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Protecting Your Future, Today |
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July 2008 |
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Andrew E. Sweeny, Jr.
Vice President
Registered Representative
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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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More Info |
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If you would like more information about these
topics or about
HORAN
please contact
Andy Sweeny at
(513) 745-0707.
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Trends in 401(k) Plan Features |
The passage of the Pension Protection Act (PPA) in late 2006 made more features available to plan sponsors for their 401(k) plans. PPA brought automatic enrollment, automatic increase, qualified default investment accounts (QDIA) and Roth 401(k). Another change in recent years is the addition of Target Date or Lifecycle funds to a majority of plans. In addition, a reduction in the service requirements to participate in 401k plans was instituted.
Automatic Enrollment has been around for many years. The passage of PPA allowed many plan sponsors to add automatic enrollment to their plan with fiduciary protection.
Automatic Increase, a feature coupled with automatic enrollment, increases the percentage participants defer from their check by 1 or 2 percent on an annual basis to a predetermined level. It gives participants a better chance of having a comfortable retirement because for most deferring only 3 percent will not provide them a comfortable retirement and most participants do not make changes to their plan after initial enrollment.
Roth 401(k) allows participants to defer after tax money that will grow tax free throughout their working years. Unlike a Roth IRA, no income limitations exist to use it and participants can defer up to the 415 limit of $15,500 each year.
Target Date and Lifecycle Funds are one-stop investment vehicles for participants who do not want to invest the time to pick their own line up of funds.
Eligibility service requirements are becoming shorter every year. By reducing the waiting period, employers allow newly hired participants to continue putting money away and not have any time out of the market. It is also a tool used in recruiting; prospective employees are becoming more aware of their retirement needs and having to wait up to a year plays into their decision process when evaluating potential employers. For more detail on each of these features, please see the full story by Scott Thole with HORAN. |
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With EGTRRA Restatement, A Perfect Time for Plan Changes |
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If you offer a defined contribution plan to your workers, your plan document must be restated with the IRS sometime within the next year. This is a result of the Economic Growth and Tax Relief Tax Reconciliation Act of 2001.
The IRS is now requiring a complete plan restatement that includes updated EGTRRA provisions in order to maintain compliance. |
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These provisions must already be included in all defined contribution plans; however, they are currently included as good-faith plan amendments. They must now be incorporated as part of the employer's restated plan document.
Since each plan must now have a full restatement, this is an opportune time to make any plan changes, both large and small. Plan administrators generally charge approximately $1,000 to $1,500 for a plan restatement. Incorporating plan changes now will avoid additional fees for plan changes in the future. See full story, located at Employee BenefitNews, to read more about what you can do to ensure your plan is compliant. |
| As 401(k) Audit Season Starts, Sponsors Face Tougher Standards |
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July is vacation time for many executives, but a busy time for 401k plan sponsors who face a July 31st deadline for submitting an audited 401k plan financial statement with their Form 5500 to the federal government. This year, they'll be busier than ever.
Auditors will be asking more questions and requesting more documentation because new, stricter audit standards, known as the "risk assessment standards," now are effective for employee benefit plan audits for periods beginning on or after Dec. 15, 2006. This year, auditors are required to look at the plan sponsor as well as the plan, and the audit process will last longer and demand more management time.
Your 401k plan audit will be longer, more demanding, and expensive this year, but these tips will help make the process smoother.
- Start Early
- Review New Requirements Before the Audit Begins
- Determine if Your Auditor is Trained in the New Standards
- Rely on Experienced Employee Benefit Plan Auditors
See full story, located at 401(k)helpcenter.com.
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Two New Employer Stock Drop Cases Emphasize Advantage of Proper Plan Language |
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Two recent cases emphasized the importance of proper plan language to help protect fiduciaries from liability in employer stock drop cases.
Suits were filed with respect to the employer stock held by the ERISA covered retirement plans. The suits alleged that the plans' fiduciaries breached their obligations to plan participants by failing to take action when it appeared that the stock was an imprudent investment. It was also alleged that the fiduciaries breached their duties to participants by misrepresenting or failing to inform participants of the employers' true financial condition.
Employers that offer employer stock in their plans should seriously consider making the plan terms require such an investment choice. This will result in a significant presumption of prudence, which seems as though it can be overcome only in the most extreme cases.
The cases indicate that even when the plan document requires the investment in employer securities, all relevant plan documents must be reviewed. The investment policy in particular will be important. Generalized language in terms of a fiduciary's responsibility for plan investment choices should be examined and possibly clarified with respect to the employer stock held by a plan. Plan fiduciaries must also consider whether to incorporate securities filings into the SPD. See full story, located at the Bureau of National Affairs, Inc., to read more about the cases.
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Do you have a question you would like addressed in our next issue?
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Striving to educate our clients in the ever-changing face of the
insurance & financial industry.
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Horan Securities, Inc., doing business since 1996.
Disclaimer
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