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Plan Sponsors Ask...

Q: We’re starting to hear discussions of “income replacement solutions.” What are they?

A: Since the inception of defined contribution plans (DC) plans, sponsors have focused on helping participants manage their accounts and make appropriate investment decisions. The focus has been on the asset accumulation phase of retirement planning, rather than the distribution of income during retirement.

Early indications of a coming trend are that some sponsors are now looking at income replacement options, such as annuities and other lifetime guarantee products, to help participants convert their account balances into an income stream during retirement. A recent survey by Grant Thornton found that nine percent of sponsors were considering a retirement income option. These respondents were about evenly split regarding whether income solutions should be within the plan or outside of it.

The researchers concluded that DC plans are on the frontier of a transformation from savings and investment programs to becoming the major component of income replacement for many Americans. There are, or course, hurdles to overcome, such as more complicated investment choices and the absence of guidance from regulators. But, a trend has clearly begun.

For more information on this topic and others covered by Trends and Insights: Focusing on the Fiduciary Agenda, go to

Q: Have Americans’ attitude toward 401(k) plans changed due to market and economic volatility in recent years?

A: According to the Investment Company Institute’s (ICI) recent Commitment to Retirement Security: Investor Attitudes and Actions report, 91 percent of surveyed 

households had favorable impressions of 401(k) plans, which is consistent with previous polls. Most respondents indicated that their positive view was based on the potential of 401(k) accounts to accumulate significant savings, performance of investment options and personal experience with 401(k) plans.

Most households with these retirement plan accounts said that the plans helped them look at the long term and made it easy for them to save for retirement. More than 40 percent said they likely wouldn’t be saving for retirement if they didn’t have a 401(k) plan.

More than 80 percent noted that immediate tax saving from 401(k) contributions was a major incentive to participate, and about the same number said their 401(k) plan had a good variety of investment options.

The ICI’s report is at

Q: Is the Department of Labor expected to issue a safe harbor rule for large plans regarding timely deposit of participant contributions, as they did last year for small plans?

A: The Department of Labor’s (DOL) safe harbor for small plans (those with fewer than 100 participants at the start of the plan year) provides that contributions will be considered deposited on a timely basis if they are deposited in the plan no later than the seventh business day following the day on which the contribution is received or withheld by the employer.

Larger plans are still bound by the DOL’s long-standing rule requiring that employee contributions must be deposited as soon as they can reasonably be segregated from the employer’s assets, but not later than the fifteenth business day of the month following the month during which contributions are received or withheld by the employer.

It has been reported that informal discussions with DOL representatives indicated that there are no plans to develop a safe harbor for large plans. If anything, it appears that the DOL expects large plans to make deposits even more promptly than small plans.

Regardless, timely deposit of participant contributions remains an audit focus of DOL investigators.

Kmotion, Inc., P.O. Box 1456, Tualatin, OR 97062; 877-306-5055;

© 2011 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance, nor as the sole authority on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.