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[Guidance Overview]

DOL Fiduciary Rule Still Scheduled to Take Effect June 10, 2017
"In government-ese, the FAQ guidance provides that the regulations will be effective June 9, but then states that Firms and their advisors will become fiduciaries as of 11:59 p.m. on June 9, and must comply only after June 9.... Fiduciaries impacted by the regulations will temporarily benefit from a 'good faith' compliance standard through at least January 1, 2018.... The written disclosure requirements for certain prohibited transaction exemptions are still scheduled to take effect on January 1, 2018. Providing retirement plan information and general financial, investment and retirement information to plan participants is not considered fiduciary investment advice under the fiduciary rule."
Mazursky Constantine LLC


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[Guidance Overview]

Acosta's Approach: How the DOL Will Administer and Enforce the Fiduciary Rule (PDF)
"DOL has released a non-enforcement policy meant to encourage good faith compliance efforts and reduce the risk of litigation while the Fiduciary Rule continues to be in flux.... DOL clarified that this non-enforcement policy applies both to ERISA plans where it has enforcement authority and to IRAs where IRS has enforcement authority.... DOL provides color on communications it would consider not to be a recommendation under the Fiduciary Rule.... A series of questions provide guidance on the requirements of the BIC Exemption during the Transition Period.... DOL helpfully confirmed the industry's position by stating that a reasonable basis for belief that a counterparty is an independent fiduciary with financial expertise can be negative consent to a written representation."
Groom Law Group

[Guidance Overview]

Time is Right to Contact Recordkeepers About Hardship Substantiation
"The IRS's openness to substantiation in a summary form will be welcome news to many administrators and plan sponsors. But accepting summary substantiation will require careful review by the recordkeeper and, even with that review, administrators and sponsors will have to rely on participants to maintain records.... Plan sponsors should consider whether the efficiency from reduced documentation is worth the potential for headaches in an IRS audit."
Proskauer's ERISA Practice Center

Key Points on the Fiduciary Rule Phase-In
"The new definitions of who is a fiduciary will go into effect along with the impartial conduct standards on June 9 ... [T]here was always supposed to be a transition period for firms to be fully compliant with the best-interest contract exemption. That transition will now be easier.... [T]he department clarified that financial institutions have flexibility in designing their internal systems to ensure that their advisors give best-interest advice during the transition.... [T]he most likely area for adjustment is around the use of class action lawsuits as an enforcement mechanism."

The Courts, the Restatement of Trusts, ERISA and Fiduciary Liability
"Apparently some courts have lost sight of ERISA's stated goal, that being to protect workers and to help them prepare for retirement. A prudent pension plan investment option is one that is cost efficient, one whose benefits are at least commensurate with the extra cost involved. Consequently, a fund with higher costs, but commensurable returns, would be more prudent than a less expensive fund with a consistent history of relative underperformance. The problem for many plan sponsors and other plan fiduciaries is the history of consistent underperformance by many actively managed mutual funds relative to passively managed index funds."
The Prudent Investment Adviser Rules


EPCRS: Correct Plan Errors and Minimize Penalties

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May 31 webinar will discuss common retirement plan errors and pre-approved methods of correction, as well as tips and practices that can help avoid future problems. Presented by Blake C. MacKay, of Alston & Bird LLP. BenefitsLink discount

The Neuro-Fiduciary Framework: Using Neuroscience to Amplify Fiduciary Metrics
"Neuro-Fiduciary is a new industry term that has evolved to represent the use of neuroscience to help amplify, infuse, and improve the quality of a fiduciary's decision-making process.... Neuro-Fiduciary provides a framework that will enable the industry to make exponential strides in its understanding of three factors: what constitutes a prudent decision-making process; how the process should be communicated; and why the process increases the capacity to build trust."
Don Trone, via National Association of Plan Advisors [NAPA]

Will the Fiduciary Rule Save Investors Money?
"According to a Morningstar report, the implementation of the fiduciary rule will spark the launch of more than 3,500 shares of two new classes of low-fee offerings in individual retirement accounts.... [T]he idea behind the new share class is to create uniformity in what brokers are selling to avoid perceived favoritism. The question for investors is whether these new shares will yield any significant savings in their retirement portfolios over time."
U.S. News & World Report

The Latest on Higher Education Fee Litigation
"The University of Chicago lawsuit is very similar to the earlier 12 lawsuits, but additionally asserts that TIAA's loan program constitutes a prohibited transaction and that TIAA failed to disclose indirect fees related to that loan program. While the Schlichter Bogard & Denton law firm ... has filed the majority of these lawsuits, two have been filed by other law firms. This suggests that more law firms are likely to jump into the fray[.]"
Ice Miller LLP

Use of Indexed Funds Growing in DC Plans
"By year-end 2016, 51% of Vanguard DC plan assets were invested in indexed or passively managed options ... Since 2006, the percentage of Vanguard DC assets invested in index options has increased by 20 percentage points, a relative growth rate of 60%. Index target-date options were the fastest-growing asset class.... From 2006 to 2016, the average number of options offered increased from 20 to 27 because of the addition of index target-date options to plan menus."


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Safe Savings Rates with Real-World Income Growth
"[O]nce we account for more realistic 'earnings curves' of workers, it becomes clear that the decline in real earnings over the last 10-20 years of one's career may actually reduce the retirement need -- at least if we assume individuals prefer a smooth transition from pre-retirement to post-retirement spending. As a result, conventional assumptions may actually overstate the required savings rates for all but the top 20% of income earners, while understating the need for top earners (who advisors are most likely to be working with!)."
Nerd's Eye View

Economic Loss: The Hidden Cost of Prevailing Public Pension Plan Reforms (PDF)
28 pages. "76% of the money coming into public pensions comes from investment earnings. The same figure in 1940 was only 22%. The 2015 Census data show that state pensions are funded at a level of 76.3%... Using models and parameters developed through our 2015 analysis of empirical data, we estimate that if dismantling of pensions continues, the economy will suffer $3.3 trillion in damage in 2025.... Our analysis shows that in 2025 the economy is likely to grow at 4.00%, the same rate predicted by the Congressional Budget Office. 6 This rate, we project, will be dragged down to 3.29% if the dismantling of public pensions continues."
National Conference on Public Employee Retirement Systems [NCPERS]

How NC Public School Teachers Choose to Participate When 401(k), 403(b), and 457 Plans Are Offered Simultaneously
"This study examines the decisions [North Carolina public school] employees make and the implications for retirement saving in a multiplan environment. Key Insights: [1] A third of North Carolina public school employees contribute to a retirement plan. [2] Only a tenth of plan participants contribute to two or more plans. [3] Highly compensated employees show no tendency to use secondary plans to exceed annual contribution limits."
TIAA Institute

Trump's Budget Raises PBGC Multiemployer Premiums, Affects Federal Employee Benefits
"President Donald Trump's proposed budget for fiscal year 2018 ... calls for additional premiums paid to the [PBGC] by underfunded multiemployer pension plans by adding a variable rate premium and exit premiums similar to existing rates for single-employer plans. The changes are projected to raise an additional $16 billion to keep the multiemployer program solvent for the next 20 years, plus another $5 billion that would come from having multiemployer plans pay premiums faster, so that they fall within the 10-year federal budget window."
Pensions & Investments

Single Premium Pension Buy-Out Sales in U.S. Surpass $1.4 Billion in First Quarter 2017
"Total assets of buy-out products were nearly $99 billion at the end of the first quarter 2017, nearly 11 percent higher than first quarter 2016."
LIMRA Secure Retirement Institute


Acosta's Letter to WSJ Contains Double Message and One Long-Term Objective: Gut the Fiduciary Rule
"The [DOL] is allowing its fiduciary rule to go into effect with no further meddling -- but with a big wink-wink to Wall Street.... Labor Secretary Alexander Acosta delivered this bifurcated message to the nation's insurers and brokers via a carefully worded op-ed piece ... Though the essay's immediate takeaway is that the rule will be implemented June 9, Acosta let the financial industry know that the rule is only being kept alive to more effectively replace it."
Brooke Southall, via RIABiz


Trump Leads Attack on Retirement Security
"Trump's 2018 budget would make federal employees pay more for their pensions, while simultaneously cutting their retirement benefits. His proposal: [1] Increases employee contributions to FERS by 1 percent per year for 5 or 6 years. [2] Calculates pension benefits based on the highest five years of salary rather than the highest three years. [3] Eliminates cost of living adjustments (COLA) for current and future FERS employees."
National Public Pension Coalition

Discussions on
the BenefitsLink Message Boards

Funding of DB Plan While Waiver Application Pending
"A client with a traditional DB plan is interested in applying for a funding waiver. One of the biggest disadvantages (based on my experience) is that the IRS makes no promise as to when they will respond. So, how the plan should be funded while the waiver application is pending? Should we assume it will be approved and run the risk of missed contributions, late quarterlies and an excise tax if the waiver is rejected? Or should they continue funding assuming the waiver won't be approved -- in which case, what's the point?"
BenefitsLink Message Boards

1099R Distribution Code for Roth Conversion Rollover
"A terminated participant in a 401(k) plan elected to receive her distribution from the plan (all non-Roth 401(k) pre-tax salary deferrals) as a Roth Conversion Rollover (to her Roth IRA). I understand that this money will be taxable income for the year, so I assume that box 1 and 2 will both be the amount of the distribution. What would the distribution code be? I'm thinking a code 1 because it's taxable income, but it's a Roth conversion rollover so I am confused -- I don't see how it can be code G for a rollover, because it's taxable income."
BenefitsLink Message Boards

Inability to Make Required Minimum Distributions to Lost Participants: Any Leniency Under EPCRS?
"A plan will file a voluntary correction for late Required Minimum Distributions. Some are due to lost participants. Is the inability to make a payment due to inability to find a participant (despite multiple and varied efforts) a 'plan error'?"
BenefitsLink Message Boards

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Lois Baker, J.D., President
David Rhett Baker, J.D., Editor and Publisher
Holly Horton, Business Manager

BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2017, 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, 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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