Compliance April 18, 2017

DC Plan Sponsors Have Until May 1 to Adopt Pre-Approved Plan

Plan sponsors with individually designed plan documents may want to adopt a pre-approved plan since the end of the IRS determination letter program.
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The Internal Revenue Service (IRS) has extended the deadline from Sunday, April 30, 2017, to Monday, May 1, 2017, for certain employers to adopt a defined contribution (DC) pre-approved plan and apply for a determination letter, if permissible.

Notice 2016-3 previously extended the deadline from April 30, 2016, to April 30, 2017, to help employers who wanted to convert their existing individually designed plan into a current defined contribution pre-approved plan based on the 2010 Cumulative List. Plan sponsors with individually designed plan documents may want to adopt a pre-approved plan since the elimination of the five-year remedial amendment cycles for individually designed plans and other changes as described in section 4 of Rev. Proc. 2016–37.

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Plan sponsors are eligible for this extension if they adopt a plan after January 1, 2016, other than one that is a modification and restatement of a defined contribution pre-approved plan they maintained before January 1, 2016. The extension allows them until May 1, 2017, to:

  • Adopt a current defined contribution pre-approved plan.
  • Apply for a determination letter, if permissible.

If plan sponsors qualify for the extension and to file Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans (instructions), they should include a statement in the cover letter that their submission package:

  • Restates the plan as a current defined contribution pre-approved plan, and
  • Qualifies for the Notice 2016-3 extension.

Plan sponsors can file for a favorable determination letter until the extended May 1, 2017, deadline.

More information is here.

Data and Research April 18, 2017

Investors Lack Fiduciary Awareness

Only 50% of investors who work with a financial adviser are certain whether their adviser is a fiduciary, while 38% don’t know if their adviser is a fiduciary or not, according to a Financial Engines survey. 

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A new survey report published by Financial Engines argues the fate of the Obama-era Department of Labor (DOL) fiduciary rule has grown increasingly complex and uncertain since President Trump took office.

While the new president, along with Republican leadership in Congress, have expressed a desire to dial back or wholly overturn the fiduciary rule reforms, currently they are still very much intact. The rulemaking’s implementation has simply been delayed, from a previous target date of April 10 to instead take effect June 9.

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It remains to be seen what path President Trump and/or Congress may take, but Financial Engines says it is abundantly clear that average Americans favor the implementation of new conflict of interest protections for the retirement plan investing industry.

According to Financial Engines, fully 93% of Americans “think financial advisers who provide retirement advice should be legally required to put their clients’ best interest first.” In fact, more than half of respondents (53%) mistakenly believe that all financial advisers are already legally required to put the best interests of their clients first.

On Financial Engines analysis, these two stats taken together should offer something of a moral imperative to advisers to be more willing to embrace true fiduciary roles.

NEXT: Testing investor understanding of conflicted advice 

Compared to a similar survey last year, Financial Engines finds Americans “have a slightly better understanding of the difference between a financial adviser who is a fiduciary and one who is not.” Specifically, 21% say they understand the difference today, compared to 18% a year ago.

“However, many Americans still don’t know how to tell if an adviser is a fiduciary,” Financial Engines warns. “Only 50% of investors who work with a financial adviser are certain that their adviser is a fiduciary, while 38% don’t know if their adviser is a fiduciary or not.”

Christopher Jones, chief investment officer at Financial Engines, warns the “bar is rising.”

“Once people understand the benefits of working with a fiduciary, they want one on their side,” he says. “Consumers want to know that they can trust their financial advisers. According to the survey, if investors discovered their financial adviser was not a fiduciary, many say they would take action.”

The Financial Engines data shows only 12% of investors feel they would continue working with the same adviser in the same capacity, after learning the adviser is not in fact a fiduciary.

Speaking frankly, Jones suggest financial firms and advisers “often parse their words carefully to give the appearance of being a fiduciary, even when they are not … While the debate over the conflict of interest rule has raised consumer awareness about this important standard, investors must still be careful to demand advisors that act in the sole best interests of their clients.”

Additional results from the survey, along with other research reports, are available at https://financialengines.com/workplace/resources. 

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