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401(k) plans

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[Discussion] Safe Harbor Non-Elective Contribution Still Not Made; How to Fix?
"We recently took over a safe harbor non-elective plan. Accountant called to tell me client did not make the 2015 or 2016 safe harbor contribution because 'no one told them how much to contribute.' Then asks if the plan is 'out of compliance.' If the SH contribution for both years is actually made ASAP, is there still a problem?" (BenefitsLink Message Boards)
Safe Savings Rates with Real-World Income Growth
"[O]nce we account for more realistic 'earnings curves' of workers, it becomes clear that the decline in real earnings over the last 10-20 years of one's career may actually reduce the retirement need -- at least if we assume individuals prefer a smooth transition from pre-retirement to post-retirement spending. As a result, conventional assumptions may actually overstate the required savings rates for all but the top 20% of income earners, while understating the need for top earners (who advisors are most likely to be working with!)." (Nerd's Eye View)
[Guidance Overview] Time is Right to Contact Recordkeepers About Hardship Substantiation
"The IRS's openness to substantiation in a summary form will be welcome news to many administrators and plan sponsors. But accepting summary substantiation will require careful review by the recordkeeper and, even with that review, administrators and sponsors will have to rely on participants to maintain records.... Plan sponsors should consider whether the efficiency from reduced documentation is worth the potential for headaches in an IRS audit." (Proskauer's ERISA Practice Center)
Use of Indexed Funds Growing in DC Plans
"By year-end 2016, 51% of Vanguard DC plan assets were invested in indexed or passively managed options ... Since 2006, the percentage of Vanguard DC assets invested in index options has increased by 20 percentage points, a relative growth rate of 60%. Index target-date options were the fastest-growing asset class.... From 2006 to 2016, the average number of options offered increased from 20 to 27 because of the addition of index target-date options to plan menus." (Vanguard)
[Discussion] Counting Service for Vesting Purposes After an Acquisition
"Company A acquires 100% of the stock of Company B. Each company maintains its own 401(k) plan. After the acquisition, Employee X is transferred from Company B to Company A, so X begins to participate in Company A's plan and stops participating in Company B's plan. Must Company A's plan provide credit for X's service with Company B, for vesting purposes? If not, would it make a difference if Company B's plan later is merged into Company A's plan?" (BenefitsLink Message Boards)
[Discussion] Do Rules on Truth-In-Lending Notices Apply to 401(k) Loans?
"Is the federal Truth-In-Lending information required to be in loan documents for a 401(k) plan's loan to a participant?" (BenefitsLink Message Boards)
Solving for Data Transparency in the Retirement World
"The migration to super omnibus accounts and the increasingly complex and interdependent retirement marketplace has led to a demand for more transparency, because robust reporting can help the firms involved provide services more effectively.... [ICI's Retirement Plan Reporting(RPR)] solution ... is based on the records of service providers (such as a plan recordkeepers or administrators). RPR contains two main plan-level data sets: plan information and plan investments." (Investment Company Institute [ICI])
How 401(k) Advisers Can Create Effective Financial Wellness Programs
"[T]he U.S. spent more than $670 million on financial education programs in 2013. The hope is that by teaching Americans the importance of savings -- and how to save -- Americans will in fact save. Unfortunately, this is not true.... [P]articipants' confidence in their understanding of the fund played more of a role in their investment decisions than the actual risk profile of the fund." (InvestmentNews)
The Effect of Rising Interest Rates on Stable Value Accounts
"In this environment, stable value products could provide a smoother ride than traditional bond funds. These lower-risk accounts can be a smart choice for the conservative fixed income portion of a portfolio, as they avoid the losses likely to hit bond funds, while delivering higher returns than money market funds. These accounts are specifically designed to protect principal in defined contribution (DC) plans, regardless of interest rate fluctuation." (Cammack Retirement Group)
Managed Account Use Poised to Jump in 401(k) Plans
"Mergers of 401(k) record keepers ... are part of the equation that's driving an increase in the number of employers offering managed accounts in their plans.... These mergers have increased the choice of managed account providers on plan platforms ... Technology innovations that allow managed accounts to automatically incorporate individual investors' data in constructing advice are also a driving force behind renewed interest in managed accounts[.]" (Bloomberg BNA)
[Discussion] Safe Harbor Contribution After Date of Plan Termination?
"Employer is terminating its 401(k) plan effective on June 30 (next month), so there will be no employee contributions after that date. Can a safe harbor contribution for 2016 be made by September 15 of this year, even though it's after the termination date? Would this jeopardize the plan's termination?" (BenefitsLink Message Boards)
[Opinion] The Incredible Shrinking DOL Fiduciary Rule
"For [DC] plans like 401ks, the DOL rule punctuated a movement already under way where more and more advisors were willing to act as fiduciaries.... The real impact ... is on IRAs over which the DOL has no enforcement jurisdiction -- the undermining of private rights of actions in the recent delay of the DOL rule may have disenfranchised lawyers ready to take up enforcement. But changes by many broker-dealers and RIAs eliminating potential conflicts of interest in IRAs and restricting activities of inexperienced advisors for DC plans will, in effect, bring about changes the DOL intended by the rule now under assault by the White House and possibly the new DOL secretary." (Fred Barstein, via 401kTV)
The Power of Defined Contribution Plan 'Wellness' (PDF)
"This paper explores the relationship between plan wellness and retirement readiness and provides a framework for sponsors and their advisors to evaluate their plan wellness with a focus on balancing participant outcomes and cost efficiency." (Prudential)
Default Deferral Rates for DC Plans Get a Nudge Upward
"Defined contribution plans that offer auto enrollment are moving away from the traditional initial deferral of 3% of annual salary to higher amounts -- sometimes to 6% or more -- nudging participants to expand their contributions." (Pensions & Investments)
[Discussion] Fixing Unallocated Contributions: How to Handle Earnings?
"The plan sponsor incorrectly reported that an HCE had made deferrals in an amount that was $5,000 more than the deferrals he actually had made. The plan sponsor contributed the $5,000 into the trust during the plan year. We can adjust the HCE's account so that it does not credit him with the $5,000 or its earnings, and we can use the $5,000 to reduce the plan sponsor's next contribution. What should we do with the earnings, though?" (BenefitsLink Message Boards)
Principal Life Must Defend Class Action Over 401(k) Funds
"In certifying a proposed class of about 41,000 investors, a federal judge ... [held] that the lawsuit involved common issues related to Principal's conduct and potential status as a fiduciary under [ERISA].... The lawsuit attacks Principal's guaranteed interest funds ... The investors say that Principal reaps unreasonable profits from these investments by paying investors too small a portion of the returns Principal receives from the underlying investments." [Rozo v. Principal Life Ins. Co., No. 14-0463 (S.D. Ia. May 12, 2017] (Bloomberg BNA)
How 401(k) Plan Design Can Increase Retirement Savings
"[1] More is not better. Have a limited number of high-quality investment choices.... [2] Have a good default investment for participants who don't choose their own.... [3] Monitor fees.... [4] Add managed accounts as a choice.... [5] Implement auto-enrollment and auto-escalation.... [6] Offer lifetime income options.... [7] Limit in-service withdrawals and loans.... [8] Seek professional advice." (PenChecks)
Listen to Your Participants: Don't White Label 401(k) Investment Funds
"The process of white labeling obscures the identity of the fund(s) being used.... [It] leads to participant confusion and lack of trust.... Hiding the identity of funds and fund companies would seem to be a stumbling block to achieving better participant understanding.... It hides complex investment strategies ... It obscures fund changes ... It's hard to obtain objective information ... It hides the impact of superstar managers[.]" (Lawton Retirement Plan Consultants)
Could a Switch to Roth Be Good for Retirement Security?
"[T]he break-even point in terms of where the tax advantages of Roth at the back end in retirement largely equal out the advantages of deferral at the front end lies at a 9.1% reduction in contributions. Beyond that point, the Roth option (and the assumed reduction in retirement savings) worsens the retirement savings shortfall -- though even assuming a 25% reduction, the shortfall deepens by a mere 2.6%." (American Society of Pension Professionals & Actuaries [ASPPA])
Your Retirement Plan: Set It, But Don't Forget It
"When it comes to planning for retirement, there are three commonly automated arrangements that warrant a one-off, stop-and-think review from time to time: beneficiary designations, plan participation and investment allocation." (Certified Financial Planner [CFP] Board of Standards, Inc.)
Average Retirement Balance Hits Record on 401(k) 'Autopilot'
"The average balance in a 401(k) defined-contribution account at Fidelity Investments hit a record $95,500 in the first quarter, up more than 9 percent from a year earlier ... 27 percent of workers in a Fidelity plan increased their contributions, as a percentage of their salaries, over the past 12 months.... In the first quarter, 68 percent of the rise in savings rates of workers under age 30 was due to automated increases[.]" (Newsmax)
Three Questions for Assessing a Target Date Fund's Fixed Income Allocation (PDF)
"[W]hen selecting the best TDF for their participants, plan sponsors may want to focus on the contribution of the fixed income component -- to ensure that it is structured and managed to deliver the strong risk-adjusted returns participants will need for a secure retirement. Is it appropriately diversified? Does the manager have sufficient flexibility to effectively allocate within and across fixed income sectors? And does the approach represent a reasonable compromise between cost and participants' retirement outcomes?" (J.P. Morgan Asset Management)
[Guidance Overview] Mid-Year Changes to Your Safe Harbor Plan
"Examples of permissible mid-year changes, given they meet the notice requirement, include: [1] Changes to the plan's default investment fund. [2] Changes to the plan's rules for dispute arbitration. [3] Increase in future safe harbor non-elective contributions from 3% to 4% for all employees. [4] Mid-year changes as required by law." (Butterfield Schechter LLP)
The Evolution of Managed Accounts
"As managed account assets climb, these solutions are seeing major shifts in product development, and they can be especially efficient for certain participant demographics." (PLANSPONSOR)
Why Your 401(k) Is Vulnerable as Tax Reform Plays Out in Washington
"[A]lthough getting rid of retirement saving deductions could instantly give the government a huge new revenue source, there could be costly consequences for taxpayers. Already the nation is facing a looming retirement crisis because millions of workers aren't saving enough to cover basic needs like food and housing when they can no longer work. Ultimately, if these people need welfare, Medicaid or other aid, taxpayers could be asked to pick up the burden." (Chicago Tribune; subscription may be required)
401(k) Fiduciaries: Is it Time to Hone Your Processes? (Part Two)
"Advisors can help [plan fiduciaries] [1] Establish and run processes that demonstrate they have leveraged the lowest cost fees based on their plan size and servicing needs.... [2] Be market aware and have a basic understanding of industry fees and practices. [3] Articulate why one investment was chosen over the other. [4] Dig down deeper in understanding whether actual fund plan investments align with investment objectives." (Fiduciary Plan Governance, LLC)
[Opinion] Could Small Plan Formation Be a First Casualty of Tax Reform?
"[U]nder President Trump's draft proposal, these small business owners -- partnerships, S Corporations, REITs, RICs and small business limited liability corporations -- would only be subject to a 15% maximum tax on pass-through income. On the other hand, if they invest that money in a retirement plan, when withdrawn it would be taxed at the maximum ordinary income rate, which could be in the neighborhood of 35%." (Nevin Adams, for National Association of Plan Advisors [NAPA])
How Freelancers in America Are Keeping Up With Their Retirement Preparation
"Around 38% of the respondents do not save for retirement because of their inability to generate enough income.... As many as 12% freelancers said that retirement plans are too expensive ... [F]reelancers are in favor of a portable retirement plan, which allows them to make contributions even when working with different employers. Further, they require a plan that supports intermittent contributions." (Dmitriy Fomichenko, Sense Financial, via
Millennials Most Likely to React to Market Volatility and Least Likely to Rely on Professional Financial Advice
"[D]espite the recent ups and downs of the market, fully 60 percent of adult Americans say they are standing pat on their retirement savings strategy ... Yet only 23 percent of Millennials are maintaining their current strategy compared to 59 percent for those ages 34-49, 74 percent for ages 50-64 and 82 percent for ages 65 and older." (MassMutual)
401(k) Regaining Importance as Future Income Source
"Half of nonretirees expect 401(k) to be a major income source in retirement. This is up from a low of 42% in April 2009, but still below earlier highs. Planned reliance on Social Security is near 17-year high." (Gallup)
Fiduciaries -- Look to the Law of Trusts as Your Guide
"The legislative history of ERISA explains that the law governing qualified retirement plans is tied closely to trust investment law.... Because the trust law standard underlies ERISA, the assets held in the account of participants in, say, a 401(k) plan aren't the participants' in a legal sense; rather, they actually belong to the trust. The assets are held in trust and managed by the plan trustee (whose conduct is governed by the laws of ERISA fiduciary responsibility) on behalf of the participants (and their beneficiaries) who are beneficiaries of the trust." (Morningstar Advisor)
Are Your Target Date Funds Making You a Target?
"[A]ll too many TDFs are selected by fiduciaries simply because it is convenient, or there is some incentive, to offer their provider's funds. This makes them an easy target for class action lawyers.... These funds may be a ticking time bomb for plan fiduciaries who haven't prudently investigated and compared their plan's TDFs to other options available in the market. There are lots of differences between TDFs.... Here is a short checklist for company fiduciaries[.]" (Cohen & Buckmann, P.C.)
Starwood Hotels Can't Escape ERISA Lawsuit Over 401(k) Fees
"The participants have sufficiently alleged that Starwood used a flawed process for selecting record-keeping and administrative services for its employees' retirement plan ... The hotel chain, however, successfully argued that the participants were time-barred from pursuing their claim that the hotel breached its duties by failing to exclude from the plan a BlackRock Inc. mutual fund that carried [allegedly] excessive fees." [Creamer v. Starwood Hotels & Resorts Worldwide, Inc., No. 16-9321 (C.D. Cal. May 1, 2017)] (Bloomberg BNA)
[Guidance Overview] Interesting Angles on the DOL's Fiduciary Rule, Part 45
"Financial Institutions (such as broker-dealers and IRA firms) should, between now and June 9, focus on the fiduciary processes that will be implemented by the home offices ... In a sense, the Financial Institutions will be co-fiduciaries with the advisers and, therefore, share responsibility for the recommendations that are made to the qualified accounts. As a result, Financial Institutions need to have protective policies, procedures and practices in place." (
Helping Small Businesses and Their Workers Save for the Future
"2 million small businesses with fewer than 100 employees already sponsor retirement plans for their employees. And among those that do, 70 percent of eligible employees choose to participate. A workplace retirement savings plan is an effective and easy way for a small business owner and his or her employees to save for a secure retirement. And there are many retirement savings options available for small business owners to choose from." (U.S. Department of Labor [DOL] Blog)
Which 401(k) Strategies Work Best?
"The most effective tools in retirement savings are not bells and whistles. They are simple, quiet and consistent.... [1] Putting savings on auto-pilot.... [2] Higher savings rates.... [3] Keeping costs low." (Forbes)
Retirement Lump Sums Being Depleted Quickly
"More than one out of five workers who accepted a lump sum from their employer-sponsored retirement plan have depleted it ... Of the individuals who opted for the lump sum, 62 percent had money left over from the withdrawal, 21 percent had depleted their lump sum and 17 percent didn't know or couldn't recall ... Those who reported depleting their lump sum said it took them an average of five and a half years to burn through the money." (
How to Use the One-and-Done Method for Retirement Savings
"The one-and-done method takes some effort up front. Just compiling your bills will take time, and then calling your lenders or utility companies to reduce your spending will take more time. But once you've trimmed these expenses, you can roll the amount you save into a retirement account month after month. Here are some expenses you might be able to reduce with this method[.]" (U.S. News & World Report)
Understanding the Dynamics of Rollovers, Roll-Ins, and IRA Transfers
"Unlike rollover transactions, more roll-in participants discuss their decisions with their employers than with advisors, DC plan provider call centers, or others. Although the most common method of transferring from one IRA to another is by means of a self-directed online transaction, this method is strongly associated with younger owners; older owners typically have an advisor handle the transaction." (LIMRA)
New Evidence on the Demand for Advice within Retirement Plans (PDF)
13 pages. "Demand for advice on asset allocation and income planning jumps four-fold with the introduction of online advice tools ... Demand increases significantly with age and account balance, suggesting that participants are more likely to seek out advice when they have more assets to manage or are getting closer to picking a retirement date.... There is a strong positive correlation between proxies for retirement plan engagement and levels of advice seeking." (TIAA Institute)
What Should 401(k) Plan Sponsors Do About Retirees?
"As a liability to the plan, retirees raise risks immeasurably. If plan sponsors are responsible for how a participant manages his money, which he is because he is a fiduciary, then it is logical to assume the plan sponsor is also responsible for how a retiree who has left his assets in the plan manages his money. This means that, in essence, the plan sponsor is responsible for the lifetime income of that retiree." (John Riley of Cornerstone Investment Services, via Kiplinger)
401(k) Plan Fees: The Wrong Choices Could Land You in Court
"Before determining if their plan fees are reasonable, employers need to ... answer a number of critical questions including: [1] What am I buying? [2] How much does it cost (investment, administrative and advisory services)? [3] Who is going to pay (participants and employers)? [4] How are they going to pay? [5] What model is best for us?" (CFO Daily News)
401(k) Fiduciaries: Is It Time to Hone Your Processes? Part One
"The litigation has widened and deepened the scope of the threat. Processes, as good as they have been in the past, may not be good enough now. Something more may be required that requires plan sponsors to look at a hard look at their existing practices and to improve them if necessary." (Fiduciary Plan Governance, LLC)
[Opinion] The Invisible Hand Did Wonders for 401(k) Plans, but Now Washington Should Lend a Hand
"The process that has successfully guided the growth of the 401(k) system appears to have run its course.... The 401(k) industry now faces three challenges that are unlikely to be resolved without Washington's assistance. One is the difficulty of signing up smaller companies.... Another snag is the high costs paid by smaller companies that do adopt a plan.... The third problem lies with larger companies. They are beset by class-action lawsuits from legal firms seeking to profit from the settlements." (John Rekenthaler, in Morningstar)
The 411 On Your 401(k): What You Should Know About Your Retirement Savings
"[1] How much money am I saving? ... [2] Do my contributions automatically increase? ... [3] Do I have a Roth option in my 401(k) plan? ... [4] Can I access my money while I am working? ... [5] How do I take my money out when I retire?" (Forbes)
Reasons to Consider Unbundled Providers for Small 401(k) Plans
"[1] Data reliability.... [2] Costs may not be that much higher.... [3] Unbundled providers ... usually offer higher quality services in their area of expertise.... [4] Partnering with a best-in-class investment advisor who has good working relationships with recordkeepers and TPAs can allow you to find other providers who work well together on your behalf.... [5] An unbundled provider has a lot more flexibility with plan design and consulting to allow you to customize to your needs." (Buddy Horner, of Bronfman E.L. Rothschild, via
Considering Roth Elective Deferrals for Your Company's 401(k) Plan?
"Before an employer decides to offer Roth deferrals in their 401(k) or 403(b) plan, careful consideration should be given to what is needed to properly administer the participant accounts.... Who should make Roth 401(k) contributions? ... How does a plan implement Roth elective deferrals?" (Retirement Management Services)
Withholding Requirements for 401(k) Plan Distributions
"Normally, any taxable distribution is subject to a mandatory federal income tax withholding of 20%. However, there are certain circumstances when a participant can choose not to have the 20% federal income tax withholding from their distribution.... Periodic payments ... Nonperiodic payments ... Distributions sent outside the United States to nonresident aliens ... Eligible rollover distributions." (WithumSmith+Brown, PC)
New Comparability 401(k) Plans: Are They Right for Your Small Business?
"[C]ompanies with older business owners are typically the best candidates for new comparability contributions. A spread of 10+ years often does the trick, allowing the plan sponsor to maximize owner contribution while allocating just the 'gateway minimum' contribution to non-HCEs." (Employee Fiduciary)
[Discussion] Hardship Distribution OK in Order to Prevent Prospective Foreclosure?
"Participant wants a hardship distribution. He's past due on his mortgage. Although it's not yet in foreclosure, he's sure it will be. He wants an amount equal to 6 months of mortgage payments to prevent a foreclosure. Would this be allowed? Or should he request a distribution each month?" (BenefitsLink Message Boards)
GOP Proposes Radical Change to 401(k) System
"One idea being floated would treat all 401(k) deferrals as after-tax contributions, as Roth 401(k) deferrals are now treated. That would create a seismic change to the country's employer-based retirement system, and poses potential unintended consequences that industry insiders fear will disincentivize employers from offering defined contribution retirement savings plans." (ThinkAdvisor)
DOL Backs Off Longtime 401(k) Policy Priority
"During the past five years, the DOL has filed friend-of-the-court briefs in every federal appeals court case asking whether a 401(k) plan service provider can be liable as a fiduciary under [ERISA]. The DOL this week declined to do the same in a case against Transamerica Life Insurance Co. that's pending in the U.S. Court of Appeals for the Ninth Circuit. While this move could signal a shift in DOL enforcement priorities in the Trump administration, it also could be read as a natural byproduct of a federal agency lacking top leadership following a presidential transition[.]" (Bloomberg BNA)
[Guidance Overview] (Mild) Relief for Safe-Harbor Hardship Administration
"The [memorandum to IRS EP employees] provides for some flexibility to employers and TPAs by allowing them to rely on summaries of information from participants. Employers and TPAs that currently require source documents to substantiate hardship distributions do not need to make any changes to their procedures. While they may want to consider whether collecting summaries might streamline their practices, their current practices assure that documentation is available upon an audit without having to rely on participants' recordkeeping abilities to satisfy any substantiation requests by the IRS." (Trucker Huss)
Quantitative Methods Identify Significant Fee Waste in Retirement Plans (PDF)
15 pages. "[This study] analyzed 52,529 retirement plans from the DOL EFAST database. Using quantitative methods [the authors] estimate that participants could save .25% a year on a weighted average basis by switching into lower cost investments that are quantitatively very similar to those they already hold.... As of March 2015 total defined contribution plan assets stood at $6.8 trillion. This means that savings of approximately $17.07 billion annually are being wasted in the retirement industry." (RiXtrema Research)
[Discussion] Why Not Make a Safe Harbor Contribution for Highly Compensated Employees?
"My client maintains a safe harbor 401K/PSP with new comp allocations. After three years of operation, the client -- who is an HCE -- wants to know why neither he nor any of his family members got a safe harbor contribution (3% of compensation). Besides the language in the plan document, as well as the fact that the general test stands a greater chance of being blown, what are some other good reasons?" (BenefitsLink Message Boards)
[Discussion] OK to Amend Plan to Fully Vest Active Employees But Not Former Employees?
"Can an employer amend its 401(k) plan to fully vest matching contribution account balances for all active employees, while maintaining the existing tiered vesting schedule for terminated participant accounts?" (BenefitsLink Message Boards)
How to Create an Effective 401(k) Education Program
"Incentivize attendance.... Have a live presenter.... Cover basic investment concepts.... Explain the current investment menu choices.... Use interactive materials.... Use powerful visuals.... Ask participants to anonymously evaluate the presenter.... Sit in on a session.... Offer different sessions for different target groups.... Make individual consultations available after the session.... Develop an education policy statement.... Supplement education with investment advice." (PenChecks)
Charles Schwab Seeks to Arbitrate 401(k) Investment Case
"Charles Schwab Corp. urged a federal court to order a former employee challenging the investment options in the company's 401(k) plan to submit his claims to individual, non-class arbitration ... The plan documents required participants to submit any claims arising out of or related to the plan to binding arbitration in a non-class basis, Charles Schwab alleged ... Schwab ... may be one of the first financial companies facing an ERISA lawsuit over its use of in-house funds in which the claims move to arbitration." (Bloomberg BNA)

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