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December 2020 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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Mutual Fund Revenue Sharing in 401k Plans

Recordkeepers in DC plans are often paid indirectly in the form of revenue sharing from third-party funds on the menu. We show that these arrangements affect the investment menu of 401k plans. Revenue-sharing funds are more likely to be added to the menu and are less likely to be deleted. Overall, revenue-sharing plans are more expensive as higher expense ratios are not offset by lower direct fees or by superior performance. Rebates increase with the market power of the recordkeeper suggesting that third-party funds may revenue share to gain access to retirement assets.

Source: Ssrn.com, December 2020*

2021 ERISA Plan Compliance Calendar

Being a retirement plan sponsor involves juggling many tasks, one of the more important is to make sure your plan complies with all pertinent federal and local regulations. A compliance calendar keeps track of your company’s required filings, their due dates, and related details so you can avoid incurring any fines or other penalties for late filings or missing information. This schedule will help plan sponsors track important due dates for their plan.

Source: Plansponsor.com, December 2020

Key DOL Prohibited Transaction Exemption Considerations

A recent webinar emphasized a few important points about the new prohibited transaction exemption recently finalized by the DOL. It was explained that everyone is initially eligible for the DOL's new prohibited transaction exemption, but the regulator reserves the right to suspend eligibility for up to 10 years after certain violations.

Source: Planadviser.com, December 2020

DOL Reconsiders Who Can Be Considered a Fiduciary

Attorneys with Groom Law Group explain how the DOL has extended the reach of its "five-part test" for determining fiduciary status under ERISA. This makes its new prohibited transaction exemption all the more important, according to attorneys.

Source: Planadviser.com, December 2020

Understanding Private Equity Investments in DC Plans

The DOL recently released an "information letter" in response to inquiries from the private equity industry as to whether private equity investments can be offered to defined contribution plans. In giving its green light to such investments, the DOL laid out several factors that plan sponsors should keep in mind, given potentially problematic features of private equity investing for some plan participants. These include the typical multiyear holding period for portfolio companies and the challenge in providing an accurate stock valuation before a sale.

Source: Orba.com, December 2020

The New Pooled Employer 401k Plan and the Hazards of Advisor-Led PEPs

Ultimately, while the PEP may become a valuable tool for small business owners to be able to offer employees competitive retirement plan options, RIAs will need to carefully consider whether to choose to take on the role of a PPP for their small business clients plans and the associated ramifications if they do choose to do so. Including asking the question of whether branching out into plan administration would result in more business anyway, or if it will be better to find a third-party administrator to partner with instead?

Source: Kitces.com, December 2020

IRS' Version of Missing Participant Guidance

The IRS issued two new pieces of guidance that work together to address missing participants in a qualified plan. Specifically, the IRS issued Rev. Rul. 2020-24 and Rev. Proc. 2020-46 to add to their existing portfolio on missing participant guidance. This guidance focuses on the treatment of escheatment to the state unclaimed property funds for reporting and withholding requirements and indirect rollover relief.

Source: Groom.com, December 2020

401k Investors Warming Back up to Equities

Following a month when all trading days favored fixed income, 401k investors resumed trading into equities, according to the latest Alight Solutions 401k Index. With the S&P 500 posting its best November ever, there were nine days during the month where net trades went from fixed income to equities. By comparison, October had no such days, which was the first time in the more than 20-year history of the Index that an entire month saw net trading flows move to fixed income.

Source: Asppa-net.org, December 2020

Partial Plan Termination Relief Provided in New Stimulus Bill

The latest COVID-19 relief bill, attached to the Consolidated Appropriations Act, 2021, enables certain retirement plan sponsors that laid off or furloughed employees due to the economic effects of the pandemic to avoid a partial plan termination.

Source: Plansponsor.com, December 2020

2021's Best Mutual Funds in 401k Retirement Plans

On December 18, 2020, the DOL adopted with limited changes its Proposal 3.0 regarding ERISA fiduciary investment advice, focused on the fiduciary status of rollover advice and a "best interest" prohibited transaction exemption for conflicted advice aligned with the primary regulation of various types of financial services providers. While the final guidance broadly retains the structure and approach of Proposal 3.0, the DOL incorporated some important changes in response to comments.

Source: Kiplinger.com, December 2020

Consolidated Appropriations Act, 2021: Employer-Sponsored Retirement Plans

The Act relaxes several normally rigid health, welfare, and retirement plan rules in light of the on-going COVID-19 pandemic, easing the financial impact of pandemic-caused employment changes while instituting new rules related to surprise medical billing. This article covers the Act's effects on employer-sponsored retirement plans.

Source: Jacksonlewis.com, December 2020

DOL's Fiduciary Rule 3.0 -- Exemption and Investment Advice Fiduciary Definition

On December 18, 2020, the DOL adopted with limited changes its Proposal 3.0 regarding ERISA fiduciary investment advice, focused on the fiduciary status of rollover advice and a "best interest" prohibited transaction exemption for conflicted advice aligned with the primary regulation of various types of financial services providers. While the final guidance broadly retains the structure and approach of Proposal 3.0, the DOL incorporated some important changes in response to comments.

Source: Eversheds-Sutherland.com, December 2020

Four Retirement Planning Tips for the Self-Employed

Like their traditionally employed counterparts, self-employed workers need to prepare for retirement, but they have more obstacles to saving. Workers with unstable income streams are more reluctant to lock up money in qualified accounts forget about an employer match or auto-enrollment. With those barriers in mind, here are four factors self-employed workers need to consider to protect their retirements.

Source: 401kspecialistmag.com, December 2020

Cybersecurity for the Plan Sponsor From a Plan Auditor Perspective

Plan sponsors should now have on their priority list for 2021 the development of cybersecurity policies and procedures for both the company and the plan. Here are a few key items plan sponsors should consider including as they develop or update their company cybersecurity policy.

Source: Linkedin.com, December 2020

IRS Guidance on SECURE Act Provides More Detail on Changes to Safe Harbor Plans

The SECURE Act made several changes to the rules for certain safe harbor 401k plans. One change increased the cap on automatic enrollment safe harbor plans to 15%. Another eliminated certain safe harbor notice requirements for plans that make safe harbor nonelective contributions and added new provisions for the retroactive adoption of safe harbor plans that make nonelective contributions. On December 9, the IRS issued Notice 2020-86 to elaborate on these changes as summarized here.

Source: Groom.com, December 2020

Congress Provides Retirement Plan Relief

Congress passed, and the President signed, the Consolidated Appropriations Act, 2021. This bill contains over seventy new tax policies, extensions, refinements, and other tax-law clarifications. Within its over 5000 pages is The Taxpayer Certainty and Disaster Tax Relief Act. The TCDT Act provides that the 10% early withdrawal penalty does not apply to qualified disaster distributions; that special rules apply to retirement plan distributions used for qualified disaster area home purchases; and for increases in the limit for retirement plan loans made because of a disaster.

Source: Graydon.law, December 2020

DOL Adopts Prohibited Transaction Exemption for Investment Advice Fiduciaries

The new class exemption would permit certain investment advice fiduciaries to (i) receive compensation as a result of providing investment advice and (ii) engage in principal transactions, including riskless-principal transactions and certain other covered principal transactions (i.e., non-riskless principal transactions that involve certain specified investments) and the receipt of a mark-up, mark-down, or other payment.

Source: Findknowdo.com, December 2020

A Few Important Points About the DOL's Fiduciary Actions

The DOL has confirmed that a financial professional cannot simply write their way out of a functional fiduciary relationship. This point relates to the "mutual understanding" prong of the five-part test which stipulates that two parties' "reasonable understandings of their relationship" are critical to determining whether they have arrived at a mutual agreement, arrangement, or understanding that the investment advice will serve as a primary basis for investment decisions. Under the new framework, written statements disclaiming a mutual understanding or forbidding reliance on the advice as a primary basis for investment decisions are not determinative.

Source: Planadviser.com, December 2020*

California and Oregon State-Sponsored Retirement Plans

State-sponsored retirement plans for private-sector workers generally require certain employers without their own retirement plans to make the state-sponsored plan available to their employees. Each state has different rules so it is imperative to confer with state authorities and reference state websites for guidance. Some of the states' plans have an employer registration requirement that is time-sensitive. California and Oregon are examples of two such states.

Source: Retirementlc.com, December 2020

Could the COVID Relief Bill Stall Out?

The COVID-19 relief bill may not get President Trump's signature after all, with implications for retirement plan sponsors.

Source: Napa-net.org, December 2020

IRS Reduces Minimum Withdrawal Amounts for IRAs and 401k Plans

The IRS recently finalized new regulations that determine the minimum amounts that retirees must withdraw from their retirement accounts and include in their taxable income. These new rules will apply to withdrawals made during 2022 and thereafter.

Source: Forbes.com, December 2020

New Stimulus Bill Allows Penalty-Free 401k Withdrawals

The $900 billion stimulus bill that Congress passed allows workers to take money from their 401ks without being hit with a tax penalty, a provision carried over from the CARES Act passed last March.

Source: Cbsnews.com, December 2020

Supreme Court Ruling Addresses ERISA Preemption

A recent decision filed by the U.S. Supreme Court has significant implications in the area of ERISA preemption of state laws and regulations, though the direct impact on retirement plans could be muted.

Source: Planadviser.com, December 2020

IRS Extends Relief From Physical Presence Requirement

The physical presence requirement for spousal consents and participant elections under qualified retirement plans will be lifted through June 30.

Source: Planadviser.com, December 2020

Curb Your Enthusiasm On These Annoying 401k Practices

In this article, the author expresses some of the things that aggravate him about the retirement plan business that you, as 401k plan sponsors, probably don't even know.

Source: Jdsupra.com, December 2020

ERISA's Fiduciary Saga Continues: DOL Issues Final Exemption With New Commentary

The DOL issued a release finalizing an important new initiative for retirement accounts that are subject to ERISA or Section 4975 of the Internal Revenue Code. The Release finalizes Prohibited Transaction Class Exemption 2020-2, but gives rise to at least three broad important considerations.

Source: Dechert.com, December 2020

IRS Extends Relief on Remote Notarization

In response to the continuing public health emergency caused by the COVID-19 pandemic, the Internal Revenue Service has extended remote notarization relief issued in June. Specifically, Notice 2021-03 extends from Jan. 1, 2021, through June 30, 2021, the temporary relief provided in Notice 2020-42, 2020-26 I.R.B. 986, from the physical presence requirement for participant elections to be witnessed by a plan representative or a notary public.

Source: Asppa.org, December 2020

Plan Fiduciaries: You Have No Right to Vote

The final regulations set out the basic premise that a plan fiduciary charged with the responsibility to manage plan assets that include shares of stock also has the responsibility to manage shareholder rights appurtenant to those shares, such as the right to vote proxies. The applicable fiduciary must exercise such authority under the loyalty and prudence standards prescribed under ERISA. Note, however, this responsibility will not apply to an individual account plan, such as a 401k plan, that provides for pass-through voting to participants and beneficiaries.

Source: Winstead.com, December 2020

The Pandemic's Impact on Workers' Finances Has Long-Term Repercussions for Retirement Security

One in five U.S. workers (21 percent) indicate their confidence in their ability to retire comfortably has declined in light of the coronavirus pandemic and only 27 percent are very confident that they will be able to fully retire with a comfortable lifestyle, according to a new survey released by nonprofit Transamerica Center for Retirement Studies.

Source: Transamericacenter.org, December 2020

Retirement Plan Reminders for a New Year

Whenever the calendar turns to a new year, certain opportunities and obligations end and new ones arise. This compliance insight focuses on the end of various CARES Act retirement plan provisions, deadline extensions that do or do not continue into 2021, and changes coming in the new year.

Source: Segalco.com, December 2020

Coronavirus Relief Bill Includes Retirement Plan Relief

The $900 billion coronavirus relief package, which is expected to be approved by President Trump in the coming days, includes some good news for retirement plan sponsors. The massive 5,600-page bill includes a "temporary rule preventing partial plan terminations" for plan sponsors of defined contribution retirement plans. This provision allows defined contribution retirement plan sponsors to avoid requirements that are attached to partial plan termination rules, the biggest of which includes terminated participants to become 100% vested in plan benefits.

Source: Schneiderdowns.com, December 2020

The DOL Releases Final Investment Advice Prohibited Transaction Exemption

While the final exemption expressly does not alter the long-standing five-part test for determining whether a person is acting as a fiduciary under ERISA, the preamble provides a lengthy discussion setting forth the DOL's interpretation of that test and its application in the current market environment. While this is not binding guidance, it signifies the most formal interpretative guidance from the Department on this topic in years.

Source: Ropesgray.com, December 2020

Another Record Year for Retirement Savings

PSCA's 63rd Annual Survey found record contribution and participation rates for the third year in a row. More employees had account balances in and contributed to, their plans than ever before, and employers contributed an average of 5.3% of gross annual pay to participants, the highest recorded to date. Plan participants contributed an average of 7.6% of pay in 2019, combined with the 5.3% of companies are pitching in gives an average savings rate of 12.9 percent in 2019.

Source: Psca.org, December 2020

Is the Tide of ERISA Litigation Turning?

One ERISA attorney who tends to represent plaintiffs says the future might hold fewer cases, thanks to certain key Supreme Court rulings and broad improvements in plan design and governance.

Source: Planadviser.com, December 2020

401k Recordkeepers Bullish on Post-COVID Opportunities

Of the various segments of the defined-contribution industry, record keepers are the most mature, consolidated, and powerful. Advisers are closer to the clients, but record keepers own the data and provide the platform to reach them. Leaders of the top record keepers attending the RPA Convergence Roundtable and Think Tank on Dec. 14 and 15 shared what is on their minds in the current environment.

Source: Investmentnews.com (registration may be required), December 2020

DOL Interprets Five-Part Investment Advice Test and Issues Final Advice PTE

The DOL issued its highly anticipated final prohibited transaction class exemption for fiduciary investment advice. This article provides an overview of the final exemption. It begins with the DOL's interpretation of the five-part test, including its application to rollover advice. Then it summarizes the actual exemption and describes its coverage and conditions.

Source: Groom.com, December 2020

Back to the Basics: How Will Your Plan Fare in an Audit or Lawsuit?

This is the time of year when we see lots of articles on hot plan trends for 2021 and what benefits innovations plan sponsors are adopting. But the beginning of the new year is also a good time for fiduciaries to review basic plan policies and operations to see how they can be improved. The better these are, the greater the chances your plan will survive an audit or prevail in a fiduciary breach lawsuit. Here are some places to start.

Source: Cohenbuckmann.com, December 2020

The IRS Released the Final Regulations for Plan Loan Offset Rollovers

The IRS released final regulations on the provisions of the Tax Cuts and Jobs Act that added Section 402(c)(3) of the Internal Revenue Code special rollover relief for qualified plan loan offset amounts.

Source: Benefitslawadvisor.com, December 2020

Missing Participants: What Are You Missing?

Missing participants are a problem: for employers, for plans, for beneficiaries, and even for the participants themselves. A November 11, 2020, session of ASPPA All Access offered a look at the challenge missing participants pose, and what can -- and must -- be done to meet it.

Source: Asppa.org, December 2020

Bill to Expand MEPs to 403bs Introduced in Senate

A bipartisan trio of U.S. Senators has introduced legislation that would expand Multiple Employer Plan access to 403b plans, along with other MEP enhancements.

Source: Asppa.org, December 2020

COVID Relief Bill Includes Retirement Relief

There's some great news for plan sponsors in the COVID relief bill, a "temporary rule preventing partial plan termination." Once approved and signed into law, sponsors of defined contribution retirement plans can avoid the partial plan termination rules if the active participant count as of March 2021 is 80% of the active participant count at the time the national emergency was declared.

Source: Asppa.org, December 2020

Advice Fiduciary Class Exemption Published, Effective Date Set

Appearing in the Federal Register is DOL's Prohibited Transaction Exemption 2020-02, which will provide guidance to investment advisors who counsel retirement and other investors. With the publication of the guidance, PTE 2020-02 becomes effective February 16, 2021.

Source: Ascensus.com, December 2020

401k Trading Reverses Recent Trends, Flows to Equities

With the S&P 500 posting its best November ever, 401k investors somewhat reversed a continuing trend towards fixed income seen for some time, and resumed trading into equities, according to the Alight Solutions 401k Index.

Source: 401kspecialistmag.com, December 2020

Congress Looking to Change or Even Abolish Key 401k Provision

The SECURE Act, which was signed into law last December, included a provision that pushed up the age for mandatory retirement plan distributions from 70 to 72. Now, lawmakers are hoping to pass another retirement bill that's being informally called SECURE Act 2.0 by early next year. A provision in the bill would push distributions up even further, to age 75.

Source: Yahoo.com, December 2020*

Two Million US Workers Dipping Into 401ks for Cash Amid Pandemic

At least 2 million U.S. workers have tapped into their 401ks and retirement plans for funds amid the nearly yearlong coronavirus pandemic, according to the largest financial planning administrators. Fidelity, Empower Retirement, Vanguard, Alight Solutions, and Principal, reported more than 2.1 million Americans have pulled funds from retirement planning accounts since the economy took a hit due to the pandemic in March.

Source: Thehill.com, December 2020

Most 401k Plans Weathered 2020 Without Reducing Employer Contributions

In contrast to the response during the 2008-09 financial crisis, more than 90 percent of employers will make their retirement plan contributions this year, though smaller organizations are more likely to have suspended or reduced employer-matching contributions in the wake of the COVID-19 pandemic. Although the overall share of organizations that reduced 401k plan contributions were relatively small -- around 8 percent -- that still represented nearly 46,000 plans throughout the U.S.

Source: Shrm.org, December 2020

Legislation Would Mandate ESG Policies Among Retirement Plans, Advisors

Unhappy with the Department of Labor's regulatory efforts to curtail environmental, social and governance investing, a group of House Democrats introduced two bills requiring retirement plan fiduciaries and investment advisors to adopt sustainable investment policies.

Source: Napa-net.org, December 2020

Nearly 46,000 Businesses Slashed 401k Contributions During Pandemic

Thousands of companies have cut funding they typically pay to 401k investors, due to the coronavirus pandemic, according to a new survey. About 8% of employers slashed their 401k contributions in recent months, according to the Plan Sponsor Council of America, a group that represents companies with workplace retirement plans. Another 1% are considering doing so.

Source: Cnbc.com, December 2020

IRS Addresses SECURE Act Changes Affecting Safe Harbor Plans

The IRS has issued Notice 2020-86 to answer frequently asked questions about the SECURE Act's provisions affecting safe harbor plans. Section 102 of the SECURE Act raised the maximum deferral percentage for plans using the safe harbor for qualified automatic contribution arrangements from 10% to 15%.

Source: Thomsonreuters.com, December 2020

IRS Finalizes Regulations on Extended Rollover Period for Qualified Plan Loan Offset Amounts

The IRS has released final regulations on the extended rollover period for qualified plan loan offset amounts. A QPLO occurs when a participant's account balance in a qualified retirement plan (such as a 401k plan) is reduced to repay a plan loan, and that reduction occurs solely due to termination of the plan or the participant's failure to meet the loan's repayment terms because of severance from employment. The final regulations -- and, in particular, the bright-line test -- should eliminate some of the ambiguity surrounding the identification of QPLOs and their reporting and taxation.

Source: Thomsonreuters.com, December 2020

Final Regulations Substantially Alter DOL's Proxy Voting Guidance

The DOL has issued final regulations establishing standards for determining whether and how to exercise shareholder rights, including the right to vote proxies, for stock held by ERISA-covered plans (including 401k plans). The principles-based approach of the final regulations will allow the rules to adapt to the circumstances and avoid substantial burdens and risks raised by the original proposal.

Source: Thomsonreuters.com, December 2020

Legislation SECUREs 401k Plan Access for Long-Term Part-Time Employees

Prior to the passage of the SECURE Act, U.S. 401k plans could exclude employees who had completed less than 1,000 hours of service in a plan year. However, beginning in 2021, in an effort to expand retirement plan participation, the SECURE Act will require 401k plans to expand eligibility to long-term, part-time employees.

Source: Sidley.com, December 2020

Calendar of Key Dates and Deadlines

This is a list of the most common recurring plan events and filing deadlines for a 401k plan operating on a calendar year basis. Your plan may have additional requirements; therefore, you should consult with a qualified plan consultant for more information.

Source: Pensionmark.com, December 2020

Chart: Required Participant Disclosures

Plan sponsors are required to provide certain disclosure documents and notices to plan participants (including terminated participants and alternate payees with a balance). This chart is designed to help you understand and meet these requirements.

Source: Pensionmark.com, December 2020

Another Record Year for Retirement Savings

The Plan Sponsor Council of America's Annual Survey shows that 2019 was a banner year for retirement plans, and doubtless a valuable lifeline for many during the COVID-19 pandemic. For the third year in a row, the survey found record contribution and participation rates. 70% of plans use an investment advisor for the plan; one-third of plans offer investment advice to participants; and a quarter of participants with that access take advantage.

Source: Napa-net.org, December 2020

IRS Expands Discretionary Amendment Deadline for Pre-Approved Retirement Plans

On September 2, 2020, the IRS released Revenue Procedure 2020-40, which modifies prior guidance set forth in Revenue Procedure 2016-37 and Rev. Proc 2019-39 to expand the circumstances under which deadlines for discretionary amendments may be extended for pre-approved qualified plans and 403b plans.

Source: Hallbenefitslaw.com, December 2020

Retirement Plan Trends to Watch in 2021

With the holiday season upon us and the New Year fast approaching, this piece will consider what 2021 may bring for retirement plan sponsors.

Source: Cammackretirement.com, December 2020

IRS Notice 2020-86 Provides Guidance on SECURE Act Provisions Affecting Safe Harbor Plans

IRS Notice 2020-86 provides Q&A guidance on provisions under the SECURE Act affecting safe harbor plans.

Source: Westlaw.com, December 2020

DOL Issues Final Regulation on Voting of Proxies

The DOL has released a final regulation addressing fiduciary duties under ERISA as they relate to voting of proxies on securities held in employee benefit plan investment portfolios and exercising other shareholder rights. The final regulation adopts a principles-based approach to proxy voting.

Source: Westlaw.com, December 2020

Plan Design Decisions Can Reduce Overconcentration in Company Stock

A recent analysis from Vanguard explores the gradual abandonment of company stock in DC plans. The Vanguard analysis found demographic characteristics such as age, income, education, job tenure, and nonretirement wealth, while statistically significant, are not strongly related to the percentage of company stock in a participant's account balance. The researchers found plan sponsor design decisions have the strongest relationship to the proportion of participant holdings in employer stock.

Source: Plansponsor.com, December 2020

DOL Publishes Final Fiduciary Prohibited Transaction Exemption

The DOL has published the final version of a new prohibited transaction exemption. The text of the exemption notice stretches to nearly 300 pages, so it will naturally take some time for the full implications to be realized. However, the final rule confirms the reinstatement of the traditional five-part test for determining fiduciary status, though it does not definitively state that advice regarding IRA rollovers necessarily triggers fiduciary status.

Source: Planadviser.com, December 2020

Why Are Administrative Policies Important?

Once a plan sponsor sets up a retirement plan for their company they are subject to ERISA. This law was put in place to protect American workers by ensuring that retirement plans are not discriminatory in favor of owners and highly compensated employees. These laws can be intimidating and confusing but a well-thought-out administrative policy can relieve some of the anxiety of plan administration by aiding the plan sponsor in making decisions that comply with ERISA rules and regulations.

Source: Consultrms.com, December 2020

DOL Unwraps New Fiduciary Standard as a PTE

The Department of Labor has rolled out a new prohibited transaction exemption for offering investment advice, and some good news on rollover advice, but it may be short-lived. Less than 24 hours after the release from review by the Office of Management and Budget, the DOL has unwrapped a new exemption, one that is slated to become effective 60 days after it is published in the Federal Register and yes, that would fall after Jan. 20, when it could be reviewed by the incoming Biden administration.

Source: Asppa.org, December 2020

IRS New Guidance on State Unclaimed Property Laws and IRS Helpful Reminders on Missing Participants

After years of public commentary, the IRS addresses whether a plan should withhold income tax when making a transfer of a participant's accrued benefit to a state unclaimed property fund, and whether, after such a transfer occurs, the participant is barred from making a rollover of those amounts. There also has been a great need for this guidance because retirement plans have a perennial problem with missing participants, especially when the plan is required to make a distribution. Now the IRS has addressed the tax consequences when these transfers occur, although not whether such transfers in ongoing plans are permissible under Title I.

Source: Wagnerlawgroup.com, December 2020

Is Student Loan Debt a Barrier to Saving for Retirement?

There's evidence of unhealthy financial behaviors by savers and non-savers alike. T. Rowe Price data suggest that people do not make rational decisions relative to the size of their debts or the trade-offs necessary to reach financial goals. The result is that the assets and liabilities workers hold will have downstream effects on their retirement readiness as they balance day-to-day spending, debt management, and savings goals.

Source: Troweprice.com, December 2020

SECURE Act Safe Harbor Guidance

The IRS issued guidance in Notice 2020-86 intended to address the safe harbor changes made in sections 102 and 103 of the SECURE Act. This guidance impacts 401k safe harbor plans as well as 403b plans that apply Code section 401(m) safe harbor rules.

Source: Principal.com, December 2020

Establishing a Retirement Plan Committee

Plan sponsors need to establish who will be responsible for plan administration and plan and investment decisions. Committees aren't legally required, but if plan sponsors appoint a committee as a "named fiduciary," they will not only see it pay more careful attention to plan issues, but a company's owner or board of directors will be relieved of most responsibilities for the plan. Having a committee or committees can also greatly help with defense if a plan or plan sponsor is sued.

Source: Plansponsor.com, December 2020

SECURE Act Update: IRS Issues Guidance With Respect to Safe Harbor Plans

On December 9, 2020, the IRS issued Notice 2020-86 which provides guidance relating to certain changes to the safe harbor rules that apply to 401k plans made by the SECURE Act. The IRS Notice interprets the SECURE Act's provisions to apply to some, but not all, aspects of the rules regarding safe harbor plans, limiting the applicability of the recent liberalizations to the safe harbor rules.

Source: Pbwt.com, December 2020

Are Employers Measuring the Effectiveness of Retirement Plan Improvements?

Employers work continuously to improve their retirement plans. Whether through refining the plan menu, enhancing the default option, or adding auto-enroll or auto-escalation features, employers strive to keep retirement plans evolving in ways that benefit their employees. But are employers measuring the effectiveness of the plan to see if these improvements are working?

Source: Newportgroup.com, December 2020

DOL Stepping Up Cybersecurity Focus

There's been increasing awareness -- and litigation -- regarding cybersecurity and participant accounts and the DOL has taken notice. Sources say that DOL plan audits are now asking to see employers' written cybersecurity policies and procedures and asking about cybersecurity attacks, and the responses to them.

Source: Napa-net.org, December 2020

The "Terror" of 401k Litigation

So much of our lives have been disrupted by the COVID-19 pandemic, but the pace of 401k litigation, it seems, has, if anything, accelerated. As with any profitable enterprise, this current wave of 401k litigation has attracted new entrants not only in actions but in the very language employed in their filings. Based on their record to date, it's doubtful that they will enjoy much success under the full scrutiny of adjudication.

Source: Napa-net.org, December 2020

DOL Fiduciary Rule Rewrite Ready for Liftoff?

The Labor Department's proposed new fiduciary rule has moved one step closer to being finalized and could be released any day now. While we don't yet know what's in the final version, the original filing suggested that the final rule is "economically significant," which could delay the effective date for 60 days and allow the incoming Biden administration to review it before taking effect.

Source: Napa-net.org, December 2020

Defaulting 401k Plan Borrowers in the Time of COVID

The focus of this article is what happens when someone has borrowed from a 401k plan within the limits, terminates employment, and then defaults on the loan. In particular, changes made by the CARES Act and a 2017 change to the tax law, which are helpful to the large number of people who may find themselves in this situation during the pandemic.

Source: Blankrome.com, December 2020

2020 Defined Contribution Plan Sponsor Survey

We are approaching a new stage in the evolution of DC while standing in the middle of a heightened fiduciary risk environment. Plan sponsors are facing a crossroad and are asking themselves: How do we manage risk today while planning for tomorrow, and what is our role as DC plans evolve from supplemental savings plans to primary retirement and savings vehicles? Results of the Willis Towers Watson's 2020 U.S. Defined Contribution Plan Sponsor Survey.

Source: Willistowerswatson.com, December 2020*

Income Annuities Are "Best Solution for DC Plans": Cerulli

Annuitization products where an investor converts a lump sum to a guaranteed income stream in retirement are a "better solution for defined contribution plans," according to a recent issue of The Cerulli Edge. But 64% of respondents to Cerulli's 2020 Target-Date Manager Survey still cite lack of plan sponsor demand for guaranteed retirement solutions as an obstacle to adoption.

Source: Retirementincomejournal.com, December 2020

DOL Issues Final Rule on Proxy Voting and Shareholder Rights

The DOL has announced a final rule establishing a regulatory framework for private employee benefit plans' fiduciaries to follow when they exercise shareholder rights, including proxy voting, and select and monitor proxy advisory firms. The final regulation includes delayed compliance dates to January 31, 2022, for certain recordkeeping and proxy voting requirements.

Source: Planadviser.com, December 2020

Employers Set Sights on Innovative 401k Plan Design Changes

To boost their plans' value and enhance their employees' overall financial wellbeing, U.S. employers are eyeing innovative features for their defined contribution plans, according to a new survey. A Willis Towers Watson plan sponsor survey found that two in three employers either have or are very interested in adding at least one innovative design feature to their plan.

Source: Napa-net.org, December 2020

Final Rule for Selecting Retirement Plan Investments Leaves ESG Behind

During the last 30 years, the DOL has issued piecemeal guidance on plan investments that involve non-financial objectives and the application of fiduciary duties of prudence and loyalty to those investments. As the trend in environmental, social, and corporate governance investing has continually increased, the DOL has grown concerned with the risk that plan fiduciaries may make investment decisions for purposes distinct from providing benefits to participants. On October 30, 2020, the DOL issued a final rule to codify standards for how plan fiduciaries must consider financial factors when selecting and monitoring plan investments.

Source: Mwe.com, December 2020

DOL Limits Retirement Plan Proxy Votes

The Department of Labor issued a final regulation Friday that would limit retirement plans' proxy voting to matters that affect their financial performance, a move that critics say could curb shareholder efforts to promote sustainable investing.

Source: Investmentnews.com (registration may be required), December 2020

Preparing for the End of the Plan Year

Generally, retirement plans have compliance requirements that must be met annually, quarterly, or when some event happens. The end of the plan year tends to be a busy time for administration, as plan sponsors and service providers work to ensure that all requirements are met before another plan year has ticked away. But 2020 has presented unbelievably unique challenges. The CARES Act has provided us with some solutions to COVID-related problems, as well as several new twists to our usual operations.

Source: Ferenczylaw.com, December 2020

Pooled vs. Single-Employer 401k Plans - Are PEPs for You?

Supporters claim PEPs can offer lower fees for retirement savers and greater liability protection for business owners than a single-employer 401k plan. If you're a business owner, you should understand the differences between PEPs and SEPs to make the best choice for your company.

Source: Employeefiduciary.com, December 2020

IRS Issues Guidance on SECURE Act Provisions Easing Safe Harbor Plan Burdens

The IRS on Dec. 9 issued guidance that addresses certain provisions of the SECURE Act that increase the automatic enrollment cap percentage and affect safe harbor plans, including safe harbor 401k plans and certain 403b plans. The guidance is contained in Notice 2020-86.

Source: Asppa.org, December 2020

Retirement Plans Will Likely Face More Litigation in 2021

Plan sponsors should keep a close watch on retirement plan litigation, as the effects of COVID-19 might spark new lawsuits. The market volatility experienced in March and April, coupled with the cybersecurity risks of remote work, could position some employers to face litigation in the new year, industry experts say.

Source: Planadviser.com, December 2020

The Better Choices for 401k Plan Provisions

There are just so many choices to make when drafting a 401k plan document. Some are dependent on the demographics of a plan sponsor and some are made for administrative ease. This article is about 401k plan provisions and choices you might consider for your plan.

Source: Jdsupra.com, December 2020

401k Lawsuits Explode in 2020

Lawsuits against 401k sponsors have been pervasive this year, with nearly 100 new cases alleging breaches of fiduciary duties in connection with the fees workers incur. That trend has coincided with a steep rise in cost for fiduciary liability insurance and a lower ceiling on limits. The volume of new claims is higher than usual, though so is the number that have been dismissed. Whether many of the defendants in the recent wave of cases can get claims dismissed at an early stage will influence how likely other defendants will be to fight claims rather than settle.

Source: Investmentnews.com (registration may be required), December 2020

Custom Target Retirement Date Strategies

Are custom retirement date strategies better than off-the-shelf solutions? This article evaluates the "custom is always better" argument and outlines six critical "next steps" to take if your plan committee has implemented a custom target retirement date strategy.

Source: Francisinvco.com, December 2020

IRS Releases Final Regulations on Rollovers of 401k Qualified Plan Loan Offsets

The final regulations largely mirror the proposed regulations, with the notable exception of a change in effective date. Instead of applying to plan loan offset amounts treated as distributed on or after the date the final regulations are published in the Federal Register, the revised applicability date now generally applies to plan loan offset amounts, including "qualified plan loan offset" amounts treated as distributed on or after January 1, 2021.

Source: Compliancedashboard.net, December 2020

Choosing a QDIA Under the Final Rule Governing the Selection of Plan Investments

The DOL issued a final rule that amends the long-standing regulations that govern the selection of retirement plan investments by fiduciaries. One of the provisions is a prohibition on the use of an ESG fund as a QDIA. Plan fiduciaries that choose a fund that involves ESG screening strategies are taking a risk that the fund is not a permissible QDIA.

Source: Boutwellfay.com, December 2020

IRS Issues Final Rollover Rules for Qualified Plan Loan Offsets

The Internal Revenue Service released final regulations on December 7th relating to amendments made by the Tax Cuts and Jobs Act providing an extended rollover period for a qualified plan loan offset (QPLO).

Source: Asppa.org, December 2020

IRS Notice Addresses 401k/403b Safe Harbor SECURE Act Provisions

The IRS has issued Notice 2020-86, providing guidance for implementing provisions of the SECURE Act of 2019. Specifically, the SECURE Act provisions addressed deal with features and procedures of 401k and 403b plans that incorporate safe harbor designs for satisfying nondiscrimination testing requirements, and automatic enrollment and automatically increased deferral rates.

Source: Ascensus.com, December 2020

Company Stock in DC Plans

Employers continue to evaluate company stock in light of litigation and single-stock risk as well as its impact on retirement accumulations. Plan sponsor interest surged in response to the 2014 Dudenhoeffer case. This 16-page paper begins with an overview of factors unique to company stock in DC plans. Next, it provides an overview of the characteristics of plan sponsors that actively offer company stock and the nature of company stock restrictions. It then considers two simple regression models, incorporating both participant demographics and plan design features, that examine holdings of company stock. Finally, it concludes with a discussion of our findings and with implications for plan sponsors.

Source: Vanguard.com, December 2020

How to Take Advantage of 401k Catch-Up Contributions

When you turn 50, you become eligible to contribute more money to your 401k plan. The tax deduction you can claim on these catch-up contributions could save you over $1,000 on your annual tax bill. Here's how to take advantage of 401k catch-up contributions.

Source: Usnews.com, December 2020

COVID-19 Impact on 401k Plans

In contrast to the response during the 2008-09 financial crisis, more than 90 percent of employers will make their retirement plan contributions this year, though smaller organizations are more likely to have suspended or reduced plan contributions in the wake of the COVID-19 pandemic, according to this 7-page PSCA snapshot survey of retirement plan sponsors. Though most companies are not making changes to plan contributions this year, smaller organizations have been more impacted by current conditions and are thus more likely to have suspended or reduced plan contributions.

Source: Psca.org, December 2020

The COVID-19 Toll on Retirement Savings

There have been numerous reports about companies suspending matching contributions, but how does that compare with the 2008-09 financial crisis? As it turns out, in contrast to the response during the 2008-09 financial crisis, more than 90% of employers will still make their retirement plan contributions this year, though smaller organizations are more likely to have suspended or reduced plan contributions in the wake of the COVID-19 pandemic.

Source: Napa-net.org, December 2020

CITs Are Sweeping Through the Retail 401k Market

At the 2020 InvestmentNews RPA Convergence CIO Roundtable and Think Tank, Jamie Battmer, chief investment officer for Resources Investment Advisors, said collective investment trusts were gaining so much momentum that "40 Act funds [in 401k plans] are going the way of checkbooks." There are many compelling reasons for this rather swift transformation in the retail 401k market. There are also still many questions about collective investment trusts, or CITs, but none of them seem to be show killers.

Source: Investmentnews.com (registration may be required), December 2020

401ks Warming to Rainy Day Savings, Student Loan Features

The majority of defined-contribution plan sponsors are interested in adding features that would help employees build emergency savings and pay down student loans, according to new data just published.

Source: Investmentnews.com (registration may be required), December 2020

DOL Issues Proposed Regulations on Pooled Plan Providers

Pooled Employer Plans must be administered by a Pooled Plan Provider, which must register with the Department of Labor before commencing operations. On August 20, 2020, the DOL issued a proposed rule regarding the registration process for PPPs which is reviewed here.

Source: Hallbenefitslaw.com, December 2020

Department of Labor Takes Another Look at Investment Advice

On June 29, 2020, the DOL proposed a prohibited transaction exemption called Improving Investment Advice for Workers & Retirees, which could have a substantial impact on the compliance operations of financial firms and their representatives. Possibly, the most significant development can be found in the preamble to the exemption. The DOL states that it will now interpret more broadly its long-standing regulation in defining investment advice.

Source: Groom.com, December 2020

District Court Dismisses ERISA Fee Litigation against 401k Plan for Failure to Exhaust

A federal district court in Georgia recently dismissed claims brought by a participant in the Rollins, Inc. 401k Plan, on behalf of a putative class of all plan participants, alleging that defendants breached their fiduciary duties by charging excessive recordkeeping fees, selecting and retaining costly and underperforming funds in the Plan and failing to diversify the plan's investment options. Defendants moved to dismiss on the basis that the plaintiff's claims were barred by her failure to exhaust the plan's administrative remedies before filing suit, among other reasons.

Source: Erisapracticecenter.com, December 2020

Half of Americans With Incomes Over $100,000 Think They'll Never Be Able to Retire

Nearly every household with an income of $100,000 or more saves for retirement, but only half of them (49%) believe they will ever be able to retire. These findings were part of the "2020 Financial Insights" study of 2,000 U.S. adults 40-65 years of age with an annual household income of at least $100,000.

Source: Edelmanfinancialengines.com, December 2020

Worker Participation in Employer-Sponsored Pensions: Data in Brief

This report provides data on the percentage of U.S. workers who have access to and who participate in employer-sponsored pension plans. Not all workers who have access to a pension plan at work participate in the plan. About 70% of all U.S. workers have access to employer-sponsored pensions and about 55% of U.S. workers participate in their plans. But the percentage of workers who participate in plans to which they have access differs between DB and DC plans.

Source: Crsreports.congress.gov, December 2020

Pooled Employer Plans Glossary

Pooled Employer Plans become a real thing as of the first of the year, though there is still a lack of guidance related to them. Many of you may now be pressed on the question of whether or not you or your clients should choose this road. This glossary should help you in your assessment of these arrangements.

Source: Businessofbenefits.com, December 2020

Congressional Research Service Examines Access to, and Participation in, Employer-Sponsored Plans

While a strong majority of employers provide access to a plan, that doesn't necessarily spell participation rates that match, says the Congressional Research Service. In a new report, the CRS provides data on the percentage of U.S. workers who can and do participate in employer-sponsored pension plans, which the report defines as both defined benefit and defined contribution plans.

Source: Asppa.org, December 2020

Advance Copies of 2020 Form 5500 Released

The DOL, IRS, and the Pension Benefit Guaranty Corporation have released advance copies of the 2020 Form 5500 and Form 5500-SF, as well as their schedules. They will be used for reporting information about the 2020 plan year.

Source: Asppa.org, December 2020

Judge Throws the Book at TPA Embezzlers

The owners of Vantage Benefits Administrators have been sentenced by a federal judge for their role in a $15 million embezzlement scheme. Vantage Benefits Administrators co-owners Jeffery Richie, 55, and his wife Wendy Richie, 59, pled guilty to several counts in federal court for their role in the aforementioned embezzlement scheme in June. In all, the pair admitted to more than 90 unauthorized distribution requests from 13 pension plans and seven retirement plans from 2014 and 2017.

Source: Asppa.org, December 2020

Who Is a Long-Term, Part-Time Employee? 401k Plans Will Need to Know

Historically, 401k plans could exclude individuals who worked less than 1,000 hours in the plan year. However, the SECURE Act, in its effort to expand access to employer retirement plans, introduced the concept of a "long-term, part-time employee." Starting in 2021, plans will need to consider these employees for eligibility, vesting, and company contribution purposes.

Source: Shrm.org, December 2020*

Get Ready to Handle the 401k Enrollment Season Remotely

Conducting 401k enrollment meetings is often a challenge for HR professionals, but the stakes have never been higher than they are in 2020. The coronavirus pandemic will impact both the substance and the form of these meetings. Here are eight tips to help you make your digital enrollment meetings as effective as possible.

Source: Recruiter.com, December 2020

Judge Rebuffs 401k Excessive Fee Settlement

A proposed excessive fee suit settlement has been rejected by the court. The settlement in question was for $2.55 million, and it involves allegations regarding the $1.9 billion 401k plan of Teva Pharmaceuticals USA Inc. While there wasn't anything particularly unusual about the suit or its allegations, Judge Kearney had an issue regarding "distributional fairness" in how the current plan of allocation outlined the process of notification.

Source: Napa-net.org, December 2020

Complaint Accuses Cognizant of Breach of 401k Fiduciary Duties

In the District of New Jersey, plaintiffs who participated in the Cognizant Technology Solutions 401k Savings Plan filed a putative class-action complaint against digital solutions company Cognizant, its Board, and the 401k investment committee. The defendants allegedly violated ERISA by breaching their fiduciary duties.

Source: Lawstreetmedia.com, December 2020

December 31 Sunset of Safe Harbor Correction Method

A special IRS-approved correction method available for elective deferral failures in 401k and 403b plans with automatic contribution features will sunset on December 31, 2020, meaning it will not be available to correct elective deferral failures that begin after that date. The loss of this favorable correction method going forward serves as a good reminder to plan sponsors to confirm that their plans, in operation, are correctly implementing employee elective deferrals.

Source: Jdsupra.com, December 2020

Exposing Excessive Fee Litigation

This 24-page white paper explores the problems with the recent surge in excessive fee litigation. Plaintiff law firms have flooded the federal courts with cookie-cutter ERISA class action litigation against defined contribution plans. The copy-cat lawsuits -- now nearly 200 in number with over 90 filed in 2020 alone -- attack retirement plan investment options that are commonplace and longstanding. The paper suggests four systemic reforms needed to restore a fair and uniform fiduciary standard of care.

Source: Euclidspecialty.com, December 2020

DOL Final Rule for Financial Factors in Selecting Plan Investments

The selection of investment options to serve non-pecuniary interests raises fiduciary concerns under ERISA. The new DOL rule seeks to resolve the uncertainty created by seemingly conflicting prior DOL guidance regarding what role non-pecuniary factors may serve in the selection of plan investments and provide a clear outline for fiduciaries moving forward.

Source: Thompsonhine.com, December 2020

CARES Act Changes to Retirement Plans

As the COVID-19 pandemic arrived, Congress passed the CARES Act to quickly provide relief, including to allow cash from retirement plans to flow into the hands of individuals and families. This piece discusses the 2020 changes to retirement plan distributions and loans made by the CARES Act, as well as tips to take the most tax-efficient advantage of those changes.

Source: Thetaxadviser.com, December 2020

Impact of COVID-19 and Economic Conditions on 403b Plans

PSCA conducted a brief survey of 403b plan sponsors in October 2020 to determine how they are responding to the COVID-19 pandemic and economic conditions. This is the full 10-page report.

Source: Psca.org, December 2020

Reasons to Offer a Mix of Passive and Active Investments in DC Plans

While some retirement plan sponsors have loaded their investment menus up with passive, low-cost funds as a result of the increasing lawsuits being brought against retirement plans, investment experts say that is a faulty approach. This article reviews why DC plans need to offer participants a choice of both active and passive investments.

Source: Plansponsor.com, December 2020

OMB Has Received a Final Fiduciary Rule From DOL

The sense of deja vu associated with the filing of a finalized fiduciary rule by the Department of Labor is palpable, but one ERISA expert says this version could stick -- for good -- despite the pending change in administration.

Source: Planadviser.com, December 2020

New 403b Survey Finds Signs of Strength, Concern

The vast majority (83.6%) of non-profit organizations with 403b plans are not changing their contribution levels despite the financial pressures of the COVID-19 pandemic, according to a new Plan Sponsor Council of America snapshot survey. While the vast majority of organizations are not planning on changing their employer contribution levels this year, nearly a third of higher education institutions say they either have -- or will by year-end -- reduced or suspend contributions to their 403b plans.

Source: Napa-net.org, December 2020

Freedom Funds Focus of Another Excessive Fee Suit

Another 401k plan fiduciary was sued for excessive fees and an allegedly imprudent selection of target-date funds. The plaintiffs, former employees of independent bottler Coca-Cola Consolidated Inc. and current participants in the Coca-Cola Consolidated, Inc. 401k plan, charged that the defendants breached their fiduciary duties to the plan.

Source: Napa-net.org, December 2020

Big Concepts That 401k Plan Providers Forget About

Whether it was working for others or working for charitable organizations, it seems that there is a culture out there that has forgotten why businesses and organizations exist. "It's amazing what people will forget and it's amazing what plan providers forget in dealing with their business, with their clients, and other plan providers."

Source: Jdsupra.com, December 2020

The Solo 401k: A Retirement Plan for the Self-Employed Person

The Solo 401k is designed to solve a very particular problem. What if you work for yourself instead of for another employer? How can you start saving for retirement responsibly and in a tax-advantageous way? This retirement plan allows self-employed people and solopreneurs to have a retirement account so they can build tax-advantaged savings and sleep easier at night. This article delves into what a solo 401k is, who is eligible to participate in it, and how it differs from a traditional 401k plan.

Source: Investmentu.com, December 2020

Spousal, Annuity Rights for 403b Distributions

The IRS has issued Notice 2020-80, which requests comments on spousal and annuity rights that may potentially apply to 403b custodial accounts that are distributed to participants in-kind upon the termination of a 403b plan.

Source: Futureplan.com, December 2020

How to Decide If a 401k Loan Is Right for You

Financial experts typically suggest avoiding 401k loans. There are legitimate concerns with the loan slowing down the growth of the retirement plan or a default on the loan creating a taxable event. That said, there can be good reasons to take a 401k loan. How can you know if a 401k loan is right for you?

Source: Forbes.com, December 2020

SECURE Act 2.0 Would Solve Longstanding Pension Problems

Building on the framework of the SECURE Act, Representatives Richard Neal and Kevin Brady have introduced the Securing a Strong Retirement Act of 2020, already being referred to as SECURE Act 2.0. SECURE Act 2.0 contains changes that would further encourage plan adoption and retirement savings, as well as solutions to operational problems that have bedeviled plan sponsors for many years.

Source: Cohenbuckmann.com, December 2020

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