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October 2020 DigestThis digest contains a wide variety of source material dealing with current trends, opinion, news, legislative action, investments, marketing, sales, consulting, and legal issues regarding 401k plans. Each listing contains a headline (hyperlinked to the source document), description, source of the item, and the month and year posted to this digest. Use the SEARCH feature to located specific items from this digest and from our ARCHIVE.
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. Source: Thomsonreuters.com, October 2020*
Early Distributions From Retirement Plans Related to COVID-19If 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. Source: Thetaxadviser.com, October 2020
Plan Sponsors Can Likely Make ESG Funds Part of Default OptionChastened 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. Source: Riabiz.com, October 2020
DOL Curbs Sustainable Investing in 401ksThe DOL issued a rule that could curb investing in 401ks based on environmental and social issues, a measure that was opposed by money managers who are rapidly building out environmental, social, and governance funds to meet rising demand. First proposed in June, the final rule published on Friday requires that funds in retirement plans only consider risk-and-return for stocks and bonds and not other environmental or social issues. Source: Marketscreener.com, October 2020
Your [Es]cheating Heart ... Might Be Useful to Retirement Plans Dealing With Missing ParticipantsRetirement 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. Source: Jdsupra.com, October 2020
DOL Announces Final ESG RuleThe 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. Source: Dol.gov, October 2020
Tips for Improving Next Year's Form 5500 ProcessFor many ERISA retirement plan sponsors, the first two weeks in October are rough. Why? Because October 15th is the 5500-filing deadline for the majority of calendar year plans. Each year, many plan sponsors scramble to file their 5500s at the absolute last moment. Here are some tips on how to make next years Form 5500 filing more pleasant. Source: Cammackretirement.com, October 2020
Massive New Retirement Bill Would Expand, Mandate Auto-EnrollmentSection 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. Source: 401kspecialistmag.com, October 2020
COVID-19 and Retirement Plan Fiduciary ObligationsCOVID-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. Source: Vanblacklaw.com, October 2020
IRS Updates Guidance on Qualified Plan Distributions to State Unclaimed Property FundsThe IRS recently published new guidance on the tax withholding and reporting consequences associated with qualified retirement plan distributions to state unclaimed property funds. In Revenue Ruling 2020-24, the IRS clarified that distributions from qualified retirement plans to state unclaimed property funds are subject to both federal income tax withholding and 1099-R reporting requirements. Source: Twrblog.com, October 2020
Wells Fargo Drops Plan to End Some 401k MatchingWells Fargo told high-earning employees it would stop matching contributions to their 401k plans. By Friday, the bank reversed course. The about-face followed a swift backlash from affected employees, who earn more than $250,000 a year, according to people with knowledge of the situation. Source: Thinkadvisor.com, October 2020
More DC Plans Are Using OCIOsPGIM found that more defined contribution plan sponsors are hiring outsourced chief investment officers. Plan sponsors say they are looking to create an institutional-quality investment lineup because they lack the internal expertise to do so and to reduce their fiduciary risk. Source: Planadviser.com, October 2020
DOL to Issue Guidance, Ramp up Investigations on CybersecurityThe 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. Source: Napa-net.org, October 2020
CARES Act 401k Compliance Clean UpThe CARES Act provides several optional coronavirus-related relief provisions that employers may choose to incorporate into their 401k and other retirement plans. Those provisions include penalty-free benefit distributions of up to $100,000, a doubled maximum participant loan amount, and a one-year suspension of loan repayments for coronavirus-affected participants. Other relief provisions apply to participants who are not CAPs, such as the right to skip required minimum distributions for 2020. This article provides details on these relief provisions. Source: Gct.law, October 2020
Guide to Retirement Plan FeesAs 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. Source: Francisinvco.com, October 2020
401k Retirement Plan Fee LitigationThe 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. Source: Cammackretirement.com, October 2020
EBSA Enforcement Statistics from Fiscal Year 2020The Employee Benefits Security Administration enforces ERISA laws and regulations, including conducting civil and criminal investigations. EBSA investigations often result in recovering money from enforcement actions, voluntary fiduciary correction programs, abandoned plan programs, and informal complaint resolution. Enforcement statistics from the fiscal year 2020 provide some insights on future enforcement efforts by EBSA. Source: Bsllp.com, October 2020
Few Powering Up With Electronic DisclosureWhen the DOL finalized a rule in May that permitted default electronic delivery of retirement plan disclosures, recordkeepers, and plan sponsors welcomed the move by saying it will increase participant engagement and cut mailing costs. While those points still hold, since the rule went into effect July 27 there hasn't been much movement to implement default electronic disclosure programs. Source: Pionline.com, October 2020
Supreme Court Review of Excessive Fee Litigation?On June 19, 2020, plaintiffs in Hughes v. Northwestern University -- an "excessive fee" case -- filed a Writ of Certiorari, asking the Court to review a Seventh Circuit decision affirming a district court's grant of defendants' motion to dismiss. On October 5, 2020, the Supreme Court invited the Acting Solicitor General to file a brief "expressing the views of the United States" in this case. This article briefly reviews what may be at stake for 401k plan sponsors in a possible Supreme Court review. Source: Octoberthree.com, October 2020
Few Retirement Plans Need Year-End AmendmentsMost 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. Source: Mercer.com, October 2020
SECURE Act 2.0 Introduced in HouseHouse Ways and Means Committee Chairman Richard E. Neal and Ranking Member Kevin Brady introduced the Securing a Strong Retirement Act of 2020, bipartisan legislation to help a greater number of Americans successfully save for a secure retirement. The bill builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Source: House.gov, October 2020
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? Source: Foley.com, October 2020
The Under-The-Radar 401k Tax Benefit Every Planner Should Be Trumpeting to ClientsThere'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. Source: Financial-Planning.com, October 2020
401k Plans Have Options to Comply With New Mandate for Part-Time EmployeesThe 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. Source: Dwt.com, October 2020
DOL Restores Over $3.1 Billion to Employee Benefit Plans, Participants, and Beneficiaries, the Most EverThe 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. Source: Dol.gov, October 2020
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? Source: Cohenbuckmann.com, October 2020
Applicability of SEC's Best Interest Regulation to Retirement PlansThe 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. Source: Brokerdealerlawblog.com, October 2020
401k and Retirement Plan Limits for the Tax Year 2021On October 26, 2020, the Internal Revenue Service announced that employees in 401k plans will be able to contribute up to $19,500 next year. The IRS announced this and other changes in Notice 2020-79. This guidance provides cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2021. Source: 401khelpcenter.com, October 2020*
Who Is Involved in a Qualified Plan?A qualified plan involves several different roles and responsibilities. Here is a brief description of the different types of people who may be involved with a plan. Source: Watkinsross.com, October 2020
Recordkeeping Consolidation Expected to ContinueAs the defined contribution industry's recordkeeping consolidation continues with big-name deals, DC industry experts say there's more to come due to narrow profit margins, increased technology requirements, and greater sponsor demands. Last month, for example, Empower Retirement bought the recordkeeping businesses of Massachusetts Mutual Life Insurance and Fifth Third Bank, further cementing its role as the second-largest U.S. recordkeeper by assets. Source: Pionline.com, October 2020
Time to Catch Up on Those 401k Plan Committee Meeting MinutesYou got past another October 15 filing date for the Form 5500 for your 401k plan. Now you can focus on your 2020 plan year and start making sure you have your 401k plan house set for the end of this year. Keeping detailed minutes from the meetings of your 401k plan oversight committee is an important part of this process. Here are a few simple tips for keeping detailed and effective 401k committee meeting minutes. Source: Linkedin.com, October 2020
The 401k Problems With Former EmployeesOne of the lurking dangers in your 401k plan is former employees who still have account balances in your plan. You should minimize your liability exposure by trying to get these former participants to roll out their account balance or cash them out if they are under the cash-out provision. Source: Jdsupra.com, October 2020
Fiduciary Insurance Costs Soar Amid New 401k LitigationThe extreme pace of new 401k lawsuits this year is showing the legally precarious spot most plan fiduciaries occupy, and that position is only becoming more difficult. It is rare for a plan to have a near-perfect design and watertight documentation showing the prudent process that went into it. And aside from that, the biggest source of protection from those lawsuits, fiduciary liability insurance, is getting harder to come by. Source: Investmentnews.com (registration may be required), October 2020
401k Recordkeepers Are Near Final Stage of 'Consolidation Curve'Like many other fragmented industries, the 401k business is consolidating rapidly. That consolidation process, which happens in four stages, is driven by recordkeepers and retirement plan adviser aggregators. There are lessons from numerous other industries that have gone through the full consolidation process. Source: Investmentnews.com (registration may be required), October 2020
Wells Fargo Cuts 401k Match for High EarnersWells Fargo & Co., which is reducing costs, told its employees Wednesday that it is revamping its benefits program. The changes, which are intended to benefit lower-paid workers, or the majority at the bank, include eliminating the matching contribution to 401k plans of up to 6% of salary for employees who make more than $250,000 annually. Source: Investmentnews.com (registration may be required), October 2020
Hopes of Greater Diversity as DOL Allows Private Equity in 401k PlansEmployer-sponsored 401k plans feature mainly low-cost and highly liquid investment products. However, guidance issued this year by the DOL allows providers of higher-cost and less-liquid private equity investments to offer the products to 401k plan sponsors. In June, the DOL clarified that private equity investments are allowed in 401k plans if they are within professionally managed asset allocation funds and are evaluated for risks and benefits by the responsible plan fiduciary. Source: Ft.com, October 2020
401k Plan Sponsors -- Time to Focus on Compliance With the SECURE Act's Eligibility and Vesting RulesThe SECURE Act has new eligibility and vesting rules for long-term, part-time employees. This article summarizes these new requirements and offers some considerations for 401k plan sponsors to weigh as they turn their attention to compliance with these requirements, which are effective for plan years beginning after December 31, 2020. Source: Verrill-law.com, October 2020
How the Coronavirus Is Affecting Retirement SavingThe coronavirus pandemic has caused upheavals in the markets, the workplace, and the home. What will be the effects on retirement savings? 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. Source: Troweprice.com, October 2020
Advisers Can Spearhead Retirement Plan Committee Setup and TrainingWhen it comes to fiduciary training for retirement plan committees, experts generally say a plan adviser can take the lead and use the occasional help of an ERISA attorney. Plan sponsors can trust advisers to help with committee decisions and training. Source: Plansponsor.com, October 2020
Consider Who Is Paying When Benchmarking Retirement Plan FeesAre plan sponsors' responsibilities for making sure retirement plan fees are reasonable different when the plan sponsor pays versus when plan participants pay? There is less risk when a plan sponsor pays retirement plan fees, but that doesn't necessarily mean the benchmarking should be different than if participants pay. Source: Plansponsor.com, October 2020
Advisers Can Help Retirement Plan Sponsors Regroup for 2021Heading into 2021, employers are looking to financial advisers for help with education and communication for their retirement plans. While COVID-19 has been the dominant force affecting nearly every aspect of life this year -- including retirement plans -- expert sources say retirement plan legislation, litigation, education, and a push for diversity in and outside of plans were the other big takeaways of this year for the industry, as well as what will shape financial wellness going into the new year. Source: Planadviser.com, October 2020
Qualified Birth or Adoption Distributions Q&AsThe SECURE Act includes a provision permitting qualified childbirth and adoption expenses to be distributable events. And for its part, the IRS has issued guidance to provide some clarity on the new distributable event and how it works. This is a Q&As relevant to qualified childbirth and adoption expenses as distributable events. Source: Ntsa-net.org, October 2020
A New Education Priority for 403b Plans?There's been a shift in emphasis on retirement plans in the non-profit sector. For the first time, organizations that provide 403b plans reported that retirement planning, rather than increasing participation, was their top focus for employee education, according to the 12th annual 403b Plan Survey from the Plan Sponsor Council of America. Source: Napa-net.org, October 2020
Labor Department Moves at "Warp Speed" on ESG RuleDespite widespread objections from the money management industry, President Donald Trump, through the Department of Labor led by Eugene Scalia, is speeding ahead with a proposal to make it more difficult for fiduciaries of retirement plans to direct money to ESG-focused funds. Source: Investmentnews.com (registration may be required), October 2020
More Participation Equals More Savings, Fidelity Study of Retirement Plans FindsEmployees who participate in both the 401k plan offered by their company and their company's employee stock purchase plan tend to contribute an average of 32% more to their 401k than employees who only participate in the 401k, according to recent research from Fidelity Investments. Source: Investmentnews.com (registration may be required), October 2020
ERISA/Cybersecurity Considerations in the COVID AgePlan fiduciaries are now faced with the detailed compliance requirements of ERISA and cybersecurity laws including data breach matters. So, what can fiduciaries do to minimize their cybersecurity liability? Source: Foley.com, October 2020
Stock Purchase Plans and 401ks: Not an Either/Or PropositionHistorically, retirement plan industry experts have been concerned that employees who have access to a 401k and an employee stock purchase plan are faced with an "either/or" decision. However, the freshly published Fidelity data demonstrates that when employees have access to both plans, in an integrated environment, combined participation is associated with better retirement savings behaviors and greater overall financial wellness. Source: Plansponsor.com, October 2020
Consider Goals When Helping DC Plan Sponsors Select Annuity OptionsEach type of annuity available to defined contribution plans has different features to match the goals of plan sponsors and participants. Understanding the types of annuities available to retirement plans and how they work is important for advisers to educate DC retirement plan sponsors and help clients select the right option for their plans. Source: Planadviser.com, October 2020
Bill Would Let 403bs Use PEPsNonprofits and colleges would able to join the SECURE Act's much-anticipated pooled employer plans under a bill introduced last week by Rep. Ron Kind. If the bill passes, it will be very big news for any business that is lining up to become a pooled plan provider. There is expected to be a flood of applications for that status, once the DOL finalizes its criteria for those plan providers. Source: Investmentnews.com (registration may be required), October 2020
Plan Participant Personal Information: Retirement Plan Asset?A lawsuit filed in U.S. District Court for the Southern District of Texas, against Shell Oil Company by several participants in the company’s 401k plan, claimed that Shell allowed its plan recordkeeper to use the participants’ personal information to cross-sell other financial products and services outside the plan in breach of its fiduciary duties under ERISA. At the heart of the plaintiff’s case is their contention that 401k plan participant data is a plan asset and the use of that data for nonplan purposes constitutes a breach of fiduciary duty under ERISA. Is participant data a plan asset? Source: Hallbenefitslaw.com, October 2020
Should I Take a 401k Loan During the Coronavirus Pandemic?If you have a 401k, you may have considered tapping into it to get some relief from the current economic uncertainty. The CARES Act of March 2020 doubled the amount of money an employee could borrow from a 401k plan. Depending on your retirement funds' balance, a 401k loan could give you access to a large amount of money. But is it a good idea? Here's what you need to know. Source: Foxbusiness.com, October 2020
No Signature, No Shoes, No ServiceSigning an ERISA plan document or amendment is not a mere formality. Rather, the tax-qualified status of the plan is contingent on properly executed plan documentation and could be revoked were the unsigned document revealed in an IRS audit. This was made clear in a recent IRS Chief Counsel Memorandum that contradicts the holding in an earlier Tax Court Memorandum. Both are summarized here followed by some practical compliance steps. Source: Eforerisa.wordpress.com, October 2020
IRS Issues Guidance on Payments to State Unclaimed Property FundsThe IRS on Oct. 16 modified guidance and clarified rules to address payments made to state unclaimed property funds. The IRS announced the changes in Revenue Procedure 2020-46 and Revenue Ruling 2020-24. Source: Asppa.org, October 2020
IRS Publishes Guidance on Withholding and Reporting of Escheated Retirement Plan AccountsThe IRS has issued Revenue Ruling 2020-24, guidance for qualified retirement plans that pay or "escheat" certain accounts of unresponsive or missing participants or beneficiaries to state unclaimed property funds. The guidance addresses the issues of tax withholding and reporting when such amounts are escheated. Source: Ascensus.com, October 2020
2020 PLANADVISER Retirement Plan Adviser SurveyRetirement plan advisers, perhaps more than any other experts in our industry, have a good sense of the relative strength of the products and services offered by investment and recordkeeping providers. This 2020 Retirement Plan Adviser Survey amasses data from the adviser community to discover how these individuals select providers and funds, plus, as in other years, to pick up on any developing trends. Source: Planadviser.com (registration may be required), October 2020*
DOL Submits Final ESG Rule to OMBRelease of the DOL's final rule addressing environmental, social, and governance factors in selecting plan investments appears to be imminent. Following a 30-day comment window that ended July 30 and more than 8,000 comment letters, the DOL on Oct. 14 submitted a final rule to the Office of Management and Budget for review. Source: Ntsa-net.org, October 2020
IRS Issues 401k Guidance on SECURE Act RegsFinally, the IRS has issued guidance for employers on implementing the SECURE Act. The SECURE Act made significant changes to employer-sponsored retirement plans, including allowing coverage for part-time employees, as well as penalty-free withdrawals for the birth or adoption of a child. The IRS issued Notice 2020-68, which includes the following SECURE Act guidelines for employers. Source: Hrmorning.com, October 2020
DOL Revives Five-Part Fiduciary Test; Offers New Guidance on Rollover AdviceThe DOL amended the Code of Federal Regulations to execute the Fifth Circuit's order, which effectively reinstated the Department's "five-part test" as outlined in its 1975 regulation defining investment advice fiduciaries under the Code and ERISA. Also, the Notice affirms that advice about rolling a distribution to an IRA or another plan can be considered fiduciary investment advice if the five-part test is met and the rollover is part of an ongoing investment relationship, even if the rollover is the first action of that relationship. Source: Hallbenefitslaw.com, October 2020
Cybertheft Lawsuit: Claims Dismissed Against Plan Sponsor but Move Forward Against RecordkeeperFor the court, the determinative issue at this stage of the litigation was the fiduciary status of each of the defendants. As described here, the court concluded that Alight was the only defendant sufficiently alleged to be a fiduciary, and thus dismissed all claims against the Abbott Labs defendants but allowed the claims against Alight to move forward. The case highlights the evolving nature of ERISA cyber-security litigation and represents the second case where plaintiffs survived a motion to dismiss alleging that plan service providers were fiduciaries when allegedly failing to prevent cyber fraud from draining participant accounts. Source: Groom.com, October 2020
What You Can (and Should) Do About Your 401k FeesIf you've been paying the least bit of attention, you know there's a concern that some 401k plans have excessive fees. Recent headlines attest to this, as plans are regularly involved in "excessive" fee lawsuits. Is your 401k plan burdened by high fees? Do you even know how to judge when a fee is too high or when it's commensurate with the value of the service provided? It all starts with doing some research. Source: Forbes.com, October 2020
White Paper: A Retirement Dashboard for the United StatesBecause most workers change jobs (and hence retirement plans) multiple times during their career, developing a comprehensive picture of one's retirement preparations can be challenging. Other countries have developed national, online retirement "dashboards." These are websites that not only include a registry or tracking system but also offer expanded functions such as recovering and consolidating lost accounts, projecting estimated future income, expanding financial literacy, and providing unbiased financial advice to users. This paper discusses the possibilities for a retirement dashboard for the United States. Source: Brookings.edu, October 2020
How to Diversify Retirement Plan CommitteesThis year, in particular, with the protests that sprung up across the country following the death of George Floyd, has shown many companies the importance of having a truly diverse workforce. And that principle should extend to the retirement plan committee as well as the workforce, experts say. With representation being top of mind in 2020, companies are reconsidering the makeup of their workforces and their retirement plan committees. Source: Planadviser.com, October 2020
Qualified Plan Loan OffsetsThe Tax Cuts and Jobs Act, enacted in December 2017, made significant changes to the plan loan offset rollover eligibility and tax reporting. The changes add a significant amount of complexity to tax reporting for these loans, and as a result, the industry has been slow to implement the changes. In August 2020, the IRS published proposed regulations that provide more detail on the requirements of the new provisions. Under the new regulations, there are now three different terms for a loan that is distributed, and each has rollover rules specific to it. Source: Ntsa-net.org, October 2020
Schlichter Strikes a $40 Million SettlementNoting that the settlement agreement is "fair, reasonable, and adequate, and within the range of possible approval," the parties in an excessive fee suit have come to terms. The settlement comes in a case involving Reliance Trust and its role regarding the Insperity 401k plan, in which the plaintiffs -- represented by the law firm of Schlichter Bogard & Denton -- are enrolled. Source: Napa-net.org, October 2020
The To-Do List for 401k Plans: 2020-2021 EditionBeing a retirement plan sponsor is a tremendous responsibility and the problem is that most plan sponsors don't understand that. Plan sponsors often act passively because they hire retirement plan providers to help them. The problem is that fiduciary responsibility doesn't allow plan sponsors the luxury to be passive when the buck stops with them. So that means you need to be active and understand what's going in the retirement plan industry that can impact your plan. With changes in how retirement plans are run and constant concerns with rampant 401k litigation, here is a to-do list. Source: Jdsupra.com, October 2020
Nestle Sued Over Its 401kA new 401k lawsuit filed against Nestle USA targets the administrative and managed accounts fees the plan's participants have paid since 2014. Unlike most other excessive fee claims filed amid this year's enormous surge in 401k litigation, investment management costs are not at issue in the case. Rather, the plaintiffs in the class-action lawsuit cite recordkeeping and administrative costs that were allegedly more than twice as expensive as what the nearly $4.3 billion plan could have negotiated. Source: Investmentnews.com (registration may be required), October 2020
Should Retirement Plan Sponsors Be Limiting Plan Loans?401k plan loan regulations provide plan sponsors with a great deal of flexibility in this area, including the ability to be overly permissive, quite restrictive, or somewhere in between for their loan policy. What limits do you think are appropriate for the number of outstanding retirement loans? Or should such loans be unlimited? Source: Cammackretirement.com, October 2020
Most Boomer Investors Are Confident About Their Retirement Despite Pandemic and Market UncertaintiesAmidst a global pandemic, economic uncertainties, and an election looming, Boomers invested for retirement are confident that they will still enjoy their golden years. According to the Charles Schwab 2020 Modern Retirement Survey, more than 80 percent of both those who have retired and those who are soon-to-retire are satisfied or confident their lifestyle will be everything that they envision. Source: Businesswire.com, October 2020
Fiduciary Fuels 401k Rise in Outsourced Chief Investment OfficersWhile outsourced chief investment officers have historically been tapped by defined benefit plan sponsors and endowments, there is a growing trend of DC plan sponsors turning to OCIO managers. New research from PGIM research found the top reasons that plan sponsors are using an OCIO manager. Source: 401kspecialistmag.com, October 2020
The Evolving DC Landscape: The Expanding Role of OCIOsNew research from PGIM sheds light on the use of outsourced chief investment officers by defined contribution plan sponsors. In a divergence of opinion, OCIOs seem to underweight their expertise in implementing institutional-quality structures, indicating that the top reasons for being hired by their clients were the perceived mitigation of fiduciary risk and the plan sponsors' lack of resources. Source: Pgim.com, October 2020
New Fiduciary Rule Provides More Protection for Rollover AdviceThe DOL's recently released fiduciary rule imposes higher standards on fiduciaries giving rollover advice. However, fewer advisors would be subject to a fiduciary standard than under the Obama administration's Fiduciary Rule. The new rule is similar to the SEC's Reg BI which recently became effective for retail accounts. Here's what would and would not change under the new standards for rollover advice. Source: Penchecks.com, October 2020
New Rules Simplify Electronic Delivery to Plan ParticipantsThe DOL has released a new, simplified method for electronically delivering ERISA-mandated notices and disclosures. The new method removes the initial consent requirement and the requirement to obtain new consent following hardware or software changes. The DOL now allows plan sponsors to set e-delivery (rather than print) as the plan's default delivery method. The DOL estimates these new procedures could reduce printing, mailing, and related plan costs by an estimated $3.2 billion over the next decade. Source: Newportgroup.com, October 2020
What's "Eating" 401k Haters?The author asks, "What exactly is (still) 'eating' 401k haters? Why, instead of looking for ways to undermine a system that works, or pushing for incentives to extend those benefits to everyone -- do they seem bound and determined to put those retirement savings on a 'crash' diet?" Source: Napa-net.org, October 2020
Target-Date Funds: Strategic and Active ManagementBecause they're targeting results over the long term, target-date funds are inherently strategic, but active asset allocation management may be a useful tool to add incremental sources of return over time. The article looks at the differences between strategic and active asset allocation and the roles these investment styles play in target-date funds. Source: Jhinvestments.com, October 2020
IRS Offers Guidance on RMDs considering CARES Act and SECURE ActThe IRS issued Notice 2020-51, which gives guidance on the waiver of required minimum distributions for 2020 from certain retirement plans under the CARES Act and the required beginning date for RMDs under the SECURE Act. The Notice also provides two sample amendments that employers may use to give plan participants and beneficiaries whose RMDs are waived a choice of whether to receive the waived distribution. Source: Hallbenefitslaw.com, October 2020
New IRS Guidance About New Long-Term Part-Time Employee Eligibility Rules for 401k PlansThis article focuses on perhaps the biggest responsibility for employers that will begin with their 2021 plan years, keeping track of long-term part-time employees and allowing them to make deferral elections under their 401k plans. Source: Employeebenefitslawreport.com, October 2020
The Dark Side of 401k FiduciaryThere's a common characteristic that links exemplary fiduciaries; it's their non-negotiable approach to moral discernment. They demonstrate a greater neurological capacity for binding procedural justice (moral discernment) with procedural prudence (prudent decision-making). Unfortunately, the exemplary fiduciary is becoming a rarity. There are three reasons why. Source: 401kspecialistmag.com, October 2020
Court Says TPA May Be Held Liable for ERISA Fiduciary Breach and Consumer FraudThe opinion is unique because it raises important questions -- not just about the scope of a TPA's ERISA fiduciary liability for distributing plan benefits that end up in a cyber criminal's pocket -- but whether ERISA plan TPA's can be sued for both ERISA fiduciary breach claims and state law consumer fraud claims resulting from the same alleged misconduct: the failure to enact cybersecurity procedures that prevent the theft of plan assets. The result of the Abbott decision has serious implications. Source: Wagnerlawgroup.com, October 2020*
State-Sponsored Retirement Plans for Private-Sector WorkersConcerned with the retirement security of their workers, some state legislatures have enacted laws that create state-sponsored retirement savings plans for private-sector workers. Many other states are considering similar action. Which states have enacted or proposed legislation that would enable them to offer retirement savings programs to private-sector workers? Source: Retirementlc.com, October 2020
Lessons From a Rare ERISA Excessive Fee Suit DismissalThe complexity of retirement plan lawsuits often makes district court judges reluctant to approve early dismissal motions plaintiffs, but Salesforce has succeeded in defeating a complaint alleging it committed various fiduciary breaches. Source: Plansponsor.com, October 2020
Stock Drop Litigation Cases and COVID-19: Retirement Plans Beware!During times of stock market volatility, there is typically an increase in the number of ERISA claims filed seeking recovery of investment losses. The COVID-19 pandemic certainly qualifies as a market volatility event, giving plaintiffs an opportunity to bring breach of fiduciary claims based on company stock losses in qualified retirement plans. Source: Hallbenefitslaw.com, October 2020
Recent Cybersecurity Breach Case Proves Risks Are Rife for Both Retirement Plan Sponsors and Service ProvidersERISA became law before the computer age, so there are no provisions in the Act dealing with cybersecurity. Also, there is no formal guidance from the IRS or Department of Labor on cybersecurity responsibilities either, leaving it to the courts to determine responsibilities under ERISA when a cybersecurity breach occurs that results in theft from a participant’s account. This was the case in Leventhal v. MandMarblestone Group LLC, where a plan participant sued his third-party plan administrator and plan custodian after his 401k account was drained by cybercriminals. Source: Hallbenefitslaw.com, October 2020
2020 Plan Investment TrendsPSCA and NAPA surveyed plan sponsors and retirement plan advisors (separately) between January 21 and February 21, 2020, regarding current plan menu designs and investment trends. This is a 44-page report. Source: Psca.org, October 2020
Regular Contributions Help Participants Reach Higher 401k Account BalancesConsistent retirement plan participants, or those who had retirement plan accounts at the end of each year from 2010 to 2018, are generating steady savings in their account balances, according to a study from the Employee Benefit Research Institute. Source: Plansponsor.com, October 2020
Fall Back Into Your Role as a 401k Plan SponsorSummer seems to be a time of enjoyment where we slack off a little. With the coming of Fall, it's a perfect time for 401k plan sponsors to snap back into shape in their role as plan fiduciaries. Here are some reasons why. Source: Jdsupra.com, October 2020
Abbott Defendants are Dismissed From Plan Cybertheft Lawsuit-At Least for NowThe plaintiff named Abbott Labs as a defendant, but the court dismissed these claims on the ground that the plaintiff did not show that Abbott Labs acted as a fiduciary or was identified as a fiduciary in the plan document. No acts were specified that linked Abbott to the alleged theft, and a complaint must allege that Abbott acted in a fiduciary capacity when it took actions that were the basis for the lawsuit. Source: Cohenbuckmann.com, October 2020
Tips to Help Protect 401k Participants From Fraud in Turbulent TimesWe know fraudsters are looking to exploit elements of the CARES Act that provide retirement plan sponsors the ability to allow in-service distributions, loans, and withdrawals free of fees. The combination of the work-from-home model most workers are experiencing, coupled with the anxiety and emotional distress retirement plan participants could be feeling given market volatility and job losses related to the pandemic provides a ripe target. Here are several tips plan sponsors can share with participants to promote fraud prevention. Source: 401kspecialistmag.com, October 2020
Pooled Employer Plans and 3(38) Fiduciary AdvisersOne provider getting ready to launch a SECURE Act-enabled pooled employer plan on January 1 says he is already in conversation with advisers about combining 3(38) fiduciary oversight with PEP recordkeeping and administration. Source: Planadviser.com, October 2020
Abbott Escapes Retirement Plan Cybersecurity SuitAbbott Laboratories defendants have been dismissed from a lawsuit alleging failures related to an employee's retirement account theft. District Judge Thomas M. Durkin of the U.S. District Court for the Northern District of Illinois, however, denied recordkeeper Alight Solutions' motion to dismiss. Source: Planadviser.com, October 2020
Puerto Rico Qualified Retirement Plans: 2020 Year-End Amendments Deadline Coming SoonUnlike the Internal Revenue Service, which each year issues a list of required amendments to U.S. qualified plans and their respective adoption due dates, the Puerto Rico Department of the Treasury seldom requires mandatory amendments to Puerto Rico qualified plans. The year 2020, however, has been an exception to the general rule. Specifically, if during 2020, a Puerto Rico qualified plan allowed participants to receive in-service hardship withdrawals on account of either the COVID-19 pandemic or the earthquakes that affected the island at the beginning of the year, the official plan document must be amended by December 31, 2020. Source: Ogletree.com, October 2020
SCOTUS Seeks Fed Input on Excessive Fee SuitThe nation's highest court has sought the federal government's input on a case that the law firm of Schlichter Bogard & Denton says is having a "chilling effect" on excessive fee litigation. Specifically, the U.S. Supreme Court has "invited" the Acting Solicitor General to "file a brief in this case expressing the views of the United States" in a suit brought against Northwestern University and the fiduciaries of its 403b plan. Source: Napa-net.org, October 2020
Required Minimum DistributionsAs we approach the end of the calendar year, it is important to be reminded about one frequently overlooked retirement plan requirement. Upon attainment of age 72, certain participants of a tax-qualified retirement plan may be required by federal tax law to withdraw a minimum amount from such a plan each year. These mandatory distributions are known as "required minimum distributions." Source: Legacyrsllc.com, October 2020
TriNet Sued Over MEPsHuman resources outsourcing firm TriNet is among the latest companies to be targeted over the multiple-employer plans it sponsors, having been sued last week by several participants. The Sept. 29 class-action complaint was brought by law firm Capozzi Adler, which this year has filed by far the most new 401k excessive-fee lawsuits. The case against TriNet is different, however, because it involves MEPs rather than a single-employer 401k plan. Source: Investmentnews.com (registration may be required), October 2020
Are MEPs the Next Big Target for Lawsuits?At least three cases were filed recently against providers of multiple employer plans, and two other cases have been settled. This year also has seen a wild rise in the number of 401k lawsuits, though relatively few of them have involved MEPs. Source: Investmentnews.com (registration may be required), October 2020
IRS Issues Q&A Guidance for the SECURE Act and Miners ActThe Internal Revenue Service recently issued Notice 2020-68 to provide additional guidance on the SECURE Act and the Miners Act for sponsors and administrators of retirement plans. The issues addressed are reviewed here. Source: Icemiller.com, October 2020
Biden Proposes 401k Change to Equalize BenefitsBiden's proposal is designed to equalize benefits across the income levels through a tax credit. Although the details are still somewhat hazy, Biden's camp says that low- and middle-income workers would get a comparable tax break to high-bracket earners. Source: Cpapracticeadvisor.com, October 2020
What are the Available Safe Harbor Plan Formulas?401k plans are subject to nondiscrimination tests to ensure that a disproportionate share of the elective participant deferral is not those of the HCEs. The discrimination tests can be avoided if the employer sponsors a safe harbor plan. Safe harbor plans allow employers to disregard the nondiscrimination test if they make a generous, pre-approved employer contribution amount to all eligible employees. The minimum safe harbor employer contribution formulas available are reviewed here. Source: Belfint.com, October 2020
Correction Options for Retirement Plan ErrorsIn a highly regulated industry with complicated rules that always have exceptions (except when the exception does not apply) sooner or later a failure to follow the plan document will take place. Such operational errors can be corrected through the IRS Employee Plan Compliance Resolution System in one of three ways. Source: Belfint.com, October 2020
Cybersecurity More Effective if Regularly Reinforced, Study SaysMemory fades. But how fast? Within six months, at least regarding cybersecurity protocols, according to a study of how long employees retained the security measures they had learned. Researchers who studied 409 employees found that they were able to identify which emails were legitimate and which were phishing immediately after a security awareness and education program was conducted, and even four months after. But after half a year had elapsed, that was not the case. Source: Asppa.org, October 2020
Don't be Haunted by Plan FeesDon't let plan fees scare you. Exorcise your fear by understanding the services performed by your service providers, how your providers are paid, and what their fees are. Then look at the fees charged by other providers to plans of a similar size to yours. Keep calm throughout the process knowing that DOL doesn't expect plan sponsors to have hired the cheapest providers. Source: Alliant401k.com, October 2020
Schlichter Attorneys Sanctioned for "Reckless" ERISA SuitAttorneys from the law firm of Schlichter Bogard & Denton, which arguably could be said to have started the flood of ERISA excessive fee litigation against retirement plans that has been going on for more than a decade, has been sanctioned by a federal judge for a "reckless" lawsuit. Source: Planadviser.com, October 2020*
DC Asset Managers Continue ESG Efforts Despite DOL ProposalThe new proposal from the Department of Labor is not slowing down marketing and distribution efforts promoting DC-focused ESG products, as 56% of DCIO asset managers expect to increase these efforts during the next 12 months, said the report titled "U.S. Defined Contribution Distribution 2020: Adapting to Changes in the Regulatory Environment." Source: Pionline.com, October 2020
Biden's 401k Plan Is Vague, but Worth Paying Attention ToPolicymakers have had little luck in reforming the tax structure for 401k defined contribution plans for decades. Biden is going to try if he wins the upcoming presidential election, and that has important implications for retirement savers. Source: Morningstar.com, October 2020
Saver's Tax Credit for the 2020 Tax YearMillions of working Americans are missing out on a valuable tax credit, The IRS' Retirement Savings Contribution Credit or Saver's Credit. The 18th Annual Transamerica Retirement Survey found that an alarming 72 percent of women are unaware of the Saver's credit. The Saver's Credit is available to low- to moderate-income workers who are saving for retirement and it is effectively a federal match for retirement contributions. But only one in four workers potentially eligible to claim it are aware of it. Source: Wiserwomen.org, October 2020
The Working Woman's Retirement Plan ChecklistHere is a checklist on what women need to know about retirement benefits, what women need to ask their spouses, what women need to ask their employers, and what women need to ask if contemplating a divorce. Source: Wiserwomen.org, October 2020
Beware of Private Equity in Retirement Plans - 3(38) Fiduciary Advisors are Needed InsteadOver the summer, the private equity industry received a very favorable ruling from the Department of Labor, allowing 401k plans to invest in private equity funds. But the inclusion of private equity in retirement plans is not a positive development, and it will not ultimately be good for working people's retirement savings. Instead, what the retirement industry needs is more fiduciary advisors who can help companies leave behind the bundled, opaque, and expensive plans that are currently being offered for more promising, more transparent options. Source: Seekingalpha.com, October 2020
Is the 401k System Unfair? What Would Make It Fairer?Michael Barry, president of O3 Plan Advisory Services LLC, debates whether the 401k system is fair or unfair and offers three ideas for making the system more just. Source: Plansponsor.com, October 2020
How Much Did September's Slide Set Back the Average 401k?Despite a stretch of volatility that crimped September returns, the S&P 500 and Dow Jones Industrial Average gained 8.5% and 7.6%, respectively, over the past three months, according to the WSJ. And at September's end, those indexes recorded their best two-quarter performance since 2009. Both indexes are up more than 26% since the end of March. Source: Napa-net.org, October 2020
The Role of Deferred Income Annuities in DC PlansThe loss of traditional pensions has left many more workers without the guaranteed stream of income in retirement that our survey shows they desire. To date, there has not been enough progress to identify, educate, and encourage the adoption of solutions to fill this void. The industry and policymakers can and should do more in communicating with both plan sponsors and savers about available options and their benefits. Source: Georgetown.edu, October 2020
House Bankruptcy Bill Would Impact Retirement PlansH.R. 7370, the Protecting Employees and Retirees in Business Bankruptcies Act of 2020, has been introduced by Rep. Jerrold Nadler. This bill would modify provisions related to Chapter 11 bankruptcy, including expanding claims and priorities for payment of benefits for employees and retirees, and protections related to reduction or denial of benefits. Source: Futureplan.com, October 2020
Default Withholding Rate for Periodic Retirement Plan DistributionsThe IRS has issued a pre-publication version of final regulations on the default tax withholding rate to be applied to periodic and annuitized distributions from retirement plans. These final regulations are a response to Internal Revenue Code changes contained in the Tax Cuts and Jobs Act, legislation enacted in 2017, and provides guidance for 2021 and future calendar years. Source: Futureplan.com, October 2020
401k Investments - Options for Selecting a "Prudent" MenuMost 401k providers have little incentive to help business owners to pick prudent investments for their 401k. The opposite may be true. They can grow their profits by steering business owners towards "imprudent" investments with excessive fees and/or inferior returns. If you're a business owner and want to avoid this trap, the article has two recommendations: 1) model your investment menu after the Federal Thrift Savings Plan, or 2) hire a fiduciary-grade financial advisor for professional investment advice. Source: Employeefiduciary.com, October 2020
Report: What Does Consistent Participation in 401k Plans Generate?This paper provides an update of a longitudinal analysis of 401k plan participants drawn from the EBRI/ICI 401k database. A few key insights emerge from looking at the 1.9 million consistent participants in the EBRI/ICI 401k database over the eight years from year-end 2010 to year-end 2018. Source: Ebri.org, October 2020
For DC Plans, Pandemic Reinforces Value of Consultants and AdvisorsGuiding DC plans through economic cycles is challenging enough without harsh headwinds from a global health crisis. But more plan sponsors are getting invaluable expert help to navigate through current challenges while keeping a long-term perspective. Consultants help in diverse ways and sponsors value just about all of it, especially if it provides actionable intel. Source: Alliancebernstein.com, October 2020 Looking for earlier information? Go to our Archive. 401khelpcenter.com, LLC is not the author of the material referenced in this digest unless specifically noted. The material referenced was created, published, maintained, or otherwise posted by institutions or organizations independent of 401khelpcenter.com, LLC. 401khelpcenter.com, LLC does not endorse, approve, certify, or control this material and does not guarantee or assume responsibility for the accuracy, completeness, efficacy, or timeliness of the material. Use of any information obtained from this material is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness. Reference to any specific commercial product, process, or service by trade name, trademark, service mark, manufacturer, or otherwise does not constitute or imply endorsement, recommendation, or favoring by 401khelpcenter.com, LLC. | ||||
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