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IN THIS ISSUE:
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>A New Kind of
Hybrid: The DB(k)
>Q2 Trends
Illustrate Lessons Learned and New Strategies for Plan Participants
>IRS Expected
to Cut 401(k) Limit to $16,000 in 2010
>Distribution
of Mutual Fund Settlement Proceeds
>Communication
Corner: Clues to Stay on Track for Retirement
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A New Kind of Hybrid: The
DB(k)
Beginning
in 2010 small employers will have the opportunity to take advantage of an
“eligible combined plan,” aka a “DB(k) plan.” The DB(k) will be a hybrid
plan, part defined benefit and part defined contribution. The design will
allow employers to sponsor a plan that provides employees with a low
employer-paid guaranteed lifetime income that the employee can supplement
with their own deferrals. The following are some of the requirements and
definitions for these new plans:
n
“Small Employer” means that the sponsor employed between 2 and 500
employees on each business day during the preceding calendar year
(reasonable expected average can be used for new employers)
n
Assets are held in a single trust (for both portions of the plan)
n
Single 5500 required for both portions of the plan
n
Defined benefit must be funded at 1% of final average pay for up to
20 years of service, or using an age-weighted cash balance method
n
Defined contribution must be an automatic contribution arrangement
(4% deferral) where the employer is required to match 50% of deferrals (as
long as the deferral does not exceed 4% of compensation)
n
The accrued defined benefit must be fully vested after three years of
service
n
Matching contributions must be immediately fully vested, and any
nonelective contributions that the plan may make must be fully vested after
three years of service
n
All benefits under both portions of the plan must be provided
uniformly to all participants
n
ADP/ACP testing is considered to have been automatically met and the
plan will be treated as meeting top-heavy requirements
n
Notice requirements exist
Additional
guidance is expected from the IRS, who requested comments due October 15,
2009. As a result many vendors are still in the planning stages for these
new plan designs. If you have any questions please contact your Everhart
Financial Group, Inc. relationship manager or email
mail@everhartfinancial.com.
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Q2 Trends Illustrate Lessons
Learned and New Strategies for Plan Participants
Fidelity
Investments recently released their Defined Contribution Plans Trends
Report for the second quarter of 2009. Some interesting findings were:
n
More participants
are increasing their deferrals
than those who are decreasing. This reversed a trend dating back to
the third quarter of 2008.
n
There has been a gradual
shift into more conservative investments. Notably Fixed Income and
Stable Value Investments have seen an increase in investment
allocations from about 18% in June of 2008 to 24% in June of
2009. Lifecycle funds remained the same during the past year.
n
Competing financial
priorities have led to increases in loan activity. On average
nearly 1 in 4 participants has taken a loan from their account and about
10% of those loans have been initiated in just the past 12 months.
n
Participation levels
for 50 and over participants have grown to over 70%, with an average deferral of about 10%.
n
92% of employers
that offered employer contributions in 2008 have continued to offer them in
2009. Fidelity found that
only about 8% of the companies scaled back their contributions.
If you have questions about
your plan, please contact your relationship manager or email mail@everhartfinancial.com.
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IRS Expected to Cut 401(k) Limit to $16,000 for 2010
Because of the low
inflation rate in the U.S., the Internal Revenue Service likely will reduce
the $16,500 402(g) limit on 401(k) deferrals to $16,000 for next year. The
limit is based on a formula tied to inflation that the IRS is required by
law to follow, according to an analysis by human resources consultant
Mercer. Unless Congress changes the law, the IRS probably will have no
choice, said Bill McClain, a senior consultant at Mercer. We will keep our
clients informed of any changes via our monthly newsletter.
For questions, contact your
relationship manger for assistance at (800) 337-3353 or email mail@everhartfinancial.com.
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In recent months plan sponsors have received
restitution checks as mutual fund settlement proceeds stemming, primarily,
from alleged late trading and market timing activities. These payments are
being made to plans on behalf of participants who suffered losses as a
result of the alleged misconduct. Plan sponsors must adopt an allocation
methodology for the settlement checks. Where possible, these funds should
be allocated directly to affected participants. However, prudence dictates
that fiduciaries examine the efficiencies of doing so, given the existing
facts and circumstances.
The
Department of Labor has stated that the fiduciary may weigh the competing
interests of various participants or classes of plan participants and the
effects of allocation methods thereon, and if plan records are insufficient
to reasonably determine specific participants investment in specific mutual
funds during relevant periods, the fiduciary may allocate the proceeds to
participants currently invested in that fund. Also, if the cost to research
the affected participants exceeds the amount of the proceeds, the fiduciary
may allocate the proceeds to those participants currently invested in the
mutual fund.
A few (but not all)
allocation options to consider are: 1) allocating the proceeds as income,
pro-rata among all current participant accounts; 2) if the timing of the
source of the proceeds is identifiable, allocate the proceeds as income,
pro-rata among those participant accounts existing during the time of the
source of the proceeds; and 3) if
the source of the proceeds is identifiable, allocate the proceeds to the
current participant accounts based upon ownership of the source of the
proceeds.
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Communication
Corner: Clues to Stay on Track for Retirement
This month’s sample participant communication memo is complements
of PSCA, as part of the many materials available to employers as part of
the national 401(k) Day Friday, September 11. The two-page memo outlines
several essential tips for a more financially secure retirement.
Email mail@everhartfinancial.com for a
copy you can print and distribute to employees.
Visit
www.401kday.org to access posters,
interactive games, and other information to promote the celebration with
your employees.
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Communication
Corner: Archived Memos Available
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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