Compliance November 23, 2011

IRS Gives Update on 401(k) Questionnaire Project

Over 95% of the 1,200 plan sponsors contacted by the Employee Plans Compliance Unit of the IRS voluntarily completed an online 401(k) Compliance Check Questionnaire.
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The Internal Revenue Service (IRS) initiated examinations on the plans of sponsors who didn’t answer the questionnaire and collected the questionnaire data during the examination (see “Non-Responders” to IRS Questionnaire May be Examined“). The agency will post an interim report soon to www.irs.gov/retirement. The final report will be completed by the end of FY 2012 and the IRS will announce when it’s posted on the website.

According to the agency, the questionnaire data will be used to improve its web-based tools and guidance, including the Employee Plans Compliance Resolution System; enhance its compliance strategies; improve voluntary compliance through education and outreach efforts and, where appropriate, expand enforcement activities.

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The project was started in May 2010 (see “IRS Provides 401(k) Questionnaire Details“), and the survey sought plan information on:

  • Demographics
  • Participation
  • Employer and employee contributions
  • Top-heavy and nondiscrimination testing
  • Distributions and plan loans
  • Other plan operations
  • Automatic contribution arrangements
  • Designated Roth features
  • IRS voluntary compliance and correction programs
  • Plan administration

More information on the project is at http://www.irs.gov/retirement/article/0,,id=223440,00.html.

 

Products November 23, 2011

White Paper Discusses Risk in Alternative Investments

The Greenwich Roundtable released a white paper discussing how investors can manage complexity of alternative investments to improve their returns.
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The Greenwich Roundtable is a not-for-profit research organization comprised of institutional investors overseeing collectively $2.2 trillion in assets. The research paper analyzes the risks involved in hedge funds and private equity, and describes the best practices and due diligence steps that investors need to pursue to manage those risks.  The paper also explores the complexity of volatility, leverage, and liquidity and how these factors together can compound risk.   

“Complexity and volatility are the norm for investors, as today we seem to have a 100-year financial storm about every three years or so.  As a result, returns for the decades ahead are almost assuredly going to look much different,” said Steve McMenamin, executive director of The Greenwich Roundtable.  “Those investors who can manage volatility and understand the complexity embedded in their portfolios will continue to be the long-term winners.”

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Key insights described in the white paper include:

  • The cost of alternatives strategies is the complexity they add.  The benefit is the ability to source returns from a broader spectrum of opportunities.
  • Correlations matter, and they vary through time.  Investors must try to understand the changing nature of relationships across their portfolios.
  • Investors need to understand how each manager approaches leverage and evaluate the appropriateness of the amount and duration of that leverage.
  • Liquidity is dynamic.  It changes as markets change.  This calls for ongoing due diligence and manager monitoring, including stress tests and projections with ample wiggle room.

“Each investor must decide whether it is adequately prepared to invest competently in alternative investments,” said Rusty Olson, former director of pension investments for Eastman Kodak Company and editor of the paper. 

This is the sixth in a series of white papers on Best Practices in Alternative Investments published by The Greenwich Roundtable. Information about obtaining a copy is available at www.greenwichroundtable.org

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