Newsletter for August 26, 2019
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In This Issue
The Roth Conundrum
Abstract: Is Roth really a superior option for a participant's voluntary contributions to a retirement plan? The argument for Roths at this point is centered on the historically low current tax rates: rather than defer pre-tax into a traditional 403b/401k/457b and pay higher taxes later, defer to a Roth and pay taxes now while they are low. But is that actually the case?
Fiduciary and Plan Governance
Improving Your Retirement Plan Governance
Abstract: A strong governance process benefits the sponsor, the participants, and meets many of the items on the fiduciary checklist. It lowers the risk of potential liabilities that come with a breach of fiduciary responsibility, which could lead to penalties and fines being imposed, as well as expensive and lengthy lawsuits. It reduces the risk potential that a plan is disqualified by the DOL or IRS and lowers potential operating expenses. This article reviews what steps to take to develop an effective plan governance procedure.
Widening the Scope of Training for Retirement Plan Committee Members
Abstract: Periodic training updates for retirement plan committee members acting in a fiduciary capacity is a prudent approach ensuring that they maintain the current knowledge essential to carry out their duties. More fundamental is ensuring that new committee members get a strong grounding in plan operations and their responsibilities promptly on being appointed to a plan committee, if not before.
Plan Sponsor Due Diligence During Recordkeeper Acquisition
Abstract: Whether or not it's by issuing an RFP, sources agree that plan sponsors whose recordkeeper is being acquired or merged with another should do some investigating into the changes that may occur.
»» Click here for more Fiduciary and Plan Governance Material
Insight: Studies, Research, and White Papers
Modifying a Retirement Plan is Tricky
Abstract: Employers beware: changing your retirement plan's design can have unfortunate, unintended consequences for your employees. That's what happened to the Thrift Savings Plan for federal workers, says a new study by a team of researchers for the NBER Retirement and Disability Research Center.
Debt, Homeownership Driving Participants to Withdraw Retirement Funds
Abstract: Approximately 52% of respondents admit to tapping their retirement savings account early for a purpose other than retiring, according to a survey by MagnifyMoney. The two main reasons respondents cited for withdrawing money from their retirement savings are home ownership and personal debt. According to the survey, 23% of those making an early withdrawal did so to help pay down non-medical debt, while 17% needed the money for a down payment on a home.
»» Click here for More Studies, Research, and White Papers
Items of Special Interest to Service Providers
TPAs Making Inroads With Advisors
Abstract: Things have grown significantly more complicated over the years and today TPAs not only keep up with participant accounts, they can be an invaluable resource to advisors on issues like regulatory compliance and plan design. A TPA can be a plan advisor's best friend. But it's important to understand the various types of TPAs and how to best leverage them depending on the plan profile and size.
Bringing CITs Into the Conversation
Abstract: Collective investment trusts continue to gain ground in defined contribution plans' target-date funds. And CITs' growth is also an indication that low-cost investment options are gathering the most assets. If your plan-clients aren't already using CITs, it's worth considering their possible inclusion in their plans' investment lineups. Educating sponsors who aren't familiar with CITs is an essential first step.
Recordkeepers' Plan Sponsor Portals Have Much Room for Improvement
Abstract: According to data from a recent plan sponsor survey of 338 plan sponsors on a number of key items, including their usage of plan sponsor portals, the quality of the plan sponsor portal can have a greater impact on the choice of a recordkeeper than the quality of the participant digital experience. And only 31% responded that they are "very satisfied" with the website, so there is still considerable room for improvement.
RFP Teams Struggle to Meet Turnaround Times as Volumes Skyrocket and Complexity Increases
Abstract: Request for proposal teams are being tasked with handling an increasing number of RFPs, requests for information, and due diligence questionnaires with increasing complexity, which is taxing on teams that are often already pressed for time. In a new report from Cerulli Associates, RFP teams indicate that meeting turnaround time goals is one of the most challenging aspects related to completing an RFP.
403b Universal Availability Requirements Under Scrutiny by IRS
Abstract: The IRS has been active in examining plans that may have employees who are excluded from participation in keeping with historical or industry practices. Common themes would be colleges with adjunct or seasonal professors or coaches; or hospitals with on-call nurses.
403b Retirement Plan Fee Litigation: An Update
Abstract: Retirement plan litigation continues to plague the retirement plan space, including 403b retirement plans. This chart provides detailed information on each case.
»» Click here for More 403b Material
Court and Legal
Ninth Circuit Changes its Position on the Enforceability of Arbitration of Breach of Fiduciary Duty Claims Under ERISA
Abstract: The Ninth Circuit, in Dorman v. The Charles Schwab Corporation, modified its position on the enforceability of arbitration agreements to ERISA claims of breach of fiduciary duty on behalf of the plan under ERISA Section 502(a)(2). The Court found an arbitration provision in the plan document was enforceable against the plaintiff. The Dorman decision may encourage plan sponsors to amend plan documents to include arbitration provisions like the one in Dorman.
Transamerica Fails to Get Self-Dealing Suit Dismissed
Abstract: A federal court judge has denied Transamerica's motion to dismiss a lawsuit accusing it of retaining poorly performing proprietary fund portfolios in its 401k plan. Among other things, a federal judge found Transamerica Asset Management's substitution of its sub-advisers is not a concrete, obvious explanation for the poor performance of the challenged funds.
»» Click here for more Court and Other Legal Issues
Compliance and Regulatory
Qualified Plan Uncashed Check Guidance Issued Related to Tax Obligations
Abstract: The ruling lays out a specific situation where a plan administrator is required to make a distribution under $1,000 to a plan participant in 2019. The plan administrator sends a check to the participant for the amount of the mandatory distribution, less applicable withholding taxes. The participant receives the check but does not cash it or roll over any portion of the distribution. The ruling addresses three concerns relating to the uncashed check, one related to income inclusion for the participant and two addressing the plan administrator's withholding and reporting obligations.
How Can Plan Sponsors Evaluate Prospective Auditors?
Abstract: As the results of the DOL studies on audit quality shift the industry focus to the qualifications of employee benefit plan auditors, CPA firms with specialized retirement plan audit practices choose to demonstrate their commitment to quality employee benefit plan audits by displaying their auditors' badges on marketing materials, social media, and email signature lines. What do the badges mean and how does a plan sponsor differentiate between prospective audit teams that are equally credentialed?
»» Click here for more Compliance and Regulatory Material
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