Products September 13, 2016

DirectPath Releases ACA-Reporting Technology

In response to new requirements under the ACA, DirectPath and software firm Sovos create an IRS reporting solution for 2016.
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Tax reporting under the Patient Protection and Affordable Care Act (ACA) represents the largest expansion of tax-reporting requirements since W-2s were introduced, according to DirectPath, a human resources (HR) adviser specializing in the health care industry. To help large employers navigate this regulatory wave, DirectPath partnered with compliance-reporting software firm Sovos to create a one-stop-shop for employers to meet their ACA-reporting needs for the 2016 tax year.  

According to DirectPath, the new technology will allow employers to gather required data and create forms. The solution can also file forms on companies’ behalf, the firm says. Moreover, it will give employees access to a call center where professionals can answer their reporting questions.

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DirectPath notes that “creating, distributing and filing the appropriate forms requires data from multiple sources and cannot be done with the same system that employers use to process W-2 forms.” Employers must also file these forms using their federal ID numbers; some companies have several of these. Additionally, the required reporting must be completed between December when the year’s information becomes available and January 31, 2017, the deadline for employees to receive their 1095 forms.

“In 2015, the first year of required ACA reporting, Sovos ACA [software] supported over 1,000 companies and provided services to 20 million households,” says Jeff Cronin, vice president of product strategy for ACA at Sovos Compliance. “The combination of DirectPath’s ACA compliance technology and benefits expertise with our IRS [Internal Revenue Service] filing infrastructure and experience will help more employers maintain compliance with ACA legislation and allow HR departments to focus on serving their employees.”

DirectPath and Sovos Compliance will host a joint webinar titled “ACA Reporting Best Practices—From Headache to ‘Ah-ha!,’” Tuesday, September 20, at 1 p.m. EDT. It will cover key takeaways from the first year of ACA reporting and transmittal to the IRS, along with considerations for the 2016 reporting process, DirectPath says. Those interested in attending can register online here.

The Markets September 13, 2016

Post-Conflict of Interest Rule to Focus on Risk Over Return

New research from global analytics firm Cerulli Associates indicates that compliance with the new rule is the number one priority of managed account sponsors.
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The Department of Labor (DOL)’s Conflict of Interest rule main purpose is to help plan participants and Individual Retirement Account (IRA) holders, who often lack investment knowledge, receive expert advice in their best interest. This puts managed account sponsors in a position to educate advisers on everything that could be considered a conflict of interest, as well as changes to documentation procedures and technological systems, says global research firm Cerulli Associates.

According to lawmakers, conflicts relating to financial advice cost Americans approximately $17 billion every year. To limit risk, advisers may seek to reduce the number of products available, Cerulli reports.

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“With the implementation of the new rule, sponsors will embrace a portfolio construction philosophy that seeks to reduce risk, lower fees, and use passive investment vehicles,” says Tom O’Shea, associate director at Cerulli.

O’Shea adds “Advisors report that by 2018, 58% of ETFs they use in client portfolios will be pure passive vehicles, while 21% will be active ETFs and 20% will be strategic beta ETFs. Home offices’ desire to mitigate risk presents an opportunity for actively managed funds.”

Eventually, Cerulli notes, plan sponsors may want advisers to turn over portfolios to the home office. The firm’s data indicate that home-office model portfolios often outperform adviser-driven portfolios, and pose less of a compliance risk.

While Cerulli notes that home-office personnel may find advisers resisting the risk controls placed on their accounts by parent firms, their research suggests that “very few advisers understand the risk embedded in the portfolios they create for clients.”

Cerulli cites a senior executive at a major asset manager in saying that “In some 60/40 portfolios, up to 90% of the risk is equity volatility.”

O’Shea says, “We expect asset managers to see a greater demand for passive ETFs in managed accounts, which will result in clients owning very similar, cookie-cutter portfolios. In order to set themselves apart, financial consultants will have to focus on other higher order investment advisory activities, especially goal-based planning.”

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