Has Your 401k or Other Retirement Plan Been Reviewed?

The Flooring Contractor - Summer - By Lance Wallach


Government officials now expect 401(k) plan sponsors to conduct periodic due diligence reviews. With respect to their 401k or other retirement plans, the problem is that most sponsors (owners) do not have the in house resources to do so.

This is not something that 401(k) plans historically did. On the heels of the recent mutual fund scandals, though, Labor Department officials indicated that sponsors had a duty to periodically investigate plans and benchmark funds and fees.

Baby boomers are now retiring, and their 401(k) accounts often are their primary source of retirement income. A sponsor potentially could be liable for less than stellar 401(k) account growth if employees can claim that he did not meet his fiduciary duties.

Trusting the reputation of a major mutual fund company is not enough anymore. Sponsors must investigate and compare their plans to other programs at least every two to five years, as well as demonstrate that their plan expenses are in line with what others are paying. Blind trust is not prudent. You need a process, and you need to document that process.

Every fiduciary decision has to be made through a careful process. According to ERISA, the primary plan fiduciary is the sponsor, i.e., the employer.Therefore, it is the employer’s responsibility to ensure the prudent selection and oversight of plan vendors.

Sponsors must monitor vendors in two ways: micromonitoring, which should occur annually, examines plan features and services, while macromonitoring every three years or so allows sponsors to benchmark with competitors.

Smaller employers who comparatively lack resources and manpower find it difficult to monitor vendors to this extent. Thus, owing to ERISA provisions that compel bewildered sponsors to take on experts to help with due diligence, most small to mid sized plans will need to hire consultants.

There is potential liability if due diligence reviews are not conducted. Failure to engage in a prudent process may breach fiduciary duties, which may render the sponsor liable for damages. For example, if plan participants pay fees that are higher than the current market rate because the sponsor did not perform a review, that fiduciary could be liable for the higher fees.

But as long as the sponsor can prove he did a proper investigation, he can potentially shield himself from liability. The employer has to show that he engaged in a prudent process and that he made a reasonable decision based on that process. This applies to all retirement plans, not only 401(k) plans.

Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than seventy conventions a year and writes for over fifty national publications. For more information and additional articles on these subjects, call 516-938-5007/935-7346. www.taxaudit419.com

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

Has Your 401k or Other Retirement Plan Been Reviewed?

The Flooring Contractor                    

Has Your 401k or Other Retirement Plan Been

                         Reviewed?                                      By Lance Wallach

Government officials now expect 401(k) plan sponsors to conduct periodic due diligence reviews.  With respect to their 401k or other retirement plans, the problem is that most sponsors (owners) do not have the in house resources to do so.

This is not something that 401(k) plans historically did.  On the heels of the recent mutual fund scandals, though, Labor Department officials indicated that sponsors had a duty to periodically investigate plans and benchmark funds and fees.

    

Baby boomers are now retiring, and their 401(k) accounts often are their primary source of retirement income.  A sponsor potentially could be liable for less than stellar 401(k) account growth if employees can claim that he did not meet his fiduciary duties.

    

Trusting the reputation of a major mutual fund company is not enough anymore.  Sponsors must investigate and compare their plans to other programs at least every two to five years, as well as demonstrate that their plan expenses are in line with what others are paying. Blind trust is not prudent.  You need a process, and you need to document that process. 

    

Every fiduciary decision has to be made through a careful process.  According to ERISA, the primary plan fiduciary is the sponsor, i.e., the employer.

   

Therefore, it is the employer’s responsibility to ensure the prudent selection and oversight of plan vendors.

   

Sponsors must monitor vendors in two ways:  micromonitoring, which should occur

annually, examines plan features and services, while macromonitoring every three years or so allows sponsors to benchmark with competitors.

  

Smaller employers who comparatively lack resources and manpower find it difficult to monitor vendors to this extent.  Thus, owing to ERISA provisions that compel bewildered sponsors to take on experts to help with due diligence, most small to mid sized plans will need to hire consultants.

    

There is potential liability if due diligence reviews are not conducted.  Failure to engage in a prudent process may breach fiduciary duties, which may render the sponsor liable for damages.  For example, if plan participants pay fees that are higher than the current market rate because the sponsor did not perform a review, that fiduciary could be liable for the higher fees.

    

But as long as the sponsor can prove he did a proper investigation, he can potentially shield himself from liability.  The employer has to show that he engaged in a prudent process and that he made a reasonable decision based on that process.  This applies to all retirement plans, not only 401(k) plans.

    

Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies.  He speaks at more than seventy conventions a year and writes for over fifty national publications.  For more information and additional articles on these subjects, call 516-938-5007/935-7346.  The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity.  You should contact an appropriate professional for any such advice.

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Is Obama going to ruin your retirement?

When Obama announced his plans for the 2016 fiscal year budget, he announced a number of changes to some retirement planning tools. The proposal would mean high-income earners would not be able to use tax strategies once used to contribute to Roth IRAs or maximize the tax benefits on inherited IRAs. Currently, in order to contribute to a Roth IRA, you must earn, as an individual, under $131,000, or a combined income of $193,000 for a married couple. Earners above this threshold have circumvented the limitation by making nondeductible contributions to a traditional IRA and later converting it to a Roth IRA.
Obama also suggested a cap on contributions to tax-deferred retirement plans like 401ks and IRAs.  The proposed contribution limits would cap the overall value of the account at $3.5 million, leaving retirees with an expected $210,000 a year to support themselves in retirement.

Economists have said that the proposal was unlikely to deliver on its intended effects--generating more tax revenue and encouraging middle class savings. This led some political commentators, like Dennis Byrne to criticize the proposal as a political attack on the wealthy to appease middle and working class voters;
"In other words, it's another pointless effort by the progressive Obama to show how much he dislikes the rich and that he's going to show them. So, there." 

An interesting take. Whatever Obama's true motivation behind the change to retirement plan contribution limits is, it probably doesn't matter because Obama's budget proposal is just that: a proposal. The Republican Senate is going to rip his proposal to shreds. Stay tuned for updates as Congress makes amendments and cross your fingers we don't have another sequester!  

401k Retirement Plan IRS Audits

401k IRS audits be careful - The Flooring Contractor Summer - Has Your 401k or Other Retirement Plan Been Reviewed? By Lance Wallach. Government officials now expect 401(k) plan sponsors to conduct periodic due diligence reviews. With respect to their 401k or other retirement plans, the problem is that most sponsors (owners) do not have the in house resources to do so.

This is not something that 401(k) plans historically did. On the heels of the recent mutual fund scandals, though, Labor Department officials indicated that sponsors had a duty to periodically investigate plans and benchmark funds and fees.

Baby boomers are now retiring, and their 401(k) accounts often are their primary source of retirement income. A sponsor potentially could be liable for less than stellar 401(k) account growth if employees can claim that he did not meet his fiduciary duties.

Trusting the reputation of a major mutual fund company is not enough anymore. Sponsors must investigate and compare their plans to other programs at least every two to five years, as well as demonstrate that their plan expenses are in line with what others are paying. Blind trust is not prudent. You need a process, and you need to document that process. 

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401k Plan Assistance

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