Compliance October 29, 2018

DOL Provides Relief for Plans Impacted By Recent Hurricanes

The Department of Labor has published employee benefit plan compliance guidance and relief for victims of Hurricanes Florence and Michael, recognizing that plan fiduciaries and employers may encounter unavoidable issues with ERISA compliance.

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The Department of Labor (DOL) has published compliance guidance and relief applying to employee benefit plans, plan sponsors, employers and employees, and service providers to such employers who were located in a county identified now or in the future for individual assistance by the Federal Emergency Management Agency because of Hurricane Florence or Hurricane Michael.

In a statement announcing the relief, a DOL spokesperson says the department recognizes that plan fiduciaries, employers, labor organizations, service providers, and participants and beneficiaries may encounter issues complying with the Employee Retirement Income Security Act (ERISA) over the next few months as the consequences of Hurricane Florence and Hurricane Michael unfold.

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According to the announcement, the department “will not treat an employee pension benefit plan as failing to follow procedural requirements for plan loans or distributions imposed by the terms of the plan solely because the failure is attributable to Hurricane Florence or Hurricane Michael.” As the DOL stipulates, this relief is only provided assuming the plan administrator “makes a good-faith diligent effort under the circumstances to comply with those requirements, and makes a reasonable attempt to assemble any missing documentation as soon as practicable.”

Echoing relief guidance issued for 2016 and 2017 for hurricane disasters impacting U.S. coastal regions, the department further recognizes that some employers and service providers acting on employers’ behalf, such as payroll processing services, located in covered disaster areas eligible for individual assistance will not be able to forward participant payments and withholdings to employee pension benefit plans within required time frames.

“In such instances, the department will not—solely on the basis of a failure attributable to Hurricane Florence or Hurricane Michael—take enforcement action with respect to a temporary delay in forwarding such payments or contributions to the plan,” DOL pledges. “Affected employers and service providers must act reasonably, prudently, and in the interest of employees to comply as soon as practical under the circumstances.”

Under normal circumstances, to comply with DOL regulations pertaining to “blackout periods,” in general, the administrator of a tax-qualified retirement plan is required to provide 30 days’ advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited or restricted by a blackout period—of the type that is common during a recordkeeper migration, for example. As the DOL points out, the regulations provide an exception to the advance notice requirement “when the inability to provide the notice is due to events beyond the reasonable control of the plan administrator and a fiduciary so determines in writing.”

Based on this exception, with respect to blackout periods related to Hurricane Florence or Hurricane Michael, the DOL “will not allege a violation of the blackout notice requirements solely on the basis that a fiduciary did not make the required written determination.”

In the statement announcing the hurricane relief, the DOL acknowledges that there may be instances when full and timely compliance with claims processing requirements by plans and service providers may not be possible.

“Our approach to enforcement will be marked by an emphasis on compliance assistance and include grace periods and other relief where appropriate, including when physical disruption to a plan or service provider’s principal place of business makes compliance with pre-established time frames for certain claims’ decisions or disclosures impossible,” the spokesperson says. The relief announcement further notes that Form 5500 Annual Return/Report filing relief “is provided in accordance with Hurricane Florence and Hurricane Michael Internal Revenue Service (IRS) news releases listed on the IRS disaster relief website.”

The DOL will continue to monitor the situation, with the stated goal of “addressing those issues that are most important in helping individuals, employers and plan sponsors recover from these disasters.”

More information is available online for employers and advisers, as well as for workers and families; by contacting the DOL’s Employee Benefits Security Administration online at www.askebsa.dol.gov; or by calling 1-866-444-3272. Questions about IRS guidance should be directed to the IRS at 1-877-829-5500.

Data & Research October 26, 2018

How to Interpret Participant ‘Stress’ About Retirement

In conversation with PLANADVISER, Lincoln Financial Group’s leader of retirement plan services explains why more Americans today cite “retirement” as their No. 1 financial stressor; in some ways, this is actually a great thing.

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In April, Lincoln Financial Group promoted Jamie Ohl, who was already leading the firm’s retirement plan services business, to the role of executive vice president, at the same time appointing her to the company’s senior management committee.

In an interview with PLANADVISER, Ohl said this promotion came after nearly 30 years of work in the financial services industry, much of it closely dedicated to the subject of retirement plans. She said her newly expanded role allows her to ask and help answer important questions about the defined contribution (DC) retirement plan system in the U.S.—about its successes, its shortcomings and its stakeholders.

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As Ohl explained, such questions drove the firm to commission and publish its latest survey report, which was revealed this week in recognition of National Retirement Security Week. Among the key findings of the survey is the fact that a majority of Americans now cite “retirement” as their top financial stressor.

“I don’t think we were surprised by the finding that retirement causes stress, necessarily, but it is interesting to see retirement at the very top of the list this year, in terms of what causes people the most financial stress,” Ohl said. “What else did they cite below retirement? Personal debt was next, followed by insufficient emergency savings, paying monthly bills, facing unexpected medical issues, affording college tuition and finally paying back student loans.”

Ohl was surprised to see student loans ranked below all these other factors in the aggregate survey data, but it makes more sense when one looks closely at the survey and the differences between the generations.

“You can see clearly that Baby Boomers are naturally more stressed about retirement and savings, while Millennials more often point to personal debt and student debt as causing the most stress,” Ohl said. “As an industry, it is important for us to think about what is concerning for our clients and how that shifts over time. We have an opportunity to think about how to address these stressors in a more sophisticated way, supporting all the generations in a targeted manner.”

The survey shows not only that the generations have different worries, but how they also face different hurdles in terms of what they have to overcome to reach financial stability and security.

“Stepping back, I would add that the industry seems to finally have gotten something very important right, which is to make sure employees are aware of how much they need to save for retirement,” Ohl said. “Another of our recent studies showed that two-thirds of people now know that they need to save at least 10% of salary annually for retirement if they hope to replace the majority of their income after they leave the work force. And 45% now believe they should be saving 15% or more.”

Just five or six years ago, Ohl said, most people had no idea that these were the levels of saving that they should be thinking about.

“So in a sense, seeing this stress about retirement is good news,” Ohl said. “People today are more informed and more aware of the long-term financial challenges they face and the opportunities they have.”

Ohl stressed that saving more for retirement “doesn’t have to be a big, involved process.” It can be as simple as cooking at home instead of dining out once a week. As the firm’s retirement projection calculator shows, that small change could generate an extra $113,000 over the typical lifetime of a 401(k) account.

“Even skipping that daily cup of coffee from your local coffeehouse could percolate into an extra $62,000 at retirement,” Ohl said.

When Ohl speaks with plan advisers and sponsors, she sees a much greater embrace these days of more aggressive iterations of automatic plan design features.

“Many plans are now starting with greater automatic deferral percentages and tying this to automatic escalation, pushing more and more people up to that 10% figure,” Ohl said.

With the strengthening of the economy and much lower unemployment, Ohl said there is strong evidence that more people are feeling financially secure for the near-term, which allows their focus—and thus their perceived stress—to move into the longer-term financial challenges like retirement.

“When we asked how financially secure people feel today, 20% said very secure, and 52% said somewhat secure,” Ohl said. “That makes a very impressive 72% who are feeling at least moderately positive about their current financial situation. This represents a real opportunity for the entire industry to take advantage of this enthusiasm.”

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