1. What are safe harbor plans? Safe harbor plans are retirement plans that generally satisfy the non-discrimination rules for elective deferrals and employer matching contributions and therefore are appealing to organizations that are at risk of failing the ADP and ACP tests (see below). Safe harbor plans can be offered with the same flexible features as traditional retirement plans, including eligibility, participant loans, and distributions. However, employers must satisfy certain contribution, vesting, and notice requirements and employers may not apply allocation conditions to safe harbor contributions (e.g., last day of employment requirement, 1,000 hours in the year requirement, etc.). 2. What is non-discrimination testing? Generally, the U.S. Government wants to ensure that plans do not favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs). The government established required compliance tests to verify all employees have fair representation in a...

1. What is a Qualified Default Investment Alternative (QDIA)? The Pension Protection Act of 2006 (PPA) encouraged employers to adopt automatic enrollment features for their participant‐directed plans by providing a new type of fiduciary liability relief for “default investments,” or Qualified Default Investment Alternatives (QDIAs). A QDIA is used when a participant fails to make his or her own election. An investment must have specific qualifications to be considered a QDIA. Importantly, a QDIA’s asset allocation strategy need only take into account participant age, and does not need to consider an individual participant’s risk tolerance or other investment assets. One of four types of allowable QDIA’s, Target Date Funds (TDFs) were the QDIA in 95% of retirement plans in 2015 (Source: Vanguard, 2016). 2. What due diligence should plan fiduciaries perform when choosing a TDF? Target Date Funds were among the four types of investments given QDIA status in 2006 by the PPA. Plan fiduciari...

1. What is an Automatic Enrollment Arrangement? Traditionally, defined contribution retirement plans have required employees to affirmatively choose to save money in the plan through salary deferral. Today’s plans that adopt automatic enrollment are encouraging employees to save by making salary deferral the default, requiring them to opt-out or choose not to contribute to the plan 2. What are the different types of Automatic Enrollment Arrangements? Arrangement Type Features – Must be stated in the Plan Document and timely communicated to employees Basic Automatic Enrollment Employees will be auto enrolled unless they opt-out. Specifies the percentage of an employee’s wages that will be automatically deducted. Employees may choose not to withhold salary deferrals, or to elect a different percentage to be withheld. Eligible Automatic Contribution Arrangement Similar to the Basic Automatic Enrollment, but has specific notice requirements. An EACA can allow automatically enrolled partic...

1. What is a Roth? According to the  2015 PLANSPONSOR Defined Contribution Survey , 62% of all defined contribution plans, across multiple industries now offer a Roth feature. Among 403(b) plans, 54.7% have adopted this popular design feature. A Roth is not a separate retirement plan, but simply an additional source of contributions accepted by the plan and record-kept separately so the rules applicable to Roth contributions can be followed. Once adopted, plan sponsors must give participants an opportunity at least once per plan year to make designated Roth contributions. The basic difference between a traditional 401(k) or 403(b) and a Roth is when a participant pays taxes. Within a traditional 401(k) or 403(b), participants make contributions with pre-tax dollars, and receive a tax break up front, effectively lowering their current income tax bill. Their contributions and earnings grow tax-deferred until they take a distribution. At that time, withdrawals are considered to be ord...

HANYS Benefit Services’ 2016 Employee Benefits Survey, Understanding the Strategic Value of Health Benefits , highlights the need to take a multi-faceted approach when designing a cost-efficient and competitive benefits package. A benefits package must be structured in a way that is competitive and controls costs, without shortchanging employee health and wellbeing. To achieve this delicate balance, employers are increasingly seeking guidance on compliance and plan design. “This survey helped call to attention the increasingly complex circumstances under which employee benefit plans are constructed,” said James J. Kelley, President, HANYS Benefit Services. “Employers still need to design plans that are cost effective without a negative impact on recruitment or retention of key employees. The message is clear that the best way to accomplish this goal is to use creative strategies and seek professional guidance on regulations.” Key takeaways from the 2016 HBS survey : Employee benefit r...

Register for our live webinar: Retirement Plan Law Suits on the Rise A number of prestigious colleges and universities, including several Ivy League schools, have recently appeared in the headlines as defendants in class action lawsuits relative to their retirement plans. Starting in 2006, the law firm of Schlichter, Bogard and Denton filed a bevy of lawsuits against corporate giants relative to the 401(k) plans sponsored by each corporation. A common thread through all of the suits was excessive fees, but the overarching theme was the alleged failure on the part of the plan fiduciaries to fulfill their fiduciary responsibilities and obligations. Settlements have been reached in several of the suits, resulting in settlement amounts in the tens of millions of dollars. Lawyers on behalf of retirement plan participants are now setting their sights on non-profit institutions, including one hospital in New York. This is a wake-up call to all non-profit organizations to make sure their retir...

A retirement plan’s overarching goals are to help participants accumulate wealth during their years of employment and to provide them with income during their retirement. The challenge for fiduciaries is to successfully navigate the options available and build an optimal investment menu that is designed to guide participant choices and improve their retirement readiness. Since plan fiduciaries may be exposed to personal liability, it is prudent to have a process in place for the selection and monitoring of investment options. HANYS Benefit Services has outlined a four-step process for constructing an optimal investment menu that: fosters ERISA compliance; provides desirable investment choices for plan participants; and impacts retirement outcomes. Read  4 Steps to Building an Optimal Retirement Plan Lineup for Participants  to learn more. If you have any questions, or would like to begin talking to a retirement plan advisor, please get in touch by calling (800) 388-1963 or e-m...