Reaction to Frontline's Report on 401k Plans
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Frontline's Report on 401k Plans How a So-called Retirement Expert Would Worsen Our Retirement Summary: Author writes, "As an advocate for 401k participants I should be grateful that Frontline produced ['The Retirement Gamble'].... Unfortunately, not only did the episode inaccurately portray the biggest flaws in the plans as high fees and risky stocks and not the puny employer contribution rate but it depended on input from Teresa Ghilarducci -- an academic whose employer offer a generous retirement plan -- who has literally proposed making everybody's 401k plan worse." Source: Huffingtonpost.com Brokers Slammed in PBS Documentary Summary: The struggles Americans face in saving for retirement are blamed largely on financial advisers in a PBS documentary. In "The Retirement Gamble" producers point to the fees investors are charged in their 401ks as the biggest obstacle standing in the way of being able to save for retirement. Advisers are blamed for steering investors into high-fee investments such as actively managed mutual funds in order to boost their own income. Source: Investmentnews.com (free registration may be required) The PBS Frontline Report on 401k Plans Summary: Author comments that the PBS Frontline report on 401k plans entitled 'The Retirement Gamble' was a pretty sobering report about the problems and issues regarding these plans in providing benefits to plan participants for retirement. While some 401k industry groups railed against the program, the program did raise some serious concerns against the very same people who help sponsor and benefit these trade groups. Source: Rosenbaum Law Firm PC Frontline's View of Retirement Industry as Commodity is Dead Wrong Summary: The following is a statement from Brian H. Graff, Executive Director & CEO of The American Society of Pension Professionals & Actuaries in response to the PBS Frontline program "The Retirement Gamble." Source: Asppanews.org
General Items Summary: The idea that employees should make their own decisions does not suggest that employers aren't concerned about employees making mistakes. How much help we should give employees in making those decisions is a tricky topic, as everyone in the benefits business knows, because employers face legal risks when providing what can be seen as financial advice. Source: Hreonline.com It's Not Perfect, but the U.S. Retirement Evolution Remains a Model for the World Summary: The fact that other countries are drawing from what has worked in the United States is a tremendous validation of the defined contribution system in place today. The U.S. must continue building on that system to produce even better outcomes for a greater number of people while preserving what is working, especially current tax incentives. Source: Principal.com
Compliance and Regulatory Related Summary: Tips on how to find, fix, and avoid common mistakes in retirement plans. Each guide provides: an overview of the rules for each plan type, an overview of the Employee Plans Compliance Resolution System, the most frequent errors we find in each plan type and tips on how to find, fix and avoid these mistakes. Source: IRS IRS Makes Employers' Internal Controls a Priority in Employee Plan Audits Summary: For more than a decade, the Internal Revenue Service has been refining its approach to examining tax-qualified retirement plans, most recently by focusing on internal controls, according to BNA interviews with attorneys and auditors who help employers maintain their plans' tax-qualified status. Source: Bloomberg BNA Required Minimum Distributions Summary: The tax-deferral break on funds placed in retirement plans only lasts so long. Retirement funds are meant to be distributed and taxed. All qualified plans, such as 401k plans, must satisfy the requirements of Internal Revenue Code Section 401(a), including Section 401(a)(9), which requires qualified plans to make required minimum distributions to participants, generally when they reach age 70½. If RMD payments are not made, it is a plan qualification failure. Source: Kravitzinc.com
Fiduciary Material and Insight Fiduciary Discretion: A Plan for Improving Outcomes Summary: Spooked by the specter of fiduciary liability? The mere whisper of the word "fiduciary" is enough to send shivers down the spines of many retirement plan sponsors -- and not without good reason. Are you shadowed by the specter of fiduciary liability and less than optimal retirement plan outcomes? If so, you may want to explore the services and benefits of using a discretionary trustee. Source: Unifiedtrust.com Fiduciary Checklists for Monitoring Major Risks to 401k Investments Summary: This article presents two checklists focused on the monitoring of 401k plan investments. The first takes a macro view, itemizing common issues that warrant a deeper dive for fiduciary understanding. The second relates solely to target date funds, in order to assure attention to eight items that the Department of Labor identified in a notice issued earlier this year. Source: Erisacloud.com 401k Fiduciary Focus: Target-Date Funds Summary: Target-Date Funds have become an extremely popular investment choice in 401k plans and are the default investment option in many plans, but employers often don't know enough about them to make a well-reasoned determination if they are appropriate. Blindly choosing a target-date fund or just relying on the 401k vendor to place their own proprietary fund is fraught with potentially serious fiduciary implications. Source: Fi360.com
Insights: Studies, Research and White Papers Study Finds Participants of Higher Education Retirement Plans Save More Than Corporate Workers Summary: Transamerica released a report titled, "Retirement Plans for Institutions of Higher Education," that shows Higher Education institutions outperform the corporate sector when it comes to faculty and staff deferral rates and plan design practices that can generate successful retirement outcomes. Among those surveyed, the average deferral rate for faculty and staff is currently 13.4 percent. Source: 401khelpcenter.com Compensation and Conflicts of Interest in ERISA Plans Summary: This article addresses who can get paid from ERISA-covered retirement plans, how much, in what form, and by whom. Disclosure is not the focus: the emphasis is on the many ways that fiduciaries, service providers, and other parties in interest may be compensated and the circumstances under which the compensation is permissible. Source: Pentegra.com Variety of Services in 401k Plans Summary: 401k plans require an array of investment and administrative services and plan sponsors have various options in structuring arrangements for their plans. In addition to selecting investment options and service providers for the plan, plan sponsors choose how, and by whom, most plan administrative services will be paid. Source: Investment Company Institute Expenses and Fees Paid on Mutual Funds in 401k Plans Summary: A variety of investment options and services are provided through 401k plans. Sixty percent of the $3.6 trillion in 401k assets at year-end 2012 was invested in mutual funds, primarily in equity funds. Plan participants have a broad range of mutual funds from which to choose, but they heavily favor lower-cost funds. Source: Investment Company Institute Eliminating Friction and Leaks in America's Defined Contribution System Summary: White paper suggests that the model described in the paper, if scaled and extended to the entire DC industry, could meet the goal of a 50 percent reduction in leakage/cash-outs that the Employee Benefit Research Institute has targeted, thus having the potential to add $1.3 trillion to DC retirement savings over 10 years. Source: Bostonresearch.com
Items of Special Interest to Advisors Advisor: It's Time for a Website Checkup Summary: When was the last time you lifted the hood on your website? As recently as just a few years ago, advisors were able to get by with a very minimalist website with a logo, a bio, a photo and perhaps a map to your office. For many, that kind of simple brochure like website met their online needs. Times have changed. Here are five mistakes to avoid. Source: 401khelpcenter.com
Court, Legislative and Washington DC Decision Against Transamerica Criticizes Fiduciary Warranties Summary: A little reported decision out of the Central District of California, Santomenno v. Transamerica Life Ins. Co., No. 12-2782, has the opportunity to cause great heart burn (or worse) to insurance company platforms for retirement plans. In a sweeping decision on TLIC's motion to dismiss, the court found that plaintiffs have plausibly alleged numerous fiduciary violations of ERISA including that TLIC, because of the facts and circumstances alleged, may be a fiduciary with responsibility to monitor its own compensation. Source: Fraplantools.com "Top Hat" Plan Assets Not Protected by ERISA Summary: U.S. District Judge Catherine C. Blake of the U.S. District Court for the District of Maryland found Cecil Bank's Supplemental Executive Retirement Plan (SERP) is a "top hat" plan under the Employee Retirement Income Security Act and therefore exempt from certain of ERISA's protections intended by Congress to protect workers -- specifically that ERISA plans contain an anti-alienation provision. Source: Plansponsor.com Seventh Circuit Clarifies That Discretion is Not Always Required for Fiduciary Status Summary: In a decision issued last week, the Seventh Circuit made clear that discretion isn't always required for an entity to be a functional fiduciary. But at the same time, the Court reaffirmed that a functional fiduciary is only answerable under ERISA when it is acting as a fiduciary. Source: Seyfarth Shaw Seventh Circuit Clarifies Standard for Establishing Fiduciary Status for Plan Service Providers Summary: In Leimkuehler v. American United Life Insurance Co., Nos. 12-1081, 12-1213 & 12-2536 (7th Cir. Apr. 16, 2013), the Seventh Circuit expanded on its prior ruling in Hecker v. Deere, 556 F.3d 575 (7th Cir. 2009), and held that a service provider that offers a menu of investment options to a 401k plan and retains the right to overrule the options chosen by the plan from that menu is a functional fiduciary only to the extent that it actually exercises authority or control over plan assets. Article summarizes the case and identifies important ramifications of the Court's decision, which will be of particular interest to plan service providers. Source: Jenner & Block LLP
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