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Retirement Planning > Retirement Investing

In Advisors’ Year-End Reviews, Don’t Skip These Key Points, ING Urges

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In a conference call on Thursday, Bob Kaplan, ING U.S.’s national retirement consultant, outlined for advisors listening in the key points they should address with their plan sponsor clients in their year-end reviews. It’s especially important to recognize that many clients may have been distracted by the Affordable Care Act, so advisors need to refocus their attention on their retirement plans.

“As we approach the year-end, we realize that so many plan sponsors and participants have just focused on their health care issues and might have lost focus on the retirement plan,” Kaplan said. “Advisors should prepare accordingly and be able to talk about some of the retirement plan changes,” Kaplan said. Some of those changes may already be in motion, but some could be coming next year. “As we all know, sometimes plan sponsors and participants read or hear something that might happen and they take it as something that has happened.”

In addition to typical topics of discussion during year-end meetings—investment lineups, plan demographics—they need to look at plan design as well.

“One of the items that often gets overlooked at year-end plan reviews, is very simply the question, ‘how is the plan design working for you now?’ When was the last time that somebody looked at the plan design?”

He noted that sometimes plans will have been designed 10 or 15 years ago and haven’t been revisited. “They’ve looked at everything but [design]: rates of match, how they enroll, timing of enrollment, timing of distributions, and often when you go over items like that you can make the plan sponsor a little bit happier.”

One new change for plan sponsors is the result of the Windsor case, which recognizes same-sex marriage for federal tax purposes. “We talk about it in a retirement plan context because ERISA, which oversees retirement plans, is a federal tax law,” Kaplan said.

The IRS issued a rule in August that became effective on Sept. 16 that addressed tax status for married same-sex couples. “The rule is this: If the affected couple was married in a state that recognizes same-sex marriage—I’ll use California as an example—of course they are considered married in California. Even if they move to a state that does not recognize same-sex marriage—I’ll use Texas as an example—they are still considered married for federal tax purposes once they move to Texas. They may not be recognized for state tax purposes, but that’s a whole different issue,” Kaplan said.

Another way the decision can affect retirement plans is in beneficiary designations. “We might have a lot more people in qualified plans now who have spouses,” Kaplan noted. Prior to the Supreme Court ruling, a participant could name anyone their beneficiary; if after the decision that participant is recognized as married, his or her spouse is automatically named the beneficiary, unless they waive that right. Kaplan suggested advisors regularly update all participants’ beneficiary forms. “It’s a good idea to do it anyway, but it’s really important now because we have a lot more people who could be considered married.”

Spousal death benefits are another area of retirement plans that could be affected by the decision. A spouse can opt to leave assets in a plan until their deceased spouse would have turned 70½. Other beneficiaries don’t have that option, Kaplan said. Withdrawal rights are also different for married and non-married beneficiaries.

However, Kaplan reminded listeners that beneficiary designations should be updated across the entire population of participants at one time. “When an employer wants to get updated information, what they probably by state law, they are not allowed to designate certain individuals and ask, ‘Hey, are you married because of this new Windsor decision?’ You can’t do that. That’s discrimination in collecting employee data. When you’re asking those types of questions, you need to do it across the board.”

Finally, the IRS and Treasury haven’t issued specific guidance on how the Windsor case will impact qualified decisions. “They haven’t told us what amendments we need to plan documents, and probably more importantly, is there going to be any retroactive application?” Kaplan suggested distribution election forms may need to be updated retroactively to the effective date of Sept. 16. Furthermore, participants with open tax years may be able to re-file those returns. “Bottom line on this one, we are on hold to see the specific guidance that we need from Treasury and the IRS.”

Another change is the participant fee disclosure reset, Kaplan said. Sponsors must provide these disclosures annually, but “what happened was they were so set on getting them out in 2012 with the initial release being Aug. 30, they told us that we have to get a second set out and annually thereafter within 12 months of when the prior ones went out.”

That means, Kaplan said, that if a sponsor sent out the disclosure forms in waves, the new forms will be due on different days. Another complication is if a sponsor switched providers at some point during the year and the new provider is on a different schedule.

“The reason this is so important to the sponsor is they are the ones who are legally responsible for getting these forms out,” Kaplan said. In 2013, however, sponsors have 18 months from the initial mailing to mail new disclosures. “I’m going to pat myself on the back here. I was part of the industry group that went in and sat with the DOL leadership and asked for the extension, and we were able to get the extension.”

Some other changes to expect in 2014:

  • The fiduciary definition is still up in the air. “It could be in the spring of 2014. I think the message here for your plan sponsors is there’s been a lot of chatter about changing the definition of fiduciary, but bottom line, until they issue the new rule, nothing has changed.”
  • Early in 2013 as part of the fiscal cliff deal, roth conversions were expanded to allow participants to convert amounts that were not yet eligible for distribution. Specific guidance from the Treasury and the IRS on how to handle issues like the five-year clock and other tax problems have not been released yet.
  • Some proposed rules from the DOL indicate benefit statements should include not just a balance, but the theoretical annuity a participant could by at retirement. “They’re not mandating annuities be taken out, it’s just theoretical so people can judge how much they would be getting.”


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