Data and Research June 30, 2017

More Plan Sponsors Permitting Roth Conversions

The idea seems to be to help employees establish better tax-diversity in their retirement holdings—as well as more controlled and rational ways of spending down their collected wealth once their working life ends, SHRM says.

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“Remaining Competitive in a Challenging Talent Marketplace,” a new research report from the Society for Human Resources Management (SHRM), takes a deep dive into the evolving retirement, health and wellness benefits offered by U.S. employers.

Overall, the research shows employers are closely and critically reconsidering the benefits they deliver to attract and retain employees. Particularly in the area of financial wellness programming and health savings accounts (HSAs), the research shows employee and employer preferences are rapidly evolving.

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Of special interest to retirement plan sponsors will be the findings showing 90% of all employers surveyed today offer a traditional 401(k) or similar plan, while 55% offer a Roth 401(k) or similar plan. According to SHRM researchers, fully three-quarters of these traditional 401(k)-plan-offering organizations provide an employer match, while 40% match Roth 401(k) contributions.

This year, it appears many more organizations are permitting conversion of funds in a traditional 401(k) account into a Roth 401(k) account compared with 2013, and there has also been an increase in offering an informal phased retirement program. The big idea seems to be to help employees establish better tax-diversity in their retirement holdings—as well as more controlled and rational ways of spending down their collected wealth once their working life ends.

As SHRM researchers explain, a phased retirement program “provides a reduced schedule and/ or responsibilities prior to retirement, which can help facilitate the transition and transfer of knowledge for both the retiring employee and his or her co-workers.” Tied to this approach, to help provide lifetime income retirement solutions, some organizations are also offering in-plan annuity options (9%) or providing assistance for retirees to purchase out-of-plan annuities with in-plan assets (2%) for their traditional 401(k), Roth 401(k) or other defined contribution (DC) retirement savings plans.

SHRM says it is encouraged by the innovation it is seeing in the marketplace working with these themes, and it encourages benefits professionals, advisers and consultants to offer more effective educational opportunities concerning all-things-benefits. In particular, SHRM urges organizations to include education explaining annuities along with their other retirement-preparation specific planning advice, which is now offered by 44% of organizations.

The full analysis is available for download here. 

Compliance June 30, 2017

DOL Issues RFI About Fiduciary Rule

The request for information asks whether provisions of the rule already in place should be delayed further.
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The Employee Benefits Security Administration (EBSA) of the Department of Labor (DOL) is publishing a request for information (RFI) in connection with its examination of the final fiduciary rule under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC).

The agency’s examination also includes the new and amended administrative class exemptions from the prohibited transaction provisions of ERISA and the IRC that were published in conjunction with the rule. The request for information specifically seeks public input that could form the basis of new exemptions or changes/revisions to the rule and prohibited transaction exemptions (PTEs), as well as input regarding the advisability of extending the January 1, 2018, applicability date of certain provisions in the best interest contract exemption (BICE), the class exemption for principal transactions in certain assets between investment advice fiduciaries and employee benefit plans and individual retirement accounts (IRAs), and PTE 84-24.

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The fiduciary rule and PTEs had an original applicability date of this April 10.  However, a February memorandum from President Donald Trump directed the agency to analyze the rule’s likely impact on the access to retirement information and financial advice. In response, EBSA delayed the applicability date of the final rule to June 9 and asked for additional input.

At the PLANSPONSOR National Conference (PSNC), earlier this month, Timothy Hauser, deputy assistant secretary for program operations of EBSA, noted that while the BICE and PTEs went into effect June 9, other provisions of the rule were delayed until January 2018 in order for the agency to complete its analysis. He indicated then that the agency would soon be releasing an RFI to further its analysis.

NEXT: What’s in the RFI?

In the RFI, EBSA noted that previous public input about the fiduciary rule and PTEs has suggested that it may be possible in some instances to build upon recent innovations in the financial services industry to create new and more streamlined exemptions and compliance mechanisms. For example, one recent innovation is the possible development of mutual fund “clean shares.” Commenters noted, however, that fund companies will need more time to develop clean shares than contemplated, to meet the current January 1, 2018, deadlines.

Commenters also described innovations in other parts of the retirement investment industry, such as insurance companies’ potential development of fee-based annuities in response to the fiduciary rule. Firms are also developing new technology and advisory and data services to help financial Institutions satisfy the supervisory requirements of the PTEs. “The department welcomes information on these developments and their relevance to the rule, the PTEs’ terms and compliance timelines,” EBSA said in its RFI.

EBSA said it is particularly interested in public input about whether it would be appropriate to adopt an additional, more streamlined exemption or other rule change for advisers committed to taking new approaches such as the ones mentioned above based on the potential for reducing conflicts of interest and increasing transparency. “If commenters believe more time would be necessary to build the necessary distribution and compliance structures for such innovations, the department is interested in information related to the amount of time expected to be required,” the agency said.

There are 18 questions in the RFI. Comments about the first question, asking about the delay of the BICE and PTEs until January 2018, are due 15 days after publication of the RFI in the Federal Register. Comments about the other 17 questions are due 30 days after publication. Ways to submit comments can be found in the text of the RFI.

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