Retirement Plans Newsletter

February 2, 2016

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[Guidance Overview]

IRS Publication 4222: 401(k) Plans for Small Businesses (PDF)
16 pages, dated Oct. 2015; a joint publication by the two agencies. "This publication highlights some of a 401(k) plan's advantages, some of your options and responsibilities as an employer operating a 401(k) plan, and the differences among the types of 401(k) plans. For more information, a list of resources for you and for 401(k) plan participants is included at the end of this booklet." (Internal Revenue Service [IRS] and Employee Benefits Security Administration [EBSA])  


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[Guidance Overview]

IRS Liberalizes Permitted Mid-Year Changes to Safe Harbor Plans
"[Notice 2016-16] doesn't require any additional notice or election conditions for changes to information that is not required safe harbor notice content, even if that information is provided in a plan's safe harbor notice.... If the required information about the mid-year change and its effective date was provided with the pre-plan year annual safe harbor notice, an updated safe harbor notice is not required." (Proskauer's ERISA Practice Center)  

[Guidance Overview]

IRS Issues Proposed Regs on Permissible Normal Retirement Ages for Governmental Plans (PDF)
"The new regulations ... in large part adopt many of the approaches that commenters for the public plan community have called for, most notably allowing normal retirement age to be based on years of service at any age ... Plans are still required to have normal retirement ages that are not earlier than the earliest age that is reasonably representative of the typical retirement age of the industry in which the covered workforce is employed. However, there are several safe harbors[.]" (Groom Law Group)  

House Committee Approves Legislation to Strengthen Protections for Retirement Savers, Ensure Access to Affordable Retirement Advice
"The House Committee on Education and the Workforce... [has] approved two bipartisan bills that will strengthen the retirement security of working Americans: the Affordable Retirement Advice Protection Act (H.R. 4293), introduced by Rep. Phil Roe (R-TN), and the Strengthening Access to Valuable Education and Retirement Support Act (H.R. 4294), introduced by Rep. Peter Roskam (R-IL). The complementary proposals will require financial advisors to serve their clients' best interests and protect access to high-quality, affordable retirement advice." [Video of Feb. 2 Committee hearing is available online.] (Committee on Education and the Workforce, U.S. House of Representatives)  

A Primer on SEC Money Market Fund Reform
"Liquidity restrictions, fees, and a floating NAV may make MMFs less desirable to participants under the new rules.... Defined contribution (DC) recordkeepers may not be able to offer money market funds with redemption fees and gates on their investment platforms.... Plan fiduciaries will need to review (along with their advisor/consultant) their recordkeepers' platform and investment options, assess the current usage of impacted funds by plan participants, and decide which option is best for their plan." (Cammack Retirement Group)  


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IRS Clarifies Midyear Changes to Safe Harbor 401(k) Plans
"[Notice 2016-16] outlines the following changes that remain prohibited at midyear: [1] an increase in the number of completed years of service required for an employee to have a nonforfeitable right to his account balance under qualified automatic contribution arrangements; [2] a reduction or narrowing of the group of employees eligible to receive safe harbor contributions; [3] a switch in the type of safe harbor plan, such as moving from a traditional 401(k) safe harbor plan to a QACA safe harbor plan; and [4] a modification in, or addition of, a formula used to determine matching contributions, if the change increases the amount of the matching contributions." (Thompson SmartHR Manager)  

DOL Targeting the Failure to Timely Commence Retirement Plan Benefits to Participants
"While the investigation is in its early stages, it is still expanding, and the DOL has not indicated whether, and to what extent, it will continue to expand this investigation.... According to the DOL, fiduciaries who fail to maintain, and follow, procedures for ensuring payment of retirement benefits to participants (including lost participants) may have personal liability for any tax consequences to those participants." (Smith, Gambrell & Russell, LLP)  

Identifying Highly Compensated Employees
"In [an] instance involving a new employee with substantial compensation, the employee could positively impact the ADP test by contributing the maximum deferral. If otherwise excludible employees are not tested separately, the contribution would improve the ADP for the Non-Highly Compensated Employee population, and thus allow the HCE population to defer more, or receive less in excess distributions, as applicable. Conversely, an employer cannot exclude from the HCE population an employee who voluntarily terminates employment prior to earning $120,000 in their final year of employment if the person's compensation exceeded the threshold in the lookback year, making him an HCE." (Belfint Lyons & Shuman, CPAs)  

What Amgen and Tackett Tell Us About ERISA Litigation Trend Lines
"Two recent Supreme Court decisions, and a recent Sixth Circuit analysis on remand from the Supreme Court, offer a roadmap of sorts on ERISA litigation.... Expect a tougher road for plaintiffs to state claims upon which relief may be granted. Also expect stock drop and retiree welfare benefits litigation to shine a spotlight on an ERISA plan's privately-held stock investments, the ERISA duty of loyalty ... and plans and collective bargaining agreements that, from a plan sponsor perspective, are badly drafted." (Seyfarth Shaw LLP)  


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Ready! Fire! Aim? -- Evaluating TDF Plan Participant Behaviors, 2015 Update
16 pages. "Salary raise frequency seems to have stabilized, but average increases remain below pre-crisis levels.... Average starting contribution rates continue to fall, with subsequent average increases rising much more slowly.... A large number of participants continue to take sizable account loans.... Pre-retirement leakage remains unpredictable.... Most participants withdraw their entire account balances once they stop working, usually in a single withdrawal.... [C]urrent participant cash flow volatility, while generally in line with past findings, remains much more prevalent than might be expected." (J.P. Morgan Asset Management)  

Does Your TDF Stand Up to Scrutiny?
"This information graphic includes three steps that focus on target-date fund (TDF) costs, stability, and investor focus in the industry. It's a useful tool to help evaluate your TDF strategy." (Vanguard)  

January 2016 Pension Finance Update
"For the second straight year, pension sponsors suffered a significant setback in January, due to a combination of declining stock markets and lower long-term interest rates. Both model pension plans ... were down last month: Plan A dropped more than 6%, while Plan B lost almost 3%:" (October Three Consulting)  

State-Run Retirement Plans Could Offer a Fix for Future
"Just because the states want to help doesn't mean they know how to create an effective employee benefit plan. It also looks like it might not be that long before the country has 50 different versions of them. If employers haven't been paying attention to what states are now up to ... it's time they start." (StarTribune)  

The Benefits of Making a Formal Written Plan for Retirement
"Eighty percent of those with a formal written plan have estimated how many years their assets will last into retirement, nearly double of those who don't have a formal written plan (42 percent).... [P]re-retirees and retirees who have formal written retirement plans are more likely to roll over and consolidate their assets within two years. They are also more likely to convert a portion of their assets into an annuity within two years[.]" (LIMRA)  

Expense Risk in Retirement
"The most you can lose of your savings is 100% of your portfolio, but you can have unexpected expenses far greater than your savings -- a medical catastrophe, for example.... Most retirement research assumes that you will only spend a 'sustainable' amount of your savings portfolio ... but in reality, you will spend whatever life costs. Spending a sustainable amount of your portfolio is 'retirement savings insurance', not bankruptcy insurance." (The Retirement Cafe)  

Will the Explosion of Student Debt Widen the Retirement Security Gap?
"In 2013, 55 percent of households in their twenties had student debt, with an average amount of $31,000.... The analysis uses the National Retirement Risk Index (NRRI), which measures the percentage of working-age households 'at risk' of falling short in retirement. If NRRI households had started out with today's student debt levels, the Index would be 56.2 percent instead of the already alarming 51.6 percent." (Center for Retirement Research at Boston College)  

[Opinion]

White House Retirement Plan Budget Proposal Buzz Fizzles Flat with Experienced Pros
"Although the budget contained a repeat of similar items relating to retirement plans that had been included in previous years, much of the press reported as if this items were new. According to many experienced professionals, this perhaps misplaced adulation, however, appears to have missed the greater point -- the vast bulk of these proposed 'solutions' either ignore the current reality of the retirement plan landscape or, worse, are trying to solve the wrong problem." (Fiduciary News)  

[Opinion]

Exclusive Use of Advisor Benchmarking vs. Periodic Use of RFPs
"[T]hrough an RFP, plan sponsors not only get a chance to speak with other advisors and get their perspectives on how they can help companies manage their retirement plan, the RFP engages the plan sponsor in the process -- beginning with what is important to them when selecting or using a plan advisor. Engagement in their retirement plan by plan sponsors is key to a successful plan, and selecting the right plan advisor is arguably the most important decision they will make." (Fred Barstein, for National Association of Plan Advisors [NAPA])  

Benefits in General; Executive Compensation

Venue Selection Clauses Live to Fight Another Day
"Although it did not explicitly bless venue-selection clauses, the U.S. Supreme Court has denied review of a Sixth Circuit case, Smith v. Aegon Companies Pension Plan, which upheld a venue-selection clause in a retirement plan.... The Solicitor General did argue, however, that the Sixth Circuit's ruling is inconsistent with ERISA's broad objective of granting plan participants ready access to federal courts in order to enforce their rights under the statute, and that eliminating jurisdictional and procedural obstacles that would otherwise keep participants from enforcing their rights is one of the key principles underlying ERISA." (Nixon Peabody LLP)  

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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2016 BenefitsLink.com, Inc. All materials contained in this newsletter are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of BenefitsLink.com, Inc., or in the case of third party materials, the owner of that content. You may not alter or remove any trademark, copyright or other notice from copies of the content.

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