Managing 401(K) Plans

The complexities of operating a 401(k) plan are many and growing. As a result, plan sponsors are increasingly reaching out for help to understand and comply with the new rules spelled out in the Pension Protection Act of 2006 (PPA).

Without question, two tasks dominate those that 401(k) plan sponsors handle in-house: selecting, hiring, and firing service providers and fee oversight, reveals IOMA’s 2007 401(k) Plans Cost Survey. Specifically, 74 percent of survey respondents said they handle the selecting, hiring, and firing of service providers in-house and 60 percent said they do the same with fee oversight (see Table 1).

Plan sponsors struggling with the specifics of instituting 401(k) auto pilot programs will be pleased to know that a high deferral rate is not necessarily a deterrent to plan participation. So found MassMutual Retirement Services in a white paper on the best practices regarding automatic features in 401(k) plans. Entitled Automation: 3 Steps to High Performance, the white paper outlines important criteria that plan sponsors should consider when evaluating the adoption of automatic plan features, such as automatic enrollment, automatic deferral increases, and automatic asset allocation.

The Department of Labor recently made its opinion known once again that plan fiduciaries are responsible for ensuring that plan fees are reasonable. This time, Secretary of Labor Elaine L. Chao filed an amicus brief in the case of Heeker v. Deere & Co., asking the U.S. Court of Appeals for the Seventh Circuit to overturn a federal trial court’s dismissal of a lawsuit by 401(k) plan participants who alleged the plan’s fiduciaries breached their duties by paying excessive and unreasonable fees to the plan’s service providers.

RETIREMENT & PENSION PLAN MANAGEMENT CONFERENCE, Boston, May 6-9; and Chicago, Oct. 14-17. Contact: Registrar, University Conference Services, 800-864-2063; fax: 919-558-8845, www.ucs-edu.net.

Despite their appearance of simplicity, age-based and risk-based funds require careful selection and monitoring by plan sponsors that want to use them as a qualified default investment alternative, portfolio manager Mark Fortier said during a session of the recent American Society of Pension Professionals & Actuaries (ASPPA) 401(k) Summit 2008.

How to Make Sure Your 401(k) Communications Keep You Out of Court

Bear Stearns Hit With Three Class Actions FOLLOWING JPMorgan Purchase of Brokerage An Employee Retirement Income Security Act class action suit, Weber v. Bear Stearns Cos., filed March 18, is the second by a Bear Stearns Co. employee alleging that breaches by company employee stock ownership plan fiduciaries have caused employees to lose hundreds of millions of dollars in retirement savings—bringing to three the number of class actions filed against the investment bank.

Domestic stock indices across the board fell again in March 2008. Worst hit was the Wilshire 5000 Equal that posted a loss of -3.01 percent. Foreign indices fell as well with the international MS EAFE yielding a negative 1 percent. Looking at yields over the long term, the barometer by which retirement holdings should be judged, domestic stocks were a mixed bag over the past 10- and seven-year periods, but did well over the five- and three-year periods. But diversification to limit overall risk is needed. Over the 10-, seven-, three-, and one-year periods, five-year Treasuries outperformed bonds and five-year GICs. Over the five-year period, five-year GICs took the lead.