Court and Legal

Supreme Court to Decide ERISA Prohibited Transaction Dispute

On October 4, 2024, the Supreme Court agreed to hear the appeal in Cunningham v. Cornell University, which addresses discrepancies among U.S. Courts of Appeals regarding the pleading requirements for plaintiffs challenging the relationship between benefit plans and service providers under ERISA. By granting the plaintiff's petition for writ of certiorari, the Court aims to resolve this circuit split, with a decision expected next year as the current term has just begun.

Source: Groom.com

Court Says '23 Budget Not Legally Enacted: Could that Affect SECURE 2.0?

A federal district court has determined that the Consolidated Appropriations Act of 2023, which includes SECURE 2.0, was passed in violation of the Constitution’s Quorum Clause. While this ruling currently does not affect SECURE 2.0, Allison Wielobob, Chief Legal Officer of the American Retirement Association, advises monitoring the situation for future implications.

Source: Asppa-net.org

Another 401k Excessive Fee Suit Settles for Cash and Change

A $400 million retirement plan has reached a $1.5 million cash settlement in an excessive fee lawsuit. The suit, filed in 2022 against the fiduciaries of the Nova Southeastern University 401k plan, alleged that the plan included underperforming, higher-cost funds, as well as excessive recordkeeping fees, despite the availability of cheaper alternatives. Changes to the plan will also be implemented as part of the settlement.

Source: Napa-net.org

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Insight: Studies, Research, Analysis, and Papers

Asset Managers Seek to Bring Alternatives to DC Plans via CITs and Interval Funds

Adoption of alternative investments in defined contribution plans remains limited, but new research from Cerulli indicates that asset managers are looking to enter this space through collective investment trusts and interval fund structures. The report reveals that approximately 25% of asset managers currently offer these options, while 17% and 25% are considering introducing them to DC plans in the next two years.

Source: Cerulli.com

Survey Shows Income a Major Retirement Concern

As around 11,200 Americans turn 65 daily, American Century Investment conducted its 11th annual retirement survey, querying 1,500 individuals aged 25-65 about their retirement income strategies. The survey findings highlighted concerns regarding income replacement, showing that the percentage of non-retirees with a defined benefit pension is 30 points lower than that of retirees. This year's survey also incorporated insights from over 500 plan sponsors.

Source: Prnewswire.com

401k Traders Shifting to Fixed Income

As of the end of September, equity investing among 401k investors diminished, according to the Alight 401k Index. Equity allocations dropped to 72.2% from 72.9% in August. In contrast, fixed-income funds experienced significant interest, with net inflows on 18 of the 20 trading days in September, and bond funds making up 45% of all transactions.

Source: Planadviser.com

Borrowing From 401k Loans Is Actually Okay, Study Finds

A recent study by the Wharton Pension Research Council found that retirement plan contributions remain stable even after participants take loans or hardship withdrawals from their 401k accounts. This challenges the belief that allowing loans could negatively impact savings behavior. The research suggests that, when managed properly, loans can help individuals borrow responsibly. With many 401k participants automatically enrolled and sticking to default contribution rates, their saving habits tend to remain consistent over time, as noted by Aaron Goodman, a Vanguard economist and co-author of the study.

Source: Investmentnews.com

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Items of Special Interest to Advisers and Other Service Providers

Sen. Warren Issues Report to Boost Argument for Retirement Security Rule

Arguing that it provides evidence that supports the DOL's currently stayed Retirement Security Rule, Sen. Elizabeth Warren has released a report concerning industry activity she suggests the rule is intended to address. The report is based on an investigation that began in April 2024, shortly after the rule was issued. According to the report, the investigation found that conflicts are pervasive in the annuity industry, third parties often facilitate these conflicts, and insurers use complicated and opaque disclosures when discussing these conflicts.

Source: Asppa-net.org

The New Fiduciary Rule: What is a Best Interest Process?

The article outlines the expectations of different standard-setters regarding the development of best interest recommendations. Both the DOL and the SEC have consistent and rigorous requirements for creating these recommendations for ERISA-governed retirement plans, their participants, and IRA owners. In contrast, the National Association of Insurance Commissioners model rule is less demanding in this respect. The article elaborates on the essential requirements needed for a best-interest recommendation process.

Source: Fredreish.com

403b Plans

IRS Issues 403b Plan LTPT Guidance

On October 2, 2024, the IRS issued Notice 2024-73, which offers guidance on the long-term, part-time employee (LTPT) rules for ERISA-covered 403b plans. Non-ERISA 403b plans are not affected by these rules and can disregard them.

Source: Ferenczylaw.com

IRS Provides Helpful Answers Regarding Long-Term Part-Time Employees in 403b Plans

In November 2023, the IRS proposed regulations regarding long-term part-time employee eligibility for 401k plans, noting that additional guidance was needed for 403b plans. The recent IRS Notice 2024-73 provides important clarifications for 403b plan sponsors, particularly benefiting colleges, universities, and teaching hospitals. This notice addresses various issues related to 403b plans, focusing specifically on the treatment of part-time and student employees.

Source: Verrill-law.com

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State-Based Private-Sector Retirement Programs

Will Auto-IRAs Help Households Cope With Emergency Expenses?

The most effective way to save for retirement is through a workplace-based retirement plan, but many workers lack access to one. To help close this gap, many states have adopted programs that require employers without a plan to auto-enroll their workers in an Individual Retirement Account. These accounts use the Roth structure, so workers pay taxes on their contributions up front, allowing them to withdraw contributions at any time without taxes or penalties. Such flexibility may be especially valuable to lower-paid workers, who often lack precautionary savings for emergencies. However, several factors may prevent them from taking money out.

Source: Bc.edu

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Compliance and Regulatory

The Trouble With True-ups: Make Sure You Budget for the Maximum Match

Employers offering large bonuses often permit employees to maximize their 401k or 403b contributions from these bonuses. To ensure employees receive the full employer match, it is crucial for their plans to include a true-up match provision. This approach helps avoid surprises for both employers and employees.

Source: Belfint.com

The ABCs of RMDs: A Guide to Required Minimum Distributions

Required Minimum Distributions were created to ensure individuals start withdrawing funds from retirement accounts, like 401ks and IRAs, at a certain age, allowing the government to collect taxes on previously tax-deferred savings. Recently, the age for RMDs has been increased to accommodate longer life expectancies, providing individuals with more time for their savings to grow before withdrawals begin.

Source: Cohenbuckmann.com

Avoid an IRS Audit Surprise by Checking These Areas of Your 401k Plan

When notified of an impending IRS audit for a 401k plan, it's crucial to take proactive steps rather than remain inactive. Collect all requested materials and review your 401k plan for potential errors. Conducting a mock audit with an ERISA attorney and your third-party administrator can help identify and correct any significant issues before the official audit takes place.

Source: Jdsupra.com

Offering Employees Choice: DC, HSA/HRA, or Student Loan Repayments

The IRS has approved a new flexible plan design in a private letter ruling (PLR 202434006) that allows employees to direct employer contributions according to their individual financial needs. This enables employees to allocate contributions for various purposes, including retirement savings, student loan repayment, or healthcare expenses, acknowledging their diverse financial objectives.

Source: Callan.com

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Marketplace News

Alicia Munnell to Step Down as Director of CRR at Boston College

Wealth Enhancement Group Acquires FinTrust Capital Advisors

This eNewsletter is a digest of information published by a variety of web-based sources on 401k and related issues and is published as a service to our users. 401khelpcenter.com, LLC is not the author of the material unless specifically noted.