Retirement Plans Newsletter

May 17, 2016

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[Official Guidance]

Text of IRS Final Regs: Removal of Allocation Rule for Disbursements from Designated Roth Accounts to Multiple Destinations
8 pages. "This document contains final regulations eliminating the requirement that each disbursement from a designated Roth account that is directly rolled over to an eligible retirement plan be treated as a separate distribution from any amount paid directly to the employee and therefore separately subject to the rule in section 72(e)(2) ... allocating pretax and after-tax amounts to each distribution. As a result of this change, if disbursements are made from a taxpayer's designated Roth account to the taxpayer and also to the taxpayer's Roth IRA or designated Roth account in a direct rollover, then pretax amounts will be allocated first to the direct rollover, rather than being allocated pro rata to each destination. Also, a taxpayer will be able to direct the allocation of pretax and after-tax amounts that are included in disbursements from a designated Roth account that are directly rolled over to multiple destinations, applying the same allocation rules to distributions from designated Roth accounts that apply to distributions from other types of accounts." (Internal Revenue Service [IRS])  


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[Official Guidance]

Text of Policy Statement by Massachusetts Securities Division: Robo-Advisers and State Investment Adviser Registration (PDF)
"[T]he Division is tasked with ensuring that all investment advisers meet the fiduciary obligations they assume when they provide investment advice for compensation. This policy statement is intended as guidance to robo-advisers seeking registration in the Commonwealth.... [It] is the position of the Division that fully automated robo-advisers, as currently structured, may be inherently unable to carry out the fiduciary obligations of a state-registered investment advisers." (Massachusetts Securities Division)  

2016 ERISA Advisory Council Issue Statement: Participant Plan Transfers and Account Consolidation (PDF)
"In 2015, in its investigation of plan cash-outs, the Council heard testimony that half of participants cashing out of the qualified plan environment would not have done so if it was as easy to roll assets into the plan of their current employer as it was to rollover to an IRA or to cash out. The testimony highlighted uncertainties about the process to initiate and complete transfer s in general.... The Council is examining this topic and intends to draft recommendations to the Secretary of Labor for consideration." (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])  

401(k) Investment Menu Best Practices
"How does your investment fund line-up compare to the marketplace? Do you have too many investment options or too few? Are you taking advantage of all the safe harbor options available to you? In this low return, low interest rate environment there is a new set of best practices to use for 401(k) plan menu construction[.]" (Lawton Retirement Plan Consultants)  

401(k) MEPs Reduce Downside Risk for Company Execs
"A well-structured MEP can still allow for significant flexibility in plan design, and also allow a choice of investment providers. However, if the client is insisting on using a certain product or service provider, they're probably going to be better served outside of a MEP arrangement.... A MEP -- whether open or closed -- can help the employer run their retirement plan in much the same manner as they handle all of their other employee benefit programs: they choose a provider, the provider assumes responsibility for the operation of the program, and the employer evaluates the program on an annual or more frequent basis." (Fiduciary News)  


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The Need for Fiduciary Certification and Training
"So far, there is no uniform set of answers to questions such as the following: How should in-house fiduciaries be selected? How should in-house fiduciaries (individually and as a group) be assessed in terms of demonstrating procedural prudence? Should in-house fiduciaries receive a bonus for achieving certain plan-specific goals? Does everyone on an investment committee need to be equally proficient in a particular subject area or should someone serve as a Sarbanes-Oxley type of 'financial expert?' Do in-house fiduciary term limits make sense? How do variables such as plan design and characteristics of the workforce impact the kind of fiduciary education needed?" (Pension Risk Matters)  

Participants Accuse M&T Bank of Self-Dealing in ERISA Plan
"The accusations of self-dealing are tied primarily to the plan fiduciaries' decision to offer and promote M&T Bank proprietary funds on the [DC] plan menu ... According to the text of the complaint, since at least late 2010, eight of the plan's 23 designated investment alternatives were M&T Bank proprietary mutual funds.... [The complaint states further that] 'Their expenses were on average approximately 90% higher than similar funds found in similarly sized defined contribution plans, and all but one of the M&T-affiliated funds had underperformed its benchmark index both over the past year and over the past ten years.' " (planadviser)  

States Seek to Boost Retirement Savings
"Maryland has just passed a law to require private-sector employers that aren't offering their employees retirement plan coverage to automatically enroll employees in the state-run IRA program.... Illinois, New Jersey and Washington have similar laws in place. California and Oregon have established committees to write legislative language for state-run retirement programs.... However, the Colorado legislature recently defeated a bill that would have provided a Roth-type IRA program funded by after-tax employee contributions." (Bloomberg BNA)  

[Opinion]

ICI Letter to IRS: Priority Guidance Plan Recommendations on Retirement Security Issues (PDF)
"We request that the Service finalize the proposed regulations ... under section 411(a)(11) to require disclosure of the consequences of failing to defer receipt of a distribution from a defined contribution plan.... We believe that formal guidance is now essential to clarify the Service's position on [hardship distributions] and we request that the Service issue, as soon as possible, a clarification that the newsletters do not represent the guidance referred to on the Priority Guidance Plan.... The Institute requests that the Service add the following retirement security matters to the 2016-2017 Priority Guidance Plan.... [1] guidance on 403(b) plan terminations ... [2] proper tax treatment of escheated amounts from retirement plans and IRAs ... [3] additional guidance permitting waivers of inadvertent violations of the one-per-year-limit on IRA rollovers in circumstances where the inadvertent violations are beyond the control of the IRA holder." (Investment Company Institute [ICI])  

Benefits in General

2016 ERISA Advisory Council Issue Statement: Cybersecurity Considerations for Benefit Plans (PDF)
"The 2016 Council will complement the work of the 2011 and 2015 Councils by focusing specifically on outlining the scalable elements of cyber risk management strategies for benefit plans. The goal of the 2016 Council is to offer the [DOL] draft materials that will help plan sponsors understand, evaluate and protect benefit plan data and assets from cybersecurity risks. While the 2011 Council focused solely on retirement plan privacy and security issues, the 2016 Council will examine the issues that may be common to retirement and health and welfare plans, especially in light of the growing similarities and inter-relationships between the two types of plans, and the proliferation of asset based health care accounts such as health savings accounts." (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])  

Executive Compensation and Nonqualified Plans

Agencies Invite Comment on Proposed Rule to Prohibit Incentive-Based Pay That Encourages Inappropriate Risk-Taking in Financial Institutions
"Six federal agencies are inviting public comment on a proposed rule to prohibit incentive-based compensation arrangements that encourage inappropriate risks at covered financial institutions. The deadline for comments on the proposed rule ... is July 22, 2016.... Much of the proposed rules would address requirements for senior executive officers and employees who are significant risk-takers at Level 1 and Level 2 institutions. All institutions that would be covered by the proposed rules would be required to annually document the structure of incentive-based compensation arrangements and retain those records for seven years." (U.S. Securities and Exchange Commission [SEC])  

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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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