Retirement Plans Newsletter

March 6, 2017

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[Guidance Overview]

Guidance to IRS Examiners on 401(k)/403(b) Hardship Withdrawals
"[A recent IRS memo to EP employees] is a welcome glimpse into the IRS's view of what might be acceptable in lieu of obtaining actual documentation upfront.... [E]mployers/TPAs should consider whether they prefer to continue requesting source documentation or align their programs with the memorandum. A possible risk with the alternative approach is the participant misplacing or being otherwise unable to produce the source documentation if requested."
Seyfarth Shaw LLP

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[Guidance Overview]

DOL Proposes June 9 Delay for Fiduciary Rule, Opens Comment Periods
"[OMB], upon concluding its review of a DOL notice submitted February 9 delaying implementation of the fiduciary rule, upgraded the impact of the delay, calling it 'economically significant.' ... The upgraded significance level of the delay could make it more difficult for the Trump administration to dismantle or alter the rule because a more detailed assessment of the rule's costs and benefits -- and suggestions of possible alternatives to it -- is required."
HR Daily Advisor

[Guidance Overview]

DOL Proposes Delay in Fiduciary Rule Implementation
"The DOL request for delay contains a lengthy description of topics the public could address in their comments.... What timing should be considered if the guidance is delayed further? Six months, 12 months, or longer? Have there already been investment innovations that can be attributed, even partially, to the guidance? Have there been increases or reductions in commissions, fees, or minimum balance requirements? Have financial organizations made changes to products, advisory services, or pricing? To what extent have compliance costs been incurred that cannot be reduced by further delay or revision? Are there specific provisions that could be amended to reduce compliance burdens and minimize disruptions?"
Ascensus

[Guidance Overview]

Fiduciary Rule -- Not Delayed Yet
"[T]he proposed delay will not be effective until the DOL issues a final rule. Until then, April 10, 2017, is still the rule's applicability date. As such, firms are advised to carefully consider their compliance strategies, business models, and communications with their representatives, employees, clients, and potential customers. Important here will be developing contingency plans to address the possibility of an April 10 or delayed effective date."
Morgan Lewis

Plan Sponsors Should Beware the Managed Account Default Option
"Increasingly, sponsors are signing up for managed accounts as the plan's default option ... [and] a growing number of providers offering lower administration fees in exchange for offering the managed account as the qualified default investment alternative. This makes it ever more important that those options are appropriately analyzed, selected and monitored to provide the highest level of service to plan participants. Organizations offering managed accounts face a particular challenge fulfilling their fiduciary duties, because while some employees are actively involved, typically a sizable percentage of employees fail to engage despite picking a self-directed option."
Pensions & Investments

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Connecticut Bill Would Require 403(b) Service Providers to Describe Services, Disclose Compensation
"Entitled 'An Act Requiring Service Providers Under Certain Retirement Plans to Disclose Conflicts of Interest,' the bill requires all service providers to 403(b) plans in Connecticut to describe their services and disclose all the direct and indirect compensation received for the services.... [T]he bill tasks the Connecticut Department of Treasury with adopting regulations regarding those disclosures with only one instruction: that such regulations be 'guided by' the [DOL's] 408(b)(2) regulation from 2012."
National Tax-Deferred Savings Association [NTSA]

The Emergence and Future of Tools to Measure Retirement Plan Health
"These comprehensive resources communicate crucial plan health data, such as plan participation rate, average employee salary deferral rate, number of employees eligible but not participating, and number of participants with appropriately allocated portfolios.... The tools often provide more holistic summaries of information and incorporate data visualizations, giving sponsors a more intuitive way to assess plan health than traditional reporting tools."
Corporate Insight

Millennial Wealth Accumulation: A Plan Sponsor's Guide (PDF)
"Members of this generation are less likely to have a pension than previous generations ... The Millennials who are investing to save for retirement may structure their portfolio too conservatively to minimize loss, but this also curtails potential gains in the process.... Millennials have two specific things working in their favor with regard to saving in your sponsored retirement plan, a long time horizon and the magic of compound interest."
Ekon Benefits

How Much Do You Know When It Comes to Preparing for Retirement?
"Even if there is some debate among professionals around how much the average person needs to save, nearly three-quarters (74 percent) of respondents underestimated how much is needed.... [N]early half (47 percent) underestimated how big an impact relatively small savings can have over time.... Thirty-eight percent of Americans estimated they would only need to make their hard-earned savings last for about 12-17 years, which could leave some at risk of running out of money in retirement.... While 17 percent of respondents answered [correctly that housing would be the largest expense in retirement] (and 13 percent of those aged 55-65), a larger number of respondents (69 percent) thought health care would be the largest expense."
Fidelity

Working Longer May Benefit Your Health
"Researchers have long assumed that only well-educated and healthier people benefit from working after a certain age. Lately, however, scholars and retirees themselves have been exploring an intriguing question with implications for both potential workers and policy makers: Is a job a force for keeping older people mentally and physically healthy?"
The New York Times; subscription may be required

California State Payroll Retirement Savings Plan Would Survive Withdrawal of DOL Regs
"A Secure Choice attorney ... told the board last week that the [DOL] regulation specifically says employees with no workplace retirement plan can be automatically enrolled in a state-mandated program that allows employees to opt out. But the regulation also says it's only the view of the Labor Department, not the only way to create an exemption, and the final determination of whether a program is exempt from federal pension law will be made by the courts.... [If] the regulation is repealed Secure Choice could return to the original plan to use the exemption provisions in the 1974 federal pension law, with some Labor guidance issued later."
Calpensions

[Opinion]

Year-End 401(k) Matching: A Good Thing?
"One of the benefits of regular contributions to a 401(k) plan is the ability to dollar cost average. The participants lose this benefit for the employer match.... Employees who are looking to change employers will be impacted as will employees who are being laid off by the company. If the annual match is perceived as less generous it might discourage some lower compensated workers from participating in the plan.... There are, however, some valid reasons why a plan sponsor might want to go the annual matching route[.]"
The Chicago Financial Planner

[Opinion]

Much Good Coming from Fiduciary Rule
"[A] lot of good [has] come from the fiduciary rule already.... [1] Many major investment companies are making changes to their fee structure.... [2] Investors are taking the time to educate themselves rather than blindly trust their advisers.... [3] Outlets are providing more and more education for investors.... [4] Hundreds of advisers are coming out of the woodwork to declare themselves 'Fee Only' and 'Fiduciaries' whether or not the rule goes into place."
Castle Rock Investment Company

[Opinion]

State IRA Plans Are Ready, If Congress Doesn't Interfere
"One could plausibly argue that these savings plans should be national in scope, and not relegated to the states. If that is the reasoning, the Senate would be better advised to enact legislation enabling a national automatic IRA program.... If it votes to override the rule using the strategy made possible by the Congressional Review Act, the state plans will be blocked and the Labor Department will be forbidden from considering new versions. Legislators can help Americans save for retirement by simply doing nothing."
The New York Times; subscription may be required

Benefits in General

[Guidance Overview]

The DOL's Revised Regs Applicable to Disability Benefit Claims
"The easiest requirement to meet will be the inclusion of a statement as to when the limitations period will expire ... Writing decisions in a culturally and linguistically appropriate manner also should not present too much difficulty.... Insurers and benefit plans will also need to instruct their claims personnel and any consultants they retain on how to address conflicting opinions and Social Security findings. It will no longer suffice to simply note disagreement or assert that Social Security utilizes different standards."
DeBofsky, Sherman & Casciari, PC

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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2017 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 those materials. You may not alter or remove any trademark, copyright or other notices from copies of the content.

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