Plan Sponsors Ask...Q1 2018

Q: When the fee disclosure rules were announced a few years ago, part of the discussion was an increase in spending by the IRS to make sure plans were complying. Is the IRS still focusing on employer sponsored retirement plans?

A: The IRS Employee Plans division (EP) recently announced where they will be concentrating their resources in the employer plans area for fiscal year 2018. The goal is to make sure plan sponsors achieve compliance for their plans, and of course, the participants. Among their compliance efforts they will look closely at plans of companies that are merging or being acquired; plans that have failed to comply with ADP and ACP tests or that didn’t supply required notices to participants; plans that don’t meet age and/or service requirements; forfeiture allocations; and plans that fail to withhold correct elective deferral amounts. The IRS FY 2018 Work Plan also specifies some situations in which EP will use compliance checks to determine if a plan is adhering to certain requirements. Those situations are: plans with partial terminations, plans with non-participant loans, 403(b) plans, 457(b) plans that have excess deferrals, SEP plans with RMD failures, and SIMPLE IRA plans sponsored by more than 100 employees. You can read more here: http://tinyurl.com/2018-IRS.

Q: From time to time an employee tells us they didn’t know there were fees involved with the 401(k) plan. We are complying with the requirements to disclose the fees being paid, so it is surprising to us that some participants still don't know. Are we
the only ones whose participants are not getting the message?

A: Unfortunately, your experience is not unusual. The National Association of Retirement Plan Participants, or NARPP, says that 58% of working Americans don’t know they are paying fees on their workplace retirement savings accounts. That amounts to a staggering $35 billion dollars in fees every year, or $835 per investor. Even those participants who know they are paying fees are often unclear about how fees are calculated, with just 26% able to accurately explain. It’s important to make sure the information provided to participants is clear, accurate and complete, because there is a strong link between fee transparency and trust from participants. NARPP found that 81% of participants would appreciate a standardized fee label on all retirement funds, similar to a food nutrition label. Visit www.narpp.org for more information on this and related research from NARPP.

Q: We’d like to bolster our 401(k) plan participation and contribution numbers. What are some of the reasons people don't participate or don't contribute enough?

A: That has been the subject of recent research by the Pew Charitable Trusts. They looked at employer and employee perspectives on saving, and made some interesting findings. For example, 2/3 of employees at small to midsized companies have access to a retirement plan at work, and 68% participate. That translates to 45% of workers at small to midsized businesses participating in a 401(k) or similar plan — and 55% not participating. The research found it much more likely for employees with a household income over $100,000 to participate than for lower income workers. They may find it easier to save, and are more likely to need the tax breaks associated with saving in a qualified plan. Even though auto features tend to increase participation and contribution levels, a significant percentage of plans at small to midsized companies don’t use them. The concern is often that employees won’t like it — a perception that has been refuted by other research. Take a look at the Pew website for more information: www.pewtrusts.org.