Compliance July 10, 2013

ASPPA Supports Forfeitures to Fund Safe Harbor Contributions

The American Society of Pension Professionals & Actuaries (ASPPA) sent a comment letter to the Internal Revenue Service (IRS) regarding the use of forfeitures to fund ADP test safe harbor contributions and certain other contributions.
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ASPPA is supplementing a May 2012 comment letter to (1) provide additional support for its position that forfeitures can be used to fund these contributions, and (2) request that, in the absence of a change in ruling policy, Internal Revenue Code (Code) §7805(b) be applied to provide transitional relief to plan sponsors who may have reasonably believed that, in the absence of an express prohibition, their plan’s language permitted forfeitures to be used in this way.

The Society recommended the IRS change its ruling policy and, to the extent necessary, issue sub-regulatory guidance that confirms forfeitures are permissible sources for qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs) and that the non-forfeitable status of such amounts is determined at the time they become part of the accrued benefit of the recipient of the restricted contributions.

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The letter also said the IRS should apply the protections of Code §7805(b) liberally in circumstances where plan documents subject to a favorable opinion, notification or determination letter do not explicitly prohibit the use of forfeitures to fund these contributions.

The comment letter is here.

Compliance July 10, 2013

American Funds Offers Fiduciary Services

Both 3(21) and 3(28) fiduciary capabilities from Wilshire are offered on American Funds’ recordkeeping platform.
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American Funds decided to offer fiduciary services to plan sponsors but is not profiting from the service; plans pay a minimal fee to Wilshire Associates directly. For plans with fewer than 25 participants using the 3(21) service or the 3(28) service, the annual charge is $300 and $600, respectively. For plans with 26 to 300 participants, the annual charge is $500 and $700, respectively, and for plans that have 301 to 500 participants, the annual charge is $600 and $1,000.

American Funds launched the service last summer, “in response to advisers’ request for third-party services,” said Bill Anderson, senior vice president and director of retirement business at the firm.

“We did a search for an independent third-party fiduciary, examining their core values and methodology,” Anderson said, “and ultimately started the program with Wilshire Associates. We receive no compensation from plan sponsors or Wilshire but are offering this as a convenience to our plan sponsor and plan adviser clients. We think it represents a value.”

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Asked what the reaction among clients has been, Anderson says it has been very positive. “Many advisers will provide this service themselves, but given the heightened sensitivity to fiduciary obligations, many plan sponsors and plan advisers have been interested in this,” he said.

As of July 9, 212 plans are making use of American Funds’ independent fiduciary offering from Wilshire. Of these, the majority, 136, have elected 3(21) services, with the remainder, 76, electing 3(38) services.

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