full disclosure: the impact of the final 408(b)(2 ... consultant... · full disclosure: the impact...

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

sUMMER 2012

Full Disclosure: The Impact of the Final 408(b)(2) Regulation on TPAsJoseph C. Faucher, Bruce L. Ashton, APM, and Fred Reish, APM

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1www.asppa.org/pcCover: Illustration by Kelly Bowse

Summer 2012

COVER STORY

departments

09 The ASPPA 401(k) SUMMIT: A Success that Bears Repeating

12 ASPPA Volunteers Help Rebuild New Orleans

39 ASPPA Annual Business Meeting

62 Advocating for ASPPA Members

63 ASPPA Calendar of Events

64 Welcome New and Recently Credentialed Members

Full Disclosure: The Impact of the Final 408(b)(2) Regulation on TPAs

The world is changing, and not just the 401(k) world. We begin with a look at global trends affecting the pension system and conclude with selected predictions and strategy responses.

By Joseph C. Faucher, Bruce L. Ashton, APM, and Fred Reish, APM

1804 From the Chair

06 From the President

14 Legislative Update

Contents

ASPPA in ACTION

2 Plan Consultant | suMMER 2012

Technical Articles Practice Management Articles

42 Now’s the Time for a Mid-Year Marketing Tune-Up Barbara Lewis

46 A Current Roadmap to Pre-Approved Defined Contribution Plans Susan Diehl

52 Errors and Omissions: What to Do When You’ve Made a Mistake Lauren Bloom

54 Target-Date Funds: Specialized Advisory Tools Required Steve Athanassie

58 Simian Surveys and Other Pursuits Yannis Koumantaros Adam Pozek

60 FINRA’s Guide to Professional Credentials Is Worth Following Sarah Simoneaux

26 The Top Five Reasons to Favor Electronic Disclosure Peter Swire Kenesa Ahmad

30 Are You a Self-Proclaimed or a Recognized Expert? Part 2 David Witz

36 Correcting Plan Errors: A Step-By-Step Guide Gary Blachman Bret Clark

42

Published by

Editor in ChiefBrian H. Graff, Esq., APM

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

James T. Comer, III Krisy M. Dempewolf, CPC, QPA, QKA

John Feldt, CPC, QPAJohn Frisvold, QPA, QKA

Catherine J. Gianotto, QPA, QKA William C. Grossman, QPA

Ronald A. Hayunga, QKA, QPFCBarry Kozak

Michelle C. Miller, QKANorman F. Pierce, QPFC

David A. Pitts, MSPADavid J. Witz

EditorSteven F. Sullivan

Production Manager and Associate EditorTroy L. Cornett

Technical Review BoardMichael Cohen-Greenberg

Barry KozakMarjorie R. Martin, MSPARobert M. Richter, APM

Nicholas L. Saakvitne, APM

Advertising SalesJeff HoffmanFred Ullman

Design and LayoutNickolena Sidler

ASPPA Officers

PresidentRobert M. Richter, APM

President-ElectBarry Max Levy, QKA

Senior Vice PresidentDavid M. Lipkin, MSPA

Vice PresidentRichard A. Hochman, APM

Vice PresidentAdam C. Pozek, QPA, QKA, QPFC

TreasurerRobert L. Long, APM

SecretaryKyla M. Keck, CPC, QPA, QKA

Immediate Past PresidentThomas J. Finnegan, MSPA, CPC, QPA

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

2012. 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.

Contents

Actuarial Foundation

DO YOU KNOW WHICH ORGANIZATION PROVIDESEDUCATION TO MILLIONS OF AMERICANS?


From the ChairPC

By Mary L. Patch, QKA, QPFC

The Wonders of Technology

instead of a GPS. I’ve become fixated on new “applications” that might simplify my life even further. I use Conference Pad to hold a meeting on multiple iPads, iAnnotate.pdf and GoodReader to edit and email revisions to Adobe documents, Notes Plus to write notes from my meetings, and Pandora to customize my listening pleasures. The work I once performed over a few hours, I can now effortlessly complete in a few minutes.

When I look to the future, I can’t help but wish for technology that will walk my dog, take out the trash, pick up my dry cleaning, and cook a tasty meal for dinner. I count down the minutes until there’s an application to clean the dust bunnies from under the couch and help the dishes find their way into the dishwasher. They should also invent one that mows the lawn, shovels the snow, and accurately predicts the weather.

Technology has become a close friend, one I can rely upon to improve my quality of life and continually challenge my mind. Because of technology, I’m no longer waiting for a dial-up connection to look for a restaurant, getting lost because my map didn’t provide me enough detail, or searching for a quarter to use a pay phone to let someone know I’ll be late. It’s helped me take back those lost minutes and allowed me to focus on what’s most important in my life—family and friends.

Mary L. Patch, QKA, QPFC, is director of retirement plan services with Trademark Capital in New Port Richey, Fla. She is also chair of the Plan Consultant Committee.

worked for was selling its old 286 machines to upgrade, so we were allowed to purchase them for a reduced price. I remember how excited I was to set up the computer in my home. Solitaire and Black Jack became my after-hours fixation as I tried to beat the dealer with every hand. I was more than happy to pay for AOL dial-up service and didn’t mind the speed at which I could access web pages. It was an amazing feeling to have a world of information at my fingertips—no matter the cost or the access speed.

When the laptop, the GPS, and the cell phone arrived, I officially became mobile. I was able to search the Internet from anywhere, drive to an appointment without issue, and call someone if I was running just a bit behind. When I look back at the efficiency these tools provided, I wonder how I ever survived without them. When any one of these items no longer worked, I was quick to replace it with a new version and marveled at the improvement in the new or updated technology.

Fast-forward to today. I have an iPad instead of a laptop, a cell phone

According to the Oxford English Dictionary, the word “technology” originated from the Greek words téchn, meaning “art, skill, craft,” and logía, meaning “the study of.” From the invention of the wheel to the development of the iPad, we continue to push the boundaries of technology. We study and devise ways to add efficiency to our daily lives, simplifying even the easiest tasks—all with just the push of a button.

Technology has evolved tremendously over my lifetime. Computers once housed data on floppy disks and printed documents to dot matrix printers. We never owned one in our household; they were too expensive, and with seven kids, it was a low priority. If I had a free period in school, the highlight of my day was surviving the “Oregon Trail” game in the computer lab. Making my way across the Wild West in a covered wagon became an obsession. I’d sign up and wait my turn, hoping typhoid or some other disease would kill off the students ahead of me so I’d have my chance to play.

I remember the day I bought my first computer. The company I

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WE BELIEVE YOUR CLIENTSDESERVE A BETTER RETIREMENT PLAN.

WHAT CAN WE MAKE WITH YOU?

* Transamer ica Ret i rement Ser v ices received 93 “Bes t in C lass” ra t ings in Chatham’s 2011 Analys is . Chatham Par tners , LLC is an independent , th i rd par t y research f i rm. Ques t ions were ra ted on a 7-poin t sca le wi th “6” and “7” represent ing the highes t levels o f sat is fac t ion. A bes t in c lass ra t ing was received when at leas t 85 percent o f the respondents se lec ted a “6” or “7” fo r a speci f ic a rea . The Chatham Par tners’ 2011 C l ien t Sat is fac t ion Ana lys is Sur vey repor t is based on 754 c l ien t responses Resul t s may var y based on the employer ’s par t icu la r s i tua t ion and o ther fac tors .Transamer ica or Transamer ica Ret i rement Ser v ices re fers to Transamer ica Ret i rement Ser v ices Corporat ion, which is headquar tered in Los Angeles, CA . TRSC 6186-0612

Which is why we’re committed to working with Third Party Administrators to provide top-quality retirement plan services and

solutions. Don’t just take our word for it: Transamerica received 93 “Best in Class” ratings in the Chatham Partners’ 2011 Client

Satisfaction Analysis, outperforming Chatham’s proprietary benchmark in all 23 categories.* We are the Tomorrow Makers.SM

Please give us a call at (888) 401-5826 Monday through Friday 9 a.m. to 7 p.m. Eastern Time, or visit us online at www.TA-Retirement.com

HEAD: “WE BELIEVE YOUR CLIENTS DESERVE A BETTER RETIREMENT PLAN.”

SPECS: 4/C, FP BleedBLEED: 8.75" x 5.6875"TRIM: 8.5" x 5.4375"

PUB: Plan Consultant Magazine (ASPPA-parent company)DATE: June 2012

TA_11023R1_CON_8.5x5.4375_Plan SponsorR3.indd 1 5/31/12 1:04 PM

From the presidentPC

By Robert M. Richter, Esq., APM

What’s in anacronym?

NTSAA National Tax Sheltered Accounts AssociationNTSAA was formed in 1989 and became a semi-autonomous unit within ASPPA in 2009. NTSAA provides education, resources, advocacy, and a professional networking forum dedicated to the 403(b) and 457 plans marketplace. Any ASPPA member may join NTSAA.

NAPA National Association of Plan AdvisorsNAPA, another semi-autonomous unit within ASPPA, was started this year. It provides education, resources, advocacy, and a professional networking forum focused on retirement plan investment advisors. Membership is open to any retirement industry professional interested in plan advisor issues.

APAPA ASPPA Plan Administrators Policy AllianceAPAPA consists of representatives from administrative firms. It allows member firms to share common concerns and become more politically active in preserving the private pension system.

CIKR The Council of Independent 401(k) RecordkeepersCIKR’s member firms are primarily in the business of providing retirement plan recordkeeping services (as compared to the business of selling investments).

ACOPA ASPPA College of Pension ActuariesACOPA is a semi-autonomous unit within ASPPA that consists of all credentialed actuary members of ASPPA. ACOPA is one of the five recognized U.S.-based actuarial organizations.

ABCs ASPPA Benefits Councils ABCs are local benefits groups and serve as a professional resource for local retirement personnel. Attending participant can earn CPE credit, keep up to date with the marketplace, and network.

Our love of acronyms isn’t new. ERISA, TEFRA, DEFRA, REA, etc. roll off the tongue and make it easier to communicate the mouthfuls they represent. (Who was asleep at the wheel when Congress passed JCWA or WRERA?)

ASPPA has its own arsenal of acronyms. Let’s start with ASPPA. ASPPA was founded in 1966 as the American Society of Pension Actuaries (ASPA). In 2004 our name was changed to reflect our diversified membership, which includes all types of pension professionals. Our other professional groups include:

7www.asppa.org/pc

Transamerica

WE BELIEVE YOUR CLIENTSDESERVE A BETTER RETIREMENT PLAN.

WHAT CAN WE MAKE WITH YOU?

* Transamer ica Ret i rement Ser v ices received 93 “Bes t in C lass” ra t ings in Chatham’s 2011 Analys is . Chatham Par tners , LLC is an independent , th i rd par t y research f i rm. Ques t ions were ra ted on a 7-poin t sca le wi th “6” and “7” represent ing the highes t levels o f sat is fac t ion. A bes t in c lass ra t ing was received when at leas t 85 percent o f the respondents se lec ted a “6” or “7” fo r a speci f ic a rea . The Chatham Par tners’ 2011 C l ien t Sat is fac t ion Ana lys is Sur vey repor t is based on 754 c l ien t responses Resul t s may var y based on the employer ’s par t icu la r s i tua t ion and o ther fac tors .Transamer ica or Transamer ica Ret i rement Ser v ices re fers to Transamer ica Ret i rement Ser v ices Corporat ion, which is headquar tered in Los Angeles, CA . TRSC 6186-0612

Which is why we’re committed to working with Third Party Administrators to provide top-quality retirement plan services and

solutions. Don’t just take our word for it: Transamerica received 93 “Best in Class” ratings in the Chatham Partners’ 2011 Client

Satisfaction Analysis, outperforming Chatham’s proprietary benchmark in all 23 categories.* We are the Tomorrow Makers.SM

Please give us a call at (888) 401-5826 Monday through Friday 9 a.m. to 7 p.m. Eastern Time, or visit us online at www.TA-Retirement.com

HEAD: “WE BELIEVE YOUR CLIENTS DESERVE A BETTER RETIREMENT PLAN.”

SPECS: 4/C, FP BleedBLEED: 8.75" x 5.6875"TRIM: 8.5" x 5.4375"

PUB: Plan Consultant Magazine (ASPPA-parent company)DATE: June 2012

TA_11023R1_CON_8.5x5.4375_Plan SponsorR3.indd 1 5/31/12 1:04 PM

From the president PC

Research FoundationPERF is a nonprofit charitable foundation ASPPA established to foster excellence in pension education and to promote scholarly research in the pension field. PERF provides endowments to educational institutions for scholarships in actuarial science, sponsors the development of educational materials and texts, and makes grants approved projects. PERF also sponsors the Martin Rosenberg Academic Achievement Award for top-performing candidates on credential examinations and the Ed Burrows Memorial Fund (used to sponsor or co-sponsor events that examine focused topics concerning National Retirement Income Security).

Robert M. Richter, Esq., APM, is vice president of SunGard Relius in Jacksonville, Fla. He is also the current president of ASPPA.

sure our ideas and philosophies are widely heard and understood. Political contributions to the ASPPA PAC, not ASPPA itself, allow us to support lawmakers who support the employer-based retirement savings system.

CEFEX The Centre for Fiduciary Excellence (CEFEX)CEFEX is not part of ASPPA, but it does deliver and administer ASPPA’s Certification for Service Provider Excellence. This certification program was developed to recognize firms providing recordkeeping and/or administration services to retirement plans that adhere to a standard of excellence and a dedication to best practices.

PERF Pension Education and

The following are not membership type groups, but are part of, or closely related to, ASPPA.

AIRE American Institute of Retirement EducationAIRE is a partnership of ASPPA and NIPA (National Institute of Pension Administrators). This organization was formed to be responsible for the development and ongoing administration of the ERPA exam (in conjunction with the IRS). AIRE also offers preparatory materials for the ERPA exam in addition to an annual ERPA Conference.

ASPPA PAC Political Action CommitteeThe ASPPA PAC is a way to reinforce our credible and trusting relationships with lawmakers and helps us to make

A Success that Bears Repeating

The ASPPA 401(k) SUMMIT

The ASPPA 401(k) SUMMIT

March 18-20

Morial Convention Center and New Orleans Hilton & Towers

New Orleans, LA

Number of Attendees: 1,257

By SUSAN WRIGHT, APM


lthough DailyAccess has been a long-

standing sponsor of The ASPPA 401(k) SUMMIT, this year I had the opportunity to attend the conference for the first time. I’ve been a member of ASPPA since 1997 and have attended the ASPPA Annual Conference in Washington, D.C. for many years. Since the SUMMIT is geared more toward retirement plan sales and investment professionals than the Annual Conference, I saw some familiar faces but also met quite a few new people. My involvement with ASPPA has afforded me the opportunity to build long-lasting

relationships with other industry professionals, and both the Annual Conference and the SUMMIT serve as excellent forums for networking.

The conference began with keynote speakers James Carville and Mary Matalin engaging in a lively, and at times humorous, debate regarding the current political landscape. The break-out sessions covered a broad range of relevant topics such as industry best practices, brand-building, successful sales presentations, current regulatory issues, retirement plan design, target date funds, multiple employer plans, ERISA fiduciaries, and Department of Labor (DOL) investigations.

During one of the general sessions,

attendees had the opportunity to hear directly from the DOL on issues surrounding the new plan sponsor and participant disclosure rules. DOL representative Michael L. Davis shared his insight into the DOL’s position on some of the issues surrounding the new disclosure rules, and indicated that much-needed guidance would be “coming soon” in the form of a Frequently Asked Questions (FAQs) document. This is highly anticipated as the DOL needs to clarify several outstanding items, such as whether managed accounts will be viewed as Designated Investment Alternatives without exception, or whether any transitional period will be made available for

A

11www.asppa.org/pc

these types of arrangements.Throughout my career, I’ve been

involved with retirement plans not only from a design, compliance, and consulting viewpoint, but also from a sales and marketing perspective. Overall, I found the sessions to be well thought out, informative, and timely.

I was also pleased to learn about ASPPA’s new sister organization, the National Association of Plan Advisors (NAPA). This organization has more than 3,000 members and is designed to support investment professionals dedicated to serving retirement plans, plan sponsors, and plan participants. With recent DOL regulatory initiatives and possible legislative changes that may have an impact on employer-

sponsored plans, the marketplace is undergoing a substantial transformation. The change will create a unique opportunity for financial advisors who choose to focus on retirement plans. For these advisors, NAPA can be a valuable resource and advocate, just as ASPPA has done historically for the broader retirement plan services community.

It’s also worth commenting on the conference app. I found it to be a very useful tool, allowing attendees to easily access conference information and materials through their smartphones. I also enjoyed the flexibility of being able to record attendance to conference sessions by text message rather than by

completing a traditional form.The conference facilities, hotel,

and proximity to restaurants and entertainment provided for an excellent overall experience. I’m looking forward to attending the SUMMIT in future years, as I found it to be a very informative and productive event.

Susan Wright, APM, is the executive director, consulting for DailyAccess Corporation

in Mobile, Ala.

13www.asppa.org/pc

group of about 70 retirement plan advisors, plan administrators, product and service

providers, and senior managers gathered in the New Orleans Hilton hotel lobby for the first Annual ASPPA SUMMIT Volunteer Day.

Months in advance, these generous ASPPA 401(k) SUMMIT attendees had signed on to volunteer their time and energy to assist on three projects to renovate the homes of Hurricane Katrina victims.

Before heading to the project sites, volunteers put on their ASPPA SUMMIT Volunteer/Rebuilding Together New Orleans t-shirts and hats, broke up into their respective teams, and boarded the buses.

On the way to the work site, they passed dilapidated homes scarred by high-water marks where the flood waters had risen. Among the destroyed homes, like rays of hope peeking between the clouds, were modest but beautiful French-influenced dwellings that had already been rebuilt through Rebuilding Together New Orleans program.

As each team of volunteers arrived at the three work sites, volunteers were excited but somber as they listened to John Skvarka, the director of Rebuilding Together New Orleans, describe what these hurricane Katrina survivors had endured in recent years. Then volunteers grabbed tools and supplies, anxious to get to their assignments—retiling bathrooms, landscaping, insulating walls, installing new windows and cabinets, and painting. They stopped only briefly to grab a cup of water.

At two of the project sites, the homeowners were on hand to express their gratitude to all of the volunteers. John Gross grew up in New Orleans and had lived in his home for 30 years before the flood waters destroyed it. He said he was truly “grateful for

the help” and hoped that he could be back in his newly renovated home before his birthday. As if they were long-time friends, he and volunteers exchanged hugs and smiles and took pictures together as they talked about their lives, families, and hopes.

Homeowner Leroy Ashford, a proud father of five and an Air Force 1st class veteran, had been residing in New Orleans for more than 15 years when his home was made uninhabitable by Hurricane Katrina.

After an initial renovation, he moved back only to find that he’d have to leave again because the newly installed drywall was contaminated. He watched as ASPPA SUMMIT volunteers carried large cabinets into his home, sawed lumber, and painted. Eager to help, he grabbed his lawn

mower and joined in.After a hard and fulfilling day’s

work, the volunteers gathered at the Ugly Dog Saloon, an authentic New Orleans pub, for a cold beverage and to reflect on the day. Even though they’d worked for several hours in over 80 degree heat, what they’d been able to accomplish on behalf of others kept broad smiles on their faces. Touched by the people they’d worked alongside, who had lost so much but still remained hopeful, many of the volunteers expressed the desire to participate in next year’s ASPPA SUMMIT Volunteer Day.

Emilie Forde is ASPPA’s marketing manager in Arlington, Va.

ASPPA Volunteers Help Rebuild New OrleansBy Emilie Forde

A


LEgiS

LATiVE

UPd

ATE

BY Brian H. Graff, Esq., APM

retirement security is to do no harm to what has been working very well. Some proposals that have been raised in the context of deficit reduction or tax reform would seriously hurt coverage and reduce the level of retirement savings across income groups. Small businesses would be hurt the worst. Proposals currently under discussion—whether slashing the contribution limits, reducing tax incentives, or turning the current year’s exclusion into a credit—would discourage small-business owners from setting up or maintaining a workplace retirement plan. That’s the exact opposite of what needs to be done.

There are some persistent, I would say dangerous, myths that fuel these misguided proposals.

to save when covered by a 401(k) plan than when their only option is to save on their own in an IRA. So the policy objective should be how to increase the availability of retirement savings plans at work.

The current tax incentives encourage employers to adopt a retirement plan such as a 401(k) plan and encourage employees to save in these plans. Congress saw fit to provide certainty about the availability of these tax incentives when it overwhelmingly passed the Pension Protection Act in 2006 with bipartisan support. These incentives have been extremely effective at providing retirement savings to tens of millions of American workers.

The first step in securing future

ur goal as retirement professionals should be to increase

the number of workers saving for retirement and the amount these workers are saving. The question is: How do we get there in the most efficient and effective way? An enhanced Saver’s Credit would help lower-income workers who are already participating save more, but by itself it won’t substantially benefit those workers who aren’t covered by a plan and not saving in the first place.

What we know works is automatic enrollment in a workplace retirement plan. Moderate-income workers are 15 times more likely

Dispelling the Myths About Retirement Savings

O

15www.asppa.org/pc

of those workers

participate

84%

Tax E

xpen

ditu

re E

stim

ates

in B

illion

s of

Doll

ars

* The new methodology estimates the tax benefit of the deferral and inside buildup, in present value terms. The Joint Committee and Treasury estimates rely on cash-flow analysis.

$0

$20

$40

$60

$80

$100

57.1

67.5

92.587.4

82.2

67.4

56.9

42.548.8

41.8

Joint Committee Treasury New Methodology using Present Value Analysis

2009 2010 2011 2012 2013

Coverage statistics based on all workers are used to allege that current tax incentives have failed, but the relevant facts show otherwise. The current incentives under the Code and ERISA are targeted at full-time workers, and have been very successful at extending coverage to the full-time workforce. Bureau of Labor Statistics data shows 78 percent of all full-time workers have access to a workplace retirement plan, with 84 percent of those workers participating.

Current law provides for the exclusion of part-time workers and it’s simply unfair to judge the 401(k) system for what current law provides; 80 percent coverage of full-time workers is a success story.

Myth #2: Current tax incentives haven’t worked to encourage workplace savings.

78%of full-time workers have access toa workplace retirement plan

Incentives for retirement savings don’t belong in the same category as most other deductions or exclusions classified as “tax expenditures.” Unlike deductions for mortgage interest or charitable contributions, which are permanent deductions, the incentives for retirement savings are just a deferral. Contributions (and earnings) are taxed at ordinary income rates when they’re distributed from the plan.

By ignoring the present value of future taxes paid on those distributions, the revenue that appears to be gained in the budget window from cutting retirement savings incentives is an illusion. In fact, a study by two former Joint Committee on Taxation staffers showed the true present-value cost of 401(k) incentives to be close to a third of the cost reported by Treasury. Reduced contributions today mean lower revenue outside the budget window, when there will be less retirement savings to be withdrawn and taxed. In other words, bad math leads to bad retirement policy.

The current year’s tax savings is a critical factor—often the only factor—supporting a small-business owner’s decision to put in a plan. That’s not to say that small-business owners are selfish, or don’t want to help their employees save for retirement. However, most small-business owners are short on cash. To put in a plan, they need to figure out how to pay for it. Especially these days, they use the savings generated from the retirement plan tax incentives to help pay for contributions (such as a match) required by the nondiscrimination rules. Reducing the incentive literally reduces the cash the small-business owner has to work with. Reduced incentives will mean fewer plans and lower employer contributions for those remaining plans.

Compare Annual Tax Expenditure Estimates from the Joint Committee and Treasury to the New Methodolgy

Myth #1: Incentives for retirement savings are tax expenditures.

Myth #3: Small businesses will sponsor retirement plans without an appropriate tax incentive.

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2012 HIGHLIGHTS• Final service provider fee disclosure regulations issued 2/3/2012!

• New determination letter procedures

• New guidance on electronic delivery methods

• Practice before the IRS - new guidance

• Investment advice regulations

• Form 8955-SSA guidance

• Expanded discussions of 403(b) plans

• Expanded discussions of governmental plans

• Minor beneficiary issues

• Revised practice rules for actuaries (JBEA)

• 100s of new court cases and IRS/DOL/PBGC releases

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Participation Rates by Moderate Income ($30,000-$50,000) Workers - IRA only vs. Employer Plan

$$$$$$$$$

Under $50,000

Share of estimated federal DC plan tax expenditures for participants

$50,000 under$100,000

$100,000 under$150,000

$150,000 under$200,000

$200,000 or more

60%

50%

40%

30%

20%

10%$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

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11%13%14%10%13%8%

18%

32%30%

52%

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Share of federal income taxes (after credits) paid

No Employer Plan-IRA only (4.6)

Covered by an Employer Plan (71.5)

Source: Employee Benefit Research Institute (2010) estimate using 2008 Panel of SIPP (Covered by an Employer Plan) and EBRI estimate (Not Covered by an Employer Plan-IRA only).

This myth arises from a failure to understand how the incentives for workplace retirement plans really work. Nondiscrimination rules require plans to satisfy proportionality tests to make sure that retirement plan benefits don’t discriminate in favor of the highly paid. Further, current law already has a $250,000 cap on the amount of compensation that can be considered in determining benefits.

I’m not suggesting that the mortgage deduction should be available only to highly compensated taxpayers if they can prove non-highly compensated people in their office also benefit. But that’s what would happen if you applied the same retirement plan nondiscrimination standards to those other tax incentives.

The result of these nondiscrimination rules is that the current tax incentive for defined contribution plans is more progressive than the current income tax system itself. Based on an analysis by a former JCT economist, taxpayers making less than $50,000 pay only 8

percent of income taxes, but receive 30 percent of the tax incentives for defined contribution plans. Households making less than $100,000 pay 26 percent of income taxes, but get more than 60 percent of the benefit of this tax incentive. By contrast, households making more than $200,000 pay 52

Truth is, the only way we’ve ever gotten working Americans to save for retirement is through employer-sponsored retirement plans. More than 70 percent of workers making $30,000 to $50,000 contribute when covered by a plan at work. By comparison, less than 5 percent of workers at the same income levels save on their own in an IRA when there is no workplace plan.

Changing the exclusion to a credit will never make up this dramatic difference in savings rates. Increasing plan coverage is a much simpler task with more certain results.

The key to promoting retirement security is expanded workplace savings. Reduced incentives for small-

business owners to sponsor retirement plans would be a big step in the wrong direction, and would not produce the long-term savings needed to balance the nation’s budget. We need to focus on proposals like the auto-IRA bill offered by Rep. Richard E. Neal (D-Mass.) to bring workers into the workplace saving system. The deferral nature of the current tax incentives means today’s tax break is tomorrow’s tax revenue. Let’s build the system up, not tear it down.

Brian H. Graff, Esq., APM, is executive director and CEO of ASPPA in Arlington, Va.

percent of all income taxes, but receive only 11 percent of retirement plan tax incentives.

More than 60 percent of a tax incentive going to workers who pay less than 30 percent of income taxes is not upside down. It is very much right-side up.

Estimated Distribution of Federal Tax Expenditures for Defined Contribution Plans and Federal Income Taxes Paid by Adjusted Gross Income for 2010

Myth #4: The current tax incentive is “upside down.”

Myth #5: It doesn’t matter if a new tax structure causes employers to terminate plans because “re-engineering the tax incentive will lead more workers to save on their own.”The ERISA

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Full Disclosure: The Impact of the Final 408(b)(2) Regulation on TPAsBy Joseph C. Faucher, Bruce L. Ashton, APM,

and Fred Reish, APM


fter more than four years of incubation, the U.S. Department of Labor (DOL) issued its final

regulation under ERISA Section 408(b)(2) on February 3, 2012, with an effective date of July 1, 2012. The regulation requires “covered service providers” to provide written disclosures in order for their service arrangements with the plans they serve to be deemed reasonable and thus not a prohibited transaction. But the key to whether this requirement applies to third-party administrators (TPAs) depends on how they get paid.

In the winter 2011 edition of The ASPPA Journal (Vol. 41, No. 1), we wrote about the impact of the “interim final” regulation issued in July 2010, which is the predecessor version of the February 2012 final regulation, on TPAs. That article provided a thorough review of the regulation’s specific requirements, and we refer readers to that earlier article for a more in-depth analysis. In this article, we briefly address some of the regulation’s primary requirements, and then discuss in more detail the changes between the interim final and final regulation and the impacts of those changes. As with that earlier article, this article focuses on “independent” TPAs—that is, TPAs that (1) do not provide recordkeeping services, (2) are not producing TPAs, and (3) are not affiliated with brokers—who receive “indirect” compensation.

THE STATUTES UNDERLYING THE REGULATIONTo understand the regulation, we first summarize its legal basis. Under the prohibited transaction rules, ERISA §406(a)(1)(C) forbids providing services to ERISA-governed plans unless an exemption applies. An exemption in §408(b)(2) allows services to be provided if the arrangement and compensation between the service provider and the plan are reasonable, but there was no

Service providers will finally have to disclose details about their services, compensation, and fiduciary status… or maybe not.

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The regulation leaves unchanged the requirement that covered service providers disclose to the covered plan all services that will be provided pursuant to the contract or arrangement.

a 100 percent owner of the sponsor company and his or her spouse are not “covered plans.” This is because “employee pension benefit plans” within the meaning of the ERISA and the final regulation must cover “employees.” Since other DOL regulations (29 CFR §2510.3-3(c)) explain that 100 percent owners and their spouses are not “employees,” these so-called “one man plans” are not considered “covered plans.”

statutory or regulatory guidance on what this meant (other than a regulatory provision stating that a contract or arrangement was not reasonable unless it permitted the plan to terminate without penalty on reasonably short notice).

The new regulation fills that void. In order for their arrangements with covered plans to be considered reasonable, and therefore not prohibited transactions, covered service providers must make specific disclosures to the responsible plan fiduciary of “covered plans” concerning (1) the services they intend to provide, (2) the direct and indirect compensation they expect to receive in connection with the arrangement, and (3) their status as a fiduciary.

THE FINAL REGULATION

Covered Plans

The definition of “covered plan” has not changed—with one significant exception and an important clarification. The regulation applies to all “employee pension benefit plans,” including, for example, 401(k) plans, ERISA-covered 403(b) plans, defined benefit pension plans, and non-participant directed profit sharing plans, but excluding IRAs and IRA-based plans.

The significant new exception to the definition is the exclusion from covered plan status of individual retirement annuities, and annuity contracts and custodial accounts in 403(b) plans issued before January 1, 2009 to which the employer was not required to, and did not, make contributions since that date, if the benefits of the contract are enforceable against the insurer by the individual contract owner. In other words, the “orphan” or “frozen” contracts or custodial accounts within a 403(b) plan are not covered.

The clarification appears in the preamble to the final regulation, where the DOL explains that plans in which the only participants are

Significant changeS in the final Regulation

w Compliance effective date: The effective date for compliance is extended from April 1, 2012 to July 1, 2012, which gives service providers a few extra months to provide disclosures to existing clients and set up documentation and procedures for providing “point of sale” disclosures to new clients.

w Covered plans: The final regulation exempts “orphan” or “frozen” contracts or accounts in 403(b) plans from coverage and clarifies that single-participant plans are not covered.

w Covered service providers: The preamble to the final regulation makes clear the DOL view that disclosures similar to those required by the regulation may be necessary even for non-covered service providers.

w Timing of disclosures: Providing information needed to comply with ERISA’s reporting and disclosure requirements after written request is now required “reasonably in advance” of the date the client needs the information rather than a specified date after the request. The rule does not specify when the client is required to provide its request.

w Indirect compensation: The final regulation requires a description of both the payer and the “arrangement” between the TPA and the payer that gives rise to the payment. There is no guidance on what is required for this description.

w Termination of contracts: The final regulation requires clients to terminate a contract if a service provider fails or refuses to provide the required disclosures after being requested. This is a change from the interim final which only required the client to “consider” whether it should terminate the contract.

For most TPAs, the change with respect to 403(b) plans and the clarification regarding single-participant plans will have little impact unless they have a highly specialized practice.

Most TPAs that currently use service agreements already spell out their services in considerable detail, which is helpful in establishing that the compensation they expect to receive in exchange for those services is “reasonable.” From a risk management perspective, TPAs should also describe the services they will not provide, in order to limit the scope of their potential liability.

Covered Plans

Services

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TPAs would not be considered covered service providers.)

Before the final regulation was issued, it was unclear whether the $1,000 in compensation threshold applied to annual compensation or amounts to be paid over the life of the arrangement. The preamble to the regulation clarifies that service providers who expect to receive $1,000 or more over the life of the arrangement are “covered service providers.” In that same section of the preamble, the DOL stated that it “… cautions parties against attempting specifically to avoid the $1,000 threshold” and that, in determining compliance with the regulation, “… the Department will look to the substance, rather than form, of the contract or arrangement between the plan and service providers.”

The final regulation leaves unchanged the definition of “covered service provider,” which encompasses persons or entities that reasonably expect to receive $1,000 or more in direct or indirect compensation in connection with providing “covered services.” In addition to various categories of fiduciary service and recordkeeping and brokerage services for participant-directed plans with designated investment alternatives, “covered services” include a “catch-all” category. The catch-all includes administration services provided by TPAs but only if they reasonably expect to receive indirect compensation. In other words, a TPA that is paid only by the plan sponsor or by the plan directly would not be a covered service provider. (But for their expected receipt of indirect compensation, most independent

w While the final regulation does not change much with respect to “covered plan” and “covered service provider,” there are a few important points:

w First, independent TPAs should consider complying with the regulation’s disclosure provisions even if a “covered plan” is not involved. Following one disclosure protocol in cases involving covered plans, and another with respect to non-covered plans may actually require greater effort than following a single disclosure approach in all cases.

w Similarly, independent TPAs who may not currently qualify as “covered service providers” because they do not expect to receive indirect compensation should also pay attention to the regulation’s requirements. If they receive such compensation in the future—for example, from a plan provider with which they share a number of plans—they will become subject to the regulation and will need to make the disclosures at that time.

w Further, in the preamble to the final regulation, the DOL commented on service arrangements that do not involve a covered plan and a covered service provider. It said, “ERISA nonetheless requires such contracts or arrangements to be ‘reasonable’ in order to satisfy the ERISA section 408(b)(2) statutory exemption.” Because fiduciaries are required to obtain and carefully consider information necessary to assess the services provided, the reasonableness of the compensation being paid for those services, and potential conflicts of interest, the fiduciary may be barred by ERISA’s duty of prudence from entering into or continuing the arrangement with TPAs who fail to provide this information. Thus, even non-covered TPAs should strongly consider providing the information that the regulation otherwise requires to be disclosed.

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Covered Service providers

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In the example, the plan sponsor attendees paid a registration fee of $850, while the financial institution paid a subsidy fee of $20,000. In response to this fact pattern, the DOL stated its view that “… when a covered service provider is engaged to provide consulting services to a covered plan

(or plans) and receives subsidies or other remuneration from financial institutions or other parties with respect to whom the service provider may be making recommendations to attending plan sponsors or representatives, such subsidies or remuneration would be compensation received ‘in connection with’ the service provider’s contract or arrangement with the covered plan.”

providing, for example, information regarding any eligibility requirements—such as thresholds for sales of new plans sold in a given year, or total plan assets invested with the payer—that may trigger the payment of the indirect compensation to the TPA.

The DOL also elaborated in the

preamble on what it means for compensation to be received “in connection with” the contract or arrangement with a plan. Specifically, the preamble discusses a service provider’s failure to disclose that a financial institution subsidized the cost of attendance at a conference that the service provider offered for its plan sponsor clients.

TPAs that receive payments from plan providers will need to describe both the way in which the payments are calculated and the reason it is being received.

“Covered” TPAs must describe the direct and indirect compensation they—and their affiliates and subcontractors—expect to receive in connection with the services provided pursuant to the contract or arrangement. Direct compensation means “compensation” that is received directly from a plan (i.e., anything of monetary value, such as money, gifts, awards, and trips, but excluding non-monetary items of $250 or less received during the term of the contract or arrangement). Indirect compensation is “compensation” that is received from any source other than the plan, the plan sponsor, the covered service provider, an affiliate of the service provider, or a subcontractor of the service provider. With respect to indirect compensation, the regulation also requires identification of (i) the services for which it will be received and (ii) the payer of the indirect compensation.

The final regulation makes one significant change that will affect covered TPAs. The interim final regulation said that, with respect to their indirect compensation, covered service providers were required to describe the services related to that compensation, the amount or formula for determining the amount of that compensation, and the payer of the compensation. The final regulation now also requires that covered service providers describe “… the arrangement between the payer and the covered service provider, an affiliate, or a subcontractor, as applicable, pursuant to which such indirect compensation is paid.” Thus, TPAs that receive payments from plan providers will need to describe both the way in which the payments are calculated and the reason it is being received.

The new requirement that service providers disclose the “arrangement” with the payer of indirect compensation puts the burden on the service provider to provide enough information to explain why the service provider is receiving indirect compensation from a third party. Presumably, this entails

Several aspects of the compensation disclosure are noteworthy:

w Only TPAs that receive indirect compensation are “covered.” Nevertheless, we stated earlier that covered TPAs must describe both their direct and indirect compensation. This is because the DOL has made it clear that if a service provider is “covered,” it must comply with all of the requirements of the regulation, not just the parts that cause it to be covered.

w The regulation does not specify what it means to describe the “arrangement” between the covered service provider and the payer of indirect compensation. The preamble explains that the purpose of this new requirement is to enable responsible plan fiduciaries to “… analyze why the payer of indirect compensation, generally an unrelated third party, is compensating the covered service provider in connection with the covered service provider’s contract or arrangement with the covered plan.” For example, if a TPA is receiving payments from a plan provider, we would expect the description of the “arrangement” to include a discussion of the steps the TPA must take to acquaint itself with the provider’s product and service offerings in order to be able to provide better service to the covered plan.

w The preamble’s example of subsidies paid in connection with a client conference also demonstrates the DOL’s expansive view of what it means to say that compensation is provided “in connection with” the arrangement. TPAs should therefore err on the side of disclosing all forms of compensation that they anticipate receiving from third parties such as investment providers, even if that compensation appears unrelated to the specific services that the TPA provides for a plan.

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COMPENSATION


The prohibition under ERISA §406(a)(1)(C) says that a fiduciary shall not cause a plan to engage in a transaction involving the provision of services to a plan. In practical terms, this means that if a covered service provider fails to make the required disclosures and the responsible plan fiduciary permits the arrangement to go into effect or continue, the fiduciary has engaged in a prohibited transaction. But because fiduciaries cannot control whether the information they receive is accurate or complete, the regulation provides fiduciaries an exemption so long as they did not know that the service provider failed to make the required disclosures and reasonably believed that it had done so.

What if the fiduciary discovers that the disclosures are not adequate? It must ask the service provider to make the disclosures. If the service provider fails or refuses to do so, the fiduciary must take two steps: First, it must notify the DOL of the failure; and, second, if the failure to disclose applies to future services (and when would it not?), the fiduciary “shall terminate” the arrangement “as expeditiously as possible.”

to extraordinary circumstances). The final regulation changes the timing, however, to state that the information must be provided reasonably in advance of the date upon which the responsible plan fiduciary or covered plan administrator states that it must comply with the applicable reporting or disclosure requirement, unless precluded due to extraordinary circumstances beyond the service provider’s control.

The final regulation retains the requirement that a service provider disclose, upon written request, information relating to compensation received in connection with the arrangement, if it is required for the plan to comply with the reporting and disclosure requirements of ERISA and its regulations, forms, and schedules. The interim final regulation required the information to be provided within 30 days of the written request (unless precluded due

Depending on the timing of the plan fiduciary’s request for this information, it may not be possible for TPAs to comply with the request “… reasonably in advance of the date upon which the responsible plan fiduciary … states that it must comply with the applicable reporting or disclosure requirement …” TPAs should consider including a provision in their service agreements requiring plan fiduciaries to make requests for this information within a certain specified period of time before the date they are required to comply with their reporting or disclosure requirements. Although that contract provision would not trump the regulation’s timing requirement, it would at least impose a contractual burden upon the plan fiduciary to request information within a time frame that is manageable for the TPA.

In our experience, TPAs are highly focused on compliance. As a result, we do not anticipate that this provision will have a significant impact on most TPAs. Nevertheless, it is important to be aware of the requirement, in part to be in a position (if requested) to advise clients on the proper steps to take if other service providers to the plan fail to provide the necessary or proper disclosures.

plan sponsor exemption

reporting and disclosure information

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The final regulation preserves with no substantive change the requirement that covered service providers disclose whether they, or their affiliates or subcontractors, will provide any services to the plan as a fiduciary as defined under ERISA §3(21) or as an investment adviser registered under the Investment Adviser Act of 1940, or state law. If both, then both must be disclosed.

In our experience, TPAs rarely function as fiduciaries. If they do not, they need not make a statement to that effect. However, for risk management purposes, TPAs should consider specifically stating that they are not fiduciaries.

The significant change for covered TPAs is the requirement to describe the “arrangement” with the payer of indirect compensation. While perhaps not difficult, this may present a challenge to explain the reason a third party is making the payment appropriately. For the most part, however, in our experience, most independent TPAs are already largely in compliance with the requirements of the regulation or will be able to meet the requirements by the July 1 effective date without significant effort.

Joseph C. Faucher is of counsel, Bruce L. Ashton, APM, is a partner, and Fred Reish, APM, is a partner in Drinker Biddle & Reath LLP in Los Angeles.

For TPAs, the release of the final regulation—after more than a year and half of waiting since the release of the interim final—may seem to be a non-event. The changes affecting TPAs are relatively modest. Perhaps the most important applies to non-covered TPAs—those who receive only direct compensation or compensation only from the plan sponsor—is the DOL’s comment in the preamble that contracts and arrangements between plans and service providers must be reasonable even if the disclosure requirements of the final regulation do not apply. This suggests that the legal standard the DOL, the IRS, or the courts may seek to apply in the future will look to the 408(b)(2) regulation even if it is not strictly applicable.

fiduciary status Conclusion

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AdMiniSTR

ATiO

n

5By Peter P. Swire and Kenesa Ahmad

The Top Five Reasons to Favor Electronic Disclosure

For a wide range of financial services, federal regulations set rules for how individuals should receive required information or notices. For example, the Department of Labor (DOL) administers rules about disclosure to individual participants in employee benefit plans under the Employee Retirement Income Security Act (ERISA) of 1974. These disclosures are extensive, including information about the investment options offered by plans, quarterly account statements, and other episodic

information and notices.Required disclosures should present and

deliver this information in ways that work for the individual. The overall system of delivery should be highly accessible, highlight key content, and make it easy for the recipient to understand and act on the information received. It should provide secure storage and, where possible, fit well with other relevant goals, such as enhancing the rate of retirement savings, reducing overall costs,

Electronic delivery is the best and most efficient way to provide required financial information to retirement plan participants, not to mention its invisible environmental footprint.

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5portion of U.S. households who had a telephone in 1980, and 4.2 percent less for 2009.

To be clear, the comparison is between the 91.5 percent of working households who had access to the Internet and the 92.9 percent and 95.7 percent who had a telephone in 1980 and 2009, respectively. Although our research hasn’t found good statistics on telephone penetration for working households, the basic point holds: Internet penetration has risen swiftly and access to the Internet is roughly as widespread today as telephone ownership.

Though differences in Internet access for African-Americans and Latinos persist, widespread adoption and use of mobile devices is speeding convergence. With the emergence of the Internet, access for African-Americans and Latinos lagged behind that of whites. In 2000, access to the Internet was 40 percent for Latinos, 36 percent for African-Americans, and 50 percent for whites. According to a December 2010 Pew survey, those numbers had shifted to 66 percent for Latinos, 69 percent for African-Americans, and 80 percent for whites. (These statistics were for both working and non-working individuals, and were collected by individual rather than the per-household statistics cited above.)

One factor reducing this digital divide is the relatively rapid uptake of mobile Internet devices by African-Americans and Latinos. According to a Pew survey from July 2010, almost two-thirds of African-Americans and English-speaking Latinos were wireless Internet users, outstripping the percentage for whites at 57 percent. (The precise percentages were 64 percent for African-Americans and 63 percent for English-speaking Latinos.) At the end of 2010, about 87 percent of African-Americans and Latinos owned a cell phone, compared to 80 percent of white Americans, and these groups are

www.abilityhub.com/vision/blind.htm.)For the large percentage of

Americans who are foreign born and may prefer to access their disclosures in a language other than English, software-based translation programs are widespread and continue to improve rapidly.

Also, once access exists, electronic delivery provides better notice than paper delivery. Electronic notice can easily be “layered,” with a short and simple notice on top, and click-through to more detailed disclosures where the participant wants to dig deep. This layering means that the top layer of information is simpler and easier to read than a paper document. Electronic notice can also be “just-in-time,” giving information at the moment and in a manner that helps the participant make decisions.

Most working households have access

to the Internet, and though differences persist, access is increasing dramatically for minorities.One major objection to switching from paper to e-delivery is the fear that workers may not have reasonable access to the Internet. However, access is expanding dramatically. First, the Internet is following the adoption patterns of other transformative technologies, such as the telephone, radio, and the television. After a period of early adoption, these technologies become widespread in society.

The arc of Internet adoption has been much swifter than that for the telephone. Commercial activity on the Internet was prohibited until 1992, and use of the Internet rose steeply from a tiny level at that time to 42 percent of all American households by 2000. A major survey by the Investment Company Institute found that 91.5 percent of working U.S. households had access to the Internet in 2010. For working households, this means that access to the Internet today is only 1.4 percent less than the

and reducing the effect of discarded paper on the environment.

As Internet access spreads, electronic delivery is becoming the norm in many settings. There are many, growing advantages of electronic over paper delivery. Based on our detailed testimony to the DOL, here are five key reasons why electronic delivery should be adopted over paper delivery.

Electronic notices provide access better

than paper notices.Today, electronic delivery sends information to computers, smartphones, and other devices in ways that allow for more immediate and continuous access—anywhere, anytime, with any device, and with a better filing system than paper notices. Participants can receive electronic notices and interact with their accounts regardless of location, which provides much desired flexibility and convenience. They also have 24/7 access to electronic notices and websites, through a diverse and growing variety of devices. The current variety of electronic devices enables individuals to choose the delivery systems they prefer. Electronic storage of data also provides a better filing and searchability system than the tedious, traditional paper approach.

Electronic notices also provide better access for visually impaired participants and those who prefer to access notices in a language other than English. Individuals with vision impairment can increase font size, use screen magnifiers, or use high contrast fonts or colors to view online information. For those with more serious visual impairment, many software and hardware tools are available, including screen readers that convert visual information into speech or refreshable Braille displays to mimic the functionality of a computer monitor. (A listing of screen readers for the blind is available at

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Environmental considerations are becoming increasingly important in business decisions. In 2008, close to one-fourth of Fortune 500 companies had a board committee devoted to considering environmental implications, compared with less than 10 percent in 2003. Shareholders are also more concerned with the environment—the number of investor proposals related to the environment almost doubled between 2004 and 2008.

A range of evidence shows the benefits of shifting from a paper to an electronic system. According to recent research by PayItGreen (www.payitgreen.org), if one in five households went paperless, 151 million pounds of paper would be saved, 8.6 million bags of waste would not be thrown out, and the environment would be saved from 2 million tons of greenhouse gas emissions. “Collectively,” says a PayItGreen press release, “the production and transportation of those paper documents consume 755 million pounds of paper, 9 million trees and 512 million gallons of gasoline.” By going paperless, the average American household would save these resources: 6.6 pounds of paper, 63 gallons of water, 4.5 gallons of gasoline, and 171 pounds of greenhouse gases.

E-notice provides important cybersecurity

advantages compared to risks from paper notice.One concern about a shift from paper to electronic records is that the electronic approach will be less secure than paper delivery. A steady stream of press stories and government reports has drawn attention to data breaches and other cybersecurity problems. However, for many reasons, electronic-based delivery is safer than paper-based delivery. Electronic delivery provides a fuller set of security precautions, and allows for updating and additional layers of security over time. Data

Further, online display integrates with a user’s other financial accounts, enabling participants to integrate information from one financial service provider with other financial records. Perhaps the best-known commercial example is Quicken, but at least 25 software packages are currently available, including free software such as Mint. This sort of integration directly helps a household plan for its overall financial goals, including retirement security. (For a review site of 25 personal finance software offerings, see http://personalfinancesoftwarereviews.com/.)

There are clear financial and environmental

benefits of electronic disclosure.There are also other external benefits to electronic disclosure, including direct savings from lower costs and environmental benefits. The clear trend toward electronic delivery in similar settings is further evidence that other decision-makers are reaching the conclusion that electronic delivery is better than paper delivery.

Direct cost savings. Electronic delivery generally costs less for the sender than paper does. In economic terms, the fixed costs of electronic or paper disclosure are similar—the recordkeeper must prepare the disclosure in a way that complies with legal requirements. The marginal cost (cost per incremental notice), however, is far lower for electronic delivery. Paper delivery incurs the costs of physical operations—notably paper, printing, postage, and labor—to get the notice to the recipient. Electronic delivery, by contrast, has close to zero marginal cost. Once the document is formatted, it costs almost the same to send to a few or a few million recipients by email or through a website.

Environmental benefits. Along with significant direct savings, the shift to electronic delivery would greatly reduce the use of paper.

more likely than whites to use cell phones to access the Internet. Laptop ownership is now at 47 percent for whites, 46 percent for African-Americans, and 48 percent for Latinos. Moreover, today, there are no longer any noticeable differences in laptop ownership among Latinos, African-Americans, and whites. Laptop ownership is now at 47 percent for whites, 46 percent for African-Americans, and 48 percent for Latinos.

Electronic delivery improves the user

experience.Electronic delivery shifts the user experience from managing a large stack of papers to a clear and organized display of information. With paper disclosure, the participant collects a stack of documents over time and must determine which papers should be kept long term (and for how long), while also maintaining an effective filing system. Online disclosures, however, provide users with the perspective of a financial advisor, with information arranged accordingly. They include precisely the funds currently held by a participant, while making disclosure accessible for all other available plan investments. Holdings are updated continuously, which is preferable to the once-per-quarter updates that arrive by mail.

Calculators and other tools are also easier to deploy online, allowing participants to view outcomes of different savings scenarios. In recent testimony, Edmund Murphy of Putnam Investments described Putnam’s Lifetime Income Analysis Tool, which highlights a participant’s monthly retirement income needs compared with monthly income if he or she keeps saving at current levels. Putnam’s analysis of aggregate behavior of participants who used the tool on their own on the Putnam website in July and August 2010 shows that about one-third changed their deferral rate after using it.

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breaches occur at the enterprise level; the breach happens when the central computer system is compromised. Notices, by contrast, are sent to the individuals, and delivery of the notices isn’t the way that hacking or other data breaches occur.

In particular, bouncebacks for email are more effective than paper change-of-address forms. One prominent advantage of electronic records is that the recordkeeper learns more quickly and effectively when a communication has gone awry. With delivery through email, the recordkeeper receives an instantaneous “bounce back;” the sender learns immediately about the delivery failure when an email goes to a no-longer-current account.

One major recordkeeper reported to the authors that their bounceback rate is about 2 percent per year. For a national population of 72 million participant-directed accounts, this means approximately 2.8 million accounts would get a bounceback and thus attention to possibly changed addresses per year. These bouncebacks have a major security advantage: They allow the recordkeeper to detect a problem immediately, stop sending to the incorrect email address, and begin a process to learn an up-to-date address for communications with that plan participant. The bouncebacks also are a customer service advantage; a customer’s account is quickly flagged for action so that current account information will get to the customer at a new location.

The substantial advantages today for electronic delivery of financial transactions illustrate how electronic delivery of account information is highly preferable to paper delivery. Due to technological changes and widespread current access to the Internet, the time has come for a major shift toward greater reliance on electronic delivery of required information. Individuals should have the flexibility to choose electronic delivery as the default, while retaining the right to receive information or notices in paper if they prefer.

Peter P. Swire is the C. William O’Neill Professor of Law at the Moritz College of Law of the Ohio State University. He is a senior fellow with the Center for

American Progress and the Future of Privacy Forum. In 2009-2010, he was Special Assistant to the President for Economic Policy, serving in the National Economic Council under Lawrence Summers. From 1999 to early 2001 Professor Swire was the Clinton administration’s chief counselor for privacy in the U.S. Office of Management and Budget and the White House coordinator for the HIPAA Medical Privacy Rule. Many of his writings appear at www.peterswire.net.

Kenesa Ahmad is a legal and policy fellow at Future of Privacy Forum in Washington. She is co-author of the IAPP Privacy Foundations

certification book (forthcoming Fall 2012) and is admitted to the Virginia Bar.


LEgAL

Are You A Self-Proclaimed or a Recognized Expert?By David J. Witz

Part 2

In the previous article (Plan Consultant, Spring 2012, p. 28) I outlined the three bodies of knowledge used to determine an advisor’s claim of expertise and establish standards used by attorneys who hire expert witnesses. They also establish a prudent pattern for plan sponsors to use when selecting an advisor. Those bodies of

knowledge include:1. Rule 702 of the Federal Rules of Evidence,2. The Supreme Court’s decision in Daubert v.

Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993), and

3. The Cambridge Handbook of Expertise and Expert Performance.

Not all advisors can be experts at a level that can survive the scrutiny expert witnesses must endure, but an understanding of expertise in the legal and academic sense of the term holds lessons for all advisors, no matter how advanced their current practice.

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Daubert Rule 702 Academia ERISA

Experience l l l l

Education l l l l

Knowledge l l l

Skill l l l

Process/Standards l l l

Training l l

characteristics l

Passion l

EXHIBIT 1Similarities between various bodies of knowledge

met ERISA Section 411. In fact, it could be argued that ERISA Section 411 has more application to the employees of the plan sponsor who serve in a fiduciary capacity than to an advisor.

Relationship Is a Bonus, not a Reliable Criterion, for Determining ExpertisePlan sponsors have a full plate of obligations and pressing corporate objectives that take precedence over the retirement plan. To most “C” level executives, inundated with other pressing business matters, their appointment as a fiduciary on the retirement plan is a black hole that drains the company of valuable resources. As a result, there’s a high demand for outsourcing many fiduciary duties to an advisor.

In many cases a plan sponsor will outsource various duties to a local advisor. Assuming that the relationship between fiduciary and advisor isn’t a prohibited transaction (a blood relative, for instance), retaining a local advisor who is capable of delivering necessary services for the establishment or operation of the plan at a reasonable cost offers many conveniences.

Those conveniences, however, must be weighed relative to the advisor’s capabilities; he or she may possess excellent communication skills and the ability to deliver superb participant education but offer little else in technical understanding of ERISA. In such cases, the fiduciary will find it necessary to evaluate the qualifications of the local advisor’s internal or external team to determine if they have the expertise to deliver all the needed services. Plan sponsors who hire advisors on the basis of high entertainment value and little else will find the “good ole boy” approach passé, obsolete, and ineffectual at mitigating litigation risk under the new regulatory environment.

Bottom line: Retain experts, not friends, and especially not relatives.

very similar.” As a result, a plan sponsor must assess the advisor’s expertise as well as the advisor’s bench depth to determine if the team can offer comprehensive services with expertise.

ERISA Criteria for a Fiduciary Is not the Same as an ExpertTo the surprise of many, there is statutory language that articulates the criterion a “person” must meet in order to be appointed to a fiduciary role. That criterion is found under ERISA Section 411, which details the prohibitions that prevent a person from serving in a fiduciary role to any plan. It’s important to stress that every plan sponsor should ensure that all persons appointed to a fiduciary role meet ERISA Section 411. This could also apply to non-ERISA plans subject to state fiduciary laws that closely mirror ERISA fiduciary standards.

To avoid embarrassment, brand damage, and the expense of litigation, it’s recommended that every plan sponsor conduct a background check to confirm compliance with ERISA Section 411 before appointing individuals to a fiduciary or service-provider role. Keep in mind that any advisor who’s registered with the Securities and Exchange Commission or a state securities department has

Rule 702 regulates and governs the admission of expert testimony, the U.S. Supreme Court clarified these standards in Daubert, and The Handbook is a compendium of current and historic research compiled by leading authorities that have examined and tested methods to evaluate the characteristics of experts. If these three bodies of knowledge are viewed through the lens of ERISA, you find they share similar and complementary characteristics. (See Exhibit 1.)

Although some courts have relied on experience alone as a measure of expertise, the other characteristics cited shouldn’t be ignored. For example, an advisor with 10 years of experience and 30 ERISA plan clients might appear to be an ERISA expert, but at what? The advisor could be an expert at retailing or wholesaling plans, plan design, investments, fiduciary compliance, fee assessment, compliance testing, recordkeeping, communications, or education.

It should come as no surprise, based on the complexities of ERISA, that it’s rare to find someone who is an expert in all of its facets. As the Cambridge Handbook says, “There is little transfer from high-level proficiency in one domain to proficiency in other domains—even when the domains seem, intuitively,


ERISA Fiduciary Standards Dictate Hiring Experts Where Expertise Is NeededA person responsible for appointing an advisor engages in a fiduciary act. Selecting an advisor requires the person to act prudently and with a duty of loyalty and care. Those duties require a fiduciary to exercise their authority and control in the best interests of the participants. Therefore, retaining an advisor is prudent when the fiduciary lacks the necessary expertise to execute their duties in the best interests of the participants.

ERISA imposes an obligation

on fiduciaries to assess their own personal strengths and weaknesses to determine what expertise is needed to fill a supporting role. Once a fiduciary determines the expertise needed, a search can be conducted for an expert. Expert advisors have characteristics that are distinctly different from generalists. Unlike generalists, experts possess subject matter expertise in one or more areas of ERISA. Failure to engage in a due diligence process to determine an advisor’s expertise may lead to the employment of a generalist. If a generalist is unable to deliver the expertise needed, the fiduciary may be

subject to personal and corporate risk. This includes the potential of claims for fiduciary imprudence, breach of duty, breach of loyalty, and excessive fees. To mitigate this risk and avoid underwriting it with corporate and personal assets, a plan sponsor is well advised to hire experts using a thorough due diligence process and purchase fiduciary insurance with corporate assets.

What Does a Due Diligence Process Look Like?To mitigate risk, a fiduciary must engage in a documented prudent process to analyze, sort, score, evaluate, compare, and select a qualified advisor expert. This involves engaging in a request for proposal (RFP) process used in any vendor search. The appropriate party to conduct or participate in the RFP process includes the plan sponsor, ERISA attorney, CPA/auditor, and/or an independent advisor who doesn’t seek advisor engagements.

Since the majority of advisors are generalists, a plan sponsor must look beyond licensing or registration status, which is easier to obtain than a license to cut hair in most states. But licensing shouldn’t be ignored. While licensing, credentials, and certifications are an indication of personal achievement and dedication to continuing education, they are not an end-all qualifier of expertise. Suffice to say, if you can’t be predictive you must be comprehensive to build a solid defense for a selected advisor. To document a comprehensive due diligence process, a customizable independent and objective electronic ERISA Advisor Evaluator™ RFP system is a valuable tool. (See www.erisaadvisorevaluator.com or www.erisaadvisorevaluation.com.)

Recent Regulatory Changes Create Unexpected Consequences for Advisors Claiming ExpertiseThe new plan and participant level fee disclosure rules in ERISA Sections 408(b)(2) and

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disclose your expertise, experience, capability, and activity. Also, post articles and PowerPoints referenced in your CV on your website. (See CV example: www.fraplantools.com/uploads/David%20Witz%20Curriculum%20Vitae.pdf.)

develop documented processes6

Processes may change but the need to document does not. Documentation is your proof of process. I suggest you leverage a web-based fiduciary governance system with a document lockbox tied to your website. The system should data stamp all documents; integrate investment, expense, and performance data; and provide a library of resources for you and your client. Leveraging technology is a cost-effective and efficient way to demonstrate process.

create a formal engagement agreement7

The agreement should reflect services rendered, fees charged for the services rendered, and fiduciary status of services (although, ERISA dictates what services are fiduciary in nature). In addition, it’s advisable to identify the services you don’t provide.

two heads are better than one8

ERISA is a complex area of professional practice that requires years of experience to master any one domain. Create opportunities for a team approach to succeed. If the team delivers the services in a cohesive manner, it doesn’t matter whether that team is proprietary, internal, or external. Even the Lone Ranger had Tonto.

Target marketing efforts9It’s important that your clientele reflect your subject matter expertise.

Choose a Specific Domain to Master1

Primary ERISA subject matter domains include investments, plan design, expense analysis, communication/education, fiduciary services, recordkeeping/administration, and custody/trust services. Each domain provides an advisor the opportunity to specialize in sub-categories. For example, an expert in investments might specialize in stable value funds, target date analysis, or asset protection strategies.

Publish or Perish2Write technical articles on your area of expertise at least once a year and campaign aggressively to have it published in a technical journal, not a sales magazine. Technical journals that subject articles to peer review are best, especially those journals that are peer reviewed by on-staff attorneys. To enhance efficiencies, write the article on a topic tied to a recent engagement that demanded a significant amount of your time in research.

secure strategic speaking opportunities3

Target industry conferences that focus on technical topics. A conference should be widely respected and attended by other recognized industry experts.

secure a designation(s)4Experts are students of their craft so any designation that is domain-related is beneficial. Designations that are difficult to obtain offer premium value to their holders.

talk is cheap; put it in writing5

Develop a curriculum vitae (CV) and post it on your website to

404a-5 create new risks for advisors unanticipated by the passage of the new regulations. For the first time, advisors must disclose their services rendered for fees received, fiduciary status, and source of compensation. Ignoring potential prohibited-transaction violations common in small communities where nepotism and the associated conflicts are more prevalent, a significant area of risk for advisors is tied to the disclosure of services for commissions received.

For many commission-based advisors, a service agreement hasn’t been provided in the past. To comply with the new regulations, advisors will now be required to provide a written disclosure of their services. It should come as no surprise that many advisors will be tempted to include services in their disclosure that they have never provided in the past. In fact, they may even be tempted to promise services in the future that they cannot or do not provide. In both scenarios, the advisor is vulnerable to a claim of unreasonable compensation and, ironically, it’s a claim that may be filed against the advisor by the plan sponsor. To manage this risk, an advisor will need to:1. Develop a written service

agreement;2. Carefully consider the menu of

services offered;3. Assess the ability to deliver

services at the level of an expert; and

4. Document when those services are delivered.

Steps You Can Take to Elevate Your Position as an ExpertAny advisor who is serious about his or her craft as an ERISA expert will give serious consideration to each of the following steps to create a mounting body of evidence to support a claim of expertise. Since experience is a key factor in determining expertise, it behooves an advisor to build a resume of activity over long periods of time in each step.


review your finra and/or sec report13

This should be done annually to confirm accuracy.

embrace a fee-based business model14

Commissions are paid to sell a product and, by their nature, create an inherent conflict for ERISA plans. To avoid a conflict, adopt a fee-based professional business model.

practice15Elite experts engage in meaningful and continuous practice. According to the Cambridge Handbook, practice is also called “ ‘lived work’ – what work consists of as it is lived as part of organizational life by those who do it.” While actual engagements provide opportunities for practice, it’s equally important to read and re-read technical books on ERISA.

These 15 action steps provide a general overview for advisors interested in securing their claim of expertise. Of course, there are many other variables this article doesn’t address that must be considered when defending a claim of expertise.

David J. Witz is managing director of FRA PlanTools in Charlotte, N.C.

This means the majority of your time, activity, and income are derived from your area of expertise.

target professionals for collaborative engagements

10

One of the best ways to defend your process in court proceedings is by referencing attorneys and CPAs who have retained you as their advisor or, even better, as an advisor on a mutual client. The new regulations under ERISA 408(b)(2) and 404a-5 provide unique opportunities for fee-based advisors to develop business engagements with attorneys and CPAs.

protect your reputation11Background checks are becoming a common practice. As a result, an advisor should obtain and review a personal comprehensive annual background check and be prepared to share it if requested.

insure your claim of expertise12

An expert should be able to present on request a certificate of insurance that clearly indicates the expert has affirmative fiduciary coverage. In addition, the expert should have the ability to prove the advisor has the capital reserves necessary to cover the deductible.

For many commission-based advisors, a service agreement hasn’t been provided in the past. To comply with the new regulations, advisors will now be required to provide a written disclosure of their services.

ASPPA RETIREMENT PLAN SERVICE PROVIDER CERTIFICATION

Assessments are performed by CEFEX, Centre for Fiduciary Excellence, LLC.

The following � rms are certi� ed* within the prestigious ASPPA Service Provider Certi� cation program. They have been independently assessed to the ASPPA Standard of Practice. These � rms demonstrate adherence to the industry’s best practices, are committed to continuous improvement and are well-prepared to serve the needs of investment � duciaries.

For more information on the certi� cation program, please visit: http://asppa.org/home-page/rkcert.aspx or call 416.693.9733.

Pinnacle Financial Services Inc.

Ingham Retirement Group

Ingham Retirement Group

SLAVIC401K.COM

ExpertPlan, Inc.

ASPire Financial Services, LLC

American Pensions

Bene� t Plans Plus, LLC

DailyAccess Corporation

Bene� t Consultants, LLC

Alliance Bene� t Group of Illinois

Rogers Wealth Group, Inc.

Rogers Wealth Group, Inc.

Moran Knobel

Alliance Bene� t Group of Houston

Alliance Bene� t Group of Houston

Actuarial Consultants, Inc.

Pension Plan Professionals, Inc.

Creative Plan Designs Ltd.

SI Group Certi� ed Pension Consultants

Summit Retirement Plan Services Inc.

Pension Solutions, Inc.

TIAA-CREF

Alliance Bene� t Group North Central States, Inc.

Retirement Planning Services, Inc.

Blue Ridge ESOP Associates

Atessa Bene� ts, Inc.

North American KTRADE Alliance, LLC.

Pension Financial Services, Inc.

Associated Bene� t Planners, Ltd.

Bene� ts Administrators, LLC

Kidder Bene� ts Consultants, Inc.

Summit Bene� t & Actuarial Services, Inc.

First Allied Retirement Services / Associates in Excellence

Bene� t Plans, Inc.

As of June 8, 2012


COMPL

iAnCE

By Gary D. Blachman and Bret Clark

correcting plan errors: a step-by-step guide

hether it’s a call from a participant wondering why the deferral election he

made nine months ago wasn’t implemented or an email from the record-keeper asking for an amendment that was never signed, the specter of the Internal Revenue Service (IRS) looms large whenever a retirement plan sponsor discovers an error.

Fortunately, the IRS has established a program intended to encourage sponsors to voluntarily correct plan failures. The Employee Plans Compliance Resolution System (EPCRS) [Rev. Proc. 2008-50] provides guidance on how certain errors should be corrected, but it’s complicated

and not comprehensive. The steps outlined below for correcting plan failures, along with examples from the authors’ experiences, will assist sponsors in efficiently and fully correcting plan document and operational errors that occur in the administration of retirement plans.

STEP 1: GATHER FACTS AND DETERMINE FAILURESWhen a sponsor discovers an error, the sponsor should contact the record-keeper and any other relevant parties to confirm exactly what occurred and whether there are any other related errors. Legal counsel should also be consulted. The full extent of the errors should be identified at the beginning of the correction

W

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sponsor had also failed to provide required suspension-of-benefits notices to employees who worked past their normal retirement age. The sponsor filed a VCP application proposing corrections for each of the errors.

After the transition to the new record-keeper was well underway, the sponsor discovered an additional operational failure: Several employees had been allowed to participate in the plan even though they weren’t eligible for participation on the date the plan was frozen to new participation. Although it generally takes several months for the IRS to review a complicated VCP application, in this case the sponsor received a VCP Compliance Statement less than four months after the VCP application was submitted and didn’t have time to supplement the VCP application to include the early-participation error. In order to correct the early-participation error, the sponsor was required to prepare and file a new VCP application and pay an additional VCP user fee.

After a sponsor identifies what errors occurred, it must determine how to correct the errors.

STEP 2: DETERMINE APPROPRIATE CORRECTIONEPCRS provides specific correction methods for the most common plan failures. The IRS has also developed the 401(k) Plan Fix-It Guide which provides instructions for correcting

As the transition continued, the record-keeper found several additional qualification issues—including allowing early participation for some employees, delaying participation for other employees, mistakes in Form 5500s for several years, and failing to provide notice of safe harbor matching contributions.

Each of these new qualification or compliance issues required reexamination of plan provisions, census data, and contribution data and a reevaluation of the entire correction strategy. A supplement to the initial VCP application, several amended Form 5500s, and two years later, the sponsor completed the correction process and received a VCP Compliance Statement. If the sponsor had carefully examined plan administration and identified all applicable failures from the beginning, the correction process would have taken less time and the cost would have been reduced.

In a similar situation, another sponsor also discovered several significant errors while transitioning to a new record-keeper. A previous amendment to the sponsor’s defined benefit plan provided an incorrect minimum benefit formula (which caused a benefit cutback), applied incorrect reduction factors to certain early retirement benefits, and included an incorrect table of factors used to calculate a supplemental pension benefit. The

process for two main reasons. First, time and money spent on

corrections can be minimized with careful fact finding and planning from the start. Additional failures discovered later, while a sponsor is finalizing a correction plan or implementing a correction, will require additional fact finding and reexamination of correction strategies, which inevitably results in more time spent on corrections and additional expense.

Second, a sponsor can include an unlimited number of failures in an application under the Voluntary Correction Program (VCP) of EPCRS for a single user fee when it submits the application to the IRS. After submitting the VCP application, the IRS will generally allow a sponsor to supplement the VCP application while it’s still pending. Once the IRS issues a VCP Compliance Statement, however, newly discovered failures generally require an additional user fee, which can be significant depending on the size of the employer (see below). [Rev. Proc. 2008-50, Section 10.07(5)].

For example, during a transition to a new record-keeper, a sponsor discovered a failure to timely amend its plan for good faith compliance with new final regulations under Code sections 401(k) and 401(m). The sponsor, with assistance from counsel, submitted a VCP application to correct the plan document failure.


a profit-sharing contribution to each group of employees in a different percentage of compensation. However, when the plan document was restated in conjunction with a transfer to a new record-keeper, the restatement provided for profit-sharing contributions in the same percentage of compensation for all employees, even though the sponsor intended the restated plan document to provide the same tiered profit-sharing contribution. In practice, the employer continued to provide the tiered profit-sharing contribution and the error wasn’t discovered until several years later when the plan was restated to comply with the next round of required updates (i.e., the Economic Growth and Tax Relief Reconciliation Act of 2001).

Although this is a prime example of a scrivener’s error, special care was taken to not describe it as such in the VCP application. Instead, the sponsor asked the IRS to allow a “retroactive amendment” to reflect the actual administration of the plan.

The IRS was somewhat concerned by the proposed correction because it could technically be construed as reducing participants’ benefits. In fact, under the tiered profit share some highly compensated employees received a higher percentage of compensation than some non-highly compensated employees. Whereas, under the incorrect formula in the restatement, all employees would have received the same percentage of compensation. However, the IRS approved the proposed correction based on participant communications that were provided as a supplement to the VCP application. The participant communications, which had been provided to participants at the time of the restatement, explained the tiered profit-sharing contribution. It should be noted, however, that even if the IRS permits correction of a scrivener’s error, it’s not binding on participants and they may still bring a suit under ERISA to enforce the terms of the erroneously drafted plan.

Proc. 2008-50, Section 4.05(1)] In practice, scrivener’s errors

shouldn’t be mentioned in a VCP application. Instead, the correction should be referred to as a “retroactive amendment” to bring the terms of the plan into compliance with the actual administration of the plan. Even if the document with the scrivener’s error provides for higher benefits than the sponsor intended, in our experience the IRS will allow a retroactive

amendment if the intended plan design is consistent with participants’ expectations. The challenge for the sponsor can be demonstrating participants’ expectations during the applicable time period.

For example, an employer had sponsored a plan for several years with a tiered profit-sharing contribution. The prior plan document specified three groups of employees, and the employer had discretion to provide

The IRS has established a

program intended to encourage sponsors

to voluntarily correct plan failures.

The Employee Plans Compliance Resolution System (EPCRS) [Rev. Proc. 2008-50] provides guidance on how

certain errors should be corrected, but it’s complicated and not

comprehensive.

the most common failures in 401(k) plans. (Available at http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf. EPCRS also provides guidelines for determining the appropriate correction method when the IRS hasn’t specified a correction for a particular failure. [See Rev. Proc. 2008-50, Section 6.]

Sponsors should keep the following guidelines in mind when determining appropriate corrections:

Participants must be made whole. The main focus of the IRS in determining whether a correction is appropriate is whether participants are in the same position after the correction that they would have been if the failure hadn’t occurred. [Rev. Proc. 2008-50, Section 6.02.] If participants aren’t made whole, the IRS will consider the failure corrected only in very limited circumstances (e.g., corrective distributions of less than $75 aren’t required if processing costs exceed the amount of the distribution and a sponsor isn’t required to seek repayment of overpayments of less than $100). [Rev. Proc. 2008-50, Section 6.02(5)] For example, an employer who fails to make a contribution cannot correct the failure by making a partial contribution. The failure won’t be considered corrected unless the employer makes the full contribution along with earnings.

The IRS doesn’t recognize scrivener’s errors. All too often, a document drafter makes mistakes when a plan is restated or amended (scrivener’s errors). After the restatement or amendment, the plan is administered in accordance with the intended provisions instead of the actual, incorrect plan terms, and the scrivener’s error is discovered later.

The IRS has consistently indicated that it won’t approve correction of scrivener’s errors. However, under VCP the IRS does permit a plan to be amended retroactively to reflect the actual administration of the plan, as long as the retroactive amendment doesn’t reduce accrued benefits. [Rev.

For example, a sponsor recently obtained IRS approval of an alternate correction method. The sponsor had retained all forfeitures in a suspense account for nearly 10 years. The sponsor had sufficient records to calculate the forfeiture allocations that should have occurred but it didn’t have sufficient records to determine the earnings and losses that would have accrued if the forfeiture allocations had been made timely.

A VCP application was submitted, explaining the proposed method for allocating forfeitures and requesting that the IRS allow earnings on the forfeiture allocations to be calculated based on the plan’s average earnings rate for the applicable period, instead of actual earnings. (As noted above, EPCRS allows earnings to be calculated based on the plan’s average earnings rate only when a participant hasn’t made an investment election.) The IRS approved the proposed

the plan for the period of the failure. [Rev. Proc. 2008-50, Appendix B, Section 3.01] If it’s not feasible to make a reasonable estimate of actual earnings, a reasonable interest rate may be used. [Rev. Proc. 2008-50, Section 6.02(5)(a)]

Alternative corrections. In some circumstances, the correction for a failure specified in Revenue Procedure 2008-50 is very burdensome for an employer and an alternative correction will also make participants whole. In this circumstance, the sponsor may consider filing a VCP application requesting that the IRS approve an alternative correction. As long as the alternative correction is reasonable and places participants in a similar position to the one they would have been in but for the failure, the IRS will often allow the alternative correction. [Rev. Proc. 2008-50, Section 6.02(2)]

Earnings and losses. When a proposed correction involves additional allocations to a participant’s account or corrective distributions or forfeitures from a participant’s account, the allocation, distribution, or forfeiture should be adjusted for earnings or losses. For the purpose of corrective allocations, however, losses may be disregarded. [Rev. Proc. 2008-50, Section 6.02(4)]

Generally, earnings or losses should be determined based on the actual earnings or losses that would have applied to a corrective allocation if it had been made timely. If most of the employees involved are non-highly compensated employees, earnings for corrective allocations may be calculated based on the investment fund under the plan with the highest earnings rate. If a participant hasn’t made an investment election, earnings may be calculated based on the weighted average earnings rate for


In our experience, the IRS generally approves reasonable corrections and, when there is a concern about a proposed correction, the agent will negotiate in good faith for a correction that isn’t unduly burdensome to the sponsor. However, if the IRS and the sponsor can’t agree on a correction, the IRS could potentially audit the plan and impose penalties. Before a VCP application is submitted, the sponsor should consider possible alternative corrections that the IRS may require and confirm that it’s willing and able to comply with such an alternative correction if required by the IRS.

If the appropriate correction for a failure is unclear or the correction is potentially expensive, the sponsor may consider filing an anonymous VCP application. [Rev. Proc. 2008-50, Section 10.10] With an anonymous application, the identity of the plan and sponsor aren’t disclosed until the IRS agrees to the correction. However, if the IRS initiates an audit before the identity of the plan is disclosed, the IRS will treat the failure as if a VCP application hadn’t been filed.

STEP 4: MAKE THE CORRECTIONAfter an appropriate correction method is determined and the sponsor either confirms that the failure may be corrected under SCP or obtains a compliance statement under VCP, the sponsor should implement the correction. As a sponsor implements a correction method, it should be especially careful to (a) make corrections timely and (b) document corrective actions. The deadline for completing a correction depends on whether SCP or VCP applies.

Timing of the SCP correction. Under SCP, the sponsor doesn’t qualify for corrective relief for a significant failure unless the correction is either completed or substantially completed before the end of the second plan year

SCP is also available for insignificant failures. The sponsor must determine whether a failure is insignificant based on the following factors: what other failures occurred at the same time, the percentage of plan assets involved, the number of years involved, the number of participants affected (relative to the total number of participants and relative to the number of participants that could have been affected), whether the failure was corrected within a reasonable time after discovery, and the reason for the failure. [Rev. Proc. 2008-50, Section 8]

VCP. If SCP isn’t available, the failure must be corrected under VCP. VCP requires a sponsor to submit an application to the IRS along with a user fee based on the number of participants in the plan. Fees range from $750 for a plan with 20 or fewer participants to $25,000 for a plan with more than 10,000 participants. [Rev. Proc. 2008-50, Section 12.02(1)] The VCP application must include an explanation of the details of the error, the proposed correction, and the procedures in place to prevent reoccurrence of the error.

If the IRS discovers failures during an audit, VCP and SCP aren’t available (except that SCP does remain available for insignificant failures). If significant failures are discovered during an audit, the IRS will require correction and impose penalties significantly higher than the VCP fee that would have applied. This creates a significant economic incentive to correct under SCP or VCP. [Rev. Proc. 2008-50, Section 10]

IRS Review. After a VCP application is submitted, an IRS agent will be assigned to review the proposed correction method. If the IRS agent disagrees with a proposed correction or has any questions, he or she will contact the sponsor. The sponsor may supplement the VCP application with additional information and documents to support its proposed correction or it may negotiate with the IRS agent for an agreeable, alternative correction.

correction, demonstrating that in some circumstances reasonable estimates will be allowed when actual amounts aren’t available or would be expensive to obtain.

DOL corrections. Although the IRS has jurisdiction over many of the most common plan errors, it’s important to note that some issues fall within the jurisdiction of the Department of Labor (DOL). Specifically, the DOL has jurisdiction over issues relating to the handling of plan assets, compliance with fiduciary duties, prohibited transactions, and Form 5500 filings. The DOL’s Delinquent Filer Voluntary Compliance Program provides procedures for filing late Form 5500s. [PWBA Notice, 3/28/2002]

In addition, the DOL’s Voluntary Fiduciary Correction Program provides corrections for several types of failures (e.g., late contributions of employee deferrals to a plan’s trust). [EBSA Notice, 4/19/2006] Corrections under these programs may be made at the same time as corrections under EPCRS. However, the IRS and DOL determine the sufficiency of corrections independently.

STEP 3: FILE FOR IRS APPROVAL, IF NEEDEDAfter the appropriate correction for a failure is determined, a sponsor must also comply with the correction procedures outlined in EPCRS. EPCRS provides two programs for correcting plan errors outside of an IRS audit: the Self-Correction Program (SCP) and VCP.

SCP. SCP is generally preferable if it’s available because a formal application to the IRS for approval of a correction isn’t required, saving the sponsor the VCP fee and, possibly, additional legal and record-keeping fees. [Rev. Proc. 2008-50, Part IV] SCP is generally available for failures that are corrected before the end of the second plan year, after the year in which the failure occurs. [Rev. Proc. 2008-50, Section 9]

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sponsor’s file should also contain written verification that each step in the correction process was timely completed. After completing the correction, the sponsor should review the file to confirm that if the plan were audited by the IRS in the future, the auditor would be convinced from the documentation in the file that the sponsor fully corrected the failure in accordance with EPCRS.

CONCLUSIONDealing with plan errors will always be a stressful experience, but stress can be minimized if a sponsor carefully (a) gathers facts and determines the extent of the errors, (b) determines appropriate corrections, (c) complies with SCP or VCP procedures (or DOL procedure), as applicable, and (d) implements the correction timely.

The law in this area is always subject to change and, in fact, the IRS has indicated that we should expect a revised EPCRS “soon.” Regardless of changes in the technical correction rules, however, the steps outlined above will continue to be a valuable guide for navigating the correction process.

Gary D. Blachman is a partner and Bret Clark is an

associate in the Employee Benefits & Executive Compensation group at Thompson Hine LLC in Cincinnati, Ohio.

following the plan year of the correction or, if earlier, the date the sponsor receives notice of an IRS audit (the “SCP deadline”). Generally, a failure is treated as substantially completed if the failure has been corrected for at least 65 percent of the participants involved. If a sponsor substantially completes a correction under SCP before the SCP deadline, the failure will be treated as corrected before the SCP deadline as long as it’s actually fully corrected within 120 days of the SCP deadline. [Rev. Proc. 2008-50, Section 9]

Timing of the VCP correction. Once a sponsor receives a compliance statement, the sponsor generally has 150 days to fully complete the correction agreed upon and described in the compliance statement. If needed, the sponsor may obtain an extension by contacting the IRS auditor who reviewed the VCP application before the expiration of the 150-day period. [Rev. Proc. 2008-50, Section 10.07(9)]

If the correction is not completed within the 150-day period, or within an extension granted by the IRS, the failure won’t be treated as corrected. The sponsor will have to ask the IRS to approve the late correction. It’s entirely within the discretion of the IRS to approve a late correction and, in some cases, the IRS may impose an additional penalty.

Documenting corrections. Regardless of whether a sponsor corrects a failure under SCP or VCP, the sponsor should carefully document each step in the correction process. The sponsor should keep an internal file with an explanation of why a specific corrective action was taken, any administrative changes implemented to prevent reoccurrence of the failure (if applicable), a copy of the VCP application itself, along with any correspondence with the IRS during the review of the VCP application, and a copy of the VCP Compliance Statement. The

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marketing

By Barbara Lewis

Now’s the Time for a Mid-Year Marketing Tune-Up

Marketing is an ad hoc sport in many firms. They send out one newsletter or try one webinar and if there are no immediate and visible results, they abandon the marketing activity. But results from marketing may take months to materialize. If firms don’t track the source of new business, then they usually aren’t able to identify to which marketing activities they should allocate their time and money.

Mid-year is an ideal time for a marketing tune-up, which includes identifying the source of all new business in 2012. As a result of this exercise, firms have made drastic changes to capitalize on those activities that were successful

Marketing programs don’t just run themselves; they need periodic analysis and adjustment.

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and eliminate those that weren’t. If you’re not tracking the source of new business, then you may be missing substantial opportunities.

CASE IN POINTThe week before our meeting, one client decided to drop a speaking engagement at a state-wide conference where she had spoken over the past few years, because she wasn’t able to remember any new business that had resulted from the speech. But when we analyzed the spreadsheet of the source of her clients, we discovered that the speech had actually generated several clients every year. She immediately called the organization to say that she wanted to speak again at their annual conference.

In another situation, the partners were unsure where to place their marketing efforts. Much to their surprise, they discovered that a substantial amount of business came from a specific organization. The partners knew that the organization had generated some clients for them but not to the extent that the spreadsheet analysis revealed. Mid-year they redoubled their efforts to market to that organization and it paid off for them.

Tracking the source of new business is probably one of the most important projects you can undertake because it has a direct impact on your marketing results. Another important variable that influences the marketing plan is the client industry. By identifying the industries that show up frequently in your client base, you can target those specific industries for future marketing.

Prospects like to know which clients you have that look like them. For example, physicians want to know if you work with other doctors and lawyers are interested in whether you have other attorneys as clients. This knowledge helps the prospects feel more comfortable about working with you, since you have experience in their industry. And with a foothold in a specific industry, you have the credibility to confidently market to prospects within that industry.

Another important variable is assets under management (AUM) or revenues. A local CPA may generate a number of clients but many of them may be small and require a lot of handholding, which eats up your staff’s time. So by tying the clients to the revenues, you can determine whether the referral source is cost effective.

Other important variables include (a) the date of the client engagement, which will help in tracking the number of new clients per month, quarter, and year. It will also indicate any seasonality in your business generation; (b) the type of client, such as individual or business, which is important since marketing activities need to be adapted to the type of client; (c) the client’s location, which signals opportunities for geographic marketing around the current clients’ clustered locations; and (d) the type of work done for clients, which helps identify growth trends that highlight future marketing strategies.


8. Webinars for entertainment companies that aren’t local to demonstrate the partners’ expertise;

9. Website content focused on entertainment companies to show that the firm has experience in the entertainment industry, etc.; and

10. White papers targeted to the entertainment business help build the prospect database when prospects request to download the paper.

Marketing should not be an ad hoc sport. It’s an activity that requires both the left brain (analysis) and the right brain (creative) for the best success. By using analytics to track your clients, coupled with creative ideas about marketing events, you can execute a mid-year marketing tune-up that will boost your new business development for the remainder of the year.

Barbara Lewis has been a marketing consultant in the retirement industry for more

than two decades. She serves as the outsourced chief marketing officer for her clients, many in the financial services industry. You can follow her blog on marketing tips at www.centurioncmo.com. She can be reached at (818) 784-9888 or at [email protected] or connect with her on LinkedIn at www.linkedin.com/in/barbaraalewis.

marketing plan for the entertainment companies could include the following activities:1. Bylined articles for industry

publications, which clients have mentioned that they read, and which will build the firm’s reputation in the industry;

2. E-newsletters with content that is targeted specifically for entertainment companies to keep the firm’s name in front of prospective clients;

3. News releases geared for entertainment companies and distributed to publications in the entertainment industry to increase the firm’s profile;

4. Inviting businesses in the building and the local area to seminars in the firm’s office (also known as

geo marketing), which will help develop personal relationships with local companies;

5. Social media, such as LinkedIn, where the firm can launch an entertainment business group to maintain a consistent outreach with prospective industry clients;

6. Speeches at industry conferences that current clients highlight as important;

7. Surveys for entertainment companies, the results of which can get traction in the press through news releases;

The ideal analysis is over a three-year period, which exposes trends that can become important marketing lighthouses. For example, after conducting an analysis of new business over a three-year period, a client saw her business clients in the entertainment industry double every year to 20 percent of total revenues, from 5 percent the first year to 10 percent the second year. If the trend continued into the fourth year, the firm would have 40 percent of all clients in the entertainment industry—an important trend for the firm’s marketing.

When they investigated why the sudden increase in entertainment clients, they discovered that the firm had moved into a building with many entertainment companies. As

a result of seeing the same people in the elevators and in the food court, the firm’s partners had befriended many executives, who then became clients of the firm.

If only the last year had been analyzed, then the entertainment industry clients would have constituted only 20 percent of their business, which may not have been substantial for a marketing focus. Since the growth was estimated to double again, the firm decided to increase their marketing efforts within the entertainment industry. A

Marketing should not be an ad hoc sport. It’s an activity that requires both the left brain (analysis) and the right brain (creative) for the best success.

Client Name Client Industry Work Referral Name Referral Industry Referral Activity AUM or Revenues Annual Fee City State ZipMonth Year Individual Business

1 ABC Company March 2009 Medical 401(k) 1 Don Greg CPA $3,000,000 $30,000 Dallas TX 123452 DEFG Firm April 2009 Law Profit sharing 1 Betty Smith Law $2,000,000 $20,000 Denver CO 123463 John Smith May 2011 Retired Financial Planning 1 Speech $1,000,000 $10,000 Boston MA 12347

Date became Client Client Type

SAMPLE MARKETING ANALYSIS SPREADSHEET

I AM ASPPA!PROFESSIOn: Pension Administrator

cOMPAny: Stephen Eldridge & Company, Inc.

HObbIES: Bicycling, quilting and sailing

lAST bOOK READ: The Last Lecture, by Randy Pausch GREATEST AccOMPlISHMEnT: Being the mother I always wished I could be and raising two wonderful, respectable kids, age 13 and 17. WHy I DO WHAT I DO: I enjoy the technical aspect FAvORITE QUOTES: “In the end, it’s not going to matter how many breaths you took, but how many moments took your breath away.”– Shing Xiong

“We cannot change the cards we are dealt, just how we play the hand.” – Randy Pausch

ASPPA MEMbER SIncE: 1998

cInDy n. WEISMAnQPA

WWW.ASPPA.ORG


A current Roadmap to Pre-approved defined contribution plans

business practices

Dating as far back as the early 1960s, the Internal Revenue Service (IRS) offered different versions of pre-approved plans. The employee plan universe has seen prototype plans for corporations and self-employeds, pattern plans, field prototype, mass submitter prototypes, volume submitter plans, and regional prototype plans. The two that currently remain are the Master &

By Susan D. Diehl, QPA

Pre-approved DC plans were designed to make implementation easier and more efficient. Here’s how two such programs, the Master & Prototype and the Volume Submitter, are supposed to work.

47www.asppa.org/pc

account and may include an adoption agreement, is a specimen plan of a VS practitioner (i.e., a sample plan of a VS practitioner rather than the actual plan of an employer) that its employer-clients will adopt on an identical basis or substantially identical basis. From the time VS plans were introduced there were differences that made one attractive over the other, depending on the type of clients that the VS practitioner entertained.

A “VS practitioner” is a U.S. business accessible during business days with at least 30 employer-clients, each of which is reasonably expected to adopt a plan that is substantially similar to the VS practitioner’s specimen plan. This requirement is reduced for a specimen money purchase pension plan if a practitioner has at least one other type of specimen plan that satisfies the 30 employer-client mandate. A VS practitioner may submit any number of specimen plans for advisory letters, provided the 30-employer (or 10, if applicable) requirement is separately met on each specimen plan.

A “VS mass submitter” is a U.S. business, accessible during business days, that submits advisory letter applications on behalf of at least 30 unaffiliated practitioners, each of which is sponsoring, on a word-for-word identical basis, the same specimen plan.

DIFFERENCES BETWEEN M&P AND VS PLANSRevenue Procedure 2011-49, in addition to laying out the foundation for the drafting of the M&P and VS plans, also clarifies what can and cannot be done with pre-approved plans.1. VS plans, but not M&P plans,

can include governmental plan provisions, using a standalone plan document.

2. M&P sponsors may submit under the “minor modifier” rules, under which a plan sponsor may modify a mass submitter’s plan to accommodate minor changes from a word-for-word adoption. Adopters of volume submitter plans may make minor modifications to the

some cases, financial institutions use this type of plan to restrict the investments to only their products but this isn’t a very common feature in qualified plans. In addition to a trust, a master plan consists of a basic plan document and an adoption agreement. A trust may be integrated into the plan document.

A “prototype plan” is a plan comprising the same components except that a separate funding medium is established for each adopting employer and there are usually no restrictions on the type of investment products that can be a part of the plan.

An “M&P sponsor” is a U.S. business accessible during business days and has at least 30 employer-clients, each of which is reasonably expected to adopt the sponsor’s basic plan document word-for-word. “Substantially identical” plans may receive expedited review, even if they’re not mass submitter plans. M&P plans can be in standardized and non-standardized form.

A “standardized plan” has more required provisions in the plan and adoption agreement and fewer changes are permitted. A standardized plan has limited exclusions and is required to use total compensation. In other words, the adoption agreement cannot exclude bonuses, overtime, or other amounts, and the exclusions are limited to the “statutory exclusions” under section 410(b) of the Code.

A “nonstandardized plan” goes beyond the basic provisions. With the increase in the allowable provisions, however, testing of the benefits, rights, and features is required to ensure that the plan remains appropriately nondiscriminatory (e.g., coverage, employer allocations, etc.). Unlike a standardized plan, these plans may use exclusions from compensation and are allowed further exclusions from eligibility (such as the last-day rule or the requirement of 1,000 hours of service).

A “VS plan,” which consists of a plan document and a trust or custodial

Prototype (M&P) and the Volume Submitter (VS) programs.

During the past 20 years, the use of M&P and VS plans has increased dramatically. The IRS estimates that at least 94 percent of all qualified retirement plans are pre-approved plans. Undoubtedly this has been the IRS’s goal since such pre-approved plan programs were invented to provide a more efficient approach. Rather than the IRS reviewing thousands of individually written plan documents, a pre-approved system allows the IRS to conduct its reviews quickly and efficiently and issue Listing of Required Modifications (LRMs) with sample plan language that will meet IRS scrutiny upon review.

Each restatement period since the 1960s has provided more flexibility by adding types of plans to the pre-approved plans program and adding to permissible provisions that were at one time only allowed in custom plans.

This article focuses on Revenue Procedure 2011-49, which goes yet another step in the process of “closing the gap” between M&P and VS plans. It discusses changes to the M&P and VS plans, and summarizes the differences and similarities between them. At the end of this article is a comparison chart summarizing such similarities and differences.

For more information on the history of pre-approved plans and some statistics on the types of plans go to: www.irs.gov/pub/irs-tege/tege_act_rpt6.pdf for a copy of the report presented to the IRS from the Employee Plans subcommittee of the Advisory Committee for TEGE (ACT). This report of recommendations was presented to the IRS in 2007 and served as a guideline to some of the changes we’ve seen over the past few years.

BASIC DEFINITIONSA “master plan” is a plan for which a single funding medium (e.g., a trust or custodial account) is established as part of the plan and all employers use the same funding medium. In


AcT vS PRAcTITIOnER (vSP) PROTOTyPE SPOnSOR (PS)

Furnish each employer with copy of plan, copies of all subsequent amendments, and opinion letter Yes Yes

Ensure that employers complete and sign new AAs when necessary Required Same as VSP

PS/VSP abandons the planEmployer notification that the form of the plan has been termi-nated, and that the employer's plan will become an IDP (unless the employer adopts another pre-approved plan)

Same as VSP

VSP/PS must maintain a list of the employers that have adopted or are expected to adopt the VSP/PS plans, including the employers’ business addresses and employer identification numbers.

Maintenance of this list for all employers who have adopted all plans within the preceding three years Same as VSP

A PS/VSP must notify the Service if an approved plan is no longer used by any employer and the sponsor no longer intends to offer the plan for adoption.

Notification must be made in writing to the EP Rulings and Agreements Same as VSP

If the VSP’s plan permits the VSP to amend the plan on behalf of employers

VSP also agrees to comply with any requirements imposed on sponsors of M&P plans by this procedure N/A

Failure to comply with these requirements Result may be the loss of eligibility to sponsor specimen plans and the revocation of advisory letters that have been issued to the VSP. Same as VSP

Filing of opinion letter application constitutes agreement to comply with recordkeeping requirements

Applies Applies

Loss of qualified status of the employer’s plan

If a PS or VSP reasonably concludes that an employer’s plan may no longer be a qualified plan and the PS or VSP does not or cannot submit a request to correct the qualification failure under EPCRS, it is incumbent on the PS or VSP to notify the employer:• That the plan may no longer be qualified;• That adverse tax consequences may result from loss of the plan’s qualified status; and• Of the availability of EPCRS.

Same as VSP

More information on these responsibilities and the results of the EPCU project on the above information may be found on the IRS website at: www.irs.gov/retirement/article/0,,id=182053,00.html

ROAD MAINTENANCEResponsibilities of the VS Practitioner and the Prototype Sponsor

have been submitted to the IRS for approval. The sponsor then makes its plan(s) available for employers to adopt. The parties in a VS plan are the adopting employers, practitioners, and mass submitters, if applicable. Where the IRS has issued advisory letters to VS practitioners on the acceptability of the form of the specimen plans, that practitioner will then be able to offer its plan or plans to employers for adoption.

Below are two charts. The first outlines the responsibilities of the VSP and PS; the second outlines the similarities and differences between the M&P and the VS plans.

Susan D. Diehl, ERPA, QPA, is president of PenServ Plan Services, Inc. in Horsham, Pa.

loans, for example, then the section in the plan and the adoption agreement that refers to loans is removed and generally replaced with “reserved.” M&P plans can have as many as six administrative flexible provisions and six investment flexible provisions.

5. The relevant parties are different: Under M&P plans the parties are the adopting employer, the sponsor of the M&P plan, and the M&P mass submitter, if applicable. Each of these is involved at a different level in the process. The IRS issues opinion letters to mass submitters and/or sponsors of M&P plans that

volume submitter specimen plan without submitting as a “minor modifier” or as an individually designed plan.

3. VS plans aren’t required to have an adoption agreement; the plan can be submitted as a single integrated plan document. M&P plans must have an adoption agreement. Both must have trust provisions or a separate trust document.

4. Flexible provisions continue to be permitted in M&P plans. This feature permits the prototype’s sponsor to remove certain sections because they don’t apply or because the financial institution offering the plan doesn’t offer the provision. If the prototype’s sponsor doesn’t offer

49www.asppa.org/pc

THE PAVED ROAD

REvEnUE PROcEDURE2011-49 M&P vS

Plan document Yes Yes

TrustYes (separate doc. or incorporated into plan doc.); For prototype plans maximum of 10 separate trusts plus one that can be a part of the document. (additional fees apply for trusts exceeding 10)

Yes (separate doc. or incorporated into plan doc.)

Trust amended by employer

Employer may amend administrative provisions of the trust and it will not be considered an IDP and only for a nonstandardized plan.

Standardized Plans may only amend the following in a trust document:• names of the plan,• employer,• trustee or custodian,• plan administrator and other fiduciaries,• the trust year, or• the name of any pooled trust

Same as VSP

Adoption Agreement (“AA”) Yes Optional

Mass Submitter Yes Yes

Electronic signature on AA Yes, new for PPA Submission Yes, new for PPA Submission

IRS approval letter Opinion letter Advisory letter

Multiple Employer Plans Yes, new for PPA Submission Yes, new for PPA Submission

Multiemployer/Union No No

Stock bonus plans No No

Plans under §414(k) No No

Governmental Plans NoYes, but not Governmental plans that include “DROP” provisions or similar provisions

church Plans NoYes but not Church plans under § 414(e) that have not made the election provided by § 410(d)

Plans that incorporate by reference 415, ADP and AcP tests No No

Hardship distributions that do not satisfy the safe harbor No No

Plans not containing 414(u) requirements No No

Plans with 401(h) accounts No No

Plans under 414(x) (DbK) No No

Stand-alone governmental plans No. May be handled in Adoption Agreement but plan must have all provisions Yes, but see restriction above

Multiple Employer plans Yes, new for PPA Submissions Yes, new for PPA Submissions

Minimums required by plan submitter Yes, mass submitter: minimum 30 unaffiliated sponsors required

Yes, for practitioner: minimum 30 employer-clients; for mass submitter: minimum 30 unaffiliated practitioners (exceptions apply)

Reliance on opinion/advisory letter Yes, subject to restrictions Yes, subject to restrictions

Amendments to plans by sponsor on behalf of employer Yes Yes, new for PPA Submissions

Flexible provisions Yes, up to 6 administrative and 6 investment related provisions No, not permitted

Minor modifiers Yes, after the original 30 “word-for-word,” modifiers may be added No

non-applicability IRAs (including traditional, Roth, SEPS, and Simple IRAs) and section 403(b) plans 403(b) plans (see Rev. Proc. 98-59)

Standardized/nonstandardized versions of Adoption Agreements Yes

No. However practitioner or employer may amend the document and submit on 5307 without the plan becoming an IDP

Add

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al P

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Type

s Th

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ay b

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bmitt

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Tax-Exempt & Governmental Plans

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ASPPA has designed the Plan Financial Consultant certi� cate program to meet the sales-focused needs of retirement plan � nancial advisors and consultants. The PFC certi� cate program provides practical knowledge essential to � nancial consultants who service the retirement plans market. The new era of retirement plan sales requires specialists - ensure you have the knowledge to compete!

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The Retirement Plan Fundamentals course material has become an integral part of our employee 401(k) training program. Through its wide range of topics and depth of information, this course has proven to be a solid foundation for providing the knowledge and insights necessary to assist clients and achieve even greater success in the recordkeeping industry”.

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Imagine this: You’ve been working for weeks on a major analysis to present to an important client. Your report has been submitted, and now you’re presenting your recommendations to the plan’s board of trustees. Finishing your presentation with a confident smile, you invite questions. About three minutes into the Q&A, one of the board members asks a question that raises an issue you don’t remember taking into account when you prepared your analysis.

By Lauren Bloom

Errors and Omissions: What to Do When You’ve Made a Mistake

Ethics

Admitting a mistake may make you feel foolish in the short term, but it’s the best way to build and maintain long-term trust.

53www.asppa.org/pc

errors. Then present your client with your corrected analysis and recommendations, being prepared to answer additional questions until your client is satisfied that you’ve successfully addressed your mistake.

It can be embarrassing to admit to error, and some consultants worry that acknowledging mistakes will undercut their relationships with their clients. While an admitted mistake may rattle a client in the short run, most clients understand that even the best consultants are human and make an occasional error. Honestly admitting to a mistake and working effectively to rectify it usually leads clients to trust you more, because they know you can be relied upon to put their interests ahead of your own ego. It may not always be comfortable to admit that you’ve made a mistake, but it’s the ethical thing to do.

Lauren Bloom is an attorney who speaks, writes, and consults on business ethics and

responsible litigation risk management, and a contributing columnist for TheStreet.com. She is the author of the award-winning book, The Art of the Apology – How to Apologize Effectively to Practically Anyone and the e-book Elegant Ethical Solutions, A Practical Guide to Resolving Dilemmas While Preserving Your Business Relationships, available through the ASPPA Bookstore. She can be reached online at [email protected] or by calling (703) 585-0651.

the issue is less critical or relevant than it seems at the moment. Leaping to the conclusion that your analysis is entirely wrong and your recommendations need to be changed could well be simply another mistake, and one that could seriously damage your client’s confidence in your professional competence.

At the same time, you don’t want to let your client act on your advice until you’re comfortable that it’s correct. Let’s presume that the board of trustees is scheduled to vote on your recommendations at this meeting. If you fail to disclose the potential error now, your client could suffer a significant injury if the board approves recommendations that do, in fact, fail appropriately to reflect a critical issue.

In situations where you realize that you may have made a mistake, a good course of action can be to disclose that possibility to the client, then correct the error. You might respond to the board member by saying something like this:

“That’s a good question and, as I stand here, I’m not entirely sure we’ve fully considered its implications. Before the board acts on our recommendation, I’d like the opportunity to review our work and ensure that it appropriately addresses the issue you’ve raised.”

Once you’ve been given an opportunity to review your analysis, do so as quickly as you can without making additional

You suddenly realize that your work contains a potentially serious mistake, and that your entire analysis and series of recommendations could be entirely wrong. You also believe that it would be possible to adjust your future work so that your client would never discover the error. As these thoughts run through your head, the entire board waits for your answer to the board member’s question.

WHAT SHOULD YOU DO?While you might be tempted to answer, “say nothing, then correct for the error without telling my client,” that response would violate ASPPA’s Code of Professional Conduct. ASPPA’s Code expressly requires ASPPA members to “perform professional services with honesty, integrity, skill, and care.” An ASPPA member who covered up a potentially serious error would have a hard time arguing that she acted honestly or with integrity. When a mistake occurs, the ethical choice—and the one that satisfies ASPPA’s Code—is to disclose the mistake to your client.

That doesn’t mean, however, that the disclosure necessarily has to be immediate. After all, you’ve spent several weeks putting together a thorough and complex analysis. It’s possible that your work product actually does address the board member’s issue, but you’ve simply forgotten. It’s also possible that

While an admitted mistake may rattle a client in the short run, most clients understand that even the best consultants are human and make an occasional error.


Think of a 401(k) plan like a machine. From the beginning, the parts came in a big box, some assembly required. The participant could follow the included instructions alone, or hire an expert to help put it all together.

The do-it-yourself approach hasn’t worked. Numerous studies show that participants left to their own devices to invest their retirement savings just don’t accomplish what we all had hoped for: retirement savings sufficiency. Either they aren’t reading the instructions, or they don’t understand them. Either way, this

By Steve Athanassie

investment advisor

Target-Date Funds: Specialized Advisory Tools Required

Target-date funds are powerful and popular among advisors and participants, but they’re not always as simple as they seem.

55www.asppa.org/pc

commodities, by adding or removing them, according to Morningstar.

Other managers have added derivatives to their mix. According to the Morningstar Target Date Series Research Report 2011, the industry average of “total change in underlying fund assets” was more than 23 percent during the past three years. Some were as high as 95 percent, and others were at 34 percent.

Most fiduciaries and advisors are unaware of these behind-the-scenes changes at many of the most widely used TDFs. Strategic decisions like these, made on behalf of participants by non-fiduciary TDF managers, put plan fiduciaries and advisors in a precarious position. Understanding how to effectively measure and compare different TDF investment approaches, in real-time, is crucial.

CAN’T WE ALL JUST GET ALONG…AND MORE CONSERVATIVE?The challenge is that the vast majority of Americans have under-saved for their retirement and are in desperate need of above-average returns. If their TDF is designed to become very conservative many years ahead of their retirement and the equity markets experience a sustained multi-year surge, the underperformance of these funds will penalize these participants in terms of forgone accumulation of wealth. Furthermore, higher allocations to bonds could result in significant losses as economic conditions improve and interest rates rise from historic lows.

On the other hand, if they’re placed in a TDF with a higher equity approach, they face the risk of a devastating major market decline immediately before their retirement, as happened to many TDF investors in 2008. A similar decline in 2001-2003 would have had the same result if TDFs had been as popular then.

There is a delicate balance between accumulating wealth, avoiding loss, and planning for a specific liquidity need: retirement.

unique criteria required to assure that one part of the machine meets a particular International Organization for Standardization (ISO) standard. Once the machine is assembled, it’s no longer a series of parts, but is instead a complete whole, or idea. In the same vein, a TDF manager assembles a portfolio by using his or her unique views on how portfolios should be constructed and managed; therefore specialized methods are required to measure the effectiveness of their approach.

LET’S HAVE A BROADER CONVERSATIONThe popular debate today is focused on two divergent ideas—the “to” or “through” portfolio management approach. The fact that a debate is taking place on these ideas illuminates the point that this isn’t simply a discussion about how effectively a manager adheres to a particular style of investing (i.e., large-cap, small-cap, etc.), but that it extends to the manager’s approach to the fund overall. That’s why I’m contending that a much broader conversation is necessary.

Before the debate can become meaningful, however, advisors need to come to terms with several things: (1) TDFs are here to stay and will likely continue to play a dominant role in the retirement plan space; (2) advisors could fill a very important role in effectively identifying and monitoring TDFs; and (3) most advisors will need to expand their toolkit to include more analytical and statistical tools when conducting due diligence on TDF investment strategies.

Ibbotson (a Morningstar company) illustrates the problem in its white paper, “Bait and Switch: Glide Path Instability.” Many of the largest TDFs, the paper explains, exhibit year-over-year instability due to glide path adjustments by fund managers. Adding to the instability, TDF managers frequently change underlying asset classes, such as real estate investment trusts (REITs) and

realization left the field wide open for a solution participants not only could use, but one they would use; a solution that would benefit them without too much effort on their part. That solution is the target-date fund.

Target-date funds (TDFs) are one of the first investment products to really appeal to the masses and at the same time provide a complete investment solution, instead of just serving as one part of a whole investment solution.

Target-date funds are simple, because they’re designed as a one-step solution. Participants ideally invest their entire account in the TDF, eliminating the need for periodic rebalancing of their investment portfolio. Their ease of use, combined with their addition as a default option under the Pension Protection Act of 2006, has prompted many plan fiduciaries to offer TDFs in their plans, either as a qualified default investment alternative or otherwise. However, things aren’t always as simple as they seem.

IS THE TRADITIONAL METHOD OF EVALUATING A TDF ADEqUATE?This new emphasis on TDFs in qualified plans presents a potential problem for plan fiduciaries: Conventional methods of evaluating a fund (the parts) may not be the most effective way to gauge a target-date fund (the whole).

As retirement plan experts, it’s incumbent on us to reach deeper into our toolkits and employ sophisticated evaluation methods in assessing TDFs in the plans we advise. Tools traditionally used to measure a fund manager’s adherence to a particular “style” box simply don’t go far enough. Instead, tools that measure the fund manager’s entire philosophy in developing the fund need to be brought into the assessment process.

Calling again upon the machine analogy, the criteria required to assess the performance of an assembled machine vary from the


Traditional fund measurement tools don’t go far enough in helping to frame participant needs and expectations as they get close to retirement.

The issue isn’t as critical for long-dated TDFs (i.e., 2040 or 2050) since the glide paths of most of these funds begin in almost an identical position, with about 90 percent of the portfolio in equities and 10 percent in bonds. Most long-dated funds have higher volatility and, arguably, higher volatility serves the early saver well. It helps these participants accumulate more shares during periods of declining equity markets through the miracle of dollar-cost averaging. It’s only when TDFs approach the target-date, or landing point, that glide paths begin to diverge.

The difference in equity allocations at the landing point can be large, with some funds investing nearly 70 percent of assets in equities at retirement and others 20 percent. The difference is because funds with a “to” approach accelerate more rapidly toward the landing point, with fewer stocks and more bonds/cash, when compared to “through” funds. Since volatility is a major risk factor as the participants’ liquidity need gets closer, the last 10 or so years are the most critical portion of the glide path. It would be logical then that a different set of criteria be used to measure risk in near-dated (i.e., 2015, 2020, and 2025) than in long-dated TDFs.

FIDUCIARIES NEED TO BE ABLE TO DEFEND THEIR TDF CHOICEIt’s conceivable that plan fiduciaries might someday be called upon to demonstrate how they picked their plan’s TDFs. Their approach to measuring and monitoring the fund’s risk—particularly in near-dated funds—could also be subject to scrutiny. They should be able to confirm that the manager’s approach in the TDF they’ve selected is consistent with their participant’s objectives. Peer-group or broad-based index comparisons aren’t adequate; they in no way provide a comprehensive picture of a manager’s chosen investment approach or the suitability of a TDF to a particular group of participants.

Instead, plan fiduciaries and advisors would be wise to look to the hedge fund world, where the styles of fund managers are regularly assessed. Family offices of the wealthy were early adopters of very sophisticated tools used to assess and compare the approaches of hedge fund managers. They employ a variety of analytical measures to assure their investments are producing decent returns along with a reasonable amount of safety.

Comparing TDF manager approaches is similar to comparing various hedge fund approaches, like long/short strategies, managed futures, fixed-income and convertible arbitrage, etc. Although the basic statistics derived from Modern Portfolio Theory (MPT)—alpha, beta, Sharpe Ratio, standard deviation, etc.—have become part of a rudimentary toolkit, recent years have seen an increase in the number of advanced

57www.asppa.org/pc

to have lower downside risk.Finally, the most basic measure

of risk is drawdown. This simply measures the amount of capital lost from the peak of performance to the trough of performance (the peak-to-trough decline) over a given time period. It’s usually stated as a percentage. Understanding the impact of a drawdown, particularly as a participant is approaching retirement, is especially important. Recouping from a capital loss is difficult, not only emotionally, but mathematically. For example, a 33 percent loss requires just over 49 percent to get back to even. Several 2010 TDFs declined by more than 33 percent in 2008.

Many of us got goose bumps when we read about the possibility of time travel in the science fiction novels of H.G. Wells, Robert Heinlein, and others. If it were possible, we could travel 25 years into the future and look back to determine which investment approach served TDF participants best. Was the “through” approach the most effective? Did adding new non-correlated assets help? Did derivatives make all the difference? In other words, did we ultimately put our money on the right horse?

Since time travel is not yet available to us (although I remain hopeful), many plan fiduciaries and participants are betting their future on an investment approach that may or may not be the best, given the uncertainties of the future. Plan fiduciaries would be well served, and protected, by employing real-time measures that provide insights into which TDF investment approach is working best to serve their participants.

Steve Athanassie is the managing principal of Trademark Capital in

Tampa/St. Petersburg, Fla. You can reach him at [email protected] or 727.848.8950.

with the benchmark during the evaluation period. In essence, it indicates to what degree a portfolio can be expected to participate in the up or down moves of the market. Ideally, a manager’s approach would capture a reasonable portion of the upside, resulting in a higher up-capture number, while avoiding more of the downside, resulting in a lower down-capture number.

Since portfolio returns don’t always occur in a standard normal distribution, another useful tool is derived from a popular measure of risk: the semi-variance or semi-standard deviation, which is a derivative of the standard deviation model. In 1964, Harry Markowitz, one of the fathers of MPT, wrote that a model based on the semi-variance would be preferable, but in light of the “formidable computational problems” at the time, he prescribed the use of the standard deviation instead.

Standard deviation is a statistical measure of the variation around an average value or outcome. It takes into consideration both the good parts of volatility (upside volatility) as well as the bad part (negative volatility). Semi-deviation measures the volatility of below-average returns, or downside volatility. Semi-deviation is always lower than the total variance of the distribution, the standard deviation. So when comparing two investment approaches, the approach with the lower semi-variance would be deemed

tools. Advisors can now more deeply analyze the potential risks and rewards associated with different investment approaches. Unfortunately, many of the basic fund assessment packages available today don’t provide these more sophisticated risk measures.

SOPHISTICATED RISK MEASUREMENT TOOLSThere are several risk measurement tools based on the concept of “pain threshold.” We all know that a participant’s pain tolerance decreases as retirement approaches. When assessing risk, the pattern of returns becomes more important than the historical levels of return. In fact, fund manager behavior is sometimes influenced by traditional peer benchmarking, particularly in long-term bull markets, as they attempt to outperform each other on the upside. This often results in negative consequences after the markets turn down.

The first risk measurement tool is the up-capture and down-capture ratios. The up-capture ratio simply compares a portfolio’s performance against a benchmark when the benchmark’s performance is positive. The down-capture ratio is similar, but as the name implies, compares performance during down periods of the benchmark. A value of 100 percent for either ratio demonstrates that the portfolio moved in lockstep

Ideally, a manager’s approach would capture a reasonable portion of the upside, resulting in a higher up-capture number, while avoiding more of the downside, resulting in a lower down-capture number.


By Yannis P. Koumantaros, CPC, QPA, QKA

Adam C. Pozek,ERPA, QPA, QKA, QPFC

technology

Downloads and apps can help keep your business running smoothly for little or no money.

ebillitywww.ebillity.com

SurveyMonkeywww.surveymonkey.com

Everyone hates tracking time, especially us. Some professional service businesses have been tracking time for years; others are newer to the concept. Whether you’re a plan consultant or a 403(b) advisor, the ability to analyze where your valuable time goes is a powerful tool.

eBillity brings time-tracking to your computer, your Smartphone, and fully integrates into QuickBooks. It’s the self-proclaimed simplest and fastest way to track, manage, and bill time. Finally, a turnkey application integrated with QuickBooks that’s totally cloud-based and makes tracking time easy.

Whether you want the eBillity software integrated with QuickBooks, or the stand-alone version, this powerful technology is very cost effective. Even the unlimited Premium version is $39.95 per month, but the good news is you have no contracts, you can cancel at any time, and all data are fully exportable and owned by you. Now the tough part: convincing and training your staff to start logging their time to your customers!

In the Spring 2012 issue of Plan Consultant we wrote about MailChimp, a very powerful online email marketing tool. Today we bring you SurveyMonkey, an online survey technology that fully integrates with MailChimp to ask your customers how they really feel about the services you provide.

Here’s how it works. Set up a user account with SurveyMonkey and link it to your user account with MailChimp. Using SurveyMonkey’s powerful design features, you can create as simple or extensive a survey as you want. From “how are we doing” to “what else can we sell you” to “give us feedback,” this application is phenomenal for learning more about your customers and their perceptions. The best part about SurveyMonkey is that the basic version is free.

Finally you can ask your customers to complete an easy online questionnaire without using a pen, and can even tell them exactly how long it should take. Create surveys, collect responses, and analyze results. Another silver lining here is that if you want to pay for the premium version of SurveyMonkey, they will even do the work for you. Just fill out a survey of your needs, of course!

Simian Surveys and Other Pursuits

59www.asppa.org/pc

Dropboxwww.dropbox.com

GoodReaderwww.goodreader.net

We also reviewed Box.net in the Spring 2012 issue of Plan Consultant. Now it’s time to take a look at Dropbox, another of the cloud storage, sharing, and backup services.

First, let’s consider some of the similarities. Dropbox offers a free basic account that includes 2 GB of storage space and paid accounts of up to 100 GB for $19.99 per month. Anything you save or copy into the local Dropbox folder on your computer is automatically synced to your online account and any other computers on which you have installed the software. Install the free app for your iPad, iPhone, Blackberry, or Android, and all your files are instantly accessible. If you make a change on any one of those devices, the updated version is immediately synced to all the others. File sharing? Check. Security and encryption? Check. Workgroup accounts for shared storage and collaboration? Check.

What really sets Dropbox apart from the others, however, is its seamless integration with many other apps and services. Audiotorium, the note-taking/voice-recording app, is a great example. Simply type your Dropbox user name and password into Audiotorium, and all of your notes and recordings are instantly available on all your devices or to anyone with whom you share your Dropbox folder. GoodReader (see below) is another example. Open a PDF from your account, make changes, highlights, etc., and save. All of your updates are immediately synced. Apart from the storage fees described above, the desktop software and mobile apps are all freebies!

As you may have deduced from the Dropbox description, GoodReader allows you to read and mark-up PDF files directly from your iDevice. It also allows you to open and read many other common file types such Word, PowerPoint, and Excel. Since the app integrates with Dropbox, you can access your files anywhere you can get an Internet connection and all of your changes are automatically synced to your other devices. If you need to work offline, simply download your files in advance and the synchronization will occur the next time you’re connected.

When you’ve finished your review and mark-up, you can email files directly from within the app. One downside is that the app isn’t universal, meaning there are two different versions for the iPhone and iPad. But, at only $4.99 each, you can download both for not much more than the price of a value meal at the closest burger joint.

When you’re ready to take a break, cheap tech can help you unwind. Download Band of the Day for your iDevice to get the latest scoop on some great new music. As you might guess, the app features a new band each day, and you can actually listen to a few songs to see what you think. We’re talking several entire songs, not just those 15-second clips that cut off at the best part. Not into Emo? Have no fear. The bands cross a variety of genres from jazz to hip hop to that old-time rock and roll and everything in between. By the way, this cheap tech is absolutely free.

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

Yannis Koumantaros is a shareholder with

Spectrum Pension Consultants, Inc. in Tacoma, Wash. He is a frequent speaker at national conferences, and is the editor of the Blog and Newsroom at www.spectrumpension.com.

Adam Pozek is a partner with DWC ERISA

Consultants, LLC in Boston, Mass. He is a frequent author and lecturer and publishes a Blog at www.PozekOnPension.com.

LOOKOUT


The most clicked on section of the Financial Industry Regulatory Authority (FINRA) website is the sub-heading called “Understanding Professional Designations” http://apps.finra.org/DataDirectory/1/prodesignations.aspx. Here anyone can check how one financial industry credential stacks up against another. Although FINRA doesn’t approve or endorse any professional designation, firm compliance departments use FINRA’s benchmarks as part of the process of approving credentials for use on business cards.

For example, ASPPA’s Qualified Plan Financial Consultant (QPFC) and Certified Pension Consultant (CPC) credentials are both listed on the site. But how do ASPPA’s—or another organization’s—credentials measure up?

FINRA’s website offers a one-stop shop for retirement professionals looking for the best credential that will build trust and enhance their bottom line.

image

By SARAH SIMONEAUX, cpc

EdUCATiOn

Finra’s guide to professional credentials is worth following

61www.asppa.org/pc

PREREqUISITES/ EXPERIENCE REqUIREDIf the credential doesn’t require any prerequisites or experience, candidates should dig deeper. Although it’s common to have no prerequisites for an entry-level certificate program (such as ASPPA’s Retirement Plan Fundamentals or Tax-Exempt & Governmental Plan Administration Certificate), having no previous requirements for a designation can signify a less than robust credential. Most strong retirement professional credentials require some combination of industry experience, investment licenses, or certificate-level exams. An exception to this rule would be if the education and exam requirements show that multiple exams are required, some of which are proctored.

EDUCATIONAL REqUIREMENTS AND EXAM TYPEThese requirements are the meat and potatoes of any meaningful credential. Robust credentials will show a program of study here, typically one or more semester-long courses. Courses should have learning objectives, study guides, and/or textbooks and supplemental webcasts or boot camps. The fewer the study options and learning objectives, the less robust the credential.

CONTINUING PROFESSIONAL EDUCATION REqUIREMENTSCPE requirements are second only to education and exam requirements when deciding on the value of a credential. Be careful of designations that have “none” in this box on the FINRA site.

How worthwhile would a doctor’s specialty accreditation be if he or she never had to learn anything new? The same is true in the rapidly changing qualified plan profession. Imagine a credentialed professional who had no CPE required and wasn’t up to date on the latest fee disclosure or fiduciary rules. Would you be comfortable hiring him to assist with your qualified 401(k) or 403(b) plan?

Look for a minimum of 10 credits

per year and preferably 20 credits per year. CPE shouldn’t be restricted to the issuing organization’s product; qualified CPE requirements should allow for other valid issuing organizations’ offerings. For example, ASPPA and NIPA recognize each other’s courses, webcasts, and conferences as valid CPE. In addition, ASPPA allows CFP and CEBS courses focused on qualified retirement plan issues to count as CPE.

COMPLAINT AND DISCIPLINARY PROCESS AND PROFESSIONAL STATUSTransparency and accountability are the keys to maintaining a quality credential. Designations should have an ethics component that is backed by a meaningful complaint and public discipline process. Being able to check online if a professional has maintained her credential through CPE is also the sign of a designation that has “teeth.” Credentials without the ethical backing of a robust discipline process may not stand up to those that have these processes and status checks in place.

Spending your money and, more important, your valuable time on a credential is a great way to distinguish yourself in a crowded field. And, spending your time and money wisely for a designation is critical to your career. Use the free tools provided by FINRA and ASPPA to evaluate the best credential for you and for your clients.

Sarah Simoneaux, CPC, is president of Simoneaux Consulting Services in

Mandeville, LA and a principal of Simoneaux & Stroud Consulting Services. She is a former president of ASPPA and previously served on the Education and Examination Committee as a Technical Education Consultant. Ms. Simoneaux wrote the textbook, Retirement Plan Consulting for Financial Professionals, which is used for the PFC-1 (Plan Financial Consulting - Part 1) course of ASPPA’s Qualified Plan Financial Consultant (QPFC) credentialing program.

Here’s what FINRA looks for in a credential and what it means:

ISSUING ORGANIzATION AND ACCREDITED BYCredentials issued by a for-profit organization are designed, frankly, for the organization to make a profit. Although the courses and exams leading to the credential may be on point, continuing education requirements are likely to be granted only when attending the issuing organization’s conferences and webcasts, or by using their specific materials. Independent accreditation is also more important for a for-profit issuer than for a non-profit one.

Under “Accredited By,” look for a non-profit educational partner such as a college or university or an independent education organization with a track record of accrediting credentialing programs. Finally, what happens to the value of the credential if the organization is sold, merged, or just stops doing business?

Non-profit issuing organizations, on the other hand, are likely to have education as one of their primary missions, but not their only mission or source of revenue. If they’re also membership organizations tied to the retirement industry, they’re going to be around for as long as the industry survives. A good non-profit educational provider’s goal will be to make credentials meaningful, robust, and up-to-date. They provide value to their designated members for the long term.

Accreditation is less important for a valid non-profit provider, but they’re likely to have been accredited by an organization not listed by FINRA. For example, ASPPA’s exams are overseen by the University of Michigan, and ASPPA courses and credentials are eligible for college credit with the American Council on Education. However, FINRA doesn’t list either of these institutions under “accredited by.” Check out for-profit and non-profit issuer’s websites for the details of educational institutions that may be involved with their programs.


Advocating for ASPPA

Members

to maintain a level playing field. A copy of the testimony is available at http://bit.ly/03-07-12-WT.

INTERNAL REVENUE SERVICEThe Government Affairs Committee (GAC) for ASPPA and the National Tax Sheltered Accounts Association (NTSAA) wrote to the IRS on January 23, 2012 to express their support for the inclusion of 403(b) plans in the prototype program for pre-approved plan documents. ASPPA understood from informal comments made by IRS officials that budget concerns have resulted in a reexamination of whether to include 403(b) plan documents in the pre-approved plan program. ASPPA and NTSAA emphasized that a prototype program for 403(b) plans is essential for the proper administration of the tax laws. After the issuance of so much guidance related to the written plan requirements, they believed it would be a mistake to abandon an integral component of 403(b) compliance. A copy of the comment letter is available at http://bit.ly/01-23-12-CL.

An IRS official has since publically commented that the government recognizes the value of this type of program and is going to establish a program for 403(b) plans.

LOOKING AHEADASPPA’s Government Affairs Committee (GAC) continues to communicate with the government to addresses the needs and concerns of members. To view all of GAC’s comment letters, visit www.asppa.org/comments. For all of GAC’s written testimony, visit www.asppa.org/testimony.

Debra Davis is assistant general counsel/director of government affairs with

ASPPA in Arlington, Va.

ASPPA has been actively communicating with the U.S. Congress and the Internal Revenue Service (IRS) in recent months on retirement plan issues, which have included the following recent comment letters and testimony.

U.S. HOUSE COMMITTEE ON WAYS AND MEANSJudy Miller, MSPA, ASPPA’s chief of actuarial issues/director of retirement policy, testified in support of retirement savings tax incentives at the U.S. House Ways and Means Committee’s hearing on Tax Reform and Tax-Favored Retirement Accounts on April 17, 2012. Ms. Miller explained that “Americans depend on their employee-sponsored plans to save for retirement.” She also noted that retirement savings tax incentives are different from other incentives in the U.S. tax code due to the deferral nature of the incentive and the non-discrimination rules that make employer-sponsored plans very efficient at providing benefits to a wide variety of workers. Ms. Miller’s written testimony is available at http://bit.ly/04-17-12-WT, her oral testimony is at http://bit.ly/04-17-12-OT, and the applicable press release is at http://bit.ly/04-17-12-PR.

ASPPA recently published research regarding the deferral nature of retirement plan tax incentives titled “Retirement Savings and Tax Expenditure Estimates” by Judy Xanthopoulos, Ph.D. and Mary M. Schmitt, Esq. A copy of the research is available at http://bit.ly/TaxExp-2012. View ASPPA’s infographic on these issues at http://bit.ly/TaxExp-Info.

U.S. SENATE SPECIAL COMMITTEE ON AGINGASPPA submitted testimony for the record relating to the hearing held March 7 by the Senate Special Committee on Aging regarding “Opportunities for Savings: Removing Obstacles for Small Business.” The testimony challenges myths about the small-plan marketplace and urges Congress

By Debra Davis

63www.asppa.org/pc

ASPPA Calendar of eventsPC

july

Jul 1 – Dec 30Second Semester Webcourse Access Period

Jul 1 – Dec 13PFC-1 Certificate Program Practice Examination Access Period

Jul 2 – Dec 14Second Semester CPC Modules

Jul 9Early Registration Deadline for Fall Examinations

Jul 9Northeast Area Benefits Conference Boston, MA

Jul 10Northeast Area Benefits Conference New York, NY

Jul 15 – 18Western Benefits ConferenceSeattle, WA

August

Aug 1 – Nov 30Fall Examination Window (DC-1, DC-2, DC-3, DB, TGPC-2, PFC-2)

Aug 10 – 11ACOPA Actuarial SymposiumChicago, IL

aSPPa annual conference

October 28-31, 2012Gaylord National Resort & Convention CenterNational Harbor, MD

September

Sep 7Early Registration Deadline for EA-2A Examination Review Course

Sep 12Final Registration Deadline for Fall Examinations

Sep 27Final Registration Deadline for EA-2A Examination Review Course


Welcome new and recently credentialed members

MSPARoman V. Androsov, MSPAJoseph A. Carolan, MSPA, CPCJulia Chernyak, MSPAJong G. Kim, MSPADaniel P. Moore, MSPA

CPCErin M. Books, CPC, QPA, QKAGlenn S. Bowman, CPC, QPA, QKAJohn W. Driver, III, CPC, QPA, QKANatalie Dunckel, CPC, QPA, QKAMichael Z. Eaton, MSPA, CPC,

QPA, QKARachel A. Karp, CPC, QPA, QKAChristine M. LeBlanc, CPC, QPA,

QKA, TGPCSkyler A. Marchand, CPC, QPA,

QKAChad D. Ridgway, CPC, QPA, QKADouglas M. Spickard, CPC, QPA,

QKALeslie L. Wechling, CPC, QPA,

QKADenise T. Witt, CPC, QPA, QKA

QPANathan P. Ausel, QPA, QKALorinda L. Baker, QPA, QKAStephanie A. Banister, QPAKristin M. Bartle, QPA, QKACandice K. Baumann, QPA, QKASusan D. Diehl, QPAJohn H. Dingle, Jr., QPA, QKAStacey L. Edwards, QPA, QKADenise J. Falbo, QPA, QKAMichael E. Franciskovich, QPA,

QKAAnna M. Fredrickson, QPA, QKAJeffrey M. Garback, QPA, QKASteve E. Hacker, QPA, QKA, QPFCKaitlyn Hagen, QPA, QKACassandra L. Harper, QPA, QKANicole M. Joaquim, QPA, QKAGary M. Jones, QPA, QKANicolette M. Kirchoff, QPA, QKAJean A. Klein, QPAAaron HJ Knecht, QPA, QKATrent E. Lindsey, QPA, QKAMary A. Lowery, QPA, QKAEllen E. Miller, QPAAlan P. Mock, QPAHeather N. Morrow, QPA, QKA,

TGPCCarol A. Neill, QPA, QKAMarie Nistico, QPA, QKA

Cheryl L. Opperman, QPAJulia D. Parkinson, QPA, QKAThomas E. Powell, QPAMatthew E. Puetz, QPA, QKARonald D. Rhynerson, QPA, QKAMaria Josephine J. Rivera, QPA,

QKARuenruedee Sartmool, QPA, QKALisa M. Schiller, QPA, QKAHenry P. Schneider, QPAMichelle R. Walters, QPA, QKADavid Evan Wichman, QPA, QKABrandon Williams, QPA, QKAChristopher B. Wilson, QPA, QKA

QKASam W. Anderson, QKALaura L. Beard, QKASusan T. Bednar, QKAJoan M. Berning, QKALynette A. Biscocho, QPA, QKARynda J. Chappell-Wilk, QKAJoel A. Codiamat, QKASheryl A. Curtis, QKACraig M. D’Anjolell, QKASherri C. Drouin, QKADebra Ann Dunham, QKAKimberly S. Edwards, QKAMelissa J. Estes, QKACarol A. Fecteau, QKAColleen N. Fehnel, QKAStephen E. Goldmann, QKAMaximilian B. Gottfried, QKAJason M. Grant, QKAKathryn L. Haynie, QKAHope E. Heffner, QKAMelissa Jogan, QKAMiriam B. Killiany, QKARobin M. Klink, QKAJennifer D. Kolb, QKAChristopher Kuhl, QKABeth L. Logan, QKAChristine C. Magnan, QKAKevin C. Mathews, QKADana R. McBroom, QKASuzanne L. Milburn, QKAChad F. Miller, QKAChristopher A. Mitchell, QKARosanne S. Mitchell, QKAWilliam R. O’Brien, QKAPhillip C. Ponsonby, QKAShelly R. Prater, QKADaniel J. Putnam, MSPA, QKAStefany D. Rhoades, QKAKristi Michelle Rice, QKALu Saetern, QKA

Grace M. Sebo, QKAMisty L. Shaffer, QKATheresa M. Steinbruegge, QKA,

TGPCRebecca H. Sweat, QKAJason E. Turk, QKAKellie K. Twiss, QKAEsaie C. Wagner, QKABernard W. Wesselman, Jr., QKASusan K. Westby, QKAChristopher E. Whitney, QKADeyann K. Whittie, QKAVania I. Wilkin, QKAOrin L. Williams, QKA, QPFC

QPFCCynthia S. Brueckman, QPFCLarry Joseph Costa, QPFCKevin P. Judge, QPFCAniko L. Kulhanek, QPFCTravis R. Matthews, QPFCScott F. Perkins, QPFCJerry Ripperger, QPFC

TgPCNatalie M. Brown, TGPCKeith M. Goltschman, QKA, QPFC,

TGPCLynn E. Laible, QKA, TGPCKathleen A. Litchfield, TGPCLarissa H. Martin, TGPCDenise A. Mericle, TGPCHeather N. Morrow, QPA, QKA,

TGPCJames E. Myers, TGPCMary L. Novak, TGPCBrian D. Panzo, TGPCKaren S. Poulos, QPA, QKA, TGPCBecky C. Reese-Shuler, TGPCBenjamin L. Smith, TGPCLea L. Smith, QKA, TGPCRandy C. Walker, QKA, TGPCBarbara J. Webb, TGPC

APMJeffrey P. Cairns, APMMichael P. Coyne, APMDiane D. Thompson, APM

AFFiLiATEKatie Green BiggsKathlyn Theresa BlassageDave BohananMark CollingsWayne ConnorsNancy A. Corporon

Gary P. DavisSteven DimitriouMegan DudleyCindy DwyerThomas EngelhardDean M. FirmaniMichelle L. GoforthChristine P. GurneyHabeeb G. HabeebJean HeinzUrsula HenrySteve E. HoffmanAdam HowellFreelin HummelTerrie Lynn KippAllison KohlerMichael A. LebelSusan LongmireLeslie A. LoweryJodi M. MalisJennifer RattiRon SalaGeorge M. SawnGary R. SawyerKaris M. SchwentThomas TavennerJeffrey R. ToddKen TomlenDustin W. WallerChristian S. WathenCammi A. WingMary E. WitherowMonica R. WoodwardMichael Zimmer

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