Plan sponsors have been concerned about their fiduciary responsibilities for the selection of insurance companies to provide guaranteed income in their defined contribution plans, such as 401(k) plans. The SECURE Act of 2019 created an easy-to-satisfy fiduciary safe harbor to protect plan sponsors and to facilitate insured retirement income in those plans.
Read more from the Retirement Income Institute Alliance for Lifetime Income.
The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.
SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous acts is that so many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can if they conclude that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.
This article discusses one of the mandatory provisions—that catch-up contributions for participants who earn over $145,000 (indexed) must be treated as Roth deferrals. That is, the deferrals will be after-tax, but the withdrawals of those contributions will be tax-free and, if the Roth conditions are satisfied, the withdrawals of earnings will also be tax-free. In addition, the RMD rules do not apply to Roth accounts (and, as a result, withdrawals from Roth accounts can be deferred indefinitely until the money is needed).
This is the third in our series of articles on special CARES Act provisions designed to help your 401(k) participants. In our prior articles, we discussed the temporary loan enhancement rules and coronavirus-related distributions (CRDs). Here we discuss the temporary relief from taking required minimum distributions. NOTE: This article has been updated to reflect guidance issued after the original publication, in Internal Revenue Service (IRS) Notices 2020-50 and 2020-51.
Continue reading The CARES ACT: Helping Your 401(K) Participants During the Coronavirus Crisis
Our first article discussed CARES Act provisions designed to help your 401(k) participants with temporary loan enhancements. Here we discuss a second provision of the Act that can help participants who are affected by the coronavirus (called “qualified individuals”*). This is a special coronavirus-related distribution (a CRD). Though we discuss this in the context of 401(k) plans, the CRD provision applies to all qualified plans, 403(b) plans and IRAs as well. NOTE: This article has been updated to reflect guidance issued after the original publication, in Internal Revenue Service (IRS) Notice 2020-50.
Continue reading The CARES Act: Helping Your 401(K) Participants During the Coronavirus Crisis
With the spread of the coronavirus and the resulting closures and cutbacks, many 401(k) participants are working reduced hours, but are not considered to be terminated for purposes of ERISA. Furloughs and similar required leaves are common for businesses whose employees interact directly with retail customers, such as restaurants, stores, and gyms.
Continue reading The CARES Act: Helping Your 401(K) Participants During the Coronavirus Crisis
The Coronavirus pandemic is disrupting everyone’s personal and financial lives. While our health, and that of our families and friends, is paramount, we realize that the sudden and large investment losses in the 401(k) plans that you sponsor – and act as fiduciaries for – present issues more challenging than those typically encountered by employers and plan committees. This article suggests steps that you can take as fiduciaries to address those challenges. The article also applies to advisors because it addresses questions they may get from plan sponsors.
Continue reading The Coronavirus Crisis: What Plan Sponsors Should Do
This is the tenth in a series of articles about Best Practices for Plan Sponsors. To be clear, “best practices” are not the same as legal requirements. Instead, they are about better ways to manage retirement plans. In many cases, though, “best practices” also are good risk management tools because they should exceed legal standards, address areas of concern, or anticipate future developments as retirement plans and expectations evolve.
Plan sponsors should be aware of the latest trends in fiduciary litigation to help manage the risk of being sued and, if sued, the risk of being liable. In my past two plan sponsor posts, Best Practices for Plan Sponsors #8 and #9, I discussed the lessons learned from the conditions in the settlement agreements for the Anthem and Vanderbilt cases. This article—about the BB&T settlement agreement—is another example of the importance of using appropriate share classes and a good process for selecting investments and monitoring service providers.
This is the seventh of the series about Best Practices for Plan Sponsors.
Most companies have budgets for their business operations . . . and then regularly compare budget-to-actual. In other words, they compare their actual expenses to the budgeted amounts to see if they are on track to accomplish their financial goals. That’s pretty standard, and there is nothing remarkable about it. But, why don’t plan sponsors and fiduciaries, for example, plan committees, use that same approach for their 401(k) plans? I have a theory about that. But, before I explain my theory, let me say that I believe that plan committees should have budgets, or goals, and should measure their success in reaching those goals.
My theory is that 401(k) plans don’t set goals for plan success because 401(k) plans were originally viewed as the “employees’ plan.” The idea was that employees could do what they wanted to do, since the plan was a supplemental savings plan. That approach made sense when pension plans were more popular. However, now that 401(k) plans have become the primary retirement plan for most employers and employees, it seems fairly obvious that the burden of success of 401(k) plans needs to fall primarily on employers and fiduciaries.
Why Wait Until After You are Sued?
This is the sixth of the series about Best Practices for Plan Sponsors.
I am surprised that, after all of the fiduciary litigation against 401(k) plan sponsors, many plan sponsors and their committees have not taken the basic steps to minimize the risk of being sued, or if sued, of being liable. In most of the settled cases, the plaintiffs’ class action attorneys require that certain conditions—or “best practices”—be adopted by the plan fiduciaries. And, in settlement after settlement, those conditions are, by and large, the same. That raises the obvious question, why haven’t plan committees reviewed these cases and instituted the practices required by the settlement agreements?
What Does Best Interest Mean . . . In the Real World? (Part 4)
I am writing two series of articles that together are called “The Bests.” One is about Best Practices for plan sponsors, while the other is about the Best Interest Standard of Care for advisors. Each series is numbered separately to make it easier to identify the subject that is most relevant to you.
This is the seventh of the series about the Best Interest Standard of Care.
In my last three posts (Best Interest Standard of Care for Advisors #4 and #5 and #6), I discuss the Best Interest standard of care and its practical application. This article discusses a novel approach for compliance with the fiduciary standard for the selection of investments for 401(k) plans. All the more interesting, the approach was part of an opinion of the U.S. First Circuit Court of Appeals.
In October 2018, the First Circuit considered an appeal of a 401(k) case where Putnam Investments, and its fiduciaries, were the defendants. At one point, the defendants argued that, if the court found fiduciary liability under the facts of the case, it would discourage employers from adopting 401(k) plans. The Court of Appeals responded by saying:
“While Putnam warns of putative ERISA plans foregone for fear of litigation risk, it points to no evidence that employers in, for example, the Fourth, Fifth, and Eighth Circuits [which found that similar facts could result in liability], are less likely to adopt ERISA plans.” Continue reading Best Interest Standard of Care for Advisors #7
