Compliance August 13, 2018

Non-ERISA 403(b) Plan Sponsor Cited for Late Deposit of Deferrals

A charter school in New Orleans has been told it has violated federal law and its obligations regarding financial management as identified in the charter operating agreement.

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Even though public K-12 school 403(b) plans are not subject to the Employee Retirement Income Security Act (ERISA), a charter school in New Orleans has been told it has violated federal law by not depositing employees’ 403(b) plan contributions in a timely manner.

The Edgar P. Harney Spirit of Excellence Academy received a Notice of Non-Compliance, Level 2, “because the school has been deemed non-compliant with its contractual obligations regarding financial management as identified in the charter operating agreement,” according to a letter sent to school officials by the Orleans Parish School Board.

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The letter identifies dates of employee withholdings from October 15, 2017, through December 31, 2017, that were not transferred to the plan’s recordkeeper until February 19 and 20, 2018.

The letter says the Orleans Parish School Board has received conflicting information about who is responsible for financial management at the school.  In addition, the letter notes that there are three separate accounts using a church address, which is in violation of Louisiana state law, which says “a charter school shall not be supported by or affiliate with any religion or religious organization or institution.”

Among other things, the school board has asked the charter school to provide documentation that the affected participants have been notified of the delay of the transfer of contributions and to submit a plan to address any potential investment losses by employees as a result of the late transfer of contributions.

Data & Research August 13, 2018

Preparing Participants for Retirement Is Sponsors’ Top Concern

To help employees achieve their savings goals, 82% of sponsors are making changes to plan design, and 83% are updating their investment menus.

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Plan sponsors’ top concern, cited by 33%, is preparing participants financially to be able to retire, the Fidelity Investments’ Plan Sponsor Attitudes Study found. Last year, their top concern, cited by 32%, was reducing plan costs.

To help employees achieve their savings goals, 82% of sponsors are making changes to plan design, and 83% are updating their investment menus. As to why they are changing their investment menus, 33% said it was to replace an underperforming fund, 28% said it was to add an index fund, 25% said it was to add a lower-cost class of shares, and 23% said it was to add a managed account.

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As to changes to plan design, 26% said they added automatic enrollment, down from 42% in 2017. All told, 51% of the survey respondents automatically enroll their participants. Fidelity says many sponsors are missing out on this significant way to increase participation, as auto enrollment can increase participation anywhere from 50% to 87%. Twenty-three percent of sponsors increased their plan’s default deferral rate, and 29% added automatic escalation.

Thirty-nine percent added or changed a matching contribution, up from 25% in 2017. Asked why they did this, 56% said it was to increase participation, and 47% did it to increase savings rates.

Seventy percent of sponsors have a goal for retirement income. Fidelity says aiming to replace 45% of income is a reasonable replacement, but 37% of sponsors have a goal of less than 40%.

Sixty-five percent of sponsors say their retirement plans compete for funding with health and other benefits. Fifty-four percent have reduced or deferred spending on other benefits due to high health care costs. Twenty-five percent do not offer health savings accounts (HSAs). Among those sponsors using HSAs, 32% said it is to lower health insurance costs through high deductible health plans.

Ninety-two percent of sponsors work with a retirement plan adviser, the highest percentage since Fidelity started this survey in 2008. Twenty-two percent are actively looking to switch their advisers, down from an all-time high of 38% in 2017. Asked why they hired an adviser, 27% said it was to improve their plans, up from a mere 7% in 2017.

“We view the increased focus on driving plan participants’ engagement and savings rates as a positive shift,” says Jordan Burgess, head of specialist field sales, overseeing defined contribution investment only (DCIO) sales at Fidelity Institutional Asset Management. “Plan sponsors can work with advisers to boost retirement readiness for plan participants, in addition to leveraging them as a resource to manage the challenges and costs of the plan.”

Harris Insights and Analytics conducted the online survey for Fidelity among 1,124 plan sponsors in February.

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