summer 2015 qlacs · summer 2015 cover illustration: tyler charlton contents 34 we have a...

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

SUMMER 2015

Practically Speaking

QLACs Practically Speaking

QLACs Qualified Longevity Annuity Contracts offer many positive opportunities. But potential challenges exist as well. Here’s how to find your way home.

Growing Your TPA Business

ASPPA's Professional Conduct Committee Explained

State Auto-IRA Update

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1www.asppa-net.org


Qualified Longevity Annuity Contracts offer many promising opportunities. But potential challenges exist as well. Here’s how to find your way home.

BY PAUL KOCIURUBA WITH JOHN P. ASHFORD

COVER STORY

36SUMMER 2015

Cover Illustration: Tyler Charlton

Contents

34 We Have a Professional Conduct Committee?

Yes, we do. Here’s how it handles complaints about members.

SUSAN H. PERRY

feature stories

6 From the President KYLA M. KECK

29 Upcoming Conferences

62 Government Affairs Update CRAIG P. HOFFMAN

63 New and Recently Credentialed Members

asppa in aCtion

42 Growing Your TPA Business with a Dedicated Sales Staff

Groundbreaking research reveals insights into the TPA industry’s dedicated sales and staffing practices.

DEBORAH RUBIN

46 Cats in an Open Field

State “laboratories of democracy” tackle retirement security by studying and testing auto-IRA programs.

JOHN IEKEL

2 Plan Consultant | suMMER 2015

Columns

26 EPCRS Improvements: Lather, Rinse, Repeat REGULATIONS

JOHN IEKEL

30 What Are the Best Practices in Share Class Conversions? RECORD kEEPING

DAvID J. wITz AND MIKE BUSHNELL

32 Questions of Qualification ETHICS

LAUREN BLOOM

52 The Value of PR and Marketing MARkETING

SEAN M. CIEMIEwICz

56 The Advantages of Scale INVESTMENT ADVISORY

RUSH BENTON

60 Work Smarter by Leveraging Cheap Technology TECHNOLOGY YANNIS P. KOUMANTAROS AND ADAM C. POzEK

04 Letter from the Editor

08 TPAs May Be Subject to the DOL's Fiduciary Rule REGULATORY/LEGISLATIVE

BRIAN H. GRAFF

10 The Seamless Web of Records Retention ADMINISTRATIVE

JOHN J. NESTICO

14 The Right Way to Sell a Cash Balance Plan DB PLANS

MAX wYMAN

16 How Long Can You Hold Your Breath? LEGAL

DAvID J. wITz

22 Client Communication: The key to Success WORkING WITH PLAN SPONSORS

KAREN SMITH

605226

Published by

Editor in ChiefBrian H. Graff, Esq., APM

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

David J. Witz, Co-chairGary D. Blachman

John D. Blossom, Jr., MSPA, QPFCJason D. Brown

Kimberly A. Corona, MSPAJohn A. Feldt, CPC, QPAJohn Frisvold, QPA, QKA

Catherine J. Gianotto, QPA, QKAPhillip J. Long, APM

Kelsey H. MayoRobert E. Meyer, Jr, QKAMichelle C. Miller, QKARobert G. Miller, QPFC

Mark S. Nicholas, CPC, QPA, QKADavid F. Rosengarten

Robert J. Seidel, III, QKA, QPFCEric W. Smith

EditorJohn Ortman

Associate EditorTroy L. Cornett

Senior WriterJohn Iekel

Graphic DesignerIan Bakar

Technical Review BoardRose Bethel-Chacko, CPC, QPA, QKA

Michael Cohen-Greenberg Sheri Fitts

Drew Forgrave, MSPAGrant Halvorsen, CPC, QPA, QKA Jennifer Lancello, CPC, QPA, QKA

Robert Richter, APM

Advertising SalesErik Vanderkolk

[email protected]

ASPPA Officers

PresidentKyla M. Keck, CPC, QPA, QKA

President-ElectJoseph A. Nichols, MSPA

Vice PresidentRichard A. Hochman, APM

Immediate Past PresidentDavid M. Lipkin, MSPA

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 2015. 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.


What's in Your Attic?

with the start of ASPPA’s 50th anniversary year just months away,

the pace of work on the 50th anniversary history book project is picking up, including preliminary design and layout of the book.

That’s where you come in. we’re looking for photos, as well as objects (pins, awards, etc.) that can be photographed, associated with ASPA and ASPPA over the years (or with the industry at large) to include in the book.

what’s in your attic? If you have something that fits the bill, please email a scan or photo of it to me at [email protected]. I’ll take it from there — including returning original materials to you.

Here’s your chance to be a part of history — literally. Don’t pass it up!

l e t t e r f r o m t h e e d i t o rPC

still interested in you — just share your idea with us, and we’ll take it from there. Send me an email at [email protected]. Looking forward to hearing from you!

QLAC. It may also ease some retirees’ fears about running out of money in retirement, enabling them to claim Social Security benefits at or closer to their normal retirement age.

But to a significant degree, QLACs still exist in theory only. The QLAC regulations are now in effect, but insurance carriers are not yet offering products in the workplace retirement market that conform to them. (Currently the only firms issuing QLACs are offering the product to individual IRAs.)

It’s likely, however, that in the not too distant future, QLACs will go from tax code theory to client reality. Which carriers will offer them? Which features will those carriers choose to incorporate into their products? Who knows?

But make no mistake: QLACs will be here soon. And if they happen to make sense for some clients, it probably makes sense for you to get ready to initiate the discussion. Start with our cover story.

Write for PC? Yes, You Can!

Do you have an itch to write about what you do? Here’s a way for you to scratch that itch: write for Plan Consultant! We’re always looking for authors with new and different ideas for articles — especially topics of special interest to ASPPA’s core membership groups: actuaries, TPAs and record keepers.

Maybe you have a good idea but you aren’t interested in writing. We’re

ongevity annuity contracts (a.k.a. deferred income annuities), like their better known cousin, the immediate annuity, aim to provide a stream of income for life — with one big

difference: Payments do not begin until years, or even decades, down the road — say at age 85, for example. Thus, they provide significantly larger payments when they do kick in.

This is not a new concept — longevity insurance has been around in different forms for years. The big difference now is the Obama administration’s push to allow them to be available in workplace retirement plans — specifically via Treasury regulations issued last year that resolved a direct conflict with the required minimum distribution rules, under which payments must begin at age 70½.

Under those new rules, a longevity annuity that meets certain requirements will be deemed to satisfy the RMD rules even though payments don’t begin until age 70½ or later — and dubbed a “Qualified Longevity Annuity Contract” (QLAC). Goldleaf Partners’ Paul Kociuruba and John P. Ashford explore the practical aspects of QLACs in this month’s cover story beginning on page 38.

Certainly, the QLAC concept has a lot going for it. Being able to avoid RMDs is attractive, and enables retirees to do more with their non-qualified assets prior to using the

JOHN ORTMAN

EDITOR-IN-CHIEF

Is a QLAC where QSLOBs Go Swimming?

L

6 Plan Consultant | summer 2015

f r o m t h e p r e s i d e n tPC

new ideas and continues to expand their offerings. Those of us who love lecture-style learning will still have that opportunity, and there will be many new opportunities to learn — with speaker interaction, case studies and roundtables. To provide flexibility in meeting many different needs, the programming of the ASPPA Annual Conference is planned around the diversity of our organization, preferred learning styles and industry best practices.

I’ve been privileged to read the draft of the opening chapter of ASPPA’s history book outlining the first 50 years of the organization (available in 2016). It is humbling to read the story of the founding of ASPA and to once again appreciate those founding members who understood how vital ethics, education and advocacy were to making our industry a truly professional one.

Throughout its history of nearly 50 years, this organization has opened its doors and welcomed new and different professionals. Embracing diversity has made us strong. The Leadership Council and I welcome the challenge of having the heart of ASPPA beat in all members, regardless of where and how they “Make Retirement Plans Work.”

Kyla M. Keck, CPC, QPA, QKA, ERPA, is ASPPA’s 2015 President. She is a principal of SageView Retirement Plan Consultants and SageView Advisory Group, in Knoxville, Tenn. and has more than 30 years of experience in the pension and benefits industry.

first questions we explored is: “Who is the ASPPA traditional member?” We know that ASPPA traditional members are involved in plan design, administration and consulting. And while ASPPA credentialed members hold QKA, QPA, CPC, MSPA, FSPA or APM credentials, we found that most ASPPA members no longer work in small TPA shops. Many of our TPA shops have grown to be large regional or national firms. Many of our members work for members of The Council of Independent 401(k) Recordkeepers (CIkR). Many work for large institutions. And yes, many are still in small TPA shops across the country. In all, our members represent more than 1,600 employers.

These members and their employers have diverse needs and opportunities. One of the exciting ways we are responding to this diversity is with flexibility. The Retirement Plan Fundamentals (RPF) course is getting a facelift, thanks to the efforts of the Retirement Plan Academy’s professional staff and a hard-working task force of volunteers representing our diverse membership. The result: a revamped fundamentals training platform using interactive learning tools and modular design that will allow each employer to select and deliver the training that best fits its needs.

A task force of the Leadership Council is looking at fresh ideas for learning in the conferences setting. While this task force is charged with finding ways to “Reinvent ASPPA Annual,” the ASPPA Annual Conference planning committee had already started implementing many

e’re now halfway through ASPPA’s first year as one of the four divisions of membership in the new American Retirement

Association. By now you’ve seen the new logos — including ASPPA’s with the traditional ASPPA colors and the American Retirement Association’s in red, white and blue. Other than the new look, you may be wondering what else has changed.

We’ve just completed face-to-face meetings of both the American Retirement Association Board of Directors and ASPPA’s Leadership Council. The American Retirement Association is going about its broad work of ensuring fiscal soundness for the organization as well as strategic direction.

We also discussed legislative trends on Capitol Hill and in the state capitals. Politicians’ main concern is still about expanding coverage for working Americans. The solution from Capitol Hill is MEPs, and from the state houses, mandatory payroll IRAs. Another shared concern is decumulation — are Americans going to outlive their retirement benefits?

How will the American Retirement Association, as the representative of the best thinkers and most dedicated professionals in our industry, all 20,000 of us, respond to these challenges and concerns?

Meanwhile, the ASPPA Leadership Council took seriously its first-year mandate to look at the programs and benefits to ASPPA’s traditional members. One of the

Embracing Diversity Has Made Us StrongThroughout its nearly 50 years, ASPPA has opened its doors and welcomed new and different professionals.

W

Assessments performed by CefeX, Centre for fiduCiAry eXCellenCe, llC.

For more information on the certification program, please call 416.693.9733.

*As of September 5, 2014

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.

Actuarial Consultants, Inc.

Alliance Benefit Group North Central States, Inc.

Alliance Benefit Group of Illinois

Alliant Employee Benefits, a division of

Alliant Insurance Services, Inc.

American Benefits Systems, Inc. d.b.a.

Simpkins & Associates

American Pensions

Aspire Financial Services, LLC

Associated Benefit Planners, Ltd.

Atessa Benefits, Inc.

Atlantic Pension Services, Inc.

Benefit Management Inc. dba United

Retirement Plan Consultants

Benefit Planning Consultants, Inc.

Benefit Plans Plus, LLC

Benefit Plans, Inc.

Benefits Administrators, LLC

Blue Ridge ESOP Associates

BlueStar Retirement Services, Inc.

Creative Plan Designs Ltd.

Creative Retirement Systems, Inc.

DailyAccess Corporation

DWC ERISA Consultants

First Allied Retirement Services /

Associates in Excellence

Ingham Retirement Group

Intac Actuarial Services, Inc.

July Business Services, Inc.

Kidder Benefits Consultants, Inc.

Moran Knobel

National Benefit Services, LLC

North American KTRADE Alliance, LLC.

Pension Associates International

Pension Financial Services, Inc.

Pension Planning Consultants, Inc

Pension Solutions, Inc.

Pentegra Retirement Services

Pinnacle Financial Services Inc.

Preferred Pension Planning

Professional Capital Services, LLC

QRPS, Inc.

Qualified Plan Solutions, LC

Retirement Planning Services, Inc.

Retirement Strategies, Inc.

Rogers Wealth Group, Inc.

RPG Consultants

Securian Retirement

SI Group Certified Pension Consultants

SLAVIC401K.COM

Summit Benefit & Actuarial Services, Inc.

TIAA-CREF

TPS Group

Trinity Pension Group, LLC

*as of May, 22, 2015

8 Plan Consultant | summer 2015

out raises more questions than answers. The American Retirement Association will ask DOL for clarification on some key questions: � Does the carve-out only apply to

the provider of the platform, or does it also flow through to a TPA that recommends third party platforms to plan sponsors? � Is there a minimum number

or range of investment alternatives that need to be included in an arrangement for it to qualify as a carved-out investment platform? � Can a platform include a single

proprietary product in a particular asset class and still qualify for the carve-out? � Under what circumstances will

a TPA become a fiduciary when a participant rolls over his or her balance into an IRA that may have been recommended or chosen by the TPA?

The comment period on the proposed fiduciary rule is scheduled to end on July 20, 2015. During the week of August 10, the DOL will hold a public hearing on the proposed rule and then reopen the comment period for an additional 30 to 45 days. Stay tuned as we endeavor to get answers to these important questions.

Brian H. Graff, Esq., APM, is the CEO of the American Retirement Association.

as indirect compensation). This arrangement, however, would not otherwise make the TPA a fiduciary because it is a one-time recommendation, not advice furnished on a regular basis.

Under the new rule, however, a recommendation like this is likely to be considered fiduciary investment advice if a fee or other compensation is received. The rule, however, also contains certain carve-outs that allow some investment recommendations to be classified as non-fiduciary in nature.

One of those carve-outs is for a service provider who “markets and makes available to an employee benefit plan … securities or other property through a platform or similar mechanism from which a plan fiduciary may select or monitor investment alternatives.” A provider taking advantage of the carve-out must provide a written disclosure to the plan fiduciary that it is not giving impartial investment or fiduciary advice.

The proposal does not address whether the investment platform must have a specific number or broad range of investment alternatives to fit within the carve-out. But if the recommended arrangement’s offerings are very limited, the arrangement may be treated as “individualized” or something other than a “platform” that would qualify for the carve-out.

The vagueness of this carve-

n April, the Department of Labor unveiled its long-awaited proposed rule that would expand the definition of investment advice.

The proposed rule will have a sweeping impact on the retirement marketplace when it is finalized and implemented. It also sweeps recommendations on distributions and rollovers into the definition of advice that could make someone a fiduciary.

Most TPAs do not consider themselves to be investment advisors. As we have dug down into the details, however, questions have been raised about whether the new rule covers certain business practices in the TPA community. Two potential areas of concern are: � revenue sharing arrangements with

the providers of investment platforms; and � fees received when a plan

participant terminates employment and rolls their account balance into an IRA that may have been recommended (or chosen) by the TPA.

Under the current rule’s five-part fiduciary test, advice must be furnished on a “regular basis.” In today’s world, TPAs often will recommend to the plan sponsors they work with a particular investment platform provided by a third party. Frequently, the TPA will receive revenue sharing or other payments from the platform provider (which of course would need to be disclosed

Does the proposed rule affect TPAs’ business practices? The answer may surprise you.

I

TPAs May Be Subject to DOL’s Fiduciary Rule

REGUlAToRY/lEGISlATIvEUPdATE

BY BRIAN H. GRAFF

9www.asppa-net.org

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AdMINISTRATIvE

Records retention represents the intersection of many disparate legal principles and issues, including the scope of a fiduciary’s duty and the statute of limitations.

The Seamless Web of Records Retention

BY JOHN J. NESTICO

11www.asppa-net.org

1 The expression has been attributed to the legal historian F.W. Maitland, but likely derived from his statement: “Such is the unity of all history that any one who endeavors to tell a piece of it must feel that his first sentence tears a seamless web.” From A Prologue to a History of English Law, 14 L. Qtrly Rev. 13 (1898).

2 Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 146 (1985).3 ERISA §404(a)(1)(D).4 See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).5 Celardo v. GNY Auto. Dealers Health & Welfare Trust, 318 F.3d 142, 146 (2d Cir.2003).

lichés are interesting because they present something of a paradox: They are statements of

some fundamental truth or something that is universally understood, but are so shopworn and tiresome that the very expression of it undermines its truthfulness.

One of my favorites has to be: “the Law is a seamless web.”1 The Supreme Court has applied that same characterization to ERISA, though perhaps in a less elegant way, saying that ERISA was a “complex and reticulated statute.”2 “Reticulated” means forming a network. I had to look it up. But the truth of the statement about the law, and ERISA, is evident even in the most mundane of issues, such as records retention.

I do not mean to belittle records retention. In fact, records retention represents the practical and necessary intersection of a multitude of widely disparate legal principles and issues, including the scope of a fiduciary’s duty and the statute of limitations, which was recently addressed by the U.S. Supreme Court, as well as the attorney-client relationship.

Demonstrating ComPlianCe

One of the fundamental obligations of the administrator (usually the sponsor) of a qualified retirement plan is to administer the plan in accordance with its terms.3 Therefore, the first point of keeping good records is to be able to prove that you have complied with the terms of the plan (and, it goes without saying, the law). The most obvious case is whether benefits have been calculated and distributed correctly, so the plan’s records should be able to demonstrate every step in the process.

In legal parlance, a plan fiduciary is entitled to an arbitrary and capricious standard of review.4 As stated by the 2nd U.S. Circuit Court of Appeals,5 a court should overturn a plan administrator’s decision only if it was without reason, was unsupported by substantial evidence, or was erroneous as a matter of law. As long as there is some rational basis for the decision, it will not be overturned by a court. Therefore, the records to be maintained by a fiduciary should be able to demonstrate the analytical process employed that provided a rational basis for the decision.

HoW long sHoulD reCorDs Be PreserveD?

The time period prescribed for keeping records is a direct function of the statute of limitations. Absent fraud or concealment, no claim for a breach or violation of ERISA can be brought after the earlier of:• six years after “the date of the last

action which constituted a part of the breach or violation,” or

• three years after the earliest date on which the plaintiff had actual knowledge of the breach.

In some instances, the meaning of this language is pretty clear. For example, if an individual receives a benefit from a plan, it’s pretty safe to assume that he or she is on notice of what that benefit is, and has only three years to bring a claim that the benefit was calculated incorrectly.

Suppose, however, that a fiduciary for a 401(k) plan selects the retail share class of certain investment funds when the institutional share class of the same funds was available for a significantly lower fee, suggesting a breach of fiduciary duty. To further complicate the issue, three years after the selection of those original funds, the plan fiduciaries selected additional funds and were careful to

A plan fiduciary is required to perform his or her duties with the care, skill, prudence and diligence then prevailing that would be used by a reasonable person familiar with such matters — the “reasonable expert.” This is the ERISA proposition: If a fiduciary engages in a thorough analysis of an issue, hiring experts when necessary to fill in knowledge gaps, to arrive at reasonable alternative courses of action, the fiduciary will never be held liable for the exercise of his or her judgment in choosing from among those alternatives, regardless of the outcome.

C

The issue about the statute of limitations is inextricably tied to the examination of the scope of a fiduciary’s responsibility to correct a breach once the fiduciary becomes aware that a breach has occurred.”


acquire the institutional share class. If the original funds were initially selected more than six years prior to the date participants bring suit, are they foreclosed from bringing a claim as a result of the six-year statute of limitations?

That was the question recently addressed by the U.S. Supreme Court in Tibble v. Edison. In that case, 401(k) plan fiduciaries initially selected the retail share class of certain funds that had significantly higher investment management fees than the institutional share class that was available to the plan. A portion of the excess investment management fee was then paid as revenue sharing payments that reduced the obligation of the plan sponsor to pay recordkeeping fees.

The district court dismissed the claims since more than six years had passed since the initial selection of the funds. The 9th U.S. Circuit Court of Appeals affirmed the district court’s decision, stating that only a significant change in circumstances would require the performance of some additional duty, the failure of which would constitute a new fiduciary breach.

The Supreme Court disagreed, and remanded the case to the 9th Circuit to reconsider its decision in light of the fiduciary’s obligation under trust law to “conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances.”6

The Supreme Court has now left it to the lower courts to determine what the scope of that review should have been under the circumstances, whether plan fiduciaries satisfied that review process, and if so, whether the fiduciaries appropriately responded to the results of that review. The Court emphasized the proposition, however, quoting from multiple sources, that when an investment is determined to be inappropriate or imprudent, a

trustee is obligated to dispose of it within a reasonable time.

Keep in mind that the plan fiduciaries in Tibble apparently made a determination three years after the initial selection of retail shares for the three funds in question (and within six years of the date suit was filed), that acquiring retail shares was inappropriate when institutional shares were available.

The question also remains whether a breach of the duty to monitor will be considered “the last action which constituted a part of the breach or violation,” or a separate breach. That may seem like a distinction without a difference, since a claim may be brought within six years of the failure to monitor, whether it is considered the “last action” or an entirely new breach. It could affect, however, how a plan fiduciary designs its records retention policy. If the failure to properly monitor is treated as the last action that constitutes part of a breach, then effectively there is a single breach that has multiple parts, and the statute of limitations for the first part (initial selection of the fund) will not run until six years after the date the fund is no longer an investment option in the plan.

If, however, the failure to monitor constitutes a new and separate breach, then each action — the initial fund selection and each subsequent periodic review — has its own six-year statute of limitations. The ultimate effect this ruling will have on cases claiming a breach of fiduciary duty will take some time to play out. Until then, the safest course for retaining records related to any fiduciary decision that may require periodic review, such as the selection of an investment choice or plan service provider, is to retain such records for a period of at least six years after the removal of the fund or the termination of the service contract.

Preserving tHe ConfiDentialitY of PotentiallY Damaging reCorDs

Everybody knows about the attorney-client privilege. A client must be able to communicate openly with his or her attorney in order to obtain effective and comprehensive legal advice, just like a patient must be able to communicate freely with his or her doctor. One’s ability to obtain competent legal or medical advice would be severely impaired if one’s confessions to a doctor or lawyer could be readily discovered upon request.

When acting in a fiduciary capacity, however, the attorney-client relationship becomes complicated, and a series of cases have firmly established that a fiduciary seeking the advice of counsel in the performance of his or her fiduciary duties cannot claim the privilege.7 There are two theories supporting this position. The first is that a fiduciary is acting solely in a representative capacity on behalf of plan participants. Therefore, it is the plan participants who are the actual clients who “own” the

A fiduciary cannot hide behind the attorney-client privilege in order to conceal a breach of duty to the beneficiaries.”

6 Tibble v. Edison, 575 U.S.__(2015); Slip Opinion at p. 5. 7 The seminal case is Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), a shareholder derivative case seeking recovery on behalf of a corporation against officers and

directors who violated their fiduciary duty to the corporation. The principles of that case have been extended to other fiduciary relationships, including fiduciaries to employee benefit plans. See, e.g., Petz v, Ethan Allen, Inc., 113 F.R.D. 494 (D. Conn. 1985).

A fiduciary cannot hide behind the attorney-client privilege in order to conceal a breach of duty to the beneficiaries.”

retention policies are driven by considerations of the statute of limitations, which is generally measured from the date of some action. The ruling from the Supreme Court in Tibble offers the possibility that the ERISA statute of limitations may be a lot longer than anyone anticipated.

John J. Nestico is Counsel in the Charlotte office of the K&L Gates law firm. During his 35-year career, he has represented some of America’s largest corporations and their qualified retirement plans on matters involving plan qualification and administration, employment and benefits issues in mergers and acquisition, fiduciary responsibility and the investment of plan assets.

with the performance of a fiduciary’s duties. Once a claim has been asserted, a fiduciary does have the benefit of the privilege when seeking legal advice at his or her expense in the defense of that claim.

There is at least one mechanism for preserving the confidentiality of communications with counsel suggested by the nature of the fiduciary exception: Ensure that communications with the attorney take place at a staff level below the level of the actual fiduciary. Activity that is preliminary to consideration by the fiduciary is arguably not the activity of the fiduciary and not subject to disclosure.8

ConneCting reCorDs retention to tHe sCoPe of fiDuCiarY resPonsiBilitY

At the end of the day, records

privilege. A participant suing for breach of fiduciary duty is not very likely to invoke the privilege to prevent disclosure.

The second theory involves a balancing of conflicting public policy interests: protecting attorney-client communications on the one hand, and protecting the rights of the beneficiaries in a fiduciary relationship on the other. Since a fiduciary owes the beneficiaries the highest duty known to the law, it is understandable that beneficiary’s interests win over the interest in protecting client communications. Another expression of that theory is that a fiduciary cannot hide behind the attorney-client privilege in order to conceal a breach of duty to the beneficiaries.

To be clear, the exception to the attorney-client privilege applies only to advice obtained in connection

8 See, e.g., Cheney v. United States Dist. Court, 542 U.S. 367 (2004)

We understand your business and are committed to supporting the needs of the TPA industry. TPAessentials provides an ever-evolving roster of unique and relevant tools, programs and services based on four key elements for a healthy business.

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Just because a cash balance plan makes sense for a plan sponsor demographically doesn’t mean it’s in their best interest — but very few, if any, plan sponsors can make that decision on their own.

The Right Way to Sell A Cash Balance Plan

dB PlANS

BY MAX WYMAN

15www.asppa-net.org

The cash balance industry is booming right now. Plans are going in at a rate faster than the 401(k) industry. Every year

more and more sponsors are shown these designs and more and more of these plans are put in place.

When they work, cash balance plans are a lean, mean tax-saving machine. When they don’t, the sponsor is beyond frustrated, and this boils over to all other parties involved. The best way to prevent this very undesirable situation from happening is ensuring that during the sales process you make sure the sponsor understands the following basic concepts — and not just how much they’re saving on their taxes every year.

it is a DefineD Benefit Plan

Cash balance plans are not profit sharing plans! Contributions are not discretionary, but are determined by an actuary and create an annual funding obligation to the plan. Current funding methods develop a wide range of allowable contributions after the first few years, but there will be a minimum amount of contribution required to avoid excise tax penalties.

In addition, if the pension program involves the combination of a cash balance plan with a defined contribution plan (i.e., a profit sharing or 401(k) plan), the employer’s contribution to the DC plan is no longer totally discretionary. There will normally be a minimum contribution amount required to the DC plan to cover the top heavy and minimum gateway requirements. In addition, people who previously did not qualify for a contribution due to a last-day or hours-of-service requirement may now be required to receive contributions.

This is not to say that the funding obligation is totally inflexible. Some methods of defining the pay credit

The interest credit can be defined as any flat rate of return up to 6%, as a variable rate based on one of several indices or as the actual return on the plan’s investments. However, a participant’s aggregate return for all years of participation can never be less than zero. The choice of interest rates is at least as important as the choice of pay credits.

QualifYing testingThese plans normally require

that they pass a number of tests that have to be performed annually. Like any defined benefit plan, they have to be tested to see if an adequate number of participants have received “meaningful benefits.” Currently, 40% of eligible employees, or if less, 50 employees, must receive an allocation each plan year that converts to a monthly benefit at retirement equal to 0.5% of compensation.

The math to this conversion includes projecting the account balance to the normal retirement age at the interest crediting rate. Therefore, lower interest rates will convert to lower benefit amounts which require higher formulas to meet the requirement. If a variable rate is used, then during a period of falling interest rates, the sponsor may have to amend the plan to provide for higher pay credits. Once adopted, it is always possible to reduce future pay credits when interest rates rise again (although this could create an HR issue). Finally, if using the plan’s actual rate of return, the employee cost may become prohibitive if the plan fails to have a positive return.

Next, the plan must pass non-discrimination testing. This testing is very complicated. An oversimplification is that a small percentage of non-highly compensated employees must accrue monthly benefits, or receive current contributions, expressed as a percentage of pay equal or greater than each HCE. HCEs are defined as owners of more than 5% or having earnings in excess of a fixed threshold

will automatically adapt to lower compensation numbers in small plans. Utilizing the maximum contribution level allowed to prefund or maintain a 5-10% cushion (assets in excess of the hypothetical account balances) will allow lower contributions in bad investment years without jeopardizing benefits.

If a bad investment year occurs prior to establishing a cushion, it might be possible to amend the plan for the current year to reduce pay credits if participants have not worked the requisite number of hours. Another possibility would be to amend the pay credits for future years to allow the sponsor to improve the funding level back to 100% of the hypothetical account balances.

interest CreDiting rateCash balance plans provide

monthly benefits at retirement that are the actuarial equivalent of a hypothetical account balance (although other forms of payment are normally allowed, including a lump sum which can be defined as the hypothetical account balance). The hypothetical account balance is the sum of pay and interest credits that are added to the beginning hypothetical account balance each year. Both of these must be defined in the plan document.

The pay credit is the percentage of compensation or flat dollar amount (as defined in the plan document) that each participant will receive. This is similar to a DC plan except that at least a portion of the pay credit must be earned as soon as the participant completes 1,000 hours in the plan year, even if he or she terminates prior to the end of the plan year.

When they work, cash balance plans are a lean, mean tax-saving machine.”


for the prior year. (This earnings threshold, which is subject to a COLA increase annually, is $120,000 for 2015.)

The choice of interest rates will usually depend on whether the cash balance plan will be tested on its own or in combination with a DC plan. When testing the cash balance plan on its own, the choice of interest rates will not have the same impact on testing as when tested in combination with a DC plan. Since standard interest rates of 7.5-8.5% must be used when testing a DC plan, using a lower interest crediting rate in the cash balance plan which mainly benefits the HCEs should provide advantageous testing results.

funDing tHe PlanPerhaps more important than

the testing issues is how the cash balance plan’s assets are invested. The question is whether the plan’s investment policy and the market will provide investment returns sufficient to cover the interest crediting rate. Keep in mind that the interest credits to be added to the hypothetical account balances are defined in the plan document and are usually independent of the actual investment results. The normal goal that we recommend is that the assets be maintained at a level equal to 100-110% of the hypothetical account balances.

There are only two sources of money to maintain that level: employer contributions and actual investment earnings. If the pay credits

are designed to use the sponsor’s full budget, then the investment earnings will have to cover the interest credit plus any investment and administration expenses paid by the plan. Use of a lower interest crediting rate takes some of the pressure off; alternatively, the plan could provide lower pay credits and allow the balance of the budgeted contribution to cover any shortfall.

If the sponsor is a professional practice with a number of partners/owners, how is the cost of the plan to be allocated between them? In most cases, each owner is responsible for the cost of the benefits they earn as well as their share of the cost of the employee benefits. How will their share of the cost be collected, and what happens if some of the owners leave the practice prior to funding their benefit for that year? What if they have funded part of their current year share but have not met the requirements to receive them? What happens if the plan has a surplus or deficit at the time they leave the practice? All of these issues should be discussed.

The solution may revolve around whether the sponsor wants to make contributions monthly or annually. If the former, it might be as simple as removing the hours requirement to earn an allocation and instead allocate a pay credit for each month that a participant completes. However, this does not solve the possibility that the plan is materially under- or over-funded at the time an owner leaves the practice.

It is important for the sponsor and each owner to understand how these issues will be resolved with respect to the plan. Some of these issues may require the input of an attorney and possibly the rewriting of partnership or employment agreements. This could delay the adoption of the plan.

PBgCPlans that cover common law

employees and are not sponsored by a professional business with fewer than 25 active participants are covered by the Pension Benefit Guaranty Corporation. Although this allows a much larger potential contribution in those situations where the cash balance plan is combined with a DC plan, the premium levels and filing deadlines should be understood since the premium amounts can be a substantial expense.

ConClusionJust because demographically a

cash balance plan makes sense for a plan sponsor does not mean it’s in their best interest. Ultimately the only person/people who can make the determination whether this plan type is in the sponsor’s best interest is the sponsor — but very few, if any, can make the decision on their own. They need proper consultation with advisors, lawyers, actuaries and the TPA so that they are fully aware of their obligation in the future and are aware of the effects that different situations will present down the road. If this consultation isn’t done as part of the sales process and the plan is sold, it might be too late to make necessary changes. This is why it’s crucial that these plans are sold the right way!

Max Wyman, MSPA, CPC, is an enrolled actuary with more than 30 years of experience in the small plan

market. He and his partner currently provide services to more than 300 cash balance clients.

Perhaps more important than the testing issues is how the cash

balance plan’s assets are invested. The question is whether the plan’s

investment policy and the market will provide investment returns sufficient to cover the interest crediting rate.”

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!


xcessive fees continue to be a hot topic for retirement plan committees to address, including: • determining which share class to use;• the amount of revenue sharing paid by

each investment;• how much of the plan expense should be

allocated to plan assets versus paid by the plan sponsor;

• whether or not a covered service provider should be paid fees based on a percentage of assets; and

• how fees should be allocated among participants.

These are topics a TPA or advisor should bring to the committee’s attention for purposes of establishing a documented process that can be used to defend their decisions.

Outside of the committee’s documentation, the statute of limitation under ERISA §413 (29 USC §1113) provides another method built into ERISA that is often forgotten but which is very effective in mitigating litigation risk for a claim of excessive fees.

lEGAl

The risk of excessive fee litigation can be mitigated using ERISA’s statute of limitations. Here’s how.

How Long Can You Hold Your Breath?

BY DAVID J. WITZ

E

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ask? Simply by providing those most likely to sue you with actual knowledge of your decisions.

According to ERISA §413, the 6-year statute of limitations provides a plaintiff 6 years to file a fiduciary breach claim. If a fiduciary engages in a breach that occurred more than 6 years ago, a plaintiff’s claim will be dismissed assuming a claim of fraud, concealment, conflicts and/or self-dealing cannot be proved.

Of course, this is 6 years after the date of the last action that constituted a part of the breach. Therefore, if the breach is an ongoing event, a plaintiff has a rolling 6-year period to file the suit. In essence, an evergreen liability for the fiduciary assuming the fiduciary continues to engage in the same breach year after year.

The 6-year statute also applies to an omission but the start date of the 6-year statute is from the latest date on which the fiduciary could have cured the breach. For example, assume a fiduciary’s omission resulted in a breach on April 1, but the fiduciary has until Dec. 31 of that year to fix the breach but fails to do so. In this case the plaintiff has 6 years from the last date (Dec. 31) the fiduciary could have cured the breach. Thus, in this case the plaintiff has 6 years and 9 months, although there is no reason for a plaintiff to file a suit during the time frame a fiduciary can cure the breach.

Finally, if the fiduciary is proactive and adopts a full disclosure approach, a fiduciary can limit the time frame during which a plaintiff can file suit to 3 years if the fiduciary can prove the plaintiff had actual knowledge of the breach. Herein lies the question, “How do the courts interpret ‘actual knowledge’?”

Based on a cursory review of case law, it appears the courts are not completely aligned in their interpretation of “actual knowledge.” This creates uncertainty for fiduciaries implementing risk mitigation strategies built around the 3-year statute. Some key cases that emphasize this concern include:

• The court in Edes v. Verizon Communications, Inc. time-barred a participant’s lawsuit for incorrect allocation of his 401(k) contributions to the wrong investments using the 3-year statute. Participant admitted he did not review his quarterly account statements because he treated the benefit statements as “ junk mail.” The court determined the participant’s “willful blindness” was not reason enough to avoid “actual knowledge.”

• In Blanton v. Anzalone, it was determined that knowledge required to trigger the 3-year statute is knowledge of the transaction, not knowledge of its legal effect.

• According to the court in Meyer v. Berkshire Life Ins. Co., actual knowledge is a fact-specific determination that usually requires more than mere knowledge of the transaction.

• The 5th Circuit in Reich v. Lancaster

statute of limitations: tHe BasiCs

ERISA §413 limits the time frame during which a plaintiff can bring a fiduciary breach claim for excessive and unreasonable fees to 6 years or an alternative 3 years if certain requirements are met. It is important to note that fraud, concealment, conflicts of interest and self-dealing can nullify the statute’s protection or at least delay the start date of the limitations period until fraud, concealment, conflicts or self-dealing is discovered.

In addition, it has been argued before the Supreme Court, in Tibble v. Edison, that a fiduciary’s obligations to monitor investment expenses resets the statute at each point in time expenses are evaluated, which arguably should occur on an annual basis. On May 18, 2015, the Supreme Court unanimously agreed to remand this case back to the 9th Circuit for rehearing.

Of particular importance in Tibble is that the Supreme Court's decision is aligned with current practices to conduct investment reviews at least annually, if not quarterly, thereby arguably restarting the clock after each meeting for the issues they deliberated — including, in many cases, the reasonableness and allocation of direct and indirect fees.

Since lawsuits can be filed by the Department of Labor, participants, beneficiaries and other fiduciaries, it is important that a fiduciary consider various strategies to mitigate litigation risk by leveraging the existing statute of limitations provisions.

‘aCtual KnoWleDge’ of Your DeCisions

As mentioned above, documentation goes a long way in establishing proof that a thoughtful, procedurally prudent process exists. However, if a fiduciary combines documentation with an action plan that complies with the 3-year statute of limitation requirements, the fiduciary has effectively reduced exposure to monetary damages by 50%. How is this possible, you might

Since TPAs and record keepers are the gate keepers for the majority of this information, it seems logical they will become the go-to solution for this risk mitigation strategy.”


determined that actual knowledge requires knowledge of all material facts necessary to understand that a claim exists.

• The 3rd Circuit in International Union v. Murata Erie North America determined that actual knowledge requires proof a plaintiff actually knew of the event(s) which constitute a fiduciary breach and that the event was a breach of fiduciary duty.

• Then again, the 7th, 9th and 11th Circuits all held that actual knowledge only requires knowledge of all relevant facts about the fiduciary breach not that the facts establish a valid fiduciary claim.

These different interpretations of “actual knowledge” should not persuade a fiduciary to ignore the obvious: If you have nothing to hide, don’t hide anything — especially when it comes to fees deducted from plan assets directly or indirectly.

DisClosures anD rePortTo maximize the potential risk

mitigation features of the 3-year statute, a fiduciary should consider distributing or making available to participants the 408(b)(2) disclosures, Form 5500, meeting minutes and a customized one-page report that includes the following information:1. Plan sponsor and name of plan2. Name of the responsible plan

fiduciary, which is most likely the plan administrator

3. As-of date (issuing this report annually is recommended)

4. Breakdown of fees paid by the employer versus the plan in dollars per head, as a percentage of assets and annualized total dollars

5. Breakdown of fees by service category

6. Benchmarking of fees7. Statement of reasonableness by

the fiduciaryExpect the plan administrator

named in the report to receive more calls and questions in the first year than in the following years, which is exactly what you want to accomplish by providing this level of disclosure. Every email or disclosure to participants provides additional documented proof the responsible plan fiduciaries provided participants actual knowledge to claim the 3-year statute thus minimizing litigation risk and monetary damages.

Again, this approach is only for the plan sponsor that has nothing to hide and is conscientiously seeking ways to mitigate litigation risk and any potential monetary damages. Since TPAs and record keepers are the gate keepers for the majority of this information, it seems logical they will become the go-to solution for this risk mitigation strategy. To improve efficiencies in delivery and the effectiveness of the strategy it will be important to link the record keeper’s technology platform to an independent benchmarking database; otherwise, the analysis is based exclusively on a single record keeper’s client base — which is hardly

objective, especially if benchmarking statistics are incorporated into the report as suggested.

Of course, this strategy will come at a cost to the TPA or record keeper. However, it represents a value-added benefit that can justify higher fees. There is a cost associated with building and maintaining the link as well as automating the pushing and pulling of data to automate the report. However, by automating the process, the TPA or record keeper has increased its value proposition, created a unique differentiator and positioned itself to charge higher fees for the additional value at a time when the trend in fee compression is at its peak.

David J Witz, AIF®, GFS®, is managing director and founder of Fiduciary Risk Assessment LLC (FRA) and

PlanTools, LLC. FRA/PlanTools is a service provider that designs and licenses fiduciary compliance and investment reporting software solutions for industry service providers.

If you have nothing to hide, don’t hide anything — especially when it comes to fees deducted from plan assets

directly or indirectly.”

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N

TPAs and outside actuaries share a vested interest in communicating well with plan sponsors — and with each other.

Client Communication: The Key to Success

BY kAREN SMITH

ot long ago, I wanted to better understand our computer network. I asked for some reports, and when they arrived in my email inbox, I opened them eagerly. But I could not make any sense of the reports at all. They appeared to be written in a foreign language that relied a lot on acronyms. There were a lot of numbers, but I was not sure if high or low numbers were better. After a few minutes of frustration, I had to laugh. Is this how my clients feel when they read my actuarial valuation reports?

woRkING wIThPlAN SPoNSoRS

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deductible contribution becomes so wide that I have had clients call to ask me if there was a typo in the actuarial valuation report.

At a 30,000-foot level, the tax code sections that define the minimum required contribution and the maximum deductible contribution each serve different policy purposes. And, even more confusing to employers, the funding-related tax code sections do not always seemed aligned with the plan qualification requirements. Actuaries and TPAs need to provide employers insight in how to make sense of these seemingly conflicting code provisions.

Don’t Put in too muCH!It is particularly important

to explain to plan sponsors that contributing the maximum deductible contribution may lead to a defined benefit plan that is overfunded on a plan termination basis reflecting the Section 415 limits for the owners.

At a very high level, the maximum deduction rules provide for a cushion amount that will allow a plan sponsor to be roughly 50% overfunded. In an ongoing plan, there is a strong policy rationale for the cushion amount. The cushion allows plan sponsors to fund the plan when times are good so that contributions will be less in lean times. Additionally, it allows for an employer to fund a defined benefit plan in anticipation of a benefit increase and to better manage income taxes.

However, if a defined benefit plan is overfunded when the plan terminates, the plan sponsor may end up with unexpected taxable income and a reversion tax of up to 50%. While there are strategies to mitigate this, a plan sponsor may be unhappy about being in the situation where mitigation is necessary.

Any plan can be at risk for being overfunded under a perfect storm. For example, if interest rates were to increase quickly and equities were to hold their values, many plans could go from underfunded to overfunded

Many of us use commercial software or our own worksheet that automatically produces an actuarial valuation report. It is tempting to issue that report with as little modification as possible in the name of efficiency and keeping fees low. However, Precept 4 of the Actuarial Code of Conduct and Precept 3 of the American Retirement Association Code of Conduct require that professionals communicate in a manner that is appropriate for the intended audience. That automatically produced actuarial report may not always be appropriate without modification or supplemental communication.

tHe rangeIn the post-PPA era, one of

the communication challenges is the extremely broad employer contribution range, particularly with the interest relief provided by MAP-21 and HATFA for minimum required contributions.

As a plan matures, the difference between the minimum required contribution and the maximum

status. An unexpected employer contribution, positive asset return or increase in interest rates could take an adequately funded plan to an overfunded status.

However, I have had the most trouble with plans where the Section 415 limitation is nearly or fully phased-in, particularly those where the Section 415 compensation limit is applicable instead of the Section 415 dollar limit. An actuarial report (including supplemental communications) that does not address this issue may not be meeting the needs of the intended audience.

Don’t Put in too little! On the other end of the

spectrum, it is important to explain to plan sponsors the risks of having an Adjusted Funding Target Attainment Percentage (AFTAP) of less than 80%. The AFTAP is a particular ratio of the plan’s liability to its assets. When a plan’s AFTAP is less than 80%, a plan’s ability to pay lump sum benefits is limited. A plan’s AFTAP can be less than 80% even if the minimum required contribution has been satisfied every year — which can be confusing to plan sponsors.

Additionally, when there are multiple HCEs in a small plan, it may be necessary to maintain a 110% funded status to avoid problems when an HCE retires or terminates employments and wants to receive a lump sum. There is a nondiscrimination requirement that the 20 highest HCEs may not receive a lump sum unless the plan is 110% funded after the distribution is made. It may be necessary to explain this early, often, in writing and in multiple documents including the actuarial valuation report and summary plan description.

funDing PoliCY To help clients understand the

wide employer contribution range, actuaries and TPAs can help clients develop a funding policy. For small plans, a funding policy may

A plan’s AFTAP can be less than 80% even if the minimum required contribution has been satisfied every year — which can be confusing to plan sponsors.”


status. Both of these portions increase over time, and in many cases PBGC premiums are dwarfing the plan’s administrative and actuarial fees. So employers may appreciate planning information for PBGC premiums.

trenDsSometimes it may be appropriate

to include information in an actuarial valuation report on demographic changes that will affect the plan. For example, it may be appropriate to include information about a large group of new entrants that will increase the plan’s minimum required contribution or a plan trending toward top heavy status.

If a plan is relying on the professional employer exemption for PBGC coverage and is getting close to the 25 active participant limit, or if a plan is getting close to the 100/120 participant limit for being exempt from the CPA audit requirement, it may be appropriate to include a comment in the actuarial valuation report.

CHanges in reQuireD assumPtions

The PPA requires that mortality tables be updated at least every 10 years. Within the next couple of years, the IRS will issue updated mortality tables. While it is impossible to know what the tables will be before they are issued, there is an expectation that the tables will materially increase the life expectancy of pension plan participants. This will

contemplate a 100%-120% funding ratio of assets to funding target. It may be necessary for there to be a discussion about whether the funding target should be calculated using the regular segment rates or the HATFA segment rates.

Another approach may be for a small plan to fund such that the plan is funded close to the plan termination liability.

For both smaller and larger plans, using an old-fashioned reasonable, funding method allowed prior to PPA for developing a customary contribution may be appropriate. Just because PPA mandates the use of essentially a unit credit method for both the minimum required and maximum deductible contributions, the entry age normal funding method and individual aggregate are not dead as funding methods. For many plan sponsors, these funding methods may be more appropriate as a funding method (particularly when paired with long-term reasonable assumptions) for developing a customary contribution.

PBgC PremiumsFor PBGC covered plans, it may

be appropriate to include information about the PBGC premiums in the annual valuation report or supplemental communication. There are two portions to the annual PBGC premium: a fixed portion based upon the participant count and a variable portion based upon the plan’s funded

potentially increase the minimum required contribution, lump sum values and PBGC premiums.

Additionally, as HATFA interest rate relief phases out, minimum required contributions may creep up. Ideally, the actuary and TPAs are helping clients anticipate these changes now.

missing PageWhile it is acceptable for

communications to be issued in different pieces, either each communication should stand on its own or it should be clear that each piece is part of a whole. In addition to the precepts regarding communications, Precept 7 of the American Retirement Association Code of Conduct and Precept 8 of the Actuarial Code of Conduct require that we take reasonable steps to make sure that our work product is not misused.

The probability of misuse is higher when actuarial communications are issued in multiple pieces because it allows another party to pick and choose which information they share.

A contribution letter and the actuarial valuation report may both be prepared to fully explain the client’s option and a plan’s funded status. But if the contribution letter and report get separated in the client’s file, neither may tell the complete story. In such as case, it would be appropriate for both the letter and the report to reference the existence of the other.

asoP 41If the enrolled actuary is a

member of any of the five U.S.-based actuarial organizations, including ASPPA/ACOPA, the actuarial valuation report is subject to all of the requirements of Actuarial Standard of Practice 41 (ASOP 41). The party preparing the report, whether it be the actuary, TPA or actuary’s internal staff, need to make sure that the report meets all of the requirements of ASOP 41. The full text of ASOP 41 can be found at actuarialstandardsboard.org.

The probability of misuse is higher when actuarial communications are issued in multiple pieces because it allows another party to pick and choose which information they share.”

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or actual conflict of interest, then additional disclosure and consent by the plan sponsor is needed outside of the report.

DoCuments anD DataWhen a TPA works with

an outside actuary, the TPA and actuary each have a vested interest in communicating well with each other to serve the plan sponsor’s needs. Within the actuarial valuation report, the actuary probably should be clear for what items he relied on the TPA. For example, the actuary may wish to disclose that the participant data was provided by the TPA. Additionally, the actuary may wish to be clear that he has received the plan legal documents and plan provisions from the TPA. However, such disclosures do not absolve the actuary from all responsibility for reviewing the data and other documents for reasonability under the ASOPs.

tHe KitCHen sinKAt some point, when we consider

all the things that may need to be in an actuarial valuation report, it becomes tempting to write a nice long boilerplate list of disclosures where we throw in all of the issues: overfunding, underfunding, deadlines, risk — in other words, “the kitchen sink.” Such a list may have a place in an actuarial valuation report, but the Codes of Conduct require that communication be appropriate for the intended audience.

Unfortunately, a single laundry list of issues to consider will not meet the needs of all employers. If

An easy requirement that I see missing sometimes is the required acknowledgment of actuarial qualifications. And perhaps of more concern, I see reports missing the identification of the responsible actuary. For particular assignments, other ASOPs may require information in addition to what is listed in ASOP 41.

DeaDlinesIt is important that somehow

we communicate to plan sponsors the funding deadlines and the consequences for not making required contributions. For example, employers need to understand potential excise taxes for missed or late employer contributions.

In addition to final and quarterly funding deadlines, actuarial valuation reports or related actuarial communications need to communicate the implications and deadlines for making funding elections to burn, apply or increase pre-funding balances.

inDireCt ComPensationSome providers offer revenue

sharing for TPAs or actuaries in connection with both the 401(k) plans and defined benefit plans that they administer. This often will trigger 408(b)(2) notice requirements, but not always. Either way, it may be appropriate to disclose this in the actuarial valuation report or in a supplemental communication. Precept 9 of the American Retirement Association Code of Conduct and Precept 6 of the Actuarial Code of Conduct require disclosure of the sources of material direct and indirect compensation.

If the amount of the indirect compensation is insignificant, I like to include a statement that I did not feel the amount created a conflict of interest. While parties may disagree, I like to provide information so that plan sponsors can make inquiries if they have any concern at all.

If the amount is significant enough that it may create a potential

we include such a list in the actuarial valuation report, it may be appropriate to direct the client to particular items or include an executive summary in the front of the report.

lost in translationIn many cases, the actuary may

not be in direct contact with the plan sponsor. This could happen when either a TPA uses an outside actuarial firm or where a client primarily deals with a consultant at the actuary’s own firm. In such cases, additional care must be taken that the actuary receives really accurate information about the plan sponsors intentions. The actuary and TPA (or internal consultant) need to really make sure that the correct and complete information gets to the client.

Drafting a perfect actuarial valuation report that strikes the right balance between brevity and comprehensiveness to perfectly communicate with the plan sponsor is probably never going to happen. There is no perfect checklist because clients’ needs and expectations differ so much, as well as the nature of professional agreements. It comes down to professional judgment.

As our understanding of client communication needs deepens, we do not need to be bound by the actuarial valuation report we issued in prior years. We can periodically update our practices and model actuarial valuation reports to better meet the aspirations of Precept 4 of the Actuarial Code of Conduct and Precept 3 of the American Retirement Association Code.

Karen Smith, MSPA, is an actuary and is president of Nova 401(k) Associates. She is the president-elect of ACOPA.

Unfortunately, a single laundry list of issues to consider will not meet the needs of all employers.”


REGUlATIoNS

Changes to the IRS Employee Plans Compliance Resolution System address overpayments, fees associated with loan corrections and elective deferrals.

EPCRS Improvements: Lather, Rinse, Repeat

BY JOHN IEkEL

T

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plan corrects excess annual additions through the return of elective deferrals to affected employees within 9½ months after the end of the plan’s limitation year. � The IRS removed reference to

the Social Security letter forwarding program because the Social Security Administration has announced that the program is no longer available as a method for locating lost plan participants who are owed additional retirement benefits. � The IRS clarified that, if

corrective plan amendments are used to correct qualification failures, the requirement to submit a determination letter application does not apply to certain amendments made to prototype or volume submitter plans and is not required to be submitted if more than 12 months have passed since distribution of substantially all plan assets as part of the plan’s termination. � The IRS extended the correction

period for adopting certain corrective plan amendments in situations in which a determination letter application is required to be submitted concurrently with the Voluntary Compliance Program (VCP) submission.

Rev. Proc. 2013-12; 2. the failure does not affect more

than 25% of the plan sponsor’s participants for any given year; and

3. the loan failure is the only failure included in the submission. Why did the IRS do this? Said

Porter, “this change is being made to provide an improved method for determining compliance fees for large plans that have a relatively small number of loans that do not satisfy the requirements of IRC §72(p).”

Corrections for Overpayment Failures What about the correction

rules for overpayment failures? Wrote Porter, “Historically, some practitioners have advised plan sponsors that overpayments can be corrected only by requesting a return of the overpayment from the participant and/or beneficiary. The IRS noted that this approach has often resulted in large payment demands on participants and beneficiaries, which were only exacerbated by including hefty interest charges accrued over a long period of time.”

The IRS emphasized that overpayment failure correction methods now include greater flexibility, said Porter. For example, depending on the nature of the overpayment failure, a plan may: 1. request funds to be returned;2. have the employer or another

person contribute the amount of the overpayment; or

3. make an appropriate retroactive amendment to conform the plan document to the plan’s operations.

Additional Modifications Porter highlighted other

modifications Rev. Proc. 2015-27 made to Rev. Proc. 2013-12: � The IRS extended self-correction

program (SCP) eligibility so that repeated corrections of excess annual additions will not prevent certain plans from satisfying the SCP requirement to have established practices and procedures as long as the

he IRS gave filers who use the IRS’ Employee Plans Compliance Resolution System (EPCRS) some welcome news March

27 when in Revenue Procedure (Rev. Proc.) 2015-27 it provided relief, especially regarding rules for correcting overpayments and fees associated with participant loan corrections. But the IRS wasn’t finished there — just six days later, in Rev. Proc. 2015-28, it issued new EPRCS correction methods for elective deferral errors.

The modifications in Rev. Proc. 2015-27 generally are effective July 1, 2015; however, plan sponsors could apply them on or after March 27, 2015.

The fraternal twin guidance may bode well for filers who need to avail themselves of EPCRS, but what exactly does it mean? To shed light on that, two members of ASPPA’s Government Affairs Committee offered their take on the IRS’ EPCRS guidance in successive ASPPA asaps.

revenue ProCeDure 2015-27

W. Frank Porter of Fascore, LLC, in ASPPA asap No. 15-06, “More New EPCRS Correction Methods for Elective Deferral Errors,” said that in Rev. Rul. 2015-27 the IRS built on guidance it had issued earlier in Rev. Proc. 2013-12.

New Fee Schedule Wrote Porter, “The IRS

modified the method for determining compliance fees for certain submissions that relate solely to participant loans that do not satisfy the requirements of IRC §72(p). The IRS provided a new fee schedule for these failures, which is based on the number of participants with loan failures.” Porter noted that this schedule may be used when:1. the correction is being made in

accordance with Section 6.07 of

Historically, some practitioners have advised plan sponsors that overpayments can be corrected only by requesting a return of the overpayment from the participant and/or beneficiary.”


� The IRS expanded the availability of a reduced compliance fee for submissions under VCP that involve the failure to satisfy the minimum distribution requirements. Previously, the reduced fee was only applicable if the failure involved 50 or fewer participants. The IRS extended a new reduced fee schedule for failures involving up to 300 participants. � The IRS revised Sections 11.01

and 11.02 of Rev. Proc. 2013-12 to incorporate Form 14568 series model VCP submission documents and removed Appendices C and D from the procedure.

revenue ProCeDure 2015-28

Less than a week later, along came Rev. Proc. 2015-28, which became effective April 2, 2015.

Michelle Ueding of Kutak Rock LLP offered her insights in ASPPA asap No. 15-07, “IRS Announces More New EPCRS Correction Methods for Elective Deferral Errors.” According to Ueding, in that guidance “the IRS added a correction method for elective deferral errors that occur in plans with automatic contribution arrangements and also reduced the cost of correction methods for all elective deferral errors that are discovered and corrected quickly.”

Elective Deferral Errors in an Automatic Contribution Arrangement

“If a plan sponsor fails to begin automatic contributions for an eligible employee on a timely basis, or fails to implement an affirmative election of an employee who is otherwise subject to an automatic contribution feature (including an auto escalation feature),” wrote Ueding, “the plan sponsor no longer needs to make a qualified nonelective contribution (QNEC) to the employee’s account, provided certain conditions are met.”

Ueding noted that this correction method is consistent with what ASPPA said in its Sept. 19, 2012 comment letter. She said this correction requires three actions:

1. Employee deferrals must begin by a certain time. If the affected employee notifies the plan sponsor of the error, deferrals must begin no later than the employee’s first paycheck on or after the last day of the month following the month in which the plan sponsor learned of the error. If the plan sponsor learns of the error any other way, deferrals must begin no later than the employee’s first paycheck on or after 9½ months following the end of the plan year in which the error occurred.

2. The plan sponsor must provide the affected employee with notice of the error within 45 days after it began correct deferrals.

3. The plan sponsor deposits missed matching contributions (adjusted for earnings) in the affected employee’s account no later than the last day of the second plan year following the plan year in which the error occurred. Ueding noted that this correction

is available only for errors that occur before Jan. 1, 2021; however, she added, “The Service may extend this date after evaluating the number of automatic contribution plans established by employers in the years this correction is available. “

If corrections are made in this way, according to Ueding, “Rev. Proc. 2015-28 also provides an alternative safe harbor method for calculating earnings. If the affected employee has not designated an

investment alternative, earnings may be calculated based on the plan’s default investment alternative, so long as any cumulative losses reflected in the earnings calculation do not reduce the employee’s corrective matching contribution.”

Elective Deferral Errors Not Exceeding Three Months

Ueding said that in this guidance, “the IRS also created an incentive for plan sponsors to quickly correct elective deferral errors.” Such errors, she said, include the failure to: 1. correctly implement an employee’s

affirmative deferral election; and2. allow an eligible employee to

make an affirmative deferral election.“If a plan experiences an elective

deferral error that does not last more than three months, the plan sponsor is not required to make a QNEC to the affected employee, provided certain conditions are met,” Ueding noted. These conditions include: 1. Correction of the employee

deferrals must begin by a certain time. If the affected employee notifies the plan sponsor of the error, deferrals must begin no later than the employee’s first paycheck on or after the last day of the month following the month the plan sponsor learned of the error. If the plan sponsor learns of the error any other way, deferrals must begin no later than the employee’s first paycheck on or after the first day of the three-month period that begins when the error occurred.


3. The plan sponsor deposits missed matching contributions (adjusted for earnings) in the affected employee’s account no later than the last day of the second plan year following the plan year in which the error occurred.

The IRS emphasized that overpayment failure correction methods now include greater flexibility.”

29www.asPPa-nEt.oRg

the last day of the second plan year following the plan year in which the error occurred.

Notice Requirement Ueding outlines the notice

requirement entailed in these safe harbor corrections: “Each of these new safe harbor corrections requires that plan sponsors timely notify affected employees of the error. Such notices must generally describe the error, state that correct amounts have begun to be deducted from compensation and are being contributed to the plan, and that missed matching contributions, if any, have been (or will be) deposited in the employee’s account. The notice should also explain that the employee may increase his or her deferral election in order to make up for missed deferrals. Finally, the notice must contain the name of the plan and a point of contact.”

Porter’s ASPPA asap No. 15-06 and Ueding’s ASPPA asap No. 15-07 are available on ASPPA Net, in the “Advocacy” tab.

Elective Deferral Errors Exceeding Three Months

But what happens if elective deferral errors exceed three months but not beyond the last day of the second plan year following the plan year in which the error occurred (the SCP correction period)? Rev. Proc. 2015-28 also created a new safe harbor correction for that, too.

“Historically in this situation, a plan sponsor would make a QNEC to the affected employee’s account in the amount of 50% of the employee’s missed deferral,” wrote Ueding. “Now, however, the plan sponsor may make a QNEC in the amount of 25% of the missed deferral, provided certain conditions are met,” she added. Those conditions include: 1. Correction of the employee

deferrals must begin by a certain time. If the affected employee notifies the plan sponsor of the error, deferrals must begin no later than the employee’s first paycheck on or after the last day of the month following the month the plan sponsor learned

of the error. If the plan sponsor learns of the error any other way, deferrals must begin no later than the employee’s first paycheck on or after the last day of the second plan year following the plan year in which the error occurred.


3. The plan sponsor deposits missed matching contributions (adjusted for earnings) in the affected employee’s account no later than

Each of these new safe harbor corrections requires that plan sponsors timely notify affected employees of the error.”

UPCOMING CONFERENCES

AUGUST

Aug. 7–8ACOPA Actuarial Symposium Chicago, IL

OCTOBER

Oct. 18–21 ASPPA Annual Conference National Harbor, MD

NOVEMBER

Nov. 9–10ASPPA Regional Conference: Cincinnati Covington, KY

JULY

July 9–10ASPPA Regional Conference: Boston Boston, MA

July 19–22Western Benefits Conference San Francisco, CA

JANUARY 2016

Jan. 21–22 ACOPA LA Advanced Pension ConferenceUniversal City, CA

MARCH 2016

March 21–22 ASPPA BMOC Conference Rosemont, IL


RECoRdkEEPING

An informal poll of recordkeepers finds differing opinions on how a share class disclosure process should go.BY DAVID WITZ AND MIkE BUSHNELL

What Are the Best Practices in Share Class Conversions?

While historians will likely highlight rulings on same-sex marriage, the Affordable Care Act and redistricting as the most noteworthy rulings of the U.S. Supreme Court’s 2014-15 session, the justices recently made a ruling that seems likely to ultimately put more pressure on plan

sponsors and recordkeepers to be vigilant about fulfilling their fiduciary duties to the employees they serve.

The case in question, Tibble v. Edison International, originated with Glenn Tibble and other employees of Edison International, a utility holding company based in Rosemead, Calif., alleging that the company didn’t perform its fiduciary duty because, since 1999, it had offered retail-class mutual funds instead of identical institutional-class funds that charged lower fees.

Edison claimed that the suit was invalid because ERISA bans claims filed more than six years after “the date of the last action which constituted a part of the breach or violation.” The federal district court case that initially heard the case agreed, and dismissed the case, and after years of appeals, the 9th U.S. Circuit Court of Appeals ruled in Edison’s favor.

However, on May 18, 2015, the U.S. Supreme Court ruled that a fiduciary’s obligations to monitor investment expenses resets the statute at each point in time expenses are evaluated which arguably should occur on an annual basis. The Supreme Court unanimously agreed to vacate the lower court’s ruling and return this case back to the 9th Circuit Court for re-hearing.

With the Supreme Court ruling that the statute of

limitations rule reset each time expenses were evaluated, the 9th Circuit must now decide the Tibble case on its merits; namely, defining standards for what exactly would constitute a “continuing duty” that would reset the statute of limitations, and ruling on what meets the standard of a breach of fiduciary duty.

While the details are far from settled, we now appear to be on the cusp of a new era in fiduciary management, where the definition of a fiduciary duty breach is widened and the responsibility to fix it never ends, making recordkeepers more important than ever. In light of the issues addressed in the Tibble case, we spoke to more than a dozen recordkeepers about how they convey plan changes to employees, and what their best practices are for implementing them. Here’s what we found.

DifferenCes in oPinionIn cases where a client wishes to change share classes,

like the lower-cost options that the Tibble plaintiffs sued over not having access to, some recordkeepers give weeks of notice, while others make the changes instantly.

Haskell Weiss of TWG Benefits, based in the Chicago suburbs, said that his firm provides all participants with a 30-day notice that they are changing funds whose only difference is the share class. Others, such as Ed Proulx of American Pensions in South Carolina, say their protocol is to preemptively file a notice mandated by Sarbanes-Oxley, while also following the same mapping approach as if the plan sponsors were switching investment tactics altogether. “In the case of share class conversions, we believe this is overkill, but it is safer,” Proulx says.

31www.asppa-net.org 31www.asPPa-nEt.oRg

Time to Switch Notice of Change

Time Frame for Notice

Blackout Applies

3 business days Yes Not full 30 days No

1-8 days Yes 30-90 No

Hours Yes + mapping 30 days Yes

45 to 60 daysYes + mapping & 404a-5

No

Same day on Schwab Yes Same day No

30-35 days Yes 30 days No

Same day, max 3 days Yes

Preapproved forced change same day; others full 30 days

Depends

Allow 45 days Yes + 404a5 report 30 days No

Same day Yes Same dayNo – since same fund in sub-account

Same day Announcement is made Same day No

Same day Yes with mapping Same day No

35-40 days Yes 30 days Yes

45 days Yes 30 day Yes

Same day Yes + mapping & 404a-5 30 day No

Within 3 days Yes Within 3 days No

Fig. 1: ShAre ClASS ConverSion induStrY PrACtiCeS

Brian Raymond, Chief Investment Officer at ABC Portfolio Strategies in Michigan, says his firm does not use a blackout period, but they also allow 45 days for class transfers, including a 30-day window for participant notification.

Some larger firms are able to take a more hands-off approach, however. Preston Carbone, of Boston’s John Hancock Investments, says his firm is able to “utiltize the most efficient share classes with the lowest net expense ratios,” making a blackout and a direct notification unnecessary.

objectives they are trying to achieve. For clients who are changing share class only, Wells Fargo can and does meet that need within about 30 days. However, Wells Fargo’s experience is that clients are not simply changing share classes when they go about a fund line-up change.

“What we see is clients making multiple changes at one time within their fund line up, and for that, we are able to meet both regulatory required notices as well as participant communications within a 45-60 day time period.” Hooker says. “Most of our clients are taking advantage of their fund line-up changes to re-communicate the importance of saving and investing for retirement. This window of time gives them maximize opportunity to take full advantage of the event.”

More responses are provided in the accompanying table, “Share Class Conversion Industry Practices.”

ConClusionRecordkeepers and plan sponsors

have differing opinions on how a share-class disclosure process should go. If the 9th Circuit Court’s final ruling in the Tibble case ultimately turns out the way most seem to expect it will, you can expect that these best practices will be put to the test more than ever.

David J Witz, AIF®, GFS®, is managing director and founder of Fiduciary Risk Assessment LLC (FRA)

and PlanTools, LLC. FRA/PlanTools is a service provider that designs and licenses fiduciary compliance and investment reporting software solutions for industry service providers.

Mike Bushnell is the American Retirement Association’s Digital Content Manager. He is

also a contributing writer for Plan Consultant.

John Blossom of Alliance Benefit Group reports that his system can also process share classes changes in the same day, while they have a one-day blackout period to ensure that their updated plan settles in its entirety at the same time.

But other large firms look to their client’s objectives to determine the timeframe. Mel Hooker, senior vice president and head of relationship management at Wells Fargo Institutional Retirement and Trust in Charlotte, says they’re able to provide clients flexibility depending on the


hen working in the employee benefits field, a practitioner needs a solid grounding in his or her specialty. Whether an administrator, an investment advisor, an attorney, an accountant or an actuary, the pension professional needs to have the requisite professional education, experience and, in some cases, licenses, to provide high-

quality, reliable advice and services to his or her clients.To deliver optimal service, it can be helpful for the

pension professional to have a working knowledge of other disciplines. Employee benefits is an area of practice where accounting, actuarial science, administration, finance, law and tax intersect. No one pension professional is likely to be an expert in all of those fields, but continuing education, work experience and training can give a pension professional exposure to and greater comfort with other professionals’ disciplines.

Trouble can arise, though, when pension professionals get tempted to offer advice or services

beyond their expertise. Trouble compounds when clients, perhaps seeking to minimize their consulting expenses, ask pension professionals for “informal advice” on matters beyond their normal field of practice. It can be difficult to refuse such a request, especially when the pension professional is confident that he or she has the necessary knowledge to answer the client’s question.

For ASPPA members, ASPPA’s Code of Professional Conduct offers specific guidance to address questions of qualification. Section 11 of the Code, titled “Qualification Standards,” provides that “[a] Member shall render opinions or advice, or perform Professional Services, only when qualified to do so based on education, training and experience.” The Code doesn’t prohibit an ASPPA member from answering questions or offering advice or services that go somewhat beyond his or her normal field of practice, but it does require the member to think carefully before doing so.

Here are some things to consider when faced with a question about your professional qualifications:• How confident are you? Putting aside all external

EThICS

Here are six things to consider when faced with a question about your professional qualifications.

Questions of Qualification

BY LAUREN BLOOM

W

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requirements, could you look in the mirror and honestly tell yourself, “I’m qualified to do this work”? Are you worried that there are aspects of the work that might be more than you can handle? If you’re not confident in your abilities, tell the client you’re not the right advisor to ask.

• How did you get your expertise? Professional degrees, licenses and certifications are always good to demonstrate your qualifications. However, work experience can enhance your ability to provide professional services. Let’s say, for example, that you’re an enrolled agent whose client raises an accounting question. You’ve worked as an enrolled agent for 10 years and have encountered the same question on several occasions. The answer has always been the same, and you know that the accounting rules haven’t changed. In that example, even though you’re not a CPA, you might well have gained enough knowledge through work experience to give your client a reliable response. Still, it’s smart to encourage your client to verify your answer with the plan’s accountant.

• How much will your client rely on you? If you’re working on the preliminary stages of a project or know that someone with stronger qualifications than yours will weigh in before a project is finished, you may be in a better position to offer your thoughts. It’s

qualified to perform an assignment that’s outside of your usual practice, it’s a good idea to write a short memo, letter or even an email to your client explaining how you came to that decision. Just the act of putting your thoughts into words will assure you that you are, in fact, qualified to do the job — or persuade you, if the words don’t come, that you really aren’t. Documentation demonstrates careful thought on your part, even if someone else might disagree with your analysis. It also puts your client on notice that you’re not pretending to be more qualified than you really are.

It can be uncomfortable to refuse a client’s request for help. However, “helping” from an unqualified perspective may do more harm than good. Evaluating your qualifications before providing advice and services to a client makes good professional sense and, in the long run, is far more likely to result in good client relations.

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.

important, however, to make sure that your client understands that you aren’t pretending to have more knowledge than you actually do. Most important, never undertake work that requires a license or other professional credentials that you don’t have.

• Tread softly in new areas. The laws and regulations around employee benef its change regularly, and new ideas around benef it design and tax management crop up all the time. Changes in the employee benef its f ield may pull you into areas where no one is yet fully qualif ied. In those situations, it’s important to work carefully, educate yourself through professional meetings and literature, and make sure that your work product clearly informs your client that you’re providing services in an emerging area.

• Partner up. One way to bolster your own qualifications is to work with another pension professional whose education and experience complement yours. It’s a good idea to maintain contact information for pension professionals in other fields whose expertise you respect. That way, if you’re called upon to work in an area outside your own expertise, you can bring the other professional in or refer your client for advice.

• Document your decision. If you decide that, by virtue of your education, training and experience, you’re

Trouble can arise when pension professionals get tempted to offer

advice or services beyond their expertise.”


fEATURE

Yes, we do have a Professional Conduct Committee. Here’s how it handles complaints about members.

we Have a Professional Conduct Committee?

BY susan H. PerrY

gets referred to the chair of the Professional Conduct Committee.

steP 1: Determine memBersHiP Division

Let’s assume that the American Retirement Association receives a complaint against Abby Member, QKA, QPA, TGPC. Abby’s former employer is accusing her of embezzlement and has filed charges with the police. If Abby is guilty, this is clearly a violation of our Code of Conduct.

The complaint is forwarded to the chair of the Professional Conduct Committee. Currently, that would be me.

Now that there is an official complaint, we must determine which division of membership is primary for Abby. Why, you might ask? Because the composition of the panel that will hear the case against Abby is determined by her primary division of membership.

The first step in determining

learned about this committee over the last year and a half.

CoDe of ConDuCtWe have a Professional Code

of Conduct for the American Retirement Association. For those of you who took an exam on the way to earning a credential, you may remember having read a version of that Code of Conduct once or twice in the past, probably to answer an exam question or two.

The Code of Conduct states what the acceptable standards of practice are for American Retirement Association members. From time to time, someone accuses one of our members of not living up to those standards by filing a complaint with the American Retirement Association against the member.

If the complaint is against an actuary, it goes through the actuarial discipline process, which we won’t be discussing here. For those of us who aren’t actuaries, the complaint

When I was asked to chair the ASPPA (now American Retirement

Association) Professional Conduct Committee, I have to admit my first thought was, “We have a professional conduct committee?”

Never having had a code-of-conduct breach claim filed against me, I was a bit like a fish out of water. What exactly is the professional conduct committee and what does it do?

Luckily, I was able to find the ASPPA Professional Code of Conduct and the Disciplinary Procedures on the ASPPA Net website. And, sure enough, I discovered that we really do have a professional conduct committee. As a matter of fact, we recently updated the rules governing the committee to reflect the creation of the American Retirement Association.

The way our association deals with complaints against our members is quite interesting, so I thought I’d share with you a bit of what I have


a member’s primary division of membership is to look at where the member has credentials. Abby has credentials from both ASPPA and NTSA.

Since she has credentials from two divisions of membership, the next step is to look at the complaint. Does the complaint relate to a plan administration or recordkeeping issue, in which case ASPPA would be primary? Or does it relate to administration of non-profit or governmental plans, in which case NTSA would be primary?

In Abby’s case, the alleged offense is more general — theft or embezzlement from her employer. So the final step in the process is to look at which designation Abby earned first. The American Retirement Association office tells me that the first designation Abby ever earned was her QKA. So Abby’s primary division of membership is deemed to be ASPPA.

steP 2: CHoose DisCiPline Panel

From the available members of the Professional Conduct Committee, the president of Abby’s primary division of membership and I then create a discipline panel to hear the case against her. The discipline panel must consist of five people. In this case, it must include four committee members who are ASPPA credentialed members because Abby’s primary division of membership is ASPPA.

The fifth member of the panel is a member of NAPA or NTSA. This ensures that there is an outside perspective in the deliberations on Abby’s situation. We also select an investigator who will investigate the facts in this case.

At this point, Abby is notified that a complaint has been received. She is also told who will be on the discipline panel, who the investigator will be and when the investigation into the allegations made against her will begin. If Abby feels that one of the panel members or the investigator has a conflict of interest in her case, she

can object to the panel member or the investigator.

steP 3: faCt-finDingLet’s assume Abby doesn’t object

during the notification period. The investigator now gets to work by asking the person who filed the complaint for any documentation or other items that substantiate the alleged violation. The investigator also asks Abby for her side of the story and any documentation that supports her position.

Here’s a critical point that you should know if you ever get involved in one of these procedures: There’s a precept in our Code of Conduct that says you’ll cooperate with any investigation by the Professional Conduct Committee. Please don’t ignore the investigator! It’s like ignoring an IRS auditor while they are auditing one of your plans. It’s a recipe for disaster.

steP 4: rePort anD Hearing

Once the investigator believes all the facts have been uncovered, he or she puts together a report that is provided to Abby and the members of the discipline panel. When the report is provided to Abby, she is also notified of the date of her hearing.

The discipline panel and the investigator will conduct a hearing at which Abby has the chance to make a verbal presentation to state her point of view. Once Abby expresses her position on the allegations, she is excused and the panel deliberations begin. To make this case simple, let’s assume that during the time the investigation was going on Abby pleaded guilty to embezzlement and is currently on court-appointed supervision at the time of the hearing.

The panel can conclude that Abby did nothing wrong and dismiss the complaint, or it can conclude that she violated a part of the Code of Conduct. Since Abby pleaded guilty to embezzlement, we can probably safely assume that the panel would

find that she violated the Code of Conduct. Thus, the hearing enters the penalty deliberation phase. Abby can receive a warning that she did something wrong or counseling to ensure that she understand the rules. Due to the severity of Abby’s crime, in this case the panel would be more likely to consider suspending or expelling her.

steP 5: DisCiPlinarY aCtion

Once the panel reaches a conclusion, a report of the findings is produced and sent to Abby. If the panel found she did something wrong and imposed a disciplinary action, she can appeal the decision. I won’t go into the whole appeals process here — it’s described in the American Retirement Association disciplinary procedures posted under the “Membership” tab on the ASPPA Net website.

In Abby’s theoretical case, let’s say the panel decided to suspend her for the period of time she is under supervision for the embezzlement. You should also know that suspension or expulsion requires disclosure to other members. This is done via a notice in Plan Consultant. In fact, if you have a copy of the spring issue at hand, on page 49 you’ll find two notifications of disciplinary actions taken by the committee.

So, yes, we do have a Professional Conduct Committee. It actually receives complaints against members. It actually investigates those claims. And yes, it does occasionally impose penalties on ASPPA members.

Susan H. Perry, CPC, QPA, QKA, ERPA, APA, APR, AIF, AFA, is the president of Edberg & Perry, Inc., a

retirement plan consulting firm in Phoenix, Ariz. She is the current chair of the American Retirement Association Professional Conduct Committee.


CovER SToRY

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Practically Speaking


QLACs Qualified Longevity Annuity Contracts offer many positive opportunities. But potential challenges exist as well. Here’s how to find your way home.

BY paul KoCiuruBa with John p. ashford


AA QLAC is purchased within a

traditional retirement plan or with qualified money (e.g., an IRA), allowing the annuity payments to be deferred until the person reaches a more advanced age. The basic QLAC rules include: � income must be started by age 85; � the value of the QLAC is

excluded from retirement value when calculating required minimum distributions (RMDs) once you reach age 70½ (more on this below); and � the limit on purchasing a QLAC

is 25% of the account value or $125,000.

So basically it is a contract with an insurance company that pays a monthly income for life at an advanced age. Think of it as longevity insurance.

let’s talK numBersLet’s look at someone who has

$500,000 in her account and wants to put the maximum in her QLAC. Twenty-five percent of the account balance ($125,000) is the limit. Obviously one of the primary purposes of the QLAC is to enable you to delay taking a fixed amount of your retirement savings while (hopefully) being able to maintain your standard of living through retirement. The regulations also allow, in the event of your death before the QLAC kicks in, to pay the income to a spouse or other named beneficiary. Another option is to pay back the amount paid into it, a “return” of premium upon your death.

Knowing what a QLAC is, its corresponding limits, and what it can be used for, would you think the IRS and DOL might be interested in this solution? They are aware of the pressure on Social Security, people living longer, pensions disappearing, and the cost of living increasing. And they know that we are seeing people running out of money in retirement and that the average 401(k) balance isn’t nearly high enough.

Sounds good, but will consumers purchase it — and if so, why and to what degree?

exact. In the 1930s, life expectancy was 58 for men and 62 for women.

Of course, having a longer life expectancy is a good thing, but it also creates many challenges. One of these deals with the amount of income needed at retirement — and now that we are living longer, needing it for an average of 13 years after we retire.

We all know the history of Social Security and the struggles to keep up with the increasing number of retirees. Do you think FDR and the Treasury envisioned this back in 1935 when Social Security was created? Probably not, since the life expectancy was almost 20 years less than it is today and the number of working folks versus those who were

retired was about four times greater. Because it is in the news so much,

we also know that Baby Boomers have started retiring; their numbers will do nothing but increase over the next 14 years.

And we know about the history, challenges and changes in the pension market. Gone are the days when we work for ABC Company for 42 years, get a gold watch at retirement, receive a pension, and ride off into the sunset with our retirement needs taken care of by our employer.

Challenges like these create opportunities for innovation. The retirement industry has accepted this challenge with much study of history and the invention of new products. One of the products that has been introduced, after much study and debate by the IRS and Treasury, is the Qualified Longevity Annuity Contract (QLAC).

At the beginning of a recent business trip, I was picked up by an elderly gentleman who was transporting me from my house to the car rental company. As is true for most sales folks, I like to strike up conversations and find out about people and their lives. The 73-year-old man’s name was Henry. As we were riding I asked him how long he had been working for the car rental company. He said right at 11 years. Henry said he had done many jobs during his career, from washing cars to transporting folks like me.

I was intrigued, so I asked him what he did prior to this position and he explained that he worked at a textile mill for 42 years. That may have explained why he was wearing hearing aids. Now I know that not everyone who worked in textiles needs hearing aids — but for those who have (including myself back in high school and college), the sound of the looms over the years (even if one had worn ear plugs) has to take a toll.

Since the retirement space has been my business for 25 years, I had to ask him about the company he was with for 42 years and whether they had a retirement plan. He told a story we hear all too often: The company had a retirement plan, but went bankrupt and got rid of their pension plan during the tough years. I didn’t want to delve too deeply; only seeking to understand some things like the history and vesting — and about the PGBC, since he left the company with only $5,000 for retirement. I didn’t ask about his desire to work at age 73. My philosophy has always been that if I work after retirement (and I probably will), it will be because I choose to. Choose.

In my 25 years in the retirement industry, I have witnessed many changes. Some say change is the only constant. For many different reasons, those constant changes have evolved and here we are now. The good news is that statistically we are all living longer — an average of 78 years to be

Sounds good, but will consumers purchase it — and if so, why and to what degree?”

39www.asppa-net.org

aDministering tHe limits

To review, the limit requirements are 25% of the participant’s plan balance, not to exceed $125,000 in the aggregate. How will this requirement be managed? The sponsor is responsible but, as always, will rely on support from those providing administrative services to the plan.

The contribution limit is pretty basic for the benefit, which provides a maximum contribution outlay of 25% of the participant plan account balance (as of the last valuation). This will require diligent monitoring of

RMD calculation, and keeping up with the calculations (e.g., amounts and payouts).

Let’s look at some of the specific considerations in offering QLACs in group retirement plans.

availaBilitYFirst, there is no product currently

available for use in qualified defined contribution plans. The QLAC products as of this writing are only available for IRAs, and are offered by a total of just three providers. In addition to availability, we have all of the factors below to consider upon implementation.

getting tHe Plan reaDY for a QlaC

Before a QLAC is included as an investment option in a qualified plan, there may be a few modifications required of the plan document. An amendment may be necessary to allow QLACs as an includable investment type within the plan. There could also be an amendment to the language to accommodate the exclusion of the value of the QLAC when calculating the RMD. This should be reviewed with the provider of the document or TPA to ensure all is in good order.

rePorting anD DisClosure

Another consideration is whether record keepers will be willing to accommodate this holding or if it will all fall on the TPA to manage. I see it initially as being a function served by the TPA. The TPA must be flexible and accommodating to the inclusion of the product within the plan and to satisfy all operational requirements.

Within the new regulations of the product is another reporting requirement (with Form 1098-Q) to accompany the qualified plan world of notices. Will the mandatory participant reporting requirement for a QLAC from the issuer be sufficient, or will this need to be incorporated into the summary annual notice process as well?

From a practical standpoint, I think people see the value of guaranteeing an income for later on in life. Of course, this isn’t like life insurance where the insurance company is betting we live and we are betting the opposite. In this case, we are betting on our good genes (and avoiding getting hit by the proverbial bus) and, knowing that we are going to need income later on in our retirement years, believing that putting a portion into a QLAC will help. Personally, I think it will also help prevent having to draw down our money too soon, as well as not having to live below our means.

But it would be naïve to think that these would be the only reasons for purchasing a QLAC. Even though the contribution limit isn’t that great, I can see it being used as a tax strategy, and a pretty good one at that. Being able to avoid RMDs on this amount of money is smart and enables you to do more with your non-qualified assets prior to using the QLAC. It may also enable a retiree to claim Social Security benefits at their normal retirement age, easing some of the fears about the changes that are coming.

However, while there are positive opportunities because of QLACs, there are also potential challenges, such as consumer confusion, record keeper stability, participation from younger folks, cost in annuities from

Who’s interested in QlACs?

According to research data, the poorer and younger you are, the more likely

you are to be interested in a QLAC — except if you already have a retirement plan.

Interest in a QLAC peaks at about 63% for workers 45 or younger, according to tabulations from the Employee Benefit Research Institute’s 2015 Retirement Confidence Survey. Fewer than 40% of workers over age 45 expressed interest, except among those with less than $20,000 in household income.

Longevity perceptions also made a difference in QLAC interest: Nearly twice as many of those who thought it was very likely they would live until at least age 85 were interested in QLACs as among those who believed it was not at all or not too likely (47% versus 25%). while one might expect that interest gap to close as individual longevity expectations rose, it basically held up even among those who thought it was very likely they would live until 95 (53% versus 30%).

Not surprisingly, survey respondents with a retirement plan — DC, DB or IRA — were less interested in a QLAC than those without one. Nearly half (47%) of those with a plan were not interested; and 39% were interested.

The TPA must be flexible and accommodating to the inclusion of the product within the plan and to satisfy all operational requirements.”


include QLACs in qualified defined contribution plans can be absorbed and served through marketplace evolution; our industry adapts to change very well. All in all, we are in a good position to address this need once a product is developed.

We hope this nominal review will provoke further thought about QLACs, practically speaking. They are all about tomorrow, but the needs to be addressed are for today.

Paul Kociuruba is a regional sales director at Goldleaf Partners. He has more than 25 years of experience,

including sales within the retirement industry and direct advisory experience, as well as back office operational and administration experience.

John P. Ashford, AIF, is a regional sales director at Goldleaf Partners. In his more than 26 years of

experience in the financial industry, he has worked with financial advisors, plan sponsors, centers of influence and decision makers, specializing in all areas of retirement plans.

eventually enter into the qualified plan market. Portability will be a concern as well, as there will be a limited number of plans offering this benefit or capable of receiving the contract on behalf of the participant. Those plans capable of receiving the QLAC may not have a plan sponsor willing to accept a contract that was not part of their selection process. The most probable event will be the participant contract being rolled over into an IRA with the issuer.

ConClusionThe federal government has

created an atmosphere of promotion for QLACs, emphasizing their pension-like nature as a benefit to participants. Currently the firms issuing QLACs are only offering the product to individual IRAs. Maybe this is where the benefit will be most prominent, but the hopeful outcome for the qualifying regulation was to have it introduced into group qualified plans, touching more individuals.

It will be a seesaw of give-and-take. Surveys, including one from Hewitt, show that approximately 80% of plan participants want retirement income products and about an equal percentage of sponsors are not planning to provide them. Taking the “glass half full” approach, it appears that 12% of sponsors will consider moving in the direction of providing an annuity option in the near term.

Modifications necessary to

the contributions, especially when it is part of current active salary deferrals, which can very easily slip into an over-contribution. As long as a correction is made prior to the year end following the year in which the over-contribution occurred, all is well.

After an internal operational control for this is established, we now have to become inclusive managers of the overall contribution limit of $125,000. This forces us out of the confines of the qualified group retirement plan and into the total universe of allocations the participant may have outside of the plan to determine if the aggregate limit has been reached. It appears that we will be able to rely on the disclosure by the participant for this information, but will it really limit the sponsor for liability of an over-contribution based on the information that was provided?

With all involved, there will be increased servicing time and newly enacted processing parameters by the TPA. Involving a proactive, critical thinking TPA with flexible and diverse operational services will initially be required to ensure all the requirements are met.

fiDuCiarY ConCernsSponsors need to be prudent

in the selection of the provider of the product contract. Prudence of product sustainability by the provider is possible, but prudence of the cost will be limited to the players that will

The federal government has created an atmosphere of promotion for QLACs, emphasizing their

pension-like nature as a benefit to participants.”

41www.asppa-net.org

Be a part of living history ASPPA A H B

• Elegant thank you in the Anniversary Book itself• Company logo on the President’s letter accompanying the book• Rotating ad on the Anniversary Book website/webpage• Series of ASPPA Connect articles pointing back to the

Anniversary Book website/webpage• Thank you ad in Plan Consultant magazine adjacent to

articles based on the book• Thank you signage at the 2016 ASPPA Annual Conference

along with thank you slides during a special event, reception or general session

• Acknowledgement from the ASPPA leadership at the 2016 ASPPA Annual Conference main stage

Benefi ts of Corporate Sponsorship* Sponsor ASPPA’s History Book Celebrate ASPPA’s 50th anniversary!

Show your commitment to the industry!

Become a part of history!

For details, contact Fred Ullman, Director

of Sales, at fullman@USARetirement .org or

703-516-9300, ext. 113.

*Bene� ts vary based upon sponsorship level

A s part of ASPPA’s 50th anniversary celebration, we’re publishing a special book telling ASPPA’s rich history. The history book will be a tribute celebrating and honoring the people who make up ASPPA and who drive our mission to preserve and enhance the nation’s private pension system. It will be unveiled

at the 2016 Annual Conference and every member of ASPPA will receive a complimentary copy.

We’ve just created a special opportunity for a limited number of corporate sponsors to help underwrite the history book, as well as related web-based video efforts that are in the works. Sponsorship of the history book will clearly demonstrate your commitment to retirement plan professionals and their goals. Sponsors will be closely associated with this literary legacy and viewed as true supporters by ASPPA members.

We’re also creating an opportunity for individual ASPPA members to support the history book effort via a dedication/remembrance program — look for more details about this soon!


fEATURE

Groundbreaking research reveals insights into the TPA industry’s dedicated sales staffing practices.

Growing Your TPA Business with a Dedicated Sales Staff

BY DeBoraH ruBin


Nearly three-quarters of TPAs require their salespeople to conduct face-to-face meetings, with an average goal of 10 per week.”

a geographic standpoint and they are more than happy to help spread the word and help identify qualified candidates. We also get a fair number of direct inquiries from internal desks of the recordkeepers where you have a group of people who are in sales already and looking for an opportunity to get out into the field to apply their skills.”

Minimal recruiting is done through services or advertisements where the person hired is completely unknown to the firm. “We have not had success in posting the position publicly and sifting through resumes,” says Hooker. The most common source for finding talent is a retirement services vendor, at 32%.

sales anD aCtivitY goalsMany TPAs implement sales

and activity requirements, including weekly face-to-face meetings and phone calls, as well as attendance at annual events. Nearly three-quarters of TPAs require their salespeople to conduct face-to-face meetings, with an average goal of 10 per week. The average number of required weekly phone calls is 37, required by 59% of TPA firms. The same percentage of firms requires annual events, with an average of 17 events each year.

In addition to activity requirements, the majority of TPA firms (85%) also give their salespeople revenue or case-count goals. Of the 57% that have revenue goals, the most common numbers are $100,000 to $150,000. For those with case-count goals (45%), the numbers are most likely to be 50 to 74.

ComPensationGenerally, TPA firms pay their

salespeople a salary plus commission (68%). Salaries run the gamut: � 6% pay less than $45,000 � 42% pay $45,000 to $64,999 � 36% pay $65,000 to $85,000 � 2% pay $120,000 or more

Typically, the firms require that the salary be paid before commissions are paid (83%). However, once the

“We did see a significant increase in new sales after adding a dedicated salesperson, but it took about nine to 12 months,” says Richard Tatum, president of Nashville-based TPA firm Avintus. “It takes time for a salesperson to build quality relationships with advisors, who in turn provide proposal opportunities which lead to new sales.”

Since growing the business is the number one reason why a TPA wants to hire a dedicated salesperson (97%), this move would likely help them get closer to their goal. Excess capacity at the firm (44%) and goals of expansion into other markets (41%) were the next most common responses as reasons for hiring.

Most of the TPAs that currently have dedicated sales staff are keeping their numbers lean with 76% having only one or two salespeople. However, just under 10% employ four or more salespeople. The methods of finding salespeople are generally personal: 45% hired someone they knew, 45% hired someone who was referred to them, and 23% promoted someone from within the firm.

Russell Hooker, executive vice president at Nova 401(k) Associates in Houston, has found staffing success using referrals. “If I boiled it down to one source, it would be networking. We sort of let our business contacts in the recordkeeping and DCIO world know what we are doing in terms of where we would like to target from

In today’s competitive environment, more and more TPAs are seeking to increase

their share of the retirement plan sponsor marketplace by hiring dedicated salespeople. However, until now little research has been conducted to explore the benefits and challenges involved in forming and developing a successful TPA sales force. Transamerica’s recent report, A Benchmark Study for Hiring Sales Personnel to Grow Your TPA Firm — 2014, is groundbreaking research in this area that reveals insights into the TPA industry’s dedicated sales staffing practices.

Conducted online between April 21 and May 7, 2014, the 43-question survey was sent to 1,835 TPAs, with 8.5% (156) responding. The objectives of the study were to help TPAs understand the best practices around hiring and maintaining strong and effective salespeople, and to bring this topic into better focus for TPAs trying to determine if hiring one or more dedicated sales positions will help fuel future growth.

By sharing best practices in the areas of recruiting, hiring, staffing, compensation and training, the study revealed findings that TPAs can use to help them make informed decisions about ways to grow their businesses. Following are some highlights of the study’s results along with commentary from a few TPAs based on my discussions with them after the survey was completed.

PresenCe anD reCruitingWhether or not the TPAs

surveyed have a dedicated salesperson is fairly well divided. Almost half (49%) have a dedicated salesperson on staff and of the 51% without one, 34% expect to hire a dedicated salesperson in the future. The difference in sales between the two groups is substantial, highlighting the benefit of a dedicated sales staff — firms with a dedicated salesperson acquired an average of three times as many plans as those without one.


REQUIRE FACE-TO-FACE MEETINGS, WITH A GOAL OF 10 PER WEEK

REQUIRE 37 PHONE CALLS PER WEEK AND 17 EVENTS ANNUALLY ON AVERAGE

SET REVENUE OR CASE-COUNT GOALS

OF FIRMS WITH REVENUE GOALS SET GOAL FROM $100,000 TO $150,000

OF FIRMS WITH CASE-COUNT GOALS SET GOALS FROM 50 TO 74

NEARLY

tpa firms’ sales and activity requirements


transamerica’s Benchmark Study

To order a copy of Transamerica’s report, A Benchmark Study for Hiring

Sales Personnel to Grow Your TPA Firm — 2014, please send an email request to [email protected].

hiring dedicated sales staff to increase their sales and profits. However, TPA owners should consider the benefits and challenges surrounding this addition by exploring all of its components: recruiting, hiring, staffing, compensation and training. Studying the best practices of other TPAs gives firms the ability to make more informed decisions that can help them stay competitive today and in the future.

Deborah Rubin, CFP, is the senior vice president, TPA Channel Development and Distribution, at Transamerica

Retirement Solutions. Transamerica Retirement Solutions is not affiliated with Avintus, Nova 401(k) Associates, Associated Pension Consultants, Inc., or Pensys. 18596-TPA_F (07/15) ©2015 Transamerica Retirement Solutions Corporation. Used with permission.

and design illustrations, follow-up on outstanding proposals, and closing calls,” says Bryan Jacobson, president/CEO at PenSys, a nationally recognized TPA and recordkeeping firm with offices across the country. “The sales staff is also supported by a marketing team with email blasts and presentation preparations.”

sales, aCtivitY traCKing anD BreaK even

Most TPAs track sales and activities through their own internal proprietary databases (41%) or by manually inputting information into computer spreadsheets (30%). Fewer than three in 10 use a formal sales tracking system.

TPA firm owners take a very hands-on approach — the managers most likely to review the salespeople’s activities and sales are the owners themselves (80%), who state that they conduct regularly scheduled, in-person meetings with their salespeople once a week (38%) or once a month (49%). Close to six in 10 owners expect to break even on their new hires in one to two years.

alloWanCes anD teCHnologY

TPA owners typically cover services for salespeople even though they increase the TPA’s overall costs. Many TPA owners (95%) give their salespeople allowances for expenses such as their phones (77%), marketing budgets (72%) and cars (49%).

In today’s world, mobile technology is also an important asset that is more of a requirement than an option, with seven in 10 owners stating its use by their salesperson. “At our firm, each sales rep is required to use a company-issued smartphone of their choice which does have data covered, a tablet with data, and we pay for their home internet,” says Hooker.

ConClusionWith margins in the TPA

marketplace growing ever slimmer, more firms are weighing the option of

salary is paid, the sky’s the limit, since the vast majority of firms (97%) do not cap the overall compensation for their salespeople. Compensation for more than a third (36%) of salespeople is not limited to salary and commission, and may include additional bonuses.

Warren Simon, president at Associated Pension Consultants, Inc., a TPA firm based in Syosset, N.Y., doesn’t limit the upside potential for his sales staff. “My compensation structure is open-ended. Why would I ever cap a salesperson who was bringing in new business and give him or her incentive to not sell?”

Tatum agrees: “Avintus has an open-ended compensation structure. We do not want our sales associates losing any incentive to drive new sales opportunities.”

training anD internal suPPort

Training for the salesperson is generally conducted on the ground by the TPA owner, with joint sales calls (84%) the most common format. Only 29% of the firms offer formal sales training. Many TPA firms provide an internal partner to their dedicated salesperson (73%) to assist with such tasks as completing proposals, making follow-up calls on outstanding proposals, fielding general phone calls, scheduling events and setting up appointments.

“Our sales staff is supported by an internal team to help with proposals

TPA firm owners take a very hands-on approach — the managers most likely to review the salespeople’s activities and sales are the owners themselves (80%).”


fEATURE

47www.asppa-net.org

State ‘laboratories of democracy’ tackle retirement security by studying and testing auto-IRA programs.

Cats in an Open Field

BY JoHn ieKel

47www.asPPa-nEt.oRg

lawmakers before taking action, Remo notes. In Illinois, for example, advocates were working on this issue for years before legislation passed and was signed into law in early 2015.

Following is a look at what some of the 25 states active in the auto IRA “laboratories of democracy” are doing.

Bills enaCteDFour states have enacted measures

related in some way to auto IRAs. In 2012, California Gov. Jerry

Brown (D) signed into law SB 1234, a measure that authorizes consideration of the California Secure Choice Retirement Savings Program. Sounds simple and final, but it’s not.

This law requires that first a nine-member board must conduct market analysis to determine whether the legal and practical conditions for implementation can be met. The board has approved an approach to the market analysis that includes examination of program design, market analysis, financial feasibility and legal feasibility. After the board has completed its work, it is to submit its findings to the legislature, which will then consider legislation authorizing implementation of the program.

Connecticut has taken a tack that is similar, though not identical. While California’s legislature did not fund the board it created, nor set specific deadlines for the board’s work, the Nutmeg State’s legislature did.

The Connecticut Retirement Security Trust Board is to study the market feasibility of implementing a public retirement plan and report

to putting an auto IRA in place. So far, four have enacted measures calling for studies of the idea, if not outright establishment of an auto IRA program.

The state-level measures share many things in common, Remo says. “Generally speaking, the Illinois auto IRA legislation has become a model on which other states now base their proposals. In fact, state lawmakers in New Jersey and Maine have introduced legislation that is identical to the law that was passed in Illinois.”

One key feature of these measures is that generally they would be housed in the state Treasurer’s office, which means that typically the Treasurer is heavily involved in the development of bills presented to a state legislature, Remo says.

But they also tend to reflect the unique character of the individual states. Says Remo, “States take pride in being the ‘laboratories of democracy’ and each effort will adopt its own characteristics. The legislative proposals in each state are different because each state has its own political considerations and state government structure.”

But just because legislation is tailored to a particular state doesn’t necessarily mean that enactment won’t be a heavy lift. Here’s why, according to Remo: “Given the complexity of the issue and the entrenched opposition to these state proposals by many financial services associations and individual companies, the process to get a bill over the finish line is tough.” Most states study the issue for a while in order to build a comfort level about the idea with

Put 50 cats in a field. They’ll head off in all directions except for areas denied them. But

there will be certain things they’ll agree on, like the urgency of finding that field mouse and providing for their feline family.

The 50 cats in the American field — the states — are free to head in their own directions, within the fencing of constitutional constraints. And they do. But there are certain things on which they agree, and one of them is the need to help residents prepare for their golden years.

Workplace retirement plans have long been a key means of providing that help. But providing retirement benefits has never been compulsory for the nation’s employers. Retirement systems, plans and accounts have provided amply for many retirees — but there are holes in the retirement security safety net.

Thus the rise of the auto IRA. Andrew Remo, the American

Retirement Association’s congressional affairs manager, notes that the auto IRA was first envisioned as an answer on a national level. Says Remo, “Mark Iwry, then at the Brookings Institute, and David Johns, then at the Heritage Foundation, first created the auto IRA concept at the federal level in 2005 and have been pushing for legislation to implement that idea ever since, to no avail. Similarly, the ARA has been supportive of the auto IRA concept at the federal level for over a decade now.”

The idea is catching on in the states, however, and in a big way. Half the states are at least on the road


It’s not the first time — in May 2014, the House passed a bill that would have done that. But the Senate disagreed, and the bill failed in that chamber five days later.

Try, try again. Reps. John Buckner (D-

Arapahoe) and Brittany Petterson (D-Jefferson) introduced HB 15-1235 on Feb. 19, 2015. Like its predecessor, the bill would create the Colorado Retirement Security Task Force.

The task force would: • study and assess the factors that

affect Coloradans’ ability to save for a financially secure retirement and determine whether it is feasible to create a retirement savings plan for private sector employees;

• consider specified factors; • meet from the interim between

legislative sessions in 2015 to December 2016;

• solicit and accept input from private citizens, state and local governmental entities and public or private organizations;

• develop recommendations; and • submit two reports to the General

Assembly based on its findings. The bill was referred to the

House Business Affairs and Labor Committee, which amended and referred it to the House Appropriations Committee on March 24. That committee reported it to the House on April 2; it passed in its second reading on April 17 and has been read a third time.

Sens. Pat Steadman (D-Denver) and Nancy Todd (D-Arapahoe) are the measure’s sponsors in the chamber that was not convinced in 2014, but they have not introduced it yet.

MaineThere also is legislation Down

East that would create a system with automatic features. The bill before the Maine legislature, HP 715, would establish the Adjustable Pension Plan Program, a combined defined benefit and defined contribution retirement plan, which would replace the State Employee and Teacher Retirement Program for state employees and

payroll deduction at 3% of pay.• Employees can opt out.• Employees can adjust their

contribution rate.• Employers cannot make

contributions to employees’ accounts.

• A default life cycle fund will be available for employees.

• Employees will not be able to deduct their contributions from their federal income taxes.

• Employees’ investment gains will not be taxed until distribution.

• Participating employees can access their funds at any time.

• Employees can receive tax-advantaged distributions only after reaching age 59½.

• Program assets are in a single investment pool managed by a board composed of the state treasurer, elected officials, state employees and government appointees.

• A fine of $250 per employee per year can be imposed on employers that do not comply.

There is a potential complication: The plan could run afoul of ERISA. The board is required seek an opinion from the Department of Labor (DOL) regarding whether the program will be subject to ERISA. If the DOL determines that it is, the plan will not be implemented. However, the DOL is not required to respond; if it does not, the plan can proceed.

measures unDer ConsiDeration

Bills related to auto IRAs are under consideration in 21 states (see map). Here’s a look at four of them.

ColoradoThe Colorado legislature

is considering ways to enhance Centennial State residents’ retirement security by increasing the percentage who participate in a retirement plan.

But first things first. Colorado’s House of Representatives is considering a bill that would establish a task force that would make recommendations on how to do that.

the results to the governor and the General Assembly. Connecticut’s board is to make that report no later than Jan. 1, 2016; then, in consultation with key stakeholders, it must also develop and submit a comprehensive implementation proposal by April 1, 2016.

The board seeks to enter into contracts with Boston College and Mercer Investment Consulting, Inc., concerning the market feasibility study, but they have not been finalized, according to the minutes of the board’s April 1, 2015 meeting. Both have submitted a statement of work to the board outlining the services they would provide. The board on April 1 authorized the state Comptroller and state Treasurer to approve and execute the contracts.

Neighboring Massachusetts in 2012 enacted a measure that created the Massachusetts Voluntary Retirement Accounts Program, which is intended to provide retirement options for the employees of nonprofit organizations. The Bay State legislature is considering two other measures now (see “Measures Under Consideration,” below).

And last — but not least — is Illinois, the first state to enact a full-blown measure establishing a state program to provide a retirement plan for private-sector workers. Then-Gov. Pat Quinn (D), in one of his last actions before leaving office, signed it into law on Jan. 4, 2015. The law generally went into effect on June 1, 2015; the Illinois Secure Choice Savings Program, which it creates, is to be rolled out in 2017.

The law requires an employer to automatically enroll workers in Roth IRAs if it:• at no time during the previous

calendar year employed fewer than 25 employees in Illinois;

• has been in business at least two years; and

• has not offered a qualified retirement plan in the preceding two years.

Highlights of the program include: • Employees will contribute by

49www.asPPa-nEt.oRg 49www.asPPa-nEt.oRg

investment option for enrollees who fail to elect an investment option. There would be other investment options, however, including: • a conservative principal protection

fund;• a growth fund;• a secure return fund whose primary

objective would be the preservation of the safety of principal and the provision of a stable and low-risk rate of return; and

• an annuity fund.• The measure would require

employers to automatically enroll employees unless they opt out. Employees may select a contribution level and may change their contribution level at any time. Those who do not set a contribution level would contribute 3% of wages.

Rhode Island The Ocean State is the latest state

whose legislature is considering a bill that would put an auto IRA in place. H. 6080 was introduced on April 15, 2015; the House of Representatives’ Labor Committee recommended that the bill be held for further study.

The measure would establish an automatic enrollment payroll

Rep. Robert Koczera (D-Readville) introduced H. 899, which would establish the Massachusetts Voluntary Retirement Accounts Program. The program would be open to any employer with 100 or fewer qualified employees and would consist of a two-tier system with a SIMPLE IRA-type program or other IRS-approved employer plan, and workplace-based IRAs open to all workers.

Private employers would be required to provide employees with the opportunity to enroll, including providing for payroll deductions for those who do. Employers would enter into contracts with enrolled employees to defer or contribute a portion of their compensation.

Rep. Angelo Scaccia (D-Suffolk) introduced H. 939, the Massachusetts Secure Choice Savings Program Act, which would establish the Massachusetts Secure Choice Savings Program. The program would be an automatic enrollment payroll deduction IRA that would be administered by the Massachusetts Secure Choice Savings Board.

The board would establish a lifecycle fund, with a target date based upon enrollees’ ages, as the default

teachers hired on or after July 1, 2017.According to Ray Harmon,

Government Affairs Counsel for the American Retirement Association, the bill provides that all state employees and teachers hired on or after July 1, 2017 would be covered by Social Security and become members of the Adjustable Pension Plan Program as a condition of their employment. All state employees and teachers hired before that date would be required to become members of the State Employee and Teacher Retirement Program.

The bill would direct the Maine Public Employees Retirement System to review the laws governing the existing retirement program. It also provides that by Dec. 2, 2015 legislation be developed to implement the Adjustable Pension Plan Program in accordance with the plan document developed by the Maine Public Employees Retirement System and submitted in March 2012 to the Joint Standing Committee on Appropriations and Financial Affairs.

The bill was referred to the House Committee on Appropriations and Fiscal Affairs on March 24 and the Senate Committee on Appropriations on the next day. The House committee held a public hearing on it on April 13. Representatives from the Maine Education Association, Maine School Management Association, MSEA/SEIU Local 1989 and Maine Rep. Tom Winsor (R-Norway) presented testimony; of them, only Winsor expressed support for the measure.

Massachusetts If one is good, two may be

better. At least that appears to be the principle the Bay State’s House of Representatives is following. The chamber is considering two measures that would establish employer-based retirement plans in which employees would be automatically enrolled. Both were introduced on Jan. 20, 2015 and are before the Joint Committee on Financial Services.

PA

WA

OR

CA

AZ

CO

IL

WI

INOH

WV MD

MA

ME

VT

CT

MN

KY

NE

NH

NJ

ND

UT

VA

NC

Bills related to auto-iras


deduction IRA program administered by the state Department of Labor and Training and State Investment Commission.

Employees would be able to opt out of the program. They would contribute at least 3% of wages but would be able to change their contribution levels. Employees also could choose how their funds are to be invested.

Private-sector employers with five or more employees that do not offer a retirement plan could either establish one, make a private-sector IRA available or participate in the state-run auto-IRA program the bill would establish.

Remo testified before the Rhode Island House Committee of Labor in its recent hearing on the bill and expressed the American Retirement Association’s strong support of the measure.

Remo observed that the American Retirement Association supports the measure not only because it would expand the ability of private-sector employees in Rhode Island to save for their retirement through an employer-based account, but also because it will have minimal effects on the employers.

“There is no requirement for employers to contribute to this plan. It is just a payroll slot, so administrative costs for the employer are minimal. In fact, the American Retirement Association strongly supports H.B. 6080, with minor modifications, because the proposed auto-IRA framework will expand the availability of workplace retirement savings without burdening small

business owners,” he testified.“The current retirement system

in the private sector works well for those to have access to it. The challenge is to expand the availability of retirement savings in the private workforce,” Remo said. He went on to say, “The key to a successful retirement for the citizens of the Ocean State is having a retirement plan at work. Simply put, saving at work works.” It's estimated that more than quarter of a million Rhode Island workers do not have access to a retirement plan at work, he noted.

Remo stressed the importance of private-sector involvement, which he called essential for the initiative’s success. “H.B. 6080 encourages private-sector involvement through an Internet website where private employers will be able to identify private-sector providers that are offering auto-IRA or other retirement savings arrangements. The American Retirement Association believes this approach is critical, and will ensure that Rhode Island residents will have access to a high-quality retirement savings arrangement,” he told the committee.

The American Retirement Association does not consider the bill to be perfect, Remo noted. “The American Retirement Association would like to see some minor changes to H.B. 6080 that would make it more clear that employers subject to the legislation would be allowed to use private payroll deduction IRA products in order to meet its requirements. The American Retirement Association also has concerns that the legislation provides

for a broad ‘hardship exemption’ that essentially allows any business in Rhode Island to not comply with the bill’s requirements by simply sending a notification to the Rhode Island Department of Labor and Training. This provision could limit the effectiveness of the bill’s effort to provide access to payroll deduction savings in the workplace to as many workers as possible,” he said.

Remo concluded with an endorsement of the measure: “H.B. 6080, with the minor changes the American Retirement Association have suggested, will address the real problem of coverage. The current system is working very well for millions of working Americans. Expanding availability of payroll deduction savings is the key to improving the system. There is no need for dramatic changes, but Rhode Island could take a big step forward by adopting a state-based automatic IRA proposal similar to Illinois to make it easier for private employers, particularly small businesses, to offer a workplace savings plan for their employees.”

WHat’s next?So how are the proposals in the

21 states considering them likely to fare? According to Remo, it all depends — there is no single, blanket answer. He notes, “It is important to examine the political makeup of each state that is considering legislation to gauge the prospects of passage and enactment.”

Just because legislation is tailored to a particular state doesn’t necessarily mean

that enactment won’t be a heavy lift.”

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asppaannual.org

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The value of PR and Marketing

Digital marketing and public relations strategies offer

excellent opportunities for growth.

BY SEAN M. CIEMIEWICZ

MARkETING

The retirement plan industry continues to be a crowded marketplace in which advisors of all sizes often struggle to distinguish

themselves from the competition. But few firms take advantage of resources that are readily available to help take their practice to the next level.

The power of public relations and marketing is undeniable, especially in the retirement plan industry. It has proven to be an invaluable tool at my firm, heightening our visibility and raising awareness of our brand and value proposition. Unfortunately, many practitioners are either unaware of the resources that are available to them, or they are reluctant to consider what public relations and marketing can do for their business.

53www.asppa-net.org

WHY sHoulD Pr anD marKeting matter to You?

If you are hesitant to implement public relations and marketing strategies for your business, you need to consider the opportunities you could be missing by not do so. Public relations can be one of the most cost effective ways to communicate your value to your target audience and the greater marketplace. Today we exist in a 24/7 news cycle. It’s truly a digital age where Twitter breaks news and searching on Google is one of the simplest ways for potential clients to identify service providers.

To infiltrate the digital world, your company needs to make news and generate a consistent buzz. Every business, large or small, has a story to share with the public that can help position you as a leader in your space. Have you moved offices recently? Have you expanded your team? Do you have new service offerings? Are you a responsible corporate citizen? Do you have unique insight into retirement planning, HR, benefits or pensions? Answering yes to any of these questions means that you’re making news that you should be sharing with your current and prospective clients.

ConsiDer tHe value of Digital marKeting

Today, so much of the provider search is driven by Google. Plan sponsors are using the Internet to find those who stand out in order to invite them into the RFP process. Considering how prevalent search engines are and the value they provide, it is critical that when someone is trying to search for information, they can easily find your business and begin to understand your value proposition based on your presence on the web.

Furthermore, digital marketing

efforts need to be integrated with your website for increased search engine visibility. Identify keywords that are unique to your practice and integrate them into your site. Develop content that speaks to your practice specialties and areas of expertise. Help your prospects find you.

Ten years ago the best way to reach prospects may have been through advertising, cold calls or direct mailers. Now prospects are searching for you online. What happens if they can’t find you? By choosing not to implement digital marketing and public relations strategies into your efforts, you are most likely missing out on excellent opportunities for growth.

get soCialA quick and easy way to

enhance your digital footprint is by establishing a presence on social media. Furthermore, social media can help you reach and connect with your target audience. Consider the following:• More than two-thirds of plan

participants ages 50 and older are on Facebook, half are on LinkedIn,

1 Spectrem’s DC Participant Insight Series, “Using Social Media and Mobile Technology in Financial Decisions.” 2 Cogent Research’s “Fourth Annual Retirement Planscape 2013” study. 3 Ibid. 4 Ibid.

If you are hesitant to implement public relations and marketing strategies for your business, you need to consider the opportunities you could be missing by not doing so.”

and 12% of participants overall say they regularly research financial information on social media.1

• Nearly two-thirds of DC plan sponsors are using social media as a regular source of information on 401(k) plans.2

• Plan sponsors are more likely to link to plan advisors through LinkedIn (24%) and Facebook (22%) than via email or direct contact.3

• The use of social media for 401(k) information is highest among mid-sized plan sponsors, who represent plans with total assets between $20 million and $100 million.4

Your target market is on social media and can be reached through strategic digital marketing. It’s as simple as that. The role that social media, marketing and public relations plays in the retirement plan industry has evolved significantly over the past few years. At one time, it was simply an option to have a presence on social media. Today that option is disappearing at an increasing rate, and more advisors should consider joining the digital world for the sake of their business.

tHinK Big, start smallAbout three years ago, the

leadership team at my firm determined that it was time to implement a marketing strategy in order to promote business growth and heighten awareness of the firm. We started small, bringing on a marketing intern to get our feet wet. Since that time we have dedicated increased resources to our internal marketing efforts and hired an external team of public relations and inbound marketing experts to help support our communications initiatives. Having seen first-hand the power of effective, strategic marketing and public relations


campaigns, we believe in their ability to support our business goals and initiatives.

For individual producers, you obviously have more responsibility to shoulder yourself, but this shouldn’t necessarily discourage you from taking up a more aggressive marketing effort. Smaller and individual producers may not have access to an extensive marketing budget, but that doesn’t matter. I often advise smaller firms to try and take advantage of the range of service providers out there and what they’re willing to do for you in terms of marketing support. Even a small budget can make a huge dent in elevating your brand, building client loyalty and generating revenue.

With regard to marketing, distributing content about your areas of expertise, company news or industry trends can be an effective strategy. Many service providers have free or discounted educational articles that you can rebrand and deliver to prospective or existing clients. Hiring internal staff or external consultants can help with basic positioning and collateral that you can use to grow your practice. Individual practitioners may not have the time or means to create basic marketing tools such as a mission statement or a company brochure, so taking advantage of some outside resources may help to significantly improve the marketing tools you have to support your business.

looK Past tHe ComPlianCe HurDle

Many industry professionals are hesitant to dive into the world of PR and marketing because they view compliance as a massive hurdle to entry. We work in one of the most heavily regulated industries in the world, and Compliance does monitor strategies for marketing, PR and advertising. But that doesn’t mean these things should be avoided altogether. As a firm that

implements Compliance-approved PR and marketing activities, we can attest to the value. As long as you stick to the rules and communicate goals and intentions with your compliance department, you will be surprised at the opportunities that are available to you within the rules.

The bottom line is that your target market is looking for you through digital channels. If you’re not actively and effectively communicating your value, how are they supposed to identify you? For large and small f irms alike, dedicating yourself to implementing integrated public relations and marketing strategies can transform the sales and prospecting process, increase revenue and promote growth. While there may seem to be plenty of reasons to delay joining the digital world or skipping it altogether, evolution of our industry puts you at risk of becoming irrelevant if you don’t. Take advantage of the many resources that are available to you and start to take your business to the next level.

Sean M. Ciemiewicz, AIFA, RMA, has more than 16 years of experience in the financial services industry

and specializes in working on education and communication programs. He is a principal at Retirement Benefits Group, a retirement consulting team specializing in providing customized retirement plan consulting services, executive benefits and retirement management services.

t H i n K

B ig s t a r ts m a l l


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• Business owner focused, solutions-oriented, with a fresh approach• Exclusive access to the BMOC webinar archive to accommodate your busy schedule

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The Advantages of Scale

INvESTMENT AdvISoRY

By any definition, the plan advisor community is comprised of very small firms. Contrary to views expressed by well-known industry insiders, small advisory firms are not in danger of extinction from

overzealous regulators, a new fiduciary definition or the next market meltdown. Ours is an industry built on personal relationships and trust, and small firms are quite capable of delivering quality service and building trust.

Owning your own plan advisory business, no matter the size, creates a lifestyle opportunity that is appealing to many. Yet, having a lifestyle firm does not obviate the need to address key issues about succession, realizing value (or creating liquidity) from the business, finding ways to grow, or simply managing an increasingly complex business.

Most young industries follow a progression over time in which some f irms are able to reach the point of operating scale. A small number of f irms further accelerate their scale advantage — organically, through acquisitions, or via both approaches. This industry is still in its infancy, with a few f irms just beginning to emerge as fully scaled organizations capable of accelerating growth in this way.

what does scale mean for plan advisory firms?

How can scale be an advantage in managing

four critical business issues?

BY RUSH BENTON

57www.asppa-net.org

In this article, we will examine what this level of scale means for plan advisors and how scale can be an advantage in managing the four critical business issues every advisory firm must eventually address.

sCale DefineDIn Innovation and Entrepreneurship,

Peter Drucker wrote: “It is not size that is an impediment to entrepreneurship and innovation; it is the existing operation itself, and especially the existing successful operation. And it is easier for a big or at least a fair-sized company to surmount this obstacle than it is for a small one.”

For our purposes, scale is best defined as the point at which an organization is no longer reliant on its founders to be involved for it to be successful. In other words, the practice has evolved into a self-sustaining business that is larger than the contributions of a few individuals.

The benefits of true operating scale are evident in several important ways: • Economics — Revenues are

fee-based, predictable, and well diversified by advisor, business line, industry and geography.

• Management— A full-time specialist leads each department, allowing for focus and increasing effectiveness over time.

•Operations — Automated processes and systems drive efficiency and quality.

•Culture — The organization is

grounded in a shared sense of pride and collaboration.

issue 1: leaDersHiP suCCession

This is perhaps the biggest challenge. In fact, it’s estimated that more than 70% of advisory firms have failed to define or implement succession plans for their businesses — valuable assets that may represent the partners’ life work and a significant portion of their wealth. (Moss Adams, Investment News: “2010 Financial Performance Study of Advisory Firms.”)

The need for succession planning becomes even more critical as the advisor population ages. According to Cerulli Associates, more than 50% of financial advisors are over age 54, and less than 5% are under the age of 30. This does not provide much time to identify and groom a successor. Meanwhile, finding an individual or team to assume a leadership role is a challenge in itself. Successor candidates must possess both business acumen and client relationship skills to replace a retiring leader.

If a successor is identified, work remains for the founder to execute a transition. To ensure continuity, client relationships must be maintained by advisors who can provide the level of service and expertise to which clients have grown accustomed. The transition process will be successful only if implemented over time; clients

must be willing participants in this process.

The three primary functions — business management, client management and growing the business — are typically handled by the same person or group of partners at a small firm. Now consider how these succession challenges are addressed in a fully scaled firm:• Each role is specalized, meaning

there is no single successor to be identified. There is a career path for executive advancement that develops leaders with management potential across the many functional areas of the company.

• Client relationships are distributed across advisors and professionals within a firm. Clients are less reliant on a single individual; they are more loyal to the firm than to an individual. And while the need exists to identify next-generation advisors who can take responsibility for client relationships, there are many advisors from which to choose.

• A large firm has the resources to recruit and train new advisors, knowing that part of the cost of doing this is that some will fail. Knowledge accumulates over time, leading to higher success rates for new advisors.

issue 2: realizing value (or Creating liQuiDitY)

This issue is related to leadership succession, since most owners are unable to realize any value for their

Scale is best defined as the point at which an organization is no longer reliant on its founders to be involved for it to be

successful.”


businesses without also identifying a successor. Small firms are challenged in this area, since it is unlikely that, even if a suitable internal successor is identified, he or she will have the financial ability to acquire the business. The same usually holds true when trying to merge into another local or regional firm.

By contrast, a large firm has many advantages and options for creating liquidity:• Ownership is typically held by

many employees — not just the founders. Widespread ownership helps build a common culture and creates an incentive for growth and risk management.

• Widespread ownership, coupled with the higher margins of a scalable business, means there is enough cash flow to buy out retiring shareholders.

• Should a significant shareholder retire and stretch available cash flow, large firms are able to finance the purchase either via bank lines or purchases from existing shareholders who are likely to want to own more equity in a fast-growing firm.

• A fully scaled advisory firm, with multiple offices, professional management, strong growth and diversified revenue streams, is more able to attract financing from sources such as private equity or public investors via a stock offering than a small firm is.

issue 3: solving for Business ComPlexitY

Advisors today face a complicated environment, with

regulatory concerns often being top of mind. Add in the weight of managing people, a dizzying array of investment, share class and provider choices, and ever-changing technology, and it seems far more difficult to manage a business now than in the early years of our industry’s development.

Larger firms face these same issues — and on a larger scale — so do they have an advantage? Well, scaled firms have greater resources to devote to these issues. Their teams of specialized management need only focus on the complexities of their particular area. Teams are built and devoted to complicated issues. Perhaps as importantly, client advisors do not have to devote their time to anything but taking care of clients.

It is also critical to note that the best way to address a complicated business environment is to invest ahead of the issues. The ability to focus management on strategic issues and create solutions ahead of problems is a luxury scaled firms can afford. A small firm’s owner wearing many hats does not have the time for this.

issue 4: maximizing firm groWtH

It is increasingly difficult to differentiate oneself; to most potential clients, we all look the same! Plan advisory firms number in the thousands. Wirehouse brokers are turning independent — and those at wirehouses offer sophisticated services under powerful brands. Not only is the competition fiercer than ever, but clients now come to the table seeking sophisticated solutions to meet their specific needs.

Against this backdrop, how does a firm with true operating scale generate sustained growth? The advantages of scale include:• Advisors at larger firms are free

from the distractions of managing a business, thus affording them more time to serve clients and develop new clients.

• Larger firms typically have full-time staff dedicated to marketing. Marketing can “soften the beach” for advisors by creating more brand awareness and driving lead generation campaigns.

• Larger firms can invest in subject matter experts that allow them to extend their offerings into new areas for better client profitability and retention.

• Larger firms can dedicate full-time staff to support the hiring and onboarding of new advisors. Additionally, some firms are active in sourcing and integrating advisor acquisitions as a complement to organic growth.

Each of these advantages helps larger firms to grow faster than their smaller brethren.

As our industry evolves into its second generation, an increasing number of independent firms will grow into fully scaled entities. Although it is, without a doubt, not an easy task, you may want to either begin growing your firm to achieve scale by addressing some of the topics discussed in this article, or investigate joining a larger firm to gain the benefits of the scale it has already achieved.

Rush Benton, CFA, is the leader of CAPTRUST’s private wealth business. He is responsible for growing the

firm’s private wealth assets, both organically and through acquisition of independent, fee-based registered investment advisors. Prior to joining the firm, he served as co-founder and chairman of WealthTrust, one of the first consolidators of RIAs.

More than 50% of financial advisors are over age 54, and less than 5% are under the age of 30.”

59www.asPPa-nEt.oRg

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By yA n ni S P. K ou m A n tA r o S A n d A d A m C . P o z e K

renting a car isn’t as difficult as it is annoying. Long lines at the counter, having to tell the clerk 18 times that you don’t want their exorbitantly priced insurance, etc. then there is trying to figure the

logic as to why that ultra-compact is $89 per day while the sport convertible is only $29, but the prices are reversed when your plans change by a couple days. Kiss all of that goodbye with Silvercar. Book your reservation using their clean, simple interface on the web or your mobile device. tap the button in the mobile app once you have your bags, and they will send the shuttle for you. now for the cool part: once you get to the lot, simply use your smartphone’s camera to scan the Qr code on the windshield of the car of your choice, and Silvercar sends a remote signal to unlock

it. you get in the car and drive off into the sunset. oh yeah, another annoying “feature” of the rental car experience also disappears: the joy of finding a gas station to fill up as you head back to the airport. When you check your car back in (again using the camera on your smartphone), Silvercar remotely checks the car’s sensor to see how much gas you used, checks GasBuddy.com to find the cheapest gas price in your area and charges you that much. did we mention that all of their cars are silver Audi S4s with navigation, satellite radio, heated seats — you know, the works — and all at a daily rate that is less than a full size sedan at those other rental car places? you’re welcome.

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61www.asppa-net.org

if this, then that — get it? no really, you need to get this. their tagline is “put the internet to work for you.” We call it automating your life. using their website or mobile app (both of which will cost you absolutely zilch), create “recipes” that introduce online accounts and web-enabled gizmos you already use so that they can work together to do your bidding. Let’s say you use a Fitbit to track your sleep. Let’s also say that you can be a bit of an ogre if you get less than

6 hours of sleep a night. you can use iFttt to tell your Fitbit to automatically post a warning to all your friends on Facebook to steer clear (or bring you coffee) any time you burn the midnight oil. Slick, huh? need a more practical use? okay, how about creating a recipe that automatically sends a Linkedin connect request every time you add a new contact to the address book on your smartphone? there are hundreds of pre-programmed recipe templates just waiting for you. All you have to do is plug in the specifics, and you’re off and running. Honestly, trying to type the correct number of t’s in “iFttt” is more difficult than using the service. Fair warning: once you start using it, it’s easy to spend hours as you imagine the possibilities. i wonder if Al Gore imagined this possibility when he invented the internet.

don’t let the internet push you over! As an integration to the iFttt app featured above, we bring you an added bonus with Pushover – Simpler notifications. Get the content you want

delivered to you, when you want it. many applications already have native Pushover integration built into the code. How it works is simple: you program which notifications you want (think linking it to the iFttt app) and in real time, Pushover delivers it to your phone, tablet and/or desktop. And if you want to get really crazy and try the developer side, no problem. Pushover has a natively open APi using Command Lines, Perl, ruby, or PHP to write your own custom push notifications. this app only runs $4.99 after a 7 day free trial, so we highly recommend you download both the iFttt together with Pushover, wait 7 days, and then determine if you want to use them in tandem or not. take back control of your internet and your notifications!

recently, i was traveling for business and met a young software engineer who worked as a video game analyst and reviewer. He spent about 40-50 hours per week playing video

games (many in Beta test mode) then writing reviews on his blog. this gamer analyst told me about reddit for the first time, and i was immediately drawn to the site. used most commonly as a source for what is new and popular on the web, reddit uses user-provided content, voting and mathematical algorithms to determine what is new and hip! now, even boring pension professionals can be in the know on cutting edge items other than new fiduciary rules, QLACs or determination letter processes — although i don’t think those would trend well on reddit! Free to use as long as you have an account, and you are encouraged through gamification to submit your interesting articles. Collect “Karma” points based on your actions from others in the reddit community. they even created a rating system similar to the net Promoter Score concept that takes all your upvotes minus your downvotes on submissions to ensure the community eliminates any spammers. enjoy this technology, and use it to wow your children, or at your next summer barbeque or cocktail party. Just don’t post things about 401(k) plan trends or you may be deemed to be a spammer.

Yannis P. Koumantaros, CPC, QPA, QKA, is a shareholder with Spectrum Pension Consultants, Inc. in Tacoma, Wash. He is a frequent speaker at national conferences, and is the editor of the Blog and

Newsroom at www.SpectrumPension.com.

Adam C. Pozek, ERPA, QPA, QPFC, is a partner with DWC ERISA Consultants, LLC in Salem, N.H. He is a frequent writer and presenter and publishes a Blog at www.PozekOnPension.com.

Adam and yannis are always on the lookout for

new and creative mobile applications and other

technologies. if you have any tips or suggestions,

please email them at Adam.Pozek@dWCconsultants.

com and [email protected].

iFttt » iFttt.com

Pushover » pushover.net reddit » reddit.com

61www.asPPa-nEt.oRg


ASPPA’S GAC Gets ResultsThe IRS’ changes to the EPCRS essentially adopt the recommendations made by ASPPA on corrective contributions.

GAC UpdatebY CRaIg P. HOffmaN

I have had the pleasure of working with ASPPA’s Government Affairs Committee (GAC) for more

than 23 years. I began as a volunteer committee member back in the days when Fred Reish and Mike Callahan were co-chairs and looking for new blood willing to actively participate in the committee’s work. Fred and Mike were reorganizing GAC into dedicated committees and project groups. The “regulations” committee was established at that time and was co-chaired by Marge Martin and Andy Fair. It was responsible for commenting on regulations issued by the Treasury Department and the Department of Labor. There were also committees established that focused on legislation — one for tax code changes, the other for Title I of ERISA.

I bring up this historical note to make the point that ASPPA GAC has been pursuing its mission for a long time — namely, to represent the interests and concerns of our members to the folks in Washington. This entails meeting with members of Congress and their staffs to explain our views on legislative initiatives. It also means communicating with the various federal agencies that have jurisdiction over the American retirement system.

We have come to learn that things in Washington don’t happen quickly. Whether it’s proposed legislation or suggestions for regulatory changes, these things take time. I am happy to report a recent IRS change that ASPPA GAC has been actively promoting for some time — and that we are very happy to see come to fruition.

The IRS correction program for qualification defects is known as the Employee Plans Compliance Resolution System, or EPCRS. ASPPA has been providing input to the IRS on this program going back to the days when it was not an official program but was instead simply referred to as the Administrative Policy Regarding Sanctions, or APRS. One qualification problem that the current EPCRS program addresses is the operational defect that occurs when somebody is inadvertently left out of a plan. When this happens in a 401(k) plan, the correction generally requires the plan sponsor to make a contribution to the plan for the employee’s “missed deferral opportunity.” The contribution is made as a fully vested QNEC and is usually equal to 50% of the amount that should have been withheld.

Our members have told us that the potential for this type of mistake is magnified in 401(k) plans that provide for automatic enrollment or automatic escalation of the deferral contribution amount. It seems the potential for such an omission is greater because no formal election needs to be made. Unfortunately, many plan sponsors view the corrective contribution as a windfall to the omitted participant because that person was able to keep the compensation that would have otherwise been withheld and still receive a corrective contribution on top of it. The unfairness of this result has so bothered 401(k) plan sponsors that many have refused to add automatic enrollment.

ASPPA GAC first submitted

a comment letter to the IRS recommending special correction options for omitted participants in 401(k) plans with automatic enrollment in September 2012. (A copy is available on ASPPA Net.) A second letter was submitted in July 2013 and the issue was discussed at various meetings with IRS official over the last three years. The thrust of our comments was that auto enrollment mistakes are typically discovered during the administrative work done in connection with preparing the Form 5500 for a given plan year. In order to encourage plan sponsors to adopt auto enrollment features, there should be no corrective contribution required if the mistake is discovered during that process since the employee “made-up” the deferrals. This would be conditioned on immediately enrolling the employee once the omission is uncovered via administrative processes or by the employee notifying the plan sponsor.

Revenue Procedure 2015-28, released by IRS in early April, essentially adopts the recommendations made by ASPPA GAC in their entirety. The new correction options, which are discussed in greater detail in ASPPA asap 15-07 (also on ASPPA Net), should make auto enrollment easier to administer since mistakes can be more easily corrected. The hope is more employers will now include this option in their 401(k) plan’s design.

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

63www.asppa-net.org

mSPA William J. Clemans Justin GreindlBart F. KarlsonZhihua Liu

CPC Scott CastigliaJason HerrMarcus A. VialesMoira A. Zahn

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