Designing an optimal investment menu for a defined contribution plan is challenging for fiduciaries due to the diverse demographics of participants. Decisions made at the plan level affect the investment experience for individuals. Best practices recommend that committees follow a thorough process for creating the menu and selecting managers, including maintaining a documented rationale for the choices made and ensuring diversification options. Ongoing monitoring of the investment lineup is essential, as well as consideration of external factors that may influence the DC investment menu. This paper discusses five of these influences.
Auto portability is an innovative solution aimed at reducing cashout leakage in retirement savings, a problem that occurs when employees withdraw their savings upon changing jobs instead of transferring them to their new employer's plan. As defined contribution recordkeepers and plan sponsors recognize its advantages, the adoption of auto portability is accelerating. This technology automates the transfer of retirement savings between plans during job transitions, helping to prevent significant losses -- estimated at $92 billion annually in the U.S. -- due to cashout leakage. By facilitating seamless transfers, auto portability preserves retirement savings and simplifies administration for both employees and plan sponsors.
The new administration has quickly issued several executive orders and memoranda to reverse previous orders and initiate new agency actions, including a standard directive for agencies to withdraw unpublished materials as of Inauguration Day. Meanwhile, there are expectations for a bipartisan SECURE 3.0 bill, following the SECURE Act of 2019 and SECURE 2.0 Act of 2022, although it is unlikely to be finalized before 2026. This year will focus on gathering input through hearings and discussions. While agency rules are currently frozen, litigation against government rules continues, including participant lawsuits where the previous administration supported these cases. It is anticipated that the new administration may drop appeals against rulings that overturn previous rules and may take opposing stances in future legal matters.
Fiduciary relationships in the business world include those between trustees and beneficiaries, investment advisors and clients, principals and agents, corporate directors and shareholders, and attorneys and clients. Understanding fiduciary duties -- along with how to uphold them and the consequences of breaches -- is essential for fostering productive relationships and avoiding costly litigation related to breach of fiduciary duty.
A survey by CoinShares International Ltd. reveals that financial advisers are cautious about recommending digital assets to clients due to concerns about their fiduciary duty. About 62% of advisers feel that suggesting speculative assets, such as bitcoin, conflicts with their obligation to act in clients' best interests, while 79% believe their role is shifting towards risk management as clients explore cryptocurrency independently. Over half of the 250 advisers surveyed are worried that promoting digital assets might harm their relationships with colleagues. While there is a growing willingness among advisers to consider digital assets, they seek independent education on the topic.
The DOL has filed a motion in the U.S. 5th Circuit Court of Appeals to pause its appeals in two cases regarding the DOL’s fiduciary rule. The DOL stated that the new administration and agency officials need time to understand the cases. The opposing parties, including the American Council of Life Insurers and the Federation of Americans for Consumer Choice, are not opposed to this motion. The DOL requested to put the appeals on hold and provide status updates every 60 days.
The SECURE 2.0 Act of 2022 introduces significant changes to the eligibility criteria for long-term, part-time employees in employer-sponsored 401k and 403b retirement plans. Laurie Lombardo from Voya Financial explains that employees aged 21 and older can now participate if they have either one year of service with at least 1,000 hours or two consecutive years with at least 500 hours. Employers must evaluate their part-time workforce to determine eligibility, and they face new administrative requirements. While some may choose the minimum compliance route, others might make part-time employees immediately eligible, potentially reducing administrative burdens.
On January 10, 2025, the Internal Revenue Service proposed regulations aimed at clarifying ambiguities surrounding Super Catch-Up and Mandatory Roth Catch-Up contributions. This summary outlines key questions addressed by the Proposed Regulations. The regulations for Mandatory Roth Catch-Up contributions will take effect for taxable years beginning six months after the final rule is published, though plans may implement the rules for contributions made after December 31, 2023. Similarly, the regulations for Super Catch-Up contributions will become effective six months after the final rule, with plans able to apply them starting after December 31, 2024.
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Collected Wisdom™
Our researchers look for what they think are some of the better resources available to assist you in administering your plan or helping your clients. We group these resources in our COLLECTED WISDOM™ topics to make it easy for you to locate the information you need. Each item in a category contains a summary and date of when it was placed in the group.
We also maintain some older material in these collections for perspective and context.
