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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

WINTER 2017

ASPPA Annual Conference

Election wrapup

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The DOL Conflict-of-Interest Rule:

WHY SHOULD TPAs CARE?

10 lessons on cybersecurity

50th anniversary gala

PC_WINTER_COVER_2017 v2.indd 1 1/10/17 11:32 AM

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The DOL Conflict-of-Interest Rule: Why Should TPAs Care?

BY ILENE H. FERENCZY

COVER STORY

38

WINTER 2017Contents

28 Hacked!

10 key lessons on cybersecurity.

BY SAAD GUL AND MICHAEL E. SLIPSKY

FEATURE STORIES

6 From the President A new focus on education and awareness of our role. RICHARD HOCHMAN

15 New and Recently Credentialed Members

46 One to Remember The 2016 ASPPA Annual Confer-ence — held in the Society’s 50th anniversary year — was a very special one. JOHN ORTMAN AND JOHN IEKEL

52 Party Like It’s 1966 A joyous celebration capped off ASPPA’s 50th anniversary year in grand style.

64 Government Affairs Update Skip new Form 5500 questions for 2016 again, IRS says.

CRAIG P. HOFFMAN

ASPPA IN ACTION

34 Unintended Consequences

Polls, pundits and politicians alike did not see this coming.

BY NEVIN E. ADAMS

2 PLAN CONSULTANT | WINTER 2017

56 QACAs: A New Four-Letter Word? WORKING WITH PLAN SPONSORSLISAN ADAMS

58 Civility and Professionalism in the Office, Part 2 ETHICS

LAUREN BLOOM

60 Two Paths to Success BUSINESS PRACTICES

JOHN IEKEL

62 Working Smarter by Leveraging Cheap Tech BUSINESS PRACTICES

YANNIS KOUMANTAROS AND JJ MCKINNEY

04 Letter from the Editor

08 The City That Never Sleeps Should Take a Nap REGULATORY/LEGISLATIVE UPDATE

BRIAN H. GRAFF

10 Substantial Changes Proposed to the Form 5500 REPORTING

MONIQUE ELLIOTT

16 State Auto-IRA Plans: The Stage is Now Set LEGISLATIVE

ANDREW REMO

18 Obsolete Provisions in Plan Documents COMPLIANCE/ADMINISTRATION

RICHARD A. HOCHMAN

22 IRS Broom Sweeps Away Section 457 Cobwebs? REGULATORY

JOHN IEKEL

26 IRS Proposes Regs on MPV Requirements for Distributions ACTUARIAL

JOHN IEKEL

582618COLUMNS

TECHNICAL ARTICLES

PRACTICE MANAGEMENT ARTICLES

Published by

Editor in ChiefBrian H. Graff, Esq., APM

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

David J. Witz, Co-chairGary D. Blachman

Jason D. BrownThomas Clark, Jr., JD, LLM

Kelton Collopy, QKAKimberly A. Corona, MSPA

Shawna Della, QKAJohn A. Feldt, CPC, QPA

Catherine J. Gianotto, QPA, QKABrian J. Kallback, QPA, QKA

Phillip J. Long, APMKelsey H. Mayo

Michelle C. Miller, QKARobert G. Miller, QPFC

Eric W. Smith

EditorJohn Ortman

Associate EditorTroy L. Cornett

Senior WriterJohn Iekel

Graphic Designer/ProductionLisa M. Marfori

Technical Review BoardMichael Cohen-Greenberg

Sheri Fitts Drew Forgrave, MSPA

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

Robert Richter, APM

Advertising SalesGwenn Paness

[email protected]

ASPPA Officers

PresidentRichard A. Hochman, APM

President-ElectAdam C. Pozek, QPA, QKA, CPFA

Vice PresidentJames R. Nolan, QPA

Immediate Past PresidentJoseph A. Nichols, MSPA

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 2017. 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.

Cover: Tyler Charlton Illustration

ASPPA VIRTUAL CONFERENCE

WWW.ASPPA-NET.ORG

The conference may be virtual,

On-Demand version Now Available

Were you unable to join us for the 2016 ASPPA Virtual Conference: Winter Edition, or did you attend and now wish to watch the interesting,

informative, and lively sessions again?

Visit www.asppavirtualconference.org


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

appy New Year! Here’s hoping that 2017 has good things in

store for you, your family and your business.

As 2016 recedes in the rear view mirror, let’s take a quick look back at what turned out to be a remarkable year. In the world of sports, for starters, the Chicago Cubs — the Chicago Cubs — won the World Series. And in 2016, sports fans said farewell to some true giants: Arnold Palmer, Muhammed Ali, Monte Irvin, and Gordie Howe.

And the world lost a pair of icons in John Glenn and Elie Wiesel.

In the realm of politics, the dust had barely settled in the wake of the Brexit vote when one of the most

JOHN ORTMANEDITOR-IN-CHIEF

HBackwards and ForwardsWhat a year that was.

Did You Get Your ASPPA History Book?

A big part of ASPPA’s 50th anniversary celebration was the publication of Leading the Evolution: ASPPA’s 50 Years at the Forefront of the Retirement

Industry in October. Complimentary copies of the book were provided to ASPPA members attending the ASPPA Annual Conference and shipped to all other active members in November. As with all mailings that large, it’s inevitable that some ASPPA members did not receive their copies. If you did not get yours, please contact Customer Care at [email protected] or (703) 516-9300, 8:30 a.m.-5:30 p.m. ET.

remarkable presidential campaigns in U.S. history culminated in one of the most astounding outcomes ever. In this issue (see page 34), Nevin Adams sorts through what the election results may mean for the retirement industry.

Closer to home, the first set of effective dates — at least as things stand now — for the DOL’s fiduciary rule is only about 90 days away.

How will the rule affect TPAs? In our cover story on page 38, Ilene Ferenczy offers the most comprehensive answer to that question that you’ll find anywhere.

And in ASPPA Nation itself, the Society’s year-long celebration of its 50th anniversary culminated with — what else? — a blowout party for 1,000 BFFs at the ASPPA Annual Conference in October. Missed it?

Then check out the photo essay on page 52 of this issue. You’ll also find more photos from the gala celebration — including a mini-reunion of 30 ASPPA Past Presidents — on the ASPPA history website, at http://asppa50.org. And for a wrapup of a memorable 2016 ASPPA Annual Conference, turn to page 46.

All told, 2016 was a special year. What will 2017 bring? As always, we’ll find out… together.

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

What’s an anniversary gala without a celebratory cookie?

Build Up Your CE Credits via Plan Consultant QuizzesDid you know that each issue of Plan Consultant magazine has a

corresponding continuing education quiz?

Each quiz includes 10 true/false questions based on articles in that issue. If

you answer seven or more quiz questions correctly, ASPPA will award you

three CE credits. And you may take a quiz up to two years after the issue of

PC is published. This makes Plan Consultant quizzes a convenient and

cost-efficient way to earn valuable CE credits anywhere, anytime.

Visit: www.asppa-net.org/Resources/Publications/CE-Quizzes

to get started!


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

want to redefine how we are viewed as we do our jobs every day. What we really do every day is provide the nation’s workers with a secure and rewarding retirement. I don’t believe that important role has been properly perceived. ASPPA members provide a vital service to this country, and not necessarily under the easiest of circumstances. The importance of this role, and more specifically what we do, is not appreciated in society at large. I want to undertake an educational program where the significance of what we do is better appreciated by the employers and participants that we work with, as well as by the government regulators and the media. Without the private retirement system, the nation’s workforce would be dependent on Social Security, their personal savings and possibly other government assistance programs. But for most it would not be a comfortable retirement. Many, in fact, could not afford to retire. What is not acknowledged is that we make retirement possible and better for a vast number of retirees. I hope you will work with me as we make our vital role better appreciated.

I hope I live up to and even exceed your expectations. May 2017 be a successful year for all of us.

Richard Hochman, APM, is Director, Retirement Plan Consulting Services, at Actuarial Systems Inc. He serves as ASPPA’s 2017 President.

importantly, by — recordkeepers. It is a first attempt in what I envision as leadership’s new approach to meeting the needs of our members. Instead of delivering what we think you want, we need to not just listen, but to hear you and then go about delivering the products and services that will allow you to do the best job you can. The services that you, as ASPPA members, provide to your clients and their employee/participants are vital to assuring America’s workforce that they will have a secure and satisfying retirement.

That brings me to the final, but in my mind most important, mission of my presidency. As many of you know, I have a reputation as being a little more outspoken than many of my predecessors. I bring a deep, deep passion to the job. For example, earlier this year I asked for more transparency when it was divulged that the IRS was working on a revamp of the pre-approved document program without first seeking industry input. By speaking out, we were able to get a meeting with key IRS staff to address the practitioner community’s concerns and provide input on suggested improvements to the program. Input that I am glad to say was positively received.

I am writing this just days before election day, so I have no idea what the next year may hold, but regardless of who is ultimately victorious, I believe that we will face major hurdles in delivering retirement security to our nation’s workers. I

llow me to begin my year as ASPPA President by saying how honored I was to serve as President-Elect alongside Joe Nichols in ASPPA’s Golden Jubilee Year. ASPPA has come a

long way since its early years. With the formation of the American Retirement Association in 2015, it is time to get back to ASPPA’s strategic mission. To that end, I chaired a strategic planning task force with ASPPA leadership — past, present and future. You will be hearing more about that as the year progresses, since we intend to become more “member-centric” and work off your input.

The vision for my year as President starts with implementing the strategic plan. It is my hope that we can grow the organization and make it more responsive to our members.

We need to reevaluate the way we provide education. ASPPA education has traditionally been about certifications and designations. With the many changes in our industry, we are hearing that there is a need for education that will not necessarily end with a designation. It is the technical information itself that matters.

To that end, for the first time we had a session at Annual that focused on the specific needs of recordkeepers. That session was attended by more than 125 participants and was the first step in providing a new educational program designed specifically for — and most

2017: New Focus on Education, Awareness Of the Vital Role we PlayASPPA members provide a vital service to this country, and not necessarily under the easiest of circumstances.

A

BY RICHARD HOCHMAN

7WWW.ASPPA-NET.ORG

ASSESSMENTS PERFORMED BY CEFEX, CENTRE FOR FIDUCIARY EXCELLENCE, LLC.

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

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.

*as of September 1, 2016

Actuarial Consultants, Inc. Torrance, CA | acibenefits.com

Alliance Benefit Group of Illinois Peoria, IL | abgill.com

Alliant Employee Benefits New York, NY | alliant.com

Altigro Pension Sevices, Inc. Fairfield, NJ | altigro.com

American Benefits Systems, Inc. San Antonio, TX | simpkinsassoc.com

American Pensions Charleston, SC | american-pensions.com

Aspire Financial Services, LLC Tampa, FL | aspireonline.com

Associated Benefit Planners, Ltd. King of Prussia, PA | abp-ltd.com

Atessa Benefits, Inc. San Diego, CA | atessabenefits.com

Atlantic Pension Services, Inc. Kennett Square, PA | atlanticpensionservices.com

Beacon Benefits, Inc. South Hamilton, MA | beacon-benefits.com

Benefit Management Inc. Providence, RI | unitedretirement.com

Benefit Planning Consultants, Inc. Champaign, IL | bpcinc.com

Benefit Plans Plus, LLC St. Louis, MO | bpp401k.com

Benefit Plans, Inc. Omaha, NE | bpiomaha.com

Benefits Administrators, LLC Lexington, KY | benadms.com

Blue Ridge ESOP Associates Charlottesville, VA | blueridgeesop.com

BlueStar Retirement Services, Inc. Ponte Vedra Beach, FL | bluestarretirement.com

Cetera Retirement Plan Specialists Walnut Creek, CA | firstallied.com

Creative Plan Designs Ltd. East Meadow, NY | cpdltd.com

Creative Retirement Systems, Inc. Cincinnati, OH | crs401k.com

Delaware Valley Retirement, Inc. Ridley Park, PA | dvretirement.com

DWC ERISA Consultants, LLC St. Paul, MN | dwcconsultants.com

Fiduciary Consulting Group, Inc.Murfreesboro, TN | ifiduciary.com

Great Lakes Pension Associates, Inc. Farmington Hills, MI | greatlakespension.com

Ingham Retirement Group Miami, FL | ingham.com

Intac Actuarial Services, Inc. Ridgewood, NJ | intacinc.com

July Business Services, Inc. Waco, TX | julyservices.com

Kidder Benefits Consultants, Inc. West Des Moines, IA | askkidder.com

Moran Knobel Bellevue, WA | moranknobel.com

National Benefit Services, LLCWest Jordan, UT | ndsbenefits.com

Niles Lankford Group Inc.Plymouth, IN | nlgpension.com

North American KTRADE Alliance, LLC.Plymouth, IN | ktradeonline.com

Pension Associates InternationalBarreal de Heredia, Costa Rica

Pension Financial Services, Inc.Duluth, GA | pfs401k.com

Pension Planning Consultants, Inc. Albuquerque, NM | pensionplanningusa.com

Pension Solutions, Inc. Oklahoma City, OK | pension-solutions.net

Pentegra Retirement ServicesColumbus, OH | pentegra.com

Pinnacle Financial Services Inc.Lantana, FL | pfslink-e.com

Preferred Pension Planning CorpBridgewater, NJ | preferredpension.com

Professional Capital Services, LLCPhiladelphia, PA | pcscapital.com

QRPS, Inc.Raleigh, NC | qrps.com

Qualified Plan Solutions, LC Colwich, KS | qpslc.com

Retirement Planning Services, Inc. Greenwood Village, CO | rpsplanadm.com

Retirement Strategies, Inc.Augusta, GA | rsi401k.com

Rogers Wealth Group, Inc.Fort Worth, TX | rogersco.com

RPG Consultants Valley Stream, NY | rpgny.com

Savant Capital ManagementRockford, IL | savantcapital.com

Securian RetirementSt. Paul, MN | securian.com

Sentinel Benefits & Financial GroupWakefield, MA | sentinelgroup.com

SI Group Certified Pension ConsultantsHonolulu, HI | sigrouphawaii.com

SLAVIC401K.COMBoca Raton, FL | slavic.net

Summit Benefit & Actuarial Services, Inc.Eugene, OR | summitbenefit.com

TPS GroupNorth Haven, CT | tpsgroup.com

Trinity Pension Group, LLCHigh Point, NC | trinity401k.com


NYC Nest Egg Plan goes too far. The proposal creates a new retirement plan product exchange — the “NYC 401(k) Marketplace” — which would empower a new bureaucratic board to regulate retirement plan products of all strips at the city level.

What is most scary about the Empire City 401(k) is that it will have a critical advantage in the marketplace since it will be the only multiple employer plan available to unrelated employers on the marketplace. As many are probably aware, the DOL just a few short years ago interpreted the same ERISA statute as disallowing private providers from offering a multiple employer plan to unrelated employers.

If you are scratching your heads — so are we. We must fight back against the DOL stacking the deck against our industry while at the same time inviting unfair competition from government at every level.

Brian H. Graff, Esq., APM, is the Executive Director of ASPPA and the CEO of the American Retirement

Association.

What was the legal rationale? “In the Department’s view, a state has a unique representational interest in the health and welfare of its citizens that connects it to the in-state employers that choose to participate in the state MEP.” Apparently, New York City and its lawyers have concluded that the DOL will extend this rationale to cities. And why not? New York City has been the first governmental entity to take up the DOL’s offer to compete with private sector retirement plan providers on DOL’s uneven playing field.

To be fair, the New York City Nest Egg Plan does have some positive policy components that the American Retirement Association has long supported. For instance, the proposal requires every employer in the city — including even sole proprietors and freelance workers — to provide access to a payroll deduction savings arrangement to its employees. We think that this requirement is critical to moving the needle on coverage, since the data show that moderate income earners are 15 times more likely to save for retirement when they have access to a plan through work.

And if there is such a requirement on private employers, we think it is also reasonable that there be a publicly sponsored payroll deduction IRA program that businesses can use as a default option. The NYC Nest Egg Plan does create such an option, called the NYC Roth IRA. But then, the

Joker is taking over Gotham City. Known as the New York City Nest Egg Plan, it is an ambitious attempt to close the retirement plan coverage gap for residents of the largest city in the

United States. But instead of focusing squarely on the coverage issue — which remains a legitimate concern for policymakers — New York City Comptroller Scott Stringer wants the city government to get involved in the 401(k) business.

The city-sponsored plan — called the Empire City 401(k) — is being billed as a “cost-effective” 401(k) product that “takes advantage of recent changes in federal law allowing multiple employers who are unaffiliated to join a single, publicly-sponsored 401(k) plan.” In fact, there have been no changes in federal law. The only change is the Department of Labor perversely interpreting ERISA in a nakedly political way to facilitate a government takeover of the retirement plan business.

What do I mean? In November 2015, the DOL issued an ERISA interpretative guidance — in an extrajudicial manner that does not require public notice or comment — in order to facilitate ERISA-covered state savings programs. Within this guidance the DOL expressly blessed the ability of a state to sponsor a multiple employer plan for any unrelated in-state employer.

Whilst DOL giveth to government, it taketh from the private sector.

A

The City That Never Sleeps Should Take a Nap

REGULATORY/LEGISLATIVEUPDATE

BY BRIAN H. GRAFF

9WWW.ASPPA-NET.ORG

ERISATHE

OUTLINE BOOK

2017

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

www.asppa.org/EOB800.308.6714

Print & Online Editions Available


IThe proposed changes will impose a staggering financial and technological burden on recordkeepers and custodians.

Substantial Changes Proposed to the Form 5500

BY MONIQUE ELLIOTT

n July 2016 the Department of Labor, the Internal Revenue Service and the Pension Benefit Guaranty Corporation issued a proposal for a major overhaul of the regulations and forms associated with the Form 5500 annual reporting process.

According to the agencies, there are several intended goals:• Modernize the financial statements and investment

information filed about employee benefit plans• Update the reporting requirements for service

provider fee and expense information • Enhance accessibility and usability of data filed on

the forms• Require reporting by all group health plans covered

by Title I of ERISA • Improve compliance under ERISA and the Internal

Revenue Code through new questions regarding plan operations, service provider relationships, and financial management of the plan

• Under the proposal, changes would be effective beginning with the 2019 Form 5500 filings. These proposed changes would significantly affect the annual reporting requirements for substantially all retirement plans, and would also significantly impact health and welfare plan creating potentially 2 million new filers, substantially all on the health and welfare plan side.

The DOL opened a comment period that originally ended Oct. 4, 2016, but was subsequently

REPORTING

extended until Dec. 5, 2016.Historically, the agencies have been extracting

or reviewing information on a financial statement attachment, or as included on the current return, which is much more time-consuming than it would be if the relevant data was included on the 5500 return. Perhaps due in part to continuing audit quality issues and plan sponsor operational issues, the agencies were looking for ways to modernize the Form 5500 so that they can quickly extract key data to “red-flag” plans that are not complying with ERISA and the Internal Revenue Code in operating their plans. Data-mining financial statements to try to obtain relevant details is not as effective as modernizing the Form 5500 to ask compliance questions, to determine costs associated with plans, and to allow for a more detailed investment schedule that aligns better with the type of investments that plans currently hold.

Following are some of the key proposed changes by schedule.

NEW REPORTING FOR HEALTH AND WELFARE PLANS

All group health plans, regardless of size, will be subject to Form 5500 reporting. Currently there are approximately 54,000 health and welfare plans that file a Form 5500. The agencies estimate that these

11WWW.ASPPA-NET.ORG

counterintuitive to the other changes, which are risk focused. While it is understandable that an audit can be a significant expense to small plans, consider, for example, a plan that has 75 participants with balances but 600 eligible employees. Such plans may decide to skip auto-enrollment or proper notification of eligibility to keep a lower headcount. Smaller plans typically are less likely to have in-house ERISA specialists or access to ERISA attorneys. They may not have investment advisors, and they may have recordkeepers where they have a call center versus a dedicated representative. Typically, these plans rely heavily on qualified auditors to point them in the right direction.

SCHEDULE CThe proposed revisions to

Schedule C will increase filers of the schedule by about 25%. All pension plans, regardless of size, will be required to complete the schedule. Welfare plans that offer group benefits that are funded by a trust with fewer than 100 participants will also need to prepare the schedule. Lastly, there is clarification of indirect compensation reporting requirements, and additional useful information that will need to be provided by plan service providers.

The schedule has been rewritten to align better with disclosure requirements under ERISA section 408(b)(2), which should be helpful. The alternative reporting rules for eligible indirect compensation will be eliminated.

Schedule C will only require reporting indirect compensation information for covered service providers, within the meaning of the section 408(b)(2) regulation. This should cut down the number of entities being reflected on the schedule, as those that do not have a relationship with the plan other than the plan’s investment will no longer be required to be shown on the schedule.

The current part III of the schedule on termination of

will be required to file a Schedule H, as the Schedule I would be eliminated. They would still have their audit waiver and therefore not be subject to Part III of Schedule H; however, the remainder of the schedule including the compliance questions would be applicable.

FORM 5500The proposal is recommending

that defined contribution plans only begin reporting the number of participants with balances as of the first day of the plan year. This new information would be used to determine whether the plan requires an audit or not. Currently the audit requirement is determined based on how many participants there are as of the first day of the plan year, but that amount includes those participants that are eligible and not contributing. In an effort to decrease the cost burden of an audit, the new count would only take into account those participants who have balances in the plan.

This proposed change seems

proposed changes will increase those filings to about 2.2 million filings. Approximately 86% of the increase relates to fully insured plans with less than 100 participants, and about 13% of the increase relates to unfunded, unfunded/fully insured combinations, or funded with less than 100 participants.

The DOL cites concerns that they must rely on complaints from participants as their primary means of learning of potential ERISA violations with these plans. The DOL would like to be able to track health plan counts and coordinate their enforcement efforts relative to plans sharing common providers. They specifically noted that insurance carriers often draft similar provisions for their plans, and that having access to these plans’ reporting and names of insurance carriers will help them more effectively and efficiently pursue issues with noncompliant plan provisions, and to coordinate with affected service providers and federal and state agencies.

In addition to adding potentially 2 million new filers, they are also proposing adding a new Schedule J, which will contain detailed group health plan information.

SMALL PLAN REPORTINGCurrently, small plans may file the

more simple Form 5500-SF if they meet certain requirements, such as not holding employer securities, being exempt from an audit requirement, holding only plan assets with a readily determinable fair value, and covering fewer than 100 participants on the first day of the plan year. The proposal would exclude welfare plans with less than 100 participants from being able to use the Form 5500-SF. The short form would also have an additional breakout of investment information and new compliance questions, in the same vein as the Schedule H changes.

For other small filers that are not eligible to use the short form, there are additional material changes. Plans

Some practitioners who were preparing Form 5500s did not understand that the IQPA attachment to the Form 5500 applied to limited scope audits.”


expenses have also been broken out to show greater transparency on the direct costs that the plan is absorbing, including separate lines for audit fees, salaries and allowances, legal fees, custodial fees and recordkeeping fees. Additionally, total administrative expenses will now be broken out into different subtotals based on whether they are charged against participant accounts, transaction-based charges to individual accounts, or allocated to participants, and will include a check box to state the allocation methodology.

Part IIIThis section disclosed

information relative to the independent qualified public accountant’s report (IQPA). As it currently is designed, there are boxes that can be checked to disclose the type of report received from the IQPA. Many plans are limited scope audits, meaning that the assets are held by a qualified institution such as a bank, trust company or insurance company. In these cases, the auditors are performing limited procedures in accordance with regulations.

However, in the past there may have been instances when a plan received a disclaimer of opinion, due to the limited scope exemption but also may have had a true disclaimer for another reason. For example, many limited scope 403(b) plans audits received disclaimers of opinion due to the inability to audit beginning balances. The Form 5500 directions are clarified to state that if the plan receives a disclaimer for reasons other than the limited scope exemption, that even if it is a limited scope audit, it should check the box as “no” on line 3b’s question on whether it is a limited scope audit. Additionally, any limited scope engagements that are relying on certifications from allowable certifying entities under 29 CFR 2520.103-8 and 2520.103-12 will be required to attach a copy of the signed certification to the Form 5500.

part I include significant changes to how the investments are broken out. The investment detail as it stands has not changed since the initial development of Schedule H. Plans have increased the amount of complex investments that they are holding, and the current reporting does not provide sufficient transparency to address the array of investments that plans hold.

There are numerous new breakouts, but most of the additions relate to alternative investments or hard-to-value investments such as REITs, derivatives, real property, hedge funds and private equity, to name a few.

Part II has been modified to include the new breakouts for earnings on investments to correspond with the investment section. In the benefit payment section there is new detail related to the types of payments made. For example, hardship distributions are on a single line, as well as direct rollovers out of the plan. Plan

accountant has been moved to Schedule H and expanded to include a question as to whether the terminated provider was changed for a “material failure to meet the terms of a service arrangement or failure to comply with Title I of ERISA.” If answered “yes,” additional information is requested about the provider. The agencies believe in the adage, “sunshine is the best disinfectant” — essentially, the more transparent the compensation reporting, the fewer harmful conflicts, the better fiduciary decisions, and the better value to plan participants.

SCHEDULE DThe revisions to the investment

reporting are intended to present a clearer picture of plan investments. Plans will no longer be required to complete Schedule D disclosing direct filing entities (DFEs); instead, those DFEs will now be included on Supplemental Schedule H, line 4i, Schedule of Assets (Held at End of Year). Additionally, all pooled separate accounts and collective trusts will be shown on their own single line on Schedule H regardless of whether they file as a DFE or not. Currently, if the investment does not file as a DFE, the underlying investments are presented on the Schedule H. Now this will be a component of the 4i schedule.

Lastly, the master trust investment accounts (MTIA) will be eliminated with simplification of the master trust reporting rules.

SCHEDULE EThe Schedule E will be restored.

There are approximately 6,700 ESOPs that will be subject to increased reporting focusing on risk areas in ESOPs that are concerning to the agencies.

SCHEDULE H

Part I and Part IIThe structure of Part I and II will

remain the same as it is currently. However, the proposed revisions to

There are some new questions that are designed to make fiduciaries assess whether their plans are in compliance with ERISA and the Code.”

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the benefit plans were not being subjected to peer review since the practitioner did not consider these limited scope audits to be attest work subject to peer review. This question is intended to point out to the plan sponsor that they should be asking certain questions of their plan auditor to ensure that they retain someone who is a subject matter specialist and performing conforming plan audit engagements as a step in their auditor selection and retention process.

Part IVThe proposal includes a

significant amount of new compliance questions. Late in 2014, certain compliance questions were added to the 2015 Form 5500. Sponsors were directed not to complete these questions for the 2015 plan year. Again in November 2016, the IRS confirmed that they should not be completed for the 2016 plan year. The IRS will use these questions to help monitor compliance. Questions include whether the plan has an IRS determination letter and certain non-discrimination testing questions. In addition, filers must report any unrelated business taxable income and provide information on in-service distributions.

There are also some new proposed questions that relate to areas in which the IRS sees the most non-compliance. These questions include whether hardship distributions were made during the year, whether required minimum distributions were made to 5% owners, and whether defined benefit plans have complied with the minimum participation requirements of the Internal Revenue Code.

Additionally, there are some new questions that are designed to make fiduciaries assess whether their plans are in compliance with ERISA and the Code. One new question asks for the value and number of uncashed benefit payment checks held by the plan at year-end, as well as how

controls in areas such as plan eligibility, payroll, contribution calculation and remittance, distribution approval, investment oversight and plan expenses, and should be monitoring that those controls are in place and operating effectively. Mistakes happen, but one important goal should be for the plan sponsor to be able to prevent or detect errors through their internal control, and be able to resolve them during the plan year. The auditor is not a part of the plan’s controls. Now that will be in the Form 5500, which is in the public domain. The intent of this is to cause the sponsor to focus more efforts on plan compliance.

• Did the IQPA have a peer review performed in accordance with their state’s requirements? There are additional components that include the name of the peer review firm, the date of the peer review, the rating received and whether benefit plans were covered under the review. Recently there have been some questions arising related to the peer review process. Some practitioners who were preparing Form 5500s did not understand that the IQPA attachment to the Form 5500 applied to limited scope audits. There were situations where

There have also been some issues noted with auditors auditing plans that are filing with an address in a state in which the auditor does not have a license. This is a tricky area because a plan may have their main address in a certain state, but all the plan administration may be done in a different state. Auditors should always make sure to be licensed in the state that is being shown on the plan sponsor address line. Any questions should be directed to the executive director of each state’s CPA association for direction. There is also a helpful website — www.cpamobility.org — that will assist CPAs in determining what licenses they need for attest services they are performing in any state.

There are also new compliance questions in this section that plan sponsors and auditors should review very carefully, since they are written to determine both whether the auditor might have issues with their compliance and whether plans may have internal control issues:• Has the plan sponsor reviewed and

discussed the IQPA report with the accountant? Sponsors should take the time to review the full report and financial statements before signing the representation letter. Attesting to their review may lead to higher level review within the organization.

• Did the accountant advise the plan sponsor of any errors, illegal acts, material internal control weaknesses, ongoing concern issues, plan qualification issues, or unusual and infrequent events? If this question is accepted as proposed, it will be one of the more volatile questions on the Form 5500. Clearly this is directed at pushing plan sponsors to take more responsibility for the monitoring and oversight of their plans. Sometimes, plan administration is relegated to an HR employee, with no assistance by accounting. Plan management should be documenting the plan’s internal

There are several new compliance questions aimed at adding transparency to investments and related fees.”


systems as required, and then program and test those systems. Suddenly 2019 seems like it is around the corner.

At this early point in the regulatory process, it is impossible to know if all or only some of these proposed revisions will be promulgated. What we do know is that the agencies are looking at the risks and trying to find a way to oversee whether plans are operating in compliance with ERISA and the Code. Here are a few recommendations to consider:• Read the proposed rules. Each

schedule is listed line by line; notes in brackets indicate whether each item is current, new or revised. Whether these proposed changes happen or not, they indicate regulators’ current interests. These questions are the ones they consider to be critical, and thus they might arise during a regulatory audit. They matter, and plan sponsors should know how to respond to them.

• Know who your plan auditor is. Plan sponsors should consider more than fees when selecting their auditors. Sponsors should know how much plan audit experience their auditors have, should ensure that they are licensed in the relevant state, and should ask about their peer review and request a copy of the issued peer review letter.

• Document the plan’s internal control. Sponsors should document all the key processes related to plan administration, including payroll, noting who is involved with each process and what control is in place that will either detect an error or prevent it from occurring.

Monique Elliott, CPA, is the managing partner of Elliott Group CPAs, PLLC, a boutique public accounting

firm specializing in employee benefit plans in Charlotte, N.C.

other service providers, as noted above on Schedule C. Part VI has revised and added new information about plan terminations. New requests include the effective date of the plan termination and the year the plan assets were distributed to participants and beneficiaries.

The agencies also want to know about transfers to other plans. Is the transfer a merger, spinoff, consolidation or some other transaction? Similar questions are asked of transfers into the plan.

There is also a new question for terminated defined contribution pension plans asking whether in the process of terminating the plan whether any accounts, such as IRAs, were set up for missing participants. If there were such transfers, information detailing each institution and their EIN are required to be reported through the final plan return.

CONCLUSIONIt is clear that when attempting

to monitor compliance of millions of plans, designing an annual return that addresses the key compliance concerns of the agencies is a direction that makes a lot of sense. Similar to reading a contract where you can tell that each added paragraph represents a previous issue, lawsuit or challenge that the attorneys were trying to address, thus goes the Form 5500. In reading through the proposed changes, it is evident that the agencies are adding questions that represent some of the key risk areas from their experiences. Peer review and audit quality are other areas where there have been struggles.

Practically speaking, these changes will add a considerable burden and potential risk. The reality is that the proposed changes will have a staggering financial and technological burden on recordkeepers and custodians. Furthermore, it is unknown how much time it will take to go through the final changes, evaluate the modifications, upgrade and add new

participant addresses are verified and how uncashed checks are monitored.

There are several new compliance questions aimed at adding transparency to investments and related fees. These questions involve attaching the investment option comparative charts, details on the plan designated investment alternatives, and whether the plan made a designated investment manager available to participants. Questions also include whether all plan assets are valued at fair value at least annually, if the plan offers self-directed brokerage accounts, and if the plan sponsor paid for any plan expenses.

The supplemental schedules also have been redesigned for transparency. The schedules will be required to be submitted in a specified data format. The major change is to the 4i schedules: “Schedule of Assets (Held at End of Year)” (4i(1)) and “Schedule of Assets Acquired and Disposed Within Year” (4i(2)). Schedule 4i(1) will have check boxes to identify party-in-interest investments and hard-to-value investments. CUSIPs, CIKs, and LEIs will be added as applicable to each asset on the schedule. Instead of completing Schedule D, plans will show DFEs in which they invest on the 4i(1) schedule. Lastly, any pooled separate accounts and collective trusts that do not file as DFEs will disclose the underlying investments of that asset on this schedule instead of the current reporting which requires disclosure by type on the Schedule H.

The 4i(2) schedule’s name will change to “Schedule of Assets Disposed of During the Plan Year.” The purpose of this change is to obtain better information about hard-to-value or alternative investments that may be purchased in one year and sold in the subsequent year, and therefore not currently captured in the schedule.

Parts V and VIPart V now includes detailed

questions on termination of accountants, enrolled actuaries and

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MSPA Charles BrownElizabeth ChurneyClinton FunkCarol HasdayTorrey HanessPaul HolowczykGloria Lesmeister CPC Michael CollinsLynne GoodwinJared HollandsLisa HornJessica HostetlerMichael HunterThomas LederLaurel LeonardGabrielle LorbieckiJulie MagnusonShawn MoranJesse PiercyAnca VintuRandall WalkerRyan Wells

QPAAndrea AllenChristopher ArantSteven BillsJohn BrownLaura CasanovaMarcus ConteTeresa DeetzAngela DemasJasna DjurinJackie EpsteinIthca EvansErica FarlandKaty FaullRebecca FlintMary Ann FrenchJosh GoldbeckDenise GreinkeKyle GrimmerSteven HalpernAfton HarrWilliam HuddenRobert JanickiBrian KallbackAlexander KangAudrey LaffertyAndrew LeeAnnette LeerhoffOmar MahmoodJenna MaluegRebecca MaugerRyan McGuire GrimesLori McKenzieJericho McLeodMeredith Moore

Matice MorrisSunanda NathDan O'ConnorCarrie OkaJames PassarelliAlex PetrenkoRobert PetrilloSeth PriestleRussell RichardStuart RoutonDeborah SasserMatthew SeidlEllen SosaLanie ThompsonSusan VilardoJulia WolakJason Young

QKAAaron AxelrodMaria AcevesJean Allen-MurphyNick ArnoldGeorge H BaerMaxine BalbuenaJacquelyn BaleEmily BarbeeJacob BartzIan BernhardMargaret BillingsleaDanielle BossLaurie BurkeAlissa BurroughsNancy CaldwellDaniel CareyJessica CarnesDenice CarrylBrenda ChristensonJacqueline M. ClancyKimberly ClarkJoshua ClukeyAaron M.H. CohenCash CribbetCindy DavisMary DavisBrandy DefeoSonia DelaneyRobert DentGina DirosaZachary DonahueRussell DonnellyDavid DriehausAdam EarleMichael EdlinKaty FaullZinat FeldmanKara FerrettiJenna FinoccharioBenjamin ForemanEd FoustDawn Franklin

Chad FullerTanya FulwileyHeather GallagherCraig GapskeGreg GlasscockTerri GohlkeMargaret GrahamKundai GumboFrancesco GuttaAngela HansardEthel HarmonCynthia HeinbaughYvonne HendersonMary HernandezSuzanne HerreraElijah HolsingerKaralynn HoustonKarolina HrgicPhuong JenningsStephanie JepsonRyan JonesEunah JooAlexander KangPatrick KeeganPatricia KnollJustin KoffenbergerBrett KrisnitskiDonajean KubackiAnn KutzPamela KyleAdrian LandersAndrew LeStephanie LeastAndrew LeeAnnette LeerhoffMatthew LentzAram LeonardChristine LeshKaren LezynskiTaylor LierheimerJaime ListJoseph LoaizaMark MaguireJeffrey MartinShivonne MartorellaChristopher MathysAndrea MausserMorgan McClaffertyLauren McLambDeborah MesserAmber MohrKelsey MurrayRuth MyattJonathan NaultSharrie NechvatalDaniel NicholsonMary Beth O'BrienDiane O'TooleMichael OlsonSusan OttoDeanna Overman

Matthew OwensMartha PaytonBrooke PowellStephen QuinnAnnette RadelRobert RalleyMarcio RangelCarlos ReyesLisa RiccioScott RichardsSandy RicoJosh RiderTessa RivasChristopher RobinsonPamela RobinsonKathleen RogersTerri Anne RossKelly RzepkaSevad SabanagicAndrew SamerStephen SayarKaitlin SchaeferGregory SchingsBeverly SchoonoverRebecca ScottJulie SharkeyPatricia ShipeChristopher SilvaMadison SimonichMichael SkeltonKristin SmevoldMeena SrinivasanEben StansberyElisa StodghillRyan StrankowskiAllison StuttsHeather SuppesSamuel TaberRobert TeeterMichael TenerielloTodd TheillRyanne TilleyBethany TimmonsMichelle TogstadAdam ToorKatie VanlaninghamGerardo VelasquezKimberly VelazquezDenise VranesevichJoseph WalshCharles WartMichael WeberDeborah WheelerJenessa WheelerJoanne WilliamsMonta WilliamsJoel WolfbergBrittany WorthingtonKendel WyattMallory Young

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State Auto-IRA Plans

LEGISLATIVE

Expect 2017 to be a watershed year for these state initiatives designed for private workers.

State Auto-IRA Plans: The Stage is Set

T he philosophical divide between congressional Democrats and Republicans over employee benefit policies has always been deep, especially over the question of whether to encourage or require employers to take certain actions to provide employee health and retirement

benefits. But the debate, enactment and implementation of the Affordable Care Act (a.k.a. Obamacare) in 2010 exacerbated that divide, in large part because the ACA contains a mandate on businesses with 50 or more full-time employees. Under ACA’s “employer shared responsibility” provisions, those businesses are required to either provide a minimum level of employee health benefits — a significant cost for any employer — or face a tax penalty.

In the wake of that debate and the continuing political controversy over the ACA, congressional action to address the retirement plan coverage gap in the private workforce has been hamstrung. The main casualty of this partisan

warfare over employer responsibilities and costs has been the initially bipartisan proposal to create a federal auto-IRA program — a significant feature of which requires businesses with 10 or more workers to offer some type of a retirement savings arrangement at work through payroll deduction.

David John (then of the Heritage Foundation) and Mark Iwry (then of the Brookings Institution) first detailed the federal auto-IRA program proposal in a Retirement Security Project paper in 2006. Shortly thereafter — during the 110th Congress in 2007-2008 — Senators Jeff Bingaman (D-N.M.), John Kerry (D-Mass.), Gordon Smith (R-Ore.) and Olympia Snowe (R-Maine) introduced the Automatic IRA Act in the Senate. Meanwhile, Rep. Richard Neal (D-Mass.), Phil English (R-Penn.) and others introduced companion legislation in the House of Representatives.

But the bipartisan consensus on the value of such an initiative in the pre-ACA political era represented the high-water mark for this proposal, and it has languished

BY ANDREW REMO

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• that employer involvement must be required under state law;

• the program be implemented and administered by the state that established the program;

• that the state be responsible for the security of payroll deductions and employee savings; and

• that program participants be notified of their rights under the program and that the program must create a mechanism for the enforcement of those rights.

The five state-sponsored auto-IRA programs which have been enacted into law fall within the legal guardrails that allow these programs to operate outside of ERISA. Unfortunately, the DOL made it abundantly clear in the August 2016 regulation that if employers choose a separate auto-IRA program offered by a private provider, that arrangement would be covered under ERISA. This gives the state product a clear competitive edge over private offerings that could easily offer a payroll deduction IRA savings program with automatic enrollment.

CONCLUSIONThe legal and regulatory stage

has been set that could allow state auto-IRA programs to thrive — and encourage even more states to take action. (More than half are currently considering it.) But standing up these state programs is a complicated undertaking. In most cases (as with Obamacare) it will take years to fully implement them. To date, although laws have been passed in five states, not a single state program has begun taking participant contributions. But 2017 is expected to be a watershed year for these initiatives, as Oregon has committed to a hard deadline in July to begin accepting employer participation in the state program on a pilot-program basis.

Andrew Remo is the American Retirement Association’s Director of Legislative Affairs.

State Auto-IRA Plans

guidance in the works that would create similar legal guardrails for political subdivisions of states (like large cities or counties) should those entities want to create an auto-IRA program for businesses operating within their political boundaries.

The first piece of guidance was issued as an ERISA Interpretative Bulletin in November 2015. It contains a provision that would allow states to establish ERISA-covered multiple employer plans that can be adopted by any unrelated in-state employer. The state — or a designated state agency or instrumentality — would be the plan sponsor, named fiduciary and plan administrator responsible for either the operation of the plan or for selecting third-party service providers. Adopting employers could limit their fiduciary responsibility to prudently selecting the arrangement and appropriately monitoring its operation.

A potential issue with this approach is proper DOL oversight of the arrangement should any problems arise, since state laws generally provide sovereign immunity to state and governmental employees that could impede DOL’s ERISA oversight responsibilities and leave plan participants vulnerable to abuse. Fortunately, states have been extremely reluctant to date to take on the responsibility of operating an ERISA-covered retirement plan for private sector businesses and workers — although New York City has proposed creating an ERISA covered publicly sponsored open multiple employer plan. (For more on that proposal, see page 8 of this issue).

The second piece of guidance — a new ERISA regulation finalized in August 2016 — provides a safe harbor under which a state-sponsored auto-IRA program would not be considered an ERISA plan if it meets certain conditions to ensure that the employer’s involvement in the program is no more than ministerial. These conditions include:• that the program be established

pursuant to state law;

in Congress ever since.

STATES STEP INEnter the states into this post-ACA

political vacuum. It became clear post-ACA that congressional Republicans — who have now controlled at least one body of Congress for the last six years — were actively opposed to a federal auto-IRA program, in part because of ideological opposition to the creation of any additional burdens on private employers. So liberal-leaning states started to take action to bypass Congress.

Legislative proposals to address the retirement plan coverage gap at the state level started appearing in 2011, and these state bills started becoming law beginning in 2012. As it stands now in the fall of 2016, eight states (California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Oregon and Washington) have enacted various types of state-based retirement programs for private sector workers. Five of those eight states — including some big ones (California, Connecticut, Illinois, Maryland and Oregon) — have chosen to create an auto-IRA program that requires in-state businesses over a certain size to provide access to a payroll deduction savings arrangement through work.

DOL GUIDANCEThe states also had an important

ally in President Obama, who consistently supported a federal auto-IRA program and included an auto-IRA proposal in every budget that he submitted to Congress. But his budget proposals required federal legislation, which was not forthcoming. So in July 2015, President Obama instead boosted these state auto-IRA program efforts by directing a reluctant Department of Labor to facilitate these state savings programs for the private sector.

Since then, the DOL has issued two pieces of guidance that create legal “guardrails” for certain state savings programs under ERISA. There is also an additional piece of


COMPLIANCE/ADMINISTRATION

ack in the day, I was fortunate enough to go to a law school that actually offered a seminar on qualified retirement plans. At that time, documents

were not yet required to incorporate the final ERISA regulations.

In many ways, things were a lot simpler back then. For one thing, there were no how-to textbooks. My first job was editing legal form books, primarily reviewing retirement plan

documents drafted by attorneys and providing commentary on them. One of the first things I learned was that drafting retirement plan documents was an art form. Each drafter “artist” had their own style and way of drafting document provisions. Sometimes they were also drafting documents to accomplish specific goals other than just retirement. Thus, I’ll start this discussion from the standpoint that there is no “correct” method of drafting qualified plans documents

other than to incorporate required ERISA and Internal Revenue Code provisions.

Over the last four decades, ERISA has been modified many times, thus rendering many plan provisions obsolete. Since defined benefit plans are declining and are being replaced by defined contribution plans, this article will address defined contribution plans — although some of the comments will apply to both. Furthermore, the legal changes have rendered obsolete

Are there potentially obsolete provisions in your clients’ plan documents that can be eliminated?

B

Obsolete Provisions in Plan Documents

BY RICHARD A. HOCHMAN

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considered a spouse for plan purposes until he or she has been married for 12 months. I used to include this language in documents that I drafted. Then I was told, “We have enough issues collecting correct compensation and hours-of-service data. Why do we want to be concerned with date of marriage as well?” After that, I stopped incorporating that requirement into the documents I drafted. I remember later having a discussion with an IRS examiner because I didn’t incorporate the 12-month rule. He ultimately accepted the fact that the rule was allowable, but not required.

Is there a use for the language? Yes! But it is really not about retirement planning, but rather estate planning for small employers.

In addition, unless a prototype basic plan document supports a target benefit plan, there is no longer a reason to define terms such as:• average annual compensation• highest average compensation• present value • projected annual benefit

Custodial and Trust Arrangements In earlier documents, we

provided for both Custodial and Trust arrangements. That was because it was the norm for there to be an institutional fiduciary. Not all the institutions had trust powers, so they needed the ability to hold assets in a custodial capacity. It is safe to say that in many cases, except for larger plans, the institutional trustee has been replaced with individual trustee(s). There is no necessity to have both a Plan Trustee and a Custodian. In light of that change, some document providers have eliminated the Custodial track and associated language. However, it now appears that some brokerage platforms for the associated risk reasons don’t want to serve in the Trustee role. They are asking for Custodial language to allow them to hold and invest the plan’s assets at the Trustee’s direction. Since documents are now being

the Code Section 412 requirements, there are qualified joint and survivor annuity requirements, which require special notices and spousal consents that have to be complied with.

While there are still valid reasons to have money purchase plans, their numbers have dropped considerably. While most collectively bargained plans are DB plans, where the union agreed to a DC plan, they usually preferred money purchase plans over profit-sharing plans due to the required contribution component. While the same effect could be accomplished with a profit-sharing plan, unions were more comfortable with money purchase plans.

Of course, we are now seeing 401(k) plans being used to allow for the employee contributions. Money purchase plans also allow for the possibility of a zero contribution formula, allowing the plan to exist with no employer contribution. That cannot be accomplished in a profit-sharing plan without a de facto termination ultimately occurring.

PLAN DOCUMENT PROVISIONS

When I drafted my first prototype documents, there were no 401(k) plans. The basic plan document was 43 pages, and the adoption agreements with all the options were a mere 11 pages. Things have changed dramatically, and the basic documents and adoption agreements have gotten a lot more voluminous. The advent of the 401(k) plan has only exacerbated the page count. The question becomes: Is all the language really necessary, or are there potentially obsolete provisions in those documents that can be eliminated?

Plan TermsWe can start with the definition

of a spouse. While most plans either don’t define the term or provide a basic definition, some plans actually spell out the complete definition under ERISA. Under ERISA, an individual does not have to be

not just plan documents, but some plan types as well.

TARGET BENEFIT PLANSDefined benefit plans can have

potentially significant unexpected costs, while defined contribution plans allow for cost containment. One way to simulate DB formulas but contain costs is with a “target benefit” plan. A variant of a money purchase pension plan, it has benefit formulas similar to what would be found in a DB plan document, rather than the contribution allocation formulas found in typical DC plans.

What happened to these plans? In the early 1990s the IRS changed the nondiscrimination regulations under Code Section 401(a)(4). They asserted that any DC plan could be tested on the basis of benefits at retirement and any DB plan could be tested based on the contributions allocated to participants. With that change, the concept of “cross-tested” DC plans was born. With the flexibility afforded by a cross-tested profit-sharing plan, there was little need to have a target benefit plan. Thus, many document vendors no longer offer or support target benefit plans. There really is no good reason that I am aware of to continue to maintain them.

MONEY PURCHASE PLANS To a lesser degree, the

changes brought about by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) have rendered obsolete the need for money purchase pension plans. Before EGTRRA, profit-sharing plans only had a 15%-of-compensation deduction limit. In order to be able to fully deduct the permissible 25%-of-compensation code Section 415 limit, a money purchase pension plan was required.

But money purchase plans carry a lot of baggage. First, there is a required employer contribution each year, whether or not the employer is profitable. Secondly, because of


retirement date in addition to a normal retirement age. While there is a need in DB plans, there is no real application in DC plans.

Annuity Provisions With the elimination of money

purchase pension plans, the issue arose as to how to move the assets from the money purchase plan to the employer’s profit-sharing plan trust. Most plans were merged, meaning that the assets being transferred were still subject to the qualified joint and survivor annuity (QJSA) rules. Since those assets originated in a money purchase pension plan, those assets will forever be subject to the QJSA with its required notices and consents. However, it is possible that a profit-sharing or 401(k) plan has had QJSA language applicable without having any tainted money in the trust. In these cases it is possible to remove the QJSA language if the plan offers a lump-sum option. That is because the possibility exists for the participant to take a lump sum and use it to buy an annuity.

It is also possible to eliminate annuity options, even in those plans that can’t eliminate the annuity provisions completely. If a plan offers a 50%, 75% and 100% joint and survivor annuity, it can eliminate the 75% annuity.

Out-of-Date SPDsFinally, since most providers now

coordinate their Summary Plan Descriptions with their plan documents, there is even superfluous or obsolete language in the SPDs. A lot of what is provided in the SPDs is required by the DOL. As the Supreme Court ruled recently, they are merely a summary, and not actual plan language.

Richard A. Hochman, APM, GFS, is the director, retirement plan consulting services, at Actuarial Systems Corporation. He is

ASPPA’s 2017 President.

the plan document.

0% VestingSimilarly, there is the “Rule of

Parity.” This rule worked when we had the older vesting schedules. Some may remember that a 10-year cliff schedule was allowed. Those days are long gone. Under the Rule of Parity, returning participants who are “0%” vested at the time of their return can have their prior years of service disregarded and be treated as new hires if their years of break exceed the greater of five years or their prior number of years of service.

There is no current vesting schedule in DC plans where an individual can have five or more years of service and be “0%” vested. There can be limited possibilities, if the plan is using the three-year cliff schedule, but if the plan is a 401(k), all employee deferrals and employer qualified and safe-harbor contributions are fully vested when allocated. Thus, the participant will never be “0%” vested. Thus, it is time to eliminate this language as well.

Early Retirement Provisions In DC plans, early retirement

provisions have little or no practical application. Unlike with normal retirement, in order for early retirement provisions to apply, the employee must actually separate from service. In most cases, early retirement is not just an age, but age plus a service requirement. In the majority of those cases, the service requirement is more than five years, meaning that the participants are already fully vested. In addition, in 401(k) plans, you can’t set the plan’s normal retirement age at less than age 59½ to allow for an early distribution of elective deferrals, or employer qualified or safe-harbor contributions. Since the participant must separate from service for early retirement to apply, there is no advantage to these provisions.

Along the same lines, there is not a lot of benefit to having a normal

drafted to service the mass market, it is not clear that the Custodial track will completely disappear.

Deemed IRAsIt is possible to have an IRA

arrangement within a qualified retirement plan. This is known as a “deemed IRA.’ These arrangements come with a lot of baggage, including a “one bad apple” rule that can disqualify the entire plan. This language should likely be dropped from plans going forward, if it was ever included.

Rehires’ Re-entry Eligibility Eligibility for the plan, especially

for rehires, is another area where there might be obsolete language. Basically, the rule is: Once a participant, always a participant. Under that rule, once an individual becomes a plan participant, if they leave and are then rehired, they must again become a participant in the plan upon rehire.

There are special rules available that can delay their re-entry to the plan. The first of these rules is the “one-year holdout” rule. Under the one-year holdout rule, a participant does not have to be allowed back into the plan until he or she complete a year of service after their return.

The problem with the rule is that once an individual satisfies the one-year requirement, he or she must re-enter the plan retroactively to their date of rehire. Thus, if an individual was rehired on Sept. 15, 2015, he or she must be eligible to re-enter the plan after completing 1,000 hours by Sept. 14, 2016. The problem is that the re-entry date is Sept. 15, 2015. If it is a calendar year plan, how do you go back and allow the individual to retroactively defer against their earlier compensation, especially the 2015 amount? How do they share in the 2015 profit-sharing contribution, if there was one? The employer is going to be required to make corrective contributions. It is best to not use the rule and not have the possibility in

21WWW.ASPPA-NET.ORG

BUSINESS MANAGERS & OWNERS COUNCIL

BM CCONFERENCE

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April 2-4, 2017 | Hilton Rosemont | Rosemont, IL

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Great, great conference!! Small group that does just what we do.

Excellent, thought-provoking ideas.

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From last year’s attendees:

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REGULATORY

Here’s a look at two regulatory initiatives affecting 457 plans in 2016.

IRS Broom Sweeps Away Section 457 CobwebsBY JOHN IEKEL

obwebs are a reminder of an unfinished “to do” list. And that makes them an irritating, but ultimately useful,

catalyst for getting something done. In 2016, the IRS got tired of looking at its Code Section 457 cobwebs and swept them away.

MARCH EPCU EFFORTThe IRS on March 11 updated

its web page on the Employee Plans Compliance Unit (EPCU) Non-Governmental 457(b) Plans Excess Deferrals Project. Part of the update

was to say that it was going to contact non-governmental sponsors of 457(b) plans (top hat plans) with participants whose contributions exceed a statutory annual limit.

The IRS sends EPCU compliance check letters (see sidebar on page 23) when its records show that an employer maintains a non-governmental 457(b) plan and filed a Form W-2 for 2013 showing contributions to the plan exceeding $17,500 for any participant. It is doing so to: • verify that the plans comply with

contribution limits; and • recommend possible ways to

remove any barriers to compliance.

The correspondence solicits information about plan contributions and focuses on:• verification that the deferrals

reported on Forms W-2 are accurate; and

• determining if catch-up contribution calculations are in compliance.

If a plan is not established or operated in accordance with Code Section 457(b), the IRS will inform a plan sponsor of its conclusions and actions that may need to be taken as a result.

What should be done in light of the IRS effort? Consultant Ellie Lowder, TGPC, says that 501(c)

C

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employers that sponsor 457(b) top hat plans should be sure the final three-year catch-up provision is being administered properly and remember that a calculation will be done for any employee considering utilizing it. They also should remember to review the employees included in their top hat plans, Lowder says, to be sure that such plans are limited only to “select highly compensated employees, managers, directors or officers.”

Lowder adds that the IRS updates to the non-governmental 457(b) plans project appear to expand it even farther than a check of contribution limits, and that tax-exempt entities that filed Forms W-2 showing contributions to a non-governmental 457(b) plan and also filed Forms 990 “are on EPCU's radar.”

JUNE 2016 PROPOSED REGULATIONS

The compliance checks were only the beginning. Plan administrators who took an early trip to the beach found out upon their return that on June 22 the IRS issued proposed regulations affecting 457 plans. They were long in coming — a mere 13 years after the IRS last issued final Section 457 regulations.

The IRS issued the proposed regulations, says Voya Financial’s Linda Segal Blinn, “in part to reflect federal legislation that was issued after the 457 regulations were last finalized in 2003” — regulations, she says, that provide that “when a revocation or modification of an existing participation agreement became effective apparently was determined by the plan document.”

So what does this all mean for sponsors of a 457(b) plan? Not as much for 457(b)s sponsored by non-governmental employers, since most of the changes focus upon 457(b) plans sponsored by governmental employers.

The proposed regulations now incorporate the rules for such plans to enable:

• a nonspouse beneficiary to roll over eligible amounts from a 457(b) plan sponsored by a governmental employer into an inherited IRA;

• eligible retired qualified public safety officers to make a tax-free transfer of up to $3,000/year from a 457(b) plan sponsored by a governmental employer to pay for qualified accident and health premiums; and

• a beneficiary to receive benefits under a 457(b) plan sponsored by a governmental employer if a participant were to die while on qualified active military service equivalent to the benefits that would have been provided had the participant returned to service with the employer and then terminated employment.

And the proposed regulations affect more than 457(b) plans. Susan Diehl, president of PenServ Plan Services, Inc., notes that they affect the application of Section 457(f ) plans as well. “Under Section 457, a deferred compensation arrangement

can be either ‘eligible or ineligible,’” says Diehl. Eligible plans are under Section 457(b), she notes, and must satisfy certain rules and are subject to an overall limit for annual contributions, while ineligible plans are under Section 457(f ).

Says Diehl, “The new proposed regulations for government and tax-exempt 457(b) and 457(f ) plans and for-profit companies’ top-hat plans under Section 409A made expected changes but also were meant to deal with some areas that IRS felt were potential areas for abuse. So at the end of the day, very few surprises came from these proposed regulations. What we expected was more references to the 409A nonqualified deferred compensation regs, and we got that.”

Diehl says that key changes the proposed regulations make regarding Section 457(f ) include substantial risk of forfeiture. This risk exists if entitlement to the compensation is conditioned on the future performance of substantial services or

What the Compliance Check Letters Contain

The EPCU Compliance Check letters advise employers to check the statements that apply:

¨ Your 457(b) plan allows for the special catch-up described in Code 457(b)(3) during the last three years before normal retirement age.

¨ The contribution amounts reported on the Forms W-2 included these special catch up contributions.

¨ All special catch-up contributions made during the plan year was during one of the employee’s last three years of employment before reaching normal retirement age. (The letter reminds the catch-up cannot be used in the year of retirement.)

¨ All special catch-up contributions were limited to deferrals the participant could have made in prior years, but did not. The calculation must include a year-by-year comparison of the maximum limit in the year to the amount actually contributed in that year, with any amounts under the maximum limit totaled to see if the catch-up permits extra contributions (to the maximum of twice the basic limit for the year).

¨ Your 457(b) plan does not allow for the age 50 catch-up contribution of Code 414(v). (Remember that the age 50+ catch up is permitted only in governmental plans.)


on a condition substantially related to a purpose of the compensation occurring, provided the possibility of forfeiture is substantial. She adds that this will be difficult to track after termination of service.

However, notes Diehl, unlike Section 409A, a covenant not to compete poses a substantial risk of forfeiture for Section 457 purposes if certain conditions are met:• A severance pay plan is exempt

from 457(f ), and unlike a 409A plan there is no rule to limit the amount to two times the compensation limit.

• If the employer has a disability plan, then the 409A regulations permit the employer’s 457 plan to use the same definition of a disability that is in the disability plan.

• The regulations for governmental 457(b) plans were updated to reflect prior changes in the law, so many employers have already addressed these changes.

• It is clear that 457(f ) plans are subject to some of the 409A rules. The proposed regulations say that an ineligible plan is subject to the Section 457(f ) rules in addition plus any requirements applicable to the ineligible plan under Section 409A.

But that’s not all the proposed regulations do. “Probably the biggest change was to how to determine taxation when for example there is no longer a substantial risk of forfeiture on some of the assets but not all,” says Diehl. “The taxable amount is reported on a W-2, but then must be record kept until a distributable event occurs under the plan. The growth on the amount reported is then reported when the distributable event occurs. Although there are exceptions to these rules as well,” she adds.

The proposed regulations also address Roth-specific rules under a 457(b) plan sponsored by a governmental employer, including:• separate accounting for Roth

457 contributions, in-plan Roth

rollovers and in-plan Roth conversions, to the extent that the governmental employer decides to offer such feature(s) in the 457(b) plan; and

• tax treatment of Roth contributions as an irrevocable designation by the participant as after-tax contributions and exclusion of qualified Roth distributions from gross income, in accordance with the Small Business Job Protection Act of 1996.

In addition, says Blinn, “the proposed regulations clarify changes to a participation agreement to contribute to a 457(b) plan of either a governmental employer or a nonprofit organization. Under the proposed guidance, if a participant wishes to either revoke or modify an existing participation agreement, that change becomes effective not earlier than the first day of the month after the revoked or modified participation agreement was entered into.”

TO DO LISTGenerally, the proposed

regulations apply to compensation deferred under a 457(b) plan for

calendar years beginning after the date they are published in final form. But taxpayers are free to apply them before that date.

Diehl suggests taking these steps:• Determine how these rule

changes may affect current plan documents. Amendments are not necessary now, but it may be worth considering or discussing preparations for operational changes.

• Place particular attention to how the current plan defines “substantial risk of forfeiture”; it may need to be amended to ensure employees are not taxed too soon.

• Consider the services of a tax professional regarding drafting the 457(f ) document. “One slip of the pen and your client could be taxed ‘before their time’!” Diehl warns.

Note: This article draws from material presented in the MarketBeat feature of the website of the National Tax-deferred Savings Association, an ASPPA sister organization within the American Retirement Association.

457 Plan Real-world Quiz: Earliest Retirement Date and Catch-Up Contributions

Q. A client is age 72, and has worked for three years for the employer, which adopted its 457(b) plan six years ago. The plan document says the normal retirement age (NRA) is the earliest point at which he could retire with an unreduced benefit under the state retirement system. That earliest date is the later of age 65 or five years of service. He would like to use the “last 3-year catch up” in his 457(b) plan. But what are the rules?

A. In his case, his NRA will occur after five years of service. He might be able to use the increased limit which is available in one, two or all three of the years before the NRA. Since he has only two years left before NRA, a calculation should be done to see if he has underutilized the limit (this compares the annual 457(b) limit to the amount actually contributed during his three years of service). If he has, he is within the permitted period if he uses it for two years only.

25WWW.ASPPA-NET.ORG

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he IRS issued proposed regulations Nov. 25, 2016 that would update the minimum present value (MPV) requirements for distributions from defined benefit plans.

The proposed regulations would amend f inal regulations under Code Section 417(e) that permit DB plans to simplify the treatment of certain optional benef it forms that are paid partly as an annuity and partly in a more accelerated form. They would update IRS regulations for changes made by the Pension Protection Act of 2006 (PPA), eliminate certain obsolete provisions, and make other clarifying changes.

UPDATES TO REFLECT STATUTORY AND REGULATORY CHANGES

The proposed regulations would do the following:

• update the existing regulatory provisions to reflect the statutory changes the PPA made, including the new interest rates and mortality tables set forth in Section 417(e)(3) and the exception from the valuation rules for certain applicable DB plans set forth in Section 411(a)(13);

• clarify that the interest rates the IRS published as modified by the PPA are to be used without further adjustment;

• eliminate obsolete provisions of the regulations relating to the transition from pre-1995 law to the interest rates and mortality assumptions provided by GATT; and

• make conforming changes to reflect the final regulations under Section 417(e) that permit DB plans to simplify the treatment of certain optional forms of benefit that are paid partly as an annuity and partly in a more accelerated form.

New IRS proposed regulations would update the minimum present value requirements for DB plan distributions.

IRS Proposes Regs on MPV Requirements for Distributions

ACTUARIAL

BY JOHN IEKEL

T

27WWW.ASPPA-NET.ORG

CLARIFYING CHANGESTreatment of Preretirement

Mortality. The regulations would include rules relating to the treatment of preretirement mortality discounts in determining the MPV of accrued benefits under the regulations to address whether a plan that provides a death benefit equal in value to the accrued benefit may apply a preretirement mortality discount for the probability of death when determining the amount of a single-sum distribution.

Social Security Level Income Options. The regulations contain an example that illustrates that because the periodic payments under a Social Security level income option decrease during the participant’s lifetime and that is not because an ancillary Social Security supplement has ceased, Treas. Reg. §1.417(e)-1(d)(6) does not provide an exception from the minimum present value requirements of Section 417(e)(3) for such a distribution.

dates in plan years beginning on or after the date regulations that finalize these proposed regulations are published in the Federal Register. Before this applicability date, taxpayers must continue to apply existing regulations relating to Section 417(e), modified to reflect the relevant statutory provisions during the applicable period (and guidance of general applicability relating to those statutory provisions, such as Revenue Ruling 2007-67).

PUBLIC COMMENTS AND HEARING

The IRS has invited comments on the proposed regulations, and will hold a public hearing on them March 7, 2017, in Washington. The deadline for both public comments and outlines of topics to be discussed at the public hearing is Feb. 23, 2017.

Application of Required Assumptions to the Accrued Benefit. The regulations would clarify the scope of the rule of Treas. Reg. §1.417(e)-1(d)(1) under which the present value of any optional form of benefit cannot be less than the present value of the normal retirement benefit (with both values determined using the applicable interest rate and the applicable mortality table). They would require that the present value of any optional form of benefit cannot be less than the present value of the accrued benefit payable at normal retirement age, and would provide an exception for an optional form of benefit payable after normal retirement age to the extent that a suspension of benefits applies under Section 411(a)(3)(B).

EFFECTIVE/APPLICABILITY DATES

The changes under the proposed regulations are proposed to apply to distributions with annuity starting

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Hacked!10 KEY LESSONS ON CYBERSECURITY

FEATURE

BY SAAD GUL AND MICHAEL E. SLIPSKY

Few businesses are sufficiently robust to absorb the legal, reputational and revenue damage of a major cyberattack. Are you?

29WWW.ASPPA-NET.ORG

There is no overarching authority that provides the retirement industry with a cybersecurity safe harbor.”

angladesh is a developing country with limited resources. The National Security Agency is one of the best funded and

most sophisticated government agencies in the world’s wealthiest nation. But they have one thing in common: both have fallen victim to high profile cybercrimes.

Bangladesh lost $81 million in central bank reserves when hackers “spoofed” orders in the SWIFT banking payment system, draining the nation’s coffers into accounts in Sri Lanka and the Philippines. The NSA famously lost staggering amounts of highly classified information when former contractor Edward Snowden used his system administrator credentials to download massive amounts of data and then cover his electronic trail.

These stories are only two tales out of a steady drip-drip-drip of similar news that, in recent months, has been rapidly swelling into a flood. Indeed, cyber breaches have become so routine that a federal judge in Virginia decided that the owner of a computer connected to the Internet no longer had an expectation of privacy on his machine.

However, few regulators are prepared to take the expansive view of the Virginia judge. This leaves the industry in an uncertain regulatory environment. There is no overarching authority that provides the retirement industry with a cybersecurity safe harbor. ERISA predates the Internet. The Departments of Treasury and Commerce have issued limited guidance, if any. The Department of Labor is expected to offer guidance, but has yet to do so.

These gaps leave the industry vulnerable to (overly) zealous regulators. Justice Potter Stewart famously observed that while he could not define obscenity, he knew it when he saw it. Regulators increasingly adhere to the same view: They recognize cybersecurity

inadequacies when they see them — but usually only with the benefit of hindsight and in the wake of some calamity like the SWIFT breach.

There are signs that this approach is evolving. In an age of high-profile cyber incidents such as the publication of internal emails of Democratic National Committee staffers and threat of electronic tampering with the elections, regulators are anxious to be no longer viewed as exclusively reactive. For example, the Federal Trade Commission is revisiting the Gramm-Leach-Bliley (GLB) Safeguards Rule for the first time in a decade. The National Institute of Standards and Technology is also inviting public comment to assist the President’s Commission on Enhancing Cybersecurity.

REGULATORY ENFORCEMENT A KEY ISSUE

For the financial and retirement industries, the heart of the issue remains enforcement. Both FINRA and the SEC have designated cybersecurity as an enforcement priority. The New York State Department of Financial Services has proposed regulations governing everything from data access to encryption obligations. Investment advisors, brokers, financial services

B


Both FINRA and the SEC have designated cybersecurity as an enforcement priority.”

firms, vendors, consultants and TPAs are all under the regulatory microscope.

In 2015, a St. Louis-based investment advisory firm paid a $75,000 fine to resolve an SEC investigation. The investigation was triggered by a 2013 intrusion into the firm’s servers. The intrusion, which investigators attributed to hackers in China, allegedly resulted in the loss of the personally identifiable information (PII) of thousands of firm clients. The SEC did not fault the firm for the intrusion per se. Rather, the firm was called to task for what the SEC viewed as an excessively lackadaisical approach to cybersecurity. Specifically, the firm did not have firewall protections. It had not encrypted sensitive data. It had not trained its personnel. It did not even have contingency plans to deal with cyber intrusions.

The St. Louis settlement is a typical of other SEC enforcement efforts. In April 2014, the SEC’s Office of Compliance Inspections and Examinations (OCIE) announced that it would evaluate 50 brokers, dealers and investment advisors for the adequacy of their cybersecurity defenses.

OCIE began by examining the firms’ own internal governance and controls. OCIE was particularly focused on the existence of contingency plans and regular internal audits to verify employee adherence to firm procedures and policies. OCIE appears to have also examined access management procedures to ensure that sensitive data was limited to those employees who required it, and that their access in turn was limited to the extent necessary to carry out their business functions.

OCIE also evaluated firms on their technical defenses. While no program is impenetrable, the use of standard best practices such as encryption and multi-factor authentication signaled a commitment to security. Such commitment was

also underscored by the regular use of procedural safeguards such as intelligence and information-sharing regarding threats.

Amid all this regulatory enforcement activity, threats constantly evolve. Last summer saw the release of highly sophisticated NSA tools that could penetrate most corporate firewalls, and an iPhone vulnerability that enabled hackers to access all data, including voice communications, from the device. Consequently, OCIE looked favorably on any entity that consistently patched vulnerabilities as they were discovered. Likewise, OCIE emphasized the utility of administrative measures, such as acquiring cyber insurance, adopting and implementing internal training and handling protocols, reviewing and vetting vendor relationships and conducting periodic drills.

OCIE released the results of the audits in February 2015. It found that a majority of firms reported being subject to cyber attacks. Yet many of the affected firms lacked policies, procedures and contractual provisions to handle attacks. A recent settlement with Morgan Stanley Smith Barney LLC (MSSB) highlights several of these unfortunately common problems.

The settlement arose out of MSSB’s failure to adopt procedures

to protect customer information in violation of the GLB Safeguards Rule. An MSSB employee allegedly transferred 730,000 customer records to a personal computer system. The personal system was subsequently breached by hackers, and some of the customer records turned up for sale on the Internet. MSSB identified the breach following a routine security audit.

The SEC determined that MSSB had violated the Safeguards Rule, which requires every investment advisor and broker dealer to: • ensure confidentiality of customer

records; • guard against anticipated hazards;

and • protect against unauthorized access.

The SEC felt that MSSB had failed to adhere to the Safeguards Rule since its policies and procedures did not limit access to critical information to the extent necessary for business purposes. MSSB faced censure and a relatively small fine.

The episode illustrates two key points. First, regulators generally recognize that there is no such thing as perfect cybersecurity. Even if an army of experts was deployed to constantly reconfigure systems to protect against the holes that are being discovered daily, every system remains vulnerable to so-called “zero day exploits” — i.e., those previously unknown.

Second, the inability to attain perfection in cybersecurity does not excuse industry participants from fulfilling their cybersecurity obligations. Regulators do want to see cybersecurity considerations factor into operational planning. MSSB’s shortcoming was not the breach per se; the problem, in the SEC’s view, was that the procedures and processes preceding the breach were deficient.

FOCUS ON EMPLOYEESIn light of all this, those in the

retirement industry can undertake a few relatively simple measures to protect themselves from hackers and regulators alike. We emphasize

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The inability to attain perfection in cybersecurity does not excuse industry participants from fulfilling their cybersecurity obligations.”

to the sensitivity of the data and the capabilities of the organizations. Be cognizant of this.

3. Regulators will look for evidence that firms implement security plans. At a minimum, a firm should be able to demonstrate: • periodic training of personnel on

dealing with ever-evolving threats and scams;

• compliance checks to ensure that employees, vendors and contractors adhere to firm policies; and

• the development, testing, and periodic modification of contingency plans to deal with breaches or other threats.

Be prepared to proffer this.4. The cost of security

has been declining steadily. This applies to both technical countermeasures and consulting services that develop protocols and procedures to prevent penetration. The rise of so-called “white-hat” hackers and security specialists as a competitive business sector means that sophisticated defense measures that would have been available to only the largest organizations a generation ago are now available to virtually any entity for a few dollars per machine. Investigate your options.

5. The move to the cloud has likewise improved access to state-of-the-art security technology. Some time ago, a client queried whether it was really appropriate to transfer significant critical data — the crown jewels of the enterprise — to one of the nation’s best cloud services providers. The client was understandably concerned about losing complete control over its data. The flip side was that the client had a hard-pressed IT staff juggling countless competing priorities in addition to security. Conversely, the cloud service provider had one task: to hold data, and to hold data safely. The cloud is not a panacea, but it appears to be the future, and it warrants examination. Consider the cloud.

6. The organization should plan to handle the costs of a

again that compliance does not equal security — a perfectly compliant business could still be breached.

In our experience, one crucially important (but frequently neglected) measure is focusing on your personnel’s role in cybersecurity.

Hollywood likes to portray cyber-intruders as almost invincible technical demi-gods, often with Bond villain accents, directing webs of millions of computers to batter their hapless adversaries. Our experience does not reflect this. Cyber-intruders, like most people, tend to take the path of least resistance, and the single weakest component in any cyber-defense tends to be the human beings who have the authority and credentials to compromise it. Accordingly, hackers often rely on the simple expedient of obtaining information or credentials from employees who have them.

For instance, one popular “spear phishing” scam is to pose as a high ranking executive and demand critical information — such as W-2s — from a clerical employee such as a payroll assistant. Another variant of these “social engineering” hacks is to pose as an authorized employee and contact a firm’s technical support, requesting login credential reset, and gain access that way. The possible permutations are endless.

In a world of widespread social media, hackers have easy access to personal information that can allow them to sound credible while running some version of these scams. The best remedy is employee awareness, apprising them of the various kinds of social engineering scams and reminding them to exercise appropriate vigilance and skepticism in handling, for example, mysterious requests from “the CEO.”

Of course, even the most cautious employees can let down their guard. No group is more vigilant than individuals who work for the intelligence community. Yet one recent audit reported that a remarkable number of intelligence

community employees who found apparently abandoned jump drives in government parking lots proceeded to plug them into computers in an effort to trace the owner. (To be fair to these uber-vigilant super-spies, the jump drives were emblazoned with their agency’s logo.) Clearly, this demonstrates that even the best training can struggle to overcome our instinctive reflexes.

TAKING ACTION: 10 KEY LESSONS

So what should a responsible organization do? Here are 10 key lessons.

1. Regulators and judges alike will expect any organization to implement simple inexpensive measures that have been used for over two decades: restrictions on access, data audits, encryption, segregation, and monitoring to detect unusual activity. Use them.

2. Regulators do not expect perfection, but they do expect organizations to treat cyber-risk as the recognized concern it is at this point. Regulators will expect to see technical and business plans to protect systems and data. The expectations will correspond


One crucially important (but frequently neglected) measure is focusing on your personnel’s role in cybersecurity.”

cyberattack. In that event, the disapproval of a regulator will be the least of the firm’s concerns.

Saad Gul and Mike Slipsky, editors of NC Privacy Law Blog, are partners with Poyner Spruill LLP. They advise clients on a wide range of privacy, data security, and cyber liability issues, including

risk management plans, regulatory compliance, cloud computing implications, and breach obligations. Mike may be reached at 919.783.2851 or [email protected]. Saad may be reached at 919.783.1170, NC_Cyberlaw or [email protected].

10. The organization’s plans must reflect reality. This requires buy-in from key players: the leadership, the operational staff, IT and legal/compliance. Moreover, the plans must be updated periodically to conform to evolving reality. The temptation to achieve consensus on a perfect plan which is shelved and never seen again must be resisted at all costs. We have seen documents reflecting technologies, products and processes not utilized in over a decade. Such plans are useful only to hostile regulators and circling plaintiff’s lawyers.

CONCLUSIONThese measures are not a

comprehensive, bulletproof cyber-defense scheme. Such a scheme does not exist unless an organization is willing to revert to typewriters (as the Kremlin is reported to have done). But if recent stories have yielded one lesson, it is that cyber-defense is a business issue, not a technical problem. Large firms like Anthem have the resources to withstand the shock of a major cyber-event. But few businesses are sufficiently robust to absorb the legal, reputational and revenue damage of a major

cyber-breach. For instance, the full impact of the Anthem data breach, which potentially exposed the information of 80 million people, could ultimately exceed $8 billion. That is an outlier, but significant financial damage is a real possibility. Cyber-insurance may or may not be the answer. However, it is an option that should be evaluated. Other alternatives, such as captive markets, self-insurance and designated reserves should also be considered. Plan now.

7. The purchase of cyber-insurance brings an additional benefit to the table. In the same manner that health insurance companies encourage preventive care, cyber-insurance companies facilitate access to technical and legal experts who can evaluate the cyber-exposure of a company and recommend risk mitigation measures. For TPAs or other parties who cannot rely on the cyber planning resources of an affiliated bank or other financial entity, this assistance can be a critical (and cost-effective) force-multiplier.

8. While security considerations often require restrictions on access to data, security mandates must be reconciled with business necessity. Restrictions that hamper job functions will result in employees developing workarounds, nullifying any supposed security benefits. The MSSB incident, for instance, apparently occurred because the employee in question desired more flexibility to perform his job effectively.

9. Commit to principles. Change is inevitable. Technology changes. The nature of business changes. Given this, no business should commit to particular procedural or technological defenses. The prudent approach is to focus on a handful of core principles. Adherence to these core principles becomes the benchmark for evaluating technological and business processes.

Gul

Slipsky

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R E GU L A T O R Y R O L L E R C O A S T E R : A r e y o u r e a d y f o r t h e r i d

e ?

Western BenefitsC O N F E R E N C E

2 0 1 7

J U L Y 9 - 1 2 , 2 0 1 7 | A N A H E I M , C A

Unanticipated Consequences

BY NEVIN E. ADAMS, JD

FEATURE

Polls, pundits and politicians alike didn’t see this coming.

35WWW.ASPPA-NET.ORG

n an upset the likes of which the nation hasn’t experienced since 1948 (when Dewey didn’t defeat Truman), not only did businessman, entrepreneur, reality talk show star and serial tweeter Donald J. Trump manage to capture the White House, but despite losing seats in both houses of Congress, the GOP maintained its majority hold on the House of Representatives and managed to hold onto a slim majority in the Senate, and thus keep control of Congress.

Along with that most unanticipated series of outcomes, the calculus of change on legislative and regulatory fronts for the retirement industry was also turned upside down. Overnight the odds of legislation coming out of the so-called “lame duck” session evaporated, while the prospects for change, and perhaps even outright appeal of the fiduciary regulation, went from something on the order of a meteor striking Washington, DC to — well, a real possibility.

THE FIDUCIARY REGULATIONPredicting the future is a

treacherous business — particularly in print journalism, where the time gap between the composition of these words and your reading them is weeks. That said, as we head to press, President-elect Trump has yet to specifically weigh in on the fiduciary regulation, though he has consistently spoken of his intention to reduce the reach of government regulations, and it seems reasonable to think that he’d see the fiduciary regulation in that light. Indeed, campaign advisors such as Anthony Scaramucci, managing partner of Skybridge Capital, have been openly critical of the regulation, and claimed that it would be repealed.

Nor would it be all that hard for the Trump administration to do so, with an interim step of issuing an executive order indicating no enforcement of the rule while going through the administrative procedure process of actually repealing it.

That said, bear in mind that, while the DOL fiduciary rule is on

a list of recent regulations to review, it is currently not on the list of regulations designated for immediate action by the Trump administration. The current thinking, at least now, is that unless President-elect Trump addresses the issue himself, which is not seen as likely given the other matters demanding attention, the Trump administration will want to wait for the Secretary of Labor nominee to make a determination.

Which brings us to Andy Puzder, who President-elect Trump has tapped as his nominee for Secretary of Labor. Puzder, chief executive of CKE Restaurants Holdings Inc., the parent company of the Carl’s Jr. and Hardee’s burger chains, has been a vocal critic of government regulation, notably the Affordable Care Act and the recent Labor Department overtime rules. He has not (yet) expressed an opinion on the fiduciary regulation, and while it seems reasonable to expect that he wouldn’t favor such an extension, as a matter of political expediency he might keep his powder dry on that issue, rather than interject another controversial position into what is likely to be a contentious confirmation process. But then, that’s what “common wisdom” would dictate.

TAX REFORMAnother big issue — especially

with the GOP maintaining majorities in both houses of Congress — could be tax reform.

“Our No. 1 priority is tax reform. This will be the largest tax change since Reagan,” said Steven Mnuchin, the former banker who served as Trump’s campaign finance chairman, in an interview on CNBC within a week of his being named as Trump’s nominee for Secretary of the Treasury.

He was referring, of course, to the Tax Reform Act of 1986 (TRA ’86), which significantly simplified and streamlined income tax rates. Of course, it also tightened the nondiscrimination rules, reduced the maximum annual 401(k) before-tax salary deferrals by employees

by 70%, and required all after-tax contributions to DC plans to be included as annual additions under Code Section 415 limits. And what did all that do for — or rather to — retirement savings?

Yes, for all the concerns expressed by those in our nation’s capital (and presumably those soon to be taking up residence there), tax reform is all about reducing the amount of revenue that the federal government takes in. But with a $20 trillion debt, Uncle Sam will need to find some way to offset the projected loss in revenue — and that’s where the tax incentives to establish, fund and contribute to a workplace retirement plan inevitably find themselves in the budgetary crosshairs.

While those paying attention to such things realize that most of those tax preferences are temporary — that is, taxes will be paid on those pre-tax contributions and the earnings thereon when they are withdrawn at some point in the future, the government beancounters look at revenues and expenditures only within the prism of a 10-year budgetary window, and since the gap between the deferral of taxes on those contributions and the withdrawal of those funds upon retirement is generally more than that decade, the amount of taxes postponed looks, from a budgetary standpoint, to be taxes permanently foregone. And, on that basis, even though those so-called retirement “preferences” are completely different from other tax deductions (such as the mortgage deduction), from a budgetary scoring standpoint, it’s not only a big, juicy target — it’s one of the largest on the table of considerations.

Not that we have to look back 30 years to see how tax reform might manifest itself. We saw what that might mean as recently as 2014 when then-Chairman of the House Ways and Means Committee Rep. Dave Camp (R-Mich.) put forth a proposal that would pay for tax reform (or at least some of it) by freezing the COLA limits that apply to defined

I


on those who decide to offer these plans in the first place and to match employee contributions.

House Ways and Means Chairman Kevin Brady (R-Texas) is already championing moving aggressively on tax reform within the first 100 days of the Trump administration. Noting that Trump’s tax proposal in many ways mirrors the “Better Way” tax reform blueprint released last year by House Republicans, Brady has said that House Republicans are “ready with the agenda we've laid out, especially

contribution plans for a decade and limiting the annual ceilings on elective deferrals so that only half could be made on pre-tax basis (weirdly, this would have applied only to employers with more than 100 workers). The first part of the proposal was deemed to raise $63.4 billion in revenue over 10 years, the latter an additional $144 billion, by basically forcing workers who would otherwise have taken advantage of pre-tax savings to pay taxes on those contributions upfront. And let’s not forget that those burdens would have fallen particularly harshly

fixing this broken tax code, replacing Obamacare with real patient health care, and lifting taxes off businesses so they can grow again.” And he has also previously invoked the spirit of the Tax Reform Act of 1986 as a model.

While the current blueprint pledges to “continue the current tax incentives for savings,” it directs the House Ways and Means Committee to “consolidate and reform the multiple different retirement savings provisions in the current tax code to provide effective and efficient incentives for savings and investment.” So while the

REFORM REACTIONS: NAPA Net Readers Weigh in on Tax Reform

Tax reform is on Washington’s lips again

— but means different things to different

people. Last summer, when the prospects

for tax reform seemed more remote (but not

improbably), we asked NAPA Net readers

what they thought would happen if Congress

took away the pre-tax advantage of 401(k)

savings.

The vast majority of respondents thought

the elimination of the pre-tax contribution in

401(k)s would have a negative — and in many

cases — a very negative impact. The most

common response — 46% — was that many

would quit saving (altogether), and another

5% thought that most would quit saving, while

about 1 in 10 thought that some would.

But then, another 22% thought that

many would save less, and another 3%

thought that some would save less. As one

reader explained, “Many would save less.

They would invest enough to get the match

and tell themselves they would invest any

incremental savings in their brokerage or

savings accounts, but not actually do so.

It would also send a message to the public

that would be perceived as ‘the govern-

ment is not concerned about my retirement

preparedness’ and if they aren’t concerned

why should I be?” Another said, “They would

start saving at an older age and many would

not do it in a 401(k).”

The rest either thought it wouldn’t matter

much, or wouldn’t matter much in the long

run. One reader noted, “Short term, not much

change. I believe the problem would be get-

ting new people to begin saving in plans and

when they change jobs starting up again.”

Another echoed the short-term message: “It

would be disruptive to the business initially.

But if we promoted the Roth advantage, and

the need for retirement savings, those that

save would still be likely to save up to the

match; may see a slight reduction in sav-

ings because of the loss of the tax benefit.”

Another opined, “If Roth and its tax-free dis-

tributions are left alone then it won’t matter

much. If just after-tax is available then

logical participants will still save to max

match. However, under current rules things

do get a bit weird in that after-tax funds can

be withdrawn w/o penalty so would there be

‘put it in, take it out’ unless those rules are

also changed.”

But, as one reader noted (and several

others commented), “Who is to say the tax

advantages of the Roth 401(k) would remain

untouched as well. Without the tax advan-

tage ‘carrot’ offered by 401(k) and Roth

401(k), workers become less likely to save.”

Limits Less?

What if Congress were to cap or reduce

the current contribution limits? This is what

happened in 1986, and it an element in then-

House Ways & Means Chairman Dave Camp’s

tax reform proposal. Well, nearly 60% of poll

respondents said that highly compensated work-

ers (most likely to be impacted by those limits)

would save less, while another 16% thought

participants generally would save less (more

than one response was permitted). About 10%

thought there would (mostly) be no real impact.

That said, the most striking finding was

that just over half (53%) said they thought

that plan sponsors would be less likely to

setup and maintain these plans if the limits

were capped. “Smaller plans where only the

owner is reaching the limit are most likely to

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current retirement savings vehicles — like the 401(k) — will not be removed from the tax code under the House Republican plan, those vehicles could be combined into one “cookie cutter” approach. That might, or might not, mean significant changes for the 401(k), but 403(b)s, and potentially even 457(b) programs could be subjected to changes that would render them more like their 401(k) brethren.

Additionally, the blueprint also directs the Ways and Means Committee to “explore the creation of more general savings vehicles” like

so-called Universal Savings Accounts outside the employer based savings system in which account holders could withdraw both contributions and earnings at any time, and for any reason, without tax penalties. Legislation has been introduced in Congress that would create this new savings vehicle, which would seriously diminish the relevance of individual retirement accounts (IRAs) and possibly even workplace based savings arrangements.

The bottom line: There remains bipartisan enthusiasm for tax reform,

though that interest is generally focused on reducing rates — and those efforts often “pay” tax reform’s tab by undermining the incentives that promote, encourage and support the maintenance and creation of workplace retirement plans, specifically among smaller employers.

Just after his election in 2008, President Barack Obama famously said, “Elections have consequences.”

They do indeed.

be impacted,” noted one reader.

“The total value flows into plans would be

reduced,” said another, “impacting econo-

mies of scale, resulting in a combination

of higher fees, greater consolidation, less

choice, larger funds, and less investment

differentiation.”

“Savings would continue but the ability

of workers to save adequately for retirement

would be diminished. The older working force

(45-50+) tend to hit their savings stride and

try to make up lost ground in their later working

years by maxing out their deferrals. Reducing or

capping is detrimental,” noted another.

Or, as one reader explained, “The level

of the cap would determine the level of the

reaction. Cap it at $6k and you can guess

what happens next.”

WWPSD?

Building on that outcome, we asked read-

ers what plan sponsors would likely do if the

pre-tax advantage of 401(k) savings were

eliminated. Just over half (57%) said that

many would be less inclined to set up and

maintain these plans, while 22% said some

would be less inclined. The rest didn’t think

there would be much impact, or that it would

be limited to certain size plans.

As one reader noted, “Small plans would be

less inclined and in many cases would terminate

plans since the owner would have much less

personal benefit/incentive relative to the hassle

of maintaining it.” Another echoed, “Employer

reaction would be in large part determined by the

actions of other employers.” Still another noted,

“Small employers would not set up the plans.

Larger employer would still have them unless

employees rated the benefit as not useful and

preferred other benefits.” Joining that chorus

was the reader who said, “Smaller plans (which

were designed to favor ownership) would likely

be the most impacted.”

Do Lawmakers ‘Get it’?

The real question, of course — cer-

tainly the one that might matter most in

the months to come — is whether or not

lawmakers understand all of this. And

among poll respondents, the clear answer

was — they don’t. In fact, two-thirds said

that plainly. Perhaps more damning is the

sense of 22% that lawmakers understand,

but don’t care about that result (or, as one

reader said, “some who are enlightened

do”), or the 7% who said they understand,

but don’t actually believe those outcomes

will occur. As one reader noted, “I am not

sure people in our business understand the

impact and many a Congress person has

voted on bills he/she did not understand.”

Another explained, “They don't understand

the small employer and the impact it would

have on qualified plan.”

The remaining one-in-eight said while

lawmakers understand the potential for

these impacts, they have other priorities.

“It is just another example of Washington

double talk,” noted one reader. “Out of one

side of their month, legislators are trying to

encourage people to save (because they fear

the impact that poor, older citizens will have

on entitlement programs) and out of the

other side of their mouth, they are salivating

over the immediate tax revenue that they can

glean from taking away a pre-tax benefit or

by taxing the very people who ‘do the right

thing’ and save for their retirement.”

Or, as another put it, “I think most lack

the foresight and knowledge to predict how

plan sponsors would react.”

You can read more about the poll at

http://www.napa-net.org/news/managing-

a-practice/industry-trends-and-research/

reader-poll-what-could-tax-reform-do-to-

retirement-savings-hint-its-not-good/.

— Nevin E. Adams, JD


COVER STORY



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ILENE H. FERENCZY, ESQ.


so intended. This issue may arise whenever either a client asks you or you initiate a conversation about who will be the plan’s investment advisor.

The COI rule provides that your recommendation of someone to provide investment advice may be advice in and of itself, if you are paid for that recommendation.2

WHEN IS THE REFERRAL TO AN INVESTMENT ADVISOR POTENTIALLY INVESTMENT ADVICE?

Even simply making a referral to an advisor with whom you work or providing a list of advisors you know to your clients may constitute a recommendation under the COI rule.3 In particular, the DOL notes in the Preamble that whether a referral constitutes advice depends on whether your communication to your client rises to the level of being a recommendation, which the DOL defines as “a communication that, based on its content, context, and presentation would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.”4 This definition bases whether you made a recommendation, not on whether you intended to do so, or even if your client thought you did so.

mong the many questions that are wending their way around the benefits industry regarding the DOL’s final conflict-of-interest (COI) rule is one that comes from the TPA community: Why

do I care? The fact that this question is being

asked reflects not only the insecurity that we all feel about the rule, which is in need of some considerable additional fleshing out by the DOL, but also the fact that the TPA business is not what it used to be. In fact, the types and levels of services provided by TPAs vary so much from one provider to another that this group — which seems so homogenous from the 3,000-foot viewpoint — is truly much broader than it appears at first blush.

So, if we are to truly answer this question, first we must break up our analysis into the types of TPA organizations and services, and go from there. Let’s start with the fee-for-services TPAs.

THE TPA-ONLY, FEE-FOR-SERVICES, ‘I DON’T GET NUTHIN’ ELSE’ SHOP

If a TPA is a fee-for-services organization, and gets no revenue sharing from any products or service providers that are related to the investments, then the TPA is considered to provide ministerial services only and is not a fiduciary.1 This rule applies both before and after the COI rule, illustrating one of the most important points of this analysis: If you do not give investment advice, the COI rule does not affect you at all.

Beware, however, of the tendency to fool yourself into believing that you are part of this class of TPAs when you are not. Certain common communications by a fee-only TPA may be interpreted as fiduciary advice, even if neither the TPA nor the client

The definition is objective in nature, judging your statement to be advice if a reasonable person would believe that you intended him or her to act or not act based on your statement.

So, if a client comes to you and says, “Who should I get to help me with choosing and monitoring my investments?” and you say either “Joe Smith” or “Here’s a list of people I work with,” that likely constitutes investment advice if you are paid, directly or indirectly, as a result.

What is a ‘Payment’ That Turns a Referral Into Investment Advice?

This is one of the most important unanswered questions of the COI rule. To constitute a payment, the amount may be “any explicit fee or compensation … from any source, and any other fee or compensation received from any source in connection with or as a result of the … provision of investment advice services.”5 The rule further provides that a payment of compensation is “in connection with” the recommendation if it would not have been paid but for the recommendation being made.6

It is obvious that a TPA that gets a finder’s fee from an advisor for a referral is being paid and that the payment is in connection with a specific referral. Things become much less obvious, however, when the situation is less definitive. Suppose, for example, that a financial advisor takes you to lunch to thank you for a referral. Suppose instead that the advisor gives you an annual holiday basket that gets progressively more impressive each year as you do more business together. Or, what if there is no such obvious payment, but the advisor to whom you make referrals begins to refer business to you? Aren’t referrals really quids pro quo understood by all in the business world? Or, is it just the recognition by the advisor as you work more closely together that you do excellent work and that he believes that

Many TPA errors-and-omissions policies do not insure you against fiduciary breaches.”

A

1 DOL Reg. §2509.75-8, Q&A D-2. 2 COI Reg. §2510.3-21(a)(1)(ii). 3 See the Preamble to the COI Reg., §IV.A(4). ⁴ Ibid, referencing COI Reg. §2510-3(21)(b)(1). ⁵ COI Reg. §2510.3-21(g)(3). ⁶ Ibid.

41WWW.ASPPA-NET.ORG

you are someone his clients should use?The COI rule does not drill

down to this level of detail as to what constitutes either a recommendation or compensation. Unless further information is provided, it appears that the fee-based TPA must take care when asked for a referral to an advisor, or when it offers such a referral, to know in advance whether it will provide one.

THE TPA THAT RECEIVES REVENUE SHARING OR OTHER INVESTMENT-RELATED PAYMENTS BUT GIVES NO INVESTMENT ADVICE

The second category of TPAs to examine is those who provide only TPA services and no intentional investment advice, but who receive revenue sharing from the financial institution that provides a platform for participants to direct their own investments and also recordkeeps the investments.

In principle, the TPA is being paid for services and not for investments. Furthermore, the TPA’s recommendation may relate to the nature of the financial institution’s recordkeeping and participant service capabilities, with no opinion whatsoever about what investment options are chosen to be offered to the participants. Indeed, the revenue sharing that is provided to the TPA is commonly considered for services other than giving investment advice, such as administration expenses.

Nonetheless, the fact that the TPA is paid in connection with the purchase by the plan of specific investments and that the level of revenue sharing may be higher with one investment than with another leads one to question whether there is enough of a nexus between the TPA and the funds to create a fiduciary relationship. In other words, if the TPA has a role in directing the client to a given recordkeeper and a structure under which the funds provided in the plan pay the TPA revenue sharing, is this

investment advice?This is another area that is not

fully addressed in the COI rule. The rule specifies that if a TPA markets or makes an investment platform available to its clients, that act in and of itself does not represent investment advice:

“Marketing or making available to a plan fiduciary of a plan, without regard to the individualized needs of the plan, its participants, or beneficiaries, a platform or similar mechanism from which a plan fiduciary may select or monitor investment alternatives … into which plan participants and beneficiaries may direct the investment of assets held in, or contributed to, their accounts … is not undertaking to provide impartial investment advice, provided the plan fiduciary is independent of the person who markets or makes available the platform or similar mechanism, and the person discloses in writing to the plan fiduciary that the person is not undertaking to provide impartial investment advice in a fiduciary capacity.”7 (emphasis added)

The concern with this section is whether the TPA who markets the platform is truly independent of the platform provider if he or she has entered into a revenue sharing contract with the provider. It is not clear whether “independence” refers to an employment relationship or a business relationship that is interrelated. Certainly, TPAs that receive compensation from platform providers enter into a contractual relationship, which might be sufficient to contradict their “independence” under the regulation.

In our experience, some TPAs have revenue sharing contracts with a multitude of platform providers, with little expectation of getting material revenue sharing from any of them, but others tend to work solely with one or a few providers, with expectations of more significant funds coming to them in connection with the investments being held on the platform. If a TPA falls

into the second category, it is harder to argue that it is independent. Certainly, all the arguments of the prior section in relation to a TPA’s recommendation to a financial advisor can be made here: The TPA (we would argue) recommends the platform for administrative convenience and quality, not because the assets the plan has on the recordkeeping platform will qualify the TPA for greater revenue sharing or incentives.

An easy means by which categorization as a fiduciary can be avoided is for the TPA to avoid receiving compensation through this relationship. The most common means for this is for the TPA to offset any compensation normally charged to a client by the revenue sharing received. This “offset” method was approved by the DOL in the so-called “Frost” opinion letter8 as preventing a fiduciary recipient from being considered to engage in self-dealing. It is reasonable to assume that an offset would similarly mean that the TPA has not received additional compensation, thereby preventing fiduciary status by virtue of recommending a platform.

Nonetheless, it would be

The COI rule clearly permits an entity to make recommendations to itself or an affiliate without that recommendation being a fiduciary action.”

7 COI Reg. §2510.3-21(b)(2)(i).

8 DOL Adv. Opn. 97-15A.


giving investment advice and getting paid, it is certainly a fiduciary and is significantly affected by the COI rule.

Can the TPA Side of the Operation Recommend the Investment Advisor/manager Side?

If recommending a third-party investment advisor is a fiduciary act, surely recommending oneself is also such an act, yes? No. The COI rule clearly permits an entity to make recommendations to itself or an affiliate without that recommendation being a fiduciary action. This exception to the fiduciary rules is a little buried in the language of the fiduciary definition, which includes, “A recommendation as to the management of securities or other investment property, including … selection of other persons to provide investment advice or investment management services.”9 (emphasis added) The italicized language in the above quote was well considered by the DOL, it turns out, as the Preamble points to this as confirmation that self-promotion is permitted: “It is not the intent of the Department, however, that one could become a fiduciary merely by engaging in the normal activity of marketing oneself or an affiliate as a potential fiduciary to be selected by a plan fiduciary … without making an investment recommendation.”10

What about vice versa? Can a fiduciary advisor then recommend its own TPA counterpart without that being self-dealing?

So long as the fiduciary advisor is not a decision-maker in choosing the TPA and does not receive any additional compensation for making the recommendation, recommending its TPA sister company should not constitute self-dealing. This is distinguishable from a situation in which the fiduciary advisor is a decision-maker as to who is the TPA. In that circumstance, the fiduciary advisor may not choose itself or an affiliate to provide additional services for additional compensation.11 In such

you have nothing to do with assets, etc., why is the financial institution showering you with goodies?

This type of relationship with the financial institution, at the very least, demonstrates that the TPA may not be independent of the institution, which (as discussed above) raises the specter that the TPA is doing more than just suggesting a possible platform for the client. It also makes it difficult for the TPA to argue that it is not being compensated for that recommendation, particularly when eligibility for these goodies is usually dependent on the level of assets under management with the financial institution.

Will this be the end of the various conferences sponsored by the financial institutions? Perhaps. Alternatively, the TPAs may simply decide to accept that they are fiduciaries with regard to this recommendation, the effect of which is discussed below.

THE PRODUCING TPAA Producing TPA is an

administration company that has its own or a related investment advisory or management service. To the extent that the TPA or its affiliate is

wonderful if the DOL would clarify whether a TPA that recommends a recordkeeping platform at a financial institution is deemed to be an investment fiduciary under the COI rule if it receives revenue sharing, even if the TPA has no direct involvement in the investment selection.

Note that, in any event, the last sentence of the COI rule that is quoted above requires that the person recommending the platform provide a written disclosure to the recipient client, advising the client that the recommending party is not undertaking to provide impartial advice in a fiduciary capacity. (“Dear Client: When I recommend to you a platform to recordkeep your plan’s accounts and investments, I’m not undertaking to provide you with impartial advice in a fiduciary capacity. Love, Ilene.”)

Can the TPA That Receives Revenue Sharing Still get ‘Goodies’ From the Financial Institutions?

Many TPAs which work extensively with one or more financial institutions that maintain platforms are provided with some gifts or opportunities that we will generally refer to in this section as “goodies.” These types of additional appreciation by the institution to the TPA run from access to investment research or technical ERISA information to dinners to conferences in swanky locations. Some argue that even a stuffed animal or an iPad stylus provided by the sales booth of a financial institution at a conference is intended to encourage additional sales of their products. Most TPAs have undertaken to advise their clients of these items (or at least the ones that rise above being de minimis in cost, such as the stuffed animals) in their compensation disclosures provided under ERISA §408(b)(2).

But if you are a TPA that is trying to demonstrate that directing your client to a given platform is not providing investment advice, that

Certain common communications by a fee-only TPA may be interpreted as fiduciary advice, even if neither the TPA nor the client so intended.”

9 COI Reg. §2510.3-21(a)(1)(ii). 10 Preamble, §IV.A(4). 11 See ERISA §406(b).

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circumstances, the fiduciary advisor should recuse himself or herself from being involved in the actual decision to hire the related TPA.

It is important that the producing TPA not engage in any other transactions that can constitute self-dealing, such as recommending investments that pay it a larger share than other investments (unless that compensation offsets the fee otherwise paid by the client). That is also potentially self-dealing, which is why most investment advisors and managers who are fiduciaries will limit themselves to a level fee, so that the investment selections made by either themselves or the plan’s investment fiduciary do not result in additional compensation to the advisor.

Can the Producing TPA Make IRA Recommendations?

Many investment advisors are interested in “capturing” IRA funds — that is, assisting participants who leave the employ of the plan sponsor in investing plan assets once a distribution is taken. To do this, the Producing TPA must either not experience any change in compensation from giving that advice (which is difficult, since one option available to the participant is to put his or her money in an IRA product or other plan on which the advisor provides no advice and, consequently, receives no fees). The solution provided by the COI rule and the Best Interest Contract Exemption (BICE) is the level fee option, commonly referred to as “BICE Lite.” Under this option, the advisor must:• Acknowledge in writing that it is

a fiduciary• Agree to meet the Best Interest

standard in dealing with the participant-client, which generally requires the advisor to follow ERISA’s prudence requirements; base the advice on the objectives, risk tolerance, financial circumstances of the client; and disregard its own financial interests

• Get only reasonable compensation


investment advice for a fee or other compensation. As a result, it will be affected by the COI rule only to the extent it crosses the line to being an investment advisory fiduciary.

It is worth noting that a §3(16) TPA has the same potential conflicts of interest when it receives compensation from financial institutions in relation to platform services provided to clients as does an investment fiduciary. It still represents additional compensation that can turn a simple recommendation into fiduciary advice.

Suppose the TPA offers its §3(16) services in a “bundle” with an investment fiduciary. A client may retain the TPA to provide §3(16) services only if it also retains a particular (unrelated) investment advisor or manager. Does that somehow turn the TPA into an investment fiduciary? Probably not. The decision to buy a “bundled” service is made by the plan fiduciary, and the fact that the TPA and the investment advisor provide the service together is not really a recommendation to the other, but simply a business arrangement. The

• Not make misleading statements If the transaction involves an

IRA rollover, the BICE Lite advisor must also keep records that will demonstrate:• That the advisor considered other

alternatives (including leaving money in the plan); the fees and expenses associated with both the plan and the recommended IRA; whether the employer pays any of the expenses in the plan; and any differences in the levels of service that the advisor will provide in the IRA vs. the plan

• Why the new arrangement is in the participant-client’s best interest

• If the transaction involves a switch from a commission-based account to a level-fee arrangement, why the new arrangement is in the participant-client’s best interest

Presumably, most investment advisors, including those who work with Producing TPAs, will create a forms package that will enable them to easily keep the necessary documents.

Since we Know we Are Fiduciaries, can Producing TPAs Still Go to Investment Company-sponsored Conferences and Enjoy other ‘Goodies’?

If one admits that he or she is a fiduciary, then the goodies received from investment companies represent compensation, and have the potential of being self-dealing income. After all, the Producing TPA is getting paid an additional, non-level amount for recommending that platform and the investments within. Therefore, the fact that the Producing TPA is an acknowledged fiduciary does not make the receipt of goodies acceptable; in fact, the Producing TPA should offset fees by the value received for the goodie, to keep the compensation unaffected by the recommendations.

THE §3(16) TPAA TPA that endeavors to provide

certain fiduciary services in relation to plan administration is not an investment fiduciary unless it undertakes to give

plan fiduciary should independently consider this arrangement in the same way that it considers fully bundled or fully unbundled services, and make a decision of yea or nay.

SO WHY DO I CARE IF I BECOME AN INVESTMENT FIDUCIARY?

Is being a fiduciary really the worst thing in the world? If what it means is that you are supposed to act in your client’s best interest and be prudent, conscientious TPAs may be asking themselves why being a fiduciary is such a bad deal.

It is absolutely true that the main reason why ERISA designates people as fiduciaries is to hold them to the standards of conduct it requires of these important players: acting exclusively in the interests of the plan and its participants to provide benefits and defray expenses, being prudent, and following the terms of the plan and ERISA. If I’m doing that, what’s the problem?

There are a few possible problems. The first is that you may need different insurance. Many TPA errors-and-omissions coverages do not insure you against fiduciary breaches. Therefore, by admitting your fiduciary status, you may be putting yourself in the position of requiring fiduciary liability coverage.

Second, when you are an acknowledged fiduciary, you are much more likely to be named in a lawsuit by a participant or even the DOL. Participants who sue are commonly represented by general business litigators who do not understand the fine points of fiduciary responsibility, particularly at the beginning of a lawsuit. You may be excused by the court from the lawsuit at some point, but there will be some level of discomfort and cost while the suit is ongoing.

The biggest reason why you should care, however, is the threat of co-fiduciary liability. Under ERISA §405, a fiduciary is liable for a breach by another fiduciary under the following circumstances:

A TPA may consider using the BICE to deal with any potential prohibited transactions that arise in acting as an even temporary investment fiduciary.”

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the BICE is a prohibited transaction exemption; it does not relieve the covered person from liability for a fiduciary breach.) It is important to note, however, that the BICE is available only to financial advisors, financial institutions, and their affiliates. As a result, a TPA that is not a Producing TPA cannot rely on BICE even if it wants to do so.

CONCLUSIONIt is clear that there are several

reasons why TPAs should be concerned about the COI rule, even if the TPA does not engage in the provision of what we customarily think of as investment advice. The most critical of these concerns is the management of TPA relationships with financial advisors and any recommendations that may be made to clients to use these providers.

Until such time as the DOL provides additional guidance to permit TPAs to fully understand the breadth of liability represented by making these recommendations, it is difficult to know what to do. We certainly hope that the DOL will provide its additional guidance sooner rather than later so as to give TPAs a chance to react before the COI rule becomes effective. We also hope that the DOL will take into consideration that changes needed to comply with the final interpretations of the COI rule may take some time to develop. Therefore, a delay in the applicability date of the rule would be helpful — in fact, fair — at this late date.

Ilene H. Ferenczy, CPC, is the managing partner of Ferenczy Benefits Law Center LLP in Atlanta,

where she advises clients on all types of employee benefit plan issues. Ilene particularly focuses her practice on qualified retirement plans, benefits issues in mergers and acquisitions, and advising third-party administrators of employee benefit programs on technical and practice issues.

such investment advice.” However, this section goes on to outline that this does not exempt such fiduciary from co-fiduciary liability under ERISA §405 or the party-in-interest rules.

So, did the DOL really intend to make a TPA, who has access to plan information, responsible for all areas of the plan it sees as a fiduciary simply for making a recommendation that a client use a give investment advisor? One would hope not.

The problem is exacerbated by the fact that the DOL did not undertake to limit the fiduciary role to a certain time frame. In our above example, where you recommended George on Monday, what if the failure to deposit deferrals happened a year later, rather than a day? Would you remain a fiduciary during that entire year, just because you made one recommendation to the advisor? For multiple years? Forever? ERISA §410 prevents the use of so-called “exculpatory clauses,” which are contractual provisions that limit or relieve a fiduciary from its ERISA responsibility. But, could you contractually limit your fiduciary exposure by providing the client with a written document that says, “I am acting as an investment fiduciary today by telling you to use George as your investment advisor, but I hereby resign from my fiduciary status, effective midnight tonight”? Nothing in ERISA prevents a fiduciary from resigning and failing to be responsible for breaches that occur after the tenure is complete. Will such resignation be valid if the TPA continues to do ministerial work for the client? It is not clear.

Unless the DOL addresses this issue in its guidance, a TPA must be very careful when entering into a fiduciary relationship with its client.

IS THE BICE ANY HELP TO TPAs?

A TPA may consider using the BICE to deal with any potential prohibited transactions that arise in acting as an even temporary investment fiduciary. (Note that

• the fiduciary participates knowingly in, or knowingly undertakes to conceal, the other fiduciary’s breach;

• the fiduciary facilitates the other fiduciary’s breach by not fulfilling his or her own duties; or

• the fiduciary knows of the other fiduciary’s breach and makes no reasonable efforts to remedy the breach.

Suppose you are a TPA and on Monday, you make a recommendation to a client to use the services of George, the investment advisor. George pays you a finder’s fee (or otherwise compensates you). Your recommendation was intended (and appears to be intended) to encourage your client to use George. Boom! You are a fiduciary advisor under the COI rule.

On Tuesday, you get the client’s latest trust accounting information, which shows that the client has not deposited salary deferrals for the latest payroll. You call the client, who says, “Yep, you’re right. I kept the money. I’ll deposit it when I can.” On Wednesday, the client goes bankrupt with the salary deferrals undeposited. Can you be successfully sued for a fiduciary breach?

There is an argument to be made that you had knowledge of the client’s breach and you took no action to remedy the breach once you gained that knowledge. As such, you are liable for the breach (and since the client is bankrupt, the participants want you to pay their salary deferrals).

The COI rule discusses the scope of the investment fiduciary’s responsibility. “A person who is a fiduciary with respect to a plan or IRA by reason of rendering investment advice … for a fee or other compensation, direct or indirect,” the COI rule provides, “… shall not be deemed to be a fiduciary regarding any assets of the plan or IRA with respect to which such person does not have any discretionary authority, discretionary control, does not render investment advice … for a fee or other compensation, and does not have any authority or responsibility to render


FEATURE

qual parts celebration, reunion, sharing, and learning, the 2016 ASPPA Annual Conference was one to remember. The three-day event featured six general sessions

and 70 workshops, the presence of 25 Past Presidents, and the unveiling of the ASPPA history book, Leading the Evolution — all capped off by a party for 1,000 celebrating the Society’s 50 years at the forefront of the retirement industry. (For more on the anniversary party, see page 52.)

Here’s a closer look at the action.

THE TAXMAN COMETH, GRAFF WARNS

What’s the retirement plan industry’s biggest concern in the wake of the 2016 election? ASPPA Executive Director Brian Graff addressed the issue in the conference’s opening general session.

“The biggest concern that we have has to do with tax reform,” said Graff,

noting that, “the ingredients [for action] are there.” He observed that even in the first presidential debate in this particularly volatile campaign, there was agreement on at least one thing: the need to reduce corporate tax rates. “I expect fairly early on, driven either by the White House of the House of Representatives, there will be a move toward reform of the tax code,” said Graff, who also serves as CEO of the American Retirement Association.

What does that mean for retirement plans? Graff noted that, “there is a fundamental difference between tax policy and retirement policy.” And that may not matter that much on the Hill, he indicated. “They don’t care about us as much as they care about cutting rates,” Graff said. “It’s going to be critical” that we do something about this, he said, adding, “we’re going to be mobilizing.”

Others share ASPPA’s concern, according to Graff. “American families

aren’t really concerned about the tax code,” he said, noting that their top concern is having sufficient money for retirement. And yet, he observed, the percentage of private-sector workers covered by employer-provided plans hasn’t changed in 40 years.

This, in turn, has evoked interest at the state and local level in increasing retirement plan coverage. Graff noted that states have begun enacting retirement plans to cover those who are not, and even some cities have done so — most recently New York City. “This train’s not stopping,” he said, adding that eventually a federal program may result.

“The issue of coverage isn’t going away. One way or another, they’re going to address it,” Graff said.

LOOKING AHEAD AT 2017The popular Current Events

Update at this year’s conference included a look ahead at what

EBY JOHN ORTMAN AND JOHN IEKEL

PHOTOGRAPHY: JAMES TKATCH

One to Remember

The 2016 ASPPA Annual Conference — held in the Society’s 50th anniversary year — was a very special one.

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said there is a “great deal of consternation” on the prospect for such guidance, and said that he understands that the guidance may “be going a step further” and that the IRS may be using procedures it already has in place in conjunction with guidance on the degree of documentation needed to prove that a hardship exists.

Other projects the

IRS may pursue in the next year, Hoffman said, include interpretation of regulations on forfeitures that don’t match statutory provisions and regulations on eligible combined plans under Internal Revenue Code Section 414(x).

Department of Labor guidance. Hoffman said that the DOL may issue guidance on:• the Voluntary Fiduciary Correction

program;• 408(b)(2) disclosures;• Form 5500 modernization;• abandoned plans; and• disclosures for target date funds

and qualified default investment alternatives.

Pension Benefit Guaranty Corporation. Hoffman said that the PBGC may propose a rule that would expand coverage under its missing

participant program for DC plans. Standard of Practice rules.

ASPPA 2016 President Joe Nichols discussed the SOP rules, and said that the actuarial industry is one of the few that still follows such rules. He added that if changes to the SOP are adopted, that would increase pension liability disclosures.

DOL fiduciary rule. Incoming ASPPA President Rich Hochman remarked that the DOL fiduciary rule is “going to affect the way our members do business,” the way they think about it and the way they do their work. And just because a new administration will be in office beginning in January, to change the rule does not mean that it would be easy and quick to scrap the rule or even alter it. He noted that in order to change the rule, the whole process would have to be redone, even with the start of a new administration.

DETERMINATION LETTERS: NEW AND IMPROVED?The IRS has made big changes to the Determination Letter program. It’s new, but is it improved? A panel of experts discussed the changes.

Richard Hochman, 2017 ASPPA President, was joined by 2012 Past President Robert Richter, vice president at FIS Relius, and Donald Kieffer, tax law specialist at the IRS Tax-Exempt and Government Entities Division, at the session.

Richter opened with a look at the remedial amendment period (RAP), the period during which a disqualifying plan provision can be retroactively corrected. Without the RAP, the voluntary correction program (VCP) is the only means for correcting disqualifying plan provisions.

IRS Revenue Procedure 2016-37 eliminates the five-year cycle for individually designed plans (IDPs) after 2016. Instead of five-year cycles, IDPs now have two new procedural RAPs: • All plan sponsors will be deemed to

have filed for an extension of their tax return.

• Interim (required) amendments are covered by a new procedural rule.

2017 may have in store. (Since the conference took place two weeks before the election, the impact of the election results were not addressed.)

Craig Hoffman, the American Retirement Association’s General Counsel, discussed some of the regulatory developments that could affect the industry in the coming year:

Proposed nondiscrimination regs. Hoffman noted that the IRS issued proposed rules on the reasonable clarification test in January, and then announced in April that it was withdrawing them. He cited that as a big victory for the ASPPA Government Affairs Committee (GAC), but added that the proposal could be back, remarking, “there’s still some interest at Treasury.”

Guidance on substantiation of hardship distributions. Hoffman

Craig Hoffman as Johnny Carson as Carnac the Magnificent.

The “Current Events” crew delivered another TV-themed presentation.


checklists and workflow.DB/cash balance plans. About

two-thirds of attendees are in this space, working with an actuary by outsourcing, through partnerships or adding an in-house actuary.

Non-qualified deferred comp plans. Just a few attendees are in this space; several agreed that the opportunity is growing but employers are not moving in that direction. Using an attorney is key, via outsourcing, partnering or adding in-house counsel. One good way to gain knowledge in the NQDC, DB and cash balance areas, Betts recommended, is to pursue the QPA credential.

Governmental and non-profit markets. About 10% of attendees indicated they’re in both spaces, with about 30% in the 403(b) market. The opportunity here lies not in the creation of new plans, Betts noted, but in the growing use of multiple providers in the wake of the 2009 403(b) regulations.

ESOPs. About 10% of attendees are now in this space, but the barriers are coming down. In particular, the volume submitter program has diminished the need for legal help with an ESOP, though an attorney is still needed. Increasingly, ESOPS are seen as a tool for transitioning to the next generation of ownership.

Boutique services. Betts suggested a range of services for creating new opportunities, including participant communications, plan audit support, pre-retirement education, fee

may identify.There are a limited number of

people available to review documents, Kieffer said, noting that the IRS “wants to use limited resources where necessary.”

Additionally, updates to the Employee Plans Compliance Resolution System (EPCRS) are intended to reflect changes to the DL program. Kieffer said that the tendency with EPCRS has been to focus on what is allowable; however, now the emphasis is on eliminating the situations that require a determination letter.

FINDING OPPORTUNITY IN A CHANGING INDUSTRY

The retirement industry is changing rapidly and profoundly. How can TPAs and record keepers adapt and remain relevant? An interactive workshop session at the conference explored emerging opportunities for business development and expansion.

Led by speaker Scott Betts, SVP

at National Benefit Services LLC, the 100 or so attendees identified a wide range of opportunities that exist today:

3(16) fiduciary services. Certainly a growth area, currently offered by about 10% of attendees. With a long list of services in this area, the key is to determine what clients need, and then determine which services you can do well. Also a key: having strong workflow and controls.

Fiduciary consulting and training. Fewer than 10 attendees indicated they are now in this area. It is another growth area, with fiduciary training in particular demand. Other opportunities exist in helping plan committees with facilitation and due diligence tools like calendars,

And since the five-year cycle is gone, there is no need for the Form 8905 — a change that at least Hochman does not lament, remarking, “We’re not going to play taps for it.”

Another aspect of the new approach is that the IRS will issue a required amendments list (RAL) annually. Kieffer noted that an item will be on the RAL when: • the law changes and the IRS

determines no guidance is needed;• the law changes and the IRS has

issued guidance on the subject; and• the IRS issues changed guidance

(such as the final Section 415 regulations).

The RAL rules, which are effective Jan. 1, 2017, are “our

indication to you that this change in the law requires a change in the plan document,” Kieffer said. He added that the IRS will issue an operational compliance list annually, but the IRS is “still working on what it will contain.”

The cumulative list of changes will no longer be used for individually designed plans (IDPs). It will be used only for pre-approved plans and will be issued twice every six years.

If a plan has ever received a determination letter, it cannot request one via form 5300. There are some exceptions, however: • Form 5307 or 5310;• Cycle A restatements (deadline Jan.

31, 2017); and• special circumstances that the IRS

Missy Matrangola, Barbara Leadem, Lynn Young, Sheri Alsguth and Allyson Rentsch take a break between sessions.

EBSA head Phyllis Borzi’s participation at the 2016 conference was the last of many.

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Betts noted that in pursuing any of the opportunities that were discussed, it is important to ensure that you remain in compliance with ASPPA’s Code of Conduct — especially the sections regarding compliance (Sec. 4), professional integrity (Sec. 10) and qualification standards (Sec. 11).

EBSA ENFORCEMENT PRIORITIES OUTLINED

ERISA attorney Nicholas J. White provided a look at current enforcement activities at the DOL’s Employee Benefits Security Administration.

White, a director at Trucker Huss, APC, and member of ASPPA’s Government Affairs Committee, outlined EBSA’s national and regional enforcement priorities, and shared tips service providers can take to prepare for them.

At the national office level, White emphasized three EBSA initiatives that

your practice to another area or region. But it’s important to do your research first. Look at competition/market saturation, number and size of businesses, and whether the local economy is growing or shrinking. Then gauge the new capabilities that will be needed, like a local or traveling sales force and a

local or remote service team.Growth via acquisition. The

key here, Betts advised, begins with knowing what your end game is and building a realistic strategy to achieve it. The acquired firm must be a strategic fit in terms of geography, culture and operations. And you must be prepared in terms of appropriate levels of capitalization and financing. Finally, he said, the opportunities that an acquisition creates must be a good fit financially.

and service benchmarking, advanced plan design, customer support, health care plan compliance and reporting, flex plans, payroll and Health Savings Accounts (HSAs).

Industry focus. Just a few attendees indicate that they focus on clients in a particular industry, like law firms, family medical practices, tech firms or transportation companies, for example.

New geographical focus. Opportunities exist in expanding

Lauren Bloom shared insights into the art of apologizing in her keynote address.

ASPPA welcomed Richard A. Hochman, JD, APM, as the 48th president of the organization during the Oct. 23 Business Meeting that kicked off the 2016 ASPPA Annual Conference.

Hochman is the Director of Retirement Plan Consulting Services at Actuarial Systems Corporation (ASC), where he is a member of a team of acknowledged retirement industry experts providing best practice solutions on the wide range of administrative issues that confront industry practitioners as they provide qualified retirement plan services. He regularly participates as an instructor in continuing education programs, at in-house programs, and at a variety of pension industry forums, such as ASPPA and the National Institute of Pension Administrators (NIPA). His training expertise was acknowledged when he was recognized with ASPPA’s Educator's Award in 2012. He is a longtime ASPPA volunteer, working with both the Government Affairs and the Conferences Committees, and has also chaired the Annual Conference and General Conferences Committees.

Joining Hochman as ASPPA Officers for 2017 are President-Elect Adam C. Pozek, QPA, QKA, QPFC; and Vice President James R. Nolan, QPA. In addition, three ASPPA members were elected to open seats on the ASPPA Leadership Council: Justin Bonestroo, MSPA, CPC; Robert M. Kaplan, CPC, QPA; and Frank Porter, QKA, QPA.

ASPPA WELCOMES Hochman as 2017 President

Outgoing ASPPA President Joe Nichols (R) receives congratulations from 2017 President Rich Hochman.


service providers should be aware of:Rapid ERISA Action Team

(“REACT”). Deployed when quick action is appropriate to deal with bankrupt and financially distressed plan sponsors, REACT’s goals are to preserve plan assets, determine whether the sponsor has made all required contributions, ensure that the plan’s rights are protected, and identify the responsible fiduciaries.

Contributory Plans Criminal Project. This project targets the most egregious and persistent violators, such as employers that convert employee payroll contributions for personal or business use, third parties who gain access and use funds for their own financial gain, and identity theft or tampering with personal data records.

Consultant/Adviser Project (CAP). The CAP is intended to ensure that plan fiduciaries and participants receive comprehensive disclosure about service provider compensation and conflicts of interest, White noted. Its focus is on potential civil and criminal violations arising from the receipt of improper or undisclosed compensation by employee benefit plan consultants and investment providers, he said, with an emphasis on whether plan fiduciaries understand the compensation and fee arrangements they enter into. In this regard, the EBSA will focus on plan investment guidelines and proper selection and monitoring of service providers.

What are CAP investigators looking for? The DOL says that investigations under the CAP will seek to determine whether the receipt of improper compensation, even if it is disclosed, violates ERISA because the adviser/consultant used its position with a benefit plan to generate additional fees for itself or its affiliates. As part of the CAP, the EBSA will also conduct criminal investigations of potential fraud, kickback, and embezzlement involving advisers to

plans and participants, White said.Form 5500 Enforcement

Project. White also described the current effort by the EBSA national office focusing on Schedule H and I of the Form 5500. “In reporting financial information, plan administrators must now indicate whether any participants failed to start benefits on time and if so, the total amount paid late or still outstanding,” he said. This new requirement is buried in instructions for Schedules H and I, line 4L. Administrators answering “yes” should expect to receive a “compliance check” letter from the IRS’ Employee Plan Compliance Unit (EPCU). Additionally, White noted, DB plan administrators reporting a large amount paid late may be targeted for investigation by the EBSA.

White noted that proposed changes to Form 5500 for 2019 would clarify that the plan administrator should not respond “yes” to this question if the only benefits not paid are those owed to “missing” or “lost” participants and the plan fiduciaries have acted in compliance with FAB 2014-01 to attempt to locate the participants.

To prepare, White recommended reviewing plan terms and administrative practices regarding:• When the plan requires

terminated participants to start taking benefits

• When the plan requires actively employed participants to start taking benefits, once they’ve reached NRA or beyond April 1 of the year following the year they attain age 70½

• The form in which terminated DC plan participants must take their benefits (i.e., lump sum or RMD only?)

• Steps being taken to ensure that benefits start at RBD

He also suggested answering these questions:• How are participant ages being

ASPPA honored Judy A. Miller, MSPA, with the prestigious Harry T. Eidson Founders Award during the Oct. 23 opening session of the 2016 ASPPA Annual Conference in National Harbor, Md.

Miller, ASPPA’s (and subsequently the American Retirement Association’s) former Director of Retirement Policy, retired in August. In that role, she headed the organization’s government affairs function since 2003. She joined ASPPA in 2007 after serving as Senior Benefits Advisor on the staff of the Senate Finance Committee. Miller has provided consulting and actuarial services to employer-sponsored retirement programs for nearly 30 years. She continues to serve as the Executive Director of the ASPPA College of Pension Actuaries (ACOPA).

The Eidson Award was not the only major award honoring Miller this year. At the annual ACOPA Actuarial Luncheon on Oct. 25, she was presented with the 2016 Edward E. Burrows Distinguished Achievement Award.

ASPPA HONORS Judy Miller with Industry Awards

Judy Miller receives the 2016 Burrows Award from ASPPA Executive Director Brian Graff at the annual Actuarial Luncheon.

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Kurt F. Piper, FSPA, will serve as President of the ASPPA College of Pension Actuaries (ACOPA) for the 2016-2017 year. He was inaugurated as President Oct. 25, at ACOPA’s annual Actuarial Luncheon.

Piper succeeds ACOPA’s 2015-2016 President, Karen Smith, MSPA. He is the owner and chief actuary of Piper Pension & Profit Sharing, an actuarial consulting and pension and profit sharing administration firm based in Culver City, Calif. Previously he was Senior Vice President & Chief Actuary with National Associates and Vice President & Chief Actuary of Dun & Bradstreet Pension Services.

The other ACOPA officers serving one-year terms beginning Oct. 25, 2016 are:

• President Elect: Bill Karbon, MSPA, CPC, QPA

• Executive Vice President: John R. Markley, FSPA

• Vice President: Richard Kutikoff, MSPA• Secretary: Drew Forgrave, MSPA• Budget Officer: Tom Munson, MSPA

Forgrave and Munson are new additions to the ACOPA Leadership Council.

Kurt Piper, ACOPA’s 2016-2017 President, with outgoing President Karen Smith.

PIPER INAUGURATED as ACOPA’s 2016-2017 President

tracked? Is the process sufficient? Are notices being given timely regarding retirement and RBD? Do holes in employee data need to be plugged?

• What are the procedures for addressing missing participants?

• Does the plan provide for deemed forfeitures? If not, should it be amended to do so?

• Does the plan provide for a default IRA option or escheat?

• What’s the procedure for handling uncashed checks?

Regional Office Enforcement ProjectsWhite updated session attendees

on several regional EBSA efforts that are expanding beyond the regional in which they began:• Late deposit of elective

deferral contributions and loan repayments noted on Form 5500. Contact from the EBSA typically begins with and “invitation” to correct under VFCP. “There are ‘nice’ and ‘not-so-nice’ versions of

this letter,” White noted, depending on which regional office involved. “When this initiative first rolled out, in Philadelphia, it was focused on large plans — but now plan size doesn’t appear to matter.” The initiative is spreading to at least Boston and San Francisco, he noted.

• Large Defined Benefit Plan Project. This project started in Philadelphia, but it’s spreading, White noted. Its focus is on procedures in three areas: locating missing participants, informing deferred vested participants that a retirement benefit is payable, and commencing benefit payments when the participants reach age 70½. To address this initiative, White suggested reviewing plan procedures for locating plan participants and filling in gaps in plan records, and approaching the issues more comprehensively as part of a plan compliance review, including fiduciary training.

• Excessive Fees Initiative. This

effort started in Philadelphia, said White, “but it has really become a national initiative now.” To address it, White suggested reviewing disclosures and records to determine whether participants are paying higher than average fees — Are the fees justified? If not, who is at fault?

• Benefit Distributions Initiative. This is primarily in the Boston region, White noted, but it too is spreading. The initiative was established to ensure that plan fiduciaries are acting in accordance with FAB 2014-01. Investigators determine whether plan administrators are: (1) following the terms of the plan document related to form and timing of distributions upon death, disability or termination of employment; and (2) monitoring to ensure that checks are cashed and not stale.


FEATURE

PARTY LIKE IT’S 1966A JOYOUS CELEBRATION CAPPED OFF ASPPA’S 50TH ANNIVERSARY YEAR IN GRAND STYLE.

PHOTOGRAPHY: JAMES TKATCH

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The 25 ASPPA Past Presidents in attendance (L-R):1st row: Curtis D. Hamilton (1983), A. David Degann (1984), Howard M. Phillips (1989), Alan J. Stonewall (1990), G. Patrick Byrnes (1991), Ruth F. Frew (1992), Robert E. Guarnera (1993), Stephen R. Kern (1995), Michael E. Callahan (1996), Karen A. Jordan (1998), Carol R. Sears (1999), John P. Parks (2000) and George J. Taylor (2001)2nd row: Craig P. Hoffman (2002), Stephen H. Rosen (2005), Sarah E. Simoneaux (2006), Chris L. Stroud (2007), Sal L. Tripodi (2008), Stephen L. Dobrow (2009), Sheldon H. Smith (2010), Thomas J. Finnegan (2011), Robert M. Richter (2012), Barry Max Levy (2013), David M. Lipkin (2014) and Kyla M. Keck (2015).


In ASPPA Nation, the Sixties were back during the last week of October, if only for three days. The centerpiece of the 2016 ASPPA Annual Conference, held Oct. 23-26 in National Harbor, Md., was a party for 1,000 celebrating the Society’s 50th anniversary.

The Tuesday night gala featured a seated dinner, a Magical Mystery Tour of ASPPA’s five decades conducted by 2009 President Stephen Dobrow, and introduction of the 25 Past Presidents in attendance. The evening was capped off by an electrifying performance by The Beatles tribute band, “Rain.” Here’s a look inside the party. You'll find more photos from the gala on the ASPPA history website, asppa50.org.

Past Presidents Craig P. Hoffman (2002) and George J. Taylor (2001) (L-R).

2009 President Stephen L. Dobrow

hosted a look back at ASPPA’s history.

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ASPPA’s six women Presidents (L-R): Kyla M. Keck (2015), Chris L. Stroud (2007), Sarah E. Simoneaux (2006), Ruth F. Frew (1992), Carol R. Sears (1999) and Karen A. Jordan (1998).

Past Presidents Chris L. Stroud (2007), Sal L. Tripodi (2008) and Sarah E. Simoneaux (2006) (L-R).

Past Presidents Ruth F. Frew (1992), Michael E. Callahan (1996) and G. Patrick Byrnes (1991) (L-R).

Past Presidents John P. Parks (2000) and

Stephen R. Kern (1995) (L-R).

Past President Howard M. Phillips (1989) (L) and wife Carol (standing) are joined by Past President Robert E. Guarnera (1993) and wife Joan.


TBefore choosing a Qualified Automatic Contribution Arrangement, it’s important to understand several administrative issues.

QACAs: A New Four-Letter Word?

BY LISAN ADAMS

he Pension Protection Act of 2006 (PPA) added provisions for automatic contribution arrangements, including Qualified Automatic Contribution

Arrangements (QACAs).1 In 2009, additional guidance was provided on Eligible Automatic Contribution Arrangements (EACAs) and QACA plan requirements.2

A QACA is a design-based safe harbor under Code Sections 401(k) and 401(m). A QACA is deemed to satisfy the actual deferral percentage (ADP) and actual contribution percentage (ACP) tests as long as certain requirements are met, including minimum automatic enrollment and escalation percentages.

When compared to a traditional safe harbor plan design, QACA plans have gained in popularity because of the reduced matching contribution and the ability to have a vesting schedule on the employer contribution. However, there

WORKING WITHPLAN SPONSORS

are a number of administrative complexities that many plan sponsors don’t understand prior to choosing a QACA design over a traditional safe harbor plan design. Let’s take a closer look at some of them.

CONTRIBUTION COSTSBoth a traditional safe harbor

plan and a QACA plan could provide a 3% non-elective contribution to satisfy the required employer contribution. The safe harbor employer contribution must be 100% immediately vested in a traditional safe harbor plan, where the contribution under a QACA plan can apply up to a two-year cliff vesting schedule. Another advantage to the QACA plan design is that forfeitures can be used to offset the safe harbor contribution, which is not allowed in a traditional safe harbor plan.

When a plan sponsor is evaluating a QACA plan design versus a traditional safe harbor plan, a financial analysis should be done to project

what the safe harbor contribution costs would be under each design. While the QACA design has a lesser contribution, adding automatic enrollment and escalation to a plan has proven to increase deferral rates among participants, which could result in a greater contribution requirement.

In addition, the demographics should be reviewed to determine whether the application of a vesting schedule in a QACA plan would generate enough forfeiture to offset that cost. If an employer finds that there is relatively low turnover, the ability to apply a vesting schedule may not provide as much of a financial incentive compared to the administrative requirements.

AUTO ENROLLMENTIn order to qualify as a QACA

safe harbor, the plan must have an automatic enrollment feature that is uniform and meets minimum deferral requirements based on when a participant was first automatically

1 IRC §§ 401(k)13 and 401(m)(12) 2 74 FR 8200

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file is submitted, the deadline could be missed before the participant has an opportunity to make an affirmative election. A plan could consider participant eligibility requirements in order to minimize this burden.

DEFINITION OF COMPENSATION

When considering a QACA plan design, the plan’s definition of compensation should be evaluated. In a QACA, the compensation used for both the safe harbor contribution and elective deferrals must be nondiscriminatory. A traditional safe harbor plan does not have this requirement for elective deferrals. Depending on what is excluded from compensation, compensation ratio testing may need to be performed.

CONCLUSIONA plan sponsor should be aware

of the administrative complexities that are unique to a QACA and what support their plan provider may be able to provide to meet those requirements. Not every plan provider or TPA has the requisite expertise and experience to effectively support this plan design. In the end, the advantages of meeting the QACA definition may enough to overcome those complexities. Without appropriate and prudent oversight, “QACA” could very well become a new four-letter word.

Lisan Adams, ERPA, QPA, is the SVP and Manager of Retirement Plan Services for Heartland Financial USA,

Inc. She is responsible for nationwide strategy and implementation of qualified plan sales and services, involving both bundled and unbundled models.

Retirement Plan Services are offered through Dubuque Bank and Trust, a subsidiary of Heartland Financial USA, Inc. Products offered through RPS are not — unless specifically noted — FDIC insured, are not bank guaranteed, and may lose value.

a full plan year. Using the example above, the participants would be subject to automatic enrollment at 3% if they did not make an affirmative election if they were terminated for more than a full plan year. In order to avoid having to determine whether a rehired participant needs to be subject to automatic enrollment at a higher rate, a plan could consider setting the initial automatic deferral rate to 6% without automatic escalation to meet the minimum deferral requirements.

EMPLOYEE NOTICEEmployers must provide

employees with a notice describing the QACA features and the ability to opt out of the plan or to otherwise modify their deferral rate. The notice must be provided annually to each eligible employee before the beginning of the plan year. For new participants, the notice must be provided within a reasonable amount of time before automatic contributions are made.

COMMENCEMENT OF CONTRIBUTIONS

There are also timing requirements as to when the first automatic contributions need to be made after notice is provided. The regulations outline that default contributions must be made no later than the earlier of the pay date for the second payroll period that begins after the date the notice is provided or the first pay date that occurs at least 30 days after the notice is provided.

This requirement can be difficult to administer for plans that have immediate eligibility and immediate entry or for rehired participants that are immediately eligible upon rehire. This is especially true for participants who have weekly payroll periods that are not paid in arrears. It is important that the plan sponsor understands this requirement and outline how and when participant information is exchanged if the plan provider supports the notice or affirmative election process. If the plan sponsor only exchanges participant information when a payroll

enrolled under a QACA. In addition, each participant that does not have an affirmative election in place must be subject to automatic enrollment.

The minimum initial automatic deferral rate must be at least 3% and escalate to at least 6% by the fourth default period. The maximum percentage that a participant may be escalated to is 10%. The initial default period ends at the end of the plan year following the plan year in which the participant was automatically enrolled. REHIRED PARTICIPANTS

One of the QACA requirements that can be administratively burdensome is how rehired participants who were previously automatically enrolled under the QACA need to be treated.

Under the final regulations, the default treatment is that participants would need to be subject to automatic enrollment at the rate that they would have been at, including any escalations that were missed while they were terminated. This means that participants who left at a 4% automatic deferral rate and missed two escalations while they were terminated would be subject to a 6% automatic deferral rate if they did not make an affirmative election upon rehire.

The regulations do permit a plan document provision that would allow rehired participants to be subject to the initial automatic deferral rate if they did not have default contributions made on their behalf for

Potential Advantages of Meeting the QACA Definition

• Waiver of ADP and/or ACP tests

• Exception to top-heavy rules• Use an automatic contribution

arrangement• Use of higher levels of elective

contributions to qualify for maximum match than in traditional safe harbor plan

• Use of a vesting schedule with safe harbor contributions


In the Fall 2016 issue of Plan Consultant, I addressed the pension professional’s responsibility of courtesy and cooperation under Precept 8 of the American Retirement Association’s Code of Professional Conduct. That article focused on civility in the office, describing how failures of civility hurt employee morale, distort communications, drive away clients and, ultimately, damage a business’s professional reputation. As promised, this article focuses on the positive side of civility, identifying things the employee benefits professional can do to enhance courtesy and cooperation at work.

In any business, the tone is set at the top. An employee benefit professional who wants a civil office must start by carefully examining his or her own attitudes and behavior. This is particularly important if the employee benefits professional is the boss. A supervisor who bullies, throws tantrums, plays

ETHICS

What can pension professionals do to enhance courtesy and cooperation at work?

Civility and Professionalism in the Office, Part 2

BY LAUREN BLOOM

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favorites, discriminates, harasses, gossips or scapegoats has to expect subordinates to follow that lead. If the employee benefit professional sets policy, that’s great. If he or she reports to a superior, the employee benefit professional can still make the case for civility by example, and can advocate for making civility a matter of company policy.

The employee benefit professional needn’t walk on eggshells with colleagues. It’s fine to disagree, offer candid feedback, and discipline subordinates as necessary to protect the business. The trick is to do so courteously, without indulging in shouting, sarcasm or condemnation. People welcome feedback; they just don’t like to be abused.

Once the employee benef it professional has tackled any chronic incivility of his or her own, it’s wise to put a civility policy in place. It’s normally important to let subordinates have a say in what the policy requires. Discussing civility with employees can help management produce a policy that is both instructive and enforceable. Just the act of soliciting input can be a useful training exercise, calling to employees’ attention common incivilities that they might otherwise ignore and helping them recognize how their uncivil actions affect their colleagues. Those discussions can also give management specif ic examples of incivility to use in training, and can also bring to the surface problems in the workplace that hadn’t previously been discovered. Letting employees review and comment on the draft policy before f inalizing it offers an additional opportunity for consensus-building and education.

Once the policy is in place, regular staff training supports it. An annual hour on civility normally won’t suffice. Topics like bullying, harassment, workplace violence, discrimination, teamwork, meeting etiquette, the harmful

One good way to foster civility in the workplace is to make it a component of employee evaluations. Employers already rate for traits like teamwork and customer service that incorporate elements of civility, but specifically identifying and evaluating civility makes its importance clear. Awarding a civility bonus and publicly praising employees for their civility can also help drive the message home. Some employers offer civility awards; one even handed out superhero capes to especially civil employees. Such games can be great fun, so long as the importance of civility isn’t accidentally trivialized.

In addition to fostering civility within the office, management should protect employees from the incivility of third parties. Clients and vendors may view lower-level staff as ripe targets for bad behavior that should be directed at management (if at all). But incivility is never pleasant, and is often illegal. The employee benefits professional who fails to speak up, politely but firmly, when a subordinate is abused by a client or vendor may not intend to reinforce the abuse, is courting trouble.

Author Dwight Currie wrote, “We have a choice about how we behave, and that means we have the choice to opt for civility and grace.” The employee benefits professional is wise to make that choice.

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.

effects of gossip, customer service and third-party relationships all offer opportunities to talk about management’s expectations around civility. Using examples from the policy drafting process can make training more effective.

These days, it’s crucial to train employees about the importance of civility online. The Internet can be a cesspool of incivility, and less savvy workers may not appreciate how their behavior online can damage their professional reputations. Teaching employees that courtesy and professionalism are just as essential in emails, blogs and social media posts as they are on the phone or in person can do a lot to protect a business’s reputation.

Once the civility policy is in place and training is under way, fair enforcement becomes critical. Management shouldn’t play favorites, allowing the company’s superstars to be obnoxious while demanding better behavior from the rank and file. Stress, “busy-ness” and looming deadlines shouldn’t be accepted as excuses for incivility, either. Employees should understand that civility counts, perhaps even more when the going gets tough.

Still, it’s probably not a good idea to take a “zero tolerance” approach. Even the best of us can behave less than perfectly now and then. An unduly rigid civility policy can tie management’s hands and confuse employees who are unable to distinguish between a requirement to act professionally and top-down insistence on “political correctness.” Uncivil actions that break the law such as discrimination, violence and sexual harassment can and should be grounds for immediate termination. Lesser incivilities, however, may be better handled with progressive discipline — verbal or written warnings, anger management training, improvement plans and the like — that allows the offending employee to learn from the mistake and do better thereafter.


Third party administrators are, at their core, all about service. It’s their bread and butter, their raison d’etre. So while any employer seeks and values engaged employees, they are even more desirable for service providers, since their commitment and energy spell better service for clients. And in the process, of course, a better bottom line.

Like any employer, there are different ways in which a TPA can build an engaged workforce. One of them is to give employees a stake in the enterprise via employee ownership and an employee stock ownership plan (ESOP). Another way: Be part of a multiple employer plan (MEP). Here’s a look at two TPAs that chose those two paths.

ESOPAccording to the National Center for Employee Ownership (NCEO), the

majority of the nation's 4,000 employee-owned companies have ESOPs. The NCEO estimates that as of 2015:• there were approximately 7,000 ESOPs covering 13.5 million employees;• up to 5 million employees participate in 401(k) plans primarily invested in an

employer’s stock;• approximately 11 million employees buy shares in their employers through

ESOPs; and • around 28 million employees participate in some kind of employee

BUSINESS PRACTICES

Two Paths to SuccessTwo TPAs’ ownership arrangements paid off in engaged employees and better service.

BY JOHN IEKEL

61WWW.ASPPA-NET.ORG

the seed that became Pentegra Retirement Services.”

Pentegra itself is “100% owned by a $3.2 billion multiple employer defined benefit plan,” according to Swisher, and is “a for-profit corporation that is a wholly owned asset of a DB MEP.”

Pentegra’s reason for being, and the way it functions, also serve Pentegra itself — and in a happy circle, in the process boost its efforts to serve its clients. “Our history, our ownership structure, our governance by a volunteer board made up of our customers, and the ethos that this creates are incredibly meaningful to us. It helps us attract great people,” says Swisher.

And like TSC, Pentegra also has realized a positive effect on its broader mission. Reports Swisher, “Our unique structure gives employees confidence about why we come to work — we have a mandate from above to do great work at a reasonable price. Our owners want great service, first and foremost.”

and culture of the organization that does have an impact on our overall performance as a company and service level to our clients,” he says.

The benefits of TSC’s ESOP are not limited to serving its clients, according to Slyter. He reports that it benefits the company, too. For instance, he says that it is an effective tool in recruiting and retaining employees. “It’s a great story to tell in an interview and ongoing employees love to see their account and the company’s value rise,” says Slyter.

It’s been good for employees who are already on board as well, according to Slyter. He says that the response to the ESOP is “very positive.” More important, Slyter says “Having an ESOP has fostered a work culture that is very supportive of each other and engaged in doing a great job for our clients.”

And, says Slyter, TSC’s ESOP has been an effective means to transfer ownership to employees. “It’s like having a built-in successor plan. Coming up with equity to buy the business is a non-factor anymore as the ESOP solves for that. The trick is identifying key personnel that can take over the company when current leadership retires. That has gone well for us,” he says.

MEP OWNERSHIPMultiple employer plans (MEPs)

— single plans utilized by two or more employers — are a means used especially by trade associations and professional employee organizations to provide employees with opportunities to invest for retirement like those available to employees of large companies. Pentegra, another TPA, is part of an MEP.

Pete Swisher, Pentegra’s national sales director, notes that when the firm was established in 1943, “there was no pension industry, and very few pensions. The Federal Home Loan Bank wanted a retirement program for employees, and we were created to provide it. The original employees of this defined benefit MEP were

ownership plan. One TPA that provides an ESOP

is TSC, a TPA based in Edina, Minn. TSC established its ESOP in 1997. The firm conceives of ESOPs as means to invest primarily in the stock of the ESOP sponsor, and notes that ESOPs are often used to help with buyouts or successor management. And according to Matthew H. Slyter, TSC’s VP of operations, that was why TSC originally created one for itself. “The primary reason was to buy out the founder of the business,” says Slyter.

But TSC also believes that ESOPs are a way to establish an “ownership culture.” Slyter reports that TSC’s ESOP offers a way for employees to share in that ownership. “It’s an employer contribution-funded plan exclusively,” he reports.

TSC’s website says that as an employee-owned company, it is “committed to establishing a long-term relationship with each of our clients and to providing every client with the personalized service and year-after-year reliability that they have come to expect.”

So how does TSC’s ESOP figure in meeting that commitment? Slyter reports that TSC succeeded in seeking to establish a way to tap employee potential. The ESOP “does significantly contribute to the spirit

About TSC • Founded in 1966

• Provides clients throughout the United States with expert consulting, plan design and administration solutions

• Has grown to almost 50 employees

• Serves more than 1,500 clients

• Plans it works with include: 401(k) plans, profit sharing plans, 403(b) plans, defined benefit plans, cash balance plans, ESOPs and governmental 457(b) plans

About Pentegra • Founded in 1943 by the

Federal Home Loan Bank (FHLB) system to administer the Savings Association Retirement Fund, a pension trust

• A companion program, the Savings Institutions Thrift Plan, was established in 1970

• Became known as the Financial Institutions Retirement Fund and the Financial Institutions Thrift Plan in 1982

• Serves as an institutional fiduciary

• Devises individual client solutions

• Has more than 100 clients that have used its services for more than 30 years.


Cmyfitnesspal» myfitnesspal.com

ompliance/5500/tax season got you feeling a little soft around the midsection? Me too! Nutrition and exercise are vital during this stressful time of year being overly sugared

and caffeinated to meet tight deadlines.

I needed to get on track quickly, so I added the myfitnesspal app to my iPhone.

Start by entering your beginning stats and setting a goal to track progress as well as setting reminders for meal times and weigh-ins. Invite a few friends to

share in your glory/misery and make use of the unique challenges designed to push your nutrition and exercise horizons.

One of the key features of the app is the extensive nutritional database. The user has access to menu items from many chain restaurants and saved

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Work Smarter by

Leveraging Cheap

Technology

E

BY YA N NI S K OU M A N TA R O S A N D J J M CK IN N E Y

TECHNOLOGY

Ibotta» Ibotta.com > 01

ver since 408(b)(2), I have had to resort to couponing, Grouponing and Living Social to keep my family fed, dressed, and functioning. Enter Ibotta, the “I don’t have to maintain the Costanza coupon wallet; $#!{} that one just expired! and am I applying

to graduate school or a cash rebate on these tires?” app.Download the app to your mobile device. It works best if

you make a list or at least know what you need to purchase before walking into a store or shopping online. Ibotta, Inc., a Denver-based company, claims to provide cash back on purchases at an astounding 500,000-plus stores and restaurants. The app allows you to know where the rebates are beforehand and receive cash back within 24 hours of submitting purchase details.

Use Ibotta to locate the needed items and rebates,

purchase said items, verify purchases by taking a photo of the receipt, scanning bar codes and submitting through Ibotta, and receive cash into your Ibotta account within 24 hours.

Other features include linking your store loyalty accounts to Ibotta and build on further discounts, fuel points and any other frequent frenzies available through your favorite stores. Cash back through the loyalty program will also be collected through Ibotta but takes up to 48 hours… patience. Convert your cash back to gift cards or accounts like PayPal once you have accumulated at least $20 in your Ibotta account. “Featured” products earn bonus cash and you can invite friends or create teams to enhance the experience.

Disclaimer: Your best results come from using the app on products or services you were going to buy in the first place.

63WWW.ASPPA-NET.ORG

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.

JJ McKinney, CPC, QPA, QKA, ERPA, is a shareholder with Retirement Strategies, Inc. in Augusta, Georgia. He is a frequent speaker, a compulsive editor, and loves to pension geek out at www.rsi401k.com.

UUber EATS» ubereats.com

ber is a beast. They have completely overhauled the previously inefficient town car and taxi industries, utilizing geo-based

technology, smartphones and urgency-based demand to create a $25 billion industry. Just when you thought the company had peaked, they launched a brilliant concept: What else can we do with a network of millions of drivers nationwide while they wait to pick up a ride for a fare? How about go pick up a

carry out order from a local restaurant and deliver it to the customer?

The Uber EATS concept just launched in select cities, including my home base of Seattle. What is truly remarkable about this concept is it has allowed small restaurants without the overhead to support delivery to sign up with Uber EATS and start offering delivery. I have heard the commission rate is around 35% of the restaurant sales price, but it takes care of the driver, restaurant, tip and tax, completely paperless with no

cash exchanged.Also, Uber EATS links to your

personal or business Uber accounts, and shows you how far away your courier is. They are still working out some logistical kinks, and for safety reasons they only do curbside pickup — which can be difficult in Seattle, where it rains 75% of the time. However, I love buying and eating local. Expect the major pizza delivery firms to be very threatened, as this will take market share from traditional food delivery services.

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TTaskRabbit» taskrabbit.com

he point of utilizing cheap technology is to get more time back in your life. That is really the most precious resource we all have: our time.

Many loyal readers of this column have benefitted from more than 40 different tech tools that do precisely that. Since the retirement plan industry is all about streamlining processes, costs and operational efficiencies, we could all use a little bit of household task outsourcing in our lives.

Enter TaskRabbit. This Boston-

based company is no start-up; it has been around since the early 2000s. TaskRabbit is currently in more than 20 major U.S. markets, and recently landed some equity funding to assist in a larger expansion effort. The concept is very simple: Think Uber for your home life. Log onto the site, confirm your metropolitan area, and start searching. Task Rabbits can come to your home, (insured, background checked and vetted) and help with any and all major household tasks: moving, cleaning, landscaping, handyman tasks, basic

electrical, construction and more.This company is really experiencing

tremendous growth because (like Uber) they essentially connect the consumer with the tasker. The most difficult part of hiring a handyman or general tasker online is the lack of availability, ease of scheduling and vetting process. With TaskRabbit, all the tough work is done by the company, so you can just sit back and watch them work on your home. The best part is that like the Uber concept, all payments are done online, secure and no cash is ever exchanged (tip, tax, included).

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63WWW.ASPPA-NET.ORG

recipes from other users. Depending on the extent of the entry the user can have complete nutritional facts for each meal entered. Other online food journals can be cumbersome without the convenience of a well-developed database.

When your phone is with you, myfitnesspal does a good job of tracking

steps, in addition to strength and cardio exercises from the database of exercise/calorie burn options.

Exercise and nutrition blogs post throughout the day on your dashboard, and the ads are unobtrusive.

Also, since Under Armour, Inc. owns the app, the user has a direct link to

shop for fitness gear.The premium version offers an ad-

free and more personalized progress tracking experience with exclusive content for $10 per month or $50 if paying for a full year.


Skip New 5500 Questions for 2016, IRS SaysDéjà vu: the questions in the 2016 Form 5500 Series may be skipped — again.

As I discussed in a prior column, the IRS proposed a number of new compliance questions that

would have been effective for the 2015 Form 5500. ASPPA’s Government Affairs Committee (GAC) has filed a very detailed comment letter that suggested a number of the ways the questions could be modified to lessen the burden and improve the data that would be collected. Of most importance was our recommendation that the new questions be delayed, ideally to be incorporated into the next major update to modernize the form under a DOL “modernization” initiative. As the letter pointed out, “Given the enormity of the data collection required for the [new questions], and the systems changes that are inevitably linked to the capture of such data for reporting purposes, service providers need adequate time to put in place sufficient mechanisms to respond to this initiative.”

The IRS then filed the proposed changes with the Office of Management and Budget (OMB), as required by the federal Paperwork Reduction Act. ASPPA GAC filed a comment letter and had a formal meeting with OMB in which we reiterated our belief that the costs and burdens would be greatly reduced if these changes were delayed. OMB ultimately approved the new questions in the spring of 2016, but by then the IRS had announced that the questions should be skipped in completing the 2015 forms.

And then it was déjà vu all over again as the IRS refiled the questions with OMB in the spring of

2016 with the intention of making them effective for the 2016 Form 5500. Once again, ASPPA GAC filed a comment letter with OMB recommending the new questions be delayed and integrated into the comprehensive “modernization” effort being spearheaded by the DOL. Additionally, many ASPPA members wrote individual letters to OMB reinforcing our recommendation with regard to incorporating the new questions into the broader modernization effort.

On Oct. 3, 2016, the OMB approved the new questions but “with change.” The official OMB filing specifically provided that, “Treasury/IRS must coordinate approval of any future renewal or revision to this collection with DOL and PBGC. Treasury, DOL, and PBGC should seek approval of any revisions or renewals at the same time, so as to minimize any confusion to the public.”

It appears that the OMB instruction was taken to heart by IRS. A short time later, the “5500 Corner” webpage on the IRS Employee Plans Division website was updated to instruct plan sponsors to once again skip the new compliance questions for 2016. As a result of this decision by the IRS, plan sponsors should not answer the following questions when completing the 2015 and 2016 forms:

FORM 5500• Preparer Information (page 1

bottom)

SCHEDULE H • 2015 plan year: Lines 4o-p, 6a-d

• 2016 plan year: Lines 4o, 6a-d

SCHEDULE I • 2015 plan year: Lines 4o-p, 6a-d• 2016 plan year: Lines 4o, 6a-d

SCHEDULE R • 2015 plan year: New Part VII (Line

20a-c, 21a-d, and 23• 2016 plan year: Part VII (Lines 20a-

b, 21a-b, and 22a-b)

FORM 5500-SF• 2015 plan year: Preparer Information

(page 1 bottom), Lines 10j, 14a-d, and New Part IX (Lines 15a-c, 16a-b, 17a-d, 18, 19 and 20)

• 2016 plan year: Preparer Information (page 1 bottom), Lines 10j, 14a-d, and Part IX (Lines 15a-b, 16a-b, 17a-b, 18 and 19)

FORM 5500-EZ• 2015 plan year: Preparer Information

(page 2 bottom), Lines 4a-d, 13a-d, 14, 15 and 16

Needless to say, it is good news that these questions will be delayed. I believe it is likely the IRS will now implement the new questions as part of the comprehensive “modernization” proposal hat was released in July 2016 and proposed to be effective for the 2019 plan year.

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

GAC UpdateBY CRAIG P. HOFFMAN

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Our dedicated resources and flexible solutions help you take care of past retirement plan participants while reducing plan expenses in 3 easy steps. Simply sign a Service Agreement, send us the participant information, and transfer funds to Millennium Trust to establish an IRA.

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