The Disclosure Paradox: How Much Information Is Too Much?
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General Items The Disclosure Paradox: How Much Information Is Too Much? Summary: The defined contribution revolution saw employers shift responsibility for funding retirement to employees who weren't well equipped to become their own pension manager. One easy solution would seem to be information. Give people the right tools and they'll be better able to select the right investments, the right advisors, and save the right amount of money. But is more information the key to improving retirement security? Source: Advisorone.com Canadian Pension Plans Had a Banner First Quarter Summary: A strong equity market, a slight increase in interest rates and increased company contributions boosted the solvency of Canadian defined benefit pension plans during the first quarter of 2013. According to Aon Hewitt, the global human resource solutions business of Aon plc, the median pension solvency funded ratio—or the ratio of the market value of plan assets to liabilities—was about 5 percentage points higher at the end of March than at the start of the year. Source: Benefitspro.com Fee Leveling in DC Plans: Disclosure is Just the Beginning Summary: Simply knowing the base amount or formula stated by the recordkeeper is often not sufficient to truly understand the impact of fees in a retirement plan. It's also essential for plan sponsors to consider the different types of fees that occur in retirement plans: plan-level service fees, participant-level service fees, and investment fees. These fees interplay in ways that can have dramatically differing effects from participant to participant. Source: Retirementtownhall.com How Much Does My 401k Plan Save Me in Taxes? Summary: The retirement tax benefit has significant value. The key factors in driving that value are: (1) how long you leave your money in the plan; (2) how much you earn while your money is in the plan; and (3) whether your tax rate on distribution is lower than your rate was when you made your contribution. Source: Octoberthree.com Plan Participants: What Are They Thinking Now? Summary: As the markets have climbed all the way back, so have many people's financial outlooks, notwithstanding some recent jitters triggered by the banking crisis in Cyprus. For those who have invested throughout the turmoil, their steely patience has been rewarded. Now, they are asking about how to increase their contributions to the plan, conducting retirement readiness self-analyses and starting to look forward to a future that will include retirement. Perhaps the more appropriate question is why are they thinking like this? Source: Benefitnews.com
Compliance and Regulatory Related 401k Compliance Check Questionnaire Final Report Summary: The final report summarizes the results from the 401k Compliance Check Questionnaire issues by the IRS. The results are both: generalized to the 401k plan population that files Form 5500, and stratified to highlight the differences in the results by plan size. This chart contains highlights of the findings from the Questionnaire. Source: IRS Summary: If your plan has over 100 eligible Participants at the beginning of the Plan Year, you must attach an audit report prepared by a CPA to your Form 5500 filing. This is a short FAQ on plan audits. Source: Benefit-Resources.com
403(b) Plan Specific Prototype and Volume Submitter 403(b) Plans May Soon Be on Their Way Summary: Sponsors who wish to maintain individually designed plans have more waiting to do. IRS plans to establish an individual determination letter program for 403(b) plans appear to be on hold. Source: Benefitsbryancave.com Summary: The guidance appears to push individually designed plans into pre-approved plans if such plans want reliance that they satisfy the applicable document requirements. The IRS indicates that these limitations – which will unfavorably impact many public school, university and church 403(b) arrangements, among others – are necessary "to more efficiently direct its limited resources." Article reviews the new procedure and offers comments on major issues. Source: Groom Law Group
Fiduciary Material and Insight Five Fiduciary Facts the DOL Wants Every 401k Plan Sponsor to Know Summary: Many of the actions needed to operate a 401k plan involve fiduciary decisions. This is true whether or not you hire someone to manage the plan for you or do some or all of the plan management yourself. Here are five fiduciary facts the DOL thinks every 401k plan sponsor to know. Source: Fiduciarynews.com Summary: The number of claims against fiduciaries has increased threefold since the 1990's, with plan sponsors now surpassing the medical profession as targets for litigation. To mitigate risk, many plan sponsors partner with outside investment experts; but do these partners really take on fiduciary accountability and mitigate risk? This three page article provides DC plan sponsors with an overview of ERISA fiduciary options and the corresponding risk considerations when it comes to their fiduciary roles. Source: SEIC.com Drinker Biddle Employee Benefits Plan Sponsor Newsletter - April 2013 Summary: The newsletter contains articles on the following topics: Five Practical Tips for Plan Committees to Avoid Fiduciary Liability, Check Your Plan Loan Administration, DOL “Tips” for Selecting Target Date Funds, What Plan Sponsors Need to Know About a "Limited Scope Review," and Accountant's Audits of Retirement Plans. Source: Drinkerbiddle.com
Insights: Studies, Research and White Papers 401k Plans: Labor and IRS Could Improve the Rollover Process for Participants Summary: Among other things, GAO recommends that Labor and IRS should take certain steps to reduce obstacles and disincentives to plan-to-plan rollovers. Labor should also ensure that participants receive complete and timely information, including enhanced disclosures, about the distribution options for their 401k plan savings when separating from an employer. Source: United States Government Accountability Office Managing Plan Costs in Automatic Programs Summary: This white paper illustrate ways that costs can be managed when adopting automatic program features by altering plan design components, demonstrate how foundational plan design components and automatic programs can interact to drive success in achieving specific plan objectives, and provide a decision-making guide for revisiting plan design elements. Source: Troweprice.com What Can Roth Do for Your Participants? Summary: With the recent legislative changes that have made Roth top of mind for both plan sponsors and participants, now is the time to fully reexamine the opportunities the Roth 401k option presents within the broader context of planning for retirement. In summary, adding a Roth feature is one more way sponsors can help their participants plan for retirement and can help drive participants' outcomes, satisfaction, and appreciation of the benefits they are offered. Source: Fidelity.com
Items of Special Interest to Advisors The Second Deadly Sin for Plan Providers: Complacency Summary: Retirement plan and the retirement plan industry are fluid, which means what is good today maybe not good for tomorrow. You can never be too complacent because losing your client or your competitive edge is just around the corner. Source: Rosenbaum Law Firm Blog SEC Endorses Social Media as Public Disclosure Channel Summary: Some service providers, investment advisors, and brokers are deliberately structuring their advisory relationships with 401k plan sponsors in a way that enables them to avoid accepting responsibility for their investment fund recommendations. Mistakenly believing that they are receiving impartial advice, plan sponsors might rely upon such non-fiduciary service providers, without realizing the potential conflicts of interest that can arise when it comes to investment selection. Source: Covington & Burling LLP What Advisers Need to Know About GAO's 401k Report Summary: The U.S. Government Accountability Office released a report Wednesday saying that employees switching jobs often receive guidance by 401k companies to roll their accounts into an IRA, even when that might not be the best course of action. But what does this mean for advisers? Source: Benefitnews.com
Target-Date Funds Target-Date Funds: Structurally Unsound Summary: Author states that target-date funds suffer from serious flaws: their performance is difficult to evaluate due to multiple layers of active management; they are expensive due to heavy reliance on active equity managers, and as such are priced like actively-managed equity funds; and, actively-managed TD funds likely cannot on average, add alpha over time. Source: SSRN.com
Court, Legislative and Washington DC 401k Litigation: The "Next Asbestos"? Summary: Throughout the retirement industry, people are talking about the implications of Tussey et al v. ABB. Some fear it will trigger a tsunami of similar cases, creating the kind of legal boondoggle that asbestos and tobacco liability cases once provided. Others say it is headed for the US Supreme Court. Either way, it's widely acknowledged that a new era of fee transparency, fee competition and fee compression has arrived. Source: Retirementincomejournal.com Trial of Independent Fiduciary Matthew Hutcheson Begins Summary: A retirement trustee accused of stealing $5.3 million to enrich himself and buy an Idaho ski resort may have made unsuccessful investments, but he broke no laws, his government-appointed lawyer told jurors. Matthew Hutcheson, whose U.S. District Court trial in Boise started Wednesday and may last until April 19, is charged with 17 counts of wire fraud, each carrying up to 20 years in prison. Source: San Francisco Chronicle
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