Ask the Experts November 25, 2014

(b)lines Ask the Experts – Ongoing Notice Requirements

“I realize there is an important upcoming deadline for certain plan notices—the QDIA, automatic enrollment, and ADP/ACP safe harbor plan notices—all of which are due to be distributed to  participants by December 2.
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“In addition to the annual distribution of these notices are there any ongoing notice requirements? Do I need to provide some or all of these notices to new hires?”    

Michael A. Webb, vice president, Cammack Retirement Group, answers:

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This is an excellent question, since many plan sponsors diligently follow annual reporting and disclosure requirements, but forget that certain notices also require distribution throughout the year, and not just on one specific date. Some good examples of these requirements relate to all of the notices you describe.

For the qualified default investment alternative (QDIA), though the annual notice must be provided to all plan participants by December 2, there is also an initial notice requirement for new participants. For those individuals a QDIA notice must be delivered on or before the date of plan eligibility. For plans that provide for immediate eligibility to make deferral elections (e.g. most 403(b) plans) the notice must be delivered to new hires by their date of hire.

There is a similar requirement for the ADP/ACP nondiscrimination testing safe harbor plan notice, though in the case of immediate eligibility the notice may be provided as soon as practicable following date of hire. The same requirement applies to automatic enrollment notices (for both eligible automatic contribution arrangements (EACAs) and qualified automatic contribution arrangements (QACAs)). Other common notices that require distribution to newly eligible employee throughout the year include the 404(a)(5) participant fee disclosure notice as well as the Summary Plan Description.

Finally, we should mention that the Experts continue to see an erroneous distribution deadline of December 2 and not December 1, for such notices listed in some publications. For a discussion of why the December 2 deadline is indeed correct, see this Ask the Experts article from our archives.   

Thanks again for your timely question! 

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.
Benefits November 24, 2014

Study Suggests Majority of Public Pensions Financially Sound

Confidence continues to rise among public pension plan administrators about the sustainability of their funds and their readiness to address future retirement issues.
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The 2014 National Conference on Public Employee Retirement Systems (NCPERS) Public Retirement Systems Study also shows continuing financial strength for public funds, with healthy long-term investment returns.

According to the study report, respondents’ overall confidence rating measured 7.9 on a 10-point scale, up from 7.8 in 2013 and 7.4 in 2011. Funds experienced an increase in average funded level—71.5%, up from 70.5% in 2013. Two factors contributed to the change: average one-year investment returns of 15% and lower amortization periods, NCPERS said.

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The study shows funds continue to experience healthy investment returns: 14.5% for one-year investments (compared to 8.8% in 2013); 10.3% for three-year investments (up from 10.0% last year); 9.8% for five-year investments (up from 2.7% last year); 7.8% for 10-year investments (up from 7.0%), and 8.1% for 20-year investments (virtually unchanged from last year’s 8.2%). Funds continue to work toward offsetting sharp losses from the recession 2008 and 2009 by strengthening investment discipline.

According to NCPERS, public funds continue to be the most cost effective mechanism for retirement saving. The total average cost of administering funds and paying investment managers was 61 basis points. According to the Investment Company Institute’s 2014 Investment Company Fact Book, the expenses of most equity funds average 74 basis points and hybrid funds average 80 basis points, NCPERS noted.

The study found public pension funds continue to tighten benefits, assumptions and governance practices. Examples include a continued trend toward increasing member contribution rates, lowering inflation assumptions, shortening amortization periods, holding actuarial assumed rates of return and lowering the number of retirees receiving health care benefits. Income used to fund public pension programs came from member contributions (8%); employer (government) contributions (19%) and investment returns (73%).

“The vast majority of public pension plans are thriving, more than adequately funded, inexpensive to operate and sustainable for the long-term,” says NCPERS Executive Director and Counsel Hank Kim, Esq. Policymakers, taxpayers and public employees can have confidence that public pension plans will be providing retirement security for covered workers – and thus making positive economic contributions to the communities they live in – well into the future.”

Partnering with Cobalt Community Research, NCPERS surveyed 187 state, local and provincial government pension funds with more than 11.8 million active and retired members and with assets exceeding $1.8 trillion. The majority (81%) were local pension funds, while 19% were state pension funds. Of the responding funds, 61% are members of NCPERS. The data was collected in September and October 2014.

 

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