Newsletter for November 4, 2019
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In This Issue
Fiduciary and Plan Governance
Cybertheft of 401k Plan Assets - New Case Highlights Fiduciary Exposure
ERISA has never been amended or interpreted to impose a specific duty on plan fiduciaries to maintain appropriate cybersecurity protections. However, fiduciaries should not have their heads in the sand about this issue. The duties of prudence and loyalty will likely be interpreted to include a responsibility to keep plan assets safe from hackers. A lawsuit recently filed against Estee Lauder Inc, its 401k plan committee, recordkeeper, and custodian highlights some security flaws in plan distribution procedures and has the potential to make new law in this area.
Source: Cohenbuckmann.com
»» Click here for more Fiduciary and Plan Governance Material
Insight: Studies, Research, and White Papers
How Would 401k "Rothification" Alter Saving, Retirement Security, and Inequality?
This 38-page paper develops a dynamic life cycle model to show how and whether "Rothification" -- that is, taxing 401k contributions rather than payouts -- would alter household saving, investment, and Social Security claiming patterns. The paper shows that these changes differ importantly for low- versus higher-paid workers. It concludes that moving to a system that taxes pension contributions instead of withdrawals will lead to later retirement ages, particularly for the better-educated. It also would reduce work hours and lifetime tax payments and increase wealth and consumption inequality.
Source: Upenn.edu
The Over-Stated Retirement Crisis
To address the question of whether a retirement savings crisis is at hand, this 14-page paper takes a broader view of retirement savings, considering workplace retirement plans in the context of the greater retirement system. When this system is considered as a whole, Americans today: Have greater access to workplace retirement plans than in the past; Are saving proportionately more; Will have more money in retirement; and, Have better protections in place to help guard their savings.
Source: Empower-retirement.com
»» Click here for More Studies, Research, and White Papers
Items of Special Interest to Service Providers
Recordkeeping Fees Under the Microscope
Today, the landscape is rapidly shifting, and it definitely seems to be the case that per-participant recordkeeping fees are becoming the expected best practice, no matter what size the plan. Plaintiffs' attorneys and progressive plan sponsors are driving this trend. Their argument is simply that, with today's digital recordkeeping technology, it is no more work for the plan provider to administer an account with $1,000,000 versus an account with $100. Thus, the argument goes, it is not reasonable under ERISA for the fee to grow while the service being provided remains the same.
Source: Planadviser.com
How to Deal With Other Plan Providers
As a plan provider, you can't afford to develop a bad reputation among other plan providers, whether you compete against them or not. This article is all about how and why you should play nicely with other retirement plan providers.
Source: Jdsupra.com
Is the 401k Adviser M&A Market About to Cool Down?
The retirement plan adviser merger and acquisition market is on fire, with some deals reaching 12 to 14 times earnings before interest, taxes, depreciation, and amortization, known as EBITDA. As a result, plan advisers who had been reluctant to sell and surrender their independence are coming out of the woodwork to see if they can cash in. But if too many of the estimated 2,500 elite plan advisers with more than $1 million in revenue come to market, will prices decline, with buyers becoming selective as the balance of power shifts?
Source: Investmentnews.com (registration may be required)
403b Plans
IRS Creates Program for 403b Plan Document Compliance
Rev. Proc. 2019-39 establishes remedial amendment periods and plan amendment deadlines for correcting defective document provisions in Code Section 403b plans. The rules are similar to those that apply to Section 401(a) qualified plans under Rev. Proc. 2016-37. The new guidance gives 403b plan sponsors a system to maintain compliant documents -- and their plans' tax-favored status -- after the initial RAP for 403b plans expires on March 31, 2020.
Source: Mercer.com
»» Click here for More 403b Material
Court and Legal
CenturyLink's Investment Management Company Faces ERISA Claim
On the third try in a lawsuit against CenturyLink and its investment management company, a judge has recommended all but one claim by participants in the firm's Dollars & Sense 401k Plan be dismissed.
Source: Planadviser.com
Individual Arbitration Ordered in Greystar ERISA Lawsuit
The order comes after an important appellate ruling in the 9th Circuit endorsing the forced arbitration of ERISA claims, but notably, the lawsuit in question here was filed outside the 9th Circuit.
Source: Planadviser.com
Goldman Sachs Sued for 'Unlawful' 401k Management
Goldman Sachs has been sued for the alleged "unlawful" management of its company 401k plan related to the plan's use of in-house actively managed mutual funds, which the lawsuit says provided the firm with a financial benefit at the expense of employees' retirement savings.
Source: Investmentnews.com (registration may be required)
University Faces Setback in 403b Plan Fiduciary Breach Case
The ongoing case, Sweda v. the University of Pennsylvania, is currently before the U.S. Court of Appeals for the Third Circuit. The Third Circuit ruled that the district court erred in granting the University's motion to dismiss. This is a major setback for the University in their current ERISA fee and fiduciary breach case.
Source: Hallbenefitslaw.com
»» Click here for more Court and Other Legal Issues
Legislative and Washington DC
The Trump Administration Wants You to Know, Guidance Is Not Law!
Two new Executive Orders and a corresponding decision in the Supreme Court effectively limit how agencies can utilize guidance against private parties, the agency must rely only on guidance that is fully consistent with the governing statute.
Source: Beneficiallyyours.com
»» Click here for more on Legislative and Washington Actions
Multiple Employer Plans (MEP)
Four Things to Factor in When Considering an Open MEP
Proponents of open MEPs hail them as a means of reducing both the burden and cost of sponsoring a retirement plan for smaller employers, but as MassMutual explains in its white paper, these benefits may prove elusive depending upon the specific needs and preferences of the participating employer and the plan options selected.
Source: Asppa.org
»» Click here for more on Multiple Employer Plans
Compliance and Regulatory
Some Retirement Plans Need 2019 Year-End Amendments
Retirement plan sponsors may need to adopt amendments in 2019 to reflect changes in law or plan design. This article summarizes the amendments that may be required for individually designed defined contribution and defined benefit plans.
Source: Mercer.com
Using Paper Checks for 401k Cash-Outs Doesn't Make Sense
While small balance cash-out provisions are a good idea, many plan sponsors sabotage the potential benefits by also including a provision that distributes balances of $1,000 or less to participants via paper checks. Here's why this is a terrible idea.
Source: Shrm.org
How to Navigate the Missing 401k Participant Playbook
Plan sponsors are increasingly challenged by the problem of missing participants, and the difficulties they face in performing diligent searches. Sponsors must navigate an environment characterized by too-little guidance, combined with inconsistent enforcement actions. So, it's hard to know how their "diligent" efforts will be viewed if placed under a regulatory microscope. Here is what to implement for an effective program to deal with missing participants.
Source: 401kspecialistmag.com
»» Click here for more Compliance and Regulatory Material
Marketplace News
Fidelity Unveils Drawdown Help for Participants
»» Click here for More Marketplace News
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