In April 2016, the US Department of Labor (DOL) released the long awaited final regulation on the fiduciary standards rule.

The new rule is complex with more than 1000 pages to digest. In a nutshell, it expands and redefines the definition of “investment advice fiduciary” under ERISA as well as providing a new Best Interest Contract Exemption (BICE) to allow so called conflicted compensation to be paid under certain circumstances. The legislation elevates all financial professionals who work with or provide advice for retirement plans (including IRAs) to the level of a fiduciary, bound legally and ethically to meet the standards of that status. While the fiduciary duties for plan sponsors will not change, employers should be aware of the ruling as it could affect the way you interact with advisors and plan providers, including service agreements and fee structures.

The new rule requires advisors to:

• Give advice that is in the “best interest” of the retirement investor. This best interest standard has two chief components:
• Under the prudence standard, advice must meet a professional standard of care as specified in the text of the BICE
• Under the loyalty standard, advice must be based on the interests of the customer, rather than the competing financial interest of the advisor or firm
• Charge no more than reasonable compensation
• Make no misleading statements about investment transactions, compensation, and conflicts of interest

When are the regulations effective?

The effective date of the new regulations was June 7, 2016. However, responding to industry concerns regarding complexity of implementation, the applicability date is April 10, 2017, with a further transition period for many requirements of the BICE to January 1, 2018. The Trump administration has issued a memorandum directing the DOL to study the rule and if appropriate, further delay or revoke it. The DOL has delayed the rule until June 9th.

Plan Sponsor Considerations

Plan sponsors have the same fiduciary responsibilities that applied before the rule was published. That means anyone who is involved in decision-making for the plan is obligated to adhere to participants’ best interests when selecting and monitoring plan investments and service providers. However, there are some things the Plan should specifically assess.

Plan sponsors should be evaluating their advisors and determining if they are a fiduciary to the plan. Be on the lookout for more paperwork and more disclosures from financial advisors and provider partners —including additional detail on how providers are being paid. It will be up to the plan sponsor to review this information carefully. Vendors also may have to modify their services and/or adjust their pricing based on what is now considered an investment fiduciary role. This should all be discussed in plan committee meetings and documented in the minutes.

Also, regarding participant interactions and education, plan sponsors and advisors will be able to provide general education and information on retirement saving without triggering fiduciary duties and liabilities. If you have employees that help administer the retirement plan, providing advice or recommendations must not be part of their job description. The employee must not be licensed or registered under securities laws, and the employee must not receive any direct or indirect fee or other compensation for the advice other than normal compensation from the employer. Education materials should be reviewed to determine that they are unbiased and would not give rise to fiduciary status.

For departing employees, the rule could have a significant effect on rollovers from the plan to an IRA, as recommendations of a distribution or rollover to an IRA may now be a fiduciary act. As a result, these recommendations may not be made resulting in more departing employees possibly leaving their accounts in the plan.

Finally, the details of the rule are complex and go beyond the scope of this article. Consult with your ERISA attorney, advisors and your accounting firm for any questions and assistance with compliance. As always Shannon & Associates is here to help!

—Julie Courtney, CPA, Partner

There have been a lot of recent articles and high-profile lawsuits lately regarding excessive 401(k) plan fees. This has highlighted the fact that millions of American’s retirement savings can be eroded by excessive fees.

If your plan undergoes an annual audit, during that audit we will typically ask you about participant complaints - if there have been any. Usually the response is no, but sometimes we hear that there have been concerns about excessive fees. This may not seem like a significant concern, but in fact it’s a very important signal for plan sponsors to act on their fiduciary responsibility to their participants to provide a cost effective retirement savings plan.

Legal fees, trustee fees, transactional fees, stewardship fees, bookkeeping fees and finder fees are all just some of the potential added costs to investing in a 401(k) plan. Consider that just as the participant’s investment compounds over time, so do fees, and at a potentially greater rate which can end up wiping out a significant amount of participant savings. In fact, just a 1 percent reduction in fees can add an additional 10 years to your retirement income. Let’s take a look at an example. Let’s say that you max your 401(k) this year and invest $18,000, and the investment makes a 5 percent return every year. After 40 years, that investment would grow to be worth $126,720. But if you’ve invested in a fund that charges a 2 percent annual fee, you’ve cut your return to 3 percent. And over 40 years, your investment would instead be worth only $58,717 — a difference of $68,003. The math gets more complicated when considering additional factors, such as market fluctuations, the impact of inflation and additional contributions over time, but the point remains that fees can take a significant chunk out of potential long-term returns.

It’s important for plan sponsors to do their research and benchmark their plan’s fees so that they can ensure they are reasonable. A good rule of thumb is to keep total fees under 1 percent. A 401(k) plan is a wonderful benefit for your employees and a tremendous saving opportunity when managed properly.

With you as the plan sponsor, documenting this process is also important to show you are acting diligently in your fiduciary role.

If you would like assistance in reviewing your plan’s fees, please let us know. We are happy to help.

— Lisa Holfeld, CPA Manager

A New Way to Work with us – NetClient CS

In a world where business is done anytime and anywhere, we are pleased to announce a new way to work with us from any highspeed internet connection, 24 hours a day, seven days a week. Using NetClient CS is as easy as online banking and it’s completely secure.

Once you’re up and running on NetClient CS, you’ll have your own secure, password protected online portal that you can access from our website. Just log-in from your web browser for instant access.

A Client Portal allows you to:

• View and print tax documents – including finished tax returns, electronic filing authorizations and more. Final tax documents and other items can be saved for up to 7 years on the portal; you can also copy the files to your own location for safe keeping.
• Eliminate the bulky paper copies of your tax return, store and access them securely anytime/anyplace
• Exchange files with us – any file, any time

State-of-the-Art Security:

• Our NetClient CS portals are hosted at some of the largest most secure data centers in the world. It uses the industry’s most advanced security and reliability measures to keep your data safe, including:
• Built-in redundancy: Multiple data locations. Internet connections and power sources keep your portal up and running all the time.
• Secure Password Protection – This protects your data as it travels between the data center and your computer.

Get set up today!

Simply send us an email ShannonTax@Shannon-CPAs.com or contact our office at 253-852-8500 to indicate your interest in getting set up.

The IRS has announced that some retirement benefit plan limitations will be adjusted for 2017. The image above shows selected limitation amounts.

Julie Courtney, CPA, Partner

Julie is our Director of Accounting and Auditing for Shannon & Associates, is in charge of the firm’s employee benefit plan audit practice. Julie is involved in all aspects of the audits we perform as well as plan consulting and advisory services.

Julie has over 21 years of public accounting experience. Her areas of expertise include benefit plan and financial audits and financial reporting. Her responsibilities include advising closely-held businesses, internal control review, and various tax engagements. She also assists in quality control and staff training for the firm. Julie attends the AICPA National Conference on Benefit Plans annually. She has served clients in many industries including the following: manufacturing, non-profit organizations, real estate development, wholesale distributors, restaurants, construction (home builders), and professional services. Julie holds a Bachelor of Arts degree in Accounting from Western Washington University.

Bethany Hulbert, CPC

Bethany is our Employee Benefits Consultant, has over 11 years experience specializing in defined contribution plan administration and holds the Certified Pension Consultant (CPC) credential from the American Society of Pension Professionals and Actuaries (ASPPA). This experience, along with her educational background in accounting and attendance at numerous seminars and courses, has resulted in an up-to-date mastery in profit sharing, 401(k), and money purchase pension plans. We encourage you to contact Bethany regarding any questions you may have with your defined contribution plans.

Bethany provides expert and timely services in the areas of plan document design, implementation and submission to the IRS; employee communications; all aspects of plan administration; evaluation of controlled groups and related businesses; discrimination/coverage testing and solutions; compliance with all reporting required by the IRS and DOL; and minimum required distributions.