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IN THIS ISSUE:
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>How Important
is an Updated Beneficiary Form? Very!
>Contribution
Relief Announced for Safe Harbor Plans
>Updated 5500
Reporting Requirements
>Summary Plan
Description Reminder
>Participant
Behavior Remains Steady Despite Market Downturn
>Communication
Corner: 401(k) Beneficiary Considerations
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How Important is an Updated Beneficiary Form? Very!
The United States Supreme Court recently handed out a persuasive
lesson for retirement plan participants to make sure that their beneficiary
form is updated. The facts of Kennedy v Plan Administrators for DuPont
Savings (Jan. 2009) are the following: an employee William Kennedy joined
his company retirement plan and designated his wife as beneficiary. When
they later divorced, his wife agreed to forfeit, via the divorce decree
(not a QDRO), all claims to the retirement plan. Mr. Kennedy failed to
submit an updated beneficiary form. When Mr. Kennedy passed away, the plan
administrator paid out the account to the participant’s ex-wife according
to the beneficiary form instead of to the decedent’s daughter, executor of
his estate. The Supreme Court ruled that Dupont acted correctly in making
payment to the ex-wife. According to the US Supreme Court, the plan
administrator was (and is) obligated to manage the plan in accordance with
the plan document and governing instruments.
This
case illustrates the importance of your plan participants keeping their
beneficiary forms up-to-date, especially following a life-changing event. Consider
asking your participants for a new beneficiary form every five years.
Please
refer to the ‘Communication Corner’ feature of this month’s newsletter for
a sample memo you can distribute to participants about the importance of
keeping beneficiary forms up to date.
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Contribution Relief Announced
for Safe Harbor Plans
On May 18, 2009, the IRS proposed
regulations on the requirements for terminating safe harbor contributions
mid-year (both nonelective and matching). The proposed regulations
stipulate explicit rules for termination and include requirements of participant
notice, effective date, and amending the plan document.
To reduce or eliminate the
nonelective contribution, there is an additional requirement of having
incurred a “substantial business hardship.” Under prior rules, the only mechanism for terminating a safe
harbor 3% nonelective contribution mid-year was to terminate the 401(k)
plan. These regulations come at a
time when many sponsors that have been operating under the safe harbor
provisions of the Code may be in desperate need of such relief as an
alternative to terminating the plan.
It is critical to note that
if safe harbor contributions are terminated mid-year the plan will be
subject to ADP and ACP testing requirements for that year and the top-heavy
minimum contribution requirement will no longer be waived.
For more
information on this topic please contact your relationship manager or email
mail@everhartfinancial.com.
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Updated 5500 Reporting
Requirements
Beginning
with 5500 filings for 2009 plan years, large employers (100 or more
participants at the beginning of the plan year) must comply with new
reporting rules regarding plan expenses.
The changes are meant to
assist sponsors in monitoring plan expenses, revenue sharing, and the compensation
their vendors are receiving. Previously only the top 40 service providers
receiving compensation of $5,000 or greater had to be reported, and only
the total fee had to be reported. Now all such service providers must be
reported and fees must be broken down between direct and indirect
classifications (including bundled arrangements). In addition, fiduciaries
and certain “conflict sensitive” service providers receiving $1,000 or more
in indirect compensation must be reported.
Some of the new “reportables”
are extremely technical and sponsors will have to rely heavily upon their
service providers for the correct information. Recognizing this very fact
the EBSA also now requires plan sponsors to report whether service
providers failed to provide information necessary for the completion of the
5500.
Though it will be some time
before you are looking to prepare your 5500 for the 2009 plan year, it is
never too early to discuss these items with your service providers. If you
have any questions, please do not hesitate to contact your relationship
manager at (800) 337-3353 or email mail@everhartfinancial.com.
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Summary Plan Description Reminder
A
Summary Plan Description (SPD) describes the key provisions of an employer’s
retirement plan and participant rights. SPDs must be disseminated to newly
eligible participants within 120 days after a new plan is established or
within 90 days after a participant becomes eligible to participate in an
existing plan. In addition, SPDs must be disseminated to all participants
once every five years unless there have been no amendments to the plan
during that period. The DOL issued final regulations on electronic delivery
that indicate an SPD can be delivered through an electronic medium if all
the requirements are satisfied.
Your
relationship manager is fully prepared to assist you with any questions you
may have. For more information, please contact Everhart Financial Group,
Inc. by calling (800) 337-3353 or email mail@everhartfinancial.com.
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Participant Behavior Remains Steady Despite Market Downturn
Are
participants panicking as a result of the current market turmoil? Not
according to a recent Fidelity Investments survey comprised of 17,500
corporate defined contribution plans and 11.3 million participants. Although participants in Fidelity plans have been found to be more
engaged with their investments, based on the increased number of
hits to Fidelity’s online investment education tools and other
identifiers, the level of fund exchanges are actually down during the first
quarter of 2009 vs. the last quarter of 2008 as well as from year-to-year
levels. Fidelity indicates that only about 5.2% of participants made an
exchange during the first quarter, down from 6.2% during the first quarter
of 2008.
In addition, 51% of new
contributions are going into equities, including domestic, international
and company stock. About a quarter of new contributions are being invested
in more conservative short-term, stable value, or fixed income investments,
up slightly from the previous quarter. In total, participants are directing
nearly 69% of their new contribution dollars into equities, based on the
Fidelity survey results.
With all the doom and gloom we hear about in the media
it is encouraging to learn that many participants are not falling into the
old trap of responding in a knee jerk reaction to, what is often, a
misinformed media. Clearly, investors should be much better off
entering a recovery with a reasonably well-balanced portfolio.
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Communication Corner: 401(k) Beneficiary Considerations
This month’s sample participant memo reminds
participants of the importance of keeping their beneficiary forms up to
date.
Each month this section of
our newsletter features sample memos that plan sponsors can print and
distribute to employees. Topics from this year included Making the Most of your 401(k), The Case Against Loans, Dollar Cost Averaging, and Tips for Investing in Turbulent Times.
Send an email
to mail@everhartfinancial.com or call
(800) 337-3353x106 to request a copy that you can print and distribute to
employees.
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To remove yourself from this list, or to
add a colleague, please email us at brianh@everhartfinancial.com
or call (800) 337-3353x106. Securities offered through Cambridge Investment
Research, Inc. Services offered through Everhart Financial Group, Inc. Cambridge Investment Research, Inc. is not
an affiliate of Everhart Financial Group, Inc. This material is intended for
informational purposes only and should not be construed as legal advice and
is not intended to replace the advice of a qualified attorney, tax adviser,
investment professional or insurance agent.
(c) 2009. 401(k) Advisors, Inc. All rights
reserved. 090107©
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