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.”