Newsletter for June 29, 2020
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401k Averages Book 20th Edition Infographic
With the release of the 401k Averages Book 20th Edition we have updated our infographic "Are all $5,000,000 401k Plans Created Equal?" …and the findings might surprise you. The infographic compares the average costs of two $5,000,000 401k plan benchmarks. Click here to receive a copy of the infographic and see what we found out.
In This Issue
Fiduciary and Plan Governance
A Framework for Key Recordkeeping Fee Decisions
Several key recordkeeping fee decisions are important for prudent plan fiduciaries to analyze carefully. More often than in the past, when plan sponsors benchmark their plan fees, they often use the opportunity to evaluate the way fees are allocated to participants and to make changes to the way fees are paid. Three key recordkeeping fee decisions that go directly to the heart of the question of how fees should be allocated across participants are discussed in this article. First is the decision as to the type of recordkeeping fee structure. Second is the decision around using a lowest-cost share class strategy for the investment menu versus a revenue-sharing model. Last is the decision of how to apply revenue sharing when there is an active decision to use that model or when it is unavoidable.
Fiduciary Exception to Attorney-Client Privilege for ERISA Plans
This paper explains the doctrine commonly referred to as the fiduciary exception to the attorney-client privilege. It is important for plan sponsors, fiduciaries, and their legal advisors to understand the rules regarding when the fiduciary exception doctrine can result in communications between a plan fiduciary and an attorney not to be privileged and become susceptible to being produced in litigation. This paper also explains how the fiduciary exception doctrine has been used to try to obtain communications ordinarily protected by the attorney work product doctrine. The principles outlined in this paper can help employee benefits counsel and their clients better understand how best to protect the privacy of their communications and how to anticipate when these communications may be open to examination by plan participants.
Investments in ESG Funds: The DOL Tightens the Fiduciary Standards
The DOL stated that ERISA's duty of loyalty prohibits a plan fiduciary from investing in ESG vehicles if that investment subordinates return or increases the risk for non-pecuniary objectives. The significant growth of plan investments in these vehicles raises concerns that fiduciaries may be violating this duty of loyalty. The DOL is expanding its audit guidelines to focus on ESG investments.
»» Click here for more Fiduciary and Plan Governance Material
Insight: Studies, Research, and White Papers
How Restaurant Menus Can Impact Retirement Savings Rates
One downside to automatic enrollment is that it can cause average deferral rates to go down when the default is set too low. Research has shown people who enroll on their own tend to select higher deferral percentages than when automatically enrolled. By presenting actively enrolled participants with three options to choose from that are higher than the default rate, you can almost guarantee they will enter the plan at a much higher percentage. Interestingly, this is true no matter what percentages are presented. This is because people have all sorts of cognitive biases that impact how they make decisions, often negatively.
Avoiding Pitfalls in Retirement Plan Forfeitures
This 7-page paper will help defined contribution plan sponsors consider the administration of forfeitures within their plans. It also outlines the timing and approved uses of forfeitures and provides additional considerations for forfeiture-related events.
»» Click here for More Studies, Research, and White Papers
Items of Special Interest to Service Providers
401k Plan Issues in the Current Environment
This article is intended to address 401k plan issues and concerns that develop during periods of economic uncertainty and market volatility, such as the current coronavirus pandemic. The author endeavors to keep CPAs informed of the types of practical problems and legal challenges likely to occur in the current environment.
DOL Proposal Could Chill the Use of ESG in Retirement Funds
The DOL published for public comment a proposal to update and clarify its investment duties regulation for employer-sponsored retirement plans, such as 401ks, that are governed by ERISA. It emphasizes that a retirement plan must focus on financial returns for participants. The DOL proposal could chill the use of socially responsible investments in retirement plans, experts say.
Source: Investmentnews.com (registration may be required)
The Push to Allow CITs in 403bs
Fees in 401k plans have been falling for years, in part as a result of lower investment costs in mutual fund alternatives such as collective investment trusts, an option that is legally prohibited for most 403b plans. Some members of Congress are trying to change that, and the initiative could get more attention soon.
Source: Investmentnews.com (registration may be required)
»» Click here for More 403b Material
Court and Legal
Lessons Learned From a Litigation Settlement
The recent $17 million settlement involving Neuberger Berman stands out because, while those case citations remain, the narrative provides a kind of checklist for fiduciaries who might want to make their plans more secure from random litigation. Consider the points this settlement agreement said might arise, and be decided against the plaintiffs' case, and pointers to take from them.
Costco Sued Over 401k Plan Investment, Recordkeeping Fees
A participant in the Costco 401k Retirement Plan has filed a lawsuit against the company alleging violations of ERISA. The complaint calls out the warehouse club's use of "more costly 'actively managed funds' rather than 'index funds' that offered equal or better performance at substantially lower cost."
Estee Lauder Faces 401k Plan Excessive Fee Lawsuit
The lawsuit argues that while the TDFs in the plan are CITs, they are private label CITs with much higher expense ratios than the typical CITs offered by JPMorgan.
»» Click here for more Court and Other Legal Issues
Compliance and Regulatory
IRS Issues Anticipated CARES Act Guidance On Plan Loans and Distributions
On June 19, 2020, the IRS issued Notice 2020-50, which provides clarity to plan administrators and participants on coronavirus-related loans and distributions following the passage of the CARES Act. This article provides a review of the guidance and plan sponsor next steps.
Electronic Document Delivery: What Plan Sponsors Need to Know
After much anticipation, the DOL published their final rule on electronic disclosure. The rule allows for plans to transition to an electronic environment for the delivery of required disclosures and most other plan communications to participants, eliminating a significant waste of time, money, and paper. While the ruling may appear obvious, it will have a significant impact on retirement plan communication.
IRS Eases Spousal Consent Rules During 2020
Nothing in the CARES Act or other emergency legislation modified the permanent IRS consent rules, which require that the consent be given in the physical presence of a notary public or plan representative. However, individuals affected by COVID-19 because of lockdowns, quarantines, and illness, or who are vulnerable and need to limit social contact, have found it impossible to satisfy the physical presence requirement. To help those participants, the IRS has issued a notice easing the usual requirements for spousal consent for all of 2020.
Puerto Rico Extends Due Date for Coronavirus-Related Distributions From Qualified Retirement Plans
The Puerto Rico Department of the Treasury issued Circular Letter of Internal Revenue No. 20-29, which extends the due date from June 30, 2020, to December 31, 2020, for the completion of coronavirus-related distributions from retirement plans qualified in Puerto Rico. The rules on CRDs remain exactly as described in Circular Letter of Internal Revenue No. 20-23, except for two items described here.
DOL Proposes Rule to Crack Down on ESG
The Proposed Rule embodies some of the prior guidance and adds new recordkeeping requirements setting forth how plan fiduciaries can meet their fiduciary obligations when making ESG investments. The Proposed Rule, in conjunction with recent enforcement activity, demonstrates a renewed interest and skepticism by DOL about ERISA plans' ESG investing practices.
»» Click here for more Compliance and Regulatory Material
Aon Launches New Pooled Employer Plan for Retirement Savings
The Retirement Advantage Expands National Footprint With Acquisition of PlanTech
Custodia Addresses 401k Loan Default Crisis With New Retirement Loan Eraser™ Options
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