401(k) Plans

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These executive summaries were compiled from EMPLOYEE BENEFITS INFOSOURCE database, a source for information on employee benefits and human resources.

Implications of Some Deficit Reduction Proposals for Retirement Savings
Pang, Gaobo; Warshawsky, Mark J.; Benefits Quarterly; v28 no2 pp 31-39 2nd Qtr 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Proposals to reduce the national deficit include changes to Social Security, Medicare and 401(k) plans. Applying a propriety retirement savings model to analyze the effects of proposals on some typical households, researchers found revising the existing three Social Security brackets to four would put more households in a position of having to save more. Shifting the taxable wage maximum upward, raising Social Security's normal retirement age and early retirement age, raising Medicare contributions and imposing a cap on pretax contributions to defined contribution plans would also require households to save more to maintain their standard of living. While the changes would have different degrees of effect on households by income and by rate of income change over time, most would require greater savings to offset lower benefits or higher expenses. Middle income households would be most severely affected by proposed Medicare changes.
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Improving Retirement Plan Success.
White, Laura; Benefits Magazine; v49 no4 pp 32-41 Apr 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : It takes laser focus on retirement plan goals and careful plan management to help employees build assets for retirement. A 2011 survey of large plans by Diversified shows 401(k) plans with employer matching contributions and immediate vesting have significantly higher participation and employee deferral rates than those with a fixed contribution and cliff vesting. Automatic enrollment and automatic escalation of deferral rates boost savings rates. The array of investment choices should be moderate with options beyond the plan provider's proprietary choices, and payment responsibility for any fees must be transparent. Employee education remains a crucial component, and investment advice is a welcome benefit.
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Eddy Award Winners Run From Serious to Pure Fun.
Steyer, Robert; Pensions & Investments; v40 no6 pp 3, 31 Mar 19, 2012; journal article

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Abstract : Detailed information and irreverent humor were prevalent at the 2012 Eddy Awards. Several projects won both plan sponsor and service provider awards, but only Lansing, Michigan's Municipal Employees' Retirement System won two sponsor awards, achieving first in both initial education and conversions for public plans with its clear and comprehensive communication program for its move to in house plan administration. Thomson Reuters' short video used humor and graphics to take first in ongoing investment education for corporate sponsors. NBCUniversal won first place in special projects for corporate sponsors, casting news anchor Brian Williams and comedian Jimmy Fallon to introduce a new 401(k) plan. Francis Investment Council LLC went against the trend of distancing communication themes from company business to take first place in special projects for service providers working with corporate plans of less than 1,000 employees with its free oven mitt promotion to encourage attendance at a 401(k) meeting for employees of Wisconsin Oven Corp.
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Retiree Benefits: Employees Increasingly Willing to Trade Pay for More Benefits, Towers Watson Finds.
Smith, Rhonda; Daily Labor Report; no41 p A5 Mar 1, 2012; journal article

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Abstract : A late 2011 Towers Watson survey of 3,074 U.S. workers revealed 53 percent would be willing to give up some pay in exchange for better retirement benefits. Fifty-five percent would give up some pay to have a more guaranteed retirement benefit, up from 46 percent in 2009. The desire for more retirement security is strongest among older individuals, women, low-paid workers and those in poorer health. Views toward health care benefits are similar, with 45 percent willing to pass on some pay in exchange for lower and controlled costs, up from 19 percent in 2008. Employers should consider ways to help employees cope with cost uncertainties, possibly offering advisers for financial planning and investment advice, debt control and budgeting consultations and health savings accounts.
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Automatic Enrollment: It's About More Than Increasing Participation Rates.
Greenan, Hattie; Defined Contribution Insights; v60 no2 pp 10-11 Mar-Apr 2012; journal article

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Abstract : The original focus for automatic enrollment, boosting participation, has been remarkably successful, adopted by about half of plans with more than 200 participants. Implementation is shifting toward more customized use of automatic features, targeting different employee groups for different purposes, such as automatic escalation of deferral rates. Three percent of pay is an established deferral rate used by about 60 percent of plans, according to a 2010 PSCA survey. Of plans with automatic enrollment, 27.9 percent use a deferral rate sufficient to trigger the maximum employer match. Of the 65.4 percent enrolling at under that level, the median is three percent. However, over half of these plans automatically increase the deferral, and three in ten of those that do gradually escalate to the level needed to qualify for the full employer match. It appears that this approach results in low opt-out rates and near maximum participation with the minimum employer financial commitment.
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Back From the Brink.
Davis, Andrea; Employee Benefit News; v26 no3 pp 33-34 Mar 2012; journal article

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Abstract : At the global information technology firm EMC, employee perception that the 401(k) plan lacked value spurred a change. The company overhauled its financial wellness program, infusing consumerism borrowed from its health wellness program. Starting with access and education, EMC offered an employee portal called WealthLink just when the financial recession of 2008 hit. The site provides information specific to each employee as well as more general financial content, at a single convenient location for financial matters. In the first month, 15 percent of employees signed on, and the U.S. participation level is 60 percent in 2012. In 2008, seven percent of nonusers of WealthLink decreased retirement plan contributions, in contrast to zero users, and 38 percent of users increased health savings account contributions in contrast to zero percent for nonusers. EMC believes those who understood their financial benefits were more willing to commit to a long-term strategy despite the recession.
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Employers Eye Revamping Plan Options.
Kujawa, Patty; Workforce Management; v91 no3 pp 14-15 Mar 2012; journal article

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Abstract : Like the vast majority of defined contribution (DC) plan sponsors, Wise Alloys had little faith their DC plan would help employees retire with enough assets. The company wanted something similar to defined benefits and chose to incorporate IncomeFlex, a Prudential Financial retirement income solution, into the DC plan. Instead of lump-sum distributions and individual annuity purchases, a retirement income option like IncomeFlex or the Hartford Lifetime Income establishes an annuity investment before retirement to generate a later income stream. The approach avoids sponsors' concerns about fiduciary liability and long-term commitment with a particular company.
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Gaining Firm Financial Footing.
Gillespie, Lisa V.; Employee Benefit News; v26 no3 pp 16-17 Mar 2012; journal article

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Abstract : Though disparities between men and women in the workplace are diminishing, big differences remain in their preparation for retirement. Women continue to earn only 80 cents for each dollar a man makes and spends an average of seven years as a caregiver out of the workforce, missing earnings, advancement opportunities and benefits accrual. More women are staying single, and their likely longevity increases the need for them to become financially secure, without relying on inadequate Social Security income. Employers can help by eliminating any waiting period for 401(k) plan eligibility and providing financial education, annuities within 401(k) plans and long-term disability insurance.
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Overcoming the Language Barrier.
Clark, Kara; Defined Contribution Insights; v60 no2 pp 12-13 Mar-Apr 2012; journal article

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Abstract : The Spanish and Creole language barrier was a major obstacle impeding Gables Residential's building maintenance staff from participating in the 401(k) plan. Gables worked with MassMutual to develop tools and programs on enrollment, increasing deferral rates and investment education. Materials were presented in three languages and multiple formats and media, with translators for live meetings. Managers received incentives to boost their workers' attendance at enrollment meetings, and easy-to-use self-service devices attracted employees to get involved for enrollment and calculating savings goals. The comprehensive employee education program increased enrollment by 66 percent and led 122 employees to increase deferral rates.
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Companies Adding Income Options to DC Plans.
Kujawa, Patty; Business Insurance; v46 no9 pp 4, 24 Feb 27, 2012; journal article

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Abstract : Wise Alloys L.L.C. exemplifies the growing number of employers offering retirement income solutions. Not confident its defined contribution (DC) plan would meet retirees' needs, the firm added Prudential Financial's IncomeFlex as an investment option. The product guarantees a set income level over a retiree's lifetime, providing a hedge against market volatility. It lends a degree of assurance to an increasingly risky retirement income. An early 2012 Aon Hewitt survey found a mere four percent of 500 employers felt confident about their retirees' income adequacy, and many are looking to expand savings choices. Sixteen percent already offer a retirement income solution within their DC plan, and 22 percent more plan to add one in 2012. Another option is Hartford Lifetime Income, from Hartford Financial Services Group Inc., which allows 401(k) plan participants to buy retirement income shares that ultimately return as guaranteed monthly income for life.
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Section 401(k) Plans: IRS 401(k) Survey Results Show Many Plans Unaware of Agency Resources, Official Says.
BNA's Pension & Benefits Reporter; v39 p 228 Feb 7, 2012; journal article

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Abstract : Monika Templeman, IRS director of employee plans examinations, shared early results of an IRS survey, shedding light on the use of plan administration resources and error correction opportunities. Of 1,060 responding plans, only 57 percent visit the IRS's site for 401(k) plan information and 65 percent were aware of the Employee Plans Compliance Resolution system. The low rate of engagement revealed the need for the IRS to improve its compliance tools and voluntary compliance programs, as well as its outreach and guidance. Survey results showed 86 percent of respondents represented a preapproved plan, 77 percent did not seek determination letters, and 53 percent used third-party administrators (TPAs). Almost three in four relied on TPAs to amend plans and 83 percent depended on them to prepare Form 5500. The IRS survey also revealed numbers regarding contributions and deferrals, nondiscrimination testing and distributions.
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Target-Date Funds Retain Luster as DC Option.
Steyer, Robert; Pensions & Investments; v40 no3 pp 30-31 Feb 6, 2012; journal article

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Abstract : The 8.6 percent average increase in assets in target date funds (TDFs) for the year ending September 30, 2011 is helping rebuild faith in the strategy. Losses in the wake of the 2008 economic collapse and questions about TDFs' underlying structure are being resolved, but annual growth is expected to slow as the TDF market becomes saturated. The use of TDFs as default investments and with auto enrollment spurred much of the growth. One survey found 38 of 48 responding plan executives use TDFs as the default investment. As the industry grows, variety in asset classes is expanding, including alternatives, inflation protection and products with multiple asset classes, as well as customized funds. The most frequently used TDF managers by surveyed defined contribution funds are Vanguard Group Inc. and BlackRock Inc., and the most common fund providers are BlackRock, Vanguard, Fidelity, SSgA and Morningstar.
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IRS Issues Ruling Regarding Transfer of Excess Assets From Defined Benefit Plan to Safe Harbor 401(k) Plan.
Compensation Planning Journal; v40 p 76 Feb 3, 2012; journal article

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Abstract : A plan sponsor terminating a defined benefit plan sought clarification from the IRS on three points. The sponsor wanted to transfer excess plan assets to a safe harbor 401(k) plan with assets counted as employer contributions, to extend the normal seven-year period for transferring funds to participants' accounts and to use transferred amounts for reasonable 401(k) plan expenses. In its response, Private Letter Ruling 201147032, the IRS ruled the transferred funds could be used instead of employer nonelective contributions but not matching contributions. The IRS rejected the request to extend moving funds to participants beyond the seven-year limit. Regarding use of transferred funds to pay 401(k) plan expenses, the IRS did not directly comment but noted such a transfer would not violate Internal Revenue Code Section 4980.
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Pensions: DOL Issues Long-Awaited Final Rule on Service-Provider Fee Disclosures.
Trilling, Stefanie; Daily Labor Report; no22 p A16 Feb 2, 2012; journal article

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Abstract : On February 2, 2012, the DOL's Employee Benefits Security Administration issued final rules mandating fee transparency by pension plan service providers. The rule supporting ERISA Section 408(b)(2) applies to existing and new contracts for applicable plans and takes effect July 1, 2012, three months later than originally planned. Covered service providers such as investment advisers, brokers and recordkeepers will have to provide plan fiduciaries information on direct and indirect compensation and potential conflicts of interest. Full disclosure will enable fiduciaries to judge if the compensation for services is reasonable and to meet ERISA Title I reporting requirements. The rule's appendix includes a sample guide.
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'TIPS' Shield Participants From Inflation.
Kujawa, Patty; Workforce Management; v91 no2 p 18 Feb 2012; journal article

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Abstract : Responding to employee concern about protecting their assets in a volatile economy, 46 percent of 401(k) plan sponsors offer or plan to offer a stand alone inflation protection option, according to an August 2011 Mercer poll. Almost one in four of the respondents offer Treasury Inflation-Protected Securities (TIPS). Twelve percent offer a multiclass inflation hedge, and ten percent anticipate adding an option in 2013. The trend is more prevalent among larger companies, with 37 percent offering a stand along TIPS fund. Mercer consultants note the impressive rate of growth of TIPS, second only to the adoption of target date funds. Still, 54 percent of plan sponsors have no plans to include any stand alone inflation protection strategies in their investment menus.
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Church Plans.
Pension Benefits; v21 no2 pp 9-10 Feb 2012; journal article

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Abstract : By IRS definition, church plans are retirement plans established and maintained by employees of a tax-exempt church or association of churches. A church must have a recognized creed and formal code of doctrine and may not receive more than 25 percent of its income through the government or any sales, services, admissions or facility use. Churches can sponsor qualified 401(a) plans or 403(b) plans but not 457 plans. Churches may choose not to have their plans treated as church plans. Nonelecting church plans are exempt from ERISA and any Internal Revenue Code provisions added by ERISA, but they are subject to special distribution rules.
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Employers Mull Target-Date Savings Strategy.
Kujawa, Patty; Workforce Management; v91 no2 p 14 Feb 2012; journal article

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Abstract : Chicago engineering firm Greeley and Hansen exemplifies the many 401(k) plan sponsors who are finding target date funds solve several challenges. The funds mix stocks and bonds and gradually rebalance toward a more conservative mix close to the retirement date, and using target date funds has been shown to increase plan retention. Almost 64 percent of plans surveyed by the Profit Sharing/401(k) Council of America in late 2010 offered target date funds, a 20 percent increase since 2007, and the funds are expected to represent 48 percent of U.S. defined contribution plan assets by 2020. Average net expense ratios have fallen, 1.12 percent in September 2011 according to Morningstar Inc.'s poll of 38 target-date funds, a drop from 1.23 percent in 2007, and some are down to 0.2 percent. Experts advise sponsors to be aware of underlying investments and to understand whether a fund's glide path goes to or beyond a retirement date.
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Getting Minorities to Buy In on Retirement.
Kujawa, Patty; Workforce Management; v91 no2 pp 28, 30 Feb 2012; journal article

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Abstract : Minorities lag behind white workers in 401(k) plan enrollment. Data from 2008 show half of white workers participated but only 41 percent of African Americans and 28 percent of Latinos. Automatic enrollment and automatic escalation of employee contributions will help significantly. In seven large funds studied by Vanguard, 94 percent of African Americans and 95 percent of Latinos participated when auto enrolled, compared with 57 percent and 67 percent, respectively, with voluntary enrollment. The gap is concealed by total participation numbers, making it crucial to analyze differences by race. Employers must also communicate to separate employee groups differently to get the message across.
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Retirement Wisdom Turned Upside Down.
Towarnicky, Jack; Employee Benefit News; v26 no2 pp 20-21 Feb 2012; journal article

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Abstract : Many sources unfairly malign 401(k) plan loans. In fact, studies show that participants may be borrowing too much from commercial sources and not enough from their 401(k)s. These loans are not leakage, as long as they are repaid. Contrary to common wisdom, 401(k) account balances have been shown to be higher if a plan offers reasonable loan arrangements. While participant loans lead to lower contributions, there is no known study finding that this is different from the situation when a participant takes out a commercial loan. Loans are limited to half of vested assets and can be considered a form of fixed income investment in a participant's portfolio. Interest on 401(k) loans is no more taxable than other debt interest, and may even be tax advantaged in some cases. The perception of the 401(k) loan needs to change, and laws need to treat them as distinct from hardship withdrawals, make them more attractive than withdrawals and update loan processing standards to encourage repayment.
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Retiring Minds Want to Know.
Frauenheim, Ed; Workforce Management; v91 no2 pp 3-4 Feb 2012; journal article

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Abstract : Interactive online tools are helping employees and retirees become more actively engaged in their financial planning. The resources demonstrate that there are alternatives to taking the default investment route. Most large employers get access to resources through their plan vendors. BrightScope provides another route for participants to get comparative plan information, and companies can use BrightScope for detailed corporate-level benchmarking. Invest n Retire advocates a cheaper and simpler approach to retirement investing and offers software focusing on exchange traded funds rather than on mutual funds.
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Southwest Soars to Top of 401(k) List: Report.
Kujawa, Patty; Workforce Management; v91 no2 pp 7-8 Feb 2012; journal article

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Abstract : BrightScope Inc.'s list of the top 30 401(k) plans for 2011 shows Southwest Airlines' pilots at the top, rising from the third spot in 2010. Nearly as strong is the Savings Plan of Saudi Arabian Oil Co., falling from the top spot. BrightScope ranks plans on a 100-point scale on factors including participation rate, eligibility, vesting, employer contributions, matching contributions and average total plan cost. The average for the top 30 was 87.25, and the range among the top ten was just 3.5 points. BrightScope's cofounder Mike Alfred pointed out that plan quality correlates with better access to information, stimulated by changing DOL rules around fee disclosure. A Profit Sharing/401(k) Council of America survey reveals the numbers of plans changing their investment menus and monitoring participant behavior are growing, due in part to better evaluation tools.
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DC Execs Clueless About Key Plan Data.
Steyer, Robert; Pensions & Investments; n40 no2 pp 1, 26 Jan 23, 2012; journal article

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Abstract : Survey results from multiple organizations point to unawareness and uncertainty about core issues of defined contribution plan management on the part of financial and HR executives closely involved with the plans. Over half were not sure about the glidepaths of target fund plans they offer, over a third did not know how excess revenue sharing is credited back to profit sharing participants, more than one in four did not know how plan costs are calculated and nearly half of 403(b) plan executives were unaware of the plan agreement governing their plans. An alarming number did not know if their plans were governed by ERISA. The overall lack of understanding by executives reflected by the aggregated survey results is alarming especially when plan sponsors expect participants to understand details of their retirement investment plans.
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Courts Continue to Favor Defendants in Recent 'Stock Drop' Cases.
Rosen, Corey; BNA's Pension & Benefits Reporter; v39 p 71 Jan 10, 2012; journal article

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Abstract : The National Center for Employee Ownership reviewed litigation surrounding employer stock in pension plans since July 2010 and found that the defendants prevailed in most. Most cases involved 401(k) plans, with only 24 pertaining to employee stock ownership plans (ESOPs), noteworthy considering that over 11,000 ESOPs existed in 2011. Only one ESOP case involved improper stock valuation, despite the DOL's concern about inaccurate appraisals. Some pertinent findings from 401(k) plan cases include continuing support for the Moench presumption and the exclusion of fiduciaries from securities laws that would require disclosure of nonpublic information to plan participants. Brief descriptions are given for 125 ESOP cases since 1990 covering a broad range of topics.
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Is Moench the End of the Road for Employer 'Stock Drop' Claims? The ERISA 'Stock Drop' Framework Following the Second Circuit's Adoption of the Moench Presumption in In re: Citigroup ERISA Litigation.
Brossman, Mark E.; Richman, Ronald E.; Mintzer, Jill Goldberg; Marchessault, Anne A.; BNA's Pension & Benefits Reporter; v39 p 71 Jan 10, 2012; journal article

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Abstract : With its ruling in In re: Citigroup ERISA Litigation, the Second Circuit Appeals Court joined four other courts adopting the presumption of fiduciary prudence articulated by the Third Circuit in Moench v. Robertson, a landmark stock drop case. The court rejected the plaintiffs' claims, including breach of duty to monitor, failure to disclose necessary information to fiduciaries, breach of loyalty and cofiduciary liability, which rose from a 50 percent Citigroup stock decline. The addition of this decision, despite staunch objections from one judge, will likely strengthen the defense bar in future cases. The decision has lessons for plaintiffs and defendants. Plaintiffs must detail circumstances to overcome the presumption of fiduciary prudence, while defendants should reconsider offering and administering plans with employer stock and defending stock drop claims involving these plans. Though the court dismissed the plaintiffs' claims in this case, a rehearing en banc may be sought and Citigroup faces further legal battles.
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"The Match Is Back".
Yoffe, Aviva; Defined Contribution Insights; v59 no6 pp 6-8 Jan 2012; journal article

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Abstract : With over 60,000 individuals under employment and a shifting mix of full- and part-time workers in various locations, MGM Resorts faces complex human resource management challenges. All are eligible to participate in the company's 401(k) plan. Employer matching contributions were suspended in 2009 but resumed in 2011 with a communication effort emphasizing the company's commitment and the goal of increasing employee contribution rates. There was intense effort to get the word out that the company match was back. Though the plan quickly lost 1,000 participants when the match was suspended, the company surpassed the goal of getting that number and more back within 30 days of the match being reinstated. Over 29 percent of participants started contributing at six percent taking full advantage of the match, even with its $500 cap.
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