Plan Sponsors Ask...

Q: Is there information available regarding whether or not plan participants follow investment advice they receive?

A: Yes. The Employee Benefit Research Institute (EBRI) found in the 2014 Retirement Confidence Surveythat about 20% of workers said they had received investment guidance from a professional financial advisor who was compensated by fees or commissions.

Of those who received advice, 27% followed all of the guidance, 36% followed most of it, and about 30% acted on some of it.

  • Reasons cited for not acting on all of the guidance included:
  • Distrusting the advice (34%)
  • Having other ideas, or other plans or goals (16%)
  • Couldn’t afford it (20%)
  • Circumstances changed so advice was no longer useful (4%)
  • Getting better advice elsewhere (4%)

EBRI’s Are There Trust Issues With Investment Advice? article is at http://tinyurl.com/EBRIInvestAdvice.

Q: What are the basics of the law regarding retention of plan records?

A: Even if the plan sponsor retains outside recordkeepers or other service providers, the sponsor is legally responsible for safeguarding records that support reports and filings required by law.

Documents required to be retained are the original signed and dated plan document, all signed and dated plan amendments, and the IRS approval notice. These should be kept until after the plan terminates.

Copies of Form 5500 filings should be retained for at least six years after the submission of the annual report.

Financial and other reports that support the plan document and operations, such as discrimination testing results, must also be kept for at least six years. This includes administrative committee actions related to the plan and complete census data.

Other items generally covered by the six-year rule include all communications issued to participants and beneficiaries, and all loan and hardship withdrawal documentation.

Plan records are to be kept in a manner that allows them to be retrieved readily. Electronic records are permitted, as long as there are controls to ensure their accuracy and they can be reproduced as legible paper copies.

Some legal experts suggest retaining records for longer periods to help in participant divorce cases and lawsuits brought by unhappy employees. Be sure to consult your plan’s counsel for specific guidance.

Q: Did defined contribution plan participants generally stay on course in 2013?

A: According to the Investment Company Institute’s (ICI’s) Defined Contribution Plan Participants’ Activities, 2013, activity was almost the same as in 2012.

Only 2.7% of participants stopped contributing to their plans in 2013 and only 3.5% requested withdrawals.

Hardship withdrawal activity in 2013 was the same as in the prior year, when 1.7% of participants requested this type of distribution. Loan activity remained relatively low: Only 18% of participants had loans outstanding.

The ICI’s report is at http://tinyurl.com/ICIDCActivities2013.

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

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

© 2014 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.