Retirement Outlook Q1 2020: Fiduciaries

Confidence Comes with Knowing Who is a Fiduciary

There is still some confusion among plan sponsors about whether or not they are plan fiduciaries, especially among sponsors of plans with less than $1 million in plan assets. In spite of increasing discussion about offloading fiduciary risk by using a designated 3(38) investment manager, misconceptions about retained fiduciary responsibility persist.

Plan sponsors may be unaware that choosing a 3(38) investment manager is in itself a fiduciary act. While the 3(38) investment manager does assume responsibility for selecting and monitoring investments, the plan sponsor retains fiduciary responsibility for the selection and oversight of the manager. Yet in a recent survey, 25% of respondents incorrectly believe they retain no fiduciary responsibility.

With a clear understanding of their fiduciary obligations comes more confidence in plan decisions. For example, 67% of plan sponsors who know they are fiduciaries are confident that they have an appropriate process in place to document investment decisions, compared to 59% of plan sponsors who do not know they are fiduciaries. As to confidence in an appropriate process to monitor investment decisions, 72% of plan sponsors that know they are fiduciaries expressed such confidence, compared to 53% of sponsors who do not know.

Plan sponsors who know they are fiduciaries are more likely to offer a target-date fund than those who don’t know (69% compared to 56%) and to use automatic enrollment (61% vs. 51%) and auto escalation (44% vs. 34%) in their plans.

Learn more about the findings in the 2019 DC Plan Sponsor Survey from JPMorgan Asset Management by copying this address into your browser:

Asking Participants About Retirement: Sometimes Answers Are Confusing

Nearly half (48%) of retirement plan participants are either “confident” or “very confident” about achieving a secure retirement by the date they plan to leave the workforce. Yet 55% of them have saved less than $100,000 toward retirement. The lack of saving doesn’t seem to have dampened their enthusiasm about retiring early though: 36% expect to retire before age 65. It’s true, they could be among the small number of total workers who have saved at least $250,000 for retirement. Perhaps the 22% who expect to work until age 70 (or more) are among those whose savings and confidence about retirement security are relatively low.

Many of the participants who were asked recently reported that they were saving at – surprise! – their plan’s default deferral rate. With the typical default rate set low, this tendency toward inertia translates into a situation where a significant number of people (41%) say they are saving 5% or less of their pay toward retirement. That number has increased since 2018, when 34% were saving 5% or less. For 2019, just 21% of participants were saving more than 10% of their pay and 33% fell between 5% and 10%.

Still, a solid 43% of participants report taking one very positive action in their retirement strategy during the last year: they increased their deferral rate. Seventeen percent said they changed their asset allocation strategy during the year, 16% rebalanced their retirement account and 16% performed a retirement income calculation.

When it comes to learning about retirement, participants seem to prefer one-on-one communication. Asked how they would prefer to receive information on financial wellness, 31% said they would like to meet with an advisor for 30 minutes. The next most popular option, reading a short brochure with three to five actionable steps, was selected by 18% of participants. Fifteen percent would rather browse an interactive, online library and 14% said they would like to read a newsletter via email.

Seeking counsel from a financial advisor may result in greater retirement savings. Thirty-six percent of participants whose retirement savings is greater than $250,000 use a financial advisor, compared to 10% of those with less than $50,000 in retirement savings.

Participants seem to appreciate long-term reward compared to smaller, short-term gains. They were asked whether they would choose a 6% matching contribution that vested after five years or a 3% immediate match. Sixty-one percent of respondents said they would take the longer-term match. Similar results came when participants were asked if they would prefer a $2,500 employer contribution that required them to contribute some of their own money to the plan or a $1,500 employer contribution had no such employee contribution requirement. Just over half (53%) said they would take the larger contribution.

Copy and paste this address into your browser to read more results from the 2019 Participant Survey from PlanSponsor:


Q: An employee has requested a hardship withdrawal from the 401(k) plan. We are relying on his statements to the plan administrator that he is in true financial need but another person in the office says he actually does have money in the bank. Do we take the word of the person requesting the withdrawal, or demand documentation?

A: The pertinent point is whether or not the plan administrator has “actual knowledge” of the participant’s financial status. In the final regulations covering hardship withdrawals, released on Sept. 19, 2019, the Internal Revenue Service addresses that point. One requirement for the granting of a hardship withdrawal is that the money is necessary for an immediate and heavy financial need. The employee must provide a representation that he or she has insufficient cash or other liquid assets available to satisfy the financial need, and the distribution may not be made if the administrator has actual knowledge to the contrary. In the final regulations, the IRS states, “The requirement does not impose upon plan administrators an obligation to inquire into the financial condition of employees who seek hardship distributions.” Because administering hardship withdrawals is a fiduciary responsibility, we urge you to consult legal counsel before making a decision. Read the final hardship regulations in in the Sept. 23, 2019 Federal Register. Copy and paste this address you’re your browser:

Q: Do you have any tips for forming a retirement plan committee? We recently implemented a 401(k) plan and want to get the committee off on the right foot.

A: Congratulations on the plan and for seeking an optimal structure for plan oversight. There is no need to reinvent the wheel. A lot of good information has been published on the topic of retirement plan committees. In fact, Nuveen, a TIAA Company, included some interesting thoughts in its publication, next. Along with ideas such as selecting the right number of members for the committee, utilizing a committee charter and thoroughly documenting committee actions and processes, the article discusses the benefits of considering diversity. After all, they suggest, diversity among juries and employees on corporate boards and in academia results in better decisions. They also cite a variety of studies to support the claims. It would follow that retirement plan committees could also benefit from a more diverse committee. Among the factors to consider, according to Nuveen, are gender, race, religion, age, culture, socioeconomic background, education and functional expertise. Read the article in next issue no. 3,

Q: A soon-to-be-retiree asked our HR staff some questions about Social Security benefits. From her questions, it was apparent she did not understand the basics of the Social Security program. Is this a topic we should avoid? Or should we include it in our retirement education?

A: By all means, include accurate information about Social Security. For most Americans, it will make up a large portion of their retirement income. According to the Social Security Administration, it will replace roughly 40% of pre-retirement income for the typical retiree. Considering that many financial advisors recommend striving for replacement of 70% of pre-retirement income, Social Security may account for more than half of the total in retirement. Yet misunderstandings about the program abound. When you provide education for pre-retirees, don’t wing it. Ask your plan service providers if they can offer specific materials about Social Security. It can be especially helpful for this group to have one-on-one meetings with a financial advisor when they have an estimate of their Social Security income in-hand. Among other valuable topics, pre-retirees need to understand the long-term impact of starting their Social Security benefits too early.

Quarterly Calendar

Consult your plan’s counsel or tax advisor regarding these and other items that may apply to your plan.


  • If a plan audit is required in connection with the Form 5500, make arrangements with an independent accountant/auditor for the audit to be completed before the Form 5500 due date (calendar year plans).
  • Audit first quarter payroll and plan deposit dates to ensure compliance with the Department of Labor’s rules regarding timely deposit of participant contributions and loan repayments.
  • Verify that employees who became eligible for the plan between Jan. 1 and March 31received and returned an enrollment form. Follow up for forms that were not returned.


  • Monitor Form 5500 completion status and if required, a plan audit (calendar year plans).
  • Issue a reminder memo or email to all employees to encourage them to review and update, if necessary, their beneficiary designations for all benefit plans by which they are covered.
  • Perform a thorough annual review of the plan’s summary plan description and other enrollment and plan materials to verify that all information is accurate and current, and identify where revisions are necessary.


  • Begin planning an internal audit of participant loans granted during the first six months of the year. Check for delinquent payments and verify that repayment terms and amounts borrowed do not violate legal limits.
  • Confirm that Form 5500, and plan audit if required, will be completed prior to the filing deadline or that an extension of time to file will be necessary (calendar year plans).
  • Review plan operations to determine if any qualification failures or operational violations occurred during the first half of the calendar year. If a failure or violation is found, consider using an Internal Revenue Service or Department of Labor self-correction program to resolve it.

Web Resources for Plan Sponsors

Copy the links below into your browser to get your plan questions answered.

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