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The Power ofPartnership.

A n o f f i c i a l p u b l i c a t i o n o f A S P P A

SPRING 2016

IRS Employee Plans — The ‘New Normal’

Takeovers and Conversions

My 50 Years as a Pension Actuary

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How to connect with allgenerations of participants

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* Plan Sponsor must make appropriate disclosures and notifications to plan participants, and may utilize the notification services of Millennium Trust Company to satisfy safe harbor requirements. Millennium Trust Company performs the duties of a custodian and, as such, does not provide any investment advice, nor offer any tax or legal advice.

YEARS OFBUSINESS

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1WWW.ASPPA-NET.ORG

Generation NowHow to connect with all three generations of participants.

BY CAM MARSTON

COVER STORY

30

SPRING 2016Contents

26 Plan Takeovers and Conversions: Pitfalls and Pointers (Part 2)

Steps to takeover success.

BY ROBERT E. (BOB) MEYER, JR.

FEATURE STORIES

6 From the President JOSEPH A. NICHOLS

7 ASPPA Conferences

11 ASPPA History Website Now Online

51 New and Recently Credentialed Members

60 Government Affairs Update CRAIG P. HOFFMAN

ASPPA IN ACTION

36 50 Years as a Pension Actuary

A past president looks back on how his 50 years in the industry intertwined with ASPPA’s history.

BY HOWARD M. PHILLIPS

40 IRS Employee Plans — the ‘New Normal’

Restructuring and budget cuts bring change.

BY RICHARD A. HOCHMAN

2 PLAN CONSULTANT | SPRING 2016

44 Operational Self Audits: How to Avoid the Financial Pitfalls of Qualified Plans WORKING WITH PLAN SPONSORSJOEL SHAPIRO

48 Mapping Your Business Workflows BUSINESS PRACTICES

GREG FOWLER

52 Want Your Employees To Be Productive, Faster? EDUCATION

BRIAN FURGALA

54 Reporting Professional Misconduct (Part 2) ETHICS

LAUREN BLOOM

56 QACAs: Making Retirement Veggies More Than Palatable SUCCESS STORIES

JOHN IEKEL

58 Work Smarter by Leveraging Cheap Tech TECHNOLOGY

YANNIS P. KOUMANTAROS AND ADAM C. POZEK

04 Letter from the Editor

08 Cross-Tested Plans in the Crosshairs (Again) REGULATORY/LEGISLATIVE UPDATE

BRIAN H. GRAFF

10 Year-End Tax and Spending Bill Has Retirement Implications LEGISLATIVE

12 A Fresh Look at After-Tax Contributions COMPLIANCE

KELSEY N.H. MAYO AND KELLY MARIE HURD

16 Coping with the Changes to ASOP 35 ACTUARIAL

WILLIAM D. KARBON

20 What’s Next for Pre-approved Plan Documents? LEGAL

DAVID N. LEVINE

22 Key Issues in 403(b) Plan Takeovers RECORD KEEPING

JOHN JEFFREY

584420COLUMNS

TECHNICAL ARTICLES

PRACTICE MANAGEMENT ARTICLES

Published by

Editor in ChiefBrian H. Graff, Esq., APM

Plan Consultant CommitteeMary L. Patch, QKA, QPFC, Co-chair

David J. Witz, Co-chairGary D. Blachman

John D. Blossom, Jr., MSPA, QPFCJason D. Brown

Kelton Collopy, QKAKimberly A. Corona, MSPAJohn A. Feldt, CPC, QPAJohn Frisvold, QPA, QKA

Catherine J. Gianotto, QPA, QKABrian J. Kallback, QKAPhillip J. Long, APM

Kelsey H. MayoRobert E. Meyer, Jr, QKAMichelle C. Miller, QKARobert G. Miller, QPFC

Eric W. Smith

EditorJohn Ortman

Associate EditorTroy L. Cornett

Senior WriterJohn Iekel

Graphic DesignerIan Bakar

Technical Review BoardMichael Cohen-Greenberg

Sheri Fitts Drew Forgrave, MSPA

Grant Halvorsen, CPC, QPA, QKA Jennifer Lancello, CPC, QPA, QKA

Robert Richter, APM

Advertising SalesErik Vanderkolk

[email protected]

ASPPA Officers

PresidentJoseph A. Nichols, MSPA

President-ElectRichard A. Hochman, APM

Vice PresidentAdam C. Pozek, QPA, QKA, QPFC

Immediate Past PresidentKyla M. Keck, CPC, QPA, QKA

Plan Consultant is published quarterly by the American Society of Pension Professionals & Actuaries, 4245 North

Fairfax Drive, Suite 750, Arlington, VA 22203. For subscription information, advertising, and customer service contact ASPPA

at the address above or 800.308.6714, [email protected]. Copyright 2016. All rights reserved.

This magazine may not be reproduced in whole or in part without written permission of the publisher. Opinions

expressed in signed articles are those of the authors and do not necessarily reflect the official policy of ASPPA.

Postmaster: Please send change-of-address notices for Plan Consultant to ASPPA, 4245 North Fairfax Drive, Suite 750,

Arlington, VA 22203.


ASPPA History Now Online

A new website dedicated to ASPPA’s rich history at the forefront of the retirement industry is now online, at asppa50.org/.

Designed to complement the ASPPA history book currently in progress, the website includes material uncovered in the course of researching, writing and editing the book, including:

• Photos from ASPPA Annual Conferences going back to 1974, and more.

• Documents from the ASPPA archives and other sources, including the 1966 certificate of incorporation, articles from The Pension Actuary by prominent leaders of the past, and more.

• Videos, starting with ones marking ASPPA’s 25th anniversary in 1991 (and featuring founder Harry T. Eidson) and previewing this year’s 50th anniversary celebration.

We’ll be adding photos, documents and new videos on a regular basis. When we do, we’ll let you know in an ASPPA Connect post. Check it all out at asppa50.org/, or click on “ASPPA History” in the “About” section of ASPPA Net’s nav bar.

L E T T E R F R O M T H E E D I T O RPC

Yet in the face of those dire circumstances, it’s clear that society cares about Millennials’ financial situation in general and their retirement prospects in particular — led by the retirement industry’s fairly recent focus on this generation of future savers.

More importantly, it looks like Millennials themselves are starting to show signs of having the “right stuff” when it comes to managing their finances. Increasingly, retirement industry surveys and studies are showing that Millennials’ views of their financial future, especially regarding saving for retirement, are distinctly realistic and positive. And when they do save, they tend to be risk averse.

Realistic, positive and risk averse. Sounds like a pretty good foundation to build a financial future on to me. Perhaps what this all means is that for Millennials, financial responsibility is officially becoming… cool.

Doubt it? In a new music video about student debt, rapper Dee-1 proclaims his happiness at finally finishing “paying Sallie Mae back.” The lyrics include references to checking his credit on Equifax and working two jobs to pay off his loans.

For a deeper dive into how Millennials — as well as Boomers and Gen Xers — are different, check out this month’s cover story by generational authority Cam Marston.

Comments, questions, bright ideas? Contact me at [email protected].

burden of student debt, but also including stagnant wages, the rising cost of child care and fewer opportunities to build wealth in the same manner as previous generations did. This includes saving for retirement. A Young Invincibles survey found that about half of employed, low-income Millennials don’t have access to a retirement plan at work. In New York State, AARP research indicates, that figure is north of 60%.

eed some good news? Try this on for size.

Back in February, AARP and Young Invincibles, a national nonprofit, nonpartisan organization that advocates

on behalf of 18- to 34-year-olds, cosponsored a happy hour event in New York City’s Greenwich Village called “Cheers to Your Future.” The focus: young people’s retirement prospects.

Now recall what you know about Boomers and Gen Xers when they were in their 20s. Retirement solutions weren’t even on their radar. But for today’s 85 million Millennials — those born between 1980 and 2000 — things are different.

Millennials are facing multiple economic pressures, especially the

JOHN ORTMANEDITOR-IN-CHIEF

What’s Different About Millennials?

NIt looks like Millennials are starting to show signs of having the ‘right stuff’ when it comes to managing their finances.”

Assessments performed by CefeX, Centre for fiduCiAry eXCellenCe, llC.

For more information on the certification program, please call 416.693.9733.

*As of September 5, 2014

AsppA retirement plan service provider

The following firms are certified* within the prestigious

ASPPA Service Provider Certification program. They have

been independently assessed to the ASPPA Standard of

Practice. These firms demonstrate adherence to the industry’s

best practices, are committed to continuous improvement and

are well-prepared to serve the needs of investment fiduciaries.

Actuarial Consultants, Inc.

Alliance Benefit Group North Central States, Inc.

Alliance Benefit Group of Illinois

Alliant Employee Benefits, a division of

Alliant Insurance Services, Inc.

American Benefits Systems, Inc. d.b.a.

Simpkins & Associates

American Pensions

Aspire Financial Services, LLC

Associated Benefit Planners, Ltd.

Atessa Benefits, Inc.

Atlantic Pension Services, Inc.

Benefit Management Inc. dba United

Retirement Plan Consultants

Benefit Planning Consultants, Inc.

Benefit Plans Plus, LLC

Benefit Plans, Inc.

Benefits Administrators, LLC

Blue Ridge ESOP Associates

BlueStar Retirement Services, Inc.

Creative Plan Designs Ltd.

Creative Retirement Systems, Inc.

DailyAccess Corporation

DWC ERISA Consultants, LLC

First Allied Retirement Services /

Associates in Excellence

Great Lakes Pension Associates, Inc.

Ingham Retirement Group

Intac Actuarial Services, Inc.

July Business Services, Inc.

Kidder Benefits Consultants, Inc.

Moran Knobel

National Benefit Services, LLC

North American KTRADE Alliance, LLC.

Pension Associates International

Pension Financial Services, Inc.

Pension Planning Consultants, Inc

Pension Solutions, Inc.

Pentegra Retirement Services

Pinnacle Financial Services Inc.

Preferred Pension Planning Corporation

Professional Capital Services, LLC

QRPS, Inc.

Qualified Plan Solutions, LC

Retirement Planning Services, Inc.

Retirement Strategies, Inc.

Rogers Wealth Group, Inc.

RPG Consultants

Securian Retirement

SI Group Certified Pension Consultants

SLAVIC401K.COM

Summit Benefit & Actuarial Services, Inc.

TPS Group

Trinity Pension Group, LLC

*as of August 24, 2015


F R O M T H E P R E S I D E N TPC

This is the main task of the 2016 ASPPA Leadership Council — to determine a path for strategic planning to maintain the passion. Notice I did not say, “develop a plan,” but rather determine a path for the planning. As passionate as our LC members are (and believe me, there is no shortage of passion during our meetings), they also have day jobs, and the important work involved in understanding what motivates our members cannot be done in a couple of phone calls. And it is important. We are trying to figure out how this incredible association can keep its passionate energy going for many years to come.

So as we continue to celebrate our 50th anniversary, think about what drives your ASPPA passion. Share your thoughts with me at [email protected]. And think especially about how (or if ) that passion changed throughout your career, either within the same firm or as you moved from firm to firm.

Most of all, thank you, everyone, for your ASPPA passion!

Joseph A. Nichols, MSPA, ASA, EA, MAAA, is ASPPA’s 2016 President. A senior director with FTI Consulting’s Pension Consulting Services group, he has provided pension actuarial services to a wide range of plan sponsors for more than 25 years.

growth since those days, that “working hard because we are the little guy” element still exists today.

Throughout the years, there have been many challenges that have tested ASPPA. Sometimes the passion gets in our way, but in the end, it guides us to be a stronger association. For just one example, ASPPA’s impassioned but reasoned response to the IRS’ small-plan audit initiative in the early 1990s forged a dynamic image for the organization.

My own ASPPA passion started in the second half of the 1990s when, while I was working on my first small business defined benefit plan, my colleague (and good friend to this day) Janet Thompson introduced me to ASPPA. My passion started with teaching local ASPPA courses, jumped to being an ASPPA rep for the Joint Board exam writing committee, and continued as I helped out in committee and leadership positions.

Most ASPPA presidents probably think that in their year, the association is at a crossroad. I cannot think of a year recently in which something monumental did not happen, either within ASPPA or our industry.

To me, here’s the crossroad we face in 2016: Now that we are settled into our role as a sister organization within the American Retirement Association, are better able to focus on the needs of our members and future members, and have realized that the makeup of our industry is shifting through growth, consolidation and attrition, what path do we choose to maintain the ASPPA passion?

s we wind down another Winter busy season (getting ready for the Spring busy season), I cannot help but think about how we got here. Not how we got here on this crazy rock circling

a flaming gas ball, but how ASPPA got where we are.

We know it all started with three guys writing down some goals on a bar napkin. We also know that there has always been a tremendous amount of passion and devotion to our profession driving us along the path we are traveling. That’s when it dawned on me — it’s the passion.

Passion drives ASPPA in many different ways. To some, passion for ASPPA means loyally attending the Annual Conference year after year, not only to keep up on PE requirements, but also to see our other passionate ASPPA friends. To others, passion means writing a check to ASPPA PAC year after year because the root of our existence depends on ASPPA’s Government Affairs staff and volunteers engaging with elected officials. And to still others, passion means being on a committee to plan a conference, draft an ASPPA asap or help run a local ASPPA Benefits Council (ABC) year after year.

Note the common themes in the above paragraph — passion and year after year.

So, what drives the passion? At the time three pension professionals in Texas founded ASPPA in 1966, I think the passion existed because many actuaries’ professional lives were at stake. And despite our monumental

ASPPA PassionHow do we keep the passion alive going forward?

A

BY JOSEPH A. NICHOLS

7WWW.ASPPA-NET.ORG

UPCOMING CONFERENCES

MAY 2016

May 19–20 ASPPA RegionalConference: Philadelphia Philadelphia, PA

JUNE 2016

June 6–9 Women Business Leaders Forum New Orleans, LA

June 16–17 ASPPA RegionalConference: Chicago Chicago, IL

JULY 2016

July 14–15 ASPPA RegionalConference: Boston Boston, MA

July 19–22 Western Benefits Conference Seattle, WA

AUGUST 2016

August 12–13 ACOPA Actuarial SymposiumChicago, IL

BOSTON JULY 14–15, 2016

HILTON BACK BAY

CHICAGO JUNE 16–17, 2016

HOTEL CHICAGO

PHILADELPHIA MAY 19–20, 2016 MARRIOTT DOWNTOWN

CINCINNATINOV. 16–17, 2016

NORTHERN KENTUCKY CONVENTION CENTER

REGIONALC O N F E R E N C E S

AMERICAN SOCIETY OF

PENSION PROFESSIONALS

& ACTUARIES

NOVEMBER 2016

Nov. 16–17ASPPA Regional Conference: Cincinnati Covington, KY

OCTOBER 2016

Oct. 23–26ASPPA Annual ConferenceNational Harbor, MD


workforce. It’s jarring that this proposal was unveiled the very same week that the Obama administration publicly came out in support of another proposal to open up private multiple employer plans to any unrelated employer, ostensibly to encourage small businesses to adopt retirement plans and increase retirement plan coverage in the private workforce.

As the Obama administration notes, millions of private sector workers do not have access to a retirement savings plans provided through the workplace. And moderate-income workers without access to a workplace based retirement savings plan rarely save for retirement. Small businesses employ many of these workers.

We need to do everything we can to increase access to retirement plans at work, especially among small businesses. The Treasury proposal is a classic case of the left hand of the federal government not knowing what the right hand is doing. This proposal is a step in the wrong direction — and needs to be rejected.

Brian H. Graff, Esq., APM, is the executive director of ASPPA.

would impose new costs on the small businesses that have these plans and scare away small businesses that are considering adopting these plans.

These cross-tested plans are some of the most popular defined contribution plan designs being used today in the small plan market. Needlessly damaging this effective plan design ultimately hurts the rank-and-file employees who have access to these plans. Remember, rank and file workers enjoy meaningful benefits under the current nondiscrimination rules — which have been in place for more than 10 years — since cross-tested plans need to satisfy the minimum allocation gateway rules.

The gateway allocation rules require that non-highly compensated employees get an annual contribution of 5% of pay in a defined contribution plan (or one-third of the allocation rate of highly compensated employees).

Additionally, if a company has a defined benefit plan in combination with a defined contribution plan, this minimum rate increases on a sliding scale up to 7.5% of pay (also depending on the allocation rate of highly compensated employees). Therefore, rank-and-file workers get more employer cash under these widely used arrangements — which are now seriously at risk — than they do under the common safe harbor plan designs that are not subject to nondiscrimination testing.

The Treasury proposal flies in the face of the Obama administration’s effort to increase retirement plan coverage in the private sector

mall business retirement plans are again under attack. Buried in a Treasury Department proposal to make it easier for large corporations to close their defined benefit plans to new

entrants is a provision that will make it harder for small businesses to form new retirement plans or maintain their current ones.

The proposal imposes a new “reasonable classification” requirement on highly compensated employee rate groups that will make it significantly harder for plans that allocate these rate groups on an individual or specific basis to pass the general nondiscrimination test used for cross-tested defined contribution plans under Section 401(a)(4) of the Internal Revenue Code.

There are major problems with this new requirement. First, determining “reasonable classification” is inherently a subjective process based on the facts and circumstances of each business in question. This subjective test removes the objective purely numerical nondiscrimination testing regime that has been in place for more than two decades. The result is to increase the uncertainty and complexity of an already complicated process.

Second, the new requirement unfairly burdens small businesses because they will likely have very small rate groups. So Treasury is in essence forcing small businesses to test on a ratio percentage basis rather than an average benefits basis, which

A new proposal from the Treasury Department is a step in the wrong direction — and needs to be rejected.

S

Cross-Tested Plans in the Crosshairs (Again)

REGULATORY/LEGISLATIVEUPDATE

BY BRIAN H. GRAFF

9WWW.ASPPA-NET.ORG

ERISATHE

OUTLINE BOOK

2016

Sal L. Tripodi, J.D., LL.M.

www.asppa.org/EOB800.308.6714

Print & Online Editions Available


LEGISLATIVE

H.R. 2029 affects IRAs, church plans and more.

Year-End Tax and Spending Bill Has Retirement Implications

On Dec. 18, 2015, President Obama signed into law H.R. 2029, a massive year-end spending and tax bill containing a number of provisions affecting health and retirement plans.

H.R. 2029 includes both an omnibus appropriations bill that funds the government through Sept. 30, 2016 (the Consolidated Appropriations Act, 2016, or “CAA”) and an “extender” (in some cases, a permanent one) of a large number of expiring or expired tax incentives (the Protecting Americans from Tax Hikes Act of 2015, or “PATH Act”). While most employers have probably focused on aspects like the legislation’s two-year delay of the high-cost employer-sponsored health coverage excise tax (a.k.a. the “Cadillac tax”), H.R. 2029 also includes the following retirement-related provisions.

CHARITABLE DISTRIBUTIONS FROM IRAsThe PATH Act permanently extends the ability

of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from IRAs, effective for 2015 and later years. However, that exclusion may not exceed $100,000 per taxpayer in any tax year.

CHURCH PLAN CHANGESThe PATH Act includes a long-pending package of

church plan changes, including:• a provision that the IRS cannot aggregate certain church

plans together for purposes of the nondiscrimination rules;• flexibility for church plans to choose other church plans

with which they associate;• prevention of certain grandfathered church defined benefit

plans from having to meet certain requirements relating to maximum benefit accruals;

• allowing defined contribution church plans to offer automatic enrollment;

• streamlining the rules for merging and reorganizing church plans; and

• allowing church plans to invest in 81-100 collective trusts.

ROLLOVERS TO SIMPLE IRAsThe PATH Act allows participants to roll over their

accounts from an employer sponsored retirement plan to a SIMPLE IRA, provided the participant’s SIMPLE IRA is at least two years old. Previously, SIMPLE IRAs were not permitted to accept such rollovers at all.

11WWW.ASPPA-NET.ORG

The ASPPA History Site is Now Online

ASPPA History Site Now OnlineASPPA History Site

Featuring videos, photos from the ASPPA archives and documents from past presidents, members and other sources, the ASPPA history website celebrates our contributions to the pension and retirement industry and the actuarial

profession – and the people who made it all happen. It’s designed to complement the ASPPA history book currently in progress, and includes photos and documents uncovered in the course of researching, writing and editing the book.

A new website dedicated to ASPPA’s rich history at the forefront of the retirement industry is now online!

asppa50.org

Photos from ASPPA Annual Conferences going back to the 1974

conference, held a month after ERISA was signed into law, and more.

Documents from the ASPPA archives and other sources, including the 1966

certifi cate of incorporation, ASPPA Presidents’ speeches, scripts of tributes to Chet Salkind and Ed Burrows, articles from The Pension Actuary by prominent

leaders of the past, and more.

Videos starting with ones marking ASPPA’s 25th anniversary in 1991 (and featuring founder Harry T.

Eidson) and previewing this year’s 50th anniversary celebration.

You’ll also fi nd a little background on the work-in-progress ASPPA history book, Leading the Evolution: ASPPA’s 50 Years at the Forefront of the Retirement Industry, coming in October.

Check it all out at asppa50.org/, or click on “ASPPA History” in the “About” section of the ASPPA Net nav bar.

should make U.S. real estate investments more attractive to non-U.S. pension plans.

AIRLINE EMPLOYEE IRA ROLLOVERS

The PATH Act corrects an effective date problem affecting rollovers to IRAs of amounts received by qualified airline employees as a result of certain airline bankruptcies. Those distributions generally may be rolled over within 180 days of receipt or, if later, within 180 days of the Dec. 18, 2014 enactment of the changes.

FILING OF WAGE REPORTING FORMS

Beginning with the 2017 tax year, Forms W-2, W-3 and 1099-MISC must be provided no later than Jan. 31 of the year following the calendar year to which the tax return applies.

The PATH Act includes a long-pending package of church plan changes.”

EXTENDED EARLY WITHDRAWAL RELIEF FOR PUBLIC SAFETY OFFICERS

The PATH act extends the current relief from the 10% penalty on early withdrawals from retirement plans and accounts for qualified public safety employees to include nuclear materials couriers, U.S. Capitol Police, Supreme Court Police, and diplomatic security special agents of the State Department for withdrawals made after 2015.

FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT (FIRPTA)

The PATH Act adds an exemption to withholding under FIRPTA for the disposition of U.S. real property held directly (or indirectly through one or more partnerships) by certain foreign pension funds and made after enactment. This new exemption


COMPLIANCE

hese days, most of the attention on post-tax contributions is focused on Roth contributions. Newer consultants in our industry may never have heard of (or certainly never worked with) traditional after-tax contributions. However, traditional after-tax contributions have started to get a bit more attention recently.

In this article, we will review the renewed interest in after-tax contributions and the types of taxable contributions before discussing the pros and cons of after-tax contributions and closing with strategies for using after-tax contributions.

Like they say, what’s old is new again.

T

A Fresh Look at After-Tax Contributions

BY KELSEY N.H. MAYO AND KELLY MARIE HURD

13WWW.ASPPA-NET.ORG

However, the investment earnings on after-tax contributions are taxed as ordinary income, while investment earnings on Roth contributions are distributed tax-free (assuming it is a qualified distribution).

Consider the following example: An employee defers $10,000 in after-tax contributions. That $10,000 is included in the employee’s ordinary income. That amount grows to $50,000 by the time that employee retires. The $10,000 basis is not taxable. However, the $40,000 investment gain is included as ordinary income with any and all distributions from the plan. If that contribution had been a Roth contribution instead of an after-tax contribution, the entire amount could be distributed tax-free (assuming the Roth rules for a qualified distribution are met).

The math underlying this scenario is provided in Table 1. As it illustrates, an employee might end up paying five times more in taxes with the after-tax contribution — $15,000 in taxes vs. $3,000. So one can clearly see the advantage of using Roth contributions to reduce taxation.

least age 50), whereas the maximum Roth deferral to a qualified plan is $18,000 ($24,000 with catch-up if at least age 50). In addition, Roth IRAs are not available to high-income earners (for 2016, individuals who earn over $132,000 or joint filers over $194,000), but there is no income limit for a Roth feature in a qualified plan.

There also are the seemingly ancient after-tax contributions (also known as voluntary employee contributions or post-tax contributions). These after-tax contributions were developed as a way for employees to make contributions to employer sponsored retirement plans from their paychecks and predate the current 401(k) regulations.

Like Roth contributions, after-tax contributions are included in the employee’s taxable income when deferred into the plan, and the amount will grow with investment gains without taxation. The difference between Roth and after-tax contributions lies at the time of distribution. In either case, the original contribution, or basis, is not taxed when distributed from the plan.

RENEWED INTEREST IN AFTER-TAX CONTRIBUTIONS

Part of the recent interest in after-tax contributions comes from IRS Notice 2014-54, which offered guidance on the processing of distributions from retirement plans. This guidance made it easier to continue the advantageous tax treatment of after-tax contributions. In short, the IRS has rules concerning distributions, including that each distribution is a proportionate share of the participant’s pre-tax and after-tax amounts and the entire amount distributed at any one time is a single distribution. This single distribution rule led to confusion about how to roll over a distribution that was a mix of pre- and post-tax amounts. Notice 2014-54 made it clear that the after-tax portion of the distribution could be rolled into a Roth IRA and the taxable portion could be rolled into a traditional IRA.

Secondly, and perhaps more importantly, the recent addition of in-plan Roth conversions has led to a renewed interest in after-tax contributions. With this option, introduced in the 2012 “fiscal cliff” legislation, non-Roth funds (including after-tax contributions) may be converted into Roth funds within the plan. As discussed below, this results in significantly more favorable tax treatment for the converted after-tax contributions.

TAXABLE CONTRIBUTIONSAs a brief review, there are two

types of taxable contributions that employees can make to retirement plans. The newest and most common of these, as we are now familiar, are Roth contributions. Roth contributions were allowed into 401(k) and 403(b) plans starting Jan. 1, 2006. Although Roth IRAs are widely available, a Roth feature in the qualified plan is often more advantageous because the qualified plan permits more Roth contributions than a Roth IRA. The maximum Roth IRA contribution is $5,500 in 2016 ($6,500 with catch-up if at

After-tax Contribution Roth Contribution

Contribution $10,000 $10,000

Tax on Contribution $3,000 $3,000

Total Initial Investment $13,000 $13,000

Investment Gains $40,000 $40,000

Tax on Investment Gains $12,000 $0

Net Distribution at Retirement $38,000 $50,000

Total Tax Paid $15,000 $3,000

TABLE 1: ROTH VS. AFTER-TAX CONTRIBUTIONS


THE ADVANTAGES OF AFTER-TAX CONTRIBUTIONS

For starters, after-tax contributions are not subject to the Code Section 402(g) limit. Participants may contribute the maximum elective deferrals ($18,000 + $6,000 catch-up in 2016) plus after-tax contributions above that amount, only subject to the Section 415 limits. This allows participants who are able to defer income to save significantly more each year. An example is illustrated in Table 2.

Allowing for after-tax contributions in a plan also opens up the option of recharacterizing contributions in a testing failure situation. In this situation, pre-tax elective deferrals, which are generally included on the ADP test, may be recharacterized as after-tax contributions, which are included on the ACP test, to allow a plan to improve testing results.

A consultant who is familiar with after-tax contributions might be able to use these strategies to help clients find the best solution for retirement savings and/or keep a plan in the best testing position possible.

THE DISADVANTAGES OF AFTER-TAX CONTRIBUTIONS

Naturally, there are also disadvantages to using after-tax contributions. The ACP test applies to after-tax contributions and is required even if the plan is safe harbor and would not otherwise be subject to testing. Because of the less favorable taxation associated with the after-tax contributions, participants will likely be less likely to utilize the after-tax feature (particularly if a Roth option is also available under the plan). Therefore, it is likely that only HCEs may take advantage of the after-tax feature in order to defer more than the limits on standard pre-tax and Roth contributions. With low or no NHCE participation and significant HCE participation, the after-tax feature is often destined to result in a testing failure.

Consider a plan with an HCE deferring the maximum $18,000 with a $10,600 match (and no after-tax contributions), the HCE has a total annual contribution of $28,600 and an ACR of 4%. As shown in Table 3, if that HCE contributed enough after-tax contributions to

meet the $53,000 Section 415 limit, an additional $24,400 contribution, her ACR would increase to 13.21%. Assuming a NHCE ACP of 4% (safe harbor matching formula) we can predict a potential refund of $19,100 to the HCE, because she would be maxed out at a 6% ACP contribution rate to pass testing.

ACP TESTING STRATEGIESWhile each situation is unique,

there are a few strategies to consider. For starters, encouraging the NHCEs to participate through communication and even not providing a Roth feature may improve testing results. One might also consider the top-paid group election, which might, with the right demographics, bump some of individuals who would otherwise be HCEs (and who might be participating in the after-tax feature) into the NHCE testing group and improve testing results. Also, limits could be placed on the after-tax contributions administratively, such as by projecting and communicating a permissible limit based on current trends or prior year testing, which might help to reduce or avoid large refunds after year end.

After-tax Permitted Not Permitted

Pre-tax Deferrals $8,000 $8,000

Roth Deferrals $10,000 $10,000

Matching Contribution $7,000 $7,000

After-tax Contribution $28,000 $0

Total Contributions $53,000 $25,000

Investment Gains $212,000 $100,000

Total Account at Retirement $265,000 $125,000

TABLE 2: THE ADVANTAGES OF AFTER-TAX CONTRIBUTIONS

If the in-plan Roth conversion is not an option, consider an in-service distribution and a rollover.”

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Kelsey N.H. Mayo, J.D., is a partner with Poyner Spruill LLP, a law firm based in North Carolina. She

routinely represents clients before the IRS and DOL and has extensive experience in virtually all aspects of qualified plans, welfare plans, fringe benefit plans, and executive compensation arrangements.

Kelly Marie Hurd, ERPA, CPC, QPA, QKA, is a senior retirement plan consultant and team leader for DWC

ERISA Consultants, LLC, based in North Carolina. She works with a broad range of qualified plans and has a passion for helping clients optimize their plans to meet their retirement goals.

participant is able to convert after-tax contributions to Roth at no additional cost and reap benefits of the significantly better tax treatment on subsequent earnings.

If the in-plan Roth conversion is not an option, consider an in-service distribution and a rollover. A participant can defer an after-tax amount and quickly take an in-service distribution which is rolled into a Roth IRA. At that point, there would not be any significant taxable earnings, and the future earnings would grow tax free in the Roth IRA.

In conclusion, although there are significant obstacles in using after-tax contributions, a consultant who is familiar with after-tax contributions might add significant value by identifying the clients that can use these strategies to maximize retirement savings.

Compensation Deferral Match After-tax Total ACR

$265,000 $18,000 $10,600 $0 $28,600 4.00%

$265,000 $18,000 $10,600 $24,400 $53,000 13.21%

TABLE 3: AFTER-TAX CONTRIBUTIONS’ IMPACT ON ACR

With low or no NHCE participation and significant HCE participation, the after-

tax feature is often destined to result in a testing failure.”

ADDITIONAL STRATEGIES FOR USING AFTER-TAX CONTRIBUTIONS

If a plan can overcome the obstacles to using after-tax contributions, participants can contribute a significant amount of money to the plan. However, they are still confronted with the less favorable taxation associated with after-tax contributions. One option, of course, is to simply do nothing, and accept that taxation is what it is. However, consultants may be able to add value by suggesting strategies to improve the tax result.

First, an in-plan Roth conversion may be attractive. In a Roth conversion, the amount converted to Roth is taxed to the participant as though it were a distribution, and the future investment earnings on that amount are not taxed (assuming the distribution is a qualified Roth distribution). When after-tax contributions are converted to Roth, those amounts are not taxable to the participant. Therefore, the


e are now at that time of year when pension actuaries focus on providing services to clients with calendar plan/fiscal years. In doing so, an actuary needs to be aware of the revised principles now imposed by the Actuarial Standard of Practice (ASOP) No. 35, Selection of Demographic and Other Noneconomic Assumptions for Measuring Pension Obligations.

ASOP 35 affects the selection of demographic assumptions such as retirement, termination of employment, mortality and mortality improvement, disability and disability recovery and the election of optional forms of benefits.

To provide some history, in September 2013, the Actuarial Standards Board (ASB) issued an exposure draft of ASOP No. 35. Following comments on this exposure draft, the ASB issued the final revision of ASOP 35 during their September 2014 meeting.

The final revision to ASOP 35 is effective for any actuarial work product with a measurement date on or after June 30, 2015, which means that 2015 is the first calendar year cycle subject to the revised ASOP 35 principles.

The calendar year 2015 cycle is the first one subject to the revised ASOP 35 principles. Are you up to speed?

Coping with the Changes to ASOP 35

ACTUARIAL

BY WILLIAM G. KARBON

W

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SIGNIFICANT CHANGESThe most significant revisions to

ASOP 35 address the following:• The guidelines for a reasonable

assumption are now consistent with the guidelines contained in ASOP 27, Selection of Economic Assumptions for Measuring Pension Obligations.

• The requirement to disclose the rationale for the demographic assumption selection.

CONSISTENCY WITH ASOP 27Section 3.3.5 of ASOP 35, which

addresses the selection of a reasonable assumption, is now consistent with ASOP 27. Under this section, an assumption is reasonable if it has the following characteristics:• It is appropriate for the purpose of

the measurement.• It reflects the actuary’s professional

judgment.• It takes into account historical and

current demographic data that is relevant as of the measurement date.

• It reflects the actuary’s estimate of future experience, the actuary’s observation of the estimates inherent in market data (if any) or a combination thereof.

• It has no significant bias (i.e., it is not significantly optimistic or pessimistic), except when provisions for adverse deviation or plan provisions that are difficult to measure are included or when alternative assumptions are used for the assessment of risk.

In selecting assumptions, the actuary needs to ensure that the combined effect of all nonprescribed assumptions selected by the actuary (both demographic and economic assumptions) are reasonable.

DISCLOSING RATIONALE FOR ASSUMPTION SELECTION

In an effort to create greater transparency, the ASB has imposed more robust communication standards with respect to the selection of demographic actuarial assumptions. Section 4.12 of ASOP 35 details

type of measurement. The general effects of the changes should be disclosed in words or by numerical data, as appropriate.

• If the assumption is not a prescribed assumption, a method set by another party or a method set by law, then the actuary should include an explanation of the information and analysis that led to the change.

• The disclosure may be brief, but it should be pertinent to the plan’s circumstances and may reference any actuarial experience report or study performed.

EXAMPLEThe normal retirement age for the

XYZ Pension Plan is age 65. The plan also provides for early retirement after attainment of age 62 with 20 years of service. The early retirement benefit is the accrued benefit reduced 2% for each year the early retirement age precedes the normal retirement age. Furthermore, the employer provides post-retirement medical benefits from the time that participants reach early retirement age until they become eligible for Medicare.

The actuary assumes the following retirement probabilities:

Age 62 30% Age 63 20% Age 64 10% Age 65 100%

the new requirements for disclosing the rationale used in demographic assumption selection:

The actuary should disclose the information and analysis used in selecting each demographic assumption that has a significant effect on the measurement. The disclosure may be brief but should be pertinent to the plan’s circumstances. For example, the actuary may disclose any specific approaches used, sources of external advice, and how past experience and future expectations were considered. The disclosure may reference any actuarial experience report or study performed, including the date of the report or study. This section is not applicable to prescribed assumptions or methods set by another party or prescribed assumptions or methods set by law.

Furthermore, the actuary should include an assumption as to expected mortality improvement after the measurement date. This assumption should be disclosed even if the actuary concludes that an assumption of zero future improvement is reasonable.

The new disclosure requirements imposed by ASOP 35 are only imposed on assumptions that have a significant impact on the measurement. An assumption would have a significant impact on a measurement if its omission or misstatement could influence a decision of the intended user. If there is doubt as to the significance of an assumption, it would be prudent to treat it as significant in order to avoid any questions regarding transparency.

Though the ASOP has always required the disclosure of the rationale for assumption changes, the actuary should refer to Section 4.13 of the ASOP regarding the communication of any changes in assumptions. In communicating assumption changes:• The actuary should disclose

any changes in the significant demographic assumptions from those previously used for the same

The ASB has imposed more robust communication standards with respect to the selection of demographic actuarial assumptions.”


SHARING THE CHALLENGE

As we move forward to comply with the revised ASOP 35 principles, ACOPA members are encouraged to share their rationales for assumption selection on the ACOPA listserv. Sharing the challenges of meeting the revised ASOP 35 principles as we work on plans of varying size, plan design and type of plan sponsors would be a benefit to all ACOPA members.

Bill Karbon, MSPA, CPC, QPA, is a senior vice president, director of compliance with CBIZ

Benefits & Insurance Services, Inc. in Lawrenceville, N.J. He currently serves as the 2015-2016 executive vice president of the ASPPA College of Pension Actuaries (ACOPA).

The actuary may also disclose the sources of any external advice and how past and future experience was considered.

A sample rationale for this assumption for a small plan could be as follows:

Professional judgment was used to develop the retirement probabilities. It is anticipated that the highest rate of retirement will occur at the point that the early retirement benefit has the greatest actuarial value and medical benefits are available to the retiree. It is anticipated that the retirement rates will decline until full normal retirement benefits are provided by the plan.

How does the actuary disclose the rationale for this assumption as required by Section 4.12 of ASOP 35?

If the plan is large and the retirement rate assumption is based on a recent experience study, then the actuary should disclose the date of the experience study and the fact that the assumption is based on the results of the experience study. Absent an experience study, the actuary could state that professional judgment was used to set the retirement probability assumption. The judgment should be based on the plan design, the availability of income from social programs such as Social Security and other post-retirement benefits that are available to the retiree.

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your needs. The John Hancock TPAessentials program offers

unique and relevant tools, programs and services based

on four key elements for a healthy business.

1 Operational Efficiency 2 Industry Education 3 Business Practice Optimization 4 Marketing Support

John Hancock Retirement Plan Services, LLC, Boston, MA 02210.

NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED | NOT INSURED BY ANY GOVERNMENT AGENCY

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LEGAL

A look at five key factors that will affect the process going forward.

What’s Next for Pre-approved Plan Documents?BY DAVID N. LEVINE

Plan consultants play many roles for their clients. A core service is helping them with the design of their plans and implementation with their third-party administrators and recordkeepers of their choice. As anyone who has ever dealt with design and implementation can attest, it can seem easy but can be full of pitfalls. Each year that passes, the pre-approved plan process gets more and more complex. Why is this the case? A few of the reasons are: • The IRS is exiting the world of individually designed plan determination

letters and is encouraging plan sponsors to move to pre-approved plan documents, driving more complex plans into this world.

• In many cases, pre-approved plan documents are a low-margin business where recordkeepers are already pressed on their margins, thus creating a significant need for plan consultant advice.

• Progressive features, such as automatic enrollment and automatic increase, require significant coordination between sponsors, payroll systems providers, recordkeepers and TPAs — which can lead to significant liabilities.

• Litigation continues to spread across the retirement landscape.• Open multiple employer plans hold the potential to add a whole new layer of

complexity to pre-approved plans.Let’s walk through each of these items.

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are on the horizon that hold the potential to dramatically affect a large user of pre-approved plans — small employers. At first blush, one would assume that open MEPs will make utilizing pre-approved plans easier. In some ways they will make pre-approved plans easier because many of the core options selected by smaller employers will be selected by default by an open MEP provider. However, there are other challenges that plan consultants will need to work through with open MEPs. As smaller employers outsource more of their plan activities, it will be more important than ever to ensure that the features elected align with their automated systems.

WHAT’S THE FUTURE HOLD?Recognizing that there are

opportunities and challenges as part of the increasing complexity of pre-approved plans, where will the pre-approved plan program itself be headed?

A regular feature of IRS presentations is that the IRS’ employee plans resources have become extremely limited. The individually designed determination letter program was one of many first casualties of these resource limitations. However, pre-approved plans may not be immune from the reduced resources available to the IRS as the years continue to pass. The exact path forward is unclear, but it is definitely clear that interaction and resources from the IRS will continue to wane.

Plan consultants will need to be nimble and adapt to the complex challenges ahead. The future for many plan sponsors lies in pre-approved plans, but strong guidance from plan consultants will be more necessary than ever.

David N. Levine is a principal with the Groom Law Group, Chartered, in Washington, DC.

INCREASED USE OF PROGRESSIVE FEATURES

A key retirement focus in recent years has been to expand coverage and contribution levels through the use of automatic enrollment and automatic increase features. These features require significant coordination between service providers, often through a plan consultant, and can definitely achieve the coverage and contribution goals of many plan sponsors. In a pre-approved plan world, plan documents are drafted to provide a wide range of options, but reconciling elections with payroll processes and legal notice requirements holds the potential for significant operational failures. For example, employer payroll systems may not always align with how the adoption agreement provisions for a pre-approved plan apply the timing and manner of auto-escalation or auto-enrollment.

MORE LITIGATION Given the significant liabilities

that can result from inconsistencies between plan documents and plan operations, plan consultants implementing pre-approved plan documents will continue to face the threat of additional claims for liability when inevitable disconnects occur. Although service agreement terms and conditions may, in some cases, limit a plan consultant’s potential exposure, the continued focus on errors will likely increase risk to plan consultants and service providers.

OPEN MEPsOpen multiple employer plans

END OF THE IRS DETERMINATION LETTER PROGRAM

Over the past year, the IRS has been discussing and increasingly laying out its plan to eliminate the individually designed plan determination letter process. A key portion of this discussion has been the IRS’ efforts to encourage sponsors of individually designed plans to pre-approved plan documents. Although a majority of plans are already using pre-approved plans, the decision to transition potentially more complex plans from individually designed plans to pre-approved plans presents significant risks. Recognizing that adoption agreements are often long, complex documents, carefully coordinating this transition (including from one pre-approved plan document to another) carries significant risk of error and will require great care.

BUSINESS REALITIES RELATING TO PRE-APPROVED PLAN DOCUMENTS

As the data show, the costs of running a retirement plan continue to decline — especially in the area of TPA and recordkeeping fees. One item that is often a commoditized part of this process, and frequently outsourced by TPAs and recordkeepers, is the core pre-approved plan document. With these cost pressures, these documents, while maintained diligently by many providers (especially for Internal Revenue Code compliance items as part of the pre-approved plan process), do not always contain the level of detail in their fiduciary language often seen in complex individually designed plans. This distinction means that it is more important than ever, especially in a volume submitter world, that fiduciaries be properly identified in plan documents and that additional fiduciary provisions, as necessary, be considered for inclusion in supplemental provisions addendums as permitted under relevant pre-approved plan documents.

Each year that passes, the pre-approved plan process gets more and more complex.”


RECORDKEEPING

A look at three important concepts: eligible employers, ERISA exemptions and investment restrictions.

Key Issues in 403(b) Plan Takeovers

BY JOHN JEFFREY

In recent years, 403(b) plans have grown more similar to 401(k) plans as a result of changes in the Internal Revenue Code. However, it’s a faulty assumption to view a 403(b) plan as just another tax deferred savings option. The Code and ERISA still provide unique twists to 403(b) administration and plan design. While covering all of them is beyond the scope of this article, we’ll focus on three basic concepts relevant to every 403(b) new business client: employer eligibility, ERISA exemptions and investment restrictions.

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determination letter confirming their tax exempt status. The letter will identify whether the entity qualifies for exempt status under Code Section 501(c)(3) or some other Code section.

ERISA EXEMPTIONSCertain 403(b) plans are

exempt from ERISA. Sponsors of these plans avoid many ERISA-imposed obligations, including the need to file Form 5500, large plan audits, ERISA 404a-5 participant disclosures, minimum age/service requirements and vesting restrictions. The following plans are exempt from ERISA coverage: • Government-sponsored 403(b)

plans. Congress excluded the federal government, states, their political subdivisions, agencies and instrumentalities from ERISA. This exemption is most frequently used by state colleges, universities or local school districts. Also, a state- or county-affiliated hospital may fall under this exemption. Each is considered an instrumentality of the state.

• Nonelecting church plans. ERISA excludes retirement plans established and maintained by a church or church-related organization. These employers may opt in to ERISA coverage by making a one-time irrevocable election under the Code.2 All other plans are exempt from ERISA and appropriately referred to as “non-electing” church plans.

• Minimal employer involvement (“deferral-only plans”). ERISA applies to retirement plans that are “established or maintained” by an employer. But does mere payroll deduction constitute establishment or maintenance of a plan? The DOL has addressed this question through a regulatory safe harbor.3 A plan is exempt from ERISA if all of the following criteria are met:

may offer 403(b) programs. The organization must be separate from the government and may not have regulatory or enforcement authority. Examples include county hospitals and libraries.

• For-profit subsidiaries cannot offer 403(b) plans. A taxable subsidiary of a 501(c)(3) organization cannot offer a 403(b) plan. A subsidiary that generates nonrelated business income must have its own “for-profit” plan, such as a 401(k). For example, assume that Hospital A owns Gift Shop B, Inc., which generates unrelated business income through the sale of merchandise. The employees of Gift Shop B cannot participate in Hospital A’s 403(b) plan.

Practice Pointer: Your service agreement should confirm the new client’s eligibility to offer a 403(b). If the client’s status is not clear, ask for its 501(c)(3) determination letter. Most nonprofit entities (other than churches) have obtained an IRS

EMPLOYER ELIGIBILITYThe Code defines the categories

of employers who may sponsor a 403(b) program. If an ineligible employer offers a 403(b), its employees are taxed on contributions and earnings. Eligible employers1 include: 1. educational organizations of a state,

a political subdivision of a state or its agency or instrumentality, and

2. charities qualifying under IRC 501(c)(3)

Employers in the first category are relatively easy to identify. They include state-sponsored universities and colleges as well as local public school districts. All are educational organizations that are instrumentalities of a state or a political subdivision.

On the other hand, charities may raise complications, including: • Not all non-profit entities are

charities. The Code provides tax exemption to numerous organizations such as labor unions, chambers of commerce, real estate boards, fraternal organizations, etc. These entities are exempt from income tax, but they are not charities as defined under Code Section 501(c)(3). Generally, a “charity” must be organized exclusively for religious, charitable, scientific, literary or educational purposes. Other tax exempt entities are not eligible to offer a 403(b). For example, a golf course is incorporated as a non-profit entity. It may be exempt from income taxation under Code Section 501(c)(4). However, the entity does not meet the Code Section 501(c)(3) definition of a charity and is not eligible to offer a 403(b) plan.

• Some governmental entities may be charities. The IRS has expanded the definition of a charity to include certain government-related entities with charitable purposes. These entities

1 In addition to these two categories, the Code includes a special category for religious ministers. They may defer income under section 403(b) regardless of whether their church sponsors a 403(b) program.

2 IRC §410(d). 3 DOL Reg. §2510.3-2(f ).

It’s a faulty assumption to view a 403(b) plan as just another tax deferred savings option. The Code and ERISA still provide unique twists to 403(b) administration and plan design.”


the employer cannot trigger the liquidation and wholesale transfer of plan assets. Each participant has control. If the participant doesn’t consent, the annuity remains with the insurance company. The employer can prevent future contributions to the annuity, but it is still a plan asset.

• Do the terms of the annuity prohibit transfer? Some annuity contracts contain provisions requiring liquidation over time. Even if the participant intends to transfer the proceeds to the new vendor, the contract can prevent it. For example, the annuity may require transfers to occur in installments over 10 years. Participants could transfer one-tenth of the contract value in Year 1, one-ninth in Year 2 and so on. The balance would remain locked up with the insurance company until the end of the transfer period.

• Will “stranded contracts” require an information sharing agreement? Whether the participant or the annuity terms prevent liquidation and transfer, the result is the same. The annuity is left behind with the original insurer. Unless it falls within an exception, the annuity is a plan asset requiring administration and an “information sharing agreement.”4 The agreement establishes procedures for sharing information between the employer and the insurer related to employment status, distributions, loans and tax reporting obligations. Often it will designate the new vendor as the party to coordinate this information.

• Are there surrender charges? Annuity contracts may have charges triggered upon liquidation of the contract.

• assuming control over hardships, distributions, loans and QDRO determinations.

Keep in mind that the safe harbor does not affect governmental and non-electing church 403(b)s. These plans are excluded from ERISA coverage by a statutory exemption based upon the status of the employer (i.e., government entity or church) and not the employer’s involvement in the plan.

Practice Pointer: Your service agreement should state whether the plan is exempt from ERISA and if so, the basis for the exemption. You should inquire about the plan’s ERISA status early in the new business process before discussions ensue about plan changes. If the plan relies upon the deferral-only safe harbor, encourage the employer to consult legal counsel if changing plan design or operation. The employer should understand the administrative and legal implications of moving from a non-ERISA plan to an ERISA plan. Also, many service contracts require the employer to determine eligibility for distributions, hardships, loans and QDROs. If the employer relies upon the deferral-only safe harbor, either you or some other third party (e.g., the annuity provider) must assume this responsibility.

INVESTMENT RESTRICTIONSThree types of funding vehicles

may be offered in a 403(b) plan: annuities, custodial accounts and retirement income accounts. Each funding arrangement comes with its own considerations. • Annuities. Annuities must be

offered by an insurance company and may consist of either group or individual annuity contracts. Four questions should be top of mind:• Do participants have control of the

transfer decision? Many annuity contracts require participant consent to liquidate. In that case, unlike a 401(k) plan,

• Deferral only: The plan cannot have a company match or nonelective contribution, direct or indirect. Match contributions to a separate 401(a) plan causes the 403(b) plan to lose safe harbor status.

• Totally voluntary: Employees must be able to opt out of participation.

• Participant enforcement rights: All rights under an annuity or custodial account must be enforceable solely by the employee.

• Limited employer control over vendors: For administrative ease, an employer may designate a list of 403(b) vendors from which employees may choose. However, if the employer limits employees to a single vendor, it may lose the safe harbor protection.

• Limited employer discretion: The employer may not exercise discretion over plan operations such as hardships, distributions, loans or QDRO determinations. These discretionary decisions must reside with either the plan’s investment vendor or third- party administrator.

If the plan fails to meet the above criteria, it loses the presumption that it is exempt from ERISA. However, it does not automatically create an ERISA plan. In that case, the employer must prove it has not “established or maintained” a plan based upon the facts and circumstances surrounding the employer’s involvement and plan design.

Employers relying upon the safe harbor should consider ERISA implications any time they change plan design or operation, but especially when:• adding a company match or non-

elective contribution; • moving the plan to a single

custodian/vendor; or

4 IRS Rev. Proc. 2007-71 provides exceptions to the information sharing agreement requirement. Generally, the exception applies to annuity contracts that have not received contributions since Jan. 1, 2005, and to certain other contracts issued between Jan. 1, 2005 and Jan. 1, 2009.

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• Retirement Income Accounts. Retirement income accounts may only be offered by church plans. The account must be maintained pursuant to a separate plan stating that it intends to constitute an income retirement account. The account is not subject to the restrictions of an annuity or custodial account. For example, unlike a custodial account, the income retirement account may invest in assets other than registered mutual funds. In addition, the employer may commingle the retirement income account in a common fund with other church assets so long as there is a separate accounting and the fund is used solely for benefit payments.

Practice Pointer: Some 403(b) prototype-like documents may have language addressing a church plan with a retirement income account. Nevertheless, because of its unique nature, encourage attorney review of the plan document and investment line up to assure the plan’s continued ERISA exemption and Code compliance.

CONCLUSIONEmployer eligibility, ERISA

exemption and investment restrictions are three of the many issues that remain unique to 403(b) plans. Having a general understanding of these areas will avoid surprises for the employer and assure a smoother transition for your new business 403(b) client.

John Jeffrey is the corporate counsel for Alerus Retirement Solutions, a division of Alerus Financial, N.A. As a

national bank, Alerus provides trustee and custodial services, record keeping and third party administration to plans nationwide.

• Custodial Accounts. The Code allows a 403(b) plan to use a custodial account similar to a 401(k) trust account if the plan only invests in registered mutual funds. This requirement poses a challenge when seeking a stable value product, especially when moving a plan from an annuity to a custodial arrangement. The annuity will often have a “fixed” account with a stated rate of interest and guaranteed principal. Unlike in a 401(k) takeover, the custodial account cannot use a stable value fund as a replacement for the fixed account. A stable value fund is a collective trust, not a registered mutual fund. Some advisors may point out that a 2011 Revenue Ruling5 permits the use of collective trusts for 403(b) custodial accounts. However, that ruling requires the collective trust to only invest in mutual funds. A traditional stable value fund invests in non-mutual fund assets such as Guaranteed Investment Contracts (GICs) and GICs with insurance wrappers (synthetic GICs). Thus, it is not permitted in a 403(b) custodial account.

Practice Pointer: Custodial accounts may need to offer a money market fund as the plan’s stable value investment alternative. However, a money market fund will have lower returns than most fixed accounts.

In the alternative, the plan could use a fixed annuity for the stable value investment alternative. The balance of the account would use mutual funds in a custodial account. Logistics in participant trading may be an issue, but some insurance companies have addressed the problem by designing a stable value annuity that trades similar to a stable value fund.

The amount and triggering events changes will vary and are included in the contract language. Often the charge will be a percentage of contract value and will trail off over time. For example, the charge may be 7% in Year 1 and lessen by a percentage point over the next 7 years.

Practice Pointer: You should inquire about the existence of annuity contracts early in the new business process. If they exist, encourage the employer to pose written questions to the insurer regarding the ability to transfer plan assets, the need for participant consent, the restrictions on transfers and surrender charges, if any. Upon request, many insurers will estimate the surrender charges prior to actual liquidation of the contract.

Do not suggest methods to avoid a surrender charge. Often, contracts will have complex provisions, including “look-back” periods designed to prevent participant end-runs. You may think that you understand the exceptions to the charge, only to be surprised at the time of transfer. Leave contract interpretation to the insurer or the plan’s attorney.

If annuities require individual participant consent to transfer, then obtain information regarding surrender charges, distribution forms and transfer procedures from the insurer. Making the transfer more understandable and easier for participants will limit the number of “stranded” contracts.

Identify which non-transferable contracts may require an information sharing agreement. Consider the added costs and logistics of handling the “stranded” contracts and price accordingly in your service agreement.

5 Rev. Rul. 2011-1.

Plan Takeovers and Conversions: Pitfalls and Pointers (Part 2)

BY ROBERT E. (BOB) MEYER, JR.

Editor’s note: This is the second of a two-part series of feature articles. Part 1 was published in the Winter 2016 issue.

FEATURE

One of the certainties in the life of every plan is a change in providers, whether an investment advisor, custodian, recordkeeper or TPA. The

purpose of this two-part article is to provide guidelines for TPAs going through the lengthy and detailed process of working with plan sponsors to effect a seamless transition.

In Part 1 of this series, we looked at the takeover process in terms of the TPA communicating with the sponsor and investment advisor and requesting the legal document, participant indicative information and plan financial records. In Part 2, we will examine how having this information plays out in the “life cycle” of a plan takeover.

There are three stages in the life cycle of a takeover: remote preparation, proximate preparation, and immediate preparation.

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transferred in-kind, what forms need to be executed and by whom?

13. In the case of a transfer at or near the end of a plan year, who will perform recordkeeping and compliance services?Successful takeovers require

a good working relationship with the prior TPA. Knowing who is providing recordkeeping and compliance services can make the takeover simpler. As the takeover specialists grow in their experience, they get a feel for the quality of data provided from the various vendors, and this knowledge assists in the budgeting of time for the takeover and how it affects scheduling other takeovers that are in the pipeline. With every new takeover project, the TPA should be given the information on who currently holds the assets and who is performing recordkeeping and compliance services.

It is important for the successor TPA to know how the conversion data will be given to them. Ideally, the existing TPA can produce a test file with all the data that will be provided when the transfer occurs. Many providers will do so at no charge to the plan sponsor, and will disclose it in their deconversion agreements. If it is possible for the information to be sent electronically,

the test data should include a map of the files that are sent.

Very seldom will the existing provider not be able to generate and send electronic records; however, there are still some that will only produce hard copy reports. If the TPA designate knows this sooner rather than later, then necessary modifications to the schedule can be made with a minimum of dislocation and stress. If necessary, the sponsor, RIA and other interested parties should discuss any changes to the takeover schedule and negotiate fee alterations due to this situation.

It could be a daunting task to get the records and reports, especially if the relationship of the TPA with the plan sponsor is strained, but most TPAs are willing to assist their successors, as they may have to come looking for information from them on a takeover going the other way.

A valuable benefit that can be realized from a working relationship with the existing TPA is obtaining the previous year’s valuation reports. By comparing the census information in them to the census information given by the plan sponsor, terminated participants who still have plan balances can be identified earlier in the takeover process.

Special difficulties are encountered when the plan has outside brokerage accounts (often referred to as the “brokerage window”) as part of its investment lineup:1. There is no possibility of

obtaining these reports in a single electronic or hard copy file.

2. All of the individual brokerage statements from the beginning of the plan year have to be obtained, and the TPA is charged with reconstructing the plan year for each participant and each brokerage account they have.

3. The brokerage statements do not report activity and balances in each source of funding. It is imperative, then, that the new TPA receives not only all of

REMOTE PREPARATION

Remote preparation begins when the plan sponsor has committed to migrate the plan to a new provider. A good sign that the work is about to begin is the receipt of all the service agreements and fee schedules. The TPA makes the initial request for legal documents, census information and plan records.

In this stage, many other important questions and issues have to be resolved, even as the information requests are being made and followed up on. The sponsor, investment advisor and existing service providers must understand their roles in the transfer of the plan and know the answers to a number of questions, including the following:1. Is everyone in agreement on the

transfer date?2. Have the prior providers (TPA

and custodian) been notified?3. What are the old TPA’s fees for a

plan deconversion and how will they be paid?

4. Are there any issues with specific investments, such as guaranteed investment contracts or stable value funds, that might affect the transfer of the plan?

5. Does the prior custodian have a time standard, such as 45 or 60 days from date of notification, that will affect when the plan can be transferred?

6. If a blackout is necessary, when will the blackout period start and end?

7. Who will be responsible for drafting and distributing the notice?

8. Will the assets be liquidated or transferred in-kind?

9. Will holdings be “mapped” from one fund to another or invested according to investment elections set by the participant?

10. What is the lag time between the final liquidation of the assets and the wire transfer of the proceeds?

11. When will the final records be provided and to whom?

12. If there are any assets to be

It could be a daunting task to get the records and reports, especially if the relationship of the TPA with the plan sponsor is strained.”


the brokerage statements, but also the following information so that accurate records will be established and maintained.Overcoming these difficulties

requires the following:1. The prior year-end valuation

report in order to establish the beginning balances for each participant in each source.

2. A reconciliation of the balances reported on the year-end brokerage statements to the value reported on the valuation report, to account for any receivables or payables due at year end.

3. A report from the plan sponsor that details all the contributions and distributions made in the current plan year for each participant and each source of money.All the parties involved in

the asset transfer will also need to understand how this affects the timing of the takeover and the fees that will have to be charged. A takeover of an individually directed brokerage account cannot be automated — it is a completely manual process, and therefore requires additional time and effort to complete. The blackout notice may need to be modified, as well as any fees quoted with the takeover.

In addition to the information the TPA can obtain from the sponsor and prior providers, other sources can provide valuable information helpful for the takeover. The Department of Labor’s EFAST website, with its database of 5500 filings since 2009, will have much valuable information to assist the TPA in setting up the plan on the new recordkeeping system, such as the following:

1. The exact plan name.2. The name, address and telephone

number of the plan sponsor.3. The EIN of the plan sponsor.4. The NAICS code (if required

for setting up the sponsor on the system).

5. The 5500 filing number.6. The effective date of the plan.7. Plan characteristics.8. Value of plan loans.9. Large plan 5500 filings have

detailed information on the plan through the supporting schedules.

10. Look for certain “inconsistencies” in the filing, such as a small plan filing a Schedule I (which would indicate that there are unusual assets held in the plan).As noted in Part 1, the plan

sponsor or its payroll service also should have indicative information. It is a good idea to compare this information against the records supplied by the prior TPA; any inconsistencies should be put before the plan sponsor for resolution.

PROXIMATE PREPARATION

It is difficult to state exactly when the period of proximate preparation begins. A good estimate is when all the agreements and schedules have been set and requests for information have been made.

As noted previously, the prior provider of document services may no longer support the document because of the termination of services. If this is the case, a restatement of the document on the new provider’s prototype or volume submitter document would be required.

An excellent practice is to review all of the provisions of the

existing document with the plan sponsor in order to confirm their understanding of the plan’s provisions and to ascertain whether the plan is being administered in the way the document is written. This review can be quite beneficial if the individual designated by the plan sponsor for the maintenance and reporting of payroll records is not very comfortable with retirement plan operation.

Occasionally, this individual does not make the qualified plan a priority in their duties, and may actually be more comfortable dealing with other employer benefits or simply payroll processing. Another situation frequently encountered is the “revolving door” of plan administrators designated by the plan sponsor, each one having their own understanding of qualified plans. Over time, this can result in disparities between the form of the plan and its operation, including, but not limited to, the following:1. Failure to observe the

requirements for eligibility and plan entry.

2. Inconsistency in the funding frequency of employer contributions (e.g., match contributions being funded only at year end, in violation of the document’s provision that the match be computed and funded each pay period; similarly, if the document requires a true-up contribution for match at year end, is the sponsor following this requirement?).

3. Failure to apply the requirements for receiving an allocation of profit sharing contributions.

4. Not following the rules for receiving a distribution upon termination of employment.

5. Vesting errors.6. Ignoring the rules for involuntary

distributions to terminated participants.

7. Misapplying rules for forfeiting non-vested balances.

8. Missed required minimum distributions.

Knowing what the sponsor knows about the plan is crucial to reduce the stress and anxiety that goes along with any change.”

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occasionally it could take up to six weeks for the reregistration of all positions to be completed. For this reason, the blackout notice for transfers of this sort should set the date the blackout is lifted well after the actual agreed-upon transfer date.

Self-directed brokerage accounts must be considered as not transferred until all of the statements have been received and values brought forward to the date of the statement right before the stated transfer date.

Once again, the measure of success for a takeover is how easily the permanent administrator finds the job of recordkeeping and compliance for the year of the takeover. If an oversight is discovered after the takeover has been completed, the takeover specialist has to be called in, usually months after they have closed the book on the job, to research and report on the reason for the issue and to propose a solution for it.

As with any project, detailed checklists and records of all the processes and activities have to be developed and maintained, and the status of the takeover at every stage has to be communicated to the plan sponsor and investment advisor.

Plan takeovers always pose challenges that require the takeover specialist who is adept at administration and willing to wear a marketer’s hat. Primarily, they are project managers, willing and able to work simultaneously on several fronts, and coordinate the actions of several individuals to bring the takeover to a successful conclusion.

Robert E. (Bob) Meyer, Jr., QKA, coordinates the conversion, takeover and deconversion of plans for

TPP Retirement Plan Specialists, LLC, of Overland Park, Kan. He has been an associate of TPP and an ASPPA credentialed member since 1998.

9. Retaining forfeitures instead of applying them to pay plan expenses or reduce employer contributions.If any of these or other

inconsistencies are discovered, ask whether the plan has been amended, and for any copies of executed plan amendments.

The document review should also include a confirmation of the understanding of some of the more technical aspects of the plan document, such as the definition of compensation and the method of computation of service (elapsed time or equivalencies or actual hours).

These questions can be taken as an annoyance, and, in some cases, construed as an accusation of misadministration in the past. In instances such as these, obviously a lot of diplomacy and tact have to be exercised. The TPA designate must do a sales job to the RIA and the sponsor that what is being sought is to improve retirement plan services, and knowing what the sponsor knows about the plan is crucial to reduce the stress and anxiety that goes along with any change.

The TPA can and should take advantage of the document review to propose improvements to the plan to be written into the restatement, such as safe harbor 401(k) provisions and alternate forms of allocating profit sharing contributions. Many sponsors are not aware of the benefits that these arrangements can provide, and it can enhance the stature of the TPA as a “value-added” provider of services.

Usually the new investment advisor conducts enrollment and educational meetings on site as part of the proximate preparation for the takeover. This is seen most commonly in plans that are migrating to a daily trading and valuation platform. During these sessions, the participants make their investment allocations using the new menu of funds developed by the investment advisor.

If the TPA provides the trading platform, it is critical that all this

information be provided as quickly as possible. A very good practice is for the participants to be introduced to the new website and create their own user ID and password for access, and input their instructions for the amount they choose to have withheld from their checks on a pre-tax or Roth basis. Finally, participants can enter their instructions for the allocation of their contributions and transfer balances while online with the investment advisor.

All of this assumes that the investment advisor has provided the TPA with the fund menu, and the TPA has established the plan and made it “live” on their system. The TPA must also code the website to accept participant inputs of information on contributions and investment allocations. If there are any “glitches” in the operation of the website, they should be corrected before the meetings are scheduled by ongoing testing of the plan’s website in the TPA’s recordkeeping system.

IMMEDIATE PREPARATION

In the immediate preparation stage of the takeover, the TPA should be ready to accept the final reports, and the custodian should be ready to accept the assets. If everything in the remote and proximate stages has gone smoothly, the actual takeover of the plan should be completed with very little difficulty.

Nevertheless, there could be issues that might hold up the completion of the takeover. The one that arises most frequently is a mismatch between the value of the assets received and the final reports provided by the old recordkeeper. When the transfer is done by a liquidation of the plan’s assets followed by a wire transfer, the variance may be most likely found in a wire fee or final fees being taken from the plan after the liquidation but prior to the transfer.

In-kind transfers usually take more time due to issues with reregistering assets; not all the assets transfer at the same time, and


COVER STORY

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BY CAM MARSTON

It’s important to connect with all generations of plan participants.

Here’s how.


TThe term “generation gap” was coined in the turbulent 1960s to describe the gulf between young people and their parents regarding culture, political views and values. To these Baby Boomers, their parents represented antiquated ways that were seen as something to rebel against, not follow.

Differences exist between every generation, of course. Each generation has its own reference points forged by a confluence of factors, including culture, technology and current events. These differences are the causes of different generations’ struggles to connect. For example, chances are that most of your friends are of your generation. There’s a comfort level there, developed from a shared culture and history.

Likewise, as a pension professional, it may be easier to communicate with members of your own generation. It’s also common to get crossed signals when communicating cross-generationally. Communication styles and forced attempts to connect expose generation gaps that could cause you to lose a plan sponsor client or not get one in the first place.

When it comes to saving for retirement, each generation has different investing styles and financial outlooks according to their career/life stages and experiences during economic upswings and downturns. Living through prosperous times might make a Baby Boomer more confident, while a Gen Xer, raised in a rockier financial climate, may be distrustful of the market and leery of traditional financial instruments. Many Millennials are drawn to online robo-advising services, which present a viable and appealing alternative to these digital natives who are distrustful of financial institutions. Understanding and reacting to all these differences is key to establishing cross-generational relationships.

FROM HI-FI TO WI-FIThere are three major

generations in today’s workplace:

Baby Boomers, Gen Xers and Millennials. As Boomers steadily retire from the workplace, Millennials, born between 1980 and 2000, are flooding the workforce in unprecedented numbers. They are the largest generation overall, with a population of 85 million, surpassing the 80 million Baby Boomers. In 2014 they became the largest generation in the workplace. In between these two generational behemoths is the smaller and somewhat overlooked Generation X.

People’s generational attitudes are shaped as they “come of age” between the ages of 17 and 23. What they experience during that period shapes their attitudes for decades to come. Consider that the first wave of Boomers turned 17 in 1963. That year, high-fidelity sound systems played hits by Peter, Paul and Mary, the country was entangled in Vietnam and John F. Kennedy was assassinated.

In contrast, the first Millennial turned 17 in 1997, as Bill Clinton started his second presidential term, the United States was in peacetime, and the Dow Jones Industrial average closed above 7,000 for the first time. “I Believe I Can Fly” was one of the top songs of the year.

THE BABY BOOMERSBorn between 1946 and 1964,

the Baby Boomers got their name from the remarkable “boom” in the birth rate following World War II. Prior to the arrival of the Millennials, they were the biggest generation and, today, they certainly are the wealthiest.

This massive generation is often subdivided into two sub-generations, “leading” and “trailing.” There are currently 39.7 million trailing Boomers, those born between 1956 and 1964. While they share some of the same formative experiences and attitudes, trailing Boomers differ in many ways from leading Boomers.

Significant historic, social and cultural events in the teen and adult years of leading Boomers helped shape

their values and viewpoints. These include the Vietnam War, the belief that protest could produce change, civil rights legislation, the Great Society and the rise of the women’s movement.

9 Ways to Connect with Baby Boomers

• Relationships — Invest in relationships with Boomers. Satisfy their need for face time with meetings.

• Communication — Most Boomers prefer face-to-face communication to the electronic kind. While communications can include electronic communication, relationships are driven and enhanced with interpersonal communication. Think eyeballs and voices.

• Feature trusted names — When it comes to DC investments, brand-name funds and endorsements from well-known publications go a long way. Longevity and proven success mean a lot.

• Show optimism — Boomers are largely upbeat and prefer optimistic and upbeat people.

• Be a team player — Boomers value teamwork, so conduct yourself as a member of their team. Deemphasize transactions and emphasize a long-term team approach.

• Don’t make them feel old — Boomers think of themselves as at least 15 years younger than they are.

• Visible rewards — Boomers respond well to rewards like gifts, acknowledgements, tokens, etc.

• Find the right level of technology — Most Boomers are adept at technology, but still value the human touch. Don’t assume, but don’t patronize either.

• The kids are alright — On an individual participant level, be respectful of the involvement and input of Boomers’ children in their financial decisionmaking, including saving for retirement.

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their professional opportunities, sandwiched between Boomers who refuse (or cannot) retire and Millennials who are surging into the workforce.

Gen Xers were the original latchkey kids, growing up in households with divorced parents

A recent Gallup survey found that most Americans expect to continue working after the age of 65.

Many find themselves “sandwiched” between two generations, helping their children while providing financial assistance to aging parents who have outlived their savings. That longevity means that for many Boomers, their expected inheritance is shrinking or nonexistent.

Though they wear a brave face, they are anxious and uncertain. The Boomers’ finances, including their retirement savings, took a hit in the Great Recession and many don’t have enough working years left to recoup their losses. More than a third say they are now uncomfortable making financial decisions for themselves, yet they don’t know where to turn for advice. Many say they no longer trust the financial services industry.

GENERATION X Nirvana’s 1991 hit “Smells Like

Teen Spirit” has been called the anthem of Generation X. According to author Maxim Furek, the song is “a celebration of all things wrong, a recognition of the gloom and pessimism… of Generation X.”

Numbering 60 million, this generation, born between 1965 and 1979, grew up in the shadow of the Baby Boomers. The Boomers’ optimism gave way to the scandals, inflation, world crises and the recessions of the 70s and 80s, resulting in widespread pessimism and cynicism. Starting with Watergate, Gen Xers watched scandal after scandal. As a result, they are skeptical of authority figures and those who represent large institutions.

Bookended by two much larger generations, they are the demographic bridge between the mostly white Baby Boomers and the more diverse Millennials. Their smaller size means they are often overlooked by marketers and feel stifled in

For the trailing Boomers, events conspired to promise a more clouded future rather than a rosy one, such as a messy ending to the Vietnam War, Watergate, the resignation of Richard Nixon and the energy crisis. As such, the trailing Boomers share the cynicism and skepticism of Gen X.

The term “Me Generation” was coined to describe the Baby Boomers. Unlike their parents, who experienced the privation of the Great Depression, most Boomers grew up during prosperous times. They came of age in an era of full employment, modest inflation and real wage growth. Their expectations were that these good times would continue.

In general, Boomers have retained the idealism of their youth and the optimism bred by a lifetime of entitlement. They are competitive and they had to be, with so many competing for the same positions and resources. Still, they are team players and believe that building relationships is the way to get things done.

Boomers are young at heart and believe they can defy the aging process. They proudly call themselves workaholics and indulge in the spoils of their success. But they are short on their retirement savings, and many will postpone retirement.

10 Ways to Reach Gen Xers

• Keep it short and simple — Don’t think that if you spend a lot of time with them they’re more likely to engage with you. Be efficient with their time.

• Stay on message — Gen Xers have little tolerance for idle chatter. After short pleasantries, get down to business.

• Authenticity counts — Be who you say you are. Gen Xers can spot a phony a mile away.

• Time is money — Gen Xers value their time more than money and don’t like to waste it.

• Be online — Have an online presence, preferably one that facilitates research and communication.

• Appropriate communication — Members of Gen X don’t need or want a lot of face or phone time. Once you’ve begun working with them, they’ll want a bit more, but still not as much as the Boomers.

• Peers carry weight — Peers’ opinions will go a long way.

• Options and back-up plans — Address their innate skepticism and cynicism by emphasizing plan options and provisions.

• Hand them the reins — Gen Xers want to be involved in the planning process. For example, having some research to do makes them feel involved.

• Don’t be aggressive — After you have provided information, leave the ball in their court. Follow up with them, but don’t push too hard.

Each generation has its own reference points forged by a confluence of factors, including culture, technology and current events.”


or two working parents. They are accustomed to being left to their own devices and figuring things out for themselves. This resourcefulness belies their label as “slackers.” Gen Xers generally shoulder the responsibility for their own well being.

They were the first to grow up with MTV, and the advent of the personal computer and Internet during their youth made them the first tech-savvy generation. Measured in the number of degrees and years spent in high school and college, they are smart and more educated than any generation before them. And they are willing to educate themselves about retirement.

Gen X was also the first generation raised more as their parents’ friends than as subordinates. This lack of deference to older authorities means they tend to engage everyone, regardless of age, authority or expertise, as peers.

Their innate skepticism makes them tough customers, not believing anything unless it’s backed up with facts. They know a phony when they see one.

Financially, Gen X is playing catch-up. According to a 2013 Pew Charitable Trusts survey, they were the hardest hit generation during the Great Recession, losing almost half their net worth when the stock market slumped, compared with about 25% for Baby Boomers.

Many Gen Xers are still paying off student loans while raising families on wages that have barely budged in recent years. Due to all these factors,

Gen Xers are falling behind in retirement savings, despite retirement targets that are substantially higher than that of Baby Boomers.

Gen Xers are guarded about their personal information, but tend to be loyal. Once a relationship or service gets their hard-won seal of approval, they’ll stick with it.

MILLENNIALSThis demographic juggernaut,

born between 1980 and 2000, is the largest generation yet, at 85 million strong. Due to their age, they don’t have as much accumulated wealth as the Baby Boomers or as much earning power as Generation X — yet. But by the end of this decade, that will change.

Like Baby Boomers, Millennials are often accused of being entitled. Raised by “helicopter” parents and encouraged by teachers, coaches and others who reinforced their uniqueness, they came to believe that they were the center of the universe. This belief that they are special means that they will be drawn to offerings that can be customized or tailored to recognize their individuality.

These “Echo Boomers” are mainly children of Baby Boomers. They spent most of their youth in a time of broad economic and technological expansion, until the Great Recession hit.

They share the optimism and idealism of the Boomers, but have a heightened sense of social responsibility. According to a 2011 study by ad agency network TBWA/Worldwide and TakePart, 7 in 10

9 Tips for Reaching Millennials

• Act your age — Genuineness and sincerity matter most. Be yourself, be natural, and don’t try too hard to be young and hip unless you are young and hip.

• Text messaging — Millennials are notoriously impatient. Give them a bite-sized message they can digest. To you it may seem impersonal, but to them it’s table stakes.

• Common cause — Millennials will be interested in businesses with altruistic aspects. If you have a cause that you champion, make sure to let them know. Don’t boast or draw unnecessary attention to it, but do mention it on your website.

• Freebies — Millennials love free stuff, like a financial calculator. Allow them to create retirement saving scenarios for themselves and see how those scenarios may play out over time.

• Reputation matters — Manage your firm’s reputation, especially online and in social media. Know what’s being said about you.

• Feed their self-esteem — Build rapport with Millennials by recognizing their individuality and accomplishments. For example, start a meeting with a Millennial participant by asking, “What do I need to know about you?”

• Peer pressure — Create case studies of typical Millennial participants, including their retirement saving goals and how you’re helping them achieve those goals.

• Latest technology — Make sure your website is up to date, well-designed and full of valuable information.

• Digital communication — Millennials like to communicate using text messages, instant messages, social networks and email, in that order. Find a way to be relevant in each of these spaces.

No one can assume that younger generations will make the same choices as their parents or grandparents. In fact, they probably won’t.”

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and growth of any business. Now more than ever, no one can assume that younger generations will make the same choices as their parents or grandparents. In fact, they probably won’t.

For pension professionals who are unwilling to change, this dynamic poses a threat. But for those who are willing to change and adapt, it represents an opportunity to prosper.

Cam Marston is a leading expert on the impact of generational change and its impact on business. For more

than 16 years, Marston and his firm, Generational Insights, have provided research and consultation on generational issues to hundreds of companies and professional associations. He is the author of several books on the generations, and has been featured in The Wall Street Journal, The Economist, the Chicago Tribune, BusinessWeek, Fortune, Money and Forbes, as well as on Good Morning America, CNN International and the BBC.

away from the stock market. They also are “under-banked” and are choosing to use financial convenience products rather than traditional banking services.

As technophiles, they are the natural audience for robo-investing, willing to put their faith in algorithmic investing versus human financial advisors who sometimes act in their own self-interest. As of now their assets aren’t tremendously significant in terms of dollars saved towards retirement. How they’ll behave when their assets become an amount that is truly significant to them is uncertain. Money, like relationships, is a deeply personal subject. One school of thought is that when the dollar amounts become significant, the Millennials, like generations before them, will want the personal advice and assurances that advisors offer. Throughout history, people seek counsel for big decisions and for deeply personal topics. There is no reason to expect this to be different today with the Millennials. Two variables will determine if this is the case: the amount of money saved and time. In other words, we’ll have to wait and see.

CONCLUSIONReaching out to the next

generation of clients — especially participants in workplace retirement plans — is crucial to the survival

young adults consider themselves social activists. Therefore many are embracing socially responsible, issue-oriented investing.

This is a diverse generation, with 41% identifying themselves as Hispanic or nonwhite. They are educated, globally aware and socially liberal.

They are hugely influential, not only because of their size but because of their dominance of the technology marketplace. Facebook’s Mark Zuckerberg is one of the most famous Millennial faces.

This generation is shaping both the hardware and software of Internet commerce, affecting the way we do business online.

Their mastery of social media is also steering conversations and influencing brands. Millennials will decide which industries and firms are “with it” and relevant, and the marketplace at large will follow. And since they rank peers as their number one source of information in many categories, they can make or break one idea, product or song through social media connections within a matter of hours.

Millennials are also delaying marriage, childbearing and the traditional markers of adulthood until later than any previous generation did. They have more disposable income, but they’re not likely to save much of it. But when they do save, they tend to be risk-averse, shying

Millennials share the optimism and idealism of the Boomers, but have a heightened sense

of social responsibility.”

50 Years as a Pension Actuary


FEATURE

A past president looks back on how his 50 years in the industry intertwined with ASPPA’s history.

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Editor’s note: This article is part of an ongoing series of feature articles on ASPPA history that will continue throughout 2016, as we celebrate the organization’s 50th anniversary.


Six years later I learned from my colleagues in the Group Department (who had sources in the international office of the Society of Actuaries) that I had successfully passed Parts 8 and 10 of the SOA exams, completing my required 10 actuarial examinations — making me a Fellow of the Society of Actuaries.

Having had various responsibilities as a pension actuary during the years of my exam taking, I was promptly promoted to 2nd Vice President in the Group Department and assigned to pension operations.

BUILDING A BUSINESSNot long after that, projecting

the negatives of my life in a large life insurance company, I made a move to a small pension consulting firm in New Jersey. Here is where I learned the real deal — interacting with clients, installing and administering retirement plans and supervising people.

It didn’t take too long to realize that I could do on my own what I was doing in that consulting firm. So, with another actuary, we formed our own pension consulting firm, also in New Jersey.

One rainy Wednesday afternoon in October 1970, a CPA friend of mine called and asked if I could meet

him at his client’s office to discuss the installation of a new retirement plan. This was our first client: a profit-sharing plan for which we paid a temporary secretary to type the plan document and attendant resolutions. It took her 4 days.

Our two-man firm grew to 50 employees and 2,000 clients; although I am no longer a shareholder, the firm still exists and I am still affiliated with it.

As time marched on, my work career changed from rainmaking actuary in my own firm to self-employed actuarial expert (for the last 25 years) in all matters pertaining to retirement plans, including: • dividing retirement plans in a

divorce; • calculation of losses from wrongful

death/disablement; • assistance to pensioners where the

plan of reference seeks recoupment for an error in payment calculation; and

• various litigation involving plan sponsors, participants and plan advisors.

GIVING BACK TO THE PROFESSION

After getting our growing firm steady on its course to success, I began to dedicate a good deal of my time to the profession — at ASPA (chair of GAC, chair of Education Committee, vice-president and president); on the Academy Board; and as a member and vice-chair of the Actuarial Board for Counseling and Discipline (ABCD).

I co-authored and published my first book, So You Think You Have A Pension Plan, in 1973. My second, All You Need To Know About Defined Benefit Keogh Plans, was published in 1981. It was followed by “The Professional Corporation,” a chapter in the Symposium on Business Management for the Dental Clinics of North America; by a booklet, Retirement Parity: Keogh and Corporate, in 1985; and many articles published from 1987 thru 2012, ending in 2013 with my latest booklet, Dividing Retirement Plan Assets in a Divorce.

I became a pension actuary in 1966, which means that my 50th anniversary as a pension actuary

(I’m now semi-active) coincides with ASPPA’s 50th anniversary. I thought that an historical review of one member’s experiences, especially one whose career spanned the same 50 years, might be of interest to Plan Consultant readers.

Highlights — some of which may be better characterized as “lowlights” — included:• Nixon freeze on pay and pensions

(1972)• ERISA (1974)• Defined benefit Keogh plans (1974)• TEFRA (1982)• DEFRA (1984)• REA (1984)• TRA ‘86• Age weighted allocations in profit-

sharing plans (1992)• Our first glimpse of cash balance

plans (1995)• SBJPA (1996)• EGTRRA (2001)• PPA (2006)• WRERA (2008)• PRA (2010)• MAP-21 (2012)• EPCRS (2013)• HATFA (2014)

Today we have a new glossary: target normal cost, funding target, AFTAP and segment rates, just to name a few. And we anxiously await the new definition of a fiduciary and the impact on the industry evolving from the implementation of state-sponsored retirement plans.

GETTING STARTEDIn 1961, this recent Rutgers

graduate with a B.S. in math fortunately found employment at a large New York life insurance company as an actuarial student. Placed in the company’s Group Department, I got my first taste of retirement plan operations.

Ruth Frew, Ed Burrows and I were the pension section of the ABCD for most of the next six years.”


university deans of actuarial science to my proposal, there were a few who told me (one very vehemently) I could not compare a student in an actuarial science program in a university setting to an exam-successful actuary.

CONCLUSIONSo what has ASPPA meant to me,

and to the profession? Three things come to mind:• No other organization provides

support (via education, legislative influence and instantaneous input) to the pension professional.

• No other organization facilitates an interaction between actuaries, consultants and administrators, all resulting in the betterment of the pension professional and the services rendered to clients.

• ASPPA’s conferences, webcasts, ASPPA asaps and ACOPA’s e-mails are the best in the industry.

These days, work for me is more like a hobby. I look back on my 50 years as a pension actuary with much gratification from the professional relationships and friendships I have had — and in many cases, still have. Moreover, I really enjoy being the only one in a room full of social friends who can answer the question, “What’s the probability that two people in this room have the same birthday?”

Howard M. Phillips, MSPA, FSA, FCA, MAAA, EA, is past president of Consulting Actuaries Incorporated, a

past president and director of ASPPA, a past director of the Academy and a past vice-chair of the ABCD.

the first ASPA president to chair a periodic meeting of the Council of Presidents (COP) of the North American Actuarial Organizations.

• Taking the microphone one Sunday evening in 1992 at an ASPA Annual Conference to announce to the 600 people in attendance that we can now allocate profit-sharing contributions using age and pay, per the new Section 401(a)(4) Regs (with Jim Holland’s publicly announced agreement to my announcement the following Wednesday during our IRS Q&A).

• My selection as one of the profession’s pension representatives on the ABCD in 1999. Ruth Frew, Ed Burrows and I were the pension section (the entire pension section was from ASPA) of the Board for most of the next six years. The last two of my six years on the ABCD were as its vice-chair. I continue to serve the Board as an investigator when they need me.

I also recall with some angst a job I accepted as a director of the Academy. There was some discussion in the Council on Professionalism that credentialed members of the actuarial profession might be worthy of the PhD credential. The subject was provoked by the lack of professional papers being submitted from the profession, and that could be remedied by linking our professional societies with universities that offered programs in actuarial science. My proposal to those universities was to offer a PhD in actuarial science to actuaries with credentials gained by examination if the candidate would author a thesis in actuarial science that could be published.

Why my angst? Although I did get some positive responses from

MOMENTS IN TIMEThere were many memorable

moments along the way. Here are the few that were especially memorable (excluding only for purposes of this article my 55-year marriage to Carol, who lived through the actuarial exams, the career building, the current ongoing projects and the births of our children and grandchildren):• Sitting at my desk in the summer

of 1967 in that large life insurance company’s Group Department when there was a large bang at the door. Two or three of my supervising actuaries came in, screaming to me that I had passed both Parts 8 and 10 of the SOA’s actuarial exams. My annual September-May 800 hours of study per exam were finally over — my FSA was achieved.

• Making the decision in 1967 to leave the life insurance industry and seek a career in the world of pension consulting. Possibly more important, keeping a serious eye out for membership in a professional society other than the SOA (since their focus at that time was on life and health).

• After dedicating most of the 1970s to building our pension consulting firm, I joined ASPA in 1979. I was convinced that ASPA would be the right association for my growth in the pension arena.

• My growth in ASPA through committee chairs to the presidency in 1989.

• As ASPA president, overcoming the challenge of obtaining recognition for ASPA by the other North American Actuarial Societies. That success was very visible — I was

I was convinced that ASPA would be the right association for my growth in the

pension arena.”

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WOMEN BUSINESS LEADERS FORUMNEW ORLEANS, LA • RITZ-CARLTON

The Women Business Leaders Forum will focus on HR issues, business development, leadership

and ethics. It will be a mix of general sessions and roundtables with plenty of time to network

with your peers.

Oh, we’re also having ghost tours, one of the best cooking classes New Orleans has to offer,

and much more. You won’t want to miss this conference!

IRS Employee Plans — the ‘New Normal’

BY RICHARD A. HOCHMAN

FEATURE

Restructuring and budget cuts bring changes.

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was to make sure that qualified plans provide reasonable benefits for the rank-and-file employees benefitting under them.

EVOLUTION OF A ‘TEAM’ APPROACH

In the mid-1990s, industry practitioners and the IRS developed a working relationship in which we worked not as adversaries, but as a “team” to bring about a secure retirement for the American workforce. While clearly we didn’t always agree, there was a healthy dialogue and a mutual respect between the staff at the Employee Plans Division and many of the industry’s leading practitioners.

One of the earliest examples of this “team” cooperative approach was the 1991 release of the Administrative Policy Regarding Sanctions (APRS), the precursor of today’s Employee Plans Compliance Resolution System (EPCRS). The APRS program recognized some contradictory facts: first, that compliance with all the rules and regulations under Code Section 401(a) was not easy and there was a lot of room for error; and second, that most plan sponsors were trying to do the right things to enhance their employees’ retirement rather than game the system. The IRS wanted to provide procedures so that

when the inevitable administrative errors were found, employers didn’t have to operate within a confrontational environment, but rather one that allowed problems to be resolved easily.

Prior to the APRS, examinations agents did not have a lot of flexibility with regard to how administrative and document errors would be corrected. The complexity of the relatively new, but blossoming, 401(k) plan market was not helping matters.

If nothing else, the APRS set the tone for a transformative relationship between the staff at Employee Plans and the practitioner community representing plan sponsors. This relationship allowed more plan issues to be discovered and corrected without the need for Employee Plans staff to actually find them. This cooperative approach brought about better operational compliance throughout the industry.

So much for history. What is the current lay of the land?

RULEMAKING SHIFT TO CHIEF COUNSEL’S OFFICE

In early 2014, we were advised that organizational changes were being made at the IRS. The Employee Plans and Exempt Organizations units are both part of the agency’s Tax Exempt and Government Entities (TE/GE) Division. There were issues in the Exempt Organizations unit beginning in approximately 2010 that resulted in congressional hearings. As a result, changes were made to the structure of the Exempt Organizations segment that also resulted in an evaluation of how other segments within the division were structured.

Of special significance was a change in how future guidance will be issued regarding Employee Plans issues. In the past, Employee Plans’ guidance resulted from coordination among the Division’s technical staff, the IRS Chief Counsel’s Office and the Treasury Department. This meant that the staffers in the field that we

The last two decades have been marked by a cooperative and cordial relationship

between managers and staff in the IRS’ Employee Plans Division and the retirement plan community they oversee. That relationship, however, may be challenged as a result of changes at the IRS. Budget cuts, reductions in staff, organizational restructuring, shifting responsibilities and new ones — as well as the departures of experienced officials — have combined to create a “new normal” at the IRS. (For more information about some of those changes, see the sidebar, “Changes at the IRS Since 2010.”) These changes will profoundly impact the manner in which qualified plan professionals interact with the IRS in the years ahead.

BACKGROUND The IRS Employee Plans

Division was created in 1974 after the passage of ERISA to help protect the retirement benefits of employees. From its earliest days, Employee Plans always had a different purpose and way of doing things than the rest of the IRS.

In its primary role, the IRS is charged with the mission of collecting the tax dollars owed. Thus, it is engaged in a zero-sum game. But the Employee Plans Division is not, and has never been, about collecting tax dollars. In the retirement industry we do not work in a zero-sum environment. So at the end of the day, Employee Plans should not look like the rest of the IRS, operating the same way and having the same necessarily adversarial vision.

For both the private retirement plan industry and the IRS Employee Plans Division, it should be about making sure that plans operate in a proper fashion and are not tax avoidance schemes for business owners. While we have not always agreed with the regulations and the guidance that Employee Plans issued, we understood that the shared goal

Most of the questions ASPPA members would like to ask the IRS don’t have easy answers that are found on the IRS website.”


2015, when the IRS announced that effective immediately, they would no longer allow off-cycle submissions.

(It is important to remember that prototype plans have generally not been allowed to file for determination letters since May 1, 2013; volume submitter plans have been limited as well.)

END OF PHONE AND EMAIL RESPONSES

In July 2015 we were advised that, as of Oct. 1, 2015, Employee Plans staff would no longer take phone calls or answer e-mails from the practitioner community. The rationale was twofold: (1) that is not an appropriate or efficient use of resources; and (2) Employee Plans staff should not be answering “one-off” questions about how guidance affects individual plans. The new standardized response to email questions — provided in the nearby sidebar, “IRS Email Response” — refers inquiries to information that can be found on the IRS website.

Of course, most of the questions ASPPA members would like to ask the IRS don’t have easy answers that are found on the IRS website. Also, it is important to remember that private letter rulings (PLRs) now have a user fee cost in excess of $28,000 — and that is just the IRS fee; it does not include the fee for preparing the necessary paperwork for making the PLR request. It is not clear how many employers are going to rush to get those.

While I understand the IRS’ position that they don’t want staff to spend time addressing specific fact sets applicable only to a particular case, historically that has not been the kind of question I have sought answers to. Rather, my questions — and those of other practitioners like me — can theoretically affect thousands of plans or more.

Since pension practitioners have ready access to their plan sponsor clients, we can get a message out to the qualified plan community much

DETERMINATION LETTER CHANGES

In mid-2015, the IRS announced that other changes were necessary: determination letters were requiring too many resources and taking too long to process. The IRS estimated that the average determination letter took 321 days to process. Due to budget cuts dictated by Congress, the IRS has been hamstrung in trying to address the backlog indicated by this statistic. So a decision was made to eliminate the five-year cycle for individually designed plan restatements, as of the next Cycle B in February 2017. The IRS will continue to issue determination letters for terminating plans and new plans that never received them before, but nothing in between unless the IRS decides there is a reason to look at a particular issue or amendment.

So for now, the old five-year restatement cycle is in place until February 2017. Plans can only be submitted on the appropriate cycle determined by the last digit of the sponsoring employer’s taxpayer identification number. So the question became: Could plans be submitted off cycle? We got the answer in July

dealt with had input into the guidance being promulgated. However, that was not the way it was done elsewhere in the IRS; for the other divisions, guidance was generated exclusively by the Chief Counsel’s Office.

As part of the reorganization affecting the Employee Plans Division, many of the attorneys who were employed there were shifted to the Office of Chief Counsel, which will now be taking the lead on guidance affecting qualified plans. Treasury Department officials and staffers from Employee Plans will continue to participate, particularly with respect to actuarial matters.

Craig Hoffman and other American Retirement Association (ARA) staff have worked diligently to foster an expanded relationship with the Chief Counsel’s Office to ensure that the ARA has the same type of cooperative working relationship with Chief Counsel staff that it has had with Employee Plans staff. The ARA and its Government Affairs Committees, including ASPPA GAC, will continue to remain active in filing comment letters and otherwise representing the views of our members.

Changes at the IRS Since 2010

REDUCED RESOURCES AND SERVICES

• Funding down 18%

• Overall staffing down 14% (13,000 employees)

• Enforcement staff down 20% (10,000 employees)

INCREASED RESPONSIBILITIES

• Individual tax returns filed up 7 million (5%)

• Foreign Account Tax Compliance Act (FATCA) administration

• Affordable Care Act administration

• 700% increase in identity theft cases

Note: Numbers reflect changes from 2010-2015, except for individual tax returns (2014) and identity theft (2013).

Source: Center on Budget and Policy Priorities analysis of IRS, TIGTA and CBO data.

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of questions actuaries pose to the IRS and the answers to them, will no longer be produced. The Conference of Consulting Actuaries (CCA), which had produced the book with the American Academy of Actuaries, made the announcement. The reason it took this step, the CCA said, was in part because the IRS and Treasury Department have reallocated resources and shifted their priorities. In addition, it was noted, the agencies are concerned about the reliance placed on the answers the IRS was providing in the Gray Book.

CONCLUSIONWith all the changes at the IRS,

today there is a very real question about how we will interact with the IRS going forward. Clearly, much of the industry’s contact with the Employee Plans Division is going to be reduced.

There is an expectation, however, that there will still be significant contact in one area: examinations. In fact, examinations may be the only

faster and more efficiently than the IRS can. This important means of communication has been lost as a result of the new IRS policy.

END OF THE ERPA PROGRAMIn late 2015, the IRS announced

they were suspending the Enrolled Retirement Plan Agent (ERPA) program. Existing ERPAs will keep their designation, but as of February 2016, ERPA exams are no longer being offered.

Where this might cause problems is with client representation on exams. Under current rules, only certain designated professionals may represent employers on plan audits: attorneys, accountants, enrolled actuaries, enrolled agents and enrolled retirement plan agents.

END OF THE ‘GRAY BOOK’It was announced in January 2016

that the “Gray Book,” a compendium

IRS Email Response

Dear Colleague:Thank you for taking the time to submit a technical question. However,

I am sorry to inform you that I cannot answer it. Effective October 1, 2015, IRS Employee Plans (EP) will no longer answer technical questions by email, including questions forwarded from Customer Account Services. This change is due to realignment of legal work and a number of EP employees to the Office of the Associate Chief Counsel in January 2015. As a result, EP employees are no longer authorized to perform research and/or provide answers for legal topics.

Our Customer Account Services employees at 877-829-5500 will continue to help with:• Account-specific questions

• Basic information about EP forms

• Status of pending applicationsYou can also find many answers to retirement plan questions on IRS.gov at

Retirement Plans and Retirement Plan Forms and Publications.If you have a legal question that needs to be addressed, you may want to

request a private letter ruling (PLR) - a written statement that interprets and applies tax laws to the taxpayer’s specific set of facts. See Revenue Procedure 2015-1 on how to obtain a PLR and the applicable user fees associated with this filing.

Thank you.

With all the changes at the IRS, today there is a very real question about how we will interact with the IRS going forward.”

area where we will have significant interactions with the IRS. Based on what we are seeing and hearing, audits seem likely to become more problematic and likely more contentious in the future. Needless to say, ASPPA GAC will continue to represent and convey to the IRS the concerns of our members in matters regarding qualified retirement plans. We will also work on Capitol Hill to restore budget cuts so that greater resources will be available to meet the needs of retirement plan sponsors and practitioners.

Richard A. Hochman, APM, is the managing director at McKay Hochman Consulting. He is ASPPA’s President-Elect.


OA little bit of proactive internal governance can, and typically will, help sponsors avoid costly corrective actions and penalties in the future.

Operational Self Audits: How to Avoid the Financial Pitfalls of Qualified Plans

BY JOEL SHAPIRO

ver the last decade, the vast majority of attention and scrutiny focused on plan sponsors has revolved around litigation concerning breaches of fiduciary duties. These lawsuits garner the biggest headlines because big companies are involved, meaning that big recoveries, big settlements and large class actions result.

Stock drops, excessive fees, imprudent investments, failure of duty of loyalty — these have received the lion’s share of industry-related press coverage, and thus have attracted the most attention of plan sponsors and fiduciaries. Without a doubt, these are important, seminal cases that warrant attention. But should they be the primary focus of plan sponsors and fiduciaries? I would argue no.

Granted, these lawsuits have resulted in some very large dollar amounts sure to strike concern, if not full-blown fear, in the minds of plan sponsors. But these numbers are driven by large organizations with large plans and large dollars at stake — the primary targets of class action plaintiffs attorneys. Most small and mid-sized employers and plans aren’t the “low-hanging fruit” favored by such attorneys.

WORKING WITHPLAN SPONSORS

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15th day of the month following the month in which the deferral was taken”). However, the DOL concentrates on the first part (“as quickly as administratively feasible”). That means that historically most plan sponsors have probably been late in making remittances.

In our experience over the years, “as quickly as administratively feasible” has meant one of two things: (1) the quickest the sponsor has ever transmitted contributions, or (2) the quickest that the DOL determines the sponsor should be capable of transmitting. If a sponsor is even a day later in transmitting than their quickest turnaround, the DOL is likely to find a delay and therefore a prohibited transaction. And because of alternative 2 above, a plan sponsor can’t game the system by purposefully delaying their remittance on a regular basis.

So what’s a plan sponsor to do? Well, small plan sponsors (those filing Form 5500 as small plans) have a 7-day safe harbor during which to make remittances. So they have a bit of wiggle room. Large plan sponsors don’t have the protection of this 7-day safe harbor, so absent evidence of necessary administrative delay, they will be held to a very short time frame for remittances.

In both instances, it behooves the plan sponsor to take several actions:1. Review internal processes and

determine how best to streamline so that dollars reach the plan as quickly as possible.

2. Create redundancy processes so that accidental scenarios (e.g., the payroll manager tasked with transmitting contributions goes on vacation or gets sick) don’t disrupt the regular process.

3. If an administrative circumstance arises (e.g., a new pay type that requires additional internal review) that reasonably causes a delay, create an internal memo documenting the reasonable administrative delay and why it may or may not continue with future payrolls.

their plans’ trusts in a timely manner. But many don’t realize that they may not be remitting them quickly enough. Dollars taken from paychecks are immediately considered plan assets, even if they have not yet been transmitted to the plan trust. If there is a delay in remitting these amounts, it is treated as if the plan sponsor has taken a loan from the plan. That’s a prohibited transaction. It is reportable on Form 5330 and has penalties attached. Yet few plan sponsors realize this, and even fewer understand what constitutes a “late” or “untimely” remittance.

The rule under ERISA is that plan sponsors must remit contributions as quickly as administratively feasible, but no later than the 15th day following the month in which the deferral was deducted from the paycheck. Seems like plenty of time, right? Unfortunately, many plan sponsors have historically hung their hat, and based their process, upon the latter portion (i.e., “no later than the

Now, this is not to say that plan sponsors should not take heed of the lessons to be learned by these lawsuits — they should. But primarily, they should pay attention to potential dangers that are much more likely to hit them in the corporate accounting department: operational issues.

How many small and mid-sized plans end up on the receiving end of these lawsuits? A few. How many small and mid-sized plans end up paying thousands, tens of thousands, and even hundreds of thousands of dollars as the result of inadvertent plan governance, administrative or operational issues? Thousands each year. Some pay via regulatory voluntary compliance programs (both the Department of Labor and the Internal Revenue Service provide such programs); many others pay the corrective amounts, and often penalties thereon, when these issues are discovered upon regulatory investigation or audit.

So while it is of great importance for plan sponsors to stay attuned to the legal outcomes of industry lawsuits, it is imperative that they self-regulate or self-audit the internal processes regarding administration and operation of their qualified plans. Retirement plans have many moving parts. And while most plan sponsors can rest somewhat comfortably relying upon top tier recordkeepers and third party administrators to handle most of their responsibilities for those myriad moving parts, they still need to recognize the responsibilities they retain, failure of which can result in significant expenses.

Following are two areas in which the need for proper administrative practices on the part of the plan sponsor is especially keen: timely remittance of contributions and the definition of compensation.

TIMELY REMITTANCE OF CONTRIBUTIONS

Most plan sponsors are conscientious about getting contributions from Accounting to

How many small and mid-sized plans end up paying thousands of dollars as the result of inadvertent plan governance, administrative or operational issues?”


2. Make sure that Payroll personnel review and understand the definition of compensation.

3. Have the individual(s) with the most plan knowledge and the Payroll personnel responsible for contributions conduct an internal audit of all paycodes against the definition of compensation to ensure that each is fully determined to be included or excluded as appropriate.

4. On an annual basis, go back and review any paycodes that may have been added during the past year and determine whether they were properly included or excluded for purposes of the plan.

CONCLUSIONAs noted above, there are quite a

few moving parts in a retirement plan. The experts that plan sponsors hire to assist in plan administration can shoulder the heavier burdens, but the sponsor will almost invariably retain some responsibilities. If those day-to-day responsibilities are not handled appropriately and efficiently, there is a much greater likelihood of a negative financial impact on plan sponsors than there is in a big class action lawsuit.

So while it is important that plan sponsors strive to meet their fiduciary responsibilities, it is of equal consequence that they pay special attention to the internal administration and operation of their plans. A little bit of proactive internal governance can, and typically will, help sponsors avoid costly corrective actions and penalties in the future.

Joel Shapiro, JD, LLM, is a senior VP at NFP, where he heads up the NFP service team as well as the ERISA

teams for NFP, the Retirement Plan Advisory Group and flexPATH Strategies LLC. Joel began his career practicing ERISA law with Fennemore Craig in Phoenix and as a legal plan consultant with Hewitt Associates.

Every plan document includes a definition of compensation that is to be used in determining contributions. Typically this definition is very technical, since it derived from Internal Revenue Code Section 415. The technicalities of the definition are often missed by Human Resources, but even more importantly (perhaps “insidiously” would be more apt), they may not be conveyed to Payroll accurately. And they are virtually never regularly reviewed by Payroll staff.

Why this is important should be obvious. If Payroll inadvertently leaves out a pay type from the calculation of compensation for purposes of determining deferrals, then participants lose the ability to defer on the portion of their compensation that they should be legally allowed to defer. Guess who is on the hook for those missed opportunities? The plan sponsor must make corrections.

How does this happen? It’s easy. As noted above, the definitions of compensation tend to be technical in nature, but the components can also be broad. Marry the definition with most companies’ payroll norms — “evolutionary” lists of pay codes, many of which may have been conjured up on the spot to account for some form of money flow to employees that didn’t fit into any ordinarily recognized pay code — and you have a formula for confusion and the potential for a significant financial impact. Now add the fact that many plans were designed before current personnel (in both HR and Payroll) joined the company, and you’ve exacerbated the potential impact.

In all instances, plan sponsors should take the following steps:1. Review the terms of the plan

document. What does the definition of compensation mean? Consider engaging the organization’s tax department or outside tax experts to fully ferret out the meanings of some of the components of the definition.

4. Regularly review the timing of the steps that are required to make sure it remains consistent. If there are discrepancies, examine why they exist, whether they were reasonable and whether there is a more efficient manner in which quick, consistent timing may be achieved.

DEFINITION OF COMPENSATION

All plan sponsors understand that they have to follow the deferral election of their participants (or of the plan document if auto features are included in the plan). They understand that if a participant elects to defer 5% of their pay and the sponsor inadvertently defers only 3%, the sponsor will be on the hook for correcting the error. (The IRS has specific corrective action for such failures.) What comes as a surprise to many plan sponsors, though, is that many participants experience a failure to fully defer based on less obvious failures.

It is imperative that plan sponsors self-regulate or self-audit the internal processes regarding administration and operation of their qualified plans.”

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Every business, from the brand new start-up company to the well-established organization, needs to review its operational processes and how those processes are delivering (or not delivering) value to customers. Doing this on a regular basis is necessary to stay relevant

and competitive. In addition, good companies understand the importance of keeping process

documentation up to date and shared throughout the company. But how should an organization document their processes?

There are several established methods for documenting the flow of work in a business — although, in my experience, they are not well known. Many companies rely on self-taught users of Microsoft Visio to informally diagram business processes. In my MBA program, I had an Operations Management course focused on lean thinking and process improvement — but all of the examples were from the manufacturing industry. I worked with my professors to apply these principles to a service industry and achieved mixed results — it didn’t quite fit.

BUSINESS PRACTICES

Mapping Your Business Workflows

Using value stream and process mapping to increase efficiency and boost client and business value.

BY GREG FOWLER

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• create a plan to transform the value stream from the current state to the desired future state.

Day 1 starts with the team visiting the Gemba — a Japanese term meaning real place where work is actually done. This is where the mapping team observes the front lines doing the work. The goal of this first map is to get an unvarnished and honest picture of what is actually happening — not what management hopes is happening.

The tendency is to get down into the weeds, but the mapping team needs to stay at a high level. For each process in the value stream, the team will calculate process time (actual time employees spend working on a particular task), lead time (amount of time the work is available to be worked on until it is completed), and percent complete and accurate (what portion of the work was both complete and accurate as determined by subsequent steps and the customer). Then the team will create on paper the current state of the value stream.

After the current state map is produced, the mapping team shares this with the frontline team members to get feedback and ensure the mapping team understood the process accurately. This is also a great opportunity for the frontline employees to feel connected to management and to buy into the process because they see management finally understands what is happening on the front lines.

On the second day, the mapping team crafts a future state documenting

who oversees the entire value stream and who will be actively involved in this mapping. Having a high-level executive sponsor involved is critical because they need to be supportive of the process, along with the change efforts that result.

In addition to the executive sponsor, a facilitator, a champion and mapping team members need to be identified. The facilitator serves as master of ceremonies and directs the efforts of the mapping team during the mapping sessions. The facilitator also coordinates the details of the mapping sessions, keeps the team on track and documents the findings. The champion is the leader who is accountable for the performance of the value stream.

The rest of the mapping team members should be comprised of leaders of the organization, regardless of whether or not they are directly involved in the process being mapped. Staff who actually do the work being mapped are generally not part of the mapping team. Instead they will be observed by the mapping team during the mapping process.

Next the mapping team creates a written charter outlining what they expect to achieve from the mapping process. This helps the team remain focused on what they set out to do. Once preparations are complete, the mapping team embarks on an intensive, 3-day journey to: • uncover the true current state; • design a future state that enhances

value to customers and the business and eliminates waste; and

Recently I discovered two books by Karen Martin and Mike Osterling, Value Stream Mapping and Metrics-Based Process Mapping, that make the connection to the service industry. Martin and Osterling apply lean principles to the service industry in a manner that resonates with me and has resulted in significant improvements in my organization.

So, what are value stream mapping and process mapping and when should you use each one?• Process mapping is similar to

informal workflows you may have created in the past but with more structure, purpose and focus.

• Value stream mapping is a strategic tool used to change the way organizations think about the way they deliver value to both their customers and themselves as a company.

The value stream is made up of multiple processes, while process mapping is a detailed view of a single process and its many steps. Let’s take a closer look at both.

VALUE STREAM MAPPINGValue stream mapping views

work performed by an organization from a macro perspective with focus on determining which processes provide value to the client or the business, which are waste, and which are necessary to support the value-adding activities. Value is defined as something a client is willing to pay for or creates profit for the business.

Value stream mapping starts by identifying an executive sponsor

The value stream is made up of multiple processes, while process mapping is a

detailed view of a single process and its many steps.”


what they want the processes to become. They identify aspects of the current value stream that create value and should be leveraged, as well as places where waste exists that must be minimized.

On the third and final day, the team creates a transformation plan. The team identifies the projects and tasks required to move from the current state to the future state. Assignments are made and completion deadlines set for each item.

In the weeks and months that follow, the mapping team meets

Value Stream Mapping Process Mapping

Order Before Process Mapping After Value Stream Mapping

Perspective Macro – interconnected processes Micro – steps within each process

Who participates Management heavy Frontline heavy

Purpose Strategic improvement Tactical improvement

Time required to create At least 3 days 1-2 days

PROCESS AND VALUE STREAM MAPPING AT A GLANCE

The tendency is to get down into the weeds, but the mapping team needs to stay at a high level.”

regularly to provide updates on the status of their assignments.

PROCESS MAPPINGValue stream maps focus on the

macro level value stream. Sometimes you need to focus in on one or more of the processes that make up the value stream. Process mapping is less strategic and more tactical in nature. Process mapping usually involves mid-level leadership and frontline staff. Technology plays a key role in many of the tactical improvements for service industries, so I recommend including a representative from the technology area of your organization.

In process mapping you will follow work through detailed steps to create a current and future state map similar to value stream mapping but at a more granular level. Process time, lead time and accuracy are measured and used to leverage value-adding steps in the process, eliminating waste. This is a great opportunity to work alongside the frontline employees and have them involved in designing a solution to the pain points identified in the value stream mapping process earlier.

From my experience with both value stream and process mapping, the impact on the business goes beyond the time savings in the process and the value to the client and business — the employees’ level of engagement has increased as they are invited to participate in the process mapping and they are able to see that management actually understands what frontline employees are doing each day and the challenges they face. The end goal is not to have any of these processes be a one-time event, but rather a cultural shift to continually looking to improve.

Greg Fowler, ERPA, QPA, QKA, APA, APR, AIF®, has worked for National Benefit Services, LLC for more than

15 years and is the firm’s Retirement Vice President. He received a B.S. degree in accounting from the University of Phoenix and an MBA from Brigham Young University.

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MSPA Stephen BennettPuja GuptaRoger HarrisJoel Tippetts

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on relevance or impact to their employees’ current responsibilities.

Third, we should enhance learner interactivity. We wanted to offer a more engaging learning experience for learners and more immediate and targeted feedback for both the learner and the employer.

And finally, we needed to take advantage of current technology. To do so we would utilize diverse media and technologies to allow for flexible instructional strategies and accommodate a variety of learning arrangements.

With these criteria in mind, the new and improved RPF course targets newly hired individuals who need a practical and brief introduction to the retirement plan industry. We replaced the old two-part course with a six-part modular course. The six modules in the new RPF course are:• Lifecycle of a Plan: an

introduction to the industry of retirement plan administration

• Contributions: covering eligibility, entry, enrollment and processing contributions

• Distributions: explaining distribution rules and processing of distribution requests

• Participant Loans: presenting basic rules and procedures for participant loans

• Testing: describing testing rules and performance of plan testing

• New Business: focusing on new business implementation, specifically the takeover of new business and investment conversions

Do you remember how you first started in the industry? For many of us, retirement

plan administration was an unknown field and we just felt our way through it. Rarely do you hear about someone taking undergraduate classes on employee benefits or achieving some type of certification prior to being hired. This trend continues for individuals entering our profession today. They have no clue about the retirement plan industry or the role and functions of plan administration until they experience it through “trial by fire.”

ASPPA wants to change the trend. We reviewed our introductory education offering, Retirement Plan Fundamentals (RPF), to answer the question, “What should newly hired individuals understand as soon as possible about retirement plan administration?” The result is a substantially revised RPF course which ensures that newly hired employees are productive as quickly as possible.

We kept some important criteria in mind during the restructuring process. First, we knew that the individuals would have little or no prior knowledge of anything related to retirement plan administration. As such, we didn’t want to present too much, too fast. Topics needed to be presented in stages and the amount of detail gradually increased in each stage.

Second, the content needed to be divided into topic areas more in tune with current practices and having a better application to today’s job functions. Employers may need to prioritize certain topics based

Want Your Employees To Be Productive, Faster?

The answer: the updated Retirement Plan Fundamentals (RPF) course.

BY BRIAN FURGALA

EDUCATION

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When the candidates are ready to finish a module, they complete an online exam. The modules have differing numbers of exam questions based on the amount of content. While the New Business module has 15 questions, the Testing module has 40 questions. Three exam attempts are included in each module to allow candidates to learn from their mistakes and improve their scores.

Finally, and maybe most importantly, the new RPF course utilizes the latest technology to provide for a variety of learning arrangements and offers the flexibility needed for today’s workforce. The new RPF course is compatible on a wide variety of devices. This gives the candidates more opportunities to practice skills and provides more timely and focused feedback.

ASPPA wants to change how employees are introduced to retirement plan administration. Newly hired individuals shouldn’t have to “feel their way through” for a number of years or be subject to “trial by fire” learning. The new RPF course provides your employees the opportunity to learn about the industry quickly, easily and fully. For more information about the new RPF modules, go to asppa-net.org/Education/RPF-Modules.

Brian Furgala, Esq., CPC, QPA, represents private and public sector employers, as well as tax-exempt

organizations, in achieving their retirement plan, fringe benefit or executive compensation objectives while satisfying the applicable laws and regulations. He also provides technical advice and consulting to TPAs, investment advisors, accountants and actuaries.

• Study Guide: The text has been completely rewritten to include a wealth of practical scenarios, guiding questions, explanatory text and examples. Delivered in PDF form, the text is accessible on most devices but can also be easily printed for those who prefer hard copy.

• Instructional Activities: The course includes a set of online interactive questions and activities to reinforce and practice the skills and knowledge after they have been presented. This aids with retention and helps candidates to focus on the most important parts of the material. These activities provide additional practice for the exam questions and provide detailed feedback to help learners understand why their answer was right or wrong. The practice activities may be paused, resumed or repeated as often as needed.

• Additional Resources: Each module contains links to additional information online, handouts and references. These resources can be used to enhance studying or as a helpful tool on the job. This ensures that learning doesn’t end with the course, but is transferred to on-the- job performance.

By delivering the content in these shorter modules, the employer and candidate have more flexible training options. More experienced individuals can complete all modules at once to quickly earn the RPF Certificate. Newer employees can take the Lifecycle of a Plan module immediately and gradually complete the remaining modules as they gain experience. The redesigned RPF course complements instructor-led training, allowing an organization’s training department to create different learning programs depending upon the employee’s department.

The new online RPF course offers improved self-paced study, with a built in pretest, practice activities, and feedback to help candidates assess their own progress as they learn. This maximizes time spent for both the new employee and the supervisor. For example, a new account manager may be instructed to complete the RPF course while shadowing another account manager.

In order to enhance the candidate’s learning experience, each module is divided into smaller units. Due to the broad range of topic areas covered, each module does not have the same number of units. Breaking each module down into these units allows for shorter learning activities. Now a candidate can complete a unit in a reduced amount of time and then return to study at a later occasion. The completion of each unit also provides more immediate and targeted feedback as compared to waiting until the end of the module.

Each of the six modules contain the following instructional strategies to provide the best learning experience: • Pretest: Each RPF candidate

brings a different level of experience and knowledge with them when they begin the course. The pretest helps candidates identify which areas of the content require the most study for them. The pretest can also be retaken as practice for the final exam.

The new and improved RPF course targets newly hired individuals who need a practical and brief introduction to the retirement plan industry.”


In Part 1 of this two-part series, published in the Winter 2016 issue, we looked at some of the ethical challenges that pension professionals can face when they learn of a colleague’s apparent misconduct. To recap the example used in Part 1, American Retirement Association (ARA) member Jean learned, while working for a client that was the sponsor of a defined benefit plan, that the client had been mishandling participants’ 401(k) funds in violation of federal law. It appeared that another ARA member, Paul, had advised the client that its 401(k) practices, while unorthodox, were unlikely to result in any serious penalty. Jean believes that Paul acted unprofessionally in giving the client that advice. She also suspects that the client might have paid Paul extra for an opinion that would support its practices if they were ever challenged.

ETHICS

What does the American Retirement Association Code say about the duty to report another pension professional’s misconduct?

Reporting Professional Misconduct (Part 2)

BY LAUREN BLOOM

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As we saw, Jean may be required by law if she is an attorney or by the ARA’s Code of Professional Conduct if she is an attorney or actuary to report Paul’s apparent failure of professionalism to the ARA and, perhaps, the Internal Revenue Service. Let’s presume, however, that someone beat her to the punch. Shortly after discovering what Paul had done, Jean receives a letter from ARA’s Professional Conduct Committee. The letter states that a complaint has been filed against Paul, and that Jean was identified as someone who might have knowledge or information concerning Paul’s actions. The committee is conducting a fact-finding inquiry into the complaint, and asks Jean to provide whatever information she can to support its investigation.

What should Jean do now?Her immediate reaction might

be not to respond at all. Jean thinks the client would probably consider information about its 401(k) practices and Paul’s opinion confidential. She’s concerned that asking the client for permission to share information with the Professional Conduct Committee will damage her relationship with the client. She’s also worried that, if she says or does anything that appears critical of Paul, he’ll file a retaliatory complaint against her with the Professional Conduct Committee, or even take her to court for defamation.

Having been contacted by the committee, however, Jean has a professional obligation to make an appropriate response. Section 13 of ARA’s Code of Professional Conduct provides in pertinent part:

A Member shall respond promptly in writing to any communication received from a person duly authorized by American Retirement Association to obtain information or assistance regarding a Member’s possible violation of this Code. The Member’s responsibility to respond shall be subject to Section 5 of this Code, “Confidentiality,” and any other

Jean to disclose what she has learned to the Professional Conduct Committee.

But if the client refuses, Jean can still fulfill her responsibilities under Section 13. She can prepare a short letter or e-mail to the committee explaining that any information she has about Paul is confidential, and under Section 5, cannot be disclosed. That response will allow the committee to refocus its investigation. It will also demonstrate Jean’s commitment to the integrity of the ARA process.

If Jean remains concerned about what Paul might do, she’d be smart to consult a lawyer to make sure that her response to the committee is truthful, factual and lawful. Paul may not like being investigated, but ARA’s discipline process is not designed to be defamatory or unnecessarily punitive. If Jean responds appropriately to the committee’s inquiry, she’s likely to face little legal risk, Paul will be instructed in better professional practice, and Jean will have made a positive contribution to the integrity of ARA’s discipline process.

Lauren Bloom is the general counsel & director of professionalism, Elegant Solutions Consulting, LLC,

in Springfield, VA. She is an attorney who speaks, writes and consults on business ethics and litigation risk management.

confidentiality requirements imposed by Law. In the absence of a full and timely response, American Retirement Association may resolve such possible violations based on available information.

Section 13 makes clear that Jean should not simply ignore the committee’s letter. But how much can she say? Jean might refer to Section 5 of the ARA Code of Professional Conduct, which states, “A Member shall not disclose to another party any Confidential Information obtained in rendering Professional Services for a Principal unless authorized to do so by the Principal or required to do so by Law.” Under Section 5, Jean cannot disclose information which she has reason to believe her client “would not wish to be divulged” (part of the definition of “Confidential Information” in Section 1 of the Code).

Sections 5 and 13 may seem to be in conflict. However, it is possible to harmonize them. Jean should answer the committee’s letter, but not in a way that violates her duty to respect her client’s confidential information. There are at least two ways in which she can do this.

Jean can inform the client that she has received an inquiry from the committee and request permission to disclose what she learned about Paul. (She doesn’t know that the client will refuse. The client might have innocently relied on Paul’s advice, and could be receptive to correcting its practices.) While the client’s initial response may be negative, Jean can describe the confidentiality of ARA’s investigative process and explain its importance to the employee benefits community. Pension professionals’ work supports the financial security of millions of Americans, and their integrity is fundamental to the success of the U.S. retirement system. If Jean can help the client understand why employee benefits professionals need to be held to high professional standards, the client may authorize


Do you like brussels sprouts? Does anyone, really? For many employees, retirement plans are like brussels sprouts — while participation in a workplace retirement plan may be unpalatable, it is good for their financial health and future.

The Department of Labor quantifies that sentiment, saying that approximately 30% of eligible workers do not participate in an employer-provided 401(k). Is there some kind of ingredient that will make retirement brussels sprouts more than simply palatable?

Enter the automatic feature. According to the DOL, automatic enrollment can cut that rejection rate

by more than half. And one of those is the qualified automatic contribution arrangement (QACA), an automatic enrollment 401(k) plan that automatically passes certain kinds of annual required testing. The plan must include certain features, such as a fixed schedule of automatic employee contributions, employer contributions, a special vesting schedule and specific notice requirements.

SUCCESS STORIES

QACAs: Making Retirement Veggies More Than Palatable

How a large equipment rental firm boosted its 401(k) participation rate from below 60% to over 95%.

BY JOHN IEKEL

57WWW.ASPPA-NET.ORG

to a maximum of 12% of pay. Since it has a decentralized structure, the firm educates employees about QACAs via information sent them by mail and videos posted on its websites.

It is unlikely that his client will change its QACA program, Riggins says, although it is possible that the initial contribution rate may be increased from 3% to 6%.

So is it working? In spades, according to Riggins,

who says it is “a huge success.” And a participation rate in the client’s 401(k) above 95% backs that up.

Not only that, its employees like it. “We had many comments thanking us. Very few complaints,” reports Riggins. And it’s been a boon to the client, too. “The provider takes on a lot of the admin burdens: eligibility tracking and sending the enrollment booklets, etc.,” he says.

So this client had a good experience — but what about other employers? Riggins indicates that this client’s experience is not an isolated instance. “I have never experienced where a client has used auto features where it didn’t work,” he says. “It leverages human nature,” he adds.

Not everyone may share his client’s enthusiasm for adding a QACA to its plan and looking out for employees in that manner, Riggins indicates. “Some companies feel that a 401(k) plan is a benefit to check off the box as an offering but are not interested in the results,” he observes. But, he adds, “If the goal of the retirement plan is to help and participate with the employee, and a successful outcome is important,” it will be willing to take a look.

to Riggins, the participation rate in the company’s 401(k) was below 60%.

Many employers could address a low participation rate by providing traditional on-site education and information to their employees. But Riggins’ client is not one of them — it has more than 500 locations across the United States, with 10-15 employees at each; not only that, very few of those employees stay on-site on any given day.

That means that the client had to use other means to get the employees to eat their retirement veggies. Riggins’ recipe: instituting a QACA.

“We presented it to the managers at a managers’ meeting and explained why we were taking this approach,” says Riggins. The response? “They embraced it,” he reports, adding that they were enthusiastic. Particularly important, he said, was having the CEO’s buy-in. That, says Riggins, “was the key.”

The client’s officers had the employees in mind, Riggins says: “The company expected their employees to work hard for them and they are well paid, but exhibited poor financial behavior. Their work life is physical and the officers wanted to do everything possible [to make sure] that they will retire with a decent amount of money.” The officers take a lot of pride in helping their employees, he adds.

Under the company’s QACA program, after one year of service, employees are sent an enrollment package with a memo explaining that unless they indicate that they do not want to participate, they will be automatically enrolled at 3% of pay. The contribution will automatically escalate by 1% per year

The DOL requires that under a QACA program, the initial automatic employee contribution must be at least 3% of an employee’s compensation. Contributions may have to automatically increase so that, by the fifth year, the automatic employee contribution is at least 6% of compensation.

The automatic employee contributions cannot exceed 10% of compensation in any year. An employee may change the amount of his or her employee contributions or choose not to contribute, but must do so by making an affirmative election.

An employer must at least make either:• a matching contribution of 100%

for salary deferrals up to 1% of compensation and a 50% match for all salary deferrals above 1%, but no more than 6% of compensation; or

• a nonelective contribution of 3% of compensation to all participants.

An employer also may make additional contributions to employees’ accounts, and has the flexibility to change the amounts of those additional contributions each year, according to business conditions.

Do QACAs accomplish the intended goal of helping transform what is unattractive to some a delicacy instead? Randall Riggins, CEP, CSA, RFC, AIF, PRP, C(k)P, a financial advisor with Oxman, Riggins & Associates, LLC, offers the experience of one of his clients as an illustration.

The client, a construction equipment rental company — the second-largest company of its kind in market share in the United States, and with 9,000 employees — had plenty of brussels sprouts haters. According

Do QACAs accomplish the intended goal of helping transform what is unattractive

to some a delicacy instead?”


G

BY YA N NI S P. K OU M A N TA R O S A N D A D A M C . P O Z E K

TECHNOLOGY

Teleport» TeleportApp.co

et your friends delivered. Not in a “sneak-attack, bag-over-the-head, dropped off at some clandestine location” sorta way; but in a “they haven’t cottoned-on to technology so you’re doing it for them” sorta way. Think of Teleport as Uber in reverse.

Say a client/colleague/prospect is in town and is staying at a hotel across town where you have to be lucky to catch the one taxi that passes by every three hours. Your client/colleague/prospect isn’t all that into apps and such but has a smartphone. Teleport him or her to that great restaurant just down the street from your office to meet for dinner. Instead of something businessy, maybe it’s a buddy and a late night screening of Rocky Horror that you just saw on a marquee. Works the same either way.

Simply launch Teleport and search for your friend’s contact info (pulled from your contact list) and send them a request. Yes, it’s a request they have to accept; otherwise we’re back at that sneak-attack thing, which we’re pretty sure might get you arrested. Your friend doesn’t even need to have Teleport or Uber accounts; they just click on the weblink, follow the prompt to drop a pin with their location to summon whatever level of Uber you authorized (X, Black car, SUV, etc.) The link even includes a map of where you are and an ETA.

Teleport works wherever Uber does, and they add an additional markup of 0% to the regular Uber fare. That no-extra-fee thing is nice since the teleporter gets to pick up the tab.

> 01


59WWW.ASPPA-NET.ORG

Adam and Yannis are always on the lookout for new and creative mobile applications and other technologies. If you have any tips or suggestions, please email them at:[email protected] and [email protected].

Yannis P. Koumantaros, CPC, QPA, QKA, is a shareholder with Spectrum Pension Consultants, Inc. in Tacoma, Wash. He is a frequent speaker at national conferences, and is the editor of the blog and

newsroom at www.SpectrumPension.com.

Adam C. Pozek, ERPA, QPA, QKA, CPFA, is a partner with DWC ERISA Consultants, LLC in Salem, N.H. He is a frequent writer and presenter and publishes a blog at www.PozekOnPension.com.

PLastPass» LastPass.com

asswords are a pain in the neck… completely necessary in our constantly connected world, but still a pain. What are the options to keep up with all of them? Just go with the ubiquitous “password” or “12345”; use the same two or three combinations for everything; keep a

spreadsheet called Password.xls to make it easy to find them if your computer gets hacked? And what about remembering to change them on some period basis? Yeah right!

What about using LastPass and only needing to remember a single password from now on? Yep, it’s as good as it sounds. Anytime you go to a website — to pay bills online, to check your 401(k) balance or to buy tickets to Burning Man — LastPass will ask you if you want it to remember the site and your login information for future use. Once you have a few sites added, it will give you a security score based on the strength of your passwords (hint: 12345 is pretty weak) and how often you repeat passwords. If you want to beef up your score, it will auto-generate passwords for you based on parameters you set for length and special characters. LastPass will also prompt you to change your passwords from time to time.

There are versions for all major smartphone platforms and web browsers, as well as desktop apps for both Windows and Mac. The basic version is free, but you can upgrade to the Premium version for only $12 per year to sync passwords across all your devices. They use state-of-the-art encryption, so your passwords are safe. The only one you need to remember is the one to login to LastPass. That’s the last password you’ll need. Get it? Last password?

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IPower BI» PowerBI.com

n our last column, we told you that Microsoft was back, and it is. This time, we will tell you about one of the hottest Visualization tools for small and medium sized businesses, which can help you make decisions quicker. Microsoft created Power BI (Power Business Intelligence),

which is an amazing software application part of the Office 365 system.

As the technology giant touts, “Microsoft Power BI transforms your company's data into rich visuals for you to collect and organize so you can focus on what matters to you. Stay in the know, spot trends as they happen, and push your business further.”

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YMint» Mint.com

ears ago I was all about Quicken and hated on Mint. However, after several years of migrating my life to the Cloud, it appears that Mint rules and Quicken drools. Mint is an online personal finance website and application that links all of your accounts into one place

so you can track your spending, monitor your credit and see the big picture of your personal finances.

Since Intuit now owns both Quicken and Mint, they have really catered Mint to the demographic who likes to use applications, and Quicken to the folks who like desktop software. Mint is free, while Quicken has a software licensing cost, but you get a ton of advertisements on Mint, which I am okay with. They tell you about credit cards with lower rates, and all kinds of other things, but the software developers at Mint have really mastered push or pull notifications.

For instance, I love that Mint tells me if any of my banks charge me any kind of fee. That way I can call the bank and ask for an abatement of that fee if something went awry with my planning. If you ever transfer a balance onto a credit card with a promotional rate, it will tell you when that promotional rate changes to the really terrible double digit rate so you can pay it off or re-transfer. Anyway, sometimes we need to update our opinions on Cheap Technology because technology changes very rapidly!

Whether you are a website or app kind of person, if you don’t use anything to help with your personal finances, Mint will be a great home run!

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With both a Cloud version and a local desktop version, you data geeks and spreadsheet junkies can make all kinds of visual representations of data on your business. With more than 40 API connections already established, you can link Power BI immediately to applications like MailChimp, Google Analytics, CRM and SalesForce to bring your data to life visually. Bottom line: If you are paying for Office 365 and not using Power BI, you are wasting money and time. Get it now, use it regularly, and improve your business!

59WWW.ASPPA-NET.ORG


ASPPA Prevails on new Form 5500 QuestionsIn the end, the IRS’ instructions for the 2015 Form 5500 indicated that the troublesome new questions would be optional.

GAC UpdateBY CRAIG P. HOFFMAN

A SPPA’s Government Affairs Committee (GAC) continues in its efforts to represent

the interests of our members in Washington, D.C. I am happy to report on a recent success that should be of great interest to all ASPPA members who work with Form 5500s.

Last fall, I reported on ASPPA GAC’s efforts with respect to certain new questions being added to the Form 5500 for 2015 plan year reports. These questions were included at the behest of the IRS in a new form called the “Form 5500-SUP.” For those who file through the EFAST system, however, the new questions would simply be imbedded in the existing form and schedules.

The new questions were first proposed in a Federal Register filing in December 2014. ASPPA GAC filed a comment letter in February 2015 suggesting a number of ways the new questions could be changed to make the collection of the information less burdensome. We also strongly suggested that the new questions be delayed for at least a year to give software providers and plan sponsors time to update their systems.

When the federal government seeks to collect information from Americans in the private sector, provisions of federal law that are generally referred to as the Paperwork Reduction Act (PRA) must be satisfied. The PRA requires approval by the Office of Management and Budget (OMB) before a federal agency seeking to collect information can do so. The OMB review looks to whether

the information is really needed by the agency and whether there may be less burdensome collection methods.

The new questions on the 2015 Form 5500 are subject to the PRA and therefore to OMB review. Accordingly, the IRS submitted them to OMB in May of last year. The IRS certified the information was needed and that the burdens of collection would be slight. Upon review by ASPPA GAC, it was obvious from the OMB filing that the IRS had completely ignored our thoughtful suggestions for improving the questions. As a result, ASPPA GAC filed a comment letter with OMB that contested the statements made by the IRS in their certification. We told OMB that there were better ways to collect the information as indicated in our earlier comment letter. Additionally, there was no pressing reason to add the new questions in such a hurried fashion. We also asserted that by delaying implementation for at least one year, the costs and burdens to plan sponsors and administrators could be greatly reduced.

After filing the OMB comment letter, ASPPA GAC continued to press the issue. A face-to-face meeting was held in July with officials from the OMB, the Treasury Department and the IRS. We reiterated our concerns and asked for at least a one-year delay. We also had meetings on Capitol Hill that resulted in a number of members of Congress writing to OMB to express their concern. We also wrote one last comment letter to the IRS in September 2015 requesting that at the very least, the new questions should be

made optional for the 2015 plan year.As we approached the end of 2015,

ASPPA GAC became concerned since the final version of the form had not been released. With filing season only a month away, we finally got an answer and it was good news worth waiting for. On Dec. 1, 2015, the IRS issued the final version of Form 5500 for the 2015 plan year. The accompanying instructions indicated that the new questions would be optional for 2015 (although the IRS recommended that they be answered if possible).

Needless to say, ASPPA GAC was very happy to see that the IRS finally agreed to our request for a delay. The 2015 instructions, however, indicate that the questions will be mandatory for the 2016 plan year reports. ASPPA GAC is now reviewing the 2015 form and we expect to file another comment letter that will recommend ways to improve the questions for 2016. In the meantime, many commentators are recommending that since the new questions are optional, in most cases they can be ignored, at least for the time being. Nevertheless, practitioners and plan sponsors should be preparing their processes and systems so they will be ready with answers next year.

Craig P. Hoffman, APM, is General Counsel for the American Retirement Association.

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A n o f f i c i a l p u b l i c a t i o n o f A S P P A

SPRING 2016

IRS Employee Plans — The ‘New Normal’

Takeovers and Conversions

My 50 Years as a Pension Actuary

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How to connect with allgenerations of participants