Fall 2010
Plan Sponsors Ask…
Q: Is the trend toward immediate eligibility to participate in 401(k) plans continuing?
A: Yes. In a December 2009 eligibility survey, the Profit Sharing/401(k) Council of America’s (PSCA) found that 57 percent of all surveyed plans (and 71 percent of plans with 1,000 or more employees) allow immediate participation in their 401(k) plans. In 1998, only 24 percent of plans permitted immediate eligibility and in 2005, 49 percent did so.
The 401(k) and Profit Sharing Plan Eligibility Survey 2009 responses indicated that 76 percent of plans permit eligibility within the first three months of employment. Only 12 percent have a one-year or longer service requirement.
Only 29 percent of plans require one year of service or more for matching contributions, and 47 percent have a one-year-or-more service requirement for non-matching employer contributions.
About 44 percent of plans have no minimum age requirement for participant contributions or non-matching company contributions.
Details about the PSCA's survey are located here.
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Q: Are there new rules for providing investment advice to 401(k) plan participants?
A: No. But, the Department of Labor (DOL) proposed new regulations earlier this year.
The Pension Protection Act of 2006 amended ERISA to provide a statutory exemption from the prohibited transaction rules to expand investment advice availability to 401(k) plan participants and others. The proposed rules address that amendment of ERISA.
The proposed regulations permit advice in two ways. One is through "a computer model certified as unbiased." The other is through an adviser compensated on a "level-fee" basis, meaning that fees are not variable based on the investments chosen by the participant.
Among the requirements that would be imposed under the rules are:
- A plan fiduciary must select the computer model or fee arrangement.
- An "independent expert" must certify the computer model in advance as unbiased.
- An annual audit is required.
- Advisers must provide disclosures to participants.
The proposal states that new regulations would be effective sixty days after publication of the final rule.
The DOL's Fact Sheet about the proposed rules is located here.
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Q: A great deal of attention is being paid to investment expenses, particularly to fees paid directly or indirectly by plan participants. What’s the latest on mutual fund fees?
A: The Investment Company Institute (ICI) has found that, since 1990, average fees and expenses paid by mutual fund investors have fallen by half for stock and bond funds.
In 2009, fees and expenses paid by investors in long-term mutual funds were unchanged from 2008. Stock fund investors paid, on average, 0.99 percent in fees and expenses, and for bond funds the average was 0.75 percent.
Average fees for money market funds fell slightly last year.
For more information, see the ICI's Trends in the Fees and Expenses of Mutual Funds 2009 report.
