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News Items, by Subject

403(b) plans

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#10YearChallenge for 403(b) Plans
"The restatement deadline is an opportunity to retroactively restate the plan document (generally, to January 1, 2010) to correct any defects in the terms of the plan documents, such as missed plan amendments. It is also the last chance for tax-exempt employers with individually designed plan documents to restate onto a pre-approved document, as the IRS does not now, and does not intend to, issue approval letters for individually designed 403(b) plans" (E is for ERISA)
The Georgetown University 403(b) Decision and the Future of 403(b) Fiduciary Litigation
"Based on the nature of the arguments within the Court's analysis of the Stock fund, the Court based its opinion purely on the fund's returns, both the fund's nominal, or stated, and risk-adjusted returns. For the courts to start basing decisions even in part on Morningstar' 'star' system is not a good sign." [Wilcox v. Georgetown Univ., No. 18-422 (D.D.C. Jan. 8, 2019)] (The Prudent Investment Fiduciary Rules)
[Guidance Overview] IRS Proposed Regs Relax Requirements for Hardship Distributions
"The proposed regulations generally clarify or supplement recent statutory changes, including those made by the Bipartisan Budget Act of 2018. Except where noted, the rules and changes summarized herein also apply to plans of tax-exempt organizations under Section 403(b).... Except for the required elimination of the six-month contribution suspension as of January 1, 2020, plan sponsors generally will have flexibility with implementing the above changes after the proposed regulations are finalized." (McCarter & English)
Another University Wins 403(b) Suit
"In the course of the 28-page ruling, [Judge Collyer] took the plaintiffs to task for: [1] not appreciating the difference in standing between defined benefit and defined contribution plans ... [2] applying 401(k) plan standards to 403(b) ... and [3] 20/20 hindsight in evaluating investment decisions[.]" [Wilcox v. Georgetown Univ., No. 18-422 (D.D.C. Jan. 8, 2019)] (National Association of Plan Advisors [NAPA])
Who's Got My Beneficiary Designation ... or Who Lost It?
"When plans and participants were younger, it is likely that no one paid these important forms much attention -- after all, no one was going to die, right?! But, with the workforce aging and plans maturing, it will be increasingly important that designations are retained somewhere so that the participant's named beneficiaries get what is coming to them.... Here are a few ideas for making sure you have proper beneficiary information when it is needed[.]" (Ferenczy Benefits Law Center)
[Guidance Overview] IRS Provides Relief for Improper Exclusion of Part-Time Employees from 403(b) Plan Participation
"According to [Notice 2018-95], a 403(b) plan with a provision to exclude employees working less than 20 hours per week will not be considered noncompliant if it did not consider such employees eligible to participate in the 403(b) plan on an ongoing basis once those employees first completed 1,000 hours of service. The Notice includes a 'Relief Period' and a 'Fresh Start.' " (Voya)
[Official Guidance] Text of 2018 IRS Publication 571: Tax-Sheltered Annuity Plans (403(b) Plans) for Employees of Public Schools and Certain Tax-Exempt Organizations (PDF)
22 pages; rev. Jan. 2019. "Beginning in 2018, as part of a provision contained in the Tax Cuts and Jobs Act of 2017, a retirement savings contribution credit may be claimed for the amount of contributions you make before January 1, 2026, to an ABLE account for which you are the designated beneficiary as defined by section 529A." (Internal Revenue Service [IRS])
Bill Would Allow Use of Retirement Plans to Provide Student Loan Repayment Benefits
"[Two U.S. senators] have introduced legislation that would allow 401(k), 403(b) and SIMPLE retirement plan sponsors to use their plans to provide student loan repayment benefits to employees. The Retirement Parity for Student Loans Act would permit these plan sponsors to make matching contributions to workers as if their student loan payments were salary reduction contributions.... The benefit cannot be provided to workers who are not eligible to participate in the retirement plan." (PLANSPONSOR)
[Guidance Overview] Relief for 403(b) Plans Regarding the Exclusion of Part-Time Employees
"During the Relief Period, a section 403(b) pre-approved plan will not be treated as failing to satisfy the conditions of the part-time exclusion or failing to follow plan terms in light of a failure to follow the OIAI exclusion condition, and is not required to be amended to reflect that the plan failed to apply the OIAI exclusion condition. For individually designed plans, an employer has until March 31, 2020, the end of the current remedial amendment period, to amend plan language to reflect the actual application of the OIAI exclusion condition." (Groom Law Group)
[Guidance Overview] Important Guidance and Relief for 403(b) Plan Sponsors Who Exclude Part-Time Employees
"[Notice 2018-95] contains many conditions to qualify for the relief. It also does not provide blanket relief covering all potential administrative issues involving the exclusion of part-time workers. So, just as important as the relief itself is what the relief does not cover, serving as an important reminder to plan sponsors about the circumstances in which part-time employees may be excluded from 403(b) plans." (Jackson Lewis P.C.)
[Guidance Overview] IRS Formalizes and Provides Relief for Section 403(b) 'Once-In-Always-In' Part-Time Rule -- Immediate Action Required
"This appears to be yet another instance where an unrelated retirement plan requirement -- in this case, under ERISA -- is imported through the section 403(b) tax regulations and generally extended to section 403(b) programs.... The plan document relief is highly pragmatic; pre-approved documents are widely in use for section 403(b) programs, and the need to adopt plan amendments is limited to the smaller population of individually designed plans ... The operational relief is less pragmatic, in that the Notice requires all section 403(b) programs potentially to be dealing with its implications in January 2019, less than a month after its release." (Eversheds Sutherland)
Litigation Lessons for 401(k) and 403(b) Fiduciaries: Apply These in 2019
"[1] Your process matters.... [2] Put it in writing.... [3] Know and review your options.... [4] Understand target date funds.... [5] Benchmark plan fees ... [6] Retain an expert to help you.... [7] Consult outside counsel when necessary.... [8] Hold regular committee meetings.... [9] Review your providers.... [10] Schedule regular RFPs." (Cohen & Buckmann, P.C.)
[Guidance Overview] IRS Provides 403(b) Plan Relief for Improper Exclusion of Part-Time Employees
"Employers must begin to operate the part-time employee exclusion under their 403(b) plans correctly for the plan year immediately following the transition relief period, which will mean as soon as January 1, 2019 for many 403(b) plan sponsors.... [M]any employers will need to amend their 403(b) plans to properly reflect the conditions that must be satisfied to exclude part-time employees from 403(b) plan participation." (McDermott Will & Emery)
A Solution to What Shouldn't Be a Problem? IRS Provides Some 403(b) Universal Availability Relief
"[Notice 2018-95] provides some temporary relief from this [Once-In-Always-In] requirement until 12/31/19 for most plans ... But once 2020 rolls around, we will be back to business as usual regarding the rules.... [H]ere are the cliff notes: the rules for excluding employees is a complicated three-part test that requires extensive counting of individual employee hours worked.... Sometimes plan sponsors just make it hard on themselves by electing to administer impossible retirement plan provisions that provide minimal cost savings. This is one of those provisions." (Cammack Retirement Group)
[Guidance Overview] IRS Announces Transition Relief for Excluding Part-Time Employees Under 403(b) Plans
"If a 403(b) plan provides that the preceding-year exclusion is determined on a plan year basis, the Relief Period ends on the last day of the last plan year that ends before December 31, 2019. If a 403(b) plan provides that the preceding-year exclusion is determined based upon an employee's anniversary year, the Relief Period will end on different dates for different employees based upon the date of each employee's anniversary of employment, but no later than December 31, 2019." (Proskauer Rose LLP)
[Guidance Overview] IRS Announces Transition Relief from the Once-In-Always-In Requirement for Excluding Part-Time Employees Under 403(b) Plans
"[F]or purposes of excluding part-time employees, the Final Regulations impose three distinct conditions that employers must satisfy for an employee to be excluded.... Many employers applied the first-year exclusion condition for an employee's first year and applied the preceding-year exclusion condition separately for each succeeding Exclusion Year, but did not apply the OIAI requirement to prevent an employee who failed to meet either the first-year exclusion condition or the preceding-year exclusion condition from being excluded in all subsequent Exclusion Years." (Proskauer's ERISA Practice Center)
[Guidance Overview] The Ins and Outs of 403(b) Deferrals -- IRS Solves the Problem
"[T]here are many 403(b) plans ... that have operated for years in good faith under the in-and-out rule. Most 403(b) plans are now being restated onto preapproved documents, with a retroactive effective date of 2010. The plan language contradicts the plans' operations for nearly a decade, thereby running the risk that the IRS would consider those operations as failures to comply with Section 403(b) -- a potentially very costly result.... Notice 2018‑95 addresses this issue in several ways." (Ferenczy Benefits Law Center)
[Guidance Overview] IRS Provides Relief for 403(b) Plans Regarding Part-Time Employee Exception to Universal Availability Requirement
"Notice 2018‑95 provides transition relief ... in response to comments indicating that many employers did not apply the ['once-in-always-in'] exclusion condition when an employee failed to meet the first-year or preceding-year exclusion condition.... The Notice provides for a 'fresh start opportunity' for plans after the relief period ends for exclusion periods beginning on or after January 1, 2019." (Thomson Reuters Practical Law)
[Guidance Overview] Tax-Exempt Employers: IRS Issues Relief from Confusing 403(b) Eligibility Requirement Applicable to Part-Time Employees
"403(b) plans that had improperly excluded part-time employees ... will not be considered as having failed to satisfy the universal availability requirement, provided that such plans were consistently administered under the first year and preceding year exclusion conditions.... This relief is extended [by Notice 2018‑95] for the period starting with the first tax year beginning after December 31, 2008, ... and through the last exclusion year that ends before December 31, 2019." (Seyfarth Shaw LLP)
A Close Look at ERISA 403(b) Plans, 2015 (PDF)
68 pages. "In 2015, four-fifths of large ERISA 403(b) plans covering nearly three-quarters of large ERISA 403(b) plan participants had employer contributions.... 37 percent [of these plans] had automatic employer contributions, 60 percent had simple matches, and 16 percent had both of these features ... 55 percent of large ERISA 403(b) plans had participant loans outstanding ... The average large ERISA 403(b) plan offered 27 core investment options in 2015[.]" (BrightScope and Investment Company Institute [ICI])
The Proposed Hardship Distribution Regs: Some Misconceptions
"Plan sponsors are NOT required to eliminate the provision that borrowing be exhausted in order to take a hardship distribution ... Plan sponsors MUST eliminate the requirement to suspend elective deferrals for six months following a hardship distribution ... These regulations have no effect on 457(b) plans." (Cammack Retirement Group)
[Official Guidance] Text of IRS Notice 2018-95: Relief from the Once-In-Always-In Condition for Excluding Part-Time Employees from Making Elective Deferrals Under a Section 403(b) Plan (PDF)
15 pages. "This notice provides transition relief from the 'once-in-always-in' (OIAI) condition for excluding part-time employees under Section 1.403(b)-5(b)(4)(iii)(B) of the Treasury Regulations. Under the OIAI exclusion condition, for a Section 403(b) plan that excludes part-time employees from making elective deferrals, once an employee is eligible to make elective deferrals, the employee may not be excluded from making elective deferrals in any later exclusion year ... on the basis that the employee is a part-time employee. In addition, in applying the OIAI exclusion condition for exclusion years after the transition relief ends, this notice provides a fresh-start opportunity for plans." (Internal Revenue Service [IRS])
[Guidance Overview] Proposed IRS Regulations for Hardship Distributions Offer Welcome Guidance
"While the expansion of available sources for hardship distributions and the elimination of the requirement that a participant first take a plan loan are voluntary changes, the proposed regulations require that, for any hardship distribution made on or after January 1, 2020, a plan may not impose the six-month suspension of employee contributions as a condition of obtaining the distribution." (Pepper Hamilton LLP)
2018 End of Year Plan Sponsor 'To Do' List: Qualified Retirement Plans
Action Items for: [1] All qualified plans; [2] Section 401(k) plans; [3] Defined contribution plans (other than Section 401(k) plans); [4] Defined benefit plans; and [5] Section 403(b) plans. (Snell & Wilmer)
Court Dismisses Fiduciary Breach Lawsuit Against Washington University 403(b) Retirement Plans
"Plaintiffs alleged that [fiduciaries]: ... [1] paid too much for recordkeeping and administrative services; [2] caused losses to plan participants by offering only retail class funds, when lower-cost institutional fund options were available; and [3] failed to remove poorly performing funds.... The judge ... [found] that the university satisfied its duty to offer an acceptable array of investment funds with reasonable fees, and that no facts indicated that the fiduciaries failed to use a prudent process in selecting plan investment options." [Davis v. Washington Univ. in St. Louis, No. 17-1641 (E.D. Mo. Sept. 28, 2018)] (Hodgson Russ LLP)
[Official Guidance] Text of IRS FAQs on 403(b) Pre-Approved Plan Program: Eligible Adopting Employers and Reliance on Letters
"Who can adopt a 403(b) prototype or volume submitter specimen plan? ... What is an IRS opinion or advisory letter for a 403(b) pre-approved plan? ... To what extent can an adopting employer rely on a 403(b) prototype plan's opinion letter? ... To what extent can an adopting employer rely on a 403(b) volume submitter plan's advisory letter?" (Internal Revenue Service [IRS])
[Guidance Overview] IRS Issues Proposed Regs for Hardship Distributions
"[1] Clarification of Code Section 165 casualty loss deduction ... [2] Additional safe harbor for certain disasters ... [3] Extension of relief for victims of Hurricanes Florence and Michael ... [4] Elimination of six-month suspension period ... [5] Elimination of requirement that participant take all available plan loans ... [6] Expansion of available sources ... [7] Elimination of 'facts and circumstances' test ... [8] Plan amendment deadlines." (Ice Miller LLP)
[Guidance Overview] IRS Proposes Hardship Distribution Regs, Including Some Permanent Disaster Relief
"Employers that treat property damage to a principal residence as an eligible hardship even if unrelated to a federally declared disaster must amend their plans to exclude the condition that the loss be of a type deductible based on the current 401(k) regulation, assuming they plan to conform to the revised safe harbor list.... [The proposed disaster] criterion is different from ... earlier announcements ... First, it does not provide relief from documentation protocols, and second, it does not draw in expenses for participants with lineal ascendants or descendants, spouses or dependents who lived or worked in an area impacted by the disaster." (Buck)
[Guidance Overview] IRS Proposes Changes to Hardship Distribution Regs
"[B]efore the end of the year, plan sponsors are encouraged to ... [1] Review hardship distribution provisions in Code Sec. 401(k) and 403(b) plan documents. [2] Determine which of the modifications described in the proposed regulation apply to the plan, and when or whether to implement any changes, including the adoption of related plan amendments. [3] Review and discuss any operational changes ... with third-party administrators." (McGuireWoods)
Year-End Compliance Reminders for Defined Contribution Plans Subject to ERISA (PDF)
"Every year, plan sponsors must make sure their plans meet certain compliance requirements ... This publication identifies the materials you need to review and will help you prepare for year-end." (Prudential)
[Guidance Overview] Proposed Amendments to the Hardship Distribution Regs (PDF)
"[This article includes] a table reflecting the various effective/applicability dates.... The Proposed Regulations make it automatic that a hardship distribution for those in FEMA-designated areas is permissible when there is a major federally declared disaster ... [T]he Proposed Regulations allow a plan to retroactively apply the new disaster event [rules] for 2018.... Employers will need to make operational decisions to implement changes under the Proposed Regulations prior to adopting a plan amendment.... A Hardship Distribution Operational Checklist will be helpful in this regard." (ASC)
New Hardship Rules, Other Statutory Changes Reflected in Newly Proposed 401(k) Regulations
"The stance taken by the IRS with regard to hardship distributions for casualty losses was unexpected.... [T]he proposed regulations allow (but do not require) plans to eliminate the requirement to suspend contributions for six months on the first day of the first plan year beginning on or after December 31, 2018, even if the hardship distribution was made prior to that date." (Newport Group)
How to Contribute to Multiple 401(k)s
"If you are one of the over 7 million who have more than one job, you could have the opportunity to make salary deferral contributions to more than one 401(k) plan. When doing so, you must take care not to exceed the statutory limit of $18,500 for 2018/ $19,000 for 2019, plus any catch-up contributions for which you are eligible. This is a 'per person' limit.... If you participate in a governmental 457(b) plan, you may defer up to 100% of your compensation, up to $18,500 for 2018/ $19,000 for 2019, plus catch-up contributions of $6,000 if you are eligible. This is in addition to (separate from) any salary deferral contributions that you make to a 401(k) plan." (Denise Appleby, via Forbes)
[Guidance Overview] IRS Proposes Regs on Hardship Withdrawals
"Although 403(b) plans generally follow the hardship rules applicable to 401(k) plans, the proposed regulations do not modify the 403(b) rules to permit withdrawal of earnings on 403(b) elective deferrals or QNECs/QMACs that are in custodial accounts.... 403(b) plan sponsors will need to exercise care when amending their plans to comply with BBA 2018 and the proposed regulations." (Morgan Lewis)
[Guidance Overview] IRS Issues Much Anticipated Hardship Guidance
"The proposed regulations generally address: [1] the required elimination of the post-withdrawal suspension of elective deferrals, [2] the optional elimination of the requirement for participants to take plan loans first, [3] the ability to include additional plan account sources in hardship distributions, [4] changes in the ability to qualify for a hardship distribution in the case of casualty losses and losses associated with federal disaster areas, and [5] changes in the administrative process required to document that a participant has demonstrated the requisite financial need." (Groom Law Group)
Fiduciary Liability Claim Trends (PDF)
10 pages. "While insurers have not reacted in a unified way, the claim environment has become much more active and severe during the past 24‑36 months, highlighted by well-publicized excessive fee litigation under ERISA. This ... report discusses ... the many excessive fee cases brought against universities, why proprietary funds are more challenging risks, and recent results from a Boston College study examining the causes and consequences of 401(k) lawsuits." (Lockton)
[Guidance Overview] Select Limits, Hardship Withdrawal Changes and a Rollover Automation Option
"[T]he employer or plan sponsor needs to contact its plan's record keeper to determine when their system might be updated to accommodate the new options under the proposed regulations. Some of the provisions in the proposed regulations can be effective earlier than Plan years beginning on or after January 1, 2020, but the systems need to be ready to support the plan changes and record keepers may wait for final regulations before commencing the programming changes." (Winstead PC)
Improving Retirement Savings for America's Public Educators (PDF)
"[T]he number one factor driving participation and savings rates in school districts is participant choice.... [1] There is 25% greater participation in plans with 15 or more investment providers compared to plans with only one provider. [2] On average, account balances are 73% higher among plans with 15 or more providers compared to single provider arrangements. [3] There is a 203% increase in average contribution rates among plans providing access to 15 or more providers compared to plans with only one provider. [4] Single provider arrangements have the lowest participation rate; 8% below the national average." (National Tax-Deferred Savings Association [NTSA])
Reminders of What's New for Plan Sponsors in 2019
"All plans: New claims procedures regulations for disability benefits claims, after multiple delays, have finally been set.... Retirement Plans: Plan participants no longer need to take the maximum available loan under the plan before requesting a hardship withdrawal for plan years beginning in 2018 ... BBA changes to hardship withdrawals are likely to require a plan amendment to be adopted on or before the end of the 2019 plan year, and a summary of material modifications to be issued soon thereafter.... Health Plans: The IRS ... [set] the 2019 affordability threshold for the ACA employer mandate at 9.86 percent." (Findley)
[Guidance Overview] New Hardship Distribution Guidance Brings Several Surprises
"Depending on when a plan sponsor eliminates the 401(k) suspension period, there could be related consequences for administration of the nonqualified deferred compensation plan.... [E]arnings on pre-tax deferrals made to a 403(b) plan continue to be ineligible for hardship distributions. However, QNECs and QMACs would be eligible for hardship distributions in a section 403(b) plan that is not in a custodial account." (Proskauer's ERISA Practice Center)
[Official Guidance] Text of IRS Notice of Proposed Rulemaking: Hardship Distributions of Elective Contributions, Qualified Matching Contributions, Qualified Nonelective Contributions, and Earnings
26 pages. "This document contains proposed amendments to the regulations relating to hardship distributions from section 401(k) plans ... to reflect: [1] the enactment of [a] sections 41113 and 41114 of BBA 2018, [b] sections 826 and 827 of PPA '06, and [c] section 105(b)(1)(A) of the HEART Act; and [2] the application of the hardship distribution rules in light of the modification to the casualty loss deduction rules made by section 11044 of the TCJA....

"The proposed regulations modify the safe harbor list of expenses in current Section 1.401(k)-1(d)(3)(iii)(B) for which distributions are deemed to be made on account of an immediate and heavy financial need by: [1] adding 'primary beneficiary under the plan' as an individual for whom qualifying medical, educational, and funeral expenses may be incurred; [2] modifying the expense listed in Section 1.401(k)-1(d)(3)(iii)(B)(6) (relating to damage to a principal residence that would qualify for a casualty deduction under section 165) to provide that for this purpose the new limitations in section 165(h)(5) (added by section 11044 of the TCJA) do not apply; and [3] adding a new type of expense to the list, relating to expenses incurred as a result of certain disasters....

"Pursuant to BBA 2018 sections 41113 and 41114, the proposed regulations modify the rules for determining whether a distribution is necessary to satisfy an immediate and heavy financial need by eliminating [1] any requirement that an employee be prohibited from making elective contributions and employee contributions after receipt of a hardship distribution, and [2] any requirement to take plan loans prior to obtaining a hardship distribution.... In addition, the proposed regulations eliminate the rules in current Section 1.401(k)-1(d)(3)(iv)(B) (under which the determination of whether a distribution is necessary to satisfy a financial need is based on all the relevant facts and circumstances) and provide one general standard for determining whether a distribution is necessary....

"Pursuant to section 41114 of BBA 2018, the proposed regulations modify Section 1.401(k)-1(d)(3) to permit hardship distributions from section 401(k) plans of elective contributions, QNECs, QMACs, and earnings on these amounts, regardless of when contributed or earned....

"[T]he proposed new rules relating to a hardship distribution of elective contributions from a section 401(k) plan generally apply to section 403(b) plans. However, Code section 403(b)(11) was not amended by section 41114 of BBA 2018; therefore, income attributable to section 403(b) elective deferrals continues to be ineligible for distribution on account of hardship....

"The Treasury Department and the IRS realize that employees adversely affected by Hurricane Florence or Hurricane Michael may need expedited access to plan funds. Accordingly, the relief provided under Announcement 2017‑15 is extended to similarly situated victims of Hurricanes Florence and Michael, except that the 'Incident Dates' (as defined in that announcement) are as specified by FEMA for these 2018 hurricanes, relief is provided through March 15, 2019, and any necessary amendments must be made no later than the deadline for plan amendments set forth in this preamble under Plan Amendments." (Internal Revenue Service [IRS])

Making Sure 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable', Part 1
"The most effective way to meet this fiduciary requirement is a Request for Proposals (RFP) process, typically run every three-to-five years.... The 401(k) and 403(b) markets are extremely competitive. They are constantly evolving and changing.... [S]omewhere between 5‑10% of plans go out to bid each year. A fraction of those actually make a change in their provider. Most, as a result of the process, achieve service and value advances." (Fiduciary Plan Governance, LLC)
[Guidance Overview] 401(k) Deferral Limit Increases to $19,000 for 2019; IRA Limit Increases to $6,000
"The IRS today issued technical guidance detailing these items in Notice 2018‑83.... The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver's credit all increased for 2019." (Internal Revenue Service [IRS])
[Official Guidance] Text of IRS Notice 2018-83: 2019 Adjusted Limitations (PDF)
"Effective January 1, 2019, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $220,000 to $225,000.... The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.... The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $18,500 to $19,000. The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $275,000 to $280,000.... The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,500 to $6,000." (Internal Revenue Service [IRS])
Your Retirement Plan Participants May Be Hiring Advisors and Using Plan Assets to Pay for Them
"While such arrangements are ostensibly approved at some point, usually when the plan was first established, or when the recordkeeper first made the option available and a participant wished to sign up, they often have not been revisited since the time of establishment.... [S]tandards are not all that stringent, with advisors permitted to charge as much as 2% or more in fees, and advisors with multiple SEC enforcement actions against them being permitted to participate. Obviously, this can be an issue from a fiduciary perspective, particularly for ERISA plans." (Cammack Retirement Group)
Best Interest and Best Practices, Part 6
"This article discusses the fundamentals of a good process and the lessons learned from the NYU decision. The NYU committee met quarterly.... The committee used an adviser with expertise with similar plans.... The committee adopted and followed an investment policy statement.... However, the committee in the NYU case also made some mistakes. Based on the judge's description, some of the committee members were not engaged and did not see themselves as being responsible for making fiduciary decisions.... Those people should not have been on the plan committee." (
Annuity General Accounts vs. Separate Accounts (PDF)
"In the simplest terms, the primary difference between the two types of accounts is that a general account is subject to the creditors of the insurance company, while the separate account is not subject to creditors. Here are the full definitions of each[.]" (Groom Law Group via PLANSPONSOR)
Another 403(b) Plan Sponsor Beats Back Fee Lawsuit
"The Washington University lawsuit, which was filed in June 2017, alleged that the university violated its fiduciary duty to the plan by causing participants to overpay for record keeping and administration and investment management, as well as failing to address fund underperformance." [Davis v. Washington Univ. in St. Louis, No. 17-1641 (E.D. Mo. Sept. 28, 2018)] (InvestmentNews)
Summary of 403(b) Plan Survey Results: Many Organizations Adopt Best Practice Designs
"The use of an investment advisor who acts as a plan fiduciary has increased by 40 percent in just 4 years ... The use of automatic enrollment increased by 45 percent from 2008, and is now used by nearly a quarter of plans (23.9%).... [N]early 60 percent of plans have an investment policy statement, up from 46 percent in 2008.... The number of employers making Roth contributions available to employees is up 169 percent from 2010 (13.9 percent) to 2018 (37.4 percent). Nearly half of plans with more than 1,000 workers now offer Roth." (Plan Sponsor Council of America [PSCA])
Duke University Case Reshuffles Human Resources Priorities
"Revenue sharing arrangements like those revealed in the Duke case are common and widespread throughout the higher education community, according to many legal observers. Scores of institutions that sponsor 403(b) plans adhere to such a revenue sharing design strategy in order to augment their human resources budgets.... The Duke University cases, combined with similar lawsuits filed against dozens of other institutions, have provided the plaintiff bar with a thorough education about the flaws that exist in multi-vendor 403(b) plan models." (Roland|Criss)
Voluntary Supplemental 403(b) Created in Illinois
"[Public Act 100-0769 provides] that: [1] the public employee benefit system shall offer a defined contribution benefit to its active members; [2] the defined contribution benefit shall collect optional employee and optional employer contributions into an account and shall offer investment options to participants; ... [3] the system shall utilize generally accepted practices in creating and maintaining the benefit for the participants' best interest; ... and [4] the system must report annually on participation in the benefit and make that report public." (National Tax-Deferred Savings Association [NTSA])
Non-ERISA 403(b) Plan Sponsor Cited for Late Deposit of Deferrals
"Among other things, the school board has asked the charter school to provide documentation that the affected participants have been notified of the delay of the transfer of contributions and to submit a plan to address any potential investment losses by employees as a result of the late transfer of contributions." (planadviser)
[Guidance Overview] SEC Proposed 'Modernization' of Fund Report Delivery Rules Impacts Both 403(b) and 401(a) Plans
"One of the more difficult problems arising from the use of omnibus trading platforms by trust companies is the ability to delivery fund reports (including things like proxy materials to the fiduciaries of these plans).... The transfer agent usually passes on this responsibility to the omnibus platform, and the omnibus platform passes on this responsibility to the trust company or other fiduciary.... [T]he electronic delivery rules [proposed by the SEC], if implemented, will help make the current system work more reliably." (Business of Benefits)
ERISA Fiduciaries Can Learn Lessons from NYU's Victory in 403(b) Fees Case
"NYU's victory was the first to come after a trial ... Despite a total defense verdict and a finding that the committee members managing NYU's plans did not violate their fiduciary duties, the trial court nonetheless found that some committee members who testified 'displayed a concerning lack of knowledge.' Here are some tips for ERISA fiduciaries culled from the case." (Greensfelder)
[Guidance Overview] Text of IRS Publication 4546: 403(b) Plan Checklist (PDF)
Rev. July 2018. "Every year it's important that you review the requirements for operating your 403(b) retirement plan. Use this checklist to help you keep your plan in compliance with many of the important rules. For additional information (including examples) on how to find, fix and avoid each mistake, click on [the corresponding hypertext link in the IRS publication]." (Internal Revenue Service [IRS])
NYU Prevails in Lawsuit Over Employee Retirement Plans
"U.S. District Judge Katherine Forrest said the plaintiffs failed to prove that NYU's retirement plan committee acted imprudently or caused losses by saddling them with poorly performing investment options and excessive recordkeeping fees.... The plaintiffs included six professors and an instructor who said NYU's imprudence caused more than $358 million of losses at two 403(b) plans[.]" [Sacerdote v. New York Univ., No. 16-6284 (S.D.N.Y. July 31, 2018)] (Reuters)
Lessons for Defined Contribution Plan Fiduciaries from Current Litigation
"The court ... dismissed claims involving the number of investment options offered under the University's 403(b) plans, and asset-based fee and revenue sharing arrangements. However, the court declined to dismiss [claims that]: [1] Fiduciaries acted imprudently by using more than one recordkeeper and by failing to engage in a competitive bidding process for administrative services for the plans; [2] The plans paid significantly too much for recordkeeping services compared to market rates; and [3] Fiduciaries caused the plans to incur excessive investment management fees and losses by retaining expensive funds with inferior historical performance." [Short v. Brown Univ., No. 17-318 (D.R.I. July 11, 2018)] (Hanson Bridgett LLP)
USC Can't Force Arbitration of Retirement Fee Lawsuit
"The University of Southern California can't force its retirement plan investors to take their fiduciary breach claims to arbitration, a federal appeals court ruled. The decision could be a blow to litigants such as Franklin Templeton and Charles Schwab Corp., which are currently trying to force their workers' fiduciary breach claims under [ERISA] to arbitration." [Munro v. Univ. of Southern Calif., No. 17-55550 (9th Cir. July 24, 2018)] (Bloomberg BNA)
Brown University Only Partially Successful in 403(b) Lawsuit
"[The court] allowed plaintiffs to proceed with claims relating to record-keeping services, including engaging more than one record-keeper, incurring excessive administrative fees and failing to conduct a competitive record-keeping bidding process. Of note, the court indicated that whether particular record-keeping fees are excessive involves questions of fact that cannot be resolved on a motion to dismiss." [Short v. Brown Univ., No. 17-318 (D.R.I. July 11, 2018)] (McDermott Will & Emery)
Proposal Would Create Private-Sector Version of Thrift Savings Plan
"The proposed American Savings Act would make available to workers without workplace access to a retirement savings plan ... with the same low-fee investment options that are in the TSP.... [E]mployers not now offering plans would send 3% of workers' earnings to the accounts, but employees can lower that to 2%, raise it to as much as $18,000 per year, or opt out entirely. Participants could roll in their existing individual retirement accounts, or roll ASA funds into an employer-sponsored 401(k) or 403(b) plan." (Pensions & Investments)
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