Compliance March 28, 2012

How Advisers Can Help Sponsors Avoid Plan Audits

With the number of retirement plan audits expected to rise, plan advisers should be proactive in helping plan sponsors avoid hefty fines.
Reported by

Tom Foster, ERISA attorney and vice president/national spokesperson for The Hartford’s Retirement Plans Group, told PLANADVISER that statistics from the Department of Labor (DoL) indicate more plan audits are on the way. Under the DoL’s budget for Fiscal Year 2010, it expected to hire nearly 1,000 new employees, including about 670 investigators.

“The DoL is really taking this stuff seriously,” Foster said.

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An estimated 70% of retirement plans audited by the Department of Labor (DoL) in 2009 and 2010 were fined, received penalties or had to make reimbursements for errors, according to the DoL. DoL statistics show the agency achieved $1.08 billion in corrections, reinstatements and fines.  

Foster cited common mistakes made by plan sponsors such as failing to:   

  •  Follow the plan document;
  •  Bring new employees into the retirement plan in a timely manner;
  •  Follow loan provisions properly;
  •  Submit referrals on a regular basis; and
  •  File a 5500 form.

 

Some plan sponsors assume the third-party administrator (TPA) is taking care of these things, according to Foster. “There’s an assumption [by plan sponsors] that someone else is doing it for them, and that it’s not really their fault, per se,” he said.

Foster suggests plan advisers do the following to help plan sponsors avoid audits:  

  • Present statistics: Show plan sponsors statistics on how many plans were fined, the cost of fines, and so on. Bringing awareness to plan sponsors helps them avoid complacency. Some plan sponsors think there are no repercussions, but sharing statistics makes them aware of the adverse consequences of falling out of compliance, Foster said.
  • Provide helpful materials: The IRS publishes a list of the most common mistakes in a 401(k) plan and how to fix them. Foster suggests advisers review this list with plan sponsors and provide them with any other helpful materials and fiduciary guides.
  • Utilize the provider’s resources: Providers have tools and services advisers can use to educate plan sponsors on how to avoid audits. “I always say to advisers, ‘As long as you have a client who has a need, don’t walk away from it because you feel you don’t have the tools,’” Foster said.
  • Conduct reviews: Foster suggests advisers conduct reviews at least semi-annually to monitor whether a plan is compliant. “Absolutely no less frequent than annually,” he added.
  • Make the plan sponsor feel comfortable: If an adviser can make a plan sponsor feel comfortable, the adviser creates credibility, which can be a powerful prospecting tool. Taking an active role in the overall plan wellbeing rather than just the investment side is a crucial part of being a good adviser, Foster stated. “One of the greatest tools we have as an adviser is credibility,” he said. “[This] is a credibility-creating opportunity.”
The Markets March 27, 2012

Communication Designs Make a Difference with Younger Participants

How communications are framed is known to influence how readers respond to them.
Reported by

New research from the Center for Retirement Research (CRR) at Boston College indicates that employers may want to ensure their communication strategies take into account the mindset of younger workers, for whom retirement is a vague and distant event. Materials appealing to their abstract way of thinking may be more effective in persuading them to begin saving or to save more, but they may also respond to more concrete guidance if a savings milestone is presented as a short-term goal, such as how much to save each pay period.    

The results of CRR’s study showed that the saving intentions of younger workers (ages 18-34) were heavily influenced by the interaction of the communication frame (abstract vs. concrete) with the time frame of the savings goal (long-term vs. short-term). Among the two ads with abstract framing, young employees were more responsive to the one that proposed the long-term savings goal. This ad was associated with both a higher intended likelihood of saving and a higher intended saving rate.    

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However, younger employees also responded strongly to the concrete ad that proposed a short-term savings goal—a biweekly deduction.    

Those who saw the abstract ad with the long-term goal (lifetime savings) reported they intended to save, on average, 17.8% of their salary, well above the 9.5% saving rate for the mismatched abstract, short-term ad. 

The ad pairing concrete framing and a short-term goal (a bi-weekly paycheck deduction) was associated with a 20.4% saving rate, compared with just 14.1% for the concrete, long-term ad.  

It should be noted that older workers’ (ages 50 to 64) intentions were not significantly influenced by the type of framing or goals presented to them.

 

 

The Research  

For its study, CRR presented one of four ads to four groups of participants. The headline for the two abstract ads said, “Why you should save more now to ensure you are on the right path to retirement. The two concrete ads said, “How you can save more to ensure you are on the right path to retirement.”  

Abstract or concrete wording was also embedded in descriptions of what participants could do to save. The two abstract ads gave vague, non-urgent directions: “If you haven’t done so already, you may want to consider setting up a retirement account. … You should consistently contribute an amount of money that you can afford. … ”      

In contrast, the two concrete ads advised participants to take four specific steps: 

  • Set up your 401(k) or IRA through your employer or financial adviser. 
  • Aim to contribute 15% of your paycheck or consistently contribute what you can and slowly increase the amount if possible. 
  • Invest in a single balanced fund that automatically adjusts the level of risk as you age. 
  • Review your account each year to ensure it is meeting your objectives. 

The ads also presented each participant with either a short- or a long-term savings goal.    

The complete report can be downloaded from http://crr.bc.edu/briefs/how-can-employers-encourage-young-workers-to-save-for-retirement.

 

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