Tough Lessons for Advisers From Hutcheson 401k Case
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Items of Special Interest to Advisors Tough Lessons for Advisers From Hutcheson 401k Case Summary: Financial advisers and plan sponsors are facing some harsh realities after last week's sentencing of convicted 401k adviser Matthew D. Hutcheson. From ERISA's teeth to who handles fiduciary duties, plenty to take away from the saga. Source: Investmentnews.com (free registration may be required)
General Items Eight Questions Employers Must Be Able to Answer About Their 401k Plans Summary: Nearly every 401k plan offers some investment options to its participants that include revenue sharing. For many years, employers were not even aware that their participants' investments were generating these payments. Today, in the wake of new DOL disclosure and reporting rules and well-publicized cases attacking employers for inattention to revenue sharing, ignorance is no longer an excuse. Employers are on notice that they must be able to at least answer these eight questions regarding their 401k and other defined contribution plans. Source: Warner Norcross & Judd LLP What is an Appropriate Fee That a 401k Plan Should Pay? Summary: With the advent of the DOL's 401k Fee Disclosure Rule, the discussion of fees and their appropriateness has never been higher. Yet there is no consensus either within the industry or among regulators as to what constitutes reasonable fees. This makes plan sponsors and their service providers particularly vulnerable to the charge of "high" fees -- whether true or not. Source: Fiduciarynews.com Video: 401k Fees Need to Get Better Summary: Yale professor Ian Ayres is making waves in the 401k industry by threatening to expose what he's identified as high-cost 401k plans. As 401ks become more of the centerpiece of the U.S. retirement system, the current average expenses for the plans are too high, says Morningstar's John Rekenthaler. Source: Morningstar.com Drinker Biddle Response to Controversial Yale Letters Summary: Drinker Biddle has reviewed a number of Yale Law School Professor Ian Ayers' letters to 401k plan sponsors, as well as the report of his study. Based on this work for plan sponsors, as well as recordkeepers and other service providers, their conclusion is that plan sponsors should not rely on his letters and study. Instead, they should engage in a prudent process to evaluate the services to their plans and participants, the compensation of service providers, and the costs of those services as well as the costs of the plan's investments. Source: Drinkerbiddle.com Mutual Funds Just Fine for 401k Plans Summary: Mutual funds are the most frequently offered investment option in 401k plans. Should you be considering other types investment options? Author says probably not. Here's his rundown on the most popular non-mutual fund investments which plan sponsors sometimes consider. Source: Benefitnews.com Fueling the Debate Over DB and DC Plans Summary: The debate over the relative merits of defined benefit versus defined contribution retirement plans rages on. And not everyone is ready to concede that defined benefit plans have a permanent advantage that lowers the cost of delivering the same benefit. Source: Institutionalinvestor.com
Compliance and Regulatory Related Retirement Plan Beneficiary Designations and the Law of Unintended Consequences Summary: For many participants in a 401k or pension plan, filling out that beneficiary designation is a one and done activity. Then, forgotten, but sometimes changing circumstances intervene to invoke the Law of Unintended Consequences. As in a recently decided case in which a U.S. Court of Appeals held that a pre-nuptial agreement does not waive spousal rights under ERISA. Source: Retirementplanblog.com Restructuring in Cross-Tested Plans -- Part I Summary: In designing a cross-tested plan or "rescuing" such a plan from nondiscrimination failure, one of the more overlooked "correction" tools is restructuring. Restructuring permits the practitioner to divide the plan into two or more component plans that can be tested separately for nondiscrimination. Source: Relius.net There's No Failing in Cross-Tested Plans Summary: In this technical update, Relius addresses the options available to correct a potential nondiscrimination failure in a cross-tested plan. Source: Relius.net
Fiduciary Material and Insight Assessing Retirement Readiness: A Fiduciary Must Summary: 401k fiduciaries have worked under the assumption that they have no duty to monitor changes on a plan level in the retirement readiness (the likely ability to live comfortably throughout retirement) of their employees or to annually provide each participant with a personalized gap analysis. This fiduciary behavior is surprising for several reasons. Source: Investmenthorizons.com Developing a Fiduciary File Cabinet Summary: During a webcast, "Fiduciary Issues for Tax-Exempt Benefit Plan Sponsors," sponsored by Crowe Horwath LLP, Wolfe shared best practices for creating and maintaining a fiduciary file cabinet. He noted that these are best practices for both ERISA-governed and non-ERISA-governed plans. Source: Plansponsor.com Video: Governance of Tax-Qualified Retirement Plans Summary: Governance of tax-qualified retirement plans should focus on protecting participants and reducing the risk of liability for plan fiduciaries. In the attached video, Sheldon Smith provides a brief outline of the duties imposed on plan fiduciaries and best practices fiduciaries should follow regarding plan governance. Source: Benefitsbryancave.com DOL Provides a Reminder to Plan Sponsors and Committees of Certain Fiduciary Responsibilities Summary: Some mutual funds that are made available by a 401k plan for investment by its participants may make payments to the plan's record-keeper for certain services in connection with the plan's investment. DOL Advisory Opinion 2013-03A addresses whether certain payments of this type might be deemed "plan assets" under ERISA. Significantly, the DOL also points out obligations of plan sponsors and committees (and any other fiduciary responsible for making payment decisions) in choosing to approve and to continue such arrangements, since failure to do so could result in liability to these fiduciaries. Source: Ebglaw.com
Insights: Studies, Research and White Papers Repairing the Damaged Retirement Nest Eggs of America's Unemployed Workers Summary: Transamerica Center for Retirement Studies released a study evaluating the state of retirement readiness among unemployed and underemployed workers. "Amid signs of economic recovery and an improving unemployment rate, millions of Americans are still unemployed or underemployed," said Catherine Collinson, president of TCRS. "Many displaced workers have raided their retirement accounts to make ends meet, and many may be overlooking the importance of retirement benefits as they seek meaningful employment." Source: 401khelpcenter.com Morningstar Target-Date Fund Series Reports Summary: Morningstar's Target-Date Fund Series Rating and Research Reports are designed to help financial advisors, plan sponsors, and other investors and fiduciaries make informed decisions when evaluating a series of target-date funds. June 30, 2013, reports are now available. Source: Morningstar.com Roth Reigns: Young Workers Taking a Different Path to Retirement Savings Summary: Though usage across all age groups for Roth 401ks is growing slowly, a new study reveals that more employers are offering it as a retirement option, and younger workers are eager to sign up. In the first quarter of 2013, nearly 17 percent of workers under age 30 are picking a Roth 401k defined contribution plan when employers offer it, up from about 15 percent last year. Source: Workforce.com
Court, Legislative and Washington DC The Landscape After Windsor: Benefit Considerations for Same-Sex Couples Summary: Since the Supreme Court's decision in Windsor, employers are faced with a variety of interesting questions about providing benefits to same-sex spouses. Most of them have been related to the taxation issues about imputing income for benefits to same-sex spouses, which will have to be answered by specific guidance. But while we wait for those answers, employers as plan sponsors should at least start evaluating what issues they have to address related to definitions and eligibility. Source: Foxrothschild.com Seventh Circuit Allows Class Certifications for Excessive Fee Cases Summary: The 7th Circuit issued a plan participant/plaintiff friendly opinion reversing the district court's denial of class certification and providing much needed clarification of the previous 7th Circuit case Spano v. Boeing Corp. In Spano, the 7th Circuit rejected an overly broad class definition that generically included all past, current, and future plan participants, and instead required certain limitations. Source: Fraplantools.com Ninth Circuit Amends Rationale for Rejecting Participants' Revenue Sharing Claim Summary: The Ninth Circuit Court of Appeals has amended its opinion in this 401k class action over revenue sharing and other issues, narrowing the court's position on the applicable standard of review but not changing the outcome of the case. Both versions of the opinion reject participants' claims that plan fiduciaries violated the plan's terms when they used revenue sharing payments from the plan's mutual fund investments to pay for services that otherwise would have been paid for by the employer. Source: Thomson Reuters/EBIA
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