Compliance December 20, 2013

Trustee to Restore Profit-Sharing Plan Assets

December 20, 2013 (PLANSPONSOR.com) – The Department of Labor (DOL) has received court authorization to compel the trustee of a profit-sharing plan in Aiea, Hawaii, to restore mismanaged plan assets.
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A consent judgment has been secured for cement construction and contracting company Reef Development of Hawaii Inc. and its president, Samuel Sanchez Aguirre. An investigation by the DOL’s Employee Benefits Security Administration (EBSA) found that Aguirre, who was acting as trustee to the company’s profit-sharing plan, violated the Employee Retirement Income Security Act (ERISA) by mismanaging plan assets, which resulted in more than $700,000 in lost principal, plus approximately $303,000 in lost interest.

EBSA investigators found that Aguirre neglected his fiduciary responsibilities by not acting carefully in the selection and monitoring of investments made on behalf of the plan. This lack of due diligence prior to making investments violates ERISA’s requirements of acting solely in the interest of participants and beneficiaries of the plan.

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The investigation revealed that Aguirre directed $550,000 to shares of a Texas-based company that later filed for bankruptcy and was exposed as a Ponzi scheme. The plan also suffered a loss of $950,000 in debt instruments invested in a hotel restoration project that was foreclosed upon.

The EBSA investigation, which began in April 2011, surveyed plan activity between 2006 and 2011. It found that 50 plan participants were affected by Aguirre’s investment choices.

The consent judgment and order obtained by the DOL requires Aguirre to restore $463,236 in losses to the plan attributable to nonfiduciary participants within 30 days of the judgment’s filing. Once the funds have been restored, Aguirre and the fiduciaries will terminate the plan and disburse the funds.

Once the plan is terminated, Aguirre is permanently banned from serving as a fiduciary or service provider to any employee benefit plan that is subject to ERISA. He has been assessed a penalty that is equal to 20% of the recovery amount, or $92,647.

According to the DOL, Reef Development of Hawaii specializes in cement work, restoration and additions to property, and commercial developments.

Benefits December 20, 2013

Top Steps for DC Plans to Take in 2014

December 20, 2013 (PLANSPONSOR.com) – Consulting firm Mercer has compiled a list of the top 10 recommended steps that defined contribution (DC) plans should take over the next year.
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These steps include:

1) Redefining Success. Ultimately, a plan is successful if it meets plan sponsor objectives and delivers future financial security to participants.

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Move beyond flat metrics such as participation levels and deferral rates. Analyze all participant behaviors that ultimately drive retirement outcomes, and develop sophisticated metrics and interventions to improve those outcomes.

2) Take a Broader, Sophisticated Approach to Investment Risk. A delegated investment solution may help manage risk through the lens of plan participants.

Research in behavioral finance has shown that risk management involves more than just the prudent selection of a diverse set of investment options. Employees can be supported by tailoring a plan’s investment risk profile to participant demographics. If resource constraints exist, plan sponsors need to consider the appropriateness of employing a delegated investment solution for all or part of the plan. A delegated approach to developing a demographically based investment strategy leverages time while transferring fiduciary risk.

3) Understanding Target-Date Fund Fiduciary Responsibility. The Department of Labor (DOL) may be watching.

As an increasingly popular asset class within DC plans, target-date funds (TDFs) have come under heightened scrutiny by the DOL. Plan sponsors need to consider whether or not the target-date funds in their plan will lead to the desired retirement outcomes for the plan’s participant base. Plan sponsors should review and document the evaluation of these options based on the DOL’s Target-Date Retirement Fund Tips for Plan Fiduciaries.

4) Saying Goodbye to Revenue Sharing. Paying administrative fees based on each fund’s level of revenue sharing may not stand up to scrutiny.

A red flag arises if some participants pay higher administrative costs simply because their fund options carry revenue sharing. Achieve transparency and level allocation of administrative fees by reducing or eliminating revenue sharing, or by allocating it back to participants.

5) Considering the Impact of Inflation on Participants’ Retirement Readiness. Don't let inflation erode outcomes.

Despite the low interest rate environment from 2000 to 2013, participants’ purchasing power decreased by more than 20%, according to research by Mercer. Purchasing power erosion and its effect on retirement readiness can lead to work force planning issues. Plan sponsors can help participants address this risk by assessing the appropriateness of offering a diversified inflation option within the plan.

6) Helping Participants Sleep at Night. Financial wellness can promote a more productive work force.

Employees face significant financial burdens throughout their working lifetimes, from home buying to college saving to retirement preparation. Plan sponsors helping employees put their financial house in order not only helps them save for retirement, but can also improve engagement and decrease stress levels.

7) Addressing the Diversification Challenge. Consider implementing custom funds to increase participant diversification while keeping the investment lineup lean.

In an effort to avoid participant confusion and investment choice overload, 60% of plan sponsors offer participants fewer than 15 investment choices and many are looking to reduce that number to 10 or less. Custom funds can provide participants with access to greater diversification through exposure to alternatives, opportunistic fixed income and real asset strategies without adding complexity to their investment decisionmaking process.

8) Reassessing the Market. The evolution of the DC market has driven changes in vendor position, strategy and focus.

How long has it been since the plan was put out to bid? In response to market pressures and financial constraints, many vendors have changed their strategy and target market. At the same time, plans have grown and their needs have evolved. It may be time to explore what else is out there.

9) Thinking Beyond Borders. Globalization is here.

International markets make up a larger percentage of the investable universe than U.S. markets. According to Mercer, delivering streamlined access to global investment opportunities across the asset class spectrum helps address participant behavioral biases, leading to improved asset allocation decisions and ultimately enhanced retirement outcomes.

10) Keep Pushing the Communication Envelope. Employees are accessing information in new ways and plan communications need to keep pace.

Employees are increasingly using mobile technology, and the best communicators are engaged in generational targeting and strategies based on behavioral finance. Looking ahead, the success of gamification in education and employee training can be applied by plan sponsors to retirement and financial education. Mercer recommends that plan sponsors assess how new approaches to communications and targeting can more effectively reach the various populations within the plan to help drive engagement.

Mercer is a provider of talent, health, retirement and investment services.

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