May 2007
401(k) Newsletter
General Issues
National Savings Rate Guidelines for Individuals — Summary: This study creates savings guidelines for typical individuals with different ages, income levels, and initial accumulated wealth so the public can more easily determine how much to save for retirement. It also creates benchmarks for how much capital an individual would have accumulated based on their income and age, with the presumption that they started saving at age 35. Additionally, it shows targets for how much an individual should have accumulated at age 65, prior to retiring. The authors recommend that their findings be adopted as national savings guidelines. Located at: Journal of Financial Planning. Click on headline for full article.
The DB-ing of the 401k — Summary: Employers who decide to offer automatic enrollment in their 401k plans will be doing a huge service for employees who otherwise will do nothing to plan for a secure retirement. Those employees may be lucky enough to "wake up" at retirement with a sizable nest egg. Located at: K&L Gates LLP (PDF File). Click on headline for full article.
Bridging the Gap Between DB and DC Plans — Summary: As defined benefit plans fall by the wayside—frozen or converted to a less desirable cash balance account—employers are coming to the realization that their employees may be left with too little money to stretch across the expanding retirement horizon. The solution is clear: The 401k has to become more than a supplement. It has to begin to walk and talk like a pension plan—just not cost so much or be as volatile. Located at: Treasury and Risk Magazine. Click on headline for full article.
What is a Reasonable Rate of Interest for Participant Loans? — Summary: The reasonableness of the interest rate is a plan qualification requirement because of Code §401(a)(13), yet the DOL or IRS do not agree on the same rules. Plan sponsors should use caution. Located at: McKay Hochman. Click on headline for full article.
Domestic Partners' Rights Expand Under PPA Distribution Provisions — Summary: The Pension Protection Act of 2006 enacted two provisions that are beneficial to employees who are currently in a domestic partnership or similar relationship. This article will analyze these two sections of the PPA and their effect on domestic partnerships. Located at: McDermott Will & Emery (PDF File). Click on headline for full article.
Fiduciary Issues
Wal-Mart Hit with Class-Action Over 401k — Summary: The new nationwide class-action alleges that because Wal-Mart makes profit-sharing contributions to its 401k plan based on each employee's compensation, illegally "shaving" that compensation operated to reduce Wal-Mart's profit-sharing contributions. Plaintiffs allege that the 401k plan fiduciaries breached their duties under ERISA by participating in or failing to stop this reduction. Located at: Spencer Fane. Click on headline for full article.
Research
The 2007 Retirement Confidence Survey — Summary: The A large percentage of American workers see that the U.S. retirement system is going through major changes, but many are not taking steps that are likely to leave them well-positioned for a comfortable retirement, according to the 17th annual Retirement Confidence Survey (RCS). Located at: Employee Benefit Research Institute (PDF File). Click on headline for full article.
Early Adoption of the Roth 401k — Summary: This paper examines plan and participant adoption of the Roth feature among Vanguard defined contribution recordkeeping clients during 2006, the first full year that the Roth 401k was available. The Roth 401k was adopted by 14% of Vanguard® plans, and 5% of participants within these plans elected the option. Early Roth adopters included new plan enrollees, high savers, Web-registered participants, and high-income households. Located at: Vanguard Center for Retirement Research (PDF File). Click on headline for full article.
Projecting Behavioral Responses to the Next Generation of Retirement Policies — Summary: This paper examines retirement and related behavioral responses to policies that on average are actuarially neutral. Many conventional models predict that actuarially neutral policies will not affect retirement behavior. In contrast, our model allows those with high time preference rates to find that the promise of an actuarially fair increase in future rewards does not balance the loss from foregone current benefits. Located at: Michigan Retirement Research Center. Click on headline for full article.
DOL and IRS Issues
DOL Issues Final Regulations on Timing of QDROs — Summary: As required under the Pension Protection Act of 2006, the U.S. Department of Labor recently issued interim final regulations to clarify the qualified status of domestic relations orders (DROs). A qualified domestic relations order (QDRO) assigns all or part of a participant's retirement benefits to a spouse, former spouse, child or other dependent. Located at: Watson Wyatt Worldwide. Click on headline for full article.
DOL Wants Your Feedback on Retirement Plan Fees — Summary: DOL/EBSA is requesting you input and other information on fee and expense disclosures to participants in individual account plans. Located at: American Benefits Council (PDF File). Click on headline for full article.
Final 415 Regulations Make Significant Defined Contribution Changes — Summary: The Treasury has released the final 415 regulations, providing a much needed update to the 1981 regulations. This article focuses on those changes applicable to qualified defined contribution plans, and then briefly highlight some of the defined benefit plan changes. Located at: Sungard/Relius. Click on headline for full article.
IRS on Participants' Rights to Diversify Investments — Summary: Affected plan sponsors need to determine what plan changes and administrative actions are required to eliminate any diversification restrictions and to meet other diversification requirements. Located at: Sibson Consulting (PDF File). Click on headline for full article.
