While most are familiar with the term, many plan sponsors are uncertain of what it actually means to be a fiduciary. In fact, a recent JP Morgan survey stated 43% of company fiduciaries do not identify themselves as fiduciaries. This reflects the fact that many plan sponsors are uncertain about what a fiduciary exactly is.
Plan sponsors know that offering a retirement plan is important not only to attract and retain loyal employees, but to ensure they are retirement ready. There are many moving parts to the retirement plan, including enrollment, plan education efforts, building the investment fund lineup, staying compliant with the DOL and ERISA, and making distributions. Particularly, building an ideal investment fund lineup is a multi-stage process, and for many sponsors, the prospect of selecting the investments to be offered in a plan can seem overwhelming. With thousands of investment funds available to choose from, creating the right mix for your employees can be difficult.
There are a few types of 401(k) plans available to plan sponsors: the traditional 401(k), the Roth 401(k), the SIMPLE 401(k), and the Safe Harbor 401(k). Each plan has different benefits and drawbacks, but they all share one common feature: a requirement that the plan sponsor abides by that specific plan’s rules and regulations. Most 401(k) plans face an annual nondiscrimination test defined by the Internal Revenue Service (IRS), which ensures that the plan does not excessively favor highly compensated employees (HCEs) and that their contributions do not exceed the average contributions of non-highly compensated employees (NHCEs) by set limits. Failing to adhere to the IRS’s rules can risk the loss of the 401(k)’s preferable tax status and can be subject to penalties.
With around 10,000 Baby Boomers turning 65 every day, retirement reform has taken a front seat in the U.S. legislature. In late May 2019, the U.S. House passed (by a near-unanimous vote) the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which seeks to overhaul retirement planning the same way the Tax Cuts and Jobs Act of 2017 overhauled U.S. tax laws.
The SECURE Act’s changes can impact plan sponsors of all types and sizes. Learn more about what’s in this Act and how plan sponsors can (and should) prepare for its seemingly likely passage.
Cybersecurity has become a prevalent concern in the retirement industry. In part because the Employee Retirement Income Security Act (ERISA) holds no fiduciary functions in managing cybersecurity risk, the retirement industry is in target for cyber-attacks. Surprisingly, many plan breaches are not all due to third-party attackers; rather, it can stem from the misconduct by employees (e.g. falling for a phishing scheme, having an easy password, etc.). Thus, while it is important for plan sponsors and providers to understand the risks of cyber-attacks, plan participants should also be educated on these risks along with cybersecurity best practices.