Investing December 11, 2018

401(k) Participant Trading Returned to Normal in November

Most 401(k) trading in the month favored fixed income investments.

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The Alight Solutions 401(k) Index found that November was more of a typical month for trading activity among 401(k) investors. The month had three days of above-normal trading activity, down from five in October, but up from the summer lull when there were no above-normal trading days from July through September.

Participants traded a total of 0.13% of their balances in November. Days when trading into fixed income was the majority totaled 15, or 71% of the trading days, with the balance, six days, or 29%, favoring equities.

Trading inflows went mainly to stable value (59%), money market (18%) and large U.S. equity funds (13%), with money being withdrawn mostly from target-date funds (TDFs) (62%) and company stock funds (25%).

Asset allocation in equities inched upward to 68.1% by the end of November from 68.0% at the end of October. New contributions to equities decreased to 67.7% in November from 68.1% the month before.

Asset classes with the largest percentage of total balances at the end of November were TDFs (28%), large U.S. equity funds (25%) and stable value funds (10%). Asset classes with the greatest percentage of contributions in November were TDFs (48%), large U.S. equity funds (19%) and international funds (7%).

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Ask the Experts December 11, 2018

(b)lines Ask the Experts – Requiring Participants to Take Loans Prior to Hardships

“I understand that under the new proposed hardship regulations a participant will no longer be required to take all available loans from the retirement plans that we sponsor.
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“However, if we want to retain the requirement that a participant take such loans prior to being eligible for a hardship distribution, can we?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

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Yes. As the Experts addressed in a prior Ask the Experts column, many plan sponsors do feel that this particular provision (requiring that loans be take prior to a hardship distribution) in their retirement plans minimizes plan leakage, thus preserving retirement plan assets for their intended purpose; namely, retirement.

And, the proposed regulations do indeed specifically address this issue, as follows (boldface text reflects the Experts emphasis):

“Additional conditions. A plan generally may provide for additional conditions, such as those described in 26 CFR 1.401(k)-1(d)(3)(iv)(B) and (C) (revised as of April 1, 2018) or, for distributions made before January 1, 2020, the representation described in paragraph (d)(3)(iii)(B) of this section, to demonstrate that a distribution is necessary to satisfy an immediate and heavy financial need of an employee. For example, a plan may provide that, before a hardship distribution may be made, an employee must obtain all nontaxable loans (determined at the time a loan is made) available under the plan and all other plans maintained by the employer. However, for a distribution that is made on or after January 1, 2020, a plan may not provide for a suspension of an employee’s elective contributions or employee contributions as a condition of obtaining a hardship distribution.”

Thus, if the proposed regulations are adopted as drafted, it is clear that a plan sponsor may continue to require that all available loans from all retirement plans of the plan sponsor be taken prior to a hardship distribution being issued.

 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

 

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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