Sponsors Using TDFs, Auto Enroll to Boost Savings

Employer contributions and loans are also prevalent, a Brightscope/ICI report says.

Retirement plan sponsors are using a range of plan features and a diverse mix of investment options to encourage savings, a new report, The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2015, says.

Large plans have ramped up their target-date fund (TDF) offerings and most plans are automatically enrolling participants, offering employer contributions and making loans available, according to the report, created by BrightScope, a Strategic Insight company, and the Investment Company Institute (ICI). The report is based on an analysis of the Department of Labor’s (DOL’s) publication of Form 5500 data.

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“One of the strengths of the 401(k) system is that it allows employers to customize their plans to meet the needs of their unique workforce,” says Sarah Holden, ICI’s senior director of retirement and investor research. “Employers use that flexibility to offer features that can encourage participation. Employer contributions, auto enrollment, loans and diverse investment options—including target-date funds—can make it easier for participants to plan and save.”

Eighty percent of plans offered TDFs in 2015, up from 32% in 2006. In 2015, the average large 401(k) plan offered 29 investment options, of which about 14 were equity funds, three were bond funds and eight were TDFs.

The analysis also found that 90% of large plans had employer contributions. Among plans with $1 million to $10 million in plan assets, 80% had employer contributions. More than half of plans with more than $100 million in plan assets automatically enrolled participants. Among plans with more than $1 billion in plan assets, 60% used automatic enrollment. However, for plans in the $1 million to $10 million range, only 20% used auto enrollment.

Overall, 82% of plans of all sizes had participant loans outstanding in 2015. For plans with more than $50 million in plan assets, more than 90% had participant loans outstanding.

In 2015, the average total plan cost was 88 basis points down from 1.02% in 2009.

BrightScope/ICI’s full report can be viewed here.

IRS Expands Audit Guidance for RMDs to 403(b) Plans

A memo says examiners should not challenge a 403(b) plan for violation of the RMD standards for the failure to commence or make a distribution to a participant or beneficiary to whom a payment is due, if the plan sponsor has taken certain steps.

In a February 23 memorandum to Employee Plans (EP) examinations employees, the Internal Revenue Service (IRS) issued guidance about handling 403(b) plan efforts to issue required minimum distributions (RMDs) to missing participants.

Similar to a memo issued last year, the current memo regarding 403(b) plans states that EP examiners shall not challenge a 403(b) contract for violation of the RMD standards for the failure to commence or make a distribution to a participant or beneficiary to whom a payment is due, if the plan has taken the following steps:

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  • Searched plan and related plan, sponsor, and publicly available records or directories for alternative contact information;
  • Used a commercial locator service; a credit reporting agency; or a proprietary internet search tool for locating individuals; and
  • Attempted contact via United States Postal Service (USPS) certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone numbers).
If a 403(b) plan has not completed the steps above, EP examiners may challenge a 403(b) plan for violation of the RMD standards.

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