Products December 4, 2013

Principal Service Helps with Plan Design

Principal PlanWorks, from The Principal Financial Group, is designed to improve the retirement readiness of retirement plan participants.
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“Americans aren’t saving enough for retirement, plain and simple. Often it’s due to inertia. That’s why we’ve designed retirement plans that harness the power of human nature instead of working against it,” says Jerry Patterson, senior vice president of retirement income strategy at The Principal, based in Des Moines, Iowa. “By implementing several automatic plan design changes, employers can elevate their retirement plan and make a significant impact on their employees’ participation and savings rates.”

To elevate the success of any retirement plan, The Principal suggests employers strive to get their work force participation up to 90% with a 10% average deferral rate, plus employer match. In order to reach these numbers, Principal PlanWorks includes several key automatic plan design features such as:

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  • Automatic enrollment with at least 6% elective deferral;
  • Automatic escalation of at least 1% per year up to 10%;
  • Sweeping all existing employees into the plan at least one time at the default deferral rate;
  • Stretching the employer match by using a formula that motivates employees to defer at higher levels in order to get the full employer match; and
  • Using asset allocation choice as the qualified default investment alternative (QDIA).

According to research from The Principal, automatic enrollment can propel participation as high as 91%. In addition, only 6% of participants proactively choose to automatically increase their deferral percentage each year, yet 88% of participants use this feature if they are required to opt out of it.

“The conversation is shifting from one of retirement savings to retirement income, but we must move faster if we want to get individuals on track towards meaningful retirement savings,” says Patterson. “We must start and end the retirement savings war with successful plan design, tools and education to achieve retirement readiness.”

The Principal Financial Group is a global investment management provider offering retirement services, insurance solutions and asset management.

A video about PlanWorks can be found here.
Compliance December 4, 2013

ASPPA Urges Simplicity for Same-Gender Rules

The American Society of Pension Professionals and Actuaries (ASPPA) is petitioning regulators for easy-to-apply guidance to add same-gender spouses to qualified retirement plans.
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ASPPA sent an open letter on the subject to the Employee Benefits Security Administration (EBSA), a Department of Labor (DOL) agency tasked with supporting retirement plan participants and applying the Employee Retirement Income Security Act (ERISA). EBSA first expanded its definition of “spouse” to include legally married, same-gender couples for ERISA-covered plans in mid-September.

EBSA officials made the change in response to the Supreme Court’s Windsor decision handed down this summer. That ruling, in part, struck down the Defense of Marriage Act, which limited the federal government’s interpretation of “marriage” and “spouse” to apply only to heterosexual unions.

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Along with the definition change, EBSA pledged to develop and release fuller guidance on specific provisions of ERISA for same-gender married couples.  

In the letter, Ronald Triche, assistant general counsel and director of government affairs for ASPPA, makes a number of recommendations on what should be included in the forthcoming guidance. 

Specifically, ASPPA recommends the following:

  • EBSA should deem plan distributions under pre-Windsor rules to be compliant in both form and operation with the plan document and ERISA;
  • Plan administrators should not be required to notify participants and spouses of new rules and only modify administrative forms where there is any gender-specific spousal reference on a going-forward basis;
  • Participants should have a duty to notify plan administrators about their same-gender spouses;
  • Exemptions should be granted for pre-Windsor prohibited transactions between a plan and a now-recognized same-gender spouse;
  • EBSA should publish model language for summary plan descriptions and summaries of material modifications to give notice to participants about the effect of the Windsor decision; and
  • DOL should grant relief from any refiling requirements and related penalties for plans that used an incorrect form for a pre-Windsor Form 5500 filing.
  • Triche cautions that incorporating the recommendations into EBSA guidance is essential to minimize disruption and uncertainty about the existence of same-gender spouses in ERISA plans.

A copy of the letter, including in-depth technical recommendations, is available here.

ASPPA is a national organization of more than 16,000 retirement plan and benefits professionals that serves as an educator and advocate for the employer-based retirement system.

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