On August 22, 2008 The U. S. Department of Labor (DOL) released proposed regulations in the Federal Register, that if adopted make investment advice more accessible for millions of Americans in 401(k) type plans and individual retirement accounts (IRAs).

“These proposals would give workers greater access to investment advice so that they are better equipped to manage and monitor their 401(k) plans and Individual Retirement Accounts,” said U.S. Secretary of Labor Elaine L. Chao.

The Pension Protection Act of 2006 amended the Employee Retirement Income Security Act (ERISA) by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased, the other is through an adviser compensated on a “level-fee” basis.

Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.

In December 2006, the department solicited public comments to determine what expertise and procedures may be needed to certify a computer model under the exemption, and to assist in developing a model form for the exemption’s disclosure of adviser fees.

The proposed regulation provides general guidance on the exemption’s requirements, including computer model certification, and includes a non-mandatory model form that advisers may use to satisfy the exemption’s fee disclosure requirement. In addition, to further the availability of quality and professional investment advice, the department is proposing a class exemption that permits advisors to provide individualized advice to a worker after giving advice generated by use of a computer model.

Separately, the department also released its determination relating to the feasibility of using computer models for providing investment advice to participants of IRAs.

For further information, please contact Jere Cowden, President and CEO, or Jim Bartoszewicz, Executive Vice President, Cowden Advisers, Inc., Defined Contribution & Investment Advisory Services. They can be reached at 412-394-9330 or toll-free at 888-889-9432. Full Proposed Regulations can also be found at the DOL website.

The Department of Labor (DOL) released proposed regulations that if adopted impose new requirements for the disclosure of fee and expense information to participants in self-directed individual account plans (such as 401(k) plans). The proposed rule is expected to be effective for plan years beginning on or after January 1, 2009 and is part of an ongoing effort to ensure that participants receive sufficient information about plan fees and expenses so that they can make informed investment decisions. In the same notice, DOL proposed changes to the regulations under Section 404(c) of the Employee Retirement Income Security Act (ERISA) to integrate the disclosure requirements and to restate DOL’s position with respect to the scope of ERISA Section 404(c)’s protection.

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...in the Pittsburgh Business Times (full article requires a subscription):

Senior executives are taking a much more active role in administering 401(k) plans than in the past, according to a survey of more than 125 employers in the tri-state area around Pittsburgh.

Of the respondents in this year’s survey by Downtown Pittsburgh-based consultant Cowden Associates Inc., 94 percent said senior executives are involved in making decisions about investments, up from 30 percent in 2007.

...in the Pittsburgh Post-Gazette (full article):

The survey of 128 area employers also found that 25 percent of companies were automatically enrolling employees in 401(k) plans, up from 16 percent in 2007.

Cowden said the survey also identified a major deficiency among plan sponsors: One-quarter said they did not have an investment policy statement, which outlines the general investment goals and objectives of a retirement plan.

...in the Pittsburgh Tribune-Review (full article):

Employers in the Pittsburgh region are taking action to retain and attract top employee talent by increasing contributions to their workers' 401(k) and related retirement plans well above the standard 3 percent mark, a consultant's survey found.

Cowden Associates Inc.'s second annual survey of employers who sponsor defined-contribution plans released Thursday found a substantial year-over-year percentage increase in employer matching contributions.

Cowden Associates survey finds significant changes in investment decision-making process

Significantly more senior executives are taking a direct role in decisions regarding their organization’s 401(k) plans than in the past, according to Cowden Associates, Inc.’s Second Annual Tri-State Defined Contribution Plan Sponsor Survey.

Of the respondents to this year’s survey, 94 percent indicated that their senior executives are involved in the investment decision-making process, compared with 30 percent in 2007.

More than 125 employers throughout the tri-state region participated in this year’s survey, which was conducted during March and April, and provided information on their location, size, total plan assets, type of organization, and eligibility for and participation in the plan.

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A useful guide from 401(k)DIRECT: 2008 Tax Update. In the document, you will find important information about 401(k) contribution and catch-up limits, income taxes, long-term care insurance, IRA limits, and more.

A survey commissioned by the AARP reports that the current downward shift in the economy is having a big effect on people age 45 and older, causing them to delay retirement and take premature withdrawals from their retirement savings. 27% of those over age 45 say they have postponed their retirement plans and over one quarter are struggling to pay mortgage or rent. The complete summary and the full survey can be found at the AARP website.

The U.S. Department of Labor (DOL) has released additional clarification of the "QDIA regulation," the final regulations governing Qualified Default Investment Alternatives (QDIA). These regulations provide plan sponsors relief from certain fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA) for investments made on behalf of participants or beneficiaries who fail to direct the investment of assets in their individual accounts. The guidance has been published in the form of a Q & A that can be found at the DOL website.

An update to a retiree health care case we featured last year: on March 24, 2008 the U.S. Supreme Court declined to review a 2007 federal appeals court ruling, upholding a final rule from the Equal Employment Opportunity Commission (EEOC) that allows an employer to coordinate retiree health benefits with Medicare or a similar state health benefits program without being subject to the Age Discrimination in Employment Act (ADEA). The effect of the ruling is that employers are allowed to provide a two-tier system of retiree heath care coverage, with younger retirees receiving richer benefits than Medicare-eligible retirees. The final ruling ends an eight year court battle, often referred to as the "Erie County" case.

Jim Bartoszewicz was featured in a Pittsburgh Business Times article from the March 21 -27, 2008 issue:

A recent ruling by the U.S. Supreme Court is being called a victory for millions of workers and a reminder for employers to exercise the utmost fiscal responsibility regarding their 401(k) plans.

The court ruled on Feb. 20 that individual participants in 401(k) retirement plans can sue to recover losses caused by the mismanagement of funds, reversing a decision made earlier by the 4th U.S. Circuit Court of Appeals in Richmond, Va., in the case of LaRue v. DeWolff, Boberg & Associates.

Jim Bartoszewicz, president and CEO of Cowden Advisers Inc., a Downtown investment advisory firm, said companies can take action to guard against lawsuits.

"By creating Sound practices for governing their retirement plans, sponsors will reduce the number of legitimate claims, while putting themselves in a better position to defend the frivolous suits," he said.

The full article requires a subscription.

On February 20, 2008 the Supreme Court ruled that a participant in a 401(k) plan can sue the plan sponsor for mismanaging his account. That seems pretty logical, but until that decision, any suit brought against a 401(k) plan sponsor had to be on behalf of the plan (i.e. ALL the participants).

In this instance, (LaRue v. DeWolff), only one participant was harmed when the plan sponsor did not follow his investment instructions. Under the old law, the “plan” was not materially harmed so there would not have been an event to cause a lawsuit. The Supreme Court said what most of us would have said, “This man lost $150,000 and should be allowed to sue for restitution.”

Plan Sponsors Beware: the door is now open for many lawsuits against the plan and the plan fiduciaries. The LaRue case was one example of negligence, but this ruling could allow any of the following scenarios:

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