Year-End Compliance Reminders for Defined Contribution Plans

In “2014 Plan Year: Year-End compliance reminders,” Prudential summaries year-end compliance issues for qualified defined contribution plans. The summary discusses the rules for the various tests that plans must have completed as well as the new limits. Prudential also discusses correction issues, including correcting ADP test and ACP test excesses, corrective contributions, corrective distributions, and ensuring the proper correction of contribution allocation errors.

To read more, click here.

Buck Consultants Analyzes PBGC Guidance on DC Rollovers

In “PBGC Finalizes Additional Guarantee for DC Rollovers”, Buck Consultants, a Xerox company explains that:

“PBGC has finalized regulations that increase individual participant maximum benefit guarantees when covered defined benefit plans accept rollovers from defined contribution plans in exchange for lifetime income benefits and are subsequently terminated. PBGC anticipates increased use of rollovers and aims to promote retirement security for those benefits.”

To read more, click here.
ERIC members and trial members can read more on this issue here.

ERIC Urges DOL to Ensure Any Guidance on Brokerage Windows is Narrowly Tailored to Address Specific Concerns

The ERISA Industry Committee (ERIC) submitted comments to the Department of Labor (DOL) responding to the agency’s request for information on brokerage windows in retirement plans.

ERIC provided the DOL with information regarding the use of brokerage windows in large retirement plans. ERIC explained that large retirement plans offer a variety of investment options to meet the diverse needs of their plans’ participants.

To read more, click here.

New Report Examines Behavior of Defined Contribution Plan Participants

A recently issued report titled “Defined Contribution Plan Participants’ Activities, First Half 2014”, examines the choices of participants in defined contribution (“DC”) plans. The authors found that:

“DC plan withdrawal activity in the first half of 2014 remained low and was similar to the activity observed in the first half of 2013…The vast majority of DC plan participants continued contributing to their plans…Most DC plan participants stayed the course with their asset allocations as stock values generally rose over the first six months of the year… Defined contribution (DC) plan assets are a significant component of Americans’ retirement assets, representing more than one-quarter of the total retirement market (Figure 1) and almost one-tenth of U.S. households’ aggregate financial assets at the end of the second quarter of 2014.”

To read more, click here.

IRS Updates 2015 Retirement Plan Limits

The Internal Revenue Service (IRS) has announced the cost‑of‑living adjustments for retirement plans for 2015. The IRS explains that “Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.” The announcement indicated that the limit for elective deferrals for 401(k) plans increased from $17,500 to $18,000 and the limit for catch-up contributions for employees aged 50 increased from $5,500 to $6,000.

To read more, click here.

New Study Finds Workers Save More as They Near Retirement

A new report from ADP titled “The Retirement Savings Paradigm: Factors Influencing Saving” found that workers saved more when they approached retirement. 

The report states “The study found that 60 percent of full-time employees saved for retirement at a rate averaging 7 percent. As employees aged and drew closer to retirement age, a higher proportion of them saved and they saved at a higher rate.”

A copy of the report is available here.

Year-End Planning Tips for Retirement Plans

In recent articles, Buck Consultants provides year-end planning tips for defined benefit and defined contribution plans. The article states:

“The calendar provided in this For Your Information will help you set up your own schedule of activities to address as the year progresses so that you do not miss important deadlines for your qualified plans. As you evaluate the various tasks, you can confirm suitable deadlines with your vendors for getting them done. Our recently issued Reporting and Disclosure Guide will also aid you in identifying and addressing other activities that are event-based and participant specific. As you make your plans, in addition to the calendar deadlines, we have a number of key issues for you to consider as we head into 2014.”

To read more about defined benefit plans, click here.
To read more about defined contribution plans, click here.

IRS Issues Safe Harbor Contribution Regulations

The Internal Revenue Service (IRS) recently published the final regulations on the “Reduction or Suspension of Safe Harbor Contributions”. The IRS indicates that:

“These regulations provide guidance on permitted mid-year reductions or suspensions of safe harbor nonelective contributions in certain circumstances for amendments adopted after May 18, 2009. These regulations also revise the requirements for permitted mid-year reductions or suspensions of safe harbor matching contributions for plan years beginning on or after January 1, 2015. The regulations affect administrators of, employers maintaining, participants in, and beneficiaries of certain defined contribution plans that satisfy the nondiscrimination tests of section 401(k) and section 401(m) using one of the design-based safe harbors.”

To read the final regulations, click here.

New Report Finds That Employers Are Taking Bolder Steps to Help Participants Prepare for Retirement

Aon Hewitt reports in "Companies implement plan changes and enlist outside assistance to support employees in their quest to ensure adequate retirement savings" that:

"A new survey by Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), reveals that employers are increasingly taking bolder actions to help ensure participants achieve greater financial security. Recognizing the vast majority of employees are not prepared to maximize their 401(k) savings potential, employers are making significant changes in plan structure and investments while also increasing the amount of guidance provided to participants."

To read more, click here.

Report Finds Increase in 401(k) Plan Accounts Despite Recession

A recent report from the Employee Benefit Research Institute (EBRI), "401(k) Participants in the Wake of the Financial Crisis: Changes in Account Balances, 2007–2011" found that:

"The average 401(k) account balance fell 34.8 percent in 2008, then rose from 2009 to 2011. Overall, the average account balance increased at a compound annual average growth rate of 5.4 percent over the 2007–2011 period, to $94,482 at year-end 2011. The median 401(k) account balance (half above, half below) increased at a compound annual average growth rate of 11.5 percent over the period, to $42,082 at year-end 2011. Analysis of a consistent group of 401(k) participants highlights the impact of consistent participation in 401(k) plans. At year-end 2011, the average account balance among consistent participants was 60 percent higher than the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group’s median balance was about two-and-a-half times the median balance across all participants at year-end 2011..."

To read more, click here.

DOL Discusses Upcoming Fee Disclosure Guidance

In a recent interview, Phyllis Borzi, Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA) highlights the DOL's upcoming guidance on fee disclosure. She is quoted in the article as stating:

"We’re currently working on a guide for service providers that will encourage a more uniform manner for disclosing information to plan sponsors, and our proposal is currently under review at OMB. The goal of the fee disclosure rule was to establish a system to ensure greater transparency with respect to fees and expenses for plan sponsors, as well as participants and beneficiaries. We wanted something helpful that people could really use to make decisions about their plans, and of course we still want that. For the first time, both plan sponsors and participants will be able to see how much the investment products they are offered actually cost. That is a big deal. But there is always room for improvement. At the same time, however, we know that behavioral change will take time. But it will come. We continue to evaluate how effective our regulation has been at promoting better decision-making, and that’s something we’ll continue to keep an eye on. Increasingly we see that employees have more responsibility for making investment decisions – and the more that is the case, the more important it is that they have the necessary resources to evaluate their options."

To read the entire article, click here.

IRS Announces Employee Plans Guidance Phone Forum

The Internal Revenue Service (IRS) has announced a new Employee Plans Guidance phone forum on October 29th. The states states on its website:

"Join us for an overview of retirement benefit items on the 2013-2014 Priority Guidance Plan released on August 9 and other projects in EP Technical Guidance. Please email your questions by
October 22, 2013."

For more information, click here.

Study Finds Expected Retirement Age Rising

A new study finds that workers' expected retirement age is slowly increasing. A report from the Employee Benefits Research Institute (EBRI), "Expected Retirement Age Continues to Rise," states:

"The age at which workers expect to retire is slowly rising, according to a recent report by the nonpartisan Employee Benefit Research Institute (EBRI).

Twenty-five percent of workers in the 2013 Retirement Confidence Survey say the age at which they expect to retire has changed in the past year, and of those, the vast majority (88 percent) report that their expected retirement age has increased. This means that in 2013, 22 percent of all workers planned to postpone their retirement."

For the full report, click here.

ERIC Urges DOL to Clarify 401(k) Fee Disclosure Guidance

The ERISA Industry Committee (ERIC), along with the Plan Sponsor Council of America (PSCA), and the U.S. Chamber of Commerce (the Chamber) today urged the Department of Labor (DOL) to clarify its previous guidance providing relief with respect to the fee disclosure requirements for participant-directed individual account plans (such as 401(k) plans).

The DOL on July 22 released Field Assistance Bulletin 2013-02 (FAB) allowing 401(k)-type plans to reset the timing for the annual fee disclosures plan sponsors are required to furnish to plan participants.

While the body of the FAB references the “comparative chart,” the group believes the FAB provides a one-time extension for all of the regulation’s annual disclosures and not just the comparative chart. ERIC, PSCA, and the Chamber’s letter asks the DOL to confirm that the guidance applies to all of the requirements under the regulations.

ERIC, PSCA, and the Chamber also request that the DOL issue guidance to confirm that plan administrators who delay the annual fee disclosures can still rely on the fiduciary safe harbor under the regulation.

For more information, click here.

For a copy of the comment letter, click here.

IRS Announces New Phone Forum on Its Audit Program

The IRS has announced a new phone forum, "The Employee Plans Team Audit Program" scheduled for October 16, 2013 at 2 pm ET. They indicated that the phone forum is to:

"Learn about EPTA, our large case audit program. We’ll cover everything from how the program originated to how we select plans for examination, to how we examine them. We’ll also touch on our initiatives on internal controls and International issues. Finally, we’ll discuss common issues we find on these examinations."

To learn more, click here.

ACT Publishes Recommended Changes to the IRS's Correction Program

The Advisory Committee on Tax Exempt and Government Entities (ACT) published its "2013 Report of Recommendations". This report includes the following recommendations regarding the Internal Revenue Service's correction program for retirement plans. The report states:

"The Employee Plans Compliance Resolution System is a program created by the Internal Revenue Service that allows sponsors of qualified retirement plans, 403(b) plans, Simplified Employee Pension Plans and Savings Incentive Match Plan for Employees Individual Retirement Accounts to voluntarily correct various types of tax qualification errors. EPCRS, the most recent version of which was published in IRS Revenue Procedure 2013-12 in December 2012, has been in place in some form or fashion since the early 1990s...

Based on the results of our research, the EP Subcommittee is making recommendations that
fall into three general categories:

*   Internal controls
     o Institutionalize the culture of correction for future generations of Voluntary Compliance (VC) staff.
     o Maximize VC resources to ensure that the more complex cases are directed to those with the backgrounds and experience to most efficiently resolve them.

*   Procedural changes
     o Facilitate more cost effective correction by plan sponsors by further streamlining the submission process, creating additional de minimus thresholds and expanding the use of reasonable estimates when actual data is not available.

*   Additional substantive corrections
     o Address errors for which the practitioner community would like added clarity..."

For the entire report, click here.

New Study Shows Automatic 401(k) Features Help Workers to Save

A recent study by Bank of America Merrill Lynch, "401(k) Wellness Scorecard" shows that automatic enrollment in 401(k) plans is effective at helping workers to save for retirement. The study explains:

"Accumulating evidence shows that automatic enrollment is extremely effective at increasing employee participation in 401(k) plans. Of auto-enrolled employees, 90% continued to participate this quarter. In addition, more plans continued to adopt automatic enrollment between April and June, boosting the total number of employees enrolled."

For the complete study, click here.

ING Report Finds Participants in Large Companies' Plans Have Higher Average Account Balances

ING's report, "Retirement in Review: A Look at 2012 Defined Contribution Participant Experience", finds that:

"Participants in Large Private Sector plans have consistently higher balances than in other types of employers / plans; followed by participants in Higher Education plans.

Across employer types, there is a gender gap in retirement savings: Men have higher account balances than women...Women are more likely (than men) to take a hardship withdrawal; men are more likely (than women) to take a loan..."

A copy of ING's report is available here.

Study Examines Impact of a Retirement Savings Account Cap

The Employee Benefits Research Institute (EBRI) recently published "The Impact of a Retirement Savings Account Cap", which provides that:

"EBRI’s analysis finds that although a very small percentage of current 401(k) participants with IRA accounts have combined balances sufficient to be affected by the proposed limit immediately, over time—and depending on the applicable discount rates, whether a defined benefit pension is involved, and the size of the 401(k) plan—the impact could be much greater.

Simulation results for 401(k) participants assuming no defined benefit accruals and no job turnover show that more than 1 in 10 current 401(k) participants are likely to hit the proposed cap sometime prior to age 65, even at the current historically low discount rate of 4 percent. When the simulation is rerun with higher discount rate assumptions closer to historical averages, the percentage of 401(k) participants likely to be affected by these proposed limits increases substantially."

The report is available here.

DOL Says a Summary Prospectus Can Be Used Instead of a Full Prospectus for Fiduciary Advisor Exception

The U.S. Department of Labor (“DOL”) has issued Advisory Opinion 2013-04A which modifies the requirements of Prohibited Transaction Exemption (“PTE”) 77-4 that apply when:

(1) employee benefit plans buy or sell mutual funds; and

(2) the investment advisor for the mutual fund (or its affiliate) is a plan fiduciary and not an employer of the employees covered by the plan (“fiduciary advisors”).

Among other requirements, PTE 77-4 requires fiduciary advisors to provide an independent plan fiduciary with a prospectus. In Advisory Opinion 2013-04A, the DOL indicated that independent plan fiduciaries can be provided with a “summary prospectus” instead of a mutual fund’s full prospectus.

The Advisory Opinion is available here.
ERIC members and trial members can read more here.