Retirement Plans Newsletter

August 16, 2018

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The DOL's 'Plan Investment Conflicts Project' Is Showing Up in Its Plan Audits

"[The EBSA] 'Plan Investment Conflicts Project' ... appears to be using standard, plan level investigations to instigate reviews of selected practices of large financial service companies, as opposed to having to open large service provider investigations to get to the answers being sought.... This Project is actually consistent with the growing notion that retirement plan investment platforms have become commodities, and sophisticated ones at that, for which the platform should bear greater responsibilities instead of the sponsor."
Business of Benefits

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Illinois Governor Makes Secure Choice Retirement Program Optional for Employers

"Illinois Gov. Bruce Rauner issued an amendatory veto ... making it optional for employers to participate in the state's Secure Choice program. There now are three possible actions. Legislators could: approve the change; let die the technical changes bill to which Mr. Rauner's action applies; or override the amendatory veto."
Pensions & Investments

Ninth Circuit: ERISA Breach of Fiduciary Duty Claim Is Not Subject to Mandatory Arbitration Clause in an Employment Contract

"[The court of appeals] held that employees alleging an ERISA breach of fiduciary duty claim against their employer based on the employer's administration of defined-contribution plans may not be compelled to arbitrate their collective claims under the terms of the arbitration clause in their employment contracts because their claims were brought on behalf of the plans and not on their own behalf." [Munro v. Univ. of Southern Calif., No. 17-55550 (9th Cir. July 24, 2018)]
Robinson & Cole LLP

Editor's Pick Automatic Enrollment Is Cost-Effective Way to Boost Plan Participation

"Large majorities said they would not opt out if automatically enrolled, illustrating the power of automatic enrollment -- regardless of the change they identified as most likely to motivate them to contribute to a plan. In fact, there was no statistically significant difference among those who said they would remain enrolled, no matter the motivator, implying that automatic enrollment is a cost-effective approach to increasing participation regardless of the pressures workers faced or inducements from which they thought they would benefit."
The Pew Charitable Trusts

California Public Pension Funds Reviewing Investments Tied to Border Enforcement

"California's two largest public pensions are reviewing their investments in hedge funds and companies that have ties to the Trump administration's immigration enforcement efforts at the U.S.-Mexico border. Some of those companies include General Dynamics Corp ., GEO Group, and CoreCivic Inc. All three own or provide services to private prisons that have been used to detain immigrants.... Both pensions are considering their position, but generally favor engagement over divestment."
Bloomberg BNA

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Number of 401(k) Millionaires Hits Record High

"At the end of the second quarter, 168,000 people with 401(k)s managed by Fidelity Investments had at least $1 million in their accounts, a rise of 50,000 people from a year earlier when there were 118,000 ... While gaining, that exclusive group of savers is still just a fraction of the 16.1 million people who have a 401(k) account managed by the fund company."
USA TODAY

Account Balances Rebound, While Auto Enrollment Continues to Drive Positive Savings Behavior

"Average individual 401(k), 403(b) and IRA account balances bounce back from dip in Q1, show solid year-over-year growth.... Percentage of employees with a 401(k) loan drops to lowest level since 2009.... More millennials using IRAs for retirement savings.... Number of 401(k) and IRA millionaires continues to increase.... Employers are increasing the default savings rate in 401(k) plans.... Employees who are automatically enrolled stay in their plan.... Employees who are automatically enrolled tend to save more."
Fidelity

[Opinion]

Testimony of American Benefits Council to ERISA Advisory Council on Lifetime Income Solutions as a QDIA

"Almost two-thirds (64.47 percent) of plan sponsors not currently offering any kind of lifetime income in their defined contribution plan might consider lifetime income options in the future. So why aren't they offering it now? The most popular answer, with almost 60 percent selecting it, was potential fiduciary liability.... Other popular answers ... include [1] lack of demand from participants, [2] the need for education and communication to help participants understand and compare the options, and [3] the cost of providing lifetime income."
American Benefits Council

Executive Compensation
and Nonqualified Plans

Institutional Shareholder Services Releases its 2019 Policy Survey Questionnaire

"The Survey includes questions regarding the following compensation and corporation governance matters: [1] The ISS quantitative pay-for-performance methodology for evaluating U.S. and Canadian companies. [2] Non-employee director pay. [3] Gender diversity on Boards. [4] Board qualifications matrix. [5] Director accountability for service on other Boards."
Meridian Compensation Partners, LLC

CEO Compensation Surged in 2017

"The first measure includes stock options realized (in addition to salary, bonuses, restricted stock grants, and long-term incentive payouts). By this measure, in 2017 the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation, a 17.6 percent increase over 2016.... The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 ... [The authors also track] the value of stock options at the time they are granted. By this measure, CEO compensation rose to $13.3 million in 2017, up from $13.0 million in 2016."
Economic Policy Institute

Selected Discussions
on the BenefitsLink Message Boards

Missed Match for Employees Mistakenly Described as Ineligible

401(k) plan has immediate eligibility for elective deferrals but a 1-year wait for the match. For example, Employee A was rehired after being gone for just a year and was eligible for the match prior to leaving. The client thought that they had re-satisfy the match eligibility so they did not provide them with the match as they should have. They did provide them with the ability to make elective deferrals contributions. So clearly someone who made elective deferrals would need to receive the match because they were eligible. But what about those who did not contribute? Should we assume they had some contributions and provide them with a missed match as part of the correction?
BenefitsLink Message Boards

Rolling Over a Non-Qualified vs. Qualified Distribution from a Designated Roth Account to a Roth IRA

Client executed an in-plan conversion of employer PS account to a designated Roth account on December 30, 2014. QDRO now authorizes 1/2 of that designated Roth account to go to ex-spouse. Ex-spouse has never owned a Roth IRA. Ex-spouse now elects a direct rollover from the plan to a newly-established Roth IRA. Client and ex-spouse are both age 70, so the 10% penalty is not a concern. The only concern is whether all earnings (and the earnings are substantial since 2014) are tax-free or not. [1] How does the 5-year holding period apply to Roth IRA assets that originate from a transfer that would have been non-qualified if it had not been a direct rollover from the plan to the Roth IRA? [2] Suppose that the direct rollover does not occur until January 2, 2019. How does the 5-year holding period apply to Roth IRA assets that originate from a transfer that would have been qualified if it had not been a direct rollover from the plan to the Roth IRA?
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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2018 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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