Monday, September 28, 2009

How To Land In Fiduciary Hot Water

Benefit Plans Plus

There are a few proven ways to make sure you’ll end up in fiduciary hot water … follow these steps and you’re sure to find an auditor at your door.

  • DON’T worry about forwarding employee deferrals

  • IGNORE plan provisions – interpret the plan in any way you want … Oh – and be sure to treat some of the participants DIFFERENTLY, change the rules on a case-by-case basis.

  • OVERLOOK your responsibilities – why pay for plan fiduciary training or expert help? …

  • RARELY meet -- who needs a formal meeting schedule …?

  • RANDOMLY select plan service providers and investments… Select based on ARBITRARY criteria or outside relationships.

  • NEVER communicate openly with participants – the less they know, the less they can complain (or sue). Make sure they know nothing about the plan, the processes used and decisions made. …

  • NEGLECT service provider shortcomings – why measure performance vs. established benchmarks? …

  • DEVALUE your evaluation process – FORGET to establish objective performance measurement standards and NEVER report the results.

  • IGNORE deadlines to file governmental reports …

  • THROW ALL THE PLAN RECORDS IN A SHOEBOX AND IGNORE THEM! …Who needs a “Fiduciary Due Diligence” file containing all plan documents and records of decision making anyway?

But seriously, after almost three decades of reviewing and fixing retirement plans, we know the failure to adopt fundamental practices can result in regulatory intervention and potentially significant personal liability for plan fiduciaries. If you think your plan may be in trouble contact an expert for assistance to review and correct your plan governance procedures – before the IRS or DOL contacts you!

About the Author Robert Higgins is the lead consultant for the Fiduciary Services practice of Benefit Plans Plus, where he is responsible for assisting clients in defining and fulfilling their ERISA and investment fiduciary duties. He has published articles, made live and internet presentations to local, regional and national audiences. He has more than 28 years of experience in the qualified plan business with several major regional and national organizations. For more information contact Bob at 314.983.1358 or

About Benefit Plans Plus Benefit Plans Plus, LLC offers customized retirement plan design and administration, fiduciary compliance management and consulting services for retirement plans. Through unique offerings including the Fiduciary Health Check™ and the SBO 401k BPP serves nearly 750 retirement plans throughout the Midwest. Benefit Plans Plus holds the Centre for Fiduciary Excellence, LLC (CEFEX) recordkeeper certification for third party administrator services and the American Society of Pension Professionals and Actuaries (ASPPA) seal of service for provider excellence -- the top recognitions in the industry. BPP is a member of NIPA, ASPPA and ICEBS. In addition, the well credentialed team of retirement plan specialists averages at least 17 years of experience each. For more information about Benefit Plans Plus, a subsidiary of Brown Smith Wallace, LLC, visit or call 314.983.1200.

Information provided in partnership with, LLC., LLC is not the author of the material unless specifically noted. We do not endorse and disclaims any and all responsibility or liability for the accuracy, content, completeness, legality, or reliability of the material. THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS LEGAL, TAX OR INVESTMENT ADVICE.

GAO suggests change to 401(k) hardship withdrawal rule

Business Insurance

Posted On: Sep. 25, 2009 4:23 PM CENTRAL

Jerry Geisel

WASHINGTON—To enable employees to replenish their 401(k) plan account balances more quickly after they take hardship withdrawals, Congress should consider changing current law that bars plan participants from making new contributions until six months after a hardship withdrawal, the Government Accountability Office suggests in a report.

The GAO also recommends that the Labor Department encourage employers to post on participant Web sites information on the long-term impact preretirement withdrawals of funds can have on their 401(k) plan account balances. …

Sen. Herb Kohl, D-Wis., who chairs the Senate Special Committee on Aging and who requested the GAO report, said in a statement that he intends to introduce legislation to reduce preretirement “leakage” from 401(k) plans.

“Despite the financial hardships many are facing, people need to resist raiding their 401(k), because it can be a really bad deal for them over the long run,” Sen. Kohl said.

Monday, September 21, 2009

Advice restrictions expected

Rejection of Bush-era rule signals tougher regs ahead

Pensions & Investments

By Jeff Nash September 21, 2009, 12:01 AM ET

Industry experts expect a more restrictive investment advice proposal later this year now that the Labor Department has killed a Bush administration regulation on advice to DC plan participants.

The rule, floated in the last days of the Bush administration, would have allowed employees of financial firms that sell investments to provide direct advice to defined contribution plan participants. …

While it's unclear what the new investment advice proposal will say, many experts agree that the Labor Department will work with Congress to find a way for plan participants to receive objective investment advice. As part of that process, Phyllis Borzi, assistant secretary of the Labor Department and head of the Employee Benefits Security Administration, will likely solicit wide-ranging opinions to re-examine three core topics:

• Should the “fee leveling,” condition — which would permit an employee of a financial services firm to offer investment advice directly to DC plan participants if his compensation doesn't vary based on the investment recommendation — be extended to that adviser's employer, as well as any affiliate of that employer? This effectively would prevent money managers from offering advice if they recommend their own products.

• Should new legislation support or invalidate the Department of Labor's 2001 SunAmerica advisory opinion, which allows a DC plan's service provider to offer advice to plan participants through an affiliated adviser using an independently developed computer model?

• Should “off-model” advice be permitted? In other words, can a mutual fund or investment management company design its own computer software to deliver advice, as long as the model is certified as unbiased by an independent third party.

… The EBSA is expected to release new proposals on Nov. 18 — the date the Bush investment advice rules would have taken effect after two delays. …


“I think Phyllis wanted a tabula rasa, and the only thing for certain is that the new rules will be pro-participant,” said Marcia Wagner, an ERISA attorney with Wagner Law Group PC, Boston. “She may well come up with something never thought of, something completely different. Remember this is the woman who basically created COBRA; she's extremely creative.” …

[Rep. Robert Andrews (D-N.J.), chairman of the House Education and Labor Committee's pensions subcommittee],explained the 2006 Pension Protection Act would have to be changed in order for the DOL to issue the kind of investment advice rules Congress would support. “It will take statutory and regulatory change to create the goal of qualified-independent-investment advice affordable to every investor,” he said.

One major area to be considered is what is meant by “fee leveling.” …

… Many experts expect the new proposals also will address the SunAmerica opinion.

“We need to see some clarification and formalizing of this rule, which really avoids conflicts of interest for advisers and ensures some independence,” said Robyn Credico, director of the plan management group practice, North America, at Watson Wyatt Worldwide Inc., Arlington, Va.

But if the Labor Department reverses the opinion, that could force employees to use independent advisers. “Not everyone can use truly independent advisers because they're expensive,” Ms. Credico said.

Questions of scope

Jason Bortz, an ERISA attorney with the law firm Davis & Harman LLP, Washington, said “some people have raised questions about the scope of the SunAmerica opinion — for example, whether a model should take into account non-proprietary funds.”

In July, the House Education and Labor Committee approved the 401(k) Fair Disclosure and Pension Security Act of 2009, which was sponsored by Messrs. Miller and Andrews. The legislation would prohibit employees of financial services firms from offering investment advice if their compensation varies depending on the investment advice they give. …

Another option the Department of Labor might consider is allowing mutual funds and other investment companies to offer advice through their own computer model that has been certified as unbiased by a third party — an idea originally floated in a bill introduced by Mr. Andrews back in May.

Contact Jeff Nash at

Tuesday, September 15, 2009

The Statistician Who Ate Humble Pie

strategy+business magazine

Nassim Nicholas Taleb, author of The Black Swan: The Impact of the Highly Improbable, introduces an engaging lesson in business forecasting from Dance with Chance: Making Luck Work for You, by Spyros Makridakis, Robin Hogarth, and Anil Gaba.

Just about every human decision about the future is tainted by a gap — the difference between what we think we know and what we actually know. The more expert we are, the wider the gap is likely to be. The story below, an excerpt from the book Dance with Chance, is a classic example of an expert-busting enterprise. …

— Nassim Nicholas Taleb

Excerpted from chapter 9 of Dance with Chance: Making Luck Work for You

As an expert in statistics, working in a business school during the 1970s, one of the authors…couldn’t fail to notice that executives were deeply preoccupied with forecasting. … It bugged the professor greatly that practitioners were making these predictions without recourse to the latest, most theoretically sophisticated methods developed by statisticians like himself. …

Every decent statistician knows the value of a good example, so the professor and his research assistant collected many sets of economic and business data over time from a wide range of economic and business sources. In fact they hunted down 111 different time series, which they analyzed and used to make forecasts … [Each] series was split into two parts: … The researchers pretended that the later part hadn’t happened yet and proceeded to fit various statistical techniques, both simple and statistically sophisticated, to the earlier data. …

Horror of horrors, the … simple … techniques turned out to be more accurate than the statisticians’ clever, statistically sophisticated methods. To be honest, neither [were] particularly great …

One of the simplest methods, known as “single exponential smoothing,” in fact appeared to be one of the most accurate. Indeed, for 61.8% of the time it was more accurate than the so-called Box-Jenkins technique, which represented the pinnacle of theoretically based statistical forecasting technology back in the 1970s. …

… If there’s one thing that makes up for an academic proving himself wrong, it’s the opportunity to show that other eminent authorities are wrong too. So the professor submitted a paper on his surprising and important findings to a prestigious, learned journal … The paper was rejected on the grounds that the results didn’t square with statistical theory! … [Another] journal did decide to publish the paper, but they insisted on including comments from the leading statisticians of the day. … Among the many criticisms was a suggestion that the poor performance of the sophisticated methods was due to the inability of the author to apply them properly.

…[The] valiant statistician and his faithful assistant set out to prove their critics wrong. This time around they collected and made forecasts for even more sets of data (1,001 in total, …), from the worlds of business, economics and finance. As before, the series were separated into two parts: the first used to develop forecasting models and make predictions; and the second used to measure the accuracy of the various methods. … Instead of doing all the work himself, the author asked the most renowned experts in their fields … to forecast the 1,001 series. All in all, fourteen experts participated and compared the accuracy of seventeen methods.

… The findings were exactly the same as in his previous research. Simpler methods were at least as accurate as their complex and statistically sophisticated cousins. The only difference was that there were no experts to criticize, as most of the world’s leading authorities had taken part.

… the basic conclusion — supported by many other academic studies over the past three decades — remains steadfast. That is, when forecasting, always use the KISS principle: Keep It Simple, Statistician.

— Spyros Makridakis, Robin Hogarth, and Anil Gaba

Monday, September 14, 2009

Obama Retirement Initiatives Draw Interest of Small Businesses, Benefits Providers

President Barack Obama has announced a number of new initiatives to promote retirement savings, a few of which have drawn the interest of employers and retirement plan providers.

The most notable of these initiatives, which he announced during his weekly radio address on Saturday, September 5, would enable workers to convert unused vacation time or overtime into cash in their retirement accounts. …

Another of Obama’s initiatives calls for the Department of Labor to publish guidance for small employers making it clear that they can provide automatic enrollment and auto step-ups into their retirement savings plans.

Until now, it has been clear that the Pension Protection Act encouraged larger employers to offer auto enroll and automatic step-ups for their employees into their 401(k) plans, but it hasn’t been clear on whether smaller employers—those with 10 to 100 employees—would have the same protections with simple IRA plans. …

Another initiative calls for improving employee education about their options for tax-favored retirement savings.

The goal of the four programs is to address the lack of retirement savings that many Americans are facing, particularly given the recession, Obama said in his address.

“I’ve heard from so many who’ve had to put off retirement, or come out of retirement, to make ends meet,” he said. “And having too little in savings not only leaves people financially ill-prepared for retirement, but also for whatever challenges life brings. It places in jeopardy so many dreams, from owning a home to attending college.”

—Jessica Marquez

Sharing Fees

The Right Way to Share

There is a fiduciary responsibility under ERISA to evaluate arrangements with service providers and to determine if they are reasonable. … That responsibility was explained by the Investment Company Institute (ICI) in testimony before the Department of Labor (DOL) Advisory Council in 2007, testimony that went on to describe several options that plan sponsors have for reducing the cost and fees—if they have become too high. The ICI said:

If the growth of plan assets supports a revision of the arrangement, the plan fiduciary and service provider have a number of options. One is to lower total plan costs by replacing existing plan investments with lower-cost options or share classes. Another is to provide the plan and participants with additional services that were not originally affordable. A third option for plan fiduciaries might be to negotiate with the recordkeeper to share some of the recordkeeper's revenue with the plan. Finally, the plan fiduciary can put the service contract out for bid to determine whether other service providers might offer comparable services at a lower cost. …

… However, if a service provider operates efficiently, it may reasonably be entitled to a higher profit margin. So, a practical analysis is based on the competitive marketplace. That analysis can be implemented by “benchmarking” your providers, by comparing their charges with those of competitive providers. If you benchmark a provider and the costs are within the range of what other quality providers are charging, then you are almost assured that the costs are reasonable. That doesn’t mean that you can’t find a lower-cost provider that affords even greater benefits to your participants, but it does mean that you have fulfilled your legal responsibility to incur no more than reasonable costs and to pay no more than reasonable compensation.

I also should point out that there are two forms of “revenue” that should be considered, particularly when evaluating your recordkeeper. The first is compensation received from mutual funds—regardless of whether the mutual funds are affiliated with the recordkeeper—as well as any amounts received directly from the plan. The second involves credits or discounts, and usually occurs when the plan uses mutual funds that are managed by an affiliate of the recordkeeper. At this point, recordkeepers are not required by ERISA to give plan sponsors information about the revenue-sharing that they receive from third-party or affiliated mutual funds. However, as a practical matter, most do. Recordkeepers also are not required to inform plan ­sponsors about the discounts or credits that they are receiving from affiliated investments—and most don’t. A bill has been introduced by Senators Harkin (D-Iowa) and Kohl (D-Wisconsin) that would change that. If that legislation becomes law, or if a DOL regulation is issued with similar provisions, plan sponsors will be entitled to know all of the money that is subsidizing the cost of recordkeeping. At that point, they will be in a much better position to negotiate for a sharing of that revenue, regardless of whether it is received by the recordkeeper as credits or cash.

© 2009 Article was reprinted, with permission, from Plan Sponsor magazine (August 2009). Copyright 2009 Asset International, Inc. All rights reserved.

Thursday, September 10, 2009

Workers Understand Other Benefits More than Retirement Benefits


September 9, 2009 ( - A new study shows that most workers do not understand their retirement savings plans as well as other employer-provided benefits.

One in three (34%) Americans polled say they have little or no understanding of their retirement plan and three in four (74%) say they have less than a complete understanding, according to a press release from The Hartford Financial Services Group, Inc. …

One in five (19%) plan participants say they look to their place of employment for guidance on retirement savings matters, while other key influencers cited by survey respondents are financial advisers (15%), spouses (13%), immediate family (12%), the Internet (9%) and program providers (7%). …

"With millions of Americans entering or approaching retirement within the next five to 10 years, it’s critical that we understand how to make the most of our retirement benefits," said Jamie Ohl, senior vice president of The Hartford’s Retirement Plans Group, in the press release. "Although The Hartford places a high priority on educating retirement plan participants, there is more that we and the rest of the industry need to do to promote greater understanding and higher utilization of retirement plans."

Rebecca Moore

Reblog this post [with Zemanta]