Retirement Plan Industry Update – 4th Quarter 2017
January 22, 2018
Written by Dave Westra, Partner, CFP®, AIF®, CPFA and John Brimhall, Senior Client Associate, CFA, CPA, CFP®
The Regrets of Not Saving for Retirement
American Century Investments released its fifth annual plan participant study. According to the research, approximately 90% of retirement plan participants are regretful of their retirement saving habits. Diane Gallagher, Vice President for Client Marketing at American Century Investments, stated, “People recognize the importance of saving but lack that general direction or push to get started.” Similarly, 90% of study participants from a separate Washington, D.C.-based company survey said it would be “at least somewhat important to tell their younger selves to save more.”
How do employees grade themselves?
- When asked to grade how well one did in saving money for retirement, given their resources and circumstances, study participants gave themselves a C-.
What is the employer’s influence?
- Survey respondents gave their employers a B- for the work they had done to provide a retirement plan that offered the opportunity to save, invest, and accumulate retirement savings.
- About half of respondents stated that their employer’s guidance, education, and direction was critical in getting them to save.
- 80% of plan participants stated they considered the defined contribution plan one of the most important benefits, and 66% stated that they feel positive about a company that offers auto-enrollment, automatic increases, and target-date funds.
User Fees Change for Voluntary Correction Program
Effective January 2, 2018, the IRS simplified the user fees charged for most submissions made under the Voluntary Correction Program (VCP).
Generally, net plan assets are used to determine the applicable user fee (effective for VCP submissions mailed to the IRS on or after January 2, 2018).
Updated User Fees
Previously, the user fees were calculated based on the number of plan participants (generally as listed on the most recently filed Form 5500). Below is a chart of the VCP Fee in 2017.
(Boutwell and Fay LLP, 2017)
This change signifies that some plan sponsor clients will pay significantly less to correct plan mistakes through the VCP. However, those with less than 100 participants will generally pay more.
Note, the VCP is one of three correction programs that can be used to correct errors under the Employee Plans Compliance Resolution System (EPCRS). Correcting plan mistakes through the VCP preserves the plan’s tax-favored status. This is important to consider because a tax-favored retirement plan generally loses its tax-favored status if “failures” occur.
IRS Releases 2018 Contribution Limits
Potential Improvements in Retirement Plan Cyberattack Support
There are reports surfacing about a financial industry-led project called “Shelter Harbor”. This project seeks to expand a cyberattack backup program to include 401(k) accounts and pension funds. The current program provides back up support for checking and savings account data. The goal of the program is to guard against cyberattacks and the potential for unauthorized access and loss of critical information. Shelter Harbor was created by the Financial Services Information Sharing and Analysis Center, which is comprised of 50 of the nations’ largest financial service firms.
The program relies on a “buddy system” where companies pair up with the promise that if one organization is hacked, the other will provide the attacked company with a backup set of account information. Essentially, the program will act as a firewall by isolating the backup information in a separate firm’s network. For the plan participant, this means that “if one company’s system is devastated, the backup account data can be activated on the partner’s network, giving affected customers access to their accounts within 24 hours or so,” according to Bloomberg News.
Outcomes of the Fiduciary Rule
Although the fiduciary rule’s full implementation has been delayed, consumers, regulators, and members of the advisory industry are embracing the model that requires retirement advice to be in the investor’s best interest. In fact, several states have created their own regulations governing financial advice. The governors of Nevada, Connecticut, New York, and New Jersey all signed similar bills to increase fiduciary responsibilities of brokers. Nevada is considered the primary ”test case” because its rule could expand the reach of fiduciary obligations to all investment assets and not just tax-advantaged retirement assets.
Due to unpopular opinions of political decision makers and financial industry executives, the Labor Department delayed key aspects of the rule until July 2019, as it re-examines the rule’s economic impact and accepts public comment.
As of June 9, 2017, retirement plan advisors were required to act in the client’s best interest. However, lack of key provisions, client disclosures, and a best interest contract makes this rule extremely hard to enforce. While the future of the fiduciary rule remains unclear, observers suggest that the commentaries from the Labor Department and Securities and Exchange Commission (SEC) increase the likelihood that the SEC will craft a standard that applies to both retirement and non-retirement assets.
Fischer, M. (2017, December 19). Workers Regret Not Saving More for Retirement: Study. Retrieved January 12, 2018 from http://www.thinkadvisor.com/2017/12/29/workers-regret-not-saving-more-for-retirement-stud
Voluntary Correction Program (VCP) Fees. (2018, January 12). Retrieved from https://www.irs.gov/retirement-plans/voluntary-correction-program-fees
Boutwell and Fay LLP. (2017, July 28). VCP Fees Effective January 1, 2017. Retrieved January 12, 2018 from http://www.boutwellfay.com/wp-content/uploads/2017/07/FAQ-VCP-Fees-20170728.pdf
Adams, N. (2018, January 1). Changes in VCP Fee Structure Bumps Up Fees for Smaller Plans. Retrieved January 12, 2018 from http://www.napa-net.org/news/technical-competence/regulatory-agencies/change-vcp-fee-structure-bumps-fees-smaller-plans/
Moore, R. (2017, October 19). IRS Announces 2018 Contribution/Benefits Limits. Retrieved January 12, 2018 from https://www.plansponsor.com/irs-announces-2018-contributionbenefits-limits/
Beilfuss, L. (2017, December 29). What to Watch on the Fiduciary Front in 2018. Retrieved January 16, 2018 from https://www.wsj.com/articles/what-to-watch-on-the-fiduciary-front-in-2018-1514548802
Godbout, T. (2018, January 12). Project Seeks to Expand Cyberattack Support for Retirement Plan Data. Retrieved January 17, 2018 from https://www.asppa.org/News/Article/ArticleID/9476
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