INTEGRATING 401(k) PLAN ADMIN, PAYROLL
HR/payroll companies such as Ceridian and Paylocity, which do not have 401(k) offerings, have begun to partner with record keepers and with software platforms, such as Aspire Financial, and investment firms that have a robust recordkeeping platform, such as Great West and ING, to offer advantages that an integrated system offers. This is in order to compete with the likes of ADP and Paychex. Even regional payroll companies like Balance Point Payroll in New Jersey have payroll and 401 (k) administration data exchange with Great West and other providers.
TPAs, and now advisers, have begun to understand that he who controls the payroll (census) controls the sponsor - something payroll companies understood some time ago. As a result, some TPAs have started their own in-house payroll businesses.
As an independent financial adviser, should you consider working with a national payroll provider or a regional HR/Payroll company? - Stewart Feller, AEPG Wealth Strategies.
WHAT GOES AROUND, COMES AROUND
In the president's April budget were the expected restrictions and limitations on qualified retirement plan benefits. It's not the first time that retirement benefits have been chips in the politics of budget reconciliation. Let's take a look down memory lane at the highlights of the 1980s:
1982: We can stop right here. This was the year Congress passed tax legislation called the Tax Equity and Fiscal Responsibility Act (TEFRA) in which benefit reductions and other restrictions were added to the tax laws. The first such pullbacks since ERISA was passed in 1974. TEFRA was soon followed in 1984 by the Deficit Reduction Act (DEFRA), which added further restrictions.
What can we learn from history?
Simply this: back then we couldn't control whether benefits would be restricted. Nor can we now. But I do recall what some employers did back then. Those employers that had planned to adopt retirement plans or wanted to increase benefits did so before the laws were changed.
Something for employers to consider now, and not a bad reason to talk to them. - Jerry Kalish, National Benefit Services, Inc.
3 FIXES FOR PENSION PROTECTION
Low levels of financial literacy threaten the viability of the American retirement system. "In our schools, we teach children about sex and drugs, but not about money," said Fidelity Investments' Ronald O'Hanley in an April speech to the U.S. Chamber of Commerce. "And, in the workplace, some employers are reluctant to provide financial and retirement education and guidance out of fear of lawsuits, and recent signals from the Department of Labor suggest this fear is well founded."
He lauded the "watershed moment" created by the passage of the Pension Protection Act in 2006. Even so, O'Hanley named three extensions to the law that could help address the retirement crisis:
1. Increase the default savings rate.
2. Require auto-escalation features as part of plan design, unless employees chose to opt out.
3. Mandate auto features, along with a participant opt-out, in all new plans. - Andrea Davis, Employee Benefit News
STABLE VALUE FUNDS' MUSTHAVE FEATURE
When evaluating stable value funds, advisers need to consider and educate plan sponsors about a fund's plan-level termination provisions.
There are still funds available today that offer a put option (12 months or less). The put option will ensure that in the event of a plan-level fund termination, participants will still receive book value within a specified period of time, even if the fair market value of the stable value fund's portfolio remains below its book value.
If a fund does not have a put option provision included, it is important to perform due diligence by asking the fund provider, "What would happen in a worst case scenario where a plan-level fund termination occurred during a period of time when the fund's market value was below book value?"
The plan sponsor should be made aware of the fund's termination provisions and it is always good practice to reflect this in the plan's IPS.
- Aldo Vultaggio, Portfolio Manager and Steven Kay, president and founder of AEPG Wealth Strategies, an advisory firm in Warren, N.J.
