Retirement Plans Newsletter

November 2, 2016

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[Guidance Overview]

Have a Safe Harbor 401(k) Plan? Annual Notice Deadline Coming Soon
"The notice must be provided to eligible employees no later than 30 to 90 days prior to the start of the plan year. For calendar year plans the deadline for providing the notice is approaching -- December 1.... [T]here are strict requirements ... that must be satisfied before the notice can be provided electronically.... [T]he plan is required to provide a hard copy if requested by participants."
Ice Miller LLP

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[Guidance Overview]

DOL Releases First FAQs on New Fiduciary Rule (PDF)
"DOL reiterated its prior finding that an applicability date of April 10, 2017, provides adequate time for retirement product and service providers to comply with the new requirements ... apparently signaling a disinclination at this time to extend the applicability date. DOL noted that its initial posture after the applicability date generally will be to render compliance assistance in support of efforts to diligently and in good faith come into compliance with the new rules, rather than to cite violations and impose penalties ... Because DOL will not be solely responsible for enforcement of these rules, however, it is not a certainty that DOL's appropriate view will always be controlling."
Sutherland Asbill & Brennan LLP

[Guidance Overview]

FAQs on New Fiduciary Rule Issued
"Discretionary 'level fee' advisers will be required to comply with the 'streamlined' BICE requirements in connection with any rollover recommendation ... Firms may charge higher fees for complex products that require, for example, greater due diligence, training and closer supervision, but will need to justify the basis for the increased costs and monitor recommendations between categories.... Variable back-end awards, bonuses and similar back-end incentives are not permitted under the BICE and cannot be offered on or after October 27, 2016 (the date the FAQs were issued)."
Warner Norcross & Judd LLP

[Guidance Overview]

Fiduciary Rule FAQs Challenge Back-End Recruitment Bonuses
"Back-end awards or bonus arrangements generally provide for contingent compensation based on preset asset or revenue targets extending over multiyear periods. The DOL is concerned that these types of awards 'significantly increase conflicts of interest for the advisers [dealing with retirement investors] . . . particularly as the adviser approaches the target' because the awards 'commonly result in large amounts of income to the adviser . . . on an 'all or nothing' basis.' Based on the concern above, the DOL concludes that 'financial institutions generally may not enter into such arrangements' when relying on the full BIC Exemption."
Morgan Lewis

[Guidance Overview]

DOL Issues First FAQ on Fiduciary Regulations Package (PDF)
"The recent FAQs deal exclusively with the PTEs. They are based on questions submitted to the DOL following the release of the final regulations and PTEs. According to Borzi, the second set of FAQs will provide additional details on the final regulations. The third set of FAQs will address miscellaneous issues not covered in the first two sets of FAQs."
Ascensus

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[Guidance Overview]

Interesting Angles on the DOL's Fiduciary Rule, Part 26
"[T]he reasonable compensation limitation is not new. It's been with us for decades. But, if that's the case, why hasn't there been more discussion and, in the bigger picture, more enforcement of the rule? ... [By] and large, the rule has been ignored.... IRA and plan investors will be able to pursue breach of contract claims for excess compensation.... [W]hile the law limiting the compensation of advisers (and Financial Institutions) is not new, the enforcement mechanism will be."
FredReish.com

[Guidance Overview]

Text of IRS Pub. 4587: Payroll Deduction IRAs for Small Businesses (PDF)
9 pages; rev. Oct. 2016. "A payroll deduction individual retirement account (IRA) is an easy way for businesses to give employees an opportunity to save for retirement. The employer sets up the payroll deduction IRA program with a bank, insurance company or other financial institution, and then the employees choose whether to participate and if so, how much they want deducted from their paychecks and deposited into the IRA. Employees may also have a choice of investments depending on the IRA provider."
Internal Revenue Service [IRS] and Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL]

Navigate the Compensation Options in 401(k) Plans
"Practices that can complicate nondiscrimination tests include: [1] Using different definitions of compensation for employee deferral and employer matches ... [2] Applying different vesting periods for employee deferrals (e.g., immediate eligibility), employer matching (e.g., six months of service) and employer nonelective profit-sharing contributions (e.g., one year of service)."
Society for Human Resource Management [SHRM]

You Want to Terminate Your Multiple Employer 401(k) Plan? Good Luck with That
"Employers lack the authority to terminate their portion of a MEP. With no distributable event triggered by a plan termination, 401k accounts can be trapped in a MEP until the participant terminates employment or becomes eligible for an in-service distribution. Trapping 401k accounts in a MEP can be problematic for 401k participants and fiduciaries. 401k fiduciaries must understand this issue if they are considering a MEP for their small business."
Employee Fiduciary

Church Plan Litigation Hits Adventist Hospital System
"The lawsuit ... claims that Adventist Health System's pension plans are underfunded by a combined $134 million. Like more than three dozen recent suits against Catholic and other religiously affiliated hospitals, this lawsuit attributes the underfunding to Adventist's improper reliance on a religious exemption from [ERISA]." [Sheedy v. Adventist Health Sys. Sunbelt Healthcare Corp., No. 16-1893 (M.D. Fla., complaint filed Oct. 28, 2016]
Bloomberg BNA

October 2016 Pension Finance Update
"October was a down month for investors, but pension sponsors were able to tread water, as the impact of higher interest rates on pension liabilities offset asset losses. Both model pension plans ... saw basically flat results on the month. Through October, Plan A is down almost 5% and the more conservative Plan B is down almost 1% on the year[.]"
October Three Consulting

The Social Security Retirement Age (PDF)
10 pages. "The full retirement age (FRA) is the age at which workers can claim full Social Security retired worker benefits. The size of the monthly benefits is affected by when the worker claims benefits. The worker's age when claiming benefits is compared with the FRA, and adjustments are made depending on the number of months before or after the FRA the worker claims benefits.... The FRA was 65 at the inception of Social Security, but has been gradually increased upwards, to 67 for those born in 1960 or later. Claiming benefits past age 70 does not increase the monthly benefits." [Report R44670, Oct. 28, 2016]
Congressional Research Service [CRS]

Age Banding to Model the Decline in Retirement Spending
"[P]rojecting retirement expenses using an age-banding approach may allow for a more nuanced and accurate representation of how spending will change over time. Which is important, because the data indicating that retiree expenses tend to fall throughout retirement -- especially in some categories -- implies that retirees may not actually need to be saving as much, or accumulating as large of a nest egg, to retire in the first place!"
Michael Kitces in Nerd's Eye View

Benefits in General

Retirement Balances Rise, A Sharp Increase in Adoption of Health Savings Accounts
"The average 401(k) balance rose for the second straight quarter, up 2 percent from Q2 and 7 percent year-over-year. The average IRA balance increased 5 percent from Q2 and 6 percent year-over-year.... In the past year, the number of HSAs provided by Fidelity grew 43 percent to 501,000, with an average HSA balance of $3,150.... [W]hile more people are using HSAs, they're not spending as much as they thought they would."
Fidelity

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David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
Holly Horton, Business Manager  hollyhorton@benefitslink.com

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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