Fiduciary Duties: Ask Why
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In This Issue - Headlines Fiduciary and Plan Governance
Insight: Studies, Research, Analysis, or Papers
Items of Special Interest to Advisers or Other Service Providers
Auto 401k Plan Features Court and Legal Legislative or Washington DC Compliance and Regulatory
Marketplace News Article Summaries Fiduciary and Plan Governance Retirement plan sponsors often struggle with the complexities of ERISA requirements, which can be overwhelming given the significance of retirement accounts as major employee assets. However, understanding the fundamental purpose behind ERISA obligations can motivate fiduciaries to engage meaningfully in their roles. Inspired by Simon Sinek's emphasis on starting with 'why' in meaningful work, the article highlights that by focusing on the purpose of their duties, fiduciaries can build trust, enhance engagement, and improve retirement outcomes for employees. The article also provides practical examples of how to center the purpose of ERISA duties in their actions. Source: Colonialsurety.com Fiduciary Duty Meets Stewardship: Aligning Compliance With Care In this podcast, Todd Solomon, an attorney with McDermott Will & Emery, delves into the changing fiduciary landscape, recent trends in ERISA litigation, and how the current administration is influencing the Department of Labor. He also highlighted the shifting expectations surrounding fiduciary responsibilities. Key discussions revolved around finding the right balance between the duty of loyalty and prudence, the influence of participant demographics on plan decisions, and the challenges that plan sponsors encounter when balancing cost versus value, particularly in the selection of investments such as target-date funds. Source: Mwe.com Key Types of Investment Fiduciaries A clear list exists detailing the essential responsibilities of a good plan advisor, which can vary in service types and quality. At a minimum, a plan advisor should offer investment advice, taking on fiduciary responsibility for the selection and monitoring of plan funds. This discussion explores the key types of investment fiduciaries. Source: Retirementplanology.com Near-retirees face a dilemma with target-date funds, which may not adequately protect their investments when the market drops as they approach retirement. While these funds offer convenience, their one-size-fits-all glide paths could leave participants vulnerable. As retirement approaches, balancing risk with the need for cash becomes crucial. Plan fiduciaries are encouraged to adopt tailored strategies in 401k plans to better support near-retirees, prompting a discussion on when to transition from generic glide paths to more personalized options. Source: Fiduciarynews.com »» Click here for more Fiduciary and Plan Governance Material Insight: Studies, Research, Analysis, or Papers Trends in the Expenses and Fees of Funds, 2024 This detailed 16-pape report from the Investment Company Institute reveals that investor demand for lower-cost funds has contributed to a significant decline in average expense ratios for mutual funds in 2024. Specifically, the average expense ratio for equity mutual funds decreased by 62% and for bond mutual funds by 55% from 1996 to 2024. This trend is largely driven by a growing preference for no-load funds, which accounted for 92% of all long-term mutual fund gross sales in 2024, up from 46% in 2000. Source: Ici.org 2024's Average 401k Contribution How much are people utilizing their workplace's retirement savings plan? It's a question worth asking since the size of anyone's retirement nest egg ultimately depends on how much they contribute to it in the meantime. In 2024, participants in Fidelity's 401k plans contributed an average of $8,800 from their salaries, an increase from $8,530 in 2023. Additionally, employers contributed an average of $4,770 to employees' 401k accounts, resulting in a total average funding of $13,570 for the year. Source: Fool.com Decumulation Strategies: Creating Lifetime Income From Defined Contribution Plans Employer-sponsored defined contribution plans are crucial to the American retirement system, providing participants with various strategies to spend their retirement assets. Before the SECURE 1.0 Act, insurance-based options within DC plans were limited, but the act, passed in late 2019, introduced fiduciary safe harbors that facilitate the selection of annuity providers. This regulatory change has led to a greater availability of insurance-based offerings in the market. However, the adoption of these strategies by plan sponsors has been slow as they become more familiar with annuities. This 20-page white paper outlines the current insured and non-insured options available for employer-sponsored retirement DC plans. Source: Actuary.org IRAs Play an Increasingly Important Role in Saving for Retirement The Investment Company Institute's latest research indicates that individual retirement accounts are increasingly important for retirement planning in the U.S. By mid-2024, 44 percent of U.S. households owned IRAs, a rise from 34 percent a decade earlier. The study, titled "The Role of IRAs in US Households' Saving for Retirement, 2024," provides insights into the characteristics and activities of households that own IRAs. Source: Ici.org »» Click here for More Studies, Research, and White Papers Items of Special Interest to Advisers or Other Service Providers Asset Managers Reevaluate Guaranteed Income Components in DC Plans Despite the advantages of annuities, retirement plan participants still hold significant negative sentiment toward them. According to the latest Cerulli Edge -- U.S. Retirement Edition, 91% of asset managers believe annuity products have a negative stigma, up from 79% in 2019. While the proportion of those who "strongly agree" has decreased slightly, overall agreement has increased, highlighting a growing recognition among asset managers of the enduring stigma surrounding annuities. Asset managers and recordkeepers are advised to market guaranteed income products as part of a diversified retirement income strategy instead of presenting them as a complete solution. Source: Cerulli.com The number of 401k millionaires is increasing, with Fidelity reporting 537,000 participant accounts exceeding $1 million in 2024, a 27% rise from the previous year. The median balance for this group is around $1.4 million. As employees increasingly depend on their 401k for retirement income, many are defaulting to standard investment options instead of customized strategies due to a lack of time, investment knowledge, and support. A Schwab survey found that only 35% of 401k participants received professional financial advice, despite 73% wanting personalized guidance. So why aren't more plan participants getting help, and why aren't more advisors offering it? Source: Investmentnews.com Auto 401k Plan Features The Employee Benefit Research Institute recently released a research study titled "ERISA and Auto Features: An RSPM Analysis of the Impact of Automatic Features on Retirement Security." The study reveals that the combined implementation of automatic enrollment, automatic escalation, and automatic portability significantly decreases the chances that today's workers will face financial shortfalls in retirement. This effect is especially pronounced for younger workers, who have several years of opportunity to participate in a defined contribution plan before reaching retirement age. Source: Ebri.org »» Click here for more on Automatic 401k Plan Features Court and Legal What Patent Trolls Can Teach Us About Tackling Problems in the ERISA Class Action Industry: Opinion The "America Invents Act" aimed to resolve issues in patent prosecution and litigation, effectively addressing the patent troll problem while balancing the interests of various stakeholders, including industries reliant on patents and patent holders. A similar approach could be taken to tackle excessive class action litigation related to ERISA plans, seeking to balance participants' access to the courts with the risks faced by plan sponsors. The key challenge remains finding the right balance in managing the issues caused by such litigation. Source: Bostonerisalaw.com »» Click here for more Court and Other Legal Issues Legislative or Washington DC Latest Bill to Waive Early Withdrawal Fee for Fraud Victims Rep. Haley Stevens has introduced the "No Penalties for Victims of Fraud Act," which aims to ease the financial strain on individuals who have experienced fraud involving their retirement accounts. The legislation proposes to waive the 10% early withdrawal penalty for those withdrawing funds from their 401k or retirement plans before age 59 1/2, provided they can document their fraud losses through law enforcement or court verification. Although victims would be exempt from penalties, they would still be required to repay the amounts withdrawn. Source: 401kspecialistmag.com »» Click here for more on Legislative and Washington Actions Compliance and Regulatory DC Plan Annual Review: Key Steps for Plan Administrators Regular plan reviews are essential for ensuring compliance and improving performance in Defined Contribution Plans, ultimately helping participants meet their retirement goals. As a plan administrator, you play a key role in managing these plans by overseeing compliance, financial management, and participant engagement. This includes verifying accurate contribution processing, maintaining fee transparency, and providing educational resources to participants, all of which contribute to the efficient operation of the plan. This is a list of items that must be reviewed. Source: Watkinsross.com DOL Expands Voluntary Fiduciary Compliance Program Earlier this year, the DOL unveiled updated regulations for its Voluntary Fiduciary Compliance Program. Notably, these new rules introduce a long-anticipated self-correction option for plan sponsors. Source: Spconsultants.com Mandatory Catch-Up Contribution "Rothification" Is Coming to U.S. Savings Plans The SECURE 2.0 Act mandates that participants aged 50 or older in 401k retirement plans, who are classified as highly compensated (earning at least $145,000, indexed), must make catch-up contributions as Roth contributions rather than pretax contributions. Roth contributions are taxable in the contribution year but allow for tax-free distributions, including earnings. Initially set to take effect in 2024, the implementation has been delayed to 2026 due to administrative readiness concerns. The IRS has introduced proposed regulations to provide guidance on the Roth catch-up contribution requirement for highly compensated participants. Source: Sidley.com »» Click here for more Compliance and Regulatory Material Marketplace News 401GO Expands 3(38) Services Through Mesirow Partnership 2025 Plan Sponsor of the Year Finalists Announced
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