The Year in Top PLANADVISER News

As 2021 comes to a close, PLANADVISER takes a look back at some of the stories that gained the most clicks over the year, including some returning favorites from 2020.  

Stimulus Bill Extends Some Provisions of the CARES Act

Last year’s COVID-19 relief bill, attached to the Consolidated Appropriations Act of 2021, enabled certain retirement plan sponsors that laid off or furloughed employees due to the economic effects of the pandemic to avoid a partial plan termination. The bill was signed by President Donald Trump on December 27, 2020.

The stimulus bill also included provisions related to employer benefits other than retirement plans. For example, it allowed employers to make payments of up to $5,250, tax free, toward employees’ student loans, through the end of 2025.

In addition, the follow-up stimulus bill allowed employers to extend the grace period for unused flexible spending account (FSA) benefits for 12 months after plan years ending in 2020 or 2021.

Read the full story here.

Practice Management: Areas of Success

There were several areas of practice management where retirement plan advisory firms excelled or made significant strides during 2020 and 2021. Here, we take a look at some of the areas where the momentum could well continue into 2022, helping boost profits and laying the groundwork for future success.

Retirement plan advisers might gear up for continued mergers and acquisitions (M&As) between registered investment advisers (RIAs) and wealth management firms. Additionally, more and more retirement plan advisers now communicate with clients through direct messages on social media platforms, and while this picked up as the pandemic has raged on, many advisers believe this form of communication will continue.

If a retirement plan advisory practice is not already offering 3(38) fiduciary services to its plan sponsor clients, it absolutely must, advisers say. Not only do sponsors like the perception that they’re gaining further protection from litigation, but the services make an adviser’s job of recommending funds much easier.

Read the full story here.

Warn Your Clients: Don’t Abuse Coronavirus Hardship Withdrawals

PLANADVISER regularly receives emailed questions and comments from its readership, on topics ranging from stock market projections and plan design to matters of recordkeeping and compliance.

Back in late 2020, a reader submitted what remains a timely and important question about the section of the Coronavirus Aid, Relief and Economic Security (CARES) Act that eases the rules and penalties restricting early withdrawals from defined contribution (DC) retirement plans. In short, the law created a new emergency retirement plan distribution option dubbed the “coronavirus-related distribution,” or “CRD” for short.

This is where the reader’s comments and question come in: “I am aware of ineligible people using the coronavirus hardship withdrawal. Some are withdrawing $10,000 to $50,000 but are not affected financially, nor have they had the virus. In fact, they are working more now and are receiving overtime pay. What will be the repercussion if or when they have to show proof of a hardship and cannot?”

Read the full story here.

‘Secure Act 2.0’ Seemed Likely to Become a Reality

The U.S. Senate’s Improving Access to Retirement Savings Act, which is its version of the House’s Securing a Strong Retirement Act, had a good chance of becoming law in 2021. Though this didn’t happen, experts hope the bills will come up for a vote in 2022.

As to what he views as the most significant provision of the bills, Matt Rogers, director of financial planning at eMoney Advisors, says, “No. 1 is the automatic enrollment for newly created plans. Auto-enrollment is already increasing in popularity, and this just supercharges what is already a good idea. That is a big one.”

Read the full story here.

Coronavirus Hardship Withdrawals, Taxes and Your Retirement Plan Clients

One of the most popular articles published in 2020 by PLANADVISER Magazine—called “Warn Your Clients: Don’t Abuse Coronavirus Hardship Withdrawals”—went live in early June of that year. A follow-up article written early in 2021 continued the trend.

As readers likely recall, an important provision of the CARES Act established a window within which retirement plan participants negatively impacted by the pandemic could withdrawal up to $100,000 penalty-free from their tax-qualified accounts, with the options of either spreading the stated income over a three-year period for taxes or paying back the funds later to avoid taxation altogether. The June 2020 article noted how plan participants could simply self-certify that they had experienced a pandemic-related hardship that qualified them to take such a distribution—and how this could potentially generate fiduciary risk for plan sponsors and even the possibility of tax fraud being committed on the part of unwitting or dishonest participants.

Robert Lawton, president of Lawton Retirement Plan Consultants, was among the experts cited in the article. Speaking again with PLANADIVSER in 2021, he did not seem surprised to learn about the success of the original article, given how many questions and comments he continues to hear from his clients about coronavirus-related distributions, or “CRDs.”

Read the full story here.

New York City Council Approves Auto-Enroll IRA Program

The New York City Council voted in April to approve a measure to create a city-facilitated retirement savings program for private sector employees.

The legislative action would create a mandatory automatic enrollment individual retirement account (IRA) program for employers that do not offer a retirement plan and employ at least five people.

According to a summary published on the City Council website, the default employee contribution rate would be 5%, which employees could adjust up or down, or opt out of at any time, up to the annual IRA maximum of $6,000 (or $7,000 if age 50 or above). The plan would be portable, so that when employees switch jobs they can continue to contribute or roll over their accounts into other retirement savings plans.

Read the full story here.

A New World and New Opportunities for Alpha

This is another of the most popular articles of 2021 that was actually published in 2020.

Generally speaking, investment managers agree that actively managed funds perform better in periods of market volatility and decline. However, they do not believe that plan sponsors that primarily offer low-cost passive funds should change their investment lineup at this time, because they believe sponsors should be committed to their long-term outlook for their plan and their participants.

Joel Schiffman, head of intermediary distribution at Schroders, North America, says, “It is fair to say that, from the studies I have read, in a rising market, passive funds tend to perform better, and in a declining market, actively managed funds tend to outperform. The higher the quality of the active manager, the more likely they will outperform the markets in a declining environment. They can sell securities to raise cash and spread around factor exposures to mitigate risk. Passively managed funds are essentially the market, and it is all market-cap weighted, and they go down accordingly.”

Chris Herman, head of investment strategists at Fidelity Investments, notes that, in periods of high volatility, active management will outperform to a higher degree when the possibility of both outperformance and underperformance is there.

“Active management outperforms during recessions,” Herman says. “That said, it is important to examine the individual portfolio manager’s investment philosophy.”

Read the full story here.

Fidelity Decides to Exit HR/Payroll Business

Back in March, Fidelity confirmed to PLANADVISER that “after a strategic review and decisionmaking process,” it had decided to exit the human resources and payroll business.

“Fidelity believes that working with outside experts rather than continuing to build and maintain an HR/payroll solution in-house will allow us to better meet the broad needs of our clients,” the company said.

The firm selected Paycor as a preferred payroll provider to which it will refer existing clients.

Read the full story here.

A DOL Fiduciary Rule and PTE Refresher

No matter if an adviser is a flat-fee registered investment adviser or a commission-based broker/dealer, the DOL says the collection of compensation related to rollover guidance is almost always going to be a prohibited transaction, triggering the need for an exemption.

Effective February 16 of 2021, the DOL implemented an expanded definition of “fiduciary advice.” Experts say this new definition will cause many registered investment adviser services that were previously considered non-fiduciary under the Employee Retirement Income Security Act (ERISA) to be subject to a fiduciary best interest standard of conduct moving forward.

Read the full article here.