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401(k) Questionnaire Project

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Back in May of 2010 the IRS sent letters to 1,200 401(k) plan sponsors instructing them to complete the 401(k) Questionnaireonline by visiting a secure website and using a PIN number provided in the cover letter.     Their stated intention is to:

  • better understand 401(k) plan compliance issues,
  • determine how their tools and voluntary compliance programs are working, and
  • identify participant awareness and plan sponsor compliance issues

The IRS wants to “encourage all plan sponsors to use the Questionnaire as an internal control tool to review your plan and determine if it is in compliance.

They also announced that “Non-reponders” will be subjected to a full-scope examination to provide the data needed for their 401(k) market segment analysis.

If your plan is a 401(k) I encourage you to review the questionnaire and highlight the areas of uncertainty that should be addressed.  If you need assistance please feel free to contact me.

SEC Study Recommends Fiduciary Standard

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On the night of January 21st, 2011 the SEC submitted to Congress a staff study recommending a uniform fiduciary standard of conduct for broker-dealers and investment advisers when they provide personalized investment advice about securities to retail investors.

 Why did the Dodd-Frank Act require this study?

Most Americans do not know the difference between a broker and an adviser nor do they understand the critical differences between the fiduciary standard and suitability standard.

A fiduciary standard refers to the duty to serve the best interests of its clients, including an obligation not to subordinate clients’ interests to its own.  Included in the fiduciary standard are the duties of loyalty and care.

The suitability obligation generally requires a broker-dealer to make recommendations that are consistent with the interests of its customer.

 So, who’s too scared to be a fiduciary?

We will find out in the second quarter when the SEC is scheduled to publish proposed regulations to provide that:  “the standard of conduct for all brokers, dealers, and investment advisers, when providing personalized investment advice about securities to retail customers (and such other customers as the Commission may by rule provide), shall be to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice.”

The next few months will exemplify the moral fortitude of our regulators.

 

What is 401(k) Day?

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The Profit Sharing/401k Council of America (PSCA) created 401(k) Day as an annual event to promote retirement savings education.  Each year, PSCA creates an education campaign for plan sponsors to use, free of charge, with their employees.  PSCA 401(k) Day materials can ve used alone or in conjuction with materials and campaigns already in place.  In 2011, 401(k) Day officially falls on September 9, 2011, but plan sponsors can celebrate any day of the year.

All of the tools and resources for this year’s campaign are available on the 401(k) Day Web site, www.401kday.org.

The Profit Sharing/401k Council of America is a national, non-profit association of 1,200 companies and their six million employees, that advocates increased retirement security through profit sharing, 401(k), and related defined contribution programs

Morningstar & Lipper Awards

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Morningstar and Lipper are third party data providers.  They collect mutual fund, stock, hedge fund, and/or variable annuity information from several sources and provide that data to advisers and retail investors alike.  Lipper is relied upon more heavily within the industry as Morningstar was originally designed to serve the retail public.  Both firms have a deep bench of top-notch analysts and are thought-leaders in the investment marketplace.

Each year Lipper chooses the top firms in all of their categories and Morningstar chooses the top managers in three categories.  In 2010 Morningstar took it one step further and announced Morningstar Fund Managers of the Decade.  Here are their picks:

Morningstar Fund Managers of the Decade:

Fixed Income:  Bill Gross (PIMCO Total Return)
Domestic Equity:  Bruce Berkowitz (Fairholme)
Foreign Equity:  David Herro (Oakmark International)
Morningstar Fund Managers of the Year:
Fixed-Income:  Team at Loomis Sayles Bond (Dan Fuss, Kathleen Gafney, Matthew Eagan, Elaine Stokes
Domestic Equity:  Bruce Berkowitz (Fairholme)
Foreign Equity:  Team at American Funds EuroPacific Growth (Stephen Bepler, Mark Denning, Robert W. Lovelace, Carl Kawaja, Sung Lee, Nicholas Grace, Jonathan Knowles, and Jesper Lyckeus)
Lipper Fund Awards 2010:

Large Firm for Equities:  PIMCO
Small Firm for Equities:  Parnassus Investments
Large Firm for Fixed Income:  Loomis Sayles & Company
Small Firm for Fixed Income:  State Farm Inv. Mgmt Corp.
Large Firm for Mixed Assets:  Janus
Small Firm for Mixed Assets:  Ridgeworth
Large Firm Overall:  T. Rowe Price
Small Firm Overall:  RidgeWorth
If you are interested in researching investment managers you may want to begin with the winners listed above.

 

New IRS Initiative Targets 401(k) Plan Compliance

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by Ed Frado, J.D.

IRS recently announced that, starting in March, it would begin sending questionnaires to “a random sample of 401(k) plan sponsors” for a new initiative to gauge the “health of these plans.”  As background, the IRS provides on its website several tools (e.g., a “401(k) Fix-It Guide”) intended to encourage plan sponsors to conduct periodic reviews of their plans and to self-correct documentary or operational compliance issues discovered in those reviews.  Top IRS officials have stressed over the past couple of years that it will be a lot less expensive if plan sponsors find errors and self-correct them than having the IRS discover those errors during a plan examination.

In announcing this new initiative, the IRS stated that the questionnaire will elicit information that will help the IRS to determine if the tools referenced above are being used and are working.  Overall, the IRS noted that it drafted the questionnaire to help the IRS “better understand compliance behaviors.”

What will the IRS do with the questionnaire answers?  The IRS stated that it will prepare a report of findings and publish that on its website, as well as update its website materials “to better serve the needs of the plan sponsors.”  However, even a small amount of cynicism could lead to the thought that the IRS may eventually use the questionnaire responses as a way to target plans for an examination.

In any event, plan sponsors that receive a questionnaire under this initiative should consider discussing it with the plan’s service provider and having the responses reviewed before submitting the completed questionnaire to the IRS.  Also, this serves as yet another reminder that plan sponsors should conduct periodic reviews that are distinct from the plan’s annual ERISA audit and self-correct any discovered compliance issues.

Ed Frado is an employee benefits attorney who has specialized exclusively in this field for more than 11 years.  At Denver Compensation & Benefits, LLC, he advises clients in a wide array of employee benefits issues.  Also, Ed is a frequent speaker at seminars,  conferences, and accounting firms’ in-house training for employee benefits auditors.  You can reach Ed at edfrado@denverbenefits.com.