Lifting the veil of employer-sponsored retirement plan costs

There are two primary expense categories related to Employer-Sponsored Retirement Plans: Investment Services Fees (mutual fund management) and Service Provider Fees (recordkeeping, administration, advisor services).

Recent fee disclosure regulations, such as 408(b)(2), have changed the world of fee transparency by revealing how expense ratios, revenue-sharing agreements, and wrap fees are used to pay for plan services. There is already a growing concern that plan participants may not have adequate income for retirement. Thus, it is important to understand these fees and how they are paid.

DOL looking to redefine term “fiduciary” – what that means for employer responsibilities

Am I a fiduciary? I never like to answer a question with a question but do you make decisions for the 401(k) plan on behalf of the company? If you answered yes then you are in fact a plan fiduciary. There is no hotter topic in the 401(k) industry than the Department of Labor’s effort to redefine the term “fiduciary.” Yet with all the buzz surrounding the DOL’s proposal, many employers who offer a retirement plan are not aware of their fiduciary responsibilities and the liability that comes along with making 401(k) plan level decisions.

What is a fiduciary and who established the rules? Fiduciary responsibilities were instituted by the Employee Retirement Income Security Act of 1974 (ERISA) and are monitored by DOL. To ensure that fiduciaries are doing what is best for their employees and satisfying the DOL requirements ERISA has implemented standards of conduct, including:

Retirement plan sponsors: Pension Protection Act plan restatement process

Beginning in April 2014, all ERISA-compliant Defined Contribution Plans (i.e. 401(k) and 403(b)) are required to be restated to include all legally mandated changes and amendments that have been enacted over the last 5-6 years. This restatement process must be completed by April 30, 2016. For the majority of Retirement Plan Service Providers, and Third party Administrators (TPAs), the process will be fairly simple; they will combine the Plan Provisions in the existing document with any changes that have occurred since 2009 to create a new document.

However, a Retirement Plan put in place several years ago may no longer be the best fit for the Plan Sponsor (Employer) or the Employees/Plan Participants. Is this the right time to consider some Plan design changes (e.g. add the Roth (after-tax) contribution feature; automatic enrollment / automatic escalation; Safe Harbor employer matching contributions; loans; changes in eligibility; changes in the vesting schedule, etc.)? Rather than accepting the original plan provisions, Plan Sponsors should use this Restatement process as an opportunity to complete a holistic review of their existing Plan. 

Roth conversions allowed for 401(k) and 403(b) plan participants

One of the provisions included in the American Taxpayer Relief Act of 2012 (aka the Fiscal Cliff bill) impacts Roth 401(k) accounts held inside qualified plans. Under the new law, participants in a Qualified Retirement Plan that allows Roth (after-tax) contributions will be allowed to convert traditional (tax-deferred) contributions to the Roth account, regardless of their age or eligibility for a distribution. Individuals will have the option to make the Roth conversion for all or any part of the traditional (pre-tax) amount held in 401(k) plans, 403(b) plans and governmental 457(b) plans that allow Roth contributions.

While these conversions are subject to ordinary income tax for the year in which the conversion is made, participants will not have to pay the 10% early distribution tax

Three steps for human resources when it comes to retirement medical guidance

Retirement brings uncertainty. Most Americans, throughout their careers, have relied on their employers and specifically Human Resource professionals to provide guidance, advocacy and support in most of their benefits decisions. Employer sponsored benefits and retirement programs are the cornerstone of protecting our health and long-term financial security. But in retirement, choosing a medical plan, a pharmacy program, or a place to park your 401k dollars is a scary proposition for even the most informed consumer.

Although most companies have done away with group sponsored retiree medical plans, it does not preclude them from becoming an information center for prospective retirees. Employees (or parents of employees) approaching age 65 are often inundated with information on Medicare, Medicare Supplements, Part D

New 401(k) rules require hard questions

Historically, the Retirement Services Industry hasn’t been required to disclose all of the fees and expenses associated with 401(k) plans…That’s about to change!

The Department of Labor (DOL) noticed that the majority of 401(k) plan sponsors (Employers) are “not well-informed” regarding the fees they’re paying for their retirement plan. It’s also no surprise that the majority of plan participants are under the impression that their plan is free! According to a February, 2011 independent survey released by AARP, 71% of Americans are not aware that they pay fees to their 401(k) Plan Service Provider; and almost one-third (32%) report that they do not feel knowledgeable about the impact that fees have on their retirement savings. The DOL has issued a new regulation [ERISA section 408(b)(2)] Expense Disclosure  that will take effect in April and May, 2012 for plan sponsors and their plan participants,

National 401(k) Day

I bet you didn’t realize that today, September 9th, is national 401(k) Day.  It is an annual celebration to promote the importance of participation in employer-sponsored profit sharing and 401(k) plans. Here are some other things you may not know:

• Most of us spend more time thinking about what to have for lunch than we do about how to have a comfortable retirement.
• The average Social Security Retirement Benefit is just over $1100 per month and will only replace a fraction of the income we need to live comfortably in retirement.
• Many young people feel that their future Social Security Benefit will not be there or will be greatly reduced from what their parents received.
• Most employer-funded retirement benefits, like Defined Benefit Plans, are history and will never come back.

401(k) plans allow employees to take control of their retirement and not worry so much