IRS Provides Guidance on In-Plan Roth Rollovers

The American Taxpayer Relief Act of 2012 amends the requirement that employees wait until a distributable event (i.e., age 59½, termination, death or disability) for an in-plan Roth conversion. With the release of Notice 2013-74, the Internal Revenue Service (IRS) provides additional guidance on in-plan Roth conversions.

The Small Business Jobs Act of 2010 permitted retirement plans that provided for Roth contributions to allow employees to roll over amounts (other than designated Roth contributions) from their retirement plans to their Roth account in the plan. However, the amounts that could be rolled over were limited to amounts that were otherwise distributable under the plan. Thus, unless an employee had met a distributable event, a rollover was not possible. Section 902 of the American Taxpayer Relief Act of 2012 expanded the type of amounts that are eligible for an in-plan Roth rollover. 

The Impact of U.S. v. Windsor on Retirement Plans

Supreme Court Ruling on the Defense of Marriage Act 

The U.S. Supreme Court in a landmark case ruled on June 26, 2013, that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional. Section 3 of DOMA defined “spouse” for the purposes of federal law as a person of the opposite sex and that a “marriage” only applied to opposite-sex partners.

In addition to the social and historical implications of this ruling, U.S. v. Windsor has a direct effect on all Qualified Retirement Plans. Under the ruling, to maintain their tax qualified status, plans must recognize same-sex married couples and provide the same benefits as they would to a participant married to a member of the opposite sex. Plan sponsors should specifically review the following areas:

IRS Initiates Compliance Check of 457(b) Top Hat Plans

Earlier this year, the Internal Revenue Service (IRS) announced that its Employee Plans Compliance Unit (EPCU) would begin a compliance check of certain 457(b) plans maintained by non-governmental, tax-exempt entities. These plans, commonly referred to as “Top Hat” plans, are frequently offered by tax-exempt organizations in addition to other qualified retirement plans.

The good news is that the extent of the compliance check is fairly limited. Letters and a questionnaire will be sent to 200 tax-exempt organizations in fiscal year 2013, and another 200 will be sent in fiscal year 2014. Employers will be selected for review based on information contained on 2011 Form W-2 and Form 990.

IRS Establishes Program for Pre-Approved §403(b) Retirement Plan Documents

What Plan Sponsors Need to Know

The Internal Revenue Service (IRS) issued regulations governing §403(b) retirement plans in 2007 that generally became effective January 1, 2009, requiring that all such plans, whether subject to the Employee Retirement Income Security Act (ERISA) or not, be maintained pursuant to a written plan. However, with few exceptions, plan sponsors could not be sure that their plan document met the §403(b) requirements.

HSA Questions and Answers

This article  sets out Questions and Answers regarding Health Savings Accounts (HSAs), as provided by the Internal Revenue Service (IRS) in Notice 2008-59. The Notice addresses the following topics related to HSAs:

• Important definitions
• Distributions from HSAs
• Eligible individuals
• Prohibited transactions
• High deductible health plans (HDHPs)
• Establishing an HSA
• Contributions to HSAs
• Administrative fees

Please read below for more information.

Note: For 2014, the HSA annual contribution limit is $3,300 (up from $3,250 for 2013) for self-only HDHP coverage or $6,550 (up from $6,450 for 2013) for family HDHP coverage. To qualify as an HDHP for 2014, the annual deductible must be at least $1,250 for self-only coverage or $2,500 for family coverage, the same annual deductible as for 2013. For 2014, the maximum annual out-of-pocket expenses for HDHP coverage may not exceed $6,350 (up from $6,250 for 2013) for self-only coverage or $12,700 (up from $12,500 for 2013) for family coverage.

Metal Levels for Qualified Health Plans

Beginning in 2014, the Affordable Care Act (ACA) requires health plans offered through an Exchange, or qualified health plans (QHPs), to meet certain levels of actuarial value. ACA’s required actuarial value levels are referred to as “metal levels”—bronze, silver, gold and platinum.

New Report Offers Tips for Improving Retirement Plan Participant Outcomes

Defined contribution plans are and will continue to be a mainstay in the market. But, are they working?

Improving Participant Outcomes: An Action Plan for Plan Sponsors looks at some of the factors that plan sponsors should consider when assessing the value of the retirement plan offered to their employees. It also considers steps they can take to provide greater assurance that employees will be able to generate sufficient income on which to retire.

Target Date Retirement Funds - TIPS for ERISA Plan Fiduciaries

The Plan Sponsor Council of America (PSCA) recently released the 2013 403(b) Plan Survey. The survey showed that 73.6% of plans offer target date funds (TDF) as an investment option. Similar findings were noted for 401(k) plans. Additionally, many plan sponsors have identified TDFs as their plan’s qualified default investment alternative (QDIA). Target date funds can be an attractive investment option for employees who do not want to actively manage their retirement portfolio. The inflow of monies into TDFs in recent years reflects the growing popularity of these types of investments.

Avoiding Fiduciary Liability - A Common Sense Approach

The Employee Retirement Income Security Act of 1974 (ERISA) sets the minimum standards for pension plans in the private industry. ERISA also requires accountability of plan fiduciaries which generally would include plan trustees, plan administrators, and members of the plan’s investment committee. The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries must act prudently and must

Fiduciary Risk and Responsibility

Potential Liability for Breaches of Fiduciary Responsibility

Risks include:

• Fiduciaries who do not meet their responsibilities may be personally liable.
• Participants or the Department of Labor (DOL) may bring a civil action against fiduciaries.
• DOL can assess significant penalties on fiduciaries.
• Additional penalties and excise taxes for prohibited transactions.
• Criminal penalties can be imposed for certain willful violations.

Fiduciary Responsibilities: ERISA Standards of Conduct

• Act solely in the interest of plan participants—This may seem obvious, but you cannot prioritize your board, president, or local community interests over the plan participants.
• Act prudently—The duty to act prudently requires expertise in areas such as investment. Lacking that expertise, a fiduciary should hire someone with that professional knowledge. Fiduciaries are responsible for a decision process, not investment results. The process used to make decisions must be documented to show fiduciaries acted prudently. 

3(21) vs. 3(38) Fiduciary Advisors

“3(21)” and “3(38)” are two types of fiduciary advisors described in Employee Retirement Income Security Act (ERISA) regulations.

The 3(21) advisor is generally someone who acts as a co-fiduciary—he or she is equally responsible for fund selection and fund monitoring, but the plan sponsor makes final decisions. Under the 3(38) model, the entity or person who appoints that outside investment manager still has fiduciary liability for the appointment and for monitoring the actions of the investment manager. At the end of the day, the ultimate responsibility still resides with the plan sponsor, whether it is a 3(21) or 3(38) model.

If you have any questions about this excerpt, or would like to begin talking to a retirement advisor, please get in touch by calling (855) 882-9177 or e-mail us at sbs@hanys.org.

Fiduciary Best Practices for Retirement Plan Sponsors

The plan sponsor is ultimately responsible for all facets of the plan. With not-for-profit organizations, that responsibility resides with the governing board because there are no shareholders. While a plan must name a fiduciary(ies), a person’s title does not determine if he or she is a fiduciary—fiduciary status is based on the functions performed for the plan.

Fee Disclosures

Annual Disclosure to Plan Participants

• This is the plan sponsor’s obligation, not the record keeper’s obligation. 
• Distributed to all eligible employees whether they are participating in a plan or not; covers administrative expenses and fees that apply on an individual basis (loans, qualified domestic relation orders, brokerage windows, etc.). 
• Includes the investment-related disclosures, such as performance data and benchmarks.

Retirement Plan Expert Joins Strategic Benefit Services Team

Financial services and corporate retirement plan expert Carol A. Idone, CFP®, AIF®, has joined Strategic Benefit Services (SBS) as Vice President of Business Development. SBS, an affiliate of the Healthcare Association of New York State, provides fiduciary advisory and consulting services for employer-sponsored retirement plans.

Employer Mandate Penalties Delayed Until 2015

The Obama Administration has postponed the Affordable Care Act (ACA) employer mandate penalties for one year, until 2015. The Department of the Treasury announced the delay on July 2, 2013, along with a similar delay for information reporting by employers, health insurance issuers and self-funded plan sponsors.

The delay does not affect any other provision of the ACA, including individuals’ access to premium tax credits for coverage through an Exchange. The Treasury plans to issue more formal information about the delay within a week.

7 Ways to Mitigate Retirement Plan Fiduciary Liabilities

1. Document all decisions— Appoint a secretary to take notes on all actions and decisions.

2. Hold retirement plan committee meetings regularly—Quarterly is the best practice; make sure your people get there and have a good attendance record.

Retirement Plan Advisor - Reason #7

7. Conduct Ongoing Due Diligence on Service Providers and Investment Managers

The Plan Advisor stays well informed on meaningful developments across a broad spectrum of topics that have the potential to affect the service providers’ ability to deliver quality services (e.g., financial strength, change in ownership/management, and adverse litigation). Due diligence on investment managers entails:

Retirement Plan Advisor - Reason #6

6. Performance Reporting

A comprehensive investment performance report is essential for fiduciaries’ prudent investment decisions. The Plan Advisor generally produces performance reports and makes a presentation to the fiduciaries on a quarterly basis. Performance reports normally include information such as that listed in the table below.

Retirement Plan Advisor - Reason #5

5. Investment Manager Replacement

The Plan Advisor’s due diligence on investment managers may reveal a manager that no longer meets the selection criteria in the IPS. The Plan Advisor should notify the institution on a timely basis and the specific criteria under which the manager is deficient. Depending on the number of selection criteria deficiencies and severity of the problem, the Plan Advisor will recommend that the manager be placed “under review” or be immediately replaced.

Retirement Plan Advisor - Reason #4

4. Investment Manager Search and Selection

The Plan Advisor conducts a search for a best-in-class investment manager for each of the asset classes identified in the asset allocation policy section of the IPS. Applying the qualitative and quantitative selection criteria as a filter, the Plan Advisor produces a list of potential managers.

Retirement Plan Advisor - Reason #3

3. Managing a Request-for-Proposals for Service Providers

The Plan Advisor’s knowledge of the investment industry makes it the logical choice to manage a request for proposals (RFP) for other service providers, such as custodian or directed trustee. The Plan Advisor’s role in the RFP includes:

In-plan Roth Conversions:

A Low-cost Enhancement with Significant Tax Advantages

In-plan Roth 401(k), 403(b), and governmental 457(b) conversions were originally established by the Small Business Jobs Act of 2010. However, under this law, employees have been unable to convert account balances to a Roth inside the retirement plan without a distributable event (i.e., age 59½, termination, death or disability).

Now, they can.

Retirement Plan Advisor - Reason #2

2. Establishing Investment Policies and Procedures

A well written investment policy statement (IPS) provides the framework for consistent investment decisions. Early in the relationship, the Plan Advisor will review the existing policies. In the absence of existing policies, the Plan Advisor will provide an IPS to the institution. Standard IPS language encompasses the topics shown in the table below:

7 Reasons for Hiring a Dedicated Retirement Plan Advisor

Fiduciaries of employer-sponsored retirement plans hire a Retirement Plan Advisor to meet their responsibilities under the Employee Retirement Income Security Act (ERISA) and to improve the probability that their employees’ retirement investment goals will be achieved. A Plan Advisor that is dedicated to retirement keeps abreast of changes in the industry and in the regulatory environment and interprets all relevant developments for its clients.

What Fiscal Cliff Tax Changes Will Mean for Non-Profit Executives and Senior Management

As part of the agreement stemming from the "fiscal cliff" negotiations, Congress adopted tax changes in 2013 that could bring challenges for non-profit organizations and their senior executives and management staff. Executive compensation has always been a complex issue, and these new tax increases may present a greater need for executives and management staff to reduce their includable compensation to offset some of the anticipated tax increases.