Small Business Retirement Plans – SEP-IRA vs. Solo 401k
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General Items Small Business Retirement Plans – SEP-IRA vs. Solo 401k Summary: This time of year many small business owners are looking for additional tax deductions. One of the best deductions is funding a retirement plan. Two popular plans are the SEP-IRA and Solo 401k. Here is a comparison of the main features of the two plans. Source: The Chicago Financial Planner 401k Auto Features Shift Focus of Communications Summary: Plan sponsors indicate a need to move away from process-focused messages (for example, how to enroll, plan mechanics, investment selection) to conversations around projected outcomes based on participants' savings behaviors and strategies (such as future monthly retirement income, spending power and retirement lifestyle). However, many have made only a few, necessary changes, without significantly revising their participant education offerings. Source: Society for Human Resource Management
Compliance and Regulatory Related Summary: Article focuses on the audit trends and issues that the IRS officials have discussed in recent meetings. In addition to providing insight on the IRS's focus, the article serves as a good compliance checklist for plan sponsors. Source: Benefitsbryancave.com IRS Defined Contribution Q&A Recap Summary: A panel of Internal Revenue Service officials from the Employee Plans Rulings and Agreements and Examinations units held an interactive question and answer session at the 2013 Los Angeles Benefits Conference that focused on defined contribution plans. This is a taste of some of the topics discussed. Source: ASPPA IRS Releases Draft Revised Form 5300 and Instructions Summary: Because the draft revised Form 5300 contains numerous changes, plan sponsors and their advisors will need to carefully review the revised instructions, once they are finalized, in anticipation of submitting a Form 5300. Although the IRS did not propose an effective date for the revised Form 5300, it could replace the current version effective for determination letter submissions filed as early as February 1, 2013. Source: Employeebenefitsblog.com IRS Finds High Percentage of Errors on W-2 Reporting of 401k Elective Deferrals Summary: Many employers that sponsor 401k retirement plans make mistakes in the way they report elective deferrals on Form W-2, the federal tax agency's Wage and Tax Statement sent to employees. IRS on Feb. 13 said on its website that its Employee Plans Compliance Unit sampled filings from employers that provided Forms W-2 and found 75 percent needed to correct these forms. Source: Thompson.com
403(b) Plans IRS Relief Available Until April 1 for 403(b) Plan Sponsors Under Audit Summary: Though plans under audit typically cannot voluntarily correct plan errors (and must pay a higher penalty to correct those errors), plan sponsors availing themselves of the transitional relief will pay only the reduced penalty that applies to voluntary corrections under the IRS's Employee Plans Compliance Resolution System. Source: McDermott Will & Emery
Fiduciary Information and Insight Understanding the Role of the Investment Fiduciary Summary: The world of defined contribution plan investments is one where plan sponsors are seldom fully equipped to fulfill their obligations under ERISA. As a result, those who control a plan's investments often have significant concerns about their liabilities as fiduciaries. This paper is designed to help those responsible for a defined contribution plan's investments to understand their various options in fulfilling fiduciary obligations. Source: Conradsiegel.com Negotiating ERISA Service Provider Agreements for Retirement Plans Summary: An overview of some of the most heavily negotiated provisions in service provider agreements between fiduciaries of retirement plans governed by the Employee Retirement Income Security Act of 1974 (ERISA) and plan service providers. Source: Practicallaw.com Target-Date Retirement Funds - Tips for ERISA Plan Fiduciaries Summary: Target-date retirement funds have become an increasingly popular investment option in 401k plans and similar employee-directed retirement plans. The U.S. Department of Labor's Employee Benefits Security Administration prepared this general guidance paper to assist plan fiduciaries in selecting and monitoring TDFs and other investment options in 401k and similar participant-directed individual account plans. Source: U.S. Department of Labor The Dueling Fiduciary Shadows of 12b-1 Fees Summary: 12b-1 Fees have become such a fixture in marketplace that there seems to be a growing sense that these fees belong to the plans whose assets generate them and that fiduciaries are somehow entitled to them. Except that this isn't quite so. There is actually another competing set of fiduciary rules which need to be considered when dealing with revenue sharing, and 12b-1 fees in particular. Source: Businessofbenefits.com Do Index Funds Reduce Investment Risk? Summary: Index funds do not necessarily reduce investment risk or guarantee a higher investment return than using actively managed funds. Like anything in the investment world, investing with a strategy, monitoring your results, rebalancing your allocation, and making adjustments to your portfolio when warranted are still key elements in successful investing. Index funds are simply a tool you can use in this process. Source: The Chicago Financial Planner
Items of Special Interest to Advisors ERISA Newsletter for Retirement Plan Service Providers - February 2013 Summary: This newsletter focuses on the legal issues that impact investment advisers, broker-dealers, recordkeepers, third party administrators, and bank and trust companies. It may also be interesting reading for plan sponsors and committee members because of the need to understand the issues facing their service providers. Source: Drinkerbiddle.com A Matter of Trust: Standards of Conduct under ERISA, the Exchange Act, and the Advisers Act Summary: The purpose of this article is to help a broker or dealer registered under the Exchange Act and an investment adviser registered under the Advisers Act to better determine at what point he or she is acting as a fiduciary for purposes of ERISA and the applicable standards of conduct under ERISA by comparing and contrasting the corresponding requirements under the Exchange Act and the Advisers Act. Source: Groom.com The Next Step to a Uniform Fiduciary Standard Summary: Chairman Walter predicted that the SEC will issue a formal request for information regarding the costs and benefits of a rule imposing a uniform standard of conduct. This next step in this process will be critical, because it will form the basis upon which the SEC is likely to make its final decision. Source: fi360.com
Insights: Studies, Research and White Papers Study Finds Overwhelmingly Support for Action to Provide All Americans With Pensions Summary: A new nationwide public opinion research report finds overwhelmingly support for Congressional action to provide all Americans with access to a new type of privately run pension plan. The research also finds that Americans remain highly anxious about their retirement prospects (85 percent), and see pensions a way to improve their retirement readiness. Source: 401khelpcenter.com Participants With Both 401k's and IRAs Saving More Summary: Fidelity unveiled an analysis of nearly one million investors using both a workplace savings plan and an Individual Retirement Account. The findings show a combined average balance of $225,600 as of Dec. 31, 2012, which is nearly three times higher than the average Fidelity 401k balance of $77,300. The analysis is a leading indicator of Americans' retirement readiness because it provides a more comprehensive look at two of the most popular retirement savings vehicles. Source: 401khelpcenter.com White Paper on Roth 401k Plans Summary: White paper provides an overview of Roth 401k plans, also known as designated Roth plans. It discusses the benefits of providing employees with a Roth option, the after-tax treatment of designated Roth contributions and Internal Revenue Code requirements governing Roth 401k plans. Also explains the optional in-plan rollover of distributions from traditional 401k accounts to Roth 401k accounts. Source: Groom.com DC Plan Investments: A Path to Improve Long-Term Outcomes Summary: With the recent growth in target-date funds and pooling of strategies in these funds, the traditional benefits of asset pooling are now increasingly available to DC plans. However, before further improvements can happen, regulations and the emphasis on the perceived benefits of daily valuation and daily liquidity need to reflect something more akin to global best practices. This paper discusses these views in more detail, beginning with the benefits of asset pooling and illiquid investments, before addressing impediments to change. Source: Towerswatson.com Increased Savings: The Best Risk Management Tool in the Retirement Readiness Equation Summary: The evolution of professionally managed solutions, such as target date funds, has helped to address the investment variable in the retirement readiness equation for many plan participants. However, given the uncertainty of future investment returns due to the inability to control the market environment, it is critical that participants maximize the other variables, over which they have control, namely how much they save and the length of time they save for retirement. This white paper examines the ways that plan sponsors can help participants with varying levels of engagement save for retirement at more meaningful levels. Source: Manning-Napier.com
Court, Legislative and Washington DC Capping Top Earners' 401k Benefit Seen as Cost Cutter Summary: Pressure is growing to change incentives for retirement savings as U.S. lawmakers look for revenue, and top earners may pay the price. A Brookings Institution report scheduled for release tomorrow will add to research that recommends curtailing the benefits for top earners to boost U.S. coffers. Source: Bloomberg.com ASPPA Comments on Brookings Proposed Double Tax of 401k Contributions Summary: The following is a statement from Brian H. Graff, Executive Director/CEO of ASPPA in response to The Brookings Institution's report "15 Ways to Rethink the Federal Budget, Proposal 6: Better Ways to Promote Saving through the Tax System." Source: 401khelpcenter.com Proposal 6: Better Ways to Promote Saving Through the Tax System Summary: A set of reforms to the existing system should make the saving incentives offered through the U.S. tax code more effective at a lower cost. The organizing principle is that tax savings incentives are reduced for higher-income households since such programs appear to be having little effect on the overall saving of this group, with some of the revenue from the reduction in subsidies put toward making saving easier and more attractive for low- and moderate-income households. Source: Brookings Institution
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