Data & Research December 8, 2014

Fees Still Baffle Plan Participants

The majority of Wisconsin retirement plan participants still do not understand the fees they pay in a workplace-based retirement plan, according to a recent survey.
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Despite fee disclosure rules from the Department of Labor (DOL) that went into effect in 2012, about 80% of plan participants still struggle to understand the fees they pay for their plans, says Francis Investment Counsel, a registered investment adviser (RIA). One-quarter “haven’t got a clue.” Nearly half (48%) said they’ve “received information in the past, but don’t really understand the fees.” A handful (6%) said fees “don’t really matter.” Just 21% said they have “a good grasp of what I pay to participate.”

“Not being able to save enough” was the biggest retirement savings obstacle (40%), followed by concerns about “health care costs” (29%). 13% said “losing money in the market” was their biggest obstacle, 11% were concerned about “Social Security disappearing,” and 6% were concerned about an “insecure future at my job.”

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Most participants want some guidance, the survey found, with a majority (81%) saying they do not want to make investment decisions on their own. Instead, they would prefer to “learn about my situation and help me decide what to do.” More than half (66%) said they prefer to receive retirement planning and investment help through “one-on-one advice sessions,” and only 3% said they’d turn to “online tools,” the same percentage who said they’d prefer receiving retirement planning and investment help from family or friends.

“Clearly there is more work to be done to help participants understand the fees they are paying,” Kelli Send, senior vice president of participant services at Francis Investment Counsel, said in a statement. “Simply making an online retirement planning tool available to participants doesn’t seem to be the answer.”

The survey results indicate demand for personalized, face-to-face advice, according to Send, and show that participants at all income levels want someone to sit down with them to understand their unique situation and come up with a strategy that works for them.

Francis Investment Counsel conducted its survey of 1,400 plan participants at Wisconsin-based employers over 18 months. Respondents answered questions about retirement saving obstacles, retirement education, advice preferences and plan fees. The employers are clients of Francis Investment Counsel, and represent a variety of industries, including health care, manufacturing and professional/technical.

Francis Investment Counsel LLC, in Brookfield, Wisconsin, is a fee-only RIA that provides investment consulting and employee education services to the qualified plan marketplace.

Full survey results are available by emailing Stephanie Truog at Stephanie@Lowecom.com or Kelli Send at Kelli.Send@Francisinvco.com.

Compliance December 8, 2014

IRS Issues 2014 Cumulative List, Extends DB Plan Approval Period

The Cumulative List will primarily be used by single employer individually designed defined contribution plans and single employer individually designed defined benefit plans that are in Cycle E.
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In Notice 2014-77, the Internal Revenue Service (IRS) has provided the 2014 Cumulative List of Changes in Plan Qualification Requirements to be used by plan sponsors and practitioners submitting determination letter applications for plans during the period beginning February 1, 2015, and ending January 31, 2016.

Plans using this Cumulative List will primarily be single employer individually designed defined contribution plans and single employer individually designed defined benefit plans that are in Cycle E. Generally, an individually designed plan is in Cycle E if the last digit of the employer identification number of the plan sponsor is 5 or 0, or if the plan is a § 414(d) governmental plan (including governmental multiemployer or governmental multiple employer plans) for which an election has been made by the plan sponsor to treat Cycle E as the second remedial amendment cycle for the plan.

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In addition, in Announcement 2014-41, the IRS has extended to June 30, 2015, the deadline for submitting on-cycle applications for opinion and advisory letters for pre-approved defined benefit plans for the plans’ second six-year remedial amendment cycle. This announcement also provides a two-day extension (from Saturday, January 31, 2015, to Monday, February 2, 2015) for Cycle D on-cycle submissions (primarily individually designed plans including multiemployer plans).

The extension to June 30, 2015, applies to pre-approved defined benefit mass submitter lead and specimen plans, word-for-word identical plans, master and prototype minor modifier placeholder applications, and defined benefit non-mass submitter lead and specimen plans. The submission period for these applications is scheduled to expire on February 2, 2015.

This extension applies to all on-cycle pre-approved defined benefit plan submissions. In general, plans submitted in accordance with this extension will continue to be reviewed for qualification items based on the 2012 Cumulative List.

The IRS also said it expects to modify Revenue Procedure 2011-49 to expand the preapproved program to include defined benefit plans containing cash balance features and defined contribution plans containing employee stock ownership plan (ESOP) features. In addition, the IRS is developing tools, which will be available before June 30, 2015, to assist plan sponsors in drafting these plans.

 

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