News
Category: Pension Protection Act
On August 22, 2008 The U. S. Department of Labor (DOL) released proposed regulations in the Federal Register, that if adopted make investment advice more accessible for millions of Americans in 401(k) type plans and individual retirement accounts (IRAs).
“These proposals would give workers greater access to investment advice so that they are better equipped to manage and monitor their 401(k) plans and Individual Retirement Accounts,” said U.S. Secretary of Labor Elaine L. Chao.
The Pension Protection Act of 2006 amended the Employee Retirement Income Security Act (ERISA) by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased, the other is through an adviser compensated on a “level-fee” basis.
Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.
In December 2006, the department solicited public comments to determine what expertise and procedures may be needed to certify a computer model under the exemption, and to assist in developing a model form for the exemption’s disclosure of adviser fees.
The proposed regulation provides general guidance on the exemption’s requirements, including computer model certification, and includes a non-mandatory model form that advisers may use to satisfy the exemption’s fee disclosure requirement. In addition, to further the availability of quality and professional investment advice, the department is proposing a class exemption that permits advisors to provide individualized advice to a worker after giving advice generated by use of a computer model.
Separately, the department also released its determination relating to the feasibility of using computer models for providing investment advice to participants of IRAs.
For further information, please contact Jere Cowden, President and CEO, or Jim Bartoszewicz, Executive Vice President, Cowden Advisers, Inc., Defined Contribution & Investment Advisory Services. They can be reached at 412-394-9330 or toll-free at 888-889-9432. Full Proposed Regulations can also be found at the DOL website.
...in the Pittsburgh Business Times (full article requires a subscription):
Senior executives are taking a much more active role in administering 401(k) plans than in the past, according to a survey of more than 125 employers in the tri-state area around Pittsburgh.
Of the respondents in this year’s survey by Downtown Pittsburgh-based consultant Cowden Associates Inc., 94 percent said senior executives are involved in making decisions about investments, up from 30 percent in 2007.
...in the Pittsburgh Post-Gazette (full article):
The survey of 128 area employers also found that 25 percent of companies were automatically enrolling employees in 401(k) plans, up from 16 percent in 2007.
Cowden said the survey also identified a major deficiency among plan sponsors: One-quarter said they did not have an investment policy statement, which outlines the general investment goals and objectives of a retirement plan.
...in the Pittsburgh Tribune-Review (full article):
Employers in the Pittsburgh region are taking action to retain and attract top employee talent by increasing contributions to their workers' 401(k) and related retirement plans well above the standard 3 percent mark, a consultant's survey found.
Cowden Associates Inc.'s second annual survey of employers who sponsor defined-contribution plans released Thursday found a substantial year-over-year percentage increase in employer matching contributions.
This fall the IRS published proposed rules on Qualified Automatic Contribution Arrangements (QACAs) for 401(k) plans, 403(b) tax-sheltered annuities, or 457(b) governmental plans. The guidance concerns design-based safe harbor created by the Pension Protection Act of 2007. By adopting a QACA, a plan may escape some nondiscrimination testing.
Join Cowden Associates on January 31, 2008 for a complimentary breakfast and seminar. Recent guidelines regarding default investments and fee disclosures have added important clarification. Process and documentation are critical features. This seminar will focus on practical examples and walk through actual case studies. Topics to be covered include:
- Formation and duties of an Investment Committee
- Review/creating Investment Policy Statements
- Investment review and selection of plan offerings
- Qualified Default Investment Alternative (QDIA)
- Full fee disclosures
- Performance monitoring and changes in offerings
- Documenting the process and rationale
- Employee communications
- Evolving DOL Fee disclosure requirements including 5500 data
This is your opportunity to learn the critical features of process and documentation requirements now required by Plan Sponsors.
The Department of Labor (DOL) recently issued final regulations extending fiduciary relief with respect to investment performance using qualified default investment alternatives (QDIA). The following questions and answers explain the requirements for utilizing a QDIA, including a detailed discussion of "stable value funds," often historically offered as the default fund.
Question and Answers: Qualified Default Investment Alternatives and "Stable Value Funds"
Q1. What is a QDIA?
A1. Many participants, for a number of reasons, accept sponsor-chosen default investment options instead of making positive elections. However, plan sponsors should be concerned with the fiduciary responsibility associated with sponsor-chosen investments, especially when poor long-term returns result in lower investment value and a less secure retirement. Introduced in the Pension Protection Act of 2006, the QDIA was designed to promote wider implementation of automatic 401(k) plan enrollment by protecting plan sponsors from excess fiduciary liability (but the fiduciary relief offered by a QDIA extends beyond automatic enrollment to all default investments). Investing participant assets in a default investment option that qualifies as a QDIA affords a plan sponsor the same fiduciary protection as they receive from participant-directed investments. The DOL regulations, effective December 24, 2007, define the QDIAs.
The U.S. Department of Labor (DOL) has issued final regulations concerning Qualified Default Investment Alternatives (QDIA), allowing two individually-based options and one group-based option. Stable value funds were excluded as a long-term QDIA, however admitted as a short-term capital preservation option for administrative convenience.
Acknowledging that plan sponsors may not be accustomed to having such frank conversations, employers need to ask TPAs how their fees are calculated and if they receive any compensation from mutual funds or trading platforms, comments Jim Bartoszewicz, executive vice president with Cowden Associates.
"Most hidden costs are in the investment management fees or contract charges," says Bartoszewicz, "so we generally calculate a bottom line number that includes all ongoing fees charged, plus the total investment management fees."
See this article by Jim Bartoszewicz as it appeared in The State Journal.
Whether by design or by accident, 401(k) plans are about to become America’s primary source of retirement income. Evolving over 25 years, 401(k) plans, and retirement savings in general, have been influenced significantly by investment industry, political lobbying, and the shrinking number of defined benefit plans. Although initially intended as secondary savings, 401(k) plans have been continually redesigned to take a more prominent role. To implement 401(k) plans successfully today, we will need a cultural shift in how we think about saving for retirement.
Cowden Associates recently hosted a series of Pension Protection Act workshop’s for defined contribution plan sponsors that currently provide or are considering 401(k), 403(b), 457 and other Defined Contribution Plans.
The workshop focused on the Pension Protection Act of 2006 in an interactive format that allowed Plan Sponsors the chance to investigate the issues and opportunities created by the passing of the Act.
While primarily overhauling pension funding rules, the bill, expected to be signed by the President contains changes affecting defined contribution plans, non-qualified deferred compensation arrangements, cash balance plans, health plans, and long-term care benefits.
This SPECIAL BULLETIN (download in pdf ) outlines the significant changes made by the Pension Protection Act of 2006.