Retirement Plan FOCUS Bulletin - First Quarter
Distribution Form Enhancements
In the very near future, Fulton will be launching the following enhancements to those participants and plans that use hard copy distribution requests:
- Forms pulled from the website will now be automatically pre-filled with the participant’s demographic information and plan information.
- In addition, the form has been redesigned for improved ease of use on behalf of the participant.
- At the time of form generation, the website will notify the participant if they are now eligible for a minimum distribution—providing proactive, critical and timely information to these participants as they are making decisions regarding their savings.
- Automated e-mail communications to terminated/separated participants alerting them to the fact that they are eligible for a distribution. These automated e-mails will be issued to those participants who have a balance of under $5,000 and have separated from service for over 20 days. These alerts are designed to proactively communicate to those participants with small balances in an effort to reduce the number of participants included in the force-out process.
These enhancements will be implemented within the next 2—3 months and no action is needed on your part.
Cybersecurity and retirement plan administration have been getting a lot of attention lately. Earlier this year, we contacted our clients about an FBI alert we received that indicated cybercriminals are increasingly targeting 401(k) plans. However, this isn’t the only issue when it comes to participant data. The question of whether or not participant data is a plan asset that has value is significant for plan fiduciaries. While this question has not been settled, it might be best practice to assume that the answer is yes.
The second part of the question is easy to answer. Clearly the data has value and the profits of the entire online industry are based on that fact.
It’s the first part of the question that’s significant, "Is participant data a plan asset?" If it is, then plan fiduciaries have an obligation to act with prudence, care and skill in the protection and use of that data. A plan fiduciary failing to act prudently to protect their data could be guilty of a fiduciary breach.
At Fulton, we act as if the data has value for which we have fiduciary responsibility. As such, we never use the data for marketing purposes. While we may reach out to your participants, we do so only for the purpose of educating them about saving for retirement. And we take prudent steps to protect the data.
Some steps for you to consider could include:
- Identification of the data involved
- Consideration of the types and sources of risk
- Review of the data security processes of vendors
- Identification of steps you can take to better protect data, such as the use of encrypted email
- When approving a distribution, hardship withdrawal or loan, there are extra steps that should be taken to verify that the participant is actually the one applying. Does the address match your records? Does the signature match? Is the request reasonable and expected?
It might be impossible to protect your participants and their data with absolute certainty. Always remember that the responsibility of a fiduciary isn’t to guarantee perfect outcomes, but to engage in a prudent process.
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was officially signed into law on December 20, 2019. Although far from any sort of sweeping reform, the Act does feature a number of changes touching various retirement vehicles. These changes are designed to foster additional retirement savings and reduce barriers to plan participation.
Over the next couple of issues, we will be touching on some of the features of the Act that might have an effect on your Plan. Most urgently, the Act has had an effect on all plans and the way in which minimum distributions are approached.
The age when minimum distributions must start has been changed from 70 ½ to 72 for those individuals who are not 70 ½ by December 31, 2019. In other words, if a participant is 70 ½ by December 31, 2019, then it’s business as usual for that individual and they must begin taking minimum distributions per pre-SECURE Act rules. However, for those who turn 70 ½ AFTER December 31, 2019, —the requirement to begin minimum distributions does not go into effect until they turn 72.
This feature of the SECURE Act is already in place and active. There is no immediate action that needs to be done on your part—other than be aware that you may have a few participants who can push back their initial minimum distribution. Fulton has already updated our procedures to account for this change when identifying who should be receiving a minimum distribution.
Fee Compression isn’t Free
Fulton has long been an advocate of transparent pricing and providing an exemplary level of service for our clients that remains competitive with industry averages. As pricing has become more transparent, many firms have had to adjust their fees—but also reduce their service levels—leaving plan sponsors and participants to pay a different price in a variety of ways. Read here for some additional insight.