 403b Plans

Business owners and Highly Compensated Employees are often shocked to hear that they cannot contribute the maximum 401k or 403b deferral because their plan did not pass the discrimination tests. Much to their surprise, through the Actual Deferral Percentage and the Aggregate Contribution Percentage tests, the Internal Revenue Code prevents HCEs from benefiting from tax deferrals significantly more than NHCEs, unless the plan is a safe-harbor plan. Maria T. Hurd, CPA, provides a full review of the issue.

Source: Belfint.com, February 2024

Key Action Points for Advisors to Consider Ahead of Final Fiduciary Rule

The retirement planning industry is about to see an influx of fiduciaries later this year thanks to the DOL's proposed rule. Retirement plan advisors have an opportunity here to set themselves apart from the rest. Panelists at the VCI Industry Leaders Summit touch on the next steps for advisors to review.

Source: 401kspecialistmag.com, February 2024

Auto-Accounts: The Next 'Nudge' From Shlomo Benartzi

In a new op-ed for The Wall Street Journal, behavioral economist Shlomo Benartzi, known for his research on retirement savings, says his idea of an auto-pilot for 401k plans that makes it easy to save, but avoids concerns about excessive paternalism from employers, would work for three reasons: because it's a mental reminder that 1) you should save; 2) you haven't started saving yet; and 3) the paperwork has been done for you.

Source: 401kspecialistmag.com, February 2024

Almost Half of Employees Stressed About Retirement Savings

Nearly all employees are concerned about their finances, and almost half say they're just getting by, according to new research released today by SoFi. According to SoFi's report, 48% of workers are worried they don't have enough saved in an emergency account, and 45% are stressed about their lack of funds for retirement.

Source: 401kspecialistmag.com, February 2024

How to Teach Fiduciary Responsibility to Plan Committees

Sponsors of retirement plans, especially those covered by ERISA, must ensure their retirement plan committee members are trained to understand and execute their fiduciary duties. To do so, plans find fiduciary education and training from regulators, existing providers, and a wide variety of sources.

Source: Plansponsor.com, February 2024*

When and Why a Second Retirement Plan Committee Makes Sense

Designing a retirement plan structure that ensures efficient decision-making and smooth execution of initiatives is crucial for employers, but that ideal plan structure depends on many factors, including an organization's size and needs. While some organizations have a single retirement committee that covers decisions about the plan's investments and administrative matters, others divide the tasks among two committees.

Source: Plansponsor.com, February 2024

Maintaining Successful Committee Requires Continuous Education, Right People

Members of a retirement plan committee serve a critical role in the decision-making process of any company's benefits program, from investment lineup decisions to provider partnerships and, ultimately, upholding ERISA. Not only are committee members key decision-makers, but they are also fiduciaries and must ensure prudent management of the plan. As a result, ongoing education and training for plan committee members are vital, as they must understand the requirements of ERISA, litigation trends, the importance of documentation, and much more.

Source: Plansponsor.com, February 2024

Can 403bs and CITs Some Day Be Friends?

403b plans still may not use collective investment trusts, an investment similar to a mutual fund that is subject to fewer regulations and requirements and often carries lower fees for defined contribution retirement plans. But, legislation to permit the pooled investment into 403b plans continues to inchworm its way through Congress.

Source: Planadviser.com, February 2024

Five Important ERISA Decisions Rounded Out 2023

Federal appellate courts issued various decisions involving ERISA in the latter half of 2023. Here are five important ERISA decisions that benefit attorneys should know.

Source: Hallbenefitslaw.com, February 2024

Economists Refute Biggs-Munnell Plan to Repeal 401k Tax Preferences to Boost Social Security

A recent proposal by Andrew Biggs and Alicia Munnell in a brief from the Center for Retirement Research at Boston College created a stir in the workplace retirement market that has led to a couple of strong rebuttals this week from fellow economists.

Source: 401kspecialistmag.com, February 2024

26 State Attorneys General Appeal Biden ESG Rule Decision

Plaintiffs led by 26 Republican attorneys general filed an appeal to request the U.S. 5th Circuit Court of Appeals reverse a district court ruling on the 2022 Department of Labor rule that permits environmental, social, and governance factors to be considered when selecting retirement plan investments. The appeal, filed on January 18, challenges the September 2023 dismissal of their initial complaint that had challenged the legality of the ESG rule put in place by the DOL under the administration of President Joe Biden.

Source: Plansponsor.com, February 2024

DOL Lawsuit Alleges TPA Stole $5.5M in Retirement Plan Assets From 17 Clients

The DOL has sued Paul Palguta, the owner and president, of RiversEdge Advanced Retirement Solutions LLC for allegedly stealing assets from retirement plans. RiversEdge's retirement plan clients enter into agreements with the firm, allowing Palguta and others at Sewickley, Pennsylvania-based RiversEdge to execute trades and direct the disposition of the plan's assets, according to the complaint filed January 26.

Source: Plansponsor.com, February 2024

SECURE 2.0's Auto Enrollment, Savers Match Will Bring Most Positive Impact

Preliminary research from the Employee Benefit Research Institute says that the SECURE 2.0 Act of 2022 will bring modest benefits for those approaching retirement but will have a larger impact on younger workers. The report also found that the automatic enrollment and saver's match provisions will have the largest positive effect on retirement security nationally.

Source: Planadviser.com, February 2024

Advisers Hardly Ever Recommend Active TDFs to Retirement Plans, Research Shows

A survey conducted by Cerulli Associates showed that only 7% of defined contribution plan advisers would recommend an actively managed target-date fund to a retirement plan client, with the consultancy advising asset managers to stress the success of active strategies when touting both blended and actively managed strategies. The survey also found that student loan matching and Roth matching contributions were the two provisions from the SECURE 2.0 Act of 2022 that advisers say they are most likely to recommend to a plan.

Source: Planadviser.com, February 2024

The Pros and Cons of Remaining in a 401k Plan After Retirement

This paper examines whether retirees would benefit from staying in their companies' 401k plans after retirement, versus rolling their savings over to an IRA. The research focused on individuals having low or moderate levels of financial literacy and concluded that many such retirees would likely find it financially rewarding to retain their assets in their 401k plans.

Source: Openjournals.libs.uga.edu, February 2024

Complexity, Cost Concerns Have Sponsors on the Fence With In-Plan Income Solutions

While the SECURE Act was supposed to help pave the way for the adoption of retirement income solutions in DC plans, new research finds that plan sponsors still have some concerns. This comes as unease about the impact of inflation on retirement savings is raising fears among plan participants that they will run out of money in retirement, according to a new survey by Greenwald Research.

Source: Napa-net.org, February 2024

CoreLogic Clears 401k Excessive Fee Claims

Another 401k excessive fee suit has been dismissed because the participant bringing suit suffered no injury, and thus, had no grounds to bring suit according to a federal court. The suit charged that CoreLogic, Inc. together with its plan administrator, breached its duties under ERISA to employees invested in its 401k retirement plan.

Source: Napa-net.org, February 2024

Lawmakers Propose to Give Kids a Head Start in Saving for Retirement

A powerful group of Democratic lawmakers has introduced legislation to help children start saving early for retirement by establishing a savings account for every child in America. The bicameral 401Kids Savings Act was introduced Jan. 31 in the Senate (S. 3716).

Source: Napa-net.org, February 2024

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