RALEIGH, N.C. (December 17, 2012) — The Employee Benefit Research Institute reports that less than 40 percent of Americans who worked in 2011 participated in employer-sponsored pensions or retirement plans. This is a major concern since Social Security alone is often not enough to maintain a person’s lifestyle after retirement. The ERISA practice group at Hughes Pittman & Gupton, LLP, one of the largest CPA firms headquartered and staffed in the Research Triangle Park region of North Carolina, recently sponsored two panel discussions with retirement-plan administrators to discuss this issue. The firm offers insights on how to increase enrollment in employer-sponsored plans.
During one panel discussion Dan Weeks, founder of BrightScope,® the leading independent provider of retirement plan ratings and investment analytics, shared that great 401(k) plans are comprised of five key elements:
- Low fees
- High company generosity
- High participation rates
- High salary deferral limits
- Large account balances
Many of these individual elements are dependent upon one another. For example, lower fees can result from larger account balances, which in turn are a result of higher participation rates. In addition, participation rates are often affected by how generous the company is and the amount that an employee is encouraged to contribute.
Other panelists offered several practical ways for employers to increase participation. Recommendations include:
- Changing the matching contribution by the employer from a 50 percent match, up to six percent of an employee’s salary, to a 25 percent match, up to 10 percent of the employee’s earnings
- Offering a target-date fund that automatically resets the asset mix (stocks, bonds, cash equivalents) in an individual’s portfolio, according to a selected time frame for retirement —This can be attractive to employees who do not wish to actively manage the risk and mix of their account
- Establishing auto–enrollment — start at three percent of an employee’s salary and have it set to gradually increase over time
- Adding a default fund option — A default fund is a super fund to which the employer can make contributions, if an employee does not make a plan choice
Employers need to be aware that there are some accounting responsibilities that come with offering retirement plan benefits. Because of this, it is important to engage in annual compliance auditing to help in preventing legal issues. A case in point is the March 2012 verdict where a U.S. District Court found ABB in violation of its fiduciary duty with respect to its 401(k) plan offerings. The court identified four violations:
- Failure to monitor recordkeeping costs and negotiate rebates from the trustee
- Failure to follow proper procedures and “mapping” assets moved from one fund to another
- Selection of share classes to be offered that had higher expenses than other available share classes
- Paying above-market fees for plan services in order to subsidize the non-plan corporate services provided by the fiduciary
In addition, as of May 31, 2012 new requirements by the U.S. Department of Labor obligate employee benefits administrators and their fiduciaries to increase the transparency of the fees and expenses paid by plan sponsors and participants. The law is designed to improve the ability of employers and their employees to make well-informed choices about their retirement plans.
Under the rules, plan fiduciaries are obligated to:
- Give workers quarterly statements of plan fees and expenses deducted from their accounts
- Give workers core information about investments available under their plan including the cost of these investments
- Use standard methodologies when calculating and disclosing expense and return information to achieve uniformity across the spectrum of investments that exists in plans
- Present the information in a format that makes it easier for workers to comparison shop among the plan’s investment options
|Internal Revenue Service (IRS) Form 5500 Schedule C
|Plan sponsors of plans with 100 or more participants
|DOL and IRS
|Plan years beginning in and after 2009
|Generally, the new rules require more detailed reporting of fees paid—directly or indirectly—to plan service providers from plan assets or participant accounts for the prior year.
|Reasonable Contract or Arrangement Under Employee Retirement Income Security Act (ERISA) Section 408(b)(2)—Fee Disclosure
|Covered Service Providers (as defined in the new rule)
|July 1, 2012
|Generally, the new rules require point of sale disclosures describing fees and expenses incurred by plan fiduciaries from Covered Service Providers.
|Fiduciary Requirements for Disclosure inParticipant-Directed Individual Account Plans—ERISA section 404(a)(5)
|Plan participants in participant-directed individual account plans subject to ERISA
|August 31, 2012 (for calendar year plans)
|Generally, the new rules require that additional fee disclosure be made to plan participants including both plan-related and investment-related fees and expenses.
Some experts claim the gloom and doom about the future of Social Security during campaign season was unwarranted. Believing instead that any change in benefits will likely be gradual. However, what we do know is that in June 2012, the average Social Security retirement benefit was $1,234 a month, or about $14,800 a year. This income alone will not afford most Americans the ability to maintain the same lifestyle that they enjoyed as part of the working population.
Employer-sponsored retirement plans offer one of the most convenient ways for people to engage in saving for retirement. As employers work to differentiate themselves to recruit the best talent, benefit packages that include retirement savings plans will play an important role. However, these plans come with a need to comply with ever-changing regulation. To help employers make the best decisions on what plan options to offers, it is always advised to consult with a qualified CPA. The CPA can also assist with reporting requirements and perform an annual audit of the plan to check for regulatory compliance.
About the Panel Discussions:
Hughes Pittman & Gupton, LLP; Comperio Retirement Consulting; and Parker Poe sponsored the two panel discussions with a keynote presentation by Dan Weeks, founder ofBrightScope®. Attendance included 63 CFOs, controllers, HR professionals and company presidents/CEOs.
The first panel of HR professionals included:
- Claire Niver, Senior Vice President of Human Resources and Corporate Affairs at Pepsi Bottling Ventures
- Kristin Overman, Manager of Human Resources at The Hamner Institutes for Health Sciences
- Georgia Rothschild, Human Resources Manager at Precision Walls, Inc.
- Amanda Mancuso, Chief of Staff at Scynexis Chemistry & Automation, Inc.
The second expert panel included:
- Mark Livingston, Partner at Hughes Pittman & Gupton, LLP
- Steve Long, Partner at Parker Poe
- Jim Sotell, Managing Director at Comperio Retirement Consulting, Inc
- Dan Weeks, Founder and COO of BrightScope
The event is part of an ongoing series of expert panels hosted by Hughes Pittman & Gupton, LLP. To learn about future panel discussion, contact Tim Tompkins at firstname.lastname@example.org.