Content provided by Sierra Morris, CLS Junior Investment Analysts

I recently listened to an InvestmentNews webinar that gave a lot of useful advice about regulation for plan advisers. Below is a summary of what I found to be most useful. Speakers for this webinar included:

  • Michael Kim – Senior Vice President, Genworth
  • Jania Stout – Nice President, Retirement Plan Consultant Fiduciary Consulting Group at PSA Insurance Financial Services
  • Marcia S. Wagner – Principal, The Wagner Law Group

Marcia Wagner, Principal for The Wagner Law Group, had six basic pieces of advice for anyone looking to build clientele in 401(k) plans. Practical Guidance for 401(k) Plan Advisers starting out:

  1. Don’t be afraid, this is not rocket science. It is doable and learnable
  2. Be brave
  3. Partner with good people
  4. Understand who your target audience is and figure out their needs
  5. Create your niche
  6. Cold call

In addition, a majority of this webinar discussed changing regulations that 401(k) plan advisers must know:

  1. Transparency of Fee and Expenses. In February 2012, the DOL finalized regulation regarding transparency of fees and expenses. This covers all qualified plans with participant-directed investments and applies to all eligible employees. The three main sections of this rule include:

a)      PlanRelated Information. This information must be disclosed annually. The DOL defines plan-related information as regarding individual expenses, administrative expenses, and general plan information which includes an explanation of how to give investment instructions, list of the plan’s investment options, and a description of any “brokerage windows” or similar arrangement. In addition to the annual disclosure, a quarterly statement must be submitted to participants which includes the dollar amount of the plan-related fees and expenses actually charged to or deducted from their individual accounts, along with a description of the services for which the charge or deduction was made.

b)      Investment-Related Information.

  • Performance data: 1-, 5-, and 10-year returns; or annual rate for plans with a fixed rate of return;
  • Benchmark information: the name and returns of an appropriate broad-based securities market index over 1-, 5-, and 10-year periods; fixed rate plans are exempt from this disclosure;
  • Fee and expense information: total annual operating expenses expressed as both a percentage of assets and as a dollar amount for each $1,000 invested, and any shareholder-type fees or restrictions on the participant’s ability to purchase or withdraw from the investment.  For options with a fixed rate of return, any shareholder-type fees or restrictions on the participant’s ability to purchase or withdraw from the investment;
  • Internet website address: a website that is sufficiently specific to provide participants and beneficiaries access to specific additional information about the investment options for workers who want more current information; and
  • Glossary: terms to assist participants and beneficiaries in understanding the plan’s investment options.

c)       Comparative Format Requirement.  Investment related information must be furnished in a chart or similar format designed to facilitate a comparison of each investment option available under the plan.

  1. ERISA 408(b)(2) disclosures. Also in February 2012, the DOL finalized another rule updating provider disclosures under 408(b)(2). This ‘raises the bar’ for the fiduciary review of plan fees. There are a few basic steps you can take to follow this practice.
  • Focus on provider’s qualifications and quality of services
  • Conduct reviews regularly
  • Consider provider’s total compensation
  • Evaluate all fees in proper context
  • Document reviews


  • Disclosures must be made reasonably in advance of starting/renewing services
  • Changes to info must be made no later than 60 days after the provider becomes aware of change
  • Final rule allows recordkeeping platforms and fiduciaries of looking-through investments to report changes annually
  • Erroneous info will not result in violation if the provider has acted in good faith and due diligence
  • Errors and omissions must be disclosed within 30 days after coming to light
  1. 3.       Broader “fiduciary” definition. In 2010, the DOL proposed a rule that would change the definition of “fiduciary” to meet a much higher standard than it already is.  The attempt to change this important term was met with tremendous opposition, causing the proposed rule to be delayed for re-evaluation.  Over the next two years, the DOL worked on revising their original proposed changes.  The updated rule was supposed to be introduced earlier this year but controversy surrounding the changes kept the rule in bureaucratic gridlock for the majority of the year.  On October 29, 2013, the U.S. House of Representatives stepped in and passed a bill delaying the SEC and DOL from adopting any changes to the term fiduciary.  
  2. Default investments – Target-Date funds (TDFs)

DOL issued tips:

  • Start the evaluation process by examining the prospectus
  • Question providers
  • Match TDF features (glidepaths) to plan objectives/demographics
  • Chick the time of the most conservative investment allocation
  • Determine if fees are justified (overall and underlying fund fees)
  • Consider suitability of custom TDF
  • Communicate TDF investment philosophy to employees
  • Periodically check for changes in TDF characteristics
  1. Lifetime income options. The Obama Administration believes that lifetime income options facilitate retirement security. Their proposed regulations include:
  • Exception from FMD rules for longevity annuity investments
    • Investment capped at $100,000 or 25 percent of account
    • Payment must start no later than age 85
    • Split distribution consisting of annuity and lump sum approved
    • 401(k) accounts may be rolled over and converted to DB plan annuity benefits
    • Provides favorable annuity rates for participants but limited to DM plan of the same employer
    • 401(k) plans typically exempt form onerous spousal death benefit rules
    • Ruling confirms that 401(k) plans with deferred annuities can still hold them
    • Statements to include:
      • Participant’s current account balance and balance projected to retirement
      • Lifetime income streams derived from account balance and projection
  1. Overturn of Defense Of Marriage Act. U.S. vs. Windsor holds that the definition of “marriage” cannot be restricted to legal union between one man and one woman.Same-sex couples residing in states recognizing same-sex marriage gain the right to be treated as married for federal tax and ERISA purposes. The effects on retirement plans:
  • Spousal death benefit: Same-sex spouse to receive benefit unless spouse provides written consent as to non-spouse beneficiary.
  • Spousal Annuity: Same-sex spouse entitled to 50 percent or 75 percent J&S annuity
  • Plan Loans: Same-sex spouse must consent to plan loan unless plan loan unless plan provides that same-sex spouse is participant’s designated beneficiary
  • QDROs: Domestic relations orders now enforceable by same-sex spouse if state will grant order
  • Hardship Distributions: Rules allowing distributions for medical expenses, tuition or funeral expenses of spouses will apply to same-sex spouses
  • Required Minimum Distributions: Same-sex spouse of participant in tax-qualified retirement plan may defer payment of death benefits
  • Rollovers: Same-sex spouse entitles to receive death benefit no longer limited to rolling over only to inherited IRA

Effect on Welfare Plans:

  • Health Plan Coverage: Same-sex spouse coverage now tax-free
  • Pre-Tax Reimbursement Arrangements: Pre-tax dollars can now be used for health, dental, and other medical expenses of a same sex spouse under flexible benefit plans
  • COBRA: Same-sex spouse will be entitled to up to 36 months of health coverage if participant terminates employment or if there is a divorce or legal separation
  • Dependent Care: Pre-tax dollars can now be used to pay for the care of a same-sex dependent of a same-sex spouse

While staying on top of regulations can feel daunting at times, or as we say here – “fiducin’ ain’t easy”, we have great resources available to us here at CLS, for explanation and to stay current on any necessary changes – you only need to ask!