401k Industry Flummoxed Over Yale Professor
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Items of Special Interest to Advisors 401k Industry Flummoxed Over Yale Professor Summary: Industry leaders are furious at a Yale Law professor who has mailed 6,000 letters to plan sponsors warning them they are paying too much for their 401k plans and encouraging them to make changes -- or else. The eclectic academic says he'll go public targeting alleged 'high-cost plans' as sponsors flood phone lines of advisors and recordkeepers and BrightScope is drawn into the fray. Source: Riabiz.com Much Ado About Nothing...or Is It? Summary: Recently, Yale Law School professor Ian Ayres mailed what could amount to thousands of letters to retirement plan sponsors informing each of them that they have "a potential high-cost plan." Read more about the plan fees and fee structures, compliance with ERISA's fiduciary duties, and the potential impact of Ayers' letter in this article. Source: Nixonpeabody.com New Challenge Facing Plan Sponsors: Yale Law School Professor Summary: Recently ASPPA learned that a Yale Law School professor has sent a letter to thousands of 401k plan sponsors. The professor is doing a "study" on the financial impact of plan fees and has identified the employers receiving the letter as sponsoring a "potential high-cost plan." According to the letter, this determination is based on Form 5500 data. ASPPA says the tone of these letters is shocking. Source: Napa-net.org
General Items The Lessons of First Data Corp's Suspension of 401k Contributions Summary: We have seen for years the abandonment of pensions in favor of 401k's and similar plans that remove long term funding and investment risks from the sponsor/employer, and transfer those obligations and risks to employees. That is old news. What is new about the First Data story is that it takes that transitioning of retirement risk from a company to its employees one step further, by replacing the cash contribution by the plan sponsor with the entirely speculative and risky grant of private stock. Source: Bostonerisalaw.com The Small Stuff That Retirement Plan Sponsors Can't Afford to Neglect Summary: It is often said that you shouldn't sweat the small stuff, but neglecting the small things can put a plan sponsor in peril. This article is about the small stuff that plan sponsors should take care of before they become a larger problem. Source: Rosenbaum Law Firm Top 10 Worst 401k Plan Practices Summary: Implementing "best practices" is important to the success of any 401k plan, but just as important is the need to call out the bad stuff and tell plan sponsors and our peers what not to do. Here are the top 10. Source: Planadviser.com
Compliance and Regulatory Related Revenue Sharing Payments as Plan Assets Summary: The DOL recently delivered welcome news in an advisory opinion addressing whether certain "revenue sharing" payments constitute "plan assets" under ERISA. On the facts presented, the DOL concluded that the revenue sharing amounts received by Principal are not plan assets for ERISA purposes. The Advisory Opinion also discusses a number of significant issues of interest to service providers and their plan clients. Source: Groom Law Group DOL Opines on Plan Expense Reimbursement Credits Summary: In Advisory Opinion 2013-03A, the Department of Labor opined that revenue sharing and similar amounts carried on the books of a retirement plan service provider as a credit due the plan, if properly structured, are not ERISA "plan assets" prior to receipt by the plan. The Advisory Opinion expressly does not address fiduciary issues related to the selection of plan investment options that do or do not provide revenue sharing or to the allocation of credits received by the plan to plan expenses or participant accounts. Source: Sutherland.com ERISA Recapture Account Guidance Summary: The DOL issued Advisory Opinion 2013-03A, which discusses whether a bookkeeping account for revenue sharing payments constitutes "plan assets" under ERISA. In the opinion, the DOL also takes the opportunity to outline the responsibilities of plan fiduciaries in deciding whether to approve revenue sharing arrangements on behalf of their plans. Sponsors and fiduciaries of plans that participate in revenue sharing arrangements should review the arrangements to confirm that the factors described by the DOL have been taken into account. Source: Relius.net DOL Clarifies Revenue Sharing Fiduciary Responsibility Issues Summary: The DOL issued Advisory Opinion 2013-03A, which discusses whether a bookkeeping account for revenue sharing payments constitutes "plan assets" under ERISA. In the opinion, the DOL also takes the opportunity to outline the responsibilities of plan fiduciaries in deciding whether to approve revenue sharing arrangements on behalf of their plans. Sponsors and fiduciaries of plans that participate in revenue sharing arrangements should review the arrangements to confirm that the factors described by the DOL have been taken into account. Source: Morganlewis.com When Changes to 404a-5 Participant Fee Disclosure Data Requires Additional Participant Notifications Summary: The aspect of the rules focused upon in this article is what to do if the information disclosed within the mandatory annual notice changes. If you haven't asked yourself this question yet, you should. Why? Because certain changes require not only the issuance of additional notifications but also that such notice be issued well in advance of the effective date of the change. Source: 401khelpcenter.com Sample Automatic Enrollment and Default Investment Notice Summary: Although this sample notice is designed for use in satisfying the QACA and EACA notice requirements, and the notice requirements under ERISA sections 404(c)(5) and 514(e)(3), plan sponsors may also find the sample notice to be helpful in drafting an employee explanation for an automatic contribution arrangement that is neither a QACA nor an EACA. Source: IRS
Fiduciary Material and Insight Turning to Outside Fiduciaries for Relief Summary: When plan sponsors offer a 401k plan for their employees, they take on a fiduciary responsibility for the performance and welfare of the plan. Until recently, qualified plan sponsors have been bearing the burden on their own. But now, a growing number of DC sponsors have been hiring an outside fiduciary in a trend that's only expected to grow. Source: Benefitspro.com Non-ERISA Fiduciary Responsibilities Summary: Non-ERISA fiduciaries don't have ERISA fiduciary responsibilities, but what are non-ERISA fiduciaries' responsibilities? Only by first knowing his or her specific responsibilities can a fiduciary try to meet those responsibilities and manage liability risk by either performing them or delegating them. The challenge for many fiduciaries is in the details. This article summarizes non-ERISA fiduciary responsibilities. Source: Fidelity.com
Insights: Studies, Research and White Papers Roth 401k Usage on the Rise Among Younger Participants Summary: Wells Fargo announced today that in the first quarter 2013, 10 percent of all participants in Wells Fargo administered defined contribution plans chose to contribute to a Roth 401k, when available, up from 8.9 percent reported in the first quarter 2012. Notably, 16.9% of participants under age 30 contributed to a Roth 401k (up from 15.2% one year ago) as compared to 4% of participants in their 60s. Source: 401khelpcenter.com Retirement Security: Challenges and Prospects for Employees of Small Businesses Summary: Despite efforts by the federal government to develop new plan designs and to increase tax incentives, plan sponsorship remains low among small employers. MEPs, a type of arrangement involving more than one employer, have been suggested as a potential way to increase coverage. GAO looks at the challenges facing small employers and how improve oversight and coordination for MEPs. Source: U.S. Government Accountability Office Retirement Plan Design Features Significantly Increase Participation Summary: New research from the Principal Financial Group shows retirement plan participation rates increase dramatically -- up to 70 percent -- when plans use key design features. Employee participation rates increase as employers add more of the key features -- automatic enrollment, automatic increases, online deferral changes or employer contribution. Retirement plans with at least two key features of any combination have an average total participant savings rate of 11 percent, which is more than double the average participant savings rate. Source: 401khelpcenter.com
Court, Legislative and Washington DC Cigna's $35M Settlement on 401k Fees Includes Investment Review Summary: Cigna has agreed to settle for $35 million a class-action lawsuit brought by current and former employee participants in the health insurance company's 401k plan, alleging they were charged excessive fees. As part of the settlement Cigna pledged to hire an independent consultant to monitor and suggest changes for the 401k's stable value fund and its overall investment management. Source: Thompson.com DC Plan Re-Enrollment Litigation Summary: This article reviews litigation coming out of the 2008 global financial crisis that addresses re-enrollment programs. It begin with a brief discussion of what re-enrollment programs are and the authorization of them under the DOL's Qualified Default Investment Alternatives regulation. Then discuss two cases -- Bidwell et al. v. Univ. Med. Ctr. et al. and Falcone v. DLA Piper -- that address re-enrollment programs that took place (in connection with QDIA regulation compliance). Source: Octoberthree.com
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