Protecting Your Future, Today        
Your 401(k) Resource
 

April 2008


Andy

Andrew E. Sweeny, Jr.
Vice President
Registered Representative
 
 
Greetings!
Thank you for your continued business. If you know of anyone that could benefit from my services, please feel free to forward this newsletter on to them.
 
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If you would like more information about these
topics or about
HORAN
please contact
Andy Sweeny at
(513) 745-0707.
 
 
You may also visit us on our website at www.horansecur.com.
 
 

Automatic Enrollment

Automatic enrollment or negative election for 401(k) plans has been in existence for many years. However, until the Pension Protection Act (PPA) was passed in 2006, these types of plans were rarely used. The new law offers protection to plan sponsors from a fiduciary standpoint, which has allowed a growing number of plan sponsors to add automatic enrollment to their plans. This new legislation allows companies to avoid current state laws that prohibit paycheck deductions without employee permission.
 
There are two main reasons plan sponsors are adopting automatic enrollment:
Employer was to raise 401(k) participation levels.  Employees not participating in a 401(k) plan, tend to continue not to participate. Companies can help employees overcome this inertia by automatically enrolling them in the plan.
The Plan is failing its annual nondiscrimination testing. By adding an automatic enrollment feature to the plan, the testing results are often significantly improved because more non-highly compensated employees participate in the plan.
 
What Types of Automatic Enrollments Does the New Law Allow?  There are two types of automatic contribution arrangements under the PPA: Eligible Automatic Contribution Arrangements (EACA) and Qualified Automatic Contribution Arrangements (QACA).
 
See full story, by Scott Thole with HORAN.
 

7-day Safe Harbor for Depositing Participant Contributions

The Department of Labor (DOL) has proposed a safe harbor deadline for an employer to deposit participant contributions withheld from his/her compensation or payments received from a participant in a retirement or welfare plan.
 
Despite efforts by the DOL to clarify the general deadline, employers and plan administrators have continued to struggle with determining the date by which they needed to deposit contributions and payments with the plan. To provide more certainty, the DOL is proposing a safe harbor for small plans (defined as plans with fewer than 100 participants at the beginning of the plan year). For participant contributions withheld from a participant's compensation, the DOL will consider contributions deposited with the plan no later than the 7th business day following the date of the withholding to be in compliance with the general rule. For participant payments made to an employer, the safe harbor is the 7th business day following the day on which the employer receives the payment. The safe harbor applies both to retirement and welfare plans.

A plan that fails to comply with the safe harbor does not automatically violate the plan asset regulations. However, the employer would have the burden of demonstrating that it deposited the participant contributions as soon as reasonably possible, and not later than the maximum deadline. Practitioners should note that after finalizing the proposed regulations, the DOL likely will challenge any deposits or payments beyond the safe harbor. For employers who determine that they have late deposits, the safe harbor should provide a precise date from which the employer can determine the make-up of lost earnings.

See full story, located at SunGard Relius, to read more about this provision.
 
Talk Smarter, Not Louder to Get Employees on Track for Retirement

In the coming decade, the labor market will undergo a dramatic reorganization. The Bureau of Labor Statistics estimates that 11.3 million workers age 55 and older will enter the workforce by 2014, more than four times the typical market growth rate. At the same time, the bulk of Generation Y, numbering nearly 80 million, will enter the workforce as well.

Within that same time period, many of the 77 million baby boomers, more than a quarter of the U.S. population, will retire or plan to do so in the near future.

Employers and service providers agree that a strong emphasis on retirement education and planning needs to stay a top priority in 2008. But the message isn't about restating the same scary facts to employees over and over again.

Younger workers are entering a workforce with dramatically different retirement policies than the previous generation and will need careful guidance on suggesting the best plan design.

Auto-enrollment has proven popular for many companies. A survey released by Hewitt in 2007 suggests that 36% of plan sponsors have adopted auto-enrollment, up from 24% in 2006. Fifty-five percent of the remaining employers said they are somewhat to very likely to offer the service to new hires soon.
 
See full story, locatedat EmployeeBenefit News.
 
Supreme Court Addresses the Remedies Available for Fiduciary Breach Under ERISA

For the past 20 years, federal appeals courts have disagreed on whether participants in ERISA-governed individual account pension plans, such as 401(k) plans, may sue fiduciaries who cause losses to their accounts under those plans. The U.S. Supreme Court has now held that these claims are indeed viable under ERISA.

What Does this Decision Mean for Plan Sponsors?

First, there clearly will be more claims against 401(k) and other individual account plan administrators, investment managers, and other fiduciaries who previously considered themselves immune from liability for investment losses because of ERISA Section 404(c)'s limited protection for properly structured "participant directed" plans. Now, when there are losses in the account, whether through employer-stock fund "stock-drops" or in individual mutual funds, the participant may allege it was not because of the participant's exercise of "control," but because of something the fiduciary did or did not do. At that point, the question of causation - who caused the loss - will become the focal point of the litigation.

The second effect will be to spur plan sponsors into action to insulate themselves from the potential new wave of ERISA lawsuits. First, the allocation of responsibility between the plan sponsor and the administrative service providers should be clearly stated in the administrative services agreement. Then, to the extent the employer has a role in the receipt and execution of participant investment directions, safeguards should be put in place to assure that participants' investment directions are promptly and accurately carried out. However, there probably is no way for a 401(k) sponsor to completely insulate itself.
 
See full story, located at Littler Mendelson. 
 
 
QUESTIONS OR COMMENTS?
 
Do you have a question you would like addressed in our next issue?
Please email Kristin Solomon at kristins@horansecur.com or call (513) 745-0707
 
 
Striving to educate our clients in the ever-changing face of the
insurance & financial industry.
 
 
Horan Securities, Inc., doing business since 1996.
 

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