Newsletter for September 21, 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
Why "Six is the New Three" When It Comes to Automatic Enrollment
Instead of auto-enrolling participants at a 3% salary deferral rate, which traditionally has been the case, why not auto-enroll them at a more meaningful 6%? After all, they can still opt-out, and 6% will provide a far more meaningful benefit at retirement than a 3% default rate ever could. While this could backfire if more participants opt-out of auto-enrolment because of the higher rate automatic deferral rate, according to John Hancock's State of the Participant 2020 report, the opposite is the case.
»» Click here for more on Automatic 401k Plan Features
Evaluation Scorecard for Retirement Income Products
Retirement income strategies are the most recent innovation to hit the participant-directed retirement industry. Just a few years ago, target-date funds were new and untested. Plan sponsors and their consultants needed to develop a framework for evaluating that new strategy. The same creativity must now be applied to these new retirement income strategy products. In this paper, the authors have attempted to outline the criteria that they believe should be evaluated and offered some guidelines on how the evaluation should be conducted.
Insight: Studies, Research, and White Papers
Americans Are Raiding Retirement Savings During Coronavirus Pandemic
As households struggle to make ends meet, more Americans have been forced to halt or raid their retirement savings in this coronavirus-induced recession. Nearly 3 in 10 people have decreased the amount of money they're setting aside for retirement or stopped saving altogether due to the economic fallout of Covid-19, according to a FinanceBuzz survey published in August.
How the Coronavirus Pandemic Is Affecting Retirement Saving
The coronavirus pandemic is exacerbating an already troubling societal retirement saving shortfall as workers look to long-term retirement savings to solve short-term financial problems. While the percentage of participants taking advantage of CARES Act provisions such as distributions and expanded loan options is low, doing so may undo years of retirement savings. Solutions like financial wellness can help shape future financial behaviors when balancing and reconciling short-term needs and long-term financial goals.
The Growing Burden of Retirement
Addressing the twin retirement challenges of more risk and rising costs, along with the decline in overall retirement savings, will require a concerted societal effort. This 24-page report offers a roadmap to the various hurdles that make retirement security difficult to achieve. Stepping back and viewing the entire picture of the different retirement challenges can help to understand just how much the burden has grown.
»» Click here for More Studies, Research, and White Papers
Items of Special Interest to Service Providers
What's Next After Empower's Acquisition of MassMutual's Retirement Unit?
The sale of MassMutual's retirement business feels different than all the other transactions in well over a decade of defined contribution business consolidation. Retirement plan advisers should pay close attention. Here are a few thoughts on how they should react.
Source: Investmentnews.com (registration may be required)
How One 401k Firm Says It Is Bulking Up Amid the Pandemic
An online 401k provider is striving for growth during the recession and part of its strategy is to eliminate all transaction fees. Human Interest, which has raised more than $80 million in funding since its 2015 inception, according to data from Crunchbase, has been adding new clients during the pandemic and has pledged not to lay off any staff, CEO Jeff Schneble has said.
Source: Investmentnews.com (registration may be required)
Court and Legal
More Sutter Health 403b Plan Participants Challenge Plan Investments
A second lawsuit has been filed against fiduciaries of the Sutter Health 403b Savings Plan for breaches of their fiduciary duties under ERISA. As in a lawsuit filed in July, the plaintiffs in the recent case challenge the use of an actively managed TDF suite over an index suite.
Schlichter Targets Another MEP
The law firm of Schlichter Bogard & Denton has a new target, multiple employer plans. They've just filed their second excessive fee suit in that genre. This time the target is the Pentegra Defined Contribution Plan for Financial Institutions, a multiple employer plan, or MEP.
»» Click here for more Court and Other Legal Issues
Legislative and Washington DC
Advisors Mixed on Biden's Plan to Replace 401k Deductions With Flat Tax Credit
The Biden proposal restructures the 401k contribution incentive by replacing the deduction with a tax credit, which is estimated to be 26%. Presumably, the tax credit would be refundable so that even workers with no tax liability would benefit from putting $1,000 into a 401k plan. As under current law with non-Roth plans, earnings would continue to accrue tax-free, and withdrawals at retirement would continue to be taxed as regular income. The proposal, which Biden has yet to flesh out, may have more negatives than positives, according to one advisor.
»» Click here for more on Legislative and Washington Actions
Cyber and Plan Security
Are Cybercriminals Stalking Your 401k Plan?
The answer is yes. The assets of 401k and other retirement plans represent a significant financial asset and present an inviting target for cybercriminals. Employers who sponsor these plans are almost always plan fiduciaries and likely targets of suits over unauthorized plan withdrawals. Plan sponsors should consider their cybersecurity protective measures and make sure that plan service providers have taken appropriate steps to secure the confidentiality of participants' personal information.
»» Click here for more on Cybersecurity Issues
Compliance and Regulatory
Lifetime Income Disclosures for DC Plans: Interim Final Rule
The clock is ticking for DC plans to begin to provide a "lifetime income disclosure" on at least one benefit statement a year. Beginning in 2021, plan administrators must show each participant an estimate of the single life annuity and joint and 100% survivor annuity that the participant's current account balance could purchase. Importantly, account-based plans are still not required to offer an annuity form of distribution option or investment.
New Defined Contribution Plan Disclosures
Retirement plan participants may soon better understand how account balances translate to retirement readiness. The SECURE Act requires DC plans to show participants the value of their account balances if converted into a monthly lifetime stream of income. The disclosures are aimed at reminding participants that retirement plan balances are meant to last for life and busting the "wealth illusion" that single sum account balances present. The details on the disclosures are starting to take form following an interim final rule recently released by the DOL.
Relief for Distributing Summary Plan Descriptions
2020 is the year that ERISA 403b plan must issue summary plan descriptions to plan participants. Experts from Groom Law Group and Cammack Retirement Group answer questions concerning SPD distribution due to the COVID-19 pandemic.
IRS Provides Additional SECURE Act Guidance
The SECURE Act's primary goals include expanding retirement savings, simplifying existing rules, and preserving retirement income. As with any major legislation, the SECURE Act created numerous outstanding questions. While the IRS has previously provided some answers, no SECURE Act guidance has been as detailed as the recently released IRS Notice 2020-68.
»» Click here for more Compliance and Regulatory Material
J.P. Morgan Launches New Core Menu Evaluator
Announcing the Nominees for the NAPA 2020 Top Women Advisors
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