An open Internal Revenue Service (IRS) webcast scheduled for
August 11, 2016, at 2 p.m. EST will discuss and dissect the agency’s new
approach to individually designed plan determination letters and remedial amendment periods.
Webcast attendees will hear IRS
officials break down the new
guidance for individually designed plans. IRS officials will also cover when limited determination letters may be available in the future; the new approach to remedial amendment
periods; changes to interim amendment rules; and new tools to help plans make
required amendments.
The webcast comes as the IRS is
working to implement Revenue Procedure 2016-37, generally effective January 1,
2017, which fundamentally overhauls the determination letter program for
tax-qualified individually designed plans, and changes the requirements
for when plan amendments must be adopted under IRC Section 401(b). Further, Rev. Proc. 2016-37 ends the remedial
amendment cycle (RAC) system and replaces it with a new approach to the
remedial amendment period.
401(k) plan participants tend to be invested in lower-cost mutual funds, the Investment Company Institute (ICI) finds.
At
year-end 2015, 89% of mutual fund assets in 401(k) plans were held in
institutional and retail no-load share classes, while the remaining
assets were held in load share classes, predominantly in share classes
that do not charge retirement plan participants a front-end load.
The
cost of investing in equity mutual funds through 401(k) plans fell
again in 2015, marking a 31% decline since 2000, according to annual
research from ICI. The study report, “The Economics of Providing 401(k)
Plans: Services, Fees, and Expenses, 2015,” notes that a separate ICI
survey found mutual funds comprise 60% of the $4.7 trillion in 401(k)
plan assets at year-end 2015.
The average expense ratios that
401(k) plan participants incurred for investing in equity, hybrid, and
bond funds fell in 2015 for the sixth straight year. For equity funds,
401(k) plan participants incurred an average expense ratio of 0.53%,
which was less than the asset-weighted average expense ratio of 0.68%
incurred by all investors in equity funds and less than half the
industrywide simple average of 1.31% for all equity funds offered in the
United States in 2015. The average expense ratio that 401(k) plan
participants incurred for investing in hybrid funds fell to 0.54% in
2015, compared to 0.55% in 2014. And the average expense ratio that
401(k) plan participants incurred for investing in bond mutual funds
fell to 0.38% in 2015, from 0.43% in 2014.
“The data underscore
the significant trend of declining fees since 2000 that 401(k) plan
participants have paid to invest in mutual funds,” says Sean Collins,
ICI’s senior director of industry and financial analysis. “There is a
vibrant and competitive market for investors to shop among mutual funds
and other investment products, which has fueled the trend in declining
fees to the benefit of investors.”
ICI concludes that numerous
factors contribute to the relatively low expense ratios incurred by
401(k) plan participants investing in mutual funds, including:
competition among mutual funds and other investment products to offer shareholders service and performance;
plan sponsor decisions to cover a portion of 401(k) plan costs, which allow them to select lower-cost funds or share classes;
economies of scale, which large investors such as 401(k) plans can achieve;
cost- and performance-conscious decisionmaking by plan sponsors and plan participants; and
the limited role of professional financial advisers in these plans.