Archive

Posts Tagged ‘401(k)’

Lifting the veil of employer-sponsored retirement plan costs

nest_eggThere 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.
Read more…

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

Vicarious-Liability-employment-contract-426x272Am 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:

IRS announces 2015 COLA limits

taxformThe Internal Revenue Service has just announced the annual cost-of-living adjustments for 2015. Every year around this time, the financial industry, especially those in the retirement space, anxiously await these updates, particularly since they outline whether or not taxpayers will be able to contribute more to their retirement plans. Between 2013 and 2014, there was little change for elective contributions. Catch-up contributions, 401(k), SIMPLE, Roth and Traditional IRAs all stayed the same as well. However, things are definitely changing in 2015.

On October 23, 2014 the IRS announced the 2015 cost-of-living adjustments for the dollar limitations under qualified retirement plans, 403(b) plans and 457(b) governmental plans. The following reflects the 2015 limits and offers a comparison between 2014 limits where there is a difference. Read more…

Retirement plan sponsors: Pension Protection Act plan restatement process

Man's Hands Signing DocumentBeginning 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.  Read more…

Fiduciary standards tighten amid 401(k) plan lawsuits

In one of the first 401(k) fee cases to go to trial, a St. Louis appellate court ruled against a power and technology company for violating its fiduciary duties to 401(k) plan participants. According to the case, the company failed to control plan costs and negotiate rebate terms with investment firms, costing employees millions of dollars in hidden plan fees. The Court awarded over $13 million to the company’s employees- a sign to plan sponsors that their role extends beyond simply offering low-cost investment options.

Experts note the growing frequency of retirement plan cases, as more judges develop fiduciary standards and laws for plan sponsors to protect retirees. In a similar case, employees of a military contracting firm lost hundreds of millions of dollars after company officials neglected to manage plan investment fees being charged by the bank sponsoring its 401(k) plan. Court documents reveal the bank collected additional fees for managing a single-stock portfolio for the company, directing cash from the fund into its own investments and using that cash to paying itself for managing the fund. Read more…

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

RothOne 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 Read more…

New 401(k) rules require hard questions

October 12, 2011 Leave a comment

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, Read more…