Newsletter for November 2, 2020
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In This Issue
Fiduciary and Plan Governance
Guide to Retirement Plan Fees
As a plan sponsor, you need to identify the fees incurred by your retirement plan and demonstrate a prudent process for monitoring these fees. Through this three-part article, you'll gain an understanding of the major cost components within your retirement plan, the options you have for paying those costs, and best practice strategies for allocating costs to plan participants.
Fiduciary Liability Insurance Premiums Are Soaring: What Are Plan Sponsors to Do?
Investment News reports that fiduciary liability insurance premiums are up 35% as a result of costly awards and settlements. Plan sponsors are also being required to pay more -- the article gives an example of a $2 million payment -- just to be able to renew policies. This trend can only accelerate as 2020 fiduciary breach lawsuits continue to be filed and older lawsuits continue to be settled at a fast pace. What's a Plan sponsor to do?
COVID-19 and Retirement Plan Fiduciary Obligations
COVID-19 has presented many challenges, including market volatility and business disruptions, which have placed added pressures on plan fiduciaries to comply with their ongoing obligations to prudently administer plans and plan investments. The steps outlined here will help employers and ERISA fiduciaries demonstrate prudence in plan operation and management and to mitigate their legal risk in response to the COVID-19 environment.
DOL Announces Final ESG Rule
The Department of Labor announced a final rule that updates and clarifies the Department's investment duties regulation in 29 CFR 2550.404a-1. The final rule intends to provide clear regulatory guideposts for fiduciaries of private-sector retirement and other employee benefit plans in light of recent trends involving environmental, social, and governance investing.
Plan Sponsors Can Likely Make ESG Funds Part of Default Option
Chastened by overwhelming industry opposition, the Department of Labor gave plan sponsors under its final rule governing environmental, social, and governance funds just enough wiggle room to use ESG funds in 401k plans. One pension attorney believes that plan sponsors can add ESG to menus by carefully documenting their actions.
»» Click here for more Fiduciary and Plan Governance Material
Items of Special Interest to Service Providers
Applicability of SEC's Best Interest Regulation to Retirement Plans
The SEC's Regulation Best Interest applies to recommendations by a broker-dealer to "retail customers." As the term suggests, a retail customer is a "natural person" who uses the recommendation "primarily for personal, family, or household purposes." This means that advice given to legal entities and advice related to investing the assets of a business are not covered by the regulation. But what about recommendations provided to retirement plans? This is a simple question, but the answer is a bit complicated.
The Under-The-Radar 401k Tax Benefit Every Planner Should Be Trumpeting to Clients
There's a significant opportunity for advisors to help their non-business clients, earn some new ones, and position themselves as legitimate experts in their field that can be taken advantage of right now. They only have until the end of the year to do so. The benefit comes from Section 2202 of the CARES Act and specifies that certain employer retirement plans are eligible for expanded distribution options and favorable tax treatment for qualified individuals.
Court and Legal
401k Fee Lawsuits: What Can a Plan Sponsor Do?
Most weeks, a plan sponsor is sued for breach of fiduciary duty in connection with the investment choices offered under its 401k or 403b plans. A few of these cases get dismissed early in the proceedings. A few go to trial, but most cases settle. Unless dismissed, these claims, whether tried or settled, often involve million-dollar recoveries. What can a plan sponsor do to establish the best record possible if the sponsor and its fiduciaries decide that they want to defend themselves?
401k Retirement Plan Fee Litigation
The coronavirus pandemic and resulting mandated closures did not slow the volume of 401k retirement plan fee litigation during 2020. This year alone, there were 35 new 401k lawsuits, with the majority filed after the pandemic began in March. This chart lists the cases that were either newly filed, dismissed, went to trial, or settled, thus far, in 2020.
»» Click here for more Court and Other Legal Issues
Legislative and Washington DC
Massive New Retirement Bill Would Expand, Mandate Auto-Enrollment
Section 101 of Securing a Strong Retirement Act of 2020 is titled, "Expanding automatic enrollment in retirement plans." We all know how important the increasingly popular concept of auto-enrolment has been for increasing 401k plan participation rates, so any effort to further boost its use is welcome news to retirement plan advisors. This article takes a closer look at this particular provision of the newly introduced bipartisan retirement reform bill.
»» Click here for more on Legislative and Washington Actions
Cyber and Plan Security
DOL to Issue Guidance, Ramp up Investigations on Cybersecurity
The Department of Labor is working on a guidance package addressing cybersecurity issues as they relate to plan sponsors and third-party providers, a key official said Oct. 28. He also expects to see more focus in the department's investigations on the adequacy of various cybersecurity programs, especially for large plans in terms of making sure the providers they hire are observing good cybersecurity practices.
»» Click here for more on Cybersecurity Issues
Compliance and Regulatory
401k Plans Have Options to Comply With New Mandate for Part-Time Employees
The SECURE Act was passed to increase participation in 401k plans. One way to reach that goal was a new mandate to track long-term, part-time employees and require that they be allowed to make salary deferrals. Now amid an ongoing pandemic, employers need to manage the implementation of this mandate, but some options may be simpler to use and even more favorable for participation by part-time employees.
DOL Restores Over $3.1 Billion to Employee Benefit Plans, Participants, and Beneficiaries, the Most Ever
The DOL's Employee Benefits Security Administration issued its fiscal year 2020 enforcement fact sheet highlighting the Agency's recovery of over $3.1 billion in direct payments to plans, participants, and beneficiaries in FY 2020. In FY 2020, EBSA conducted 1,122 civil investigations. Moreover, EBSA's Benefits Advisors closed more than 171,000 inquiries, many of which came through EBSA's toll-free number and website.
Few Retirement Plans Need Year-End Amendments
Most retirement plan sponsors won't face year-end amendment deadlines in 2020, but a few may need to adopt amendments to reflect changes in law or plan design. This article summarizes the amendments that may be required by year-end for qualified defined contribution and defined benefit plans, 403b plans, and one amendment for some nonqualified deferred compensation plans.
Your [Es]cheating Heart ... Might Be Useful to Retirement Plans Dealing With Missing Participants
Retirement plan administrators have for years sung the sad lament of what to do with missing participants. Ol' Hank Williams himself could have written a hit song about the problem. Recent guidance from the IRS may have the retirement community singing a slightly different tune, however.
Can You Destroy the Paper Records for an ERISA Plan and Retain the Records in Electronic Form?
If your company has run out of storage space for paper records, including those relating to our employee benefit plans, can you retain these records solely in electronic form and destroy the paper records for your ERISA plans? The answer is yes, ERISA plan records may generally be maintained electronically so long as you comply with certain rules. Those rules are summarized here.
»» Click here for more Compliance and Regulatory Material
Mercer Selects Empower to Outsource 401k, PEP Recordkeeping
401k and Retirement Plan Limits for the Tax Year 2021
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