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Using Executive Benefit Plans to Reward Top Talent

ASPPA Annual Conference Wrapup

A n o f f i c i a l p u b l i c a t i o n o f A S P P A

WINTER 2018

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With carefully structured communications and disclosures to existing and prospective clients, traditional recordkeeping services can continue to be offered without being adversely impacted by the fiduciary rule.

A Recordkeeper’s Guide to the Fiduciary Rule

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ASPPA Retirement Plan Service Provider

The following firms are certified* within the prestigious ASPPA Service Provider Certification program. They have been independently assessed to the ASPPA Standard of Practice. These firms demonstrate adherence to the industry’s best practices, are committed to continuous improvement and are well-prepared to serve the needs of investment fiduciaries.

*as of December 7, 2017

Admin Support GroupBarreal de Heredia, Costa Rica

Alliance Benefit Group of Illinois Peoria, IL | abgill.com

Alliant Employee Benefits New York, NY | alliant.com

Altigro Pension Sevices, Inc. Fairfield, NJ | altigro.com

American Pensions Charleston, SC | american-pensions.com

Aspire Financial Services, LLC Tampa, FL | aspireonline.com

Associated Benefit Planners, Ltd. King of Prussia, PA | abp-ltd.com

Atessa Benefits, Inc. San Diego, CA | atessabenefits.com

Atlantic Pension Services, Inc. Kennett Square, PA | atlanticpensionservices.com

Beacon Benefits, Inc. South Hamilton, MA | beacon-benefits.com

Benefit Management Inc. Providence, RI | unitedretirement.com

Benefit Planning Consultants, Inc. Champaign, IL | bpcinc.com

Benefit Plans Plus, LLC St. Louis, MO | bpp401k.com

Benefit Plans, Inc. Omaha, NE | bpiomaha.com

Benefits Administrators, LLC Lexington, KY | benadms.com

Billings & Company, Inc.Sioux City, IA | billingsco.com

Blue Ridge ESOP Associates Charlottesville, VA | blueridgeesop.com

BlueStar Retirement Services, Inc. Ponte Vedra Beach, FL | bluestarretirement.com

Cetera Retirement Plan Specialists Walnut Creek, CA | firstallied.com

Creative Plan Designs Ltd. East Meadow, NY | cpdltd.com

Creative Retirement Systems, Inc. Cincinnati, OH | crs401k.com

Delaware Valley Retirement, Inc. Ridley Park, PA | dvretirement.com

DWC ERISA Consultants, LLC St. Paul, MN | dwcconsultants.com

Fiduciary Consulting Group, Inc.Murfreesboro, TN | ifiduciary.com

Great Lakes Pension Associates, Inc.Farmington Hills, MI | greatlakespension.com

Guideline Technologies, Inc.San Mateo, CA | guideline.com

Ingham Retirement Group Miami, FL | ingham.com

Intac Actuarial Services, Inc. Ridgewood, NJ | intacinc.com

July Business Services, Inc. Waco, TX | julyservices.com

Kidder Benefits Consultants, Inc. West Des Moines, IA | askkidder.com

Moran Knobel Bellevue, WA | moranknobel.com

National Benefit Services, LLCWest Jordan, UT | nbsbenefits.com

Niles Lankford Group Inc.Plymouth, IN | nlgpension.com

North American KTRADE Alliance, LLC.Plymouth, IN | ktradeonline.com Pension Financial Services, Inc.Duluth, GA | pfs401k.com

Pension Planning Consultants, Inc. Albuquerque, NM | pensionplanningusa.com

Pension Solutions, Inc. Oklahoma City, OK | pension-solutions.net

Pentegra Retirement ServicesColumbus, OH | pentegra.com

Pinnacle Financial Services Inc.Lantana, FL | pfslink-e.com

Preferred Pension Planning CorpBridgewater, NJ | preferredpension.com

Prime Pensions, Inc.Florham Park, NJ | primepensionsinc.com

Professional Capital Services, LLCPhiladelphia, PA | pcscapital.com

QRPS, Inc.Raleigh, NC | qrps.com

Qualified Plan Solutions, LC Colwich, KS | qpslc.com

Retirement Planning Services, Inc. Greenwood Village, CO | rpsplanadm.com

Retirement Strategies, Inc.Augusta, GA | rsi401k.com

Rogers Wealth Group, Inc.Fort Worth, TX | rogersco.com

RPG Consultants Valley Stream, NY | rpgny.com

Savant Capital ManagementRockford, IL | savantcapital.com

Securian RetirementSt. Paul, MN | securian.com

Sentinel Benefits & Financial GroupWakefield, MA | sentinelgroup.com

SI Group Certified Pension ConsultantsHonolulu, HI | sigrouphawaii.com

SLAVIC401K.COMBoca Raton, FL | slavic.net

Summit Benefit & Actuarial Services, Inc.Eugene, OR | summitbenefit.com

TPS GroupNorth Haven, CT | tpsgroup.com

Trinity Pension Group, LLCHigh Point, NC | trinity401k.com

2017_CEFEX_Ad.indd 1 12/7/17 2:25 PM

1WWW.ASPPA-NET.ORG

The DOL Fiduciary Rule A plain English guide to the rule’s implications for recordkeepers.

BY STEVE SOKOLIC AND JASON C. ROBERTS

COVER STORY

36

WINTER 2018Contents

44 Using Executive Benefit Plans to Attract, Reward and Retain Top Talent

In a competitive employment market, a nonqualified executive benefit plan can be a game changer.

BY RICHARD W. RAUSSER

FEATURE STORIES

6 From the President

The only constant is change.

ADAM POZEK

9 New and Recently Credentialed Members

24 Nailed It, Once Again

The 2017 ASPPA Annual Conference delivered on its promise to be bigger, bet-ter — and more fun.

JOHN ORTMAN AND JOHN IEKEL

64 Government Affairs Update

Pass-through income tax changes could undermine small business plans.

CRAIG P. HOFFMAN

ASPPA IN ACTION

38 The Nuts and Bolts of ESOP Loans

Understanding the many facets of ESOP loans and the share-release process is the key to ERISA compliance.

BY KEVIN T. RUSCH

2 PLAN CONSULTANT | WINTER 2018

48 Getting a Seat at the Finals Table MARKETINGJASON BROWN

50 Appreciating the Average Benefits Test EDUCATION

BRIAN J. KALLBACK

52 CEFEX Certification: The ‘Gold Standard’ in TPA Validation BUSINESS PRACTICES

JASON BROWN

54 An IPS Can Protect Plan Sponsors — If It Is Followed WORKING WITH PLAN SPONSORS

JOHN IEKEL

57 Precept 10, Part 4: Understanding Integrity ETHICS

LAUREN BLOOM

59 Designing an RFP Process for Service Providers SUCCESS STORIES

TODD TIMMERMAN

62 Work Smarter by Leveraging Cheap Tech TECHNOLOGY

YANNIS KOUMANTAROS AND JJ MCKINNEY

04 Letter from the Editor

08 (Not So) Hidden Figures REGULATORY/LEGISLATIVE UPDATE

BRIAN H. GRAFF

10 Tax Reform: ‘Trick’ or Treat? LEGISLATIVE

NEVIN E. ADAMS, JD

12 Locating Missing Participants REGULATORY

ROBERT M. KAPLAN

16 Defined Benefit Plans and Disaster Relief DB/ACTUARIAL

JAMES E. HOLLAND, JR.

22 Financial Wellness: What Expenses Are Payable From Plan Assets? LEGAL/TAX

KELSEY MAYO

501612COLUMNS

TECHNICAL ARTICLES

PRACTICE MANAGEMENT ARTICLES

Published by

Editor in ChiefBrian H. Graff, Esq., APM

Plan Consultant CommitteeMary L. Patch, QKA, CPFA, Co-chair

David J. Witz, Co-chairGary D. Blachman

Jason D. BrownThomas Clark, Jr., JD, LLM

Kelton Collopy, QKAKimberly A. Corona, MSPA

Shawna Della, QKAJohn A. Feldt, CPC, QPA

Catherine J. Gianotto, QPA, QKABrian J. Kallback, QPA, QKA

Phillip J. Long, APMKelsey H. Mayo

Michelle C. Miller, QKARobert G. Miller, QPFC

Eric W. Smith

EditorJohn Ortman

Associate EditorTroy L. Cornett

Senior WriterJohn Iekel

Graphic Designer/ProductionLisa M. Marfori

Technical Review BoardMichael Cohen-Greenberg

Sheri Fitts Drew Forgrave, MSPA

Grant Halvorsen, CPC, QPA, QKA Jennifer Lancello, CPC, QPA, QKA

Robert Richter, APM

Advertising SalesGwenn Paness

[email protected]

ASPPA Officers

PresidentAdam C. Pozek, QPA, QKA, CPFA

President-ElectJames R. Nolan, QPA

Vice PresidentMissy Matrangola

Immediate Past PresidentRichard A. Hochman, APM

Plan Consultant is published quarterly by the American Society of Pension Professionals & Actuaries, 4245 North

Fairfax Drive, Suite 750, Arlington, VA 22203. For subscription information, advertising, and customer service contact ASPPA

at the address above or 800.308.6714, [email protected]. Copyright 2018. All rights reserved.

This magazine may not be reproduced in whole or in part without written permission of the publisher. Opinions

expressed in signed articles are those of the authors and do not necessarily reflect the official policy of ASPPA.

Postmaster: Please send change-of-address notices for Plan Consultant to ASPPA, 4245 North Fairfax Drive, Suite 750,

Arlington, VA 22203.

Cover: Max Hancock Illustration

Build Up Your CE Credits via Plan Consultant QuizzesDid you know that each issue of Plan Consultant magazine has a

corresponding continuing education quiz?

Each quiz includes 10 true/false questions based on articles in that issue. If

you answer seven or more quiz questions correctly, ASPPA will award you

three CE credits. And you may take a quiz up to two years after the issue of

PC is published. This makes Plan Consultant quizzes a convenient and

cost-efficient way to earn valuable CE credits anywhere, anytime.

Visit: www.asppa-net.org/Resources/Publications/CE-Quizzes

to get started!


L E T T E R F R O M T H E E D I T O RPC

ension law is necessarily complex. I would argue that it’s more complex than necessary, however, and I’ll bet you agree. Moreover, all that complexity is expensive.

No one knows better than ASPPA members that the costs of the complexity baked into the system are real and significant. Participants are provided with lengthy documents too complex for the average participant to understand. Complex legal requirements designed four decades ago in a pre-computer age, or to address a once-relevant issue that is now obsolete, remain in the law despite gobbling up millions of dollars in compliance expenses — resources that could better be used to improve the retirement readiness (or health benefits) that these plans deliver to employees.

One reason for the current state of affairs is that there has never been a systematic effort over time to identify and purge from the law complex provisions whose contributions no longer justify their costs to plan participants, plan sponsors or service providers.

What if somebody encouraged an identify-and-purge effort like that?

The American College of Employee Benefits Counsel is doing just that. The College is sponsoring a competition for the best original legislative proposal to simplify an aspect of employee benefits law. The award, established through a financial commitment by David Gordon, a

JOHN ORTMANEDITOR-IN-CHIEF

Simplify It!Here’s an opportunity to do something about the complexity in today’s regulatory system — and maybe profit from it.

former president of the College, will provide a prize of $10,000. They anticipate sponsoring the competition annually for at least the next five years.

Gordon conceived of the simplification award as a way to address the complexity problem. He says that complexity in employee benefits law is like the weather: “Every experienced benefits lawyer complains about it but no one does anything about it.”

The competition is designed to encourage pension and benefit professionals, academics, plan sponsors and participants to suggest amendments to current law that would reduce costly and unnecessary complexity. Submissions must enhance, or at least have no adverse effect on, the existing protections and rights of plan participants.

Submissions will be judged on three main criteria: the benefits of simplification, the originality of the proposal and the likelihood that the proposal can be enacted or implemented.

The College acknowledges that the third criterion — the likelihood that the suggested changes can be adopted and carried out — will be a tough row to hoe. As a result, it suggests addressing issues like the prospects of gaining effective support in Congress and the relevant federal agencies, as well as the potential revenue implications of the suggested simplification (although formal revenue estimates are not expected, it says — thank goodness).

Another eligibility requirement — though not one on which entries

will be judged — is that a proposal “must be presented as an amendment to pertinent legislation or offer a viable new legislative proposal.” In addition, submissions should follow the format used in the Joint Committee on Taxation’s “Blue Book” explanation of enacted tax legislation (i.e., Current Law, Reasons for Change, Description of Proposal).

Submissions which are based on a paper submitted for publication in law reviews or other law school journals or periodicals, or for scholarly seminars or symposia, but not yet published, are eligible for the award. Also, informal groups of individuals are welcome to collaborate on a submission. More information about the rules, including FAQs, is available at www.acebc.com.

The initial award will be presented at the College’s annual meeting and induction dinner to be held next fall. Submissions for this year’s award are due April 1, 2018.

Maybe it’s just me, but it seems like this award was made for the pension geeks and policy nerds out there in ASPPA Nation. You know who you are.

I’ve got 10 bucks that says an ASPPA member wins this thing. Are you in?

Questions, comments, bright ideas? Email me at [email protected].

P

UPCOMING

ASPPA WEBCAST

For more infomation, please visit:www.asppa.org/education/webcasts

EPCRS Case Studiesfrom the DarksideTuesday, June 12, 2018

2:00 - 3:40 p.m. ET

Speaker

Alison J. Cohen, Esq.Senior Associate, FerenczyBenefits Law Center LLP

A deep dive into EPCRS where case studies on the

worst clients will be presented. Attending will help prepare you to deal with your most complicated clients as you

learn about others out there that are even worse!

Upcoming-Webcast-0612.pdf 1 12/27/17 5:18 PM


F R O M T H E P R E S I D E N TPC

build your career? Whether you are a TPA or recordkeeper or both, how can ASPPA help you grow your business?

ASPPA’s website is being revamped to provide functionality and content based on member feedback. We’ve convened a next generation task force to offer input on everything from education to government affairs. We’re conducting focus groups to ensure that the content at our conferences is valuable.

You don’t have to be on a task force or a focus group to provide input. If you have suggestions or ideas on how ASPPA can best meet the needs of membership, I would love to hear from you. You can email me at [email protected] or call me at 651.204.2600, ext. 107.

Philosophers and scientists have written about change, and musicians from Bob Dylan to Sheryl Crow have sung about it. The times they are a-changing, but by asking and listening, ASPPA is working for change that will do us good. And if you’re into music, here is a playlist that’s all about change: http://spoti.fi/2hFnbm8.

An industry veteran with more than 25 years of experience, Adam Pozek is a partner with DWC — The 401(k) Experts, in Beverly, MA. He serves as ASPPA’s 2018 President.

us, but what about change that lies ahead? Change that will be driven by factors as diverse as industry consolidation, tax reform and the changing demographics of the workforce among our clients — but also among our own ranks.

Albert Einstein said, “The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.” ASPPA leadership has always placed the utmost priority on anticipating the needs of its members. We’ve worked hard to deliver products and services intended to meet those needs.

The “if you build it, they will come” philosophy might have worked for Kevin Costner and Steve Jobs, but to ensure we are proactively pursuing positive change that serves our members’ needs, we are taking a lesson from Einstein and changing our way of thinking. Specifically, rather than trying to anticipate the needs and wants of membership, we are asking.

Whether you are a seasoned professional or you are newer to the industry, how can ASPPA help you

hange can be the source of anxiety for some, while it is quite energizing to others. It has been said that the only two things that are guaranteed are death and taxes, but whether you find

it exciting or nerve-wracking, change is the third thing we are all assured of facing.

When Heraclitus made his famous observation back in 500-ish B.C. that change is the only constant, there is no way he could have known the speed at which we would encounter change in the present day. Technology, the economy, politics, social norms, etc., are all radically different today than they were as recently as 10 years ago.

What does all of this have to do with ASPPA? The title of this column reflects the annual change in President, a role in which I am honored to serve. Working with my friend and colleague Rich Hochman over the last year has been a privilege, and I look forward to working alongside President-Elect Jim Nolan, and, of course, Brian Graff and the entire Leadership Council.

Casting a wider net, ASPPA has seen change as it has evolved. We’ve gone from one “P” to two; membership has grown; conferences have become more interactive. The formation of the American Retirement Association made a positive change to allow ASPPA and the other sister organizations to focus on the needs of their core members.

All of these changes are behind

C

BY ADAM POZEK

We are taking a lesson from Einstein and changing our way of thinking.”

The Only Constant Is ChangeBy asking and listening, ASPPA is working for change that will do us good.

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The Only Constant Is Change


viewed as more than a mere piggy bank in the years ahead as Congress struggles to contain a $20 trillion (and counting) debt.

It helps that so many Americans are (literally) invested in their 401(k), and that the critical issue of retirement security is not only widely acknowledged, but has bipartisan support. But as recent discussions on Capitol Hill remind us, an issue can be important, and yet not be the most important issue.

As we head to press, we don’t yet know how — or if — tax reform might impact retirement plans. But we do know that retirement plans are no longer just a way to come up with a little extra money to fill in some revenue shortfalls, or to fund a key infrastructure initiative. The success of those vital incentives that support and sustain the formation of workplace retirement plans and worker contributions to them are now on everyone’s legislative radar screen.

The job of protecting America’s private retirement system just got harder. But then, that’s why ASPPA and the American Retirement Association are here. And it’s why your support of our advocacy efforts through the ARA PAC is so important.

Brian H. Graff, Esq., APM, is the Executive Director of ASPPA and the CEO of the American Retirement Association.

discussions. Rumors quickly swirled around a variety of possible ways in which limiting American workers’ ability to defer taxes on their retirement contributions could help fund big tax cuts for corporations.

But something different was afoot this time, and it wasn’t just President Trump and his Twitter account (though that, and his assertion that 401(k)s would not be touched by tax reform, certainly were different). While lawmakers have long known that retirement plan preferences were a source of revenue, the modeling done around Rothification provided a sense of just how big that “piggy bank” has become. And even though they are deferrals and not deductions (and yes, even though everybody knows that), they count within the 10-year window upon which such things are scored by congressional beancounters. Only the preemptive advocacy work by organizations such as the American Retirement Association and the Save Our Savings coalition (of which we are a co-founder) helped stave off — for the moment, anyway — proposals that would have sacrificed retirement security on the altar of tax reform.

Therein lies the danger for retirement savings going forward — the very success of the nation’s retirement plan system has worked to produce a sizable pool of money set aside for American workers’ retirement upon which Uncle Sam has not yet taken his cut. It seems increasingly likely that we’ll be

or decades, tax reformers have viewed the nation’s private retirement system as something of a piggy bank to fund other initiatives that were deemed to be either more politically important or

expedient. It was certainly true in 1986, the

last time tax reform took hold, when Congress “whacked” retirement with a new wave of limits and constraints that undermined new plan formation, clipped the savings rates of many, and led many to rethink their support of current programs. It’s been true in a number of smaller revenue-seeking situations between then and now, including ways as insidious as using a pension “smoothing” technique (which made pension funding more expensive) as a way of “paying for” highway funding.

And it was true in 2014, when then-Chairman of the House Ways & Means Committee Dave Camp presented a proposal that would have “paid for” tax reform by imposing what would have amounted to double taxation of contributions for higher-income individuals, frozen contribution limits for a decade and imposed a cap on the amount of pre-tax contributions allowed.

Of course, in Washington bad ideas never die, they just lie in wait for the next Congress. And sure enough, Chairman Camp’s pre-tax cap found new life — along with a new name (Rothification) — in the most recent round of tax reform

In Washington, bad ideas never die, they just lie in wait for the next Congress.

F

(Not So) Hidden Figures

REGULATORY/LEGISLATIVEUPDATE

MSPA Robert AbzugG. Bret HarperRobert HartnettMichael HendersonDaniel JockKason McArthurVincent Spina

CPC Trang Tran

QPALauren AndersonCarrie BrownKapri ByrneMaureen CampbellLynn CastelloBrendan CroweRobert DentLinda DilenaLaura FarmandLinda GittelsonJeannie HogueMary HornMichael HureauKimberly KnappAniko KulhanekHoward MagidMark Maguire

Amanda MartinDavid MartinSamuel MorganLynne NevinsBrady OnsagerSusan OttoElizabeth RileyNoelle SmithLenna ThomasGinger WhetstoneThomas WilkenDavid Wojciak

QKAJessica AffsaLauren AkisadaMicah AlsobrookDavid AmatoJoseph AmayaKevin AndrewAmber BallDavid BarrerBradley BeausoleilJulie BossJames BurdettMelanie BurnsKapri ByrneChad CurtisKelley DoluntJacques Dufour

Deborah EdbergJaimie EsakiLindsay EysterMichael FiockLindsay GarrisonCaitlin HagartyAlicia HallLeah HookerRebecca HubbelBarbara JohnsKessler JohnsonCarolLynn KentDaniel LathamAnn LeeHyon-Mi MeallMaria OnofrioCorey PerlmutterLaurissa PrimuthJosiah SandefurBrittany SantagatoAmanda SchnizleinRandall SchugCourtney StaycoffElizabeth StoneKristi StuderJohn SulzenerBonnie TakamiyaSarah TessierDalton TibbettsPamela Tilley

Elizabeth TobinScott TobinJohn ToddJessica Vander VeerSierra WagnerDeanna WebbNatasha WhitakerPhilip WilliamsonMelissa WingJosh WinterAmanda WorthingtonLan Zhi

Welcome New & Recently Credentialed Members!


What will tax reform — with all its laudable objectives — mean for retirement plans this time around?

S tephen King’s It involves a certain malevolent spirit that rises up every generation, wreaks havoc and preys on its unsuspecting victims before

going back into hibernation. Sound familiar?

A while back, my wife and I went to see the updated version of It. Now, I’ve been a fan of King’s work ever since a friend shared a copy of Salem’s Lot with me, though his work doesn’t always translate as well to the big screen. “It” is a malevolent entity that emerges about once every 27 years to feed, during which period “It” takes on various shapes designed to lure its prey — generally children — and then returns to a hibernation of sorts. The most notorious incarnation of “It” is, of course, Pennywise the Dancing Clown.

Ironically, tax reform too seems to be a once-in-a-generation thing. It’s been 30 years since the Tax Reform Act of 1986 cut tax rates — and cut into retirement plan saving and formation with the creation of the Section 402(g) limit (and its tepid COLA pace), not to

mention the cost and timing issues associated with multiple iterations of the nondiscrimination testing that often produced problematic refunds for the highly compensated group. There’s little question that those changes (and others) did what they were designed to do — generate additional tax revenue by limiting the deferral of taxes. But what did those constraints do for retirement security?

Much of that damage wasn’t

repaired until 2001, with the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) — which, somewhat ironically, introduced the concept of the Roth 401(k).

ROTHIFICATION RESPONSEWhile tax reform has wrought

its damage on retirement savings before, this time around a new way to raise revenue has emerged: “Rothification,” loosely defined as the limiting or elimination of the current pre-tax contribution limits.

We don’t really know what workers would do if confronted with that kind of change (the surveys that are available, though not completely on point, suggest that the response might be modest). However, we do know that if current participants continue to save at the same rate, retirement readiness would likely improve. There are also signs that it would be seen as a big enough change that some, perhaps many, plan sponsors would want to rethink, if not reconsider, their current automatic enrollment assumptions.

BY NEVIN E. ADAMS, JD

LEGISLATIVE

Tax Reform: ‘Trick’ or Treat?

Here’s hoping that, if tax reform turns out to be ‘Pennywise,’ it won’t be ‘pound’ foolish.”

11WWW.ASPPA-NET.ORG

as though those changes would have no impact at all on the calculus of those making the decisions to offer and support these programs with matching contributions. In other words, while some attempt is made to quantify the response of workers to changes in their incentives, most studies simply assume that employers will “suck it up.”

Which brings of back to the current push for tax reform. The House of Representatives passed its version of the Tax Cuts and Jobs Act the week before Thanksgiving, and the Senate passed its version Dec. 2. The Senate bill varies from the House version in numerous significant ways. The differences between the two bills will have to be reconciled, and these days that’s no slam dunk.

It remains to be see what tax reform — with all its laudable objectives — might mean for retirement plans this time around. But here’s hoping that, if tax reform turns out to be “Pennywise,” it won’t be “pound” foolish.

Nevin E. Adams, JD is the American Retirement Association’s Chief Content Officer.

is withdrawn at retirement. In other words, a small business owner’s plan contributions and accumulated earnings would be taxed at 35% instead of the 25% pass-through rate and the 20% capital gains rate on accumulated earnings.

There are some things about tax reform proposals that we do know. One is that lawmakers — and sometimes regulators — often seem to operate on the assumption that employers will, and indeed must, offer a workplace retirement plan no matter what changes or cost burdens are imposed on plan administration. With an eye toward narrowing the benefit gap between higher-paid and non-highly compensated workers, limits are imposed that often outweigh the modest financial incentives offered to businesses, particularly small businesses, to sponsor these programs. This, despite the striking coverage gap among those who work for these small businesses, and the potentially burdensome administrative requirements and additional costs that the owner must absorb, alongside a pervasive sense that their workers aren’t really interested in the benefit (or, perhaps more accurately, would prefer cold, hard cash).

The debates about modifying retirement plan tax preferences — or the notion that these preferences are “upside down,” and thus may be dispensed with — are bandied about

We may not know those outcomes with certainty, but there are a lot of reasons to be nervous, if not downright fearful of change to retirement plans, especially one that seems likely to give plan sponsors — and plan participants — a reason to rethink their current savings rates. Granted, surveys show that most plans already offer a Roth option, and more recent surveys indicate that most plan sponsors would continue to offer a plan even if the current pre-tax option for 401(k)s were reduced and/or eliminated (and how sad would it be if a plan sponsor decided to walk away from offering a plan just because the pre-tax savings option was clipped).

We also know that more than half of current 401(k) contributors would be affected by a $2,400 pre-tax contribution limit, based on data from the non-partisan Employee Benefit Research Institute (EBRI), using their Retirement Security Projection Model® (based on information from millions of administrative records from 401(k) recordkeepers), and that the impact reaches down to some very moderate income levels.

‘PASS’ TENSE?Consider the unintended

consequence of a proposed tax break for pass-through entities (i.e., partnerships, S corps, and small business limited liability corporations). More than 320,000 of those entities sponsor a retirement plan (with the average size being 75 employees). Unfortunately, many of these businesses may reconsider adopting or maintaining a qualified retirement plan because of significant financial disincentives contained in a proposal that would establish a 25% maximum pass-through rate on business income, versus the 35% top rate on ordinary income (as well as the favorable tax rate on capital gains income at 20%) that would be assessed when the money

This time around a new way to raise revenue has emerged: ‘Rothification.’”


n his 1968 song, “Mrs. Robinson,” Paul Simon asked one of the most famous questions in rock and roll history: “Where have you gone, Joe DiMaggio?” In an interview

years later, Simon said he once ran into DiMaggio in a restaurant, and the Baseball Hall of Famer asked him why he “needed to ask where he went.” After all, DiMaggio was

This might be a good time for your clients to review procedures for finding lost participants prior to the DOL getting involved.

I

Where Have You Gone, Joe DiMaggio? Locating Missing Participants

BY ROBERT M. KAPLAN

REGULATORY

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PRIOR GUIDANCE: FAB 2014-1

In 2014, the DOL issued Field Assistance Bulletin (FAB) 2014-1, which provides insight and guidance on the steps that a plan administrator should take to locate participants. While the FAB specifically addresses terminated defined contribution plans, the guidance lends itself to procedures that fiduciaries should implement for existing plans.

According to the FAB, the plan fiduciary’s choice of distribution option for a missing participant is subject to the general fiduciary responsibilities under ERISA. It goes on to say that the plan fiduciaries must make reasonable attempts to locate missing participants. It then offers several acceptable distribution options and identifies a specific unacceptable one. (See “Terminating DC Plan Distribution Options” below.)

IS A PARTICIPANT REALLY MISSING?

Often, participants can be located via a letter mailed first class or through electronic notifications. However, it is not unusual for an ex-employee to move and fail to

provide the plan with updated contact information. In these situations, the following steps should be taken and documented before moving the funds elsewhere (described in “Terminating DC Plan Distribution Options” below):

• Certified mail. The DOL has provided a model notice that can be used if the fiduciary does not have one already prepared.

• Check employer records. It is possible that the contact information may be found within the records of other employer plans, such as a group health plan.

• Check with designated beneficiary. There may be records from the retirement plan or other employer benefit plans where a beneficiary has been designated. The beneficiary should be contacted and asked to provide updated contact information or to forward a letter to the participant.

• Use free electronic search tools. Internet search engines, public record databases, obituaries or social media should be used.

Depending on the size of the participant’s account and cost, additional search steps may be warranted. Sources such as commercial locator services, Internet search tools or investigation databases (all which charge fees) may be considered.

ONGOING PLANSIn an ongoing plan, participants

with a vested account balance of more than $5,000 must remain in the plan. However, service providers should check the plan document provisions to see if there is a cash-out provision for terminated employees with less than $5,000. Amounts below $1,000 can be cashed out without

in commercials and could be seen at many baseball events.

If it were only that easy to find plan participants once they become ex-employees.

It’s hard to believe that in today’s age of information exchange, plan administrators lose track of some terminated participants. But in fact it is a common occurrence, according to Phyllis Borzi, former Assistant Secretary for Employee Benefits Security at the Department of Labor. Speaking at the 2016 ASPPA Annual Conference, Borzi described an initiative by the Department’s Philadelphia regional office.

THE DOL PROGRAMAccording to Borzi, there will

be an expansion of efforts to find and distribute benefits to terminated vested participants. Plan fiduciaries are required to have procedures for locating participants and dealing with unclaimed benefits. It is incumbent on them to make sure that participants who have accrued benefits within a plan receive them. With the help of their service providers, plan administrators should review their practices and procedures and update them if necessary.

The pilot program initiated by the DOL’s Philadelphia regional office found that there were an alarmingly high number of terminated vested participants who have not claimed benefits. The DOL focused on those over age 70 and located them through public sources of information, collecting nearly $1 billion on their behalf. Borzi noted that many plans merely sent a letter to the last known address and ceased the search at that point. A greater effort should have been made to find those participants, she said.

Borzi made it clear that the Philadelphia program would be expanding to other regional offices of the DOL. Thus, if you have not done so recently, this might be a good time for your clients to review procedures for finding lost participants prior to the DOL getting involved.

Plan fiduciaries are required to have procedures for locating participants and dealing with unclaimed benefits.”


considered.

ForfeitureFinally, the IRS has approved

a methodology wherein plans may forfeit away the accounts of participants after 5 years (check each plan’s document to see if this provision is included). However, if a participant or their beneficiary surfaces and requests a distribution, the plan must reinstate the benefit. Thus, while acceptable, this methodology may prove problematic in the long run for plans. The DOL does not discuss this in the FAB (because it is an IRS rule), which is another clue that this may not be the best approach to take.

The FAB is clear that withholding 100% of the distribution amount and forwarding it to the IRS is not acceptable. It is the opinion of the DOL that this method would not be in the best interest of a participant.

CONCLUSIONService providers should work

with their clients to either create or modify their practices and procedures for identifying and cashing out missing participants. We now know this issue is on the DOL’s radar when they look at plans. The DOL’s Philadelphia regional office is working with other offices to assist and implement this initiative in more areas of the country.

Robert M. Kaplan, CFP, CPC, QPA, APA, is the Director of Technical Education for the American Retirement Association. He

has more than 38 years of experience in the retirement industry, including sales, administration and consulting. Bob is a former member of ASPPA’s Leadership Council and AIRE’s Board of Managers.

the participant’s consent if the participant has been located. Amounts between $1,000 and $5,000 may be rolled to an IRA (even without participant’s consent). Plan administrators should give consideration to implementing this provision if it is not in the plan and doing a self-audit each year to determine if any participants would be subject to these provisions. There are several advantages to using the under-$5,000 cash-out provisions:

• The plan won’t have to worry about locating these participants when it terminates.

• Many record keepers determine their fees based on average account balance — removing the lowest balances will increase the average for the remaining participants and thus lower their fees.

• If a plan has fewer than 100 participants, it could prevent or delay crossing over the 120-participant count on the Form 5500, which would require an independent accountant’s opinion.

• A plan administrator could potentially prevent the administrative hassle of a QDRO or death benefit payout for smaller accounts.

TERMINATING DC PLAN DISTRIBUTION OPTIONS

When a DC plan terminates, the options that DB plans have to leave the funds for the missing participant in the plan or forward it to the PBGC are not available. The PBGC has issued proposed regulations on forwarding balances of terminating DC plans to them under certain conditions, but those rules cannot be relied upon until they are finalized, which had not yet occurred when this article was written.

IRA RolloverIn FAB 2014-1, the DOL

indicated that the preferred method of distribution would be a rollover to an IRA. This method will prevent immediate taxation of the distribution and avoid 20% withholding the 10% additional tax for participants under age 591/2, and the IRA account will continue to grow on a tax deferred basis — all of which are advantageous to the participant.

Bank AccountOne acceptable alternative

method would be to transfer the amounts to a federally insured bank account in the name of the participant. The account would have to be interest-bearing and give the participant an unconditional right to withdraw the money. The fiduciary would need to evaluate the fees, interest rate and other available information when considering this option. This option would be preferable for a participant who is due their age 701/2 required minimum distribution (RMD) amount, which is not eligible to be rolled over to a tax-favored IRA.

Unclaimed Property FundAnother acceptable method

would be to transfer (also known as escheat) the account balance to a state’s unclaimed property fund. The availability of the state’s searchable database (how easy will it be for the participant to locate the account) and whether any interest will be credited to this account needs to be

We now know this issue is on the DOL’s radar when they look at plans.”

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UPCOMING

ASPPA WEBCAST

For more infomation, please visit:www.asppa.org/education/webcasts

UnderstandingEPCRS BasicsThursday, March 22, 2018

2:00 - 2:50 p.m. ET

Speaker

Alison J. Cohen, Esq.Senior Associate, FerenczyBenefits Law Center LLP

A 50-minute, half-priced program that will help you determine when and how to use self-corrections and know when to apply the

knowledge to typical client failures.

Upcoming-Webcast-0322.pdf 1 12/27/17 5:17 PM


n the pension world, the word “disaster” is often applied to new laws, regulations or proposed tax or benefit reforms. We also refer to the usual weather-related events of hurricanes, floods and tornados as disasters. This

article is concerned with the impact of the weather-related disasters

and the regulatory relief provided by the Internal Revenue Service (IRS), Department of Labor (DOL), and the Pension Benefit Guaranty Corporation (PBGC) (collectively, “the agencies”) with respect to defined benefit plans.

The main focus of the article will cover Hurricane Harvey and

Hurricane Irma (which will be referred to simply as Harvey and Irma in the remainder of the article). More generally, the relief process and reasoning will be covered. Therefore, the goal of the article is three-fold. First, actuaries will understand the background for the current law and agency relief. Second, actuaries

A look at the regulatory relief following Hurricanes Harvey and Irma — and beyond.

Defined Benefit Plans and Disaster Relief

BY JAMES E. HOLLAND, JR.

I

DB/ACTUARIAL

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transactions to take place for days.3 One outcome of 9/11 was the passage of the Victims of Terrorism Tax Relief Act of 2001, which provided tax relief for victims (per its title) but also recognized the financial difficulty for pension plans.

Section 112 of the Victims of Terrorism Relief Act of 2001 revised Code § 7508A and added subsection 7508A(b), which applies to pension and other employee benefit plans. In addition, Section 112 added § 518 and § 4002(i) of ERISA. Collectively, these sections allow up to a one-year postponement of the date by which an action need be taken with respect to any employee benefit plan. Furthermore, a plan shall not be treated as failing to operate according to its terms by the postponement.4

The changes in law apply to any federally declared disaster or a terroristic or military action.5 Aside from the aftermath of Sept. 11, 2001,6

the disaster relief provisions of the Code and ERISA have typically been applied only to federally declared weather-related disasters. That is certainly the case for minimum funding requirements. That prompts the question of how disasters are declared and defined. For the answer, we need to look at the Federal Emergency Management Agency (FEMA).

FEDERALLY DECLARED DISASTERS7

FEMA administers the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”). Under the Stafford Act, there are two types of disaster declarations: emergency declarations and major disaster declarations.

user fees, have conditions (for example, a plan may not be under examination by the IRS), and are not tailored to the business disruption associated with weather-related disasters.

Aside from the taxes and penalties, the failure to meet the requirements of ERISA has other consequences for many plan sponsors. For PBGC-covered plans, statutory liens spring up on the failure to make quarterly contributions. Late employer pension contributions may result in a “technical” breach of the company’s loan covenants that may have financial consequences for the company, depending on how forgiving the lender will be.

While § 7508A of the Internal Revenue Code (Code), as added in 1997, had provided for some income tax relief for federally declared disasters, the activities and relief were limited (the time period was extended 90-120 days for certain tax-related items) and did not extend to most acts related to pension plans. This Code provision certainly did not extend to the requirements of ERISA. A better solution was needed, but required an impetus. The impetus came on Sept. 11, 2001.

VICTIMS OF TERRORISM TAX RELIEF ACT OF 2001

Sept. 11, 2001, was a landmark day in the recent history of our nation. The events of 9/11 shaped the course of legislation and policies that affect us today. In addition to the death and destruction, the terrorist attacks in New York City caused massive problems within the financial structure, and made it almost impossible for financial

will gain an understanding of the process and relief typically provided so that they are prepared to advise clients and others on what might be expected. Third, actuaries will understand what relief is given for Harvey and Irma.

NEED FOR RELIEFLet’s start with a question.

Why is relief needed? The obvious answer is that events such as major hurricanes will disrupt normal business operations. Communications are often disrupted and commercial transactions must wait. The focus becomes on returning to normal operations, or, as sometimes is the case, simply working to ensure the survival of the business. The “business” does not refer solely to the plan sponsor, but also means the advisors to the plan sponsor. The return to normal operations may take a few hours, or it may take months. Business records may or may not have been backed up in a manner that allows a speedy recovery.1 With the business disruption many activities with respect to a pension plan may not (or cannot) take place in a timely manner. Examples include:

• payment of benefits• providing election notices• making plan contributions• certifying plan funding

percentages• paying PBGC premiums• filing required government

formsThe law applies non-trivial taxes

and penalties for failure to timely carry out activities with respect to a pension plan.2 While the agencies have their individual correction programs, these programs charge

1 The how, why, etc. of preparing one’s business for disasters of any sort is beyond the scope of this article.2 It is assumed that actuaries are familiar with the actual and potential penalties with respect to the various failure for activities to take place timely.3 The impact of the events of September 11, 2001, upon the financial structure has been well documented (try a Google search) and highlighted the need for disaster recovery and offsite back-ups by major institutions.4 See the Technical Explanation of the “Victims of Terrorism Tax Relief Act of 2001” prepared by the staff of Joint Committee on Taxation ( JCX-93-01) for further information and reasons for the changes.5 The detailed legal trail through the law is being omitted for sake of brevity.6 Notice 2002-7 provided funding relief for the attacks on 9/11.7 Material on FEMA and the process is found on the FEMA website at www.fema.gov/disaster-declaration-process.


and funding certifications are not part of the standard relief provided by Rev. Proc. 2007-56. Additionally, Rev. Proc 2007-56 does not extend PBGC deadlines.

The IRS announced disaster relief for Harvey in Texas, and for Irma in Florida, in Georgia, in Puerto Rico, and in the Virgin Islands. Each of the news releases referred to Rev. Proc. 2007-56, listed the counties or municipalities for which relief applied,9 and provided a postponement to Jan. 31, 2018. The news releases for Texas and Florida were updated to add counties after the initial relief was provided. See TX-2017-09 and FL-2017-04, for Texas and Florida, respectively.

Funding Relief – Notice 2017-49Unlike the broadly applied

standard relief, funding relief is narrowly provided. It is provided for a more limited number of disasters than standard relief, and to date has been provided by a more formal communication than an IRS press release. Additionally, funding relief may be announced later than standard relief and may apply to a smaller group of plans than standard relief.

For Harvey and Irma, funding relief was provided in Notice 2017-49. Notice 2017-49 provides funding relief to an “Affected Plan.” An Affected Plan is a plan for which any of the following are located in the Affected Area:

• the principal place of business of the employer that maintains the plan (in the case of a plan covering employees of one employer, determined disregarding the rules of §§ 414(b) and (c));

• the principal place of business of employers that employ more than 50% of the active participants covered by the plan (in the case of a plan covering

Irma in Georgia, and DR-4337 is the designation for Irma in Florida. The disaster notices list the counties that qualify for individual assistance and for public assistance.

RELIEF UNDER SECTION 7508A

Section 7508A of the Code and the regulations thereunder allow the IRS to postpone deadlines by reason of federally declared disasters. While the regulations list certain deadlines, the regulations also list any “other act specified in a revenue ruling, revenue procedure, notice announcement, news release, or other guidance published in the Internal Revenue Bulletin …”8 For DB plans, there are two types of relief, which I will call “standard relief ” and “funding relief.”

Standard Relief – Rev. Proc. 2007-56Rev. Proc. 2007-56 provides

a list of tax related events that are postponed when the IRS issues a news release or other guidance after a specific federally declared disaster that authorizes relief for the disaster. The IRS makes standard relief available on a broad basis for disaster declared by FEMA. Section 8 of Rev. Proc. 2007-56 lists 39 acts with respect to employee benefit issues including cafeteria plans and IRAs. These include relief under § 401(a)(9) and filing of the Form 5500 series returns. Importantly, the revenue procedure states that whatever postponement is provided for the Form 5500 series due date by the IRS will be permitted by the Department of Labor and PBGC. The period for making deductible contributions under § 404(a)(6) is also listed.

For DB plans, some important deadlines are not included in Section 8 of Rev. Proc. 2007-56. For example, the minimum funding deadline, quarterly funding deadlines

All declarations are made solely at the discretion of the President of the United States. Both types of declarations authorize the President to provide supplemental federal disaster assistance, but the governor of the affected state (or Tribal Chief Executive) must submit a request and show that requirements are met.

Emergency DeclarationsThe President can declare

an emergency for any occasion or instance when the President determines federal assistance is needed. The total amount of assistance provided for a single emergency may not exceed $5 million. The assistance available under emergency declarations is public assistance (debris removal and emergency protective measures) and individual assistance (individual and household program). Individual assistance is rarely authorized for an emergency declaration.

Major Disaster Declarations The President can declare a

major disaster for any natural event, including hurricane, tornado, storm, high water, etc. that the President determines has caused damage of such severity that it is beyond the combined capabilities of state and local governments to respond. A major disaster declaration makes a broad range of federal assistance programs available. The assistance may include various types of individual assistance and public assistance, and depends on the requested assistance and a damage assessment. Individual assistance appears to indicate more serious damage.

FEMA lists a disaster with a number and has a separate number for each disaster notice in a state. Major disasters have the designation “DR.” Thus, for example, DR-4338 is the designation for the major disaster for

8 See §301.7508A-1(c)(1)(vii) of the regulations.9 For Georgia, the entire state was listed and all 159 counties received relief.

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large multinational corporation is headquartered in Houston. Its office building is essentially unaffected by Harvey and, in any case, the corporation has offsite back-up facilities in another state so that there is no loss of basic business operations. The company and its executive committee located in Houston is the plan administrator for all of its plans. The plans of the company get funding relief.

Affected Plan Example 5 — Karen’s firm has a new client located in Dallas, which is outside of the Affected Area. Karen’s firm will be doing the actuarial work for 2018, but a retiring actuary in Dallas is responsible for 2016 and 2017 calculations. Even though Karen’s firm is in the Affected Area, the new client’s plan does not get funding relief because Karen’s firm was not engaged to make any determinations or certifications between Aug. 23, 2017, and Jan. 31, 2018.

FUNDING RELIEF UNDER NOTICE 2017-49

Notice 2017-49 provides funding relief for single-employer plans, multiemployer plans and CSEC plans. The relief is not the same for all plans. The single-employer plan (other than CSEC plans) funding relief (which is the only relief addressed in this article) is provided by the IRS, the DOL and the PBGC. The relief is provided for certain due dates that fall within the period starting on the date specified by FEMA as the beginning of the incident period, which is called the Initial Relief Date. The Initial Relief Date will differ from disaster to disaster. For example, the Initial Relief Date is Sept. 4, 2017, for Irma in Florida and Sept. 7, 2017, for Irma in Georgia. The funding relief consists of:

• postponing the due date for a contribution to meet the MRC, or a quarterly contribution due date, where the date that falls within

Whether a plan is an Affected Plan depends upon the location of the offices, not the ability to provide services or the ability of the business to function. That avoids any necessity for a time-consuming or subjective look at how bad the disaster was for that business. Let’s consider some examples of Affected Plans, and how that plays out in some circumstances.

Affected Plan Example 1 — Assume you are the president of a consulting f irm whose sole off ice is in one of the counties in Texas that is listed for individual assistance. Your off ice building was not damaged by Harvey and all of your employees can get to work. All of your clients’ DB plans for which you (or your employees) are the enrolled actuary or the record keeper get funding relief, no matter where they are located. Thus, your client in Chicago gets relief even though the client is not in the Affected Area.

Affected Plan Example 2 — Assume you work out of your house for a consulting firm located in another state that was not impacted by Harvey or Irma. You are the enrolled actuary for your clients’ plans. Your house is located in the Affected Area. Your clients get funding relief, including that habitually late client located in Dallas that would have been late in making the required contribution even if Harvey was not an issue.

Affected Plan Example 3 — Assume you work for a TPA firm in Miami that does not employ an enrolled actuary. Your firm contracts with an enrolled actuary on the west coast for actuarial calculations for the firm’s DB plans. However, you are the firm engaged by the clients to provide advice with respect to minimum funding requirements and maximum deductible limits. The clients have no contact with the enrolled actuary. Your clients’ plans get funding relief.

Affected Plan Example 4 — A

employees of more than one employer, determined disregarding the rules of §§ 414(b) and (c)):

• the relevant office of the plan or the plan administrator;

• the relevant office of the primary record keeper serving the plan; or

• the office of the enrolled actuary or other advisor that previously had been retained by the plan or the employer to make funding determinations or certifications for which the due date falls between the date specified by FEMA as the beginning of the incident period (Aug. 23, 2017 for Harvey and Sept. 4, 2017, for Irma in Florida) and Jan. 31, 2018.

For purposes of the list, the term “office” means the worksite of the relevant individuals and the location of any records necessary to determine the plan’s funding requirements for the relevant period.

The “Affected Area” is def ined as any of the Texas counties identif ied for individual assistance by FEMA because of Harvey, any of the Florida counties identif ied for individual assistance by FEMA because of Irma, and any other areas identif ied for individual assistance by FEMA because of Harvey or Irma. Because the IRS news releases providing standard relief may not distinguish between individual assistance and public assistance, it is necessary to check the FEMA website to see what counties received individual assistance (and keeping in mind that there may be updates adding counties). For Texas, 39 counties received individual assistance because of Harvey, and for Florida, 40 counties received individual assistance because of Irma. Also, seven counties in Georgia received individual assistance because of Irma.


Florida) and 17-13 (Irma in Georgia) that provide relief under title IV of ERISA. The PBGC relief relates to “Designated Persons” (e.g., a plan administrator, or contributing sponsor, that is responsible for meeting a PBGC deadline) located in the disaster area for which the IRS has provided relief in connection with filing extensions for the Form 5500 series, or cannot reasonably obtain information or other assistance needed to meet the deadline from a service provider, bank or other person whose operations are directly affected by Harvey or Irma.

Therefore, there are two ways that a plan administrator is a Designated Person. One is that the plan administrator is located in the disaster area. The other is that the plan administrator needs information from someone (service provider, bank or other person) located in the disaster area and cannot reasonably obtain it because operations of that entity or person were directly affected by Harvey or Irma.

With respect to plan administrators, the disaster area for PBGC is broad and tracks the area that receives Form 5500 relief, which may be broader than funding relief. Thus, for example, all 159 counties in Georgia are in the disaster area. While PBGC notices may list some counties at the time they are issued, the notices generally make it clear that if IRS adds to the Form 5500 extension areas (as was done with Harvey in Texas and Irma in Florida), then the PBGC relief is extended to those areas as well.

With respect to service providers, the PBGC relief is potentially narrower than funding relief. For funding relief, the service provider just had to be in an area that qualif ies for FEMA individual relief. However, for PBGC relief, the service provider had to be directly affected by Harvey or Irma and reasonably

Jan. 31, 2018.

Examples of Funding ReliefEach example assumes a single-

employer plan (that is not a CSEC plan) that is an Affected Plan with a calendar plan year (unless stated otherwise).

Relief Example 1 — The Sept. 15, 2017 deadline to make the minimum required contribution for 2016 is postponed to Jan. 31, 2018.

Relief Example 2 — The Oct. 1, 2017 deadline by which an AFTAP certification must be made is postponed to Jan. 31, 2018. Thus, if the AFTAP was not certified prior to Oct. 1, 2017, it must be certified prior to Jan. 31, 2018.

Relief Example 3 — A plan with a fiscal plan year from Oct. 1 to Sept. 30 had a timely certified AFTAP of 83% for the plan year ended Sept. 30, 2017. Since Jan. 1, 2018, is the first day of the fourth month of the plan year, the presumed AFTAP will not drop to 73% until Jan. 31, 2018 (absent an AFTAP certification before such date for the plan year commencing Oct. 1, 2017).

Relief Example 4 — The AFTAP for a plan in Florida was certified on Aug. 15, 2017, as 78% triggering restrictions on the lump sums that can be paid. Notice to participants was required by ERISA section 101( j) within 30 days. The notice can be provided as late as Jan. 31, 2018, without penalty.

Relief Example 5 — A plan with a fiscal plan year from Sept. 1 to Aug. 31 has a deadline of Nov. 15, 2017, to apply for a funding waiver for the plan year ended Aug. 31, 2017. The deadline is postponed to Jan. 31, 2018.

PBGC AND DOL RELIEFAside from the funding relief

in Notice 2017-49, the PBGC and the DOL have provided some other relief. The PBGC has released disaster release notices 17-09 (Harvey in Texas), 17-11 (Irma in

the period beginning on the Initial Relief Date and ending on Jan. 31, 2018, to Jan. 31, 2018;

• if the date specified in § 1.430(f )-1(f )(2) of the IRS regulations for making an election relating to a plan’s prefunding balance or funding standard carryover balance falls within the period beginning on the Initial Relief Date and ending on Jan. 31, 2018, then the date by which the election must be made is postponed to Jan. 31, 2018;

• if the first day of the 10th month of the plan year (the date described in § 436(h)(2) of the Code), or the first day of the fourth month of the plan year (the date described in § 436(h)(3) of the Code), for certification of the adjusted funding target attainment percentage (AFTAP) falls within the period beginning on the Initial Relief Date and ending on Jan. 31, 2018, then the date is postponed to Jan. 31, 2018;

• if the deadline for furnishing a notice required under section 101( j)(1) or (2) of ERISA (notice that funding-based restrictions apply) falls within the period beginning on the Initial Relief Date and ending on Jan. 31, 2018, then the date by which the notice must be furnished is postponed to Jan. 31, 2018; and

• if the date for applying for a waiver of the minimum funding standard (21/2 months after the end of the plan year as set forth in § 412(c)(5) of the Code) falls within the period beginning on the Initial Relief Date and ending on Jan. 31, 2018, then that deadline is postponed to

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need to be aware of the possibilities and limits placed upon the relief. Furthermore, remember that the initial relief is often updated and expanded. That requires some vigilance on your part. However, at least the relief is potentially available.

James E. Holland, Jr. is the Chief Research Actuary at Cheiron, Inc. Previously he was a long-time official in the pension area of the IRS,

and has been involved and speaking about law and regulations for many years.

31, 2018.• Reportable event

post-event notice – If the deadline for filing a reportable event post-event notice falls on or after the PBGC Initial Date and on or before Jan. 31, 2018, then the deadline is extended to Jan. 31, 2018.

• Request for reconsiderations or appeals – If the deadline for requesting review of a PBGC determination (that is filing an appeal or requesting reconsideration) falls on or after the PBGC Initial Date and on or before Jan. 31, 2018, then the deadline is extended to Jan. 31, 2018.

PBGC may provide additional relief on a case-by-case basis. For example, pre-event reportable event notices can receive relief on a case-by-case basis.

DOL ReliefMost of the disaster relief

provided by the DOL (in addition to the filing relief and notice relief described above) for Harvey and Irma relates to defined contribution plans. However, contributory DB plans receive some relief for timely forwarding employee contributions to the plans. DOL Releases 17-12-1216-NAT (Harvey) and 17-1297-NAT (Irma) provide that the DOL will not, solely on the basis of a failure attributable to Harvey or Irma, seek to enforce provisions of title I of ERISA with respect to a temporary delay in forwarding employee contributions to the plan.

CONCLUSIONNatural disasters disrupt

plan operations. As illustrated by Harvey and Irma, the agencies now have in place mechanisms for providing relief with respect to employee benef it plans. As an actuary and advisor to plans, you

be unable to provide information. The matter is further complicated because whether information can reasonably be obtained is a subjective matter.

PBGC RELIEFThe PBGC provides specific

relief and case-by-case relief. The specific relief for single-employer plans is:

• Premium filing relief – Any premium filing required to be made beginning on the PBGC Initial Date (Aug. 23, 2017, for Harvey in Texas, Sept. 4, 2017, for Irma in Florida, and Sept. 7, 2017, for Irma in Georgia) and on or before Jan. 31, 2018, will be treated as timely if the filing is made by Jan. 31, 2018. Accordingly, PBGC will waive any penalty, but interest is not waived and must be included.

• Standard termination relief – If any of the following termination deadlines fall on or after the PBGC Initial Dates and on or before Jan. 31, 2018, are extended to Jan. 31, 2018:

— Standard termination notice (Form 500)— Deadline for completing the distribution of plan assets— Deadline for filing the post-distribution certification (Form 501), which automatically extends the deadline for filing missing participant information and for paying missing participants’ designated benefits to PBGC without interest.

• Distress termination relief – If the deadline for filing the distress termination notice falls on or after the PBGC Initial Date and on or before Jan. 31, 2018, then the deadline is extended to Jan.


LEGAL/TAX

Innovation and development means reconsidering how the old rules on paying plan expenses apply.

Financial Wellness: What Expenses Are Payable From Plan Assets?

BY KELSEY MAYO

Plan providers are constantly striving to be innovative and provide services that add real value to plan sponsors. This has resulted in many vendors offering new or additional services

to their clients. In particular, vendors are providing new services centered on getting participant savings rates up and encouraging overall financial wellness.

This is a welcome development, but the question arises: Who is going to pay for this new and valuable service? Generally, the plan sponsor may pay for any service it desires without regard to ERISA rules. However, many sponsors would prefer for the plan to pay all or part of the cost because the expenses reduce the employer’s bottom line. Since there are serious consequences for improperly using plan assets to pay certain expenses, plan sponsors should adhere strictly to all the rules governing this practice.

WHY DOES THIS MATTER? HOW BAD CAN IT BE?

Using plan assets to pay ineligible expenses will result in a prohibited transaction under both ERISA and the Code. Engaging in a prohibited

transaction is a breach of fiduciary duty and the sponsor will have to reimburse the plan for the improper expenses, plus lost earnings on those amounts. If any other “harm” occurs to the plan as a result of the transaction, the sponsor would need to make the plan whole for that harm as well. In addition, the Code would subject the sponsor to excise taxes. If the prohibited payment violates the exclusive benefit requirement, the IRS may seek to disqualify the plan (although it generally would not pursue disqualification of a plan unless there are multiple infractions of the exclusive benefit rule involving a significant percentage of the plan assets). Excise taxes on prohibited transactions have the potential to become quite material — and could be 100% of the amount involved. As a result, sponsors are well advised to carefully review and consider what expenses are paid from the plan.

SO WHAT IS PAYABLE FROM THE PLAN?

The rule is that fiduciary functions and services related to administration of the plan may be paid from plan assets. Activities relating to the establishment, design or decision to terminate a plan (also known as “settlor activities”) may

not be paid from the plan assets. And finally, services that are not directly related to the plan should not be paid from the plan. (This last one seems obvious, but it has crept up on employers before!)

BUT WHAT DOES THAT REALLY MEAN?

Here are common examples of expenses that are not payable from the plan:

• Discretionary amendments to the plan (such as, adding a loan feature to encourage participation)

• Studies to determine design choices (such as studying the impact of a new match on participant deferral behavior)

• Education or services relating to debt reduction, emergency savings, college planning, etc.

With regard to the last item, one might argue that educating participants about how to balance these other issues directly relates to their ability and willingness to save under the plan. Assuming that argument won the day, the fee for those services could be paid from

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This was likely considered when the sponsor hired the provider, but sponsors should look closely to ensure there wasn’t unnecessary duplication of services with another provider, additional fees that the sponsor finds unreasonable, etc.

5. Assuming the fee is reasonable, direct the plan trustee to pay the service provider directly. The sponsor generally should not pay for the expense and then be reimbursed from the plan.

6. Decide how the fee will be allocated to participants. Common allocation methods are to pay the expense from an ERISA bucket account, charge it to participants pro-rata based on account balance, charge it to participants per-capita based on accounts, or charge it to participants who use the service. The nature of the service should drive the allocation method the fiduciary selects.

7. Document all of the above. A fiduciary process is only complete if it’s written down… and if it isn’t written down, the best fiduciary process might not be worth much.

SUMMARYThe rules regarding payment of

expenses have not changed, but the services to retirement plans have! These new services may mean that a portion of the vendor’s invoice should not be paid from plan assets. With each new innovation and development, we must reconsider how the old rules apply to help plan sponsors stay in compliance.

Kelsey Mayo, J.D., is a partner with Poyner Spruill LLP, a law firm based in North Carolina. She routinely represents clients

before the IRS and DOL and has extensive experience in virtually all aspects of qualified plans, welfare plans, fringe benefit plans and executive compensation arrangements.

SO THEY WANT TO USE PLAN ASSETS

The decision to use plan assets to pay for expenses is a fiduciary function. As with all fiduciary decisions, process is important. Sponsors (or the appropriate fiduciary) should follow these steps in paying expenses from plan assets: 1. Confirm the plan document

permits payment of expenses from plan assets. If the sponsor has a fee policy, confirm whether the expense is permitted under the fee policy or if a certain procedure must be followed to approve the expense.

2. Review what services are provided. Consider all services provided by the vendor, not just the ones listed on the invoice and include all “free” services.

3. Determine whether each service provided is eligible to be paid from plan assets. If some services are eligible and some are not, ask the provider for a breakdown or itemization of the fee.

4. Confirm the fee for plan-related services (as itemized, if applicable) is reasonable.

the plan. While this argument has merit, the inevitable question arises as to whether any sponsor wants to risk the consequences and hassle of a prohibited transaction to have these services paid from plan assets.

The following are common examples of expenses that might be payable from the plan:

• Education and notices about the plan and the benefits of participation

• One-on-one or group plan enrollment meetings

• Implementing a loan feature or new match (such as reprogramming the administrator’s system, developing new forms, etc.)

• Notices about the plan, plan-related education opportunities, and meetings

Sponsors should be very careful, especially when dealing with new financial wellness services, to consider whether only a portion of the services are actually plan-related expenses. If a service provider provides more than one service to the sponsor, then only the fees related to the plan administration services may be paid from plan assets.

The classic example of this was the case where the company’s plan vendor was also its payroll provider. The sponsor was told that the payroll service was complimentary and the plan paid the vendor’s entire fee. Following the old adage that nothing comes free, the court found that a portion of the vendor’s fee was for payroll services and was not a proper plan expense.

Similarly, financial wellness services that are not related to the plan (such as debt reduction, emergency savings, college planning, etc.) are not free. If the plan vendor provides both plan-related services (such as investment advisory or participant education services) and these new financial wellness services, the best course of action may be to pay only a portion of the provider’s fee from plan assets.

A fiduciary process is only complete if it’s written down… and if it isn’t written down, the best fiduciary process might not be worth much.”

FEATURE

BY JOHN ORTMAN AND JOHN IEKELPHOTOGRAPHY: EVENTPHOTOJOURNALISM.COM

Nailed It, Once AgainThe 2017 ASPPA Annual Conference delivered on its promise to be bigger, better — and more fun.

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Nailed It, Once Again


he 2017 ASPPA Annual Conference, held Oct. 22-25 at National Harbor, MD, just outside the nation’s capital, offered more than 75

workshop sessions, 5 general sessions, and nearly 50 vendors and service partners. Not to mention a new seven-session track for recordkeepers, a rocking, private “hair metal” concert, ASPPA’s entertaining, compliance-themed version of “Hollywood Squares,” and a general session in which the jam-packed audience participated in building a mock retirement reform bill using a real-time voting app.

Here’s a look at some of the highlights.

GRAFF WARNS OF THE POTENTIAL IMPACT OF TAX REFORM

ASPPA Executive Director Brian Graff reminded attendees at the 2017 Annual Conference that tax reform is a pressing matter. “We’re next,” he said in the opening General Session, noting that several other tax proposals floated as potential revenue enhancers have been walked back.

“One person’s tax reform is another person’s tax increase,” Graff said. He noted that the Senate budget

measure, which he said it is “likely the House will pass,” allows $1.5 trillion net in tax cuts. The question, he said, is what the tax provisions will be.

Graff outlined some of the possibilities. One of the options recently discussed, “Rothification,” he noted, is “not new at all.” Graff, joined by ARA’s General Counsel Craig Hoffman and Director of Retirement Policy Doug Fisher, said that it harks back to former House Ways and Means Chairman Dave Camp’s (R-MI) 2014 proposals.

They addressed one of the most recent proposals: a cap on the amount one could put into a retirement account of $2,400 per year. “There’s a lot of people who are contributing more than $2,400,” noted Graff, adding that 60% of people would lose their up-front deductions. “We’re really not happy with this. We don’t think this is sensible policy.”

“The 401(k) is not a piggybank for corporate tax cuts,” said Graff, pledging that ASPPA will act to make sure this doesn’t happen.

Pass-Through Rate Another tax reform proposal

would create a new 25% tax rate for businesses organized as pass-through

entities. That rate would apply only to the business income portion of the entity’s total income, with the compensation portion taxed at ordinary income rates. This, they said, could result in fewer businesses even offering a retirement plan in the first place. “We believe this is an unintended consequence” of the proposal, Hoffman said.

Fisher added that the “$64,000 question” is how the entity’s total income is allocated, and that if it is enacted as part of a tax reform measure, service providers may ask themselves, “Do my clients in these pass-through entities need to go through the hassle of a retirement plan?” Hoffman agreed, telling attendees, “We believe it will be very easy for financial advisors to say, ‘Don’t put money in a plan’” if such a provision becomes law.

“They are actually doing this stuff,” warned Graff, adding, “this is not a drill.” And there is added risk, he noted, given all the current distractions. “We are worried this won’t rise to the level that it needs to,” said Graff.

RESA Redux?Another possibility, they noted,

is that the Retirement Enhancement and Savings Act of 2016 (RESA), which had been marked up by the Senate Finance Committee in September 2016 but never reached the floor of the full Senate for a vote, may be reintroduced in this session of Congress. In fact, Hoffman called its reintroduction “imminent.”

Among the proposals contained in RESA was a provision calling for pooled employer plans (PEPs), which would allow for open multiple employer plans (MEPs) with no commonality if certain requirements are met. And Graff expressed the view that this idea may have staying power. “This MEP/PEP thing isn’t going away,” said Graff.

Yet another issue that they said is “still percolating” is lifetime income disclosure, based on the Lifetime Income Disclosure Act, which would require ERISA defined contribution plans to include “annuity equivalent” calculations on benefit statements once a year.

Fiduciary Rules Tax reform is not the only game

in town, the panel noted. Graff said that he reminds people that the

T

ASOP UPDATE: ACOPA Past Presidents Karen Smith (L) and Lynn Young made the Actuarial Standards of Practice fun and interesting. No, really.

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Department of Labor’s fiduciary rule is essentially already in effect, and has been since June 7, 2016 — although the applicability date was scheduled for April 10, 2017 and was then extended to June 9.

“We expect the DOL will revisit the BIC provision” of the rule, said Graff. “This is an ongoing saga,” he said, adding, “it’s not going away.”

And the federal level is not the only one on which fiduciary rules are being put in place. For instance, Nevada quickly put a fiduciary standard in place. And it may not be the last — Graff noted that other states are considering similar steps, and that other states tend to copycat such measures. “That’s why we’re working so hard on this,” he said.

ASPPA WELCOMES POZEK AS 49TH PRESIDENT

ASPPA welcomed Adam C. Pozek, ERPA, QPA, QKA, as the 2018 President of the organization during the Business Meeting that kicked off the 2017 ASPPA Annual Conference.

An industry veteran with more than 25 years of experience, Pozek is a partner with DWC — The 401(k) Experts, in Beverly, MA. He has also served as Vice President of Consulting Services at Sentinel Benefits & Financial and Vice President at

Swerdlin & Co. He is a frequent writer, blogger and presenter.

Joining Pozek as ASPPA Officers for 2018 are:

• President-Elect: James R. Nolan, QPA

• Vice President: Miriam Matrangola, Esq., QKA, QPA

• Immediate Past President: Richard A. Hochman

In addition, five ASPPA members were elected to open seats on the ASPPA Leadership Council at the Oct. 22 Business Meeting:

• Kirsten Curry• Kizzy Gaul• Jen Gibbs• Amanda Iverson• Rod Stortenbecker

ARA Leadership ChangesThe American Retirement

Association also held its annual Business Meeting during the opening session, welcoming Scott Hayes, CPFA, TGPC, as 2018 President. Hayes is the President and CEO of ISC Group, Inc. in Dallas, TX, where he has been since 1997. He is a Past President of the National Tax-deferred Savings Association (NTSA).

Joining Hayes as ARA Officers for 2018 are:

• President-Elect: Steve Dimitriou

• Treasurer: Kyla Keck• Secretary: Joe Nichols• Immediate Past President:

Robert M. Richter

In addition, three nominees were elected to at-large seats on the ARA Board of Directors at the Oct. 22 Business Meeting:

• Joe DeNoyior• Shannon Edwards• Virginia Krieger Sutton

TRANSITION TIME: Incoming 2018 ASPPA President Adam Pozek (L) presents predecessor Rich Hochman with a plaque commemorating Rich’s year as President.

ROUNDTABLES: The informal professional roundtable workshops at Annual continue to grow in popularity.


transit and at rest.3. Secure Configuration.

Apply security patches and ensure that secure configuration of all systems is maintained. Create a system inventory and define a baseline build for all devices.

4. Removable Media Controls. Create a policy to control all access to removable media, such as thumb drives. Limit media types and usage. Scan all media for malware before importing to the corporate system.

5. Managing User Privileges. Establish account management processes and limit the number of privileged accounts. Limit user privileges and monitor user activity. Control access to activity and audit logs.

6. Incident Management. Establish an incident management response and disaster recovery capability. Produce and test incident management plans. Provide specialist training to the incident management team.

by a tool called “Poison Ivy.”• Lateral movement. The

attacker elevates access to key user, service and admin accounts and specific systems.

• Data gathering. Data is acquired from target servers and staged for exfiltration.

• Exfiltration. Data is exfiltrated via encrypted files over ftp to external, compromised machines at a hosting provider.

The 9-Step Approach

Essentially, cybersecurity is a defensive concept – Larson refers to it as “a lifestyle choice.” He outlined a nine-step approach.

1. User Education and Awareness. Produce user security policies covering acceptable and secure use of the organization’s systems. Establish a staff training program. Maintain user awareness of cyber risks.

2. Home and Mobile Working. Develop a mobile working policy and train staff to adhere to it. Apply the secure baseline build to all devices. Protect data both in

9 STEPS TO AN EFFECTIVE CYBERSECURITY PROGRAM

Todd Larson is the Chief Information Officer at Sentinel Benefits and Financial Group. What are the IT vulnerabilities that keep him up at night?

Larson shared his three biggest cybersecurity concerns at a workshop session at the 2017 ASPPA Annual Conference:

• intentional hacking of files; • unintentional release of files;

and • email phishing to steal

information.Larson outlined how a typical

phishing scheme is executed. To begin with, he noted, “commercial software contains weaknesses and imperfections. Hackers discover them and find ways to exploit them, and share information about those vulnerabilities.” He gave an example of an actual phishing incident:

• Phishing and “zero day” attack. A handful of users are targeted by two phishing attacks; one user opens the “payload” file.

• Backdoor. The user’s machine is accessed remotely

PHOTO OP: One of the many groups of ASPPA members who participated in the biennial March on Capitol Hill was shepherded by Alisa Wolking, the ARA’s Director of Political Affairs

ON THE HILL: ASPPA member Tami Plummer from Portland, Maine, met with Sen. Susan Collins (R-Maine) during the March on Capitol Hill.

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• 62 federal lawsuits were filed; and

• there were 96 indictments.The DOL “is sometimes

flabbergasted” that people don’t understand the rules, said Abrigo, who noted that the DOL “is definitely targeting retirement plans.” That includes their named fiduciaries, functional fiduciaries, plan administrators and service providers. And they haven’t forgotten plan sponsors and plan trustees; Abrigo added that the DOL is especially interested in them regarding their fiduciary responsibilities.

DOL investigations, said Nowiejski, are never random. “The DOL always has a reason,” he said. And while they can come as result of action by employees and participants, enforcement projects, referrals or reviews of Forms 5500, they can also result from information gleaned from other sources — including social media and even local newspapers, from which information can be found concerning notices of bankruptcy.

Nowiejski said that there are red flags that can heighten the chances of being investigated; for instance, fees that look high and that are not explained to the DOL’s liking, which he said will result in DOL attention “every time,” and assets that are hard to value.

desk testing• Reviewing the “spread-

marts” of data, i.e., those orphaned files and spreadsheets created long ago and now neglected

Larson recommended procuring and utilizing widely available tools designed to monitor these important basics.

DOL INVESTIGATIONS AND ENFORCEMENT UPDATE

“We’re establishing a standard for you to go by.” That is how J.K. Nowiejski of Nova 401(k) Associates characterized the Department of Labor’s approach in auditing and investigating retirement plans. He was joined by Drinker Biddle Reath LLP Partner Heather Abrigo in addressing trends in government audits and investigations in a workshop session.

Abrigo and Nowiejski made it abundantly clear that the DOL means business regarding retirement plans’ compliance with applicable law and regulation. Figures they shared from the DOL’s Employee Benefits Security Administration (EBSA) 2016 enforcement activities offer a snapshot:

• more than 2,000 civil cases were closed;

• 333 criminal investigations were closed;

Report criminal incidents to law enforcement.

7. Monitoring. Establish a monitoring strategy and produce supporting policies. Continously monitor all systems and networks. Analyze logs for unusual activity that could indicate an attack.

8. Malware Protection. Produce relevant policy and establish anti-malware defenses that are applicable and relevant to business areas. Scan for malware across the organization.

9. Network Security. Protect your networks against external and internal attacks. Manage the network perimeter. Filter out unauthorized access and malicious content. Monitor and test security controls.

The Basic Elements

Larson listed the basic tests, IT/operational policies and procedures that cybersecurity auditors look for:

• Situational transaction testing and measuring

• Authentication testing• Automated penetration

testing• Physical security and clean-

FERRIS TIME: The 180-foot tall Capital Wheel at National Harbor has become a familiar sight to ASPPA Annual attendees.PROSIT!: Well, it was October, after all…


(Top)ROCKIN’ IT: Tuesday evening’s entertainment featured a private concert celebrating the joys of 1980s-style “hair metal” music by the “Herr Metal” tribute band.

(Right)A MOTLEY CREW: ASPPA members always take the theme-party dress-up thing seriously.

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(Left)OMG: Conference co-chair Greg Fowler’s lipsynch performance was… impressive.

(Right)‘HERR-Y POPULAR’: Hair metal was probably before Sal Tripodi’s time.

(Bottom)LIP SERVICE: The concert was preceded by a totally awesome lipsynch competition. Here’s their mass curtain call, sort of.


the fees are justified, and, if they are not, who is at fault.

Benefit Distributions. This initiative, which began at the Boston office and is spreading to other regional offices, ultimately seeks to ensure that plan fiduciaries are complying with Field Assistance Bulletin 2014-01. It seeks to determine if plan administrators are following the terms of the plan document regarding the form and timing of distributions upon death, disability or termination of employment and whether they are monitoring to ensure that checks are cashed and not “stale.”

Headquarters Initiatives Don’t forget that the DOL

national office has its own enforcement projects, Abrigo and Nowiejski reminded attendees. These include initiatives concerning:

• employee contributions;• plan investment conflicts;• health benefits security;• ESOPs;• bankruptcy;• abandoned plans; and • the VFCP.

THE TRUMP-ERA FIDUCIARY RULE

Where does the DOL’s fiduciary rule stand? What might we expect in the future? ERISA attorney Fred Reish provided an update on the

Regional Office UpdateAbrigo and Nowiejski also

provided updates on enforcement initiatives at the DOL regional offices:

Form 5500. Late deposit of elective deferral contributions and loan repayments reported on the Form 5500 are garnering regional DOL authorities’ attention. This initiative began at the DOL’s Philadelphia office and is now spreading; at the very least it has reached the Boston and San Francisco offices. Under this initiative, which first focused on large plans but now looks at plans of any size, the regional office sends a letter offering what Abrigo and Nowiejski call an “invitation” to make a correction through the Voluntary Fiduciary Correction Program (VFCP).

Large Defined Benefit Program. This initiative, which also began at the Philadelphia office, focuses on procedures concerning:

• locating missing participants;• informing deferred vested

participants that a retirement benefit is payable; and

• starting benefit payments when participants reach age 701/2.

Excessive Fees. Like the Form 5500 initiative, this one began at the Philadelphia office and has spread to others. It includes reviewing disclosures and records to determine whether participants are paying above-average fees; it asks whether

“How you respond and what you say is very important,” said Abrigo, adding that being glib or flippant can result in agents coming to investigate. Nowiejski agreed, noting that how one answers a “yes” or “no” question and responses that are equivocal regarding who made a mistake in plan administration or compliance also can draw the DOL’s attention.

But comments and responses by plan professionals, administrators and service providers say are not all that matters, they cautioned. Nowiejski said that investigators and can even glean information from conversations conducted in an employer’s break rooms. In addition, Abrigo observed, “you never know what exactly what your client will say.”

There are steps an employer, plan sponsor and service provider can take to head off potential trouble from such inadvertent communication. Nowiejski suggested that it may be useful to tell employees to be aware when investigators are onsite, and that arranging meetings offsite may be an option to consider. Abrigo said that it helps to meet with one’s clients before they meet with the DOL as part of the process of preparing for an investigation.

But most importantly, Abrigo said, “The truth is always your best defense.”

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by a co-fiduciary, and cannot just resign.

ASPPA HONORS JOAN GUCCIARDI WITH EIDSON FOUNDERS AWARD

ASPPA honored Joan A. Gucciardi, MSPA, with the prestigious Harry T. Eidson Founders Award during the opening session of the 2017 ASPPA Annual Conference. The award was presented to Gucciardi by Ilene Ferenczy, Esq., Managing Partner of the Ferenczy Benefits Law Center.

Gucciardi enjoyed a long and distinguished career prior to her retirement in 2010, including heading her own pension consulting actuarial practice and as a Senior Consulting Actuary at Summit Benefit and Actuarial Services, Inc. She is best known as the creator of the Journal of Pension Benefits, author of several volumes in the annual Wolters Kluwers Answer Book series, including the 401(k) Answer Book, and co-author of the annual 5500 Preparer’s Manual.

Gucciardi served in ASPPA leadership and as a volunteer for many years, including as an ASPPA Board member, Chair of the Education and Examinations Committee, and on the

important concepts like the prudent person rule, the duty of loyalty to plan participants, reasonable limits on advisor compensation (which Reish said he expects the DOL to “soften”) and prohibited transactions and PTEs. Meanwhile, the SEC will take the lead on disclosures, he said. Reish also believes that “something along the lines of the prudent person rule and duty of loyalty standard is likely from the SEC.”

The end result of this reworking of the rules? “Not as good as some people hope, but not as bad as some people fear,” said Reish.

Issues for TPAs

Reish ticked off a list of potential concerns for TPAs:

• The TPA’s own retirement plan. At producing TPAs, if an officer is receiving compensation on the plan, that could spell trouble. “We’ve seen the DOL investigate” in instances like this, said Reish.

• TPA’s recommendations of recordkeepers. Generally this should not be a problem, Reish said.

• Affiliated advisors. If advisors affiliated with the TPA get payments from providers, “There isn’t a clear line here,” Reish said, “but I worry about that.”

• Recommendation of distributions. If no fee is involved, this is “okay, but not advisable,” said Reish.

• TPAs and “forced” distributions. This is not fiduciary advice, Reish pointed out.

• Referrals to advisors. If there is no fee, there is no issue here.

• 3(16) administrative fiduciary. Remember that you are a co-fiduciary, Reish cautioned. As such, you must take action if you become aware of a problem caused

former and shared his thoughts on the latter in a workshop at the 2017 ASPPA Annual Conference.

It’s important to remember that the rule expanding the definition of fiduciary advice became effective on June 9, Reish noted. Also on that date, transition rules for certain exemptions — the Best Interest Contract Exemption (BICE) and Prohibited Transaction Exemption (PTE) 84-24 — became applicable.

The transition BICE was created by rules proposed by the Trump administration less than five months after Inauguration Day. Citing July 1, 2018, as the likely date the transition BICE will become final, “we should see the final version of the delay in the next few weeks,” Reish said. “As a result, the transition relief is likely to be in effect for a period of two years.” He added, “I doubt that many of the delayed aspects of the rule will ever go into effect.”

SEC’s Likely Role

Among the impacts of the delay is the fact that it will enable the Securities and Exchange Commission to weigh in on the issue of a fiduciary standard. This does not mean that we should expect a uniform definition of fiduciary advice, standard of care or treatment of conflicts of interest, Reish cautioned. Rather, the SEC will address those important issues, but within their purview.

Currently the SEC lacks enough seated members to act, although President Trump has nominated Mercatus Center fellow Hester Pierce, a Republican, and Columbia Law School professor Robert Jackson, a Democrat to fill the two vacant seats. Assuming they are confirmed by the Senate, “the full Commission will not be in place until after Jan. 1,” said Reish, at which point he expects that they will turn their attention to the fiduciary issue.

When that happens, Reish expects the DOL to take the lead on ERISA issues, since ERISA sets forth

FOUNDERS AWARD: Longtime ASPPA leader and pension luminary Joan Gucciardi was honored with the 2017 Harry T. Eidson Founders Award.


Government Affairs Committee, including Chair of the 401(k) Subcommittee.

ASPPA established the Eidson Award in 1995 to honor the memory of its founder, Harry T. Eidson. His belief in the importance of the employer-sponsored retirement system in the United States and in having an organization dedicated to preserving and enhancing such a system was the inspiration for the formation of ASPPA in 1966. Each year, ASPPA honors one or two individuals for their contributions to the industry. Recipients can be members of ASPPA or from outside the association’s membership.

SERVICE AGREEMENTS: CHOOSING TO AVOID RISK

“If you choose not to have a written document, you have voluntarily chosen to increase your risk.” Ilene Ferenczy, Managing Partner of the Ferenczy Benefits Law Center, at a workshop session of the ASPPA Annual Conference discussed the importance of service agreements and the protection they offer.

“Almost everybody you work with has some kind of service

agreement,” said Ferenczy, noting that they allow one to know the provisions and scope of a contract. For instance, they can specify the services that will be provided (or not), who is responsible for errors in prior years, and even the client’s responsibilities.

Not only can service agreements specify responsibilities, said Ferenczy, they also can afford one protection by limiting liability and addressing dispute resolution. “There are certain risks you want to avoid,” she said, pointing out that service agreements can even protect a client. Without an agreement, she asked, how can one rely on information concerning and related to an agreement?

Service agreements serve another purpose, too — providing a means to be in compliance with federal regulations. “We find that service agreements are an excellent place to make ERISA Section 408(b)(2) disclosures,” Ferenczy said, reminding attendees that that section of the law requires covered service providers to furnish information about services and fees, special fees on termination of a contract, revenue sharing and other indirect compensation.

Nuts and Bolts So what should a service

agreement entail? The aspects they can specify include:

• the parties to the agreement;

• whether one party guarantees payment for the other;

• clarifying when work begins, as well as when and how it ends;

• defining when responsibility the plan ends, and duties and fees related to that termination;

ADAM FOR THE WIN: The popular Current Events general session was presented in a very entertaining format — “ASPPA Squares.” Two panels of experts participated.

TOO MUCH FUN: Emcee Derrin Watson guided contes-tants Joni Jennings and Chris Scharf through their turn at “ASPPA Squares.”

IS THAT RIGHT?: “ASPPA Squares” expert panelist Heather Abrigo helped make the presentation true to the original.

WRITTEN WORD: Popular presenter Ilene Ferenczy explained the importance of service agreements.

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agreement is not needed because the clients love the provider. “I hear that a lot,” she commented, asking attendees whether anyone loves them enough to forego thousands of dollars in errors if something happens. Similarly, she cautioned that it is a mistake to not enter into a service agreement out of fear of offending a client. “They will respect you more with a service agreement,” she said.

Another common mistake, she said, is forgetting that the renewal of a contract requires new disclosures under ERISA Section 408(b)(2).

Bottom LineRemember that written

documents help, Ferenczy said, and operating without a service agreement leaves a service provider open to significant risks — risks that can be controlled with an agreement.

WE’LL MEET AGAIN…For a different take on this

year’s conference, check out the conference Twitter feed at #asppaannual17. And block out the dates for next year’s Annual Conference: Oct. 21-24, also at National Harbor. See you there!

reasonable. “This I see as an area that’s absolutely critical,” she remarked.

Dollars and CentsBilling issues can arise, Ferenczy

said, noting that most problems with billing arise “because of client expectations not being met.” To avoid them, she suggested, a service provider should be sure to communicate what it will bill for, how it will bill the client, when the client must pay and what the consequences will be if the client fails to pay on time.

Pitfalls Some mistakes with service

agreements are more common than others, Ferenczy told attendees. One of the most serious is to have an agreement that is too ambiguous. If a service provider doesn’t understand it, the clients and the courts won’t either, she said, adding that courts will generally construe ambiguity against a service provider. “Don’t substitute brevity for protection,” she warned, adding, “After all, this is going to control your livelihood vis-a-vis your clients.”

Not only that, Ferenczy said, it is a mistake to think that an

• specifying the plan year in which work will be done;

• responsibility for past years’ information;

• what services are included; • what services require a

specific client request, and which are automatically provided if an issue they would address arises;

• what services will not be provided; and

• how disputes are to be resolved.

“The more you can put in your contract, the better off you are,” said Ferenczy.

Clients, TooService providers are not the only

parties to a service agreements that have obligations, said Ferenczy — clients also have obligations. And a provider is generally not in breach of its duties if the client has failed to meet them, she reminded attendees. That can include providing accurate data on time, making contributions to the plan and decisions about investments, reviewing the provider’s work, notifying the provider of changes relevant to the plan and agreement, and determining whether fees and contracts are

YOU FIX IT: ARA Director of Retirement Policy Doug Fisher, joined by ARA General Counsel Craig Hoffman, led an interactive general session in which attendees voted on legislative proposals, creating a mock pension reform bill.

AN APP FOR THAT: Attendees at the “ASPPA Writes a Law” general session used a smartphone app to vote on pension reform ideas in real time.


COVER STORY

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BY STEVE SOKOLIC AND JASON C. ROBERTS

The DOL Fiduciary Rule: A Plain English Guide for Recordkeepers


Sweeping and technical regulatory changes have resulted in significant confusion among retirement plan service providers. On June 9, 2017, the Department of Labor’s final regulation defining the term “investment advice” (the “fiduciary rule”) became applicable along with, a new prohibited transaction exemption (PTE) known as the Best Interest Contract Exemption (BICE)1 and amendments to several other PTEs.

Under that rulemaking, some of the conditions required to comply with the BICE and amended PTEs were not scheduled to be applicable until Jan. 1, 2018. Subsequently, on Nov. 29, 2017, the DOL issued a finalized “extension of the transition period for PTE amendments” that, among other things, delayed the applicability of the more onerous conditions of the BICE until July 1, 2019.2 Additional changes to the BICE are expected to be made prior to the end of the extended transition period, but the expanded definition of “investment advice” and some of the BICE conditions will, nevertheless, be effective and applicable in the meantime.

This article focuses on the impact of the new rules on independent recordkeepers that have traditionally not served plans in a fiduciary capacity. These firms have avoided fiduciary status by not exercising discretion over the management or administration of the plans they serve and by ensuring that any investment-related support stops short of being considered “investment advice.”3 We will describe how, through carefully structured communications and disclosures to existing and prospective clients, along with proper

supervision of employees, traditional recordkeeping services can continue to be offered without being adversely impacted by the fiduciary rule.

OVERVIEW OF THE FIDUCIARY RULE

The fiduciary rule significantly expands the definition of “investment advice” under ERISA. Under the new definition, a person is an investment advice fiduciary if that person receives any compensation, directly or indirectly, relating to a “recommendation” directed to a plan fiduciary (e.g., an investment committee) or plan participant or beneficiary regarding, among other things:

• the purchase, sale or holding of any investment in the plan;

• the management of investments, including the recommending of investment strategies or managers; and/or

• whether to take a distribution or rollover from the plan, or whether a plan or IRA assets should be rolled into the plan.4

The term “recommendation” is broadly defined as any “communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.”5 A recommendation may result from one communication or by aggregating multiple communications directed to the same client.

Since the definition of a recommendation is so broad, the DOL carved out several exceptions. The exceptions most relevant to recordkeepers are the following:

Platform ProvidersThe first exception involves

marketing or making available to a fiduciary of a plan, a platform or similar mechanism6 from which a plan fiduciary may select or monitor investment alternatives into which plan participants or beneficiaries may direct the investment of their accounts. Since recordkeepers are, by the nature of their services, platform providers, this exception is critical. For the exception to apply:

• any recommendation must be made without regard to the individualized needs of the plan, its participants, or beneficiaries;

• the plan fiduciary must be independent of the recordkeeper who markets or makes available the platform; and

• the recordkeeper must disclose in writing to the plan fiduciary that it is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity.7

A recordkeeper may provide the following information regarding a platform without the information being deemed a recommendation:

• a list of investment alternatives on the platform that meet objective criteria specified by the plan fiduciary, provided that the recordkeeper discloses in writing whether it (or any affiliate) has a financial interest in any of the identified investment alternatives, and if so the nature of such interest;

• a response to a request for

1 PTE 2017-01.2 See 18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016–01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016–02); Prohibited Transaction Exemption 84–24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84–24) 82 Fed. Reg. 228 (Nov. 29, 2017). 3 In some cases, the recordkeeper may intentionally assume fiduciary liability for limited services as a 3(16) service provider. See footnote 22 and the accompanying text.4 DOL Reg. 2510.3-21(a). Advice may be fiduciary advice if the person making the recommendation acknowledges their fiduciary status or the advice is given pursuant to an agreement or understanding that the advice is based on the individual needs of the recipient. 5 Id. at 21(b)(1).6 This includes an annuity contract. See FAQs, Q&A 30, Jan. 17, 2017.7 Id. at 21(b)(2)(i). A plan participant or beneficiary is not considered a plan fiduciary for purposes of the impartial advice requirement.

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information or proposal by identifying limited investment alternatives based on the size of the plan or its current investment options, or both, if the response is in writing and any financial interest in any of the investment alternatives is disclosed; and/or

• objective financial data and comparisons with independent benchmarks.8

General CommunicationsProviding information that is

generally available to the public is not considered a recommendation. This includes general marketing materials, general market data, including data on market performance, market indices, trading volumes, price quotes, performance reports or prospectuses.9

EducationConsistent with prior DOL

guidance,10 providing educational information is not considered fiduciary advice. This exception covers the following information categories:

• General Plan Information. This includes information concerning the terms and operation of the plan, the benefits of making or increasing plan contributions,11 the impact of preretirement withdrawals on retirement income, retirement income needs, varying forms of distributions, including rollovers, annuitization and other forms of lifetime income payment, the advantages, disadvantages and risks of different forms of distributions, investment product features, investor rights and obligations, fee and expense information,

applicable trading restrictions, investment objectives and philosophies, and other information found in the prospectus.

• General financial, investment, and retirement information. Information and materials on financial, investment, and retirement matters that do not address specific investment products, specific plan investment alternatives or distribution options available to the plan and its participants, and services offered outside the plan.

• Asset Allocation Models. Information and materials that provide a plan fiduciary, or participant with models of asset allocation portfolios

of hypothetical individuals with different time horizons and risk profiles, subject to certain disclosure and other requirements. The models may not identify any specific investments, except for the plan’s designated investment alternatives if certain other requirements are met.

• Interactive investment materials. Subject to specified requirements and disclosures, questionnaires, worksheets, software, and similar materials that provide a plan fiduciary or participant the means to: estimate future retirement income needs and assess the impact of different asset allocations on retirement income; evaluate distribution

Action ItemsThe following checklist summarizes the actions items for a recordkeeper.

¨ Review all service agreements and other client communications to ensure no unintentional fiduciary recommendations are made.

¨ Implement policies and procedures to avoid unintentional fiduciary recommendations and assure proper supervision of client-facing employees.

¨ Consider revising protocols for interacting with plans represented by an independent fiduciary with financial expertise.

¨ Determine any situations where investment advice may be given and structure the transaction to avoid any prohibited transaction of comply with the conditions of an available PTE.

¨ Where investment advice services may be offered, structure all communications during the selling process to avoid recommendations by any person other than the affiliated advisory firm, broker dealer, bank or insurance company.

¨ If fiduciary status is assumed under or results from the fiduciary rule, update ERISA 408(b)(2) disclosures.ª ª During the transition period, the DOL has modified the timing of the required disclosure of fiduciary status and eliminated the acknowledgement where an accurate and complete disclosure of the services (including the services that would make the provider a fiduciary) has been provided.

8 Id, at 21(b)(2)(ii).9 Id at 21(b)(2)(iii).10 DOL Interpretive Bulletin 96-1.11 See FAQs, Conflict of Interest, Q&As 2 and 3, August 2017.


is subject to additional fiduciary prohibited transaction rules.15 These rules proscribe the use of one’s authority as a fiduciary to cause the receipt of additional compensation. They also prohibit the receipt of third party compensation as a result of a transaction with the plan, or acting in a plan transaction on behalf of a party whose interests are adverse to the plan.16 Unless acting pursuant to the conditions of a PTE, engaging in a prohibited transaction may result in the disgorgement of any profits earned as a result of the transaction or being liable for any losses suffered by the plan or its participants as a result of the transaction.17 The fiduciary may also be liable for an IRS excise tax of 15% of the amount involved, or 100% of the amount involved if the prohibited transaction is not corrected.18

As part of the guidance issued with the fiduciary rule, the DOL created the BICE and revised certain existing PTEs. This discussion is limited to the BICE as it has the broadest application for independent recordkeepers. The BICE requires that its conditions be satisfied by a supervising financial institution, i.e., a broker-dealer, investment advisory firm, bank or insurance company. Therefore, the exemption will only be available to recordkeepers with an affiliated financial institution.19

As noted above, the DOL has proposed to further delay the transition period until July 1, 2019. During this “transition period,” there are minimal conditions required for the BICE, as further discussed below.20 During the transition period, the DOL will

advice or to give advice in a fiduciary capacity, in connection with the transaction, and informs the fiduciary of the existence and nature of the recordkeeper’s financial interests in the transaction; and

• not receive a fee or other compensation directly from the plan, plan fiduciary or plan participant for the provision of investment advice (as opposed to other services) in connection with the transaction.14

CONSEQUENCES OF BEING A FIDUCIARYFiduciary Prohibited Transactions

Becoming an ERISA fiduciary, whether by design or unintentionally, has consequences. As a fiduciary, the recordkeeper

options, products, or vehicles by providing plan or general information; or estimate a retirement income stream that could be generated by an actual or hypothetical account balance.12

Transactions with Independent Fiduciaries With Financial Expertise

A recordkeeper may provide advice to independent persons if the recordkeeper reasonably believes the person is a bank, insurance carrier, registered investment advisor, broker dealer or other independent fiduciary who represents to have assets under management or control of at least $50 million. This exception allows recordkeepers to provide information that may be considered investment advice to qualifying financial advisors.13 To rely on this exception, the recordkeeper must:

• reasonably believe (this may be based on the fiduciary’s representations) that the fiduciary can evaluate investment risks independently, both in general and with regard to particular transactions and investment strategies;

• reasonably believe (this may be based on the fiduciary’s representations) that the fiduciary is a fiduciary under ERISA or the Code, or both, with respect to the transaction and is responsible for exercising independent judgment in evaluating the transaction;

• inform the fiduciary that it is not undertaking to provide impartial investment

12 See note 1 at section 21(b)(2)(iv).13 Advice may be provided to such advisors even if the plan’s fiduciaries are present as long as the advisor has the responsibility to exercise independent judgment in making fiduciary recommendations with respect to the transaction in question. See, DOL FAQs, Q&A 24, Jan. 17, 2017. Also, broker dealers receiving 12b-1 fees may still be deemed independent if there is no common ownership or control with the recordkeeper. Id., Q&A 28.14 Id. at 21(c)(1).15 See ERISA section 406(b).16 ERISA section 406(b).17 Id., section 409(a).18 See generally section 4975 of the Internal Revenue Code of 1986, as amended.19 See PTE 2016-01.20 See Conflict of Interest FAQs issued May 2017.

Some recordkeepers currently provide discretionary administrative services and, as a result, have assumed limited fiduciary status.”

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transactions, compensation and conflicts of interest.

• Implement policies and procedures reasonably and prudently designed to prevent violations of the Impartial Conduct Standard.

• Refrain from giving or using incentives that may cause its representatives to act contrary to the customer’s best interest.

• Fairly disclose the fees, compensation, and material conflicts of interest, associated with their recommendations.22

During the transition period, however, the only condition is compliance with the Impartial Conduct Standard.

If an exemption is not available, or the recordkeeper does not wish to abide by its conditions, the only alternative is to avoid the prohibited transaction in the first place by staying within the exceptions discussed above or avoiding the receipt of prohibited compensation.

Co-fiduciary LiabilityEven if contemplated

transactions do not present prohibited transaction issues, becoming a fiduciary may, in and of itself, lead to additional liability. A fiduciary may incur liability due to the actions or inactions of other plan fiduciaries. ERISA section 405 provides that:

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not take any enforcement action “against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.”21 It is likely the transition period will be further delayed and that the conditions of the BICE will be significantly modified.

Under the BICE, variable compensation, third-party payments and compensation from proprietary products are permitted, but the PTE requires extensive compliance conditions for both the financial institution and its representatives and affiliates. As currently written, the BICE will ultimately require the institution to, among other things:

• Acknowledge fiduciary status with respect to investment advice to the client.

• Adhere to “Impartial Conduct Standards” requiring them to: — give advice that is in the client’s best interest (i.e., advice that is prudent and does not consider the financial interest of the institution or its representatives; — charge no more than reasonable compensation; and — make no misleading statements about investment

One way to avoid having to operate under a PTE such as the BICE is to tailor the

communications so they won’t be considered a recommendation.”

21 See note 4 supra.22 Id. A streamlined exemption is available for recommendations where the fiduciary only receives a level fee and does not receive any third-party compensation or compensation from the sale of a proprietary product. Id., at section II(h).


communications regarding the availability of such services is deemed to be a recommendation to engage the advisor or manager, and the recordkeeper is compensated by the advisor or manager when its services are utilized, that recommendation will be considered fiduciary investment advice, and the third-party payment will result in a prohibited transaction.24

One way to avoid having to operate under a PTE such as the BICE is to tailor the communications so they won’t be considered a recommendation. For example, the communications may state that such a service is available, but the plan or participant must independently decide whether to utilize the service, and the recordkeeper is not making any recommendation regarding use of the service. If the communications regarding the service cannot or will not be limited in this manner, the recordkeeper should avoid the receipt of referral fees from the investment manager as such fees are third-party compensation that would create a prohibited transaction.

Compensation received directly from the plan or participant for other non-fiduciary services such as integrating the investment advisor or manager services with the platform or recordkeeper website would not result in a prohibited transaction. The DOL has offered the following guidance on this issue:

Merely offering connectivity services to investment advisory firms as an elective option within a bundle of services would not necessarily constitute a “recommendation” that the plan sponsor or participant use the investment advisory firm for investment advice. Rather, whether such a recommendation was made would depend on the content, context, and presentation of the available

A fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan — (1) if he participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach; (2) if, by his failure to comply with his fiduciary responsibilities, he has enabled such other fiduciary to commit a breach; or (3) if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach.23

The third circumstance presents the most risk as a recordkeeper is intimately involved in the plan’s operation and may become aware of situations which could constitute a breach of duty by another fiduciary. This is yet another important reason for avoiding fiduciary status unless the recordkeeper implements appropriate safeguards to mitigate co-fiduciary liability.

SITUATIONS THAT MAY RESULT IN FIDUCIARY STATUS

Every recordkeeper operates somewhat differently so this article does not attempt to cover all possible situations where a recordkeeper may be deemed to be giving investment advice. Moreover, many larger recordkeepers have affiliated broker-dealers or advisory firms or both, and those arrangements present their own fiduciary issues not discussed here. Instead, the discussion below involves some scenarios likely to be encountered by an independent recordkeeper and how they fare under the fiduciary rule.

Third-party Investment ManagersA recordkeeper may offer

the services of a third-party investment advisor or manager at the plan or participant level. If

23 ERISA section 405(a).24 Recommending a non-fiduciary service provider is not fiduciary advice, even if compensation is received. See, DOL FAQ 18, Jan. 17, 2017

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provide discretionary administrative services and, as a result, have assumed limited fiduciary status.27 By providing discretionary administrative services they are already assuming fiduciary status as to those services, but that does not mean they have to assume additional fiduciary liability under the fiduciary rule.

It is important to note that the new and amended PTEs apply to non-discretionary investment advice and do not cover the receipt of prohibited compensation in connection with the exercise of discretion over the administration of the plan. Recordkeepers which currently offer or are considering adding discretionary administrative services should carefully reevaluate such services to determine the impact of the fiduciary rule and the availability of any necessary PTEs.

CONCLUSIONWith proper planning, the

impact of the fiduciary rule may be minimized so as not to adversely affect a recordkeeper’s business operations. It is strongly suggested that the planning be carried out under the guidance of experienced ERISA counsel.

Steve Sokolic is of counsel to the Retirement Law Group, a law firm focused on serving the needs of retirement plans and service providers.

Jason C. Roberts is the founder and managing partner of the Retirement Law Group. He is also the founder and CEO of the

Pension Resource Institute, which delivers compliance and practice management resources and training to financial institutions that serve retirement investors.

services.25

It is important to note, however, that if a recommendation is made to hire the advisor or manager, then even direct compensation could result in a prohibited transaction. Recordkeepers should carefully review their marketing materials and communications with current and prospective clients in this regard to ensure they will not be considered to be investment advice, or they should take steps to comply with the conditions of the BICE.

Orphan AccountsMany recordkeepers have

arrangement with IRA providers to roll over the accounts of missing participants.26 Such arrangements often involve the payment of a fee or fees for each account rolled over. Although the participant is not involved in the rollover, the recommendation of an IRA provider to the plan sponsor appears to fall within the ambit of fiduciary advice. Accordingly, the alternatives discussed above for making available third-party investment advisors or managers apply here as well.

Recordkeepers should also be concerned about plans that no longer have access to a third-party investment professional as such plans are likely to place greater reliance on communications with the recordkeeper’s personnel when selecting and replacing investments. If the recordkeeper refers a plan to an advisor, it could be considered fiduciary investment advice. Consequently, recordkeepers should carefully review their policies relating to referring plans to advisors to ensure that no additional compensation is received in connection with or as a result of the referral, that no recommendation is made in the first place or that appropriate safeguards are implemented to comply with the BICE.

Communications with Plan Fiduciaries And Participants

To avoid fiduciary status, all communications should either avoid making a recommendation covered by the fiduciary rule or be intentionally designed to fall within one of the above-referenced exceptions to the definition of investment advice. This will involve implementing proper procedures for all employees with client contact and should include procedures for supervising those employees to avoid inadvertent recommendations.

Taking these steps is particularly important for employees dealing with participant requests for information on distributions or rollovers. Those discussions should be limited to providing educational information only, unless the recordkeeper is prepared to assume f iduciary status and comply with the BICE. For plans represented by f inancial advisors whom are unaff iliated with the recordkeeper, consider directing communications that could be considered investment advice solely to such professionals.

Impact of Discretionary ServicesSome recordkeepers currently

25 DOL Conflict of Interest FAQs issued Jan. 13, 2017.26 These rollovers are made in accordance with the DOL safe harbor rules in DOL Reg. 2550.404a-2.27 See ERISA section 3(21) (A)(iii). Such services are commonly referred to as 3(16) services. Section 3(16) of ERISA defines a “plan administrator.”

Providing information that is generally available to the public is not considered a recommendation.”

FEATURE

BY RICHARD W. RAUSSER

In a competitive employment market, a nonqualified executive benefit plan can be a game changer.

Using Executive Benefit

Plans to Attract, Reward

and Retain Top Talent

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Today, competition for new talent — and the need to retain top talent — is fiercer than ever before.”

B uilding a competitive advantage is one of the biggest challenges facing companies today. What is the key to a lasting competitive advantage?

Attracting, retaining and rewarding the employees you need in order to ensure your success.

Today, with unemployment trending lower, wage growth is picking up. This is good news for job candidates. Employers have positions to fill, which also means that workers now have leverage, confidence and options. For companies competing for job candidates, a comprehensive benefits package may tip the scales for a candidate who is considering multiple offers. The bottom line: benefits, especially retirement benefits, can be a game changer.

Competitive benefits not only help with recruitment, they can also bolster retention. While a strong benefits package can become expensive, replacing an employee can be even more costly and time consuming if a company experiences regular turnover. Investing in a comprehensive retirement benefits package can help mitigate the cost, time and effort involved in employee turnover and recruitment.

Today, competition for new talent — and the need to retain top talent — is fiercer than ever before. However, qualified plans are only part of the equation. Today, executive benefit plans are an essential component of any corporate benefits strategy.

ENHANCING YOUR COMPETITIVE POSITION WITH AN EXECUTIVE BENEFIT PLAN

Under the Employee Retirement Income Security Act (ERISA), qualified plans must be offered to all employees at a company. An executive benefit or nonqualified plan, however, is a type of tax-deferred, employer-sponsored retirement plan that falls outside of

the ERISA guidelines. Nonqualified plans can be

designed exclusively for key employees and directors, providing an optimal solution to benefit limitation issues. Since nonqualified plans are not subject to the same regulatory requirements that apply to qualified plans, employers can provide benefits through nonqualified plans to recruit and retain key employees who cannot be fully compensated through a combination of salary and qualified plans due to the cost and compliance burdens that arise when similar benefits are provided to all employees.

A nonqualified plan may be offered to a prescribed group of employees. The Department of Labor (DOL) requires that the plan be designed to cover a select group of management and/or highly compensated employees. Certain job titles generally meet this description, such as president, chief executive officer, chief financial officer, senior or executive vice president, general counsel, and treasurer. Other employees may be eligible based on their level of compensation and responsibilities.

Executive benefit plans reward a select group of employees without affecting costs on an employer-wide basis. These plans are often used to address the retirement


income shortfalls resulting from qualified benefit plan limitations, while incorporating rewards based on targeted performance or other benchmarks. Executive benefit plans provide flexibility in developing benefit compensation strategies, as they can be used to:

• Provide replacement income at retirement based on total (non-limited) compensation

• Reward, attract and retain key executives

• Replace benefits lost due to IRS limits on qualified plans

• Provide benefits in addition to those under qualified plans

• Defer compensation• Provide enhanced benefits in

the event of an acquisition or other change of control

An executive benef it plan is a contractual commitment by an employer to a select group of employees to provide supplemental retirement benef its at a future date. Since there are no coverage, eligibility or participation requirements, an employer can decide to provide nonqualif ied deferred compensation benef its only to a select group of executive or highly compensated employees. This allows the employer to provide rewards and incentives based on an employee-by-employee approach, offering maximum design f lexibility.

Individual agreements with each employee can specify interest crediting rates, vesting schedules, death benefits, disability benefits and early retirement benefits, as well as change-of-control protection.

PLAN DESIGN OPTIONS Following is a look at the different

plan design options that are available.

Executive and Director Deferred Compensation Plans

Executive and Director Deferred Compensation plans are typically established in order to provide a vehicle for key employees, highly

compensated employees and directors to defer compensation until retirement. Deferred compensation arrangements permit designated executives to defer additional compensation to avoid current taxation.

Arrangements can include deferred salary and bonuses as well as director fees — including board meeting and retainer fees — allowing greater tax deferred dollars than can be made on an individual basis. Each executive has the ability to defer either a percentage of his or her salary or a flat dollar amount annually. Deferred dollars are then credited interest equal to an index such as prime rate. The interest credited on each executive and director’s deferral account is adjusted annually (i.e., prime rate); the crediting rate is typically designed with a floor and ceiling rate.

Supplemental Executive Retirement Plans (SERPs)

A Supplemental Executive Retirement Plan (SERP) is an executive benefit program designed to reward officers and/or key employees. Plans may be entirely discretionary and designed to provide rewards arbitrarily or based on specific performance factors. SERPs can be constructed in a variety of ways, including as defined

contribution or defined benefit plans. Benefits provided through these arrangements are over and above those provided by qualified plans. SERPs may be used to provide benefits based on a more generous formula than used in a qualified plan, or may credit more years of service than under a DB pension plan, or may even restore retirement plan benefits lost due to the various limits placed on IRS qualified plans. Supplemental executive retirement plans can provide benefits beyond those provided under the qualified plan. Enhanced benefits might include:

• A benefit based on a more generous formula than used in the qualified plan

• Credit for additional years of service under a DB plan

• Enhanced retirement benefits for executives who retire early

• A benefit reflecting compensation excluded under the qualified plan’s salary definition, such as bonuses and deferred compensation

• A DC incentive retirement plan that allows an organization to reward their top executives and directors based on the performance of specific benchmarks

Benefit Equalization PlansBenefit Equalization Plans (BEPs)

are a type of SERP typically designed to restore or supplement retirement plan benefits lost due to the various salary and benefit limits placed on IRS qualified plans. BEPs may also be used to restore benefits due to plan “freezes” or formula changes. A BEP can “correct” the plan salary limit, the DB plan maximum benefit limit and various DC plan limits, including maximum 401(k) deferrals.

Executive Incentive Retirement PlansExecutive Incentive Retirement

Plans are also a type of SERP.

What are the organization’s business objectives, and how do they translate into a benefits philosophy?”

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These plans are designed to provide a reward to a select group of participants if the organization exceeds key performance metrics, such as Return on Equity (ROE), Return on Assets (ROA), Net Income, Quality of Loan Portfolio, Growth in Fee Income or Cross-Selling Achievements.

FUNDING CONSIDERATIONS The employer has a choice

as to whether or not to fund an executive benefit plan. A funded plan generally is more secure than an unfunded plan. Under a funded plan, contributions are made to an independent trust and benefits are paid from the trust. Under an unfunded plan, payments are usually made from the employer’s general assets. Most nonqualified plans are unfunded plans or “informally” funded plans. Regardless of which “informal funding” vehicle is used in an unfunded arrangement, the assets belong to the employer, not the employee, and are subject to the claims of the employer’s creditors.

TRANSLATING BUSINESS OBJECTIVES TO BENEFITS PHILOSOPHY

Designing an effective retirement benefits program for an organization starts with a review of the firm’s management philosophy and compensation strategy, the different types of plans available, an analysis of what the firm’s peers offer, and considerations such as demographics and the maturity of the organization. Beyond these factors, what are the organization’s business objectives, and how do they translate into a benefits philosophy?

There are two basic approaches that a company should consider in developing a benefits philosophy: objective and competitive.

Objective ApproachCompensation and benefits are

offered to fulfill a specific function; benefit adequacy involves an analysis

of what level of compensation and benefits allow an employee to maintain a certain standard of living.

Competitive ApproachBenefits and compensation

packages are offered in order to attract and retain employees; benefit adequacy involves an analysis of wages and the level of benefits offered by competitors.

While these two approaches are different, they are not mutually exclusive; a successful benefits program will reflect a blend of both philosophies.

EXECUTIVE BENEFIT PLAN DESIGN CONSIDERATIONS

Determine the objectives you want to achieve with a nonqualified program by analyzing which employees are being affected by IRS limits and which key employees you might wish to reward with coverage under a nonqualified arrangement. Next, address these key questions in order to better define the organization’s benefits philosophy:

• How does the organization want to position its compensation and benefits programs relative to peers as well as competitors?

• What is the most effective way to apportion retirement benefit dollars among the

various benefit plans — including qualified programs?

• What is the company’s attitude toward allocating benefits based on an overall company performance?

• What are the firm’s overall benefit and cost objectives?

No two organizations are alike. Executive benefit plans are highly customized for this reason. As employers deal with an increasingly competitive labor market and a new generation of workers, they face new challenges in the key areas of attracting, retaining, rewarding and motivating talent. Positioning the benefits program competitively can make a critical difference for any organization.

Richard W. Rausser, CPC, QPA, QKA, is the SVP of Client Services at Pentegra Retirement Services, where he oversees the consulting,

marketing and communication, BOLI and executive benefit, and actuarial services practice groups. An industry veteran with more than 25 years of experience, Rausser is a frequent speaker on retirement benefit topics.

No two organizations are alike. Executive benefit plans are highly customized for this reason.”


Getting a Seat at the Finals Table

An ‘Alpha TPA wingman’ can provide support to the advisor during the finals presentation and boost their chances of winning the business.

BY JASON BROWN

I have read and heard many great sayings and philosophical perspectives that have been

truly thought provoking for me over the years. These have included such historical figures as Socrates, Benjamin Franklin, Sun Tzu and Vilfredo Pareto.

I heard another one while participating as a guest panelist at an advisor symposium a few months back that really sparked a “holy smokes” moment for me. A fellow panelist was providing a retirement plan governmental update and sharing his insight on various regulatory discussions taking place and the parties that were involved in those conversations. He commented on the significance of particular groups that were not included in those discussion, observing: “You know… If you don’t have a seat at the table, you’re probably on the menu.”

His comment resonated with me. I began to think about all the various business opportunities where our firm

did not get an invitation to “sit at the table.” I started wondering how our firm was positioned or discussed in those meetings and what considerations ultimately drove the plan sponsors’ decisions. I also found myself asking: “Were we on the menu all along?”

Obviously, no one can truly know the answers to these questions unless they were in the room. So a primary goal for a TPA (or any other service provider for that matter) should be: How can I increase my chances of getting invited to the table and avoid being on the menu? Following are some considerations that can quantify and validate why an “Alpha” TPA should be included in any finals presentation.

TPA ALPHA ADVANTAGE FOR WINNING MORE BUSINESS

Striving to get a seat at table sounds great in theory, but the question remains, “How can this be accomplished?” Quality TPAs can stress their proficiency in providing strong administration and compliance

MARKETING

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more successful fighting villains when Robin joined the team; and of course, “Wayne’s World” was a more excellent place with Garth at his side.

A retirement plan advisor (or advisor team) could be very strong at what they do, but there are a lot of facets and nuances to review when truly consulting on a retirement plan. An “Alpha TPA wingman” can provide support to the advisor during these meetings on multiple levels and offer insight on plan operations and plan design. Additionally, the TPA can be an active listener and note taker, and can provide validation to service providers under review as a neutral and independent third party.

Studies have also shown that incorporating a TPA in the meeting raises the average closing rate for a retirement plan advisor from an average of 12% to nearly 50% and could be even higher when incorporating an Alpha TPA (track and promote your closing rates). Make sure advisors know that it can still be “Wayne’s World,” but you can be their “Garth” and help make that world truly excellent — and more successful.

RESERVATION FOR TWOAt the end of the day, everyone

wants to win more business, but a big part of winning business is incorporating a strong team to support those efforts and having that team take part in finals presentations. TPAs need to validate that they can be instrumental in supporting advisors and helping them win more plans — and in turn, increase their probability of getting a “seat at the table.”

Jason Brown, APR, CBC, is a principal at Benefit Plans Plus, LLC. He has more than 16 years of experience in the

retirement plan industry, including business development, consulting, administration and retirement plan advisory work. Jason also serves on the Plan Consultant Committee.

spreadsheet. However, a competing advisor brought in his TPA partner to spend some time reviewing plan design strategies. The discussion that took place not only incorporated how to effectively restructure employer contributions, but also how to coordinate participating control group entities. These concepts helped create an additional $250,000 in tax-deductible contributions (of which 90%+ would be directed toward the business owners and created $100,000+ in tax savings), improved participant outcomes and provided clarity on how to manage their various control groups. These effective conversations and concepts ended up being the deciding factors in the plan sponsor’s choice of service arrangement.

The losing advisor learned three very valuable lessons from this situation:

1. You get what you pay for (especially with low cost service providers).

2. Never underestimate the significance of strategic and consultative plan design.

3. Taking your TPA partner to the meeting can have a tremendous impact and help win business.

TPAs need to promote success stories (such as the above scenario) with advisors and recordkeepers and consistently remind them how a quality “Alpha” TPA can positively impact their chances of winning business. These examples will also remind them that they are potentially at a competitive disadvantage if their TPA partner is not sitting with them at the table.

Everyone Needs a Good WingmanHistorically speaking, there

have always been “headliners” that are strong on an individual basis, but become even more formidable when paired with a complementary “wingman.” Michael Jordan won scoring titles but didn’t win a championship until he was paired with Scottie Pippen; Batman became

services (CEFEX Certification, ERPAs, ERISA consulting, etc.), but in today’s competitive landscape a firm needs to develop additional points of differentiation to enhance its chances of getting invited to more meetings.

The key focal points in this analysis should revolve around two questions: “How can/do we impact meetings?” and “How can/do we help advisors win more business?” The goal of course is to validate why the TPA should be “sitting at the table” alongside the advisor and how the partnership can be mutually beneficial for both parties. Here are some tips on how to help accomplish this goal.

Strategic Plan Design Does Make an ImpactIf there is one thing a quality TPA

should be able to provide in a finals presentation, it’s strategic plan design. Taking a consultative approach and building a personalized retirement plan based on the goals of the plan sponsor can have a significant impact on the overall success of a retirement plan and is a skill that cannot be easily commoditized. The TPA is uniquely qualified to be the prudent expert in this endeavor and create optimal performance strategies (Alpha) that can lead to improved:

• participation rates, allowing the HCEs to contribute more;

• retirement readiness for plan participants;

• tax efficiencies for business owners; and

• plan design flexibility.Discussing these solutions and

concepts with plan sponsors will definitely differentiate the advisor, especially if the other firms being considered are not taking a plan design specialist with them to the table (which is exceedingly prevalent with bundled arrangements).

I recall one instance where an advisor was positioning a bundled solution on an audit-sized plan and thought for sure that he would win the business because when compared to his competition, his suggested service provider package was showing as $10,000 less expensive on the


EDUCATION

Appreciating the Average Benefit Test

In which we ask the question: What’s ‘average’ about it?

BY BRIAN J. KALLBACK

The road to hell is paved with adverbs,” observed novelist Stephen King in his book, On

Writing. If King’s complaint can be extended to include adjectives as well as adverbs, perhaps the same could be said of the average benefit test. Though “average” generally implies the usual, the middle, the common — there is nothing “average” about the average benefit test.

Under Code Section 410(b), a qualified plan must pass one of two numeric tests: the ratio percentage test or the average benefit test. The

average benefit test determines whether a plan benefits non-highly compensated employees (NHCEs) compared with the benefits received by highly compensated employees (HCEs) and, thus, whether the employee classification is discriminatory or nondiscriminatory. Due to the complexity of the average benefit test, most companies opt to comply with the ratio percentage test instead.

TWO COMPONENTS OF THE TEST

There are two parts to the average

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For example, when I was with a previous employer, we were introduced to a business owner who was frustrated that his company failed testing each year. In this case, it was costing the company about $18,000 annually. For a small business owner this was quite a “penalty” to pay for the lack of annual attention paid by his current plan provider. Consultations resulted in redefining compensation, which allowed his business to pass testing and save him expensive annual corrections. In taking the time to analyze his testing situation, my previous employer was able to differentiate itself from the many who simply “run the numbers” provided by the client — and gained a new client as a result.

Finally, an area to consider is the use of a fail-safe provision. With this strategy, the plan will be prevented from failing coverage through a mandate that the plan satisfy the ratio percentage test. If the plan were to fail the coverage ratio, a specified group of otherwise eligible employees would automatically benefit for the plan year. Though this sounds like a wonderful opportunity to maintain testing compliance, losing the flexibility to test the plan for compliance under the average benefit test could be a detriment, especially if your recordkeeping/TPA team has specialized and credible plan design expertise.

Though “average” can imply mediocre, look past the use of the word — and understand there is nothing average about the average benefit test.

Brian J. Kallback, CFP®, CLU®, QPA, QKA, CTFA, is a faculty member at Loras College in Dubuque, Iowa, where he teaches finance.

Prior to his time in academia, he worked in qualified plan recordkeeping, plan administration and education and strategic initiatives/project management for a bank holding company.

(including employee elective deferrals and matching contributions, if any) and applicable forfeitures. Catch-up contributions are excluded from this calculation.

Should a plan use benefit rates, this is calculated by the increase in the employee’s accrued benefit for the plan year. It does not matter whether amounts have been distributed to an employee during the plan year, as the contributions to the account will be factored into the testing regardless of whether the dollars are actually in the account or not.

If a cross-testing strategy as described in Section 401(a)(4) is used, it is likely that some plans will pass the average benefit test through the gateway contribution to employees while providing the maximum allowable to ownership. This could be a great benefit for an employer, especially if it is already contributing 3% in a presently utilized safe harbor arrangement. In this situation, working with an expert, proactive team is imperative, since annual testing could be affected each year by the changing demographics of an employee group.

The employee benefit percentages used in this calculation can be adjusted by imputing permitted disparity. This strategy usually increases the employee benefit percentage for an NHCE by a greater percentage than it does for HCEs.

DEFINING COMPENSATIONThe same definition of

compensation must be used for all employees’ allocation or benefit rate. From a recordkeeper/TPA perspective, how compensation is strategically defined in accordance with Section 414(s) is a potentially valuable service to your clients who are struggling to pass the average benefit test. In my experience, compensation expertise is a way to differentiate yourself and your firm against “assembly-line” plan design competitors who simply “run the numbers” on an annual basis.

benefit test: the nondiscriminatory classification test and the average benefit percentage test. Both of these tests must be satisfied for a plan to pass the average benefit test.

A plan will pass the nondiscriminatory classification test if the plan’s classification of employees is both “reasonable and nondiscriminatory.” A classification is considered reasonable if it is designed around an objective business criteria. It is nondiscriminatory based on its specific facts and circumstances or if it satisfies a safe harbor percentage test.

A plan satisfies the average benefit percentage test — the second part of the average benefit test — if the average benefit percentage is at least 70%. This percentage is calculated by dividing the actual benefit percentage of the NHCEs by the actual benefit percentage of the HCEs for the same testing group for the testing period.

The actual benefit percentage of a group of employees for a testing period is the average of the employee benefit percentages. These are calculated distinctly for each of the employees in the group for the testing period. In general, this is the same group of employees that is used in the ratio percentage test. Thus, all employees of the employer and any related companies are included. Excluded are union employees, nonresident aliens, individuals who do not meet plan service and age requirements, and employees who terminated during the plan year with 500 or fewer hours of service (if this prevents them from participating in the plan). Generally, all plans within a group are included, even if other plans satisfy coverage separately under the ratio percentage test.

DETERMINING BENEFIT RATEA benefit rate may be either

an allocation rate or benefit rate. The allocation rate is determined by dividing the allocations for the plan year with the employee’s compensation for the year. Allocations include all employer contributions


Advisors and plan sponsors benchmark plan fees, investments and other services

that can be provided by a record keeping platform, but rarely have I encountered a full and proper due diligence review process of a third-party administration (TPA) firm.

In many circumstances, the TPA selection is based less on quality, credentials and certification than on a basic comparison of cost for administration services. When considering the significance of the risk mitigation and operational compliance oversight needed to support plan fiduciaries, this seems like a severely flawed strategy for selecting a TPA.

Over the years, I have concluded that there are two primarily drivers of this state of affairs:

1. There really is no easy-to-use due diligence tool for validating the depth and scope of a TPA.

2. Advisors and recordkeepers have not been properly educated on how to vet the quality and capabilities of a TPA, so the perception is: “They all do compliance testing, prepare 5500s and provide a plan document, so they are all pretty much the same, right?”

I find the second item particularly frustrating from a TPA’s perspective, because not “all TPAs” are the same, just as not “all retirement plan advisors” are the same. It also reminds me of an Ary Rosenbaum article from a few years back in which he observed that, “You need a license to practice law to be an ERISA attorney; you

need to be a CPA to be a retirement plan auditor; you need a securities license to be a financial advisor; but anyone can put out a shingle and call themselves a TPA.”

That comment may be a little sarcastic and tongue-in-cheek in nature, but it is not really that far off base. This is why basing the engagement of a TPA primarily on price is a serious disservice and potentially a disastrous decision for plan sponsors, especially without knowing what you are really buying.

Better-informed decisions on TPA selection and engagement could be made if there were some type of Consumer Reports-style “Best Buy” rating for TPAs, or a Good Housekeeping “Seal of Approval” to help confirm a TPA’s “Alpha status” over its competitors… essentially indicating to advisors and plan sponsors, “Yes, this TPA is a prudent choice.”

Well, the good news is that there is an independent “Seal of Approval” for TPAs — it’s called CEFEX Certification.

WHAT IS CEFEX CERTIFICATION?

The ASPPA Certification for Service Provider Excellence was developed to recognize firms providing administration services to retirement plans that adhere to a standard of excellence and a dedication to best practices. The program incorporates annual certification renewal audits conducted by independent expert analysts to continually verify adherence to applicable standards developed under the CEFEX Certification program.

BUSINESS PRACTICES

CEFEX Certification: The ‘Gold Standard’ in TPA Validation

CEFEX Certification is one of the cornerstone attributes of an ‘alpha’ TPA.

BY JASON BROWN

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they asked about the technology and systems they have in place for data security. Part of the CEFEX review process evaluates a TPA’s data security measures and confirms that their system and staff are formidable and operating at the highest standards.

THE GOLD STANDARD FOR ALPHA TPAs

The evaluation process for a TPA to become CEFEX Certified is very extensive, covering every major facet of a firm’s organization, systems, processes and services. It requires continual improvement for TPAs to meet all of the required metrics. Going through the process is voluntary, which is a strong indicator of a TPA firm’s commitment to deliver the strongest administration and compliance services possible. CEFEX Certification is huge differentiator when comparing TPA firms, as only 50 firms nationally have achieved this certification. Thus, CEFEX Certification is one of the cornerstone attributes of an “alpha TPA” — the “gold standard” in TPA validation.

At the end of the day, plan sponsors and advisors want assurance that the TPA they engage has the ability to perform all the necessary functions at the highest level for a retirement plan to run smoothly and be operationally compliant. CEFEX Certification is great way to validate that a TPA has the infrastructure and processes in place to achieve those goals.

Jason Brown, APR, CBC, is a principal at Benefit Plans Plus, LLC. He has more than 16 years of experience in the

retirement plan industry, including business development, consulting, administration and retirement plan advisory work. Jason also serves on the Plan Consultant Committee.

oversight.7. There is an effective risk-

management process to manage the organization’s business risk.

Formalize8. The organization provides

disclosures which demonstrate that there are adequate resources to sustain operations.

9. The organization maintains defined business strategies which support its competitive positioning.

10. There is an effective process for allocating and managing both internal and external resources and vendors.

11. There is adequate and appropriate disclosure and delineation of the cost of services provided to each client serviced.

12. The organization has responsible and ethical reporting, marketing and sales practices.

13. Recordkeeping and administrative information is readily available, disclosed and accessible to authorized parties for prudent selection and monitoring of the service provider.

Documentation14. Administration activities are

performed in a timely and accurate manner.

Monitor15. There is a process to

periodically review the organization’s effectiveness in meeting its client responsibilities.

One of the Practices in particular reviews an often overlooked but growing concern in the industry today: cybersecurity and the protection of participant data. In most circumstances a TPA is only asked for proof of E&O (Errors & Omissions) coverage, but seldom are

The Certification process is comprised of 15 “Practices for TPAs,” which are intended to provide the foundation and framework for a disciplined administration process. The Practices are organized under a Four-Step Management Process, which is used in the Global Fiduciary Standard of Excellence for Investment Fiduciaries:

• Organize• Formalize• Documentation• MonitorThe steps are analogous to

the global ISO 9000 Quality Management Standard, which emphasizes continual improvement to a decision-making process.

WHAT DO THE 15 TPA PRACTICES COVER?

As noted above, the 15 Practices evaluated for a TPA to obtain the CEFEX Certification fall within the Four-Part Quality Management System. They are continually subject to audit review for annual certification renewal. Note that the numbered Practices listed below contain many additional subsets where further due diligence is performed.

Organize1. Senior management

demonstrates expertise in its field, and there is a clear succession plan in place.

2. There are clear lines of authority, and the mission, operations and resources operate in a coherent manner.

3. The organization has the capacity to service its client base.

4. Information systems and technology have a strong infrastructure, staff support and are adequately secured.

5. The organization has developed programs to attract, retain, train and motivate employees.

6. There is a formal structure supporting effective procedural and operational


E

With an Investment Policy Statement, a plan sponsor can better serve participants and protect itself from any allegation that it has not fulfilled its fiduciary duties.

An IPS Can Protect Plan Sponsors — When It Is Followed

BY JOHN IEKEL

nsuring that prudent investment alternatives are available to participants is just one of a plan sponsor’s many fiduciary duties. But it’s a crucial one — after all, the retirement readiness of

participants is at stake. In case there was ever any doubt

about ERISA’s emphasis on the duty of prudence, the Department of Labor’s fiduciary rule serves as a reminder. But while the rule may put the fiduciary duty to make sound investment options available to plan participants into sharper relief, it was in ERISA long before the DOL rule was proposed.

An Investment Policy Statement (IPS) is one of the tools that can help guide and implement an effective approach to meeting ERISA’s duty-of- prudence standard. Based upon funding policy assumptions, the IPS becomes the foundation upon which investment decisions are made and prudent procedures are established and followed. Through an IPS, a plan sponsor can better serve the participants, as well as protect itself from any allegation or even the appearance that it has not fulfilled its fiduciary duties.

THE DOL RULESThe reasons for having an IPS

WORKING WITHPLAN SPONSORS

may predate the fiduciary rule, but Jason Grantz, director of Institutional Retirement Consulting for the Retirement Plan Consulting Group at Unified Trust, thinks that the DOL rule has provides added impetus to preparing and adopting an IPS. “I think that having an IPS is widely regarded as a best practice and has been for many years. The DOL rule has certainly shone a light on the need for better overall fiduciary governance of plans, and preparing and adopting a well-drafted IPS is part of that,” says Grantz.

John Frisch, president of Alliant Wealth Advisors, agrees that the DOL rule has had an impact. He believes that its effects are primarily on those who want to protect themselves and on new advisors. “I don’t believe that plan sponsors with no IPS in place will react to the fiduciary rule by running out and creating one,” says Frisch. “But I suspect that there are many newly minted fiduciary advisors and their firms who previously advised plan sponsors absent a written policy, and now understand it’s in their best interest to get one in place, pronto. Fiduciaries have a higher bar to clear than a salesperson does. Advisors who have dabbled in the market absence any knowledge of ERISA will be learning how to protect themselves — and that means getting an IPS in place now.”

REASONS FOR HAVING AN IPS “Plan sponsors, particularly at

smaller institutions, are often unaware of their responsibility for maintaining an IPS,” says Frisch. “In my opinion, the service provider industry has done a poor job educating their plan sponsor clients. Once a sponsor is aware that an IPS will help improve their investment lineup and provide fiduciary relieve they are eager to get

I think that having an IPS is widely regarded as a best practice and has been for many years.”

—Jason Grantz, Unified Trust

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IPS which is maintained and adhered to will protect the plan sponsor.”

Prudence is key to the success of an IPS, Frisch and Grantz both argue. “What’s important is that the plan has prudent process in place to adopt sensible plan provisions and to also ensure that they are followed,” says Grantz. But that needs to be stated clearly and officially, argues Frisch: “It’s difficult to document a prudent process if the process isn’t in writing.” And he offers a way to determine if it’s present: “Whether or not a plan sponsor has been prudent in their investment practices may be determined by how closely their process resembled that of an investment professional.”

But remember that an IPS is not an absolute security blanket. Fritsch points out that while ERISA does say that employee benefit plans must have a procedure for establishing and carrying out a funding policy in a method consistent with the plan’s objectives, “There is nothing specific in ERISA which dictates that a plan sponsor must maintain an IPS.”

However, he suggests that the DOL will give a plan sponsor that

one in place,” he says.“The purpose of the IPS, as

the name implies, is to help the plan trustee, investment committee and plan advisor adopt a prudent, consistent, investment process as they select and monitor plan investment options,” says Frisch. “The outcome of adopting should be a better fund lineup for the participants to choose from versus one with no written process,” he continues.

“At the end of the day, the IPS is directing the plan sponsor on what roles to perform and how to perform them to be in compliance with ERISA,” says Frisch. “For example,” he says, “if the plan has been determined to be in compliance with ERISA Section 404(c)(5) to obtain fiduciary relief for investments in qualified default alternatives, then the IPS should state so and explain briefly what investment options are qualified to be a QDIA. This would allow the plan sponsor to double check periodically that they are in compliance with the rule.”

The most important — and obvious — way that an IPS serves plan sponsors and participants is by serving as a means to meet a fiduciary duty. “Having a well-written IPS is a best fiduciary practice,” says Grantz. “The purpose of the IPS is, as the name implies, to help the plan trustee, investment committee, and advisor adopt a prudent, consistent, investment process as they select and monitor plan investment options.”

An IPS accomplishes this because, says Grantz, “It codifies a prudent process to determine the most appropriate investments to be offered to participants and also documents the process whereby those investments are monitored and potentially replaced.”

And it offers protection. After all, with greater scrutiny of plan and service providers and tightened regulation of them, heightened interest in self-protection certainly is understandable. And an IPS can be a means to that end. Frisch agrees: “An

Ultimate Purpose of an Investment Policy Statement

In a sample investment policy statement it prepared, fi360 states that the purpose of an IPS is to help a client to effectively supervise, monitor and evaluate its investment

portfolio. fi360 suggests that a client’s investment program can be defined in the IPS by:

• setting forth in a written document the client’s attitudes, expectations, objectives and guidelines regarding how its assets are to be invested;

• encouraging effective communications between the client and all parties involved in making decisions about investment management;

• establishing formal criteria by which to select, monitor, evaluate and compare the performance results each investment option achieves;

• complying with all applicable fiduciary, prudence and due diligence requirements experienced investment professionals would follow; and

• complying with all applicable laws, rules and regulations from local, state and federal jurisdictions and international political entities.

Source: fi360, Investment Policy Statement, Prepared for Sample Individual Client, Feb. 4, 2013.

has an IPS more credit than it will give a plan sponsor that doesn’t have one. “Or, put another way,” he says, “the DOL knows that liability in the investment area more often occurs when the plan sponsor fails to maintain a policy statement.”

NUTS AND BOLTS“An IPS is a formal document

and should be viewed as a governing document as well as a written instruction from the named fiduciaries of the plan on how the plan should select, monitor and replace investments,” says Grantz. “Ideally, the sponsor will work with an advisor knowledgeable of ERISA’s requirements who will draft the IPS and help the sponsor maintain and follow it,” says Frisch.

But what should it include? “Minimally, a good IPS should include the plan’s stated investment goals and objectives,” says Grantz. He continues, “Included in this is strategy, objective criteria for the plan to identify and measure risk, an identification of whether the plan trustees will be making these investment decisions on their own or using some outside


ensure that it stays current. And just having an IPS may not be

enough. “Having this process in place should allow access to high quality investments for the participants in the present, but also on an ongoing basis,” says Grantz. “However,” he adds, “it is also my experience that the IPS, while important, typically will not go far enough.”

Grantz offers some specifics: “Nowhere in the IPS will it articulate what the trustee’s plans are for providing a secure retirement for the participants or even define what that ought to be in terms of income replacement rates.” His firm’s response is to advocate for a supplemental document called a “Benefit Policy Statement” which fills in these gaps by identifying the plan’s definition of success and then building a process for how participant success will be achieved.

THE BOTTOM LINEHaving an IPS can be a very

helpful thing, but it means little if it isn’t followed — as Grantz notes when he says that an IPS offers protection “when followed.” Fritsch is even more specific: “I will say that the sponsor who has an IPS but fails to maintain or follow it is likely taking on more risk than one who has no IPS at all. It’s never a good idea to create written rules to follow and then not follow them.”

fund?• Control Procedures.

How do you know if your funds are meeting their Monitoring Criteria? What benchmarking must take place for documentation purposes?

• Asset Classes. Which ones are appropriate for the plan?

• Investment Alternatives. What kinds (mutual funds, exchange traded funds, separate accounts, etc.) are appropriate?

• Miscellaneous. There can be miscellaneous categories such as guidance on proxy voting and how to provide investment education to plan participants.

And how an IPS is written matters too. “A well written IPS,” says Grantz, “is a good measure of fiduciary protection for the plan sponsor or other named fiduciaries.” However, he warns that a poorly written IPS could become a liability. And, he says, “Like any other governing document, it should be reviewed by the plan fiduciaries and potentially outside legal counsel prior to executing.”

But drafting an IPS and putting it in place is just the beginning. Grantz argues that it should be updated periodically to

fiduciary service to assist and key process for monitoring and trigger points for when investments would be selected for replacement.”

Frisch says that the nuts and bolts of a comprehensive IPS include:

• The Purpose of the IPS. What is to be achieved? Identifying appropriate assets classes to make available to participants and establishing a procedure for selecting and monitoring funds would each be a purpose of the IPS.

• The Objectives of the IPS. Does the plan want to comply with the QDIA rules as suggested above? If so, then state this and explain how.

• The Duties and Responsibility of Plan Sponsor Employees and Service Providers. These should be listed. What does the Investment Committee do? What does the advisor do? What does the custodian do?

• List Selection and Monitoring Criteria. What investment option characteristics, including fees, should be reviewed before selecting a fund and during ongoing monitoring of each

Why Have an Investment Policy Statement?Morningstar offers a succinct discussion of why an IPS is useful. • a must for investors

• forces the investment strategy to be put in writing

• requires a commitment to a disciplined investment plan

• serves as a blueprint

• provides useful criteria for a financial report card

Vanguard in a Sample IPS says that its purpose is to: • establish guidelines for the investment portfolio

• set forth accountability standards

• establish a means by which the portfolio’s investment program may be monitored

• better evaluate fund managers’ contributions

It’s never a good idea to create written rules to follow and then not follow them.”

—John Frisch, Alliant Wealth Advisors

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In the spring 2017 issue of Plan Consultant, we began a four-part series of articles on Section 10 of the Code of Professional Conduct, “Professional Integrity.” Section 10 requires ARA members to perform professional

services with “honesty, integrity, skill, and care.” So far, we’ve discussed honesty (in the spring issue), skill (summer) and care (fall). In this issue, we’ll focus on the final topic: integrity.

Defining integrity in the context of professional practice can be tricky. “Integrity” is often defined as adherence to ethical or moral

principles. Digging deeper, “ethics” are commonly described as moral principles affecting one’s behavior. “Morality” is defined as a system of values and principles of conduct for determining what is right and wrong. Taken together, then, “integrity” can be understood as adherence to a system of values for determining right action — or in the vernacular, “doing the right thing.”

Unfortunately, this definition can leave open the question of what it means to “do the right thing” in specific situations that an employee

ETHICS

The last of our four-part look at the essential elements of professional integrity.

Precept 10, Part 4: Understanding IntegrityBY LAUREN BLOOM


Defining integrity in the context of professional practice can be tricky.”

benefits professional might encounter. It can be particularly difficult to answer that question when the professional must weigh and prioritize competing goods. For example, it is good to be honest and transparent with plan participants. It is also good (and required by the Code of Conduct) to protect the confidentiality of information provided by a client such as a plan sponsor. No conflict exists between those two goods so long as the plan sponsor is honest and straightforward in fulfilling its obligations to participants. However, should the sponsor choose a different course of action, the professional might find herself in the uncomfortable position of having to decide whether to keep the sponsor’s actions confidential (arguably abetting the sponsor’s potential mistreatment of participants), breach confidentiality against the sponsor’s wishes, or resign from the engagement.

In ethically challenging situations, it can be tempting to retreat behind absolutes (for example, “my duty is to my client, not to the participants”). Statutes and regulations that direct the professional’s actions can also help resolve an immediate dilemma (“I had no choice but to follow the law”). However, employee benefits professionals occupy a position of trust, with both sponsors and participants typically expecting the professionals to take the interests of all parties into account when providing services and advice. Unthinking adherence to platitudes or the letter of the law when conscience might dictate otherwise may be legally safe, but is not necessarily a high-integrity choice.

When facing an ethical dilemma, an employee benefits professional might consider another aspect of what integrity means. When speaking of the soundness, wholeness or completeness of a physical object, people may refer to that object’s “integrity.” In this context, integrity is used to describe the strength of objects that serve

quality of the professional’s work. Thus, one way for an employee benefits professional to ensure his or her integrity is consistently to integrate honesty, skill and care into his or her day-to-day practices. Together, those traits become more than the sum of their parts, helping to ensure that the professional is someone who can be trusted to “do the right thing” even in the most ethically challenging situations.

If all of this sounds as though achieving a high level of integrity in practice can be difficult, that is because it can. When people talk about “doing the right thing,” they often presume that the “right thing” should be immediately obvious and easy to accomplish. In fact, however, it can be excruciatingly difficult to tease out and balance the competing interests and values in an ethically ambiguous situation. Leaping to a quick decision in such a situation can create lasting problems. When in doubt, it is usually better to think carefully and let the high-integrity alternative emerge.

Former President Dwight D. Eisenhower once said, “The supreme quality for leadership is unquestionably integrity. Without it, no real success is possible, no matter whether it is on a section gang, a football field, in an army, or in an office.” Taking the time to consider competing interests, identify potential ethical pitfalls and examine alternative courses of action increases the employee benefits professional’s ability to practice with integrity. That, in turn, strengthens the professional’s ability to achieve lasting success.

Lauren Bloom is the general counsel & director of professionalism, Elegant Solutions Consulting, LLC, in Springfield, VA.

She is an attorney who speaks, writes and consults on business ethics and litigation risk management.

as a shield (for example, a wall or a roof ) or that must withstand severe physical stresses (like the hull of a ship). The concept of being able to hold firm under pressure is inherent in this aspect of integrity, and helps inform the employee benefits professional’s duty under Section 10 of the Code.

While not unheard of, it is rare for an employee benefits professional to act unethically on his or her own initiative. Most often, the impetus for unethical behavior comes from a third party who puts pressure on the professional to do something he or she believes is wrong. In these situations, resisting the pressure to act unethically and standing firm on principle is the high-integrity choice, especially when yielding to the third party’s insistence could yield a professional or monetary benefit.

Another potentially relevant aspect of integrity is wholeness. “Integrity” shares its roots with the word “integrate,” and refers to the bringing together of multiple components to form a harmonious whole. In the context of professional ethics, this means combining various characteristics, habits and behaviors into a consistent and trustworthy pattern of practice.

Section 10 of the Code enumerates several traits that we have already examined: honesty, skill and care. All of them are essential to professional integrity, because the absence of any of them damages the employee benefits professional’s credibility and undermines the

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It is often said that first impressions are lasting impressions. In this article I will share an RFP process that allows us to help our clients with a procedurally prudent process, which leads

to more informed decisions — and good governance.An often overlooked aspect in creating an effective

retirement plan is selecting the right service providers to help business owners and retirement plan committees make informed decisions.

The service provider offers a foundation for plan participants to succeed. Anything built with a weak foundation will have trouble down the road, while selecting the right service providers will deliver the services, solutions and ongoing guidance to help manage the ever-mounting obstacles to plan success.

I’ve had the opportunity to serve retirement plan clients

SUCCESS STORIES

Designing an RFP Process for Service Providers

Using a procedurally prudent RFP process to select the right service provider will help both clients and participants achieve better outcomes. Here’s how.

BY TODD TIMMERMAN


for nearly 30 years. I worked for a national recordkeeper for 27 years, during which time I helped plans with more than $100 million in assets and supported their RFP process. In 2015, I founded Retirement Plan Analytics to provide these same services to plans of all sizes.

Throughout my tenure in the retirement plan industry I have had a front row seat for watching consultants with excellent processes. These consultants provided the platform that allowed the client to pick the right service provider to help achieve the client’s goals. A large factor in the success of these service provider searches was always the client’s understanding of the goals for the plan search, which in turn allowed for a procedurally prudent process. All too often I saw consultants with generic RFPs that allowed for little differentiation. This inevitably ended poorly, as the client was left with nothing but a price comparison.

In the last three years my firm has completed more than 150 RFPs for clients. Our foundational belief is that as consultants, we view an RFP engagement as our responsibility to guide the client through a substantive and procedurally prudent process to select a service provider that best fits the corporate and plan objectives.

It is our job to partner with the committee to help our client gain knowledge about the best service provider solution that will come alongside and pursue the goals for the retirement plan. We utilize a six-step process to accomplish this objective.

Why six steps? The reason for the well-defined process is based upon the position taken by the Department of Labor and the courts. These two bodies have clearly distinguished the differences between the two types of prudence — substantive and procedural — that form the foundation of a fiduciary risk management strategy. The former

refers to the merits of the decision made by the fiduciary; the latter addresses the process through which the fiduciary reaches his or her decision.

As long as there is no conflict of interest that would impair the fiduciary’s exercise of independent judgment, a fiduciary who considers the appropriate substantive prudence factor, and does so using a careful and thorough procedural prudence process, can generally satisfy the prudence requirement.

A brief overview of each step follows.

STEP 1: ANALYZE THE COMMITTEE

• Identify corporate and plan objectives

• Identify where the plan has met or fallen short of objectives

During this step, we conduct a plan assessment to ensure a “meeting of the minds” with the committee members in order to obtain a full understanding of the objectives.

STEP 2: ANALYZE THE PLAN• Analyze the current plan and

the service providers• Analyze the plan document,

the asset allocation, the participant metrics and the education strategy

During this step, we conduct a retirement program diagnostic that allows each committee member to review and rate key evaluation points. From these items we seek to develop an RFP that will affirm the plan’s strengths, take advantage of opportunities and navigate weaknesses.

STEP 3: STRATEGIZE• Communicate key

observations to the committee

• Identify key areas of focus• Obtain committee approval

of each area of focus• Determine weighting of each

area of focusDuring this step, we apply

a quantitative process that will integrate the evaluation ranking with the overall scores. The five broad areas for a typical evaluation weighting include: organization and commitment to retirement plan marketplace, administration/compliance and service, participant education resources, investment platform/solutions, and plan expenses.

STEP 4: FORMALIZE RFP• Write a RFP and submit it to

the committee for review and approval

• Submit the RFP to the approved service provider list

• Answer service provider questions regarding the engagement

• Collect and review RFP answers

• Involve the committee as needed

• Keep the committee informed on progress

During this step we filter our database of more than 90 service providers to identify capable and willing candidates that are aligned with a plan of the certain size, design and goals. We collect questions from RFP respondents and provide follow-up information quickly to expedite the process.

STEP 5: PREPARE RFP REVIEW

• Identify responses that should be scored

• Weight scoring• Score responses• Provide committee a report

of our scoring• Review scoring with

committee and adjust scoring based on committee input

• Select finalists for onsite presentation

During this step, we apply the predetermined weightings to the individual RFP questions. These weightings will apply to some, but

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need yearly in retirement (the replacement ratio), and an income strategy for decumulation. The selection of the right service provider will help your clients and their employees achieve better outcomes.

Todd Timmerman, CEBS, CFS, AIF, is the founder and managing director of Retirement Plan Analytics (RPA). He is in his 30th

year of serving retirement plan clients and advisors. In the last two years RPA has earned more than 150 client engagements, and currently consults on retirement plans with total assets exceeding $7 billion and 120,000 participants.

for use by the committee during the finalist presentations

At the conclusion of Step 6, we provide the committee an overall score of both RFP responses and the finalist presentations to assist the committee with making the final decision. We assist the committee in maintaining balance between substance and “sizzle” in order to aid in ensuring that the best solution is selected based on the predetermined objectives.

A successful retirement plan produces positive outcomes for plan participants, allowing workers to retire (and stay retired) on their terms, with income to last throughout retirement. To create a successful retirement plan, the committee must make informed decisions, HR must promote the plan, and the plan participants must make many positive decisions: The amount to save, the proper asset allocation, the amount they

not all, questions. For example, in any RFP, some questions need to be asked simply for documentation purposes; other questions will lead to actually measuring the provider ranking based on the specific objectives. The client will receive a report that documents the scoring of each respondent. Upon completion of this step we have a quantifiable score for each RFP respondent. After Step 5, there may be an opportunity to negotiate lower pricing and enhanced services with the incumbent provider, in which case Step 6 would not apply.

STEP 6: FINALIST MEETINGS (IF APPLICABLE)

• Finalist meetings are held• Customized agenda is

developed, provided and approved by the committee

• Customized list of questions are provided to committee members

• Scoring system is provided

Are you set up for success?A John Hancock Plan Tune-Up campaign can help set you up for success by identifying key areas to improve operational effi ciency and add value for your clients.

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Streamline processes and

automate routine transactions to help increase effi ciency

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BY YANNIS P. KOUMANTAROS AND JJ MCKINNEY

What is this hacking cough and that nasty stuff coming out of my nose? My ankle looks like I decided to store a baseball in there for the game tonight. I know what the doctor is going to say and I’m pretty sure what prescription I need, yet I still need to go into the clinic. You think.

Call your physician, schedule a last-minute appointment — hopefully around lunch break or suffer the dent in your PTO — drive across town, show up right on time for your appointment, watch MDTV for the next 30 minutes in the waiting room, hear with ecstasy your name echo across the waiting room, walk through the door, spend some quality time with the nurse (weight, heart rate, blood pressure, height, etc.) then sit in a little room and listen to your physician speaking to someone outside your room, not to you inside it. As you resist the temptation to play with the tongue depressors and the ear/eye thing on the wall, you finally sit and look at last October’s issue of Sports Illustrated until finally the doctor arrives in your cabin ready to solve the dilemma. Result: an hour and 45 minutes and 50 bucks later you have a prescription and no hope for humanity.

Dr. On Demand might not necessarily be cheap, but it certainly is technology put to incredible use — and when compared to the cost (time, commute, result) of a visit to your general practitioner or pediatrician for those of us with kids, it’s a bona fide bargain.

Think FaceTime meets those 15 minutes you actually spent with your doctor during your two-hour trek through the U.S. health care system. Keep in mind, this will be a total stranger; however, if you’re not dealing with a chronic issue or a problem that is best addressed by the physician who knows you intimately, you’re in good hands. In some cases, better hands — after all, you’re sick; should you be driving across town potentially self-medicated?

Most insurance carriers will approve Dr. On Demand due to the reduction in cost, but insurance might not be necessary. In many cases the cost of the visit will be a fraction of the typical co-pay at the doctor’s office. And through the app you can make medical, psychology, and psychiatry appointments. Lay on your couch instead of theirs!

TECHNOLOGY

DR. ON DEMAND www.doctorondemand.com

#1

WORK SMARTER BY LEVERAGING CHEAP TECHNOLOGY

63WWW.ASPPA-NET.ORG

Effectively, it has taken Neighborhood Watch to a whole new level. Any odd activity witnessed in the community is instantly circulated within the group. Users may dial into only their own neighborhood or into the nearby community to see what’s happening — new residents in the ’hood, community garage sale, dog poop alert, etc.

Pictures of your pal’s new Yorkadoodle in Sacramento is fun, but knowing that a questionable character is drifting dr-to-door selling “security” systems is timely and appreciated. Trust me, not all of the information posted is necessary or relevant all of the time, but sharing eyes and ears in your immediate community keeps us all more aware and safe.

Social media has succeeded in connecting people across countries and continents with expediency and little effort for the user. The downside to this long-distance connectivity is that the people in your immediate geographic area are lost among the updates from your buddy in Berlin posting pictures of bier and wurst.

Nextdoor is Scrabble to the global Words with Friends. It’s a free app that connects actual neighborhoods that are adjacent to each other. The utility is broad, which means that you will see messages that range from lost dog to the local Beach Body representative selling diet shakes and workout tapes.

NEXTDOOR www.nextdoor.com

#2

Yannis Koumantaros, CPC, QPA, QKA, is a shareholder with Spectrum Pension Consultants, Inc. in Tacoma, Wash. He is married and procreating — ladies, I know this is a heartbreaking reality. He is a frequent speaker

at national conferences, and is the editor of the blog and newsroom at www.SpectrumPension.com.

JJ McKinney, CPC, QPA, QKA, ERPA, is a shareholder with Retirement Strategies, Inc. in Augusta, Georgia. He is a husband of one, father of nine, thinks HOAs are a conspiracy, is a frequent speaker, a compulsive editor, and loves to Pension

Geek-Out at www.rsi401k.com.

Continuing education is an important part of our industry, especially in furthering the professionalism and expertise our industry possesses. Many of us spend roughly 40 hours every two years on continuing education in the pension field, but a mere fraction of that investing in educating ourselves in general business fundamentals such as sales, customer service, and project management. Several of our loyal readers have asked for cheap technology tools to help study and further education on general business.

My 11-year-old stepdaughter uses Microsoft OneNote to turn in her homework now. Education has

KHAN ACADEMY www.khanacademy.org

#3literally started eliminating the paper based teaching system which can create lost assignments, anxiety and missing paperwork. And she is encouraged by her teachers to use Khan Academy to help her in studies outside the classroom.

Khan Academy revolutionized the way children can supplement learning in order to surmount the hurdle of a poor teacher. However, this tool also has an unbelievable library of online learning for adults. Want to learn about cryptography or artificial intelligence? Need a refresher on algebra? No problem; Khan Academy is based on sequential videos and assessments designed to help expand cognitive learning online. It doesn’t matter what skill set you have in computing; with a simple app on your iPhone or Android you’re ready to go.

This program is 100% free thanks to generous contributions by corporate donors like Microsoft.

LYNDA.COM www.lynda.com

#4 Lynda.com may be the best source of on-demand

video courses for business, creative and tech. You can study technical programming, business project management, sales skills, creative design and more.

If you’re a member of your local library, there’s a good chance you have access to Lynda.com for free with your library card number and can download the free application.


Tax Reform Proposal on Pass-Through Income Tax Rates Could Undermine Incentives for Small Business Retirement Plans

Work has begun on the Republican tax reform plan. While many of

details were still up in the air as we went to press, there is a provision included in the proposal which could unintentionally undermine the tax advantage of saving in a qualified plan.

The problem relates to the new lower 25% tax rate on that has been proposed for “pass-through” income. More than 90% of businesses are organized as pass-through entities (i.e., partnerships, S corps, sole proprietorships and limited liability corporations taxed as partnerships). More than 320,000 of these entities sponsor a retirement plan.

Unfortunately, an unintended consequence of the tax reform proposal is to create a financial disincentive for the owners of pass-through entities to save for their retirement through a qualified plan. The disincentive arises because of the difference between the 25% tax rate on pass-through business income and the 35% top rate on “ordinary income.” If retirement plan contributions are treated as a deduction in determining the income subject to the pass-through rate, the business owner is penalized. This is because the contributions will only provide a 25% deduction but will ultimately be taxed at the higher 35% ordinary income tax rate when distributed. This mismatch in rates results in a significant financial penalty for saving in a retirement plan.

Financial modeling shows that the owner of a pass-through business is

likely to pay far less in taxes if amounts are passed-through and taxed at the 25% rate rather than contributed to a qualified plan. (In addition, any earnings generated by reinvesting those pass-through amounts would be eligible for the very favorable 23.8% capital gains tax rate.) In contrast, amounts contributed to a qualified retirement plan (and the earnings generated from reinvesting those amounts while they are held by the plan) would be subjected to ordinary income tax rates as high as 35% when ultimately distributed from the plan. In other words, the small business owner’s plan contributions and accumulated earnings will be taxed at 35% instead of the 25% pass-through rate.

Unless the mismatch of tax rates on current pass-through income and deferred retirement savings is addressed, owners of small businesses will have no financial incentive to save in a qualified retirement plan. Given the administrative costs and ERISA liability risks that business owners assume in sponsoring a workplace retirement plan, it is likely that many plans sponsored by pass-through entities will go away. The result will be fewer workplace savings arrangements available to rank and file employees.

The ASPPA/ARA Government Affairs team is working hard to fix this technical glitch. Tax reform is expected to include “guardrails” so that only a portion of a pass-through entity’s total income will qualify for the lower pass-through rates. The remainder will

be classified as compensation income that is subject to the business owner’s normal ordinary income tax rates. The simple technical correction is to provide that the business owner’s contribution amount (which includes the owner’s deferrals, matches, and profit-sharing plan contributions or defined benefit accruals) will flow through and be taken as a deduction against the wage or personal services income that would otherwise be taxed at ordinary individual income tax rates. In this way, ordinary income tax treatment would be consistently applied both at the time contributions are deducted and at the time they are distributed.

Encouraging workplace retirement plan sponsorship is critical to the millions of employees who participate in these plans. Data shows that individuals who make between $30,000-$50,000 a year are 15 times more likely to save for their retirement if a workplace retirement program is offered rather than having to do it on their own. Tax policy should not discourage the sponsorship of qualified retirement plans by pass-through businesses. This technical glitch must be corrected to avoid potentially disastrous unintended consequences. We will keep you up to date on our efforts and ways that you can help us in this cause.

Craig P. Hoffman, APM, is General Counsel for the American Retirement Association.

GAC UpdateBY CRAIG P. HOFFMAN

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ASPPA Retirement Plan Service Provider

The following firms are certified* within the prestigious ASPPA Service Provider Certification program. They have been independently assessed to the ASPPA Standard of Practice. These firms demonstrate adherence to the industry’s best practices, are committed to continuous improvement and are well-prepared to serve the needs of investment fiduciaries.

*as of December 7, 2017

Admin Support GroupBarreal de Heredia, Costa Rica

Alliance Benefit Group of Illinois Peoria, IL | abgill.com

Alliant Employee Benefits New York, NY | alliant.com

Altigro Pension Sevices, Inc. Fairfield, NJ | altigro.com

American Pensions Charleston, SC | american-pensions.com

Aspire Financial Services, LLC Tampa, FL | aspireonline.com

Associated Benefit Planners, Ltd. King of Prussia, PA | abp-ltd.com

Atessa Benefits, Inc. San Diego, CA | atessabenefits.com

Atlantic Pension Services, Inc. Kennett Square, PA | atlanticpensionservices.com

Beacon Benefits, Inc. South Hamilton, MA | beacon-benefits.com

Benefit Management Inc. Providence, RI | unitedretirement.com

Benefit Planning Consultants, Inc. Champaign, IL | bpcinc.com

Benefit Plans Plus, LLC St. Louis, MO | bpp401k.com

Benefit Plans, Inc. Omaha, NE | bpiomaha.com

Benefits Administrators, LLC Lexington, KY | benadms.com

Billings & Company, Inc.Sioux City, IA | billingsco.com

Blue Ridge ESOP Associates Charlottesville, VA | blueridgeesop.com

BlueStar Retirement Services, Inc. Ponte Vedra Beach, FL | bluestarretirement.com

Cetera Retirement Plan Specialists Walnut Creek, CA | firstallied.com

Creative Plan Designs Ltd. East Meadow, NY | cpdltd.com

Creative Retirement Systems, Inc. Cincinnati, OH | crs401k.com

Delaware Valley Retirement, Inc. Ridley Park, PA | dvretirement.com

DWC ERISA Consultants, LLC St. Paul, MN | dwcconsultants.com

Fiduciary Consulting Group, Inc.Murfreesboro, TN | ifiduciary.com

Great Lakes Pension Associates, Inc.Farmington Hills, MI | greatlakespension.com

Guideline Technologies, Inc.San Mateo, CA | guideline.com

Ingham Retirement Group Miami, FL | ingham.com

Intac Actuarial Services, Inc. Ridgewood, NJ | intacinc.com

July Business Services, Inc. Waco, TX | julyservices.com

Kidder Benefits Consultants, Inc. West Des Moines, IA | askkidder.com

Moran Knobel Bellevue, WA | moranknobel.com

National Benefit Services, LLCWest Jordan, UT | nbsbenefits.com

Niles Lankford Group Inc.Plymouth, IN | nlgpension.com

North American KTRADE Alliance, LLC.Plymouth, IN | ktradeonline.com Pension Financial Services, Inc.Duluth, GA | pfs401k.com

Pension Planning Consultants, Inc. Albuquerque, NM | pensionplanningusa.com

Pension Solutions, Inc. Oklahoma City, OK | pension-solutions.net

Pentegra Retirement ServicesColumbus, OH | pentegra.com

Pinnacle Financial Services Inc.Lantana, FL | pfslink-e.com

Preferred Pension Planning CorpBridgewater, NJ | preferredpension.com

Prime Pensions, Inc.Florham Park, NJ | primepensionsinc.com

Professional Capital Services, LLCPhiladelphia, PA | pcscapital.com

QRPS, Inc.Raleigh, NC | qrps.com

Qualified Plan Solutions, LC Colwich, KS | qpslc.com

Retirement Planning Services, Inc. Greenwood Village, CO | rpsplanadm.com

Retirement Strategies, Inc.Augusta, GA | rsi401k.com

Rogers Wealth Group, Inc.Fort Worth, TX | rogersco.com

RPG Consultants Valley Stream, NY | rpgny.com

Savant Capital ManagementRockford, IL | savantcapital.com

Securian RetirementSt. Paul, MN | securian.com

Sentinel Benefits & Financial GroupWakefield, MA | sentinelgroup.com

SI Group Certified Pension ConsultantsHonolulu, HI | sigrouphawaii.com

SLAVIC401K.COMBoca Raton, FL | slavic.net

Summit Benefit & Actuarial Services, Inc.Eugene, OR | summitbenefit.com

TPS GroupNorth Haven, CT | tpsgroup.com

Trinity Pension Group, LLCHigh Point, NC | trinity401k.com

2017_CEFEX_Ad.indd 1 12/7/17 2:25 PM

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ASPPA Annual Conference Wrapup

A n o f f i c i a l p u b l i c a t i o n o f A S P P A

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With carefully structured communications and disclosures to existing and prospective clients, traditional recordkeeping services can continue to be offered without being adversely impacted by the fiduciary rule.

A Recordkeeper’s Guide to the Fiduciary Rule

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