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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
from Spencer’s Benefits Reports: Recent changes to the financial and legislative environment, as well as waning employer confidence that employees are saving enough for retirement, are prompting many companies to reexamine their retirement programs this year, according to a study recently released by Hewitt Associates. The study found that retirement plan sponsors intend to conduct an overall evaluation of their retirement programs in 2007, with a continued focus on managing costs and risks, enhanced retirement education and guidance, and an emphasis on automating 401(k) plans to help employees maximize the benefits of their retirement plans. Hewitt’s study of 146 large U.S. companies found that 40% are likely to measure the competitive position of their current programs in 2007, while 35% are likely to assess their program design.
At the same time, companies are planning to become more proactive in their efforts to educate workers and make it easier for employees to participate in their retirement programs. More than half (58%) plan to automatically enroll employees into their 401(k) plans by the end of the year, and 34% already couple or plan to couple automatic enrollment with contribution escalation features. Eighty-five percent offer or plan to offer target maturity/premixed lifestyle funds, and 54% offer or plan to offer investment guidance, enabling companies’ employees to receive direction on investment selections based on asset classes.
“Recent legislative and financial developments, coupled with rising cost pressures, are causing many employers to reassess their retirement programs to ensure they are aligned with business objectives and have the appropriate impact on employee engagement and satisfaction, the ability to attract and retain new workers, and on work force productivity,” noted Pamela Hess, director of retirement research at Hewitt. “At the same time, companies remain skeptical about employees’ abilities to take accountability for their own retirement future, and as a result, they will continue to take more aggressive steps to equip workers with tools that help improve their saving and investing habits.”
According to Hewitt’s study, 19% of companies that already offer automatic enrollment intend to increase the default contribution rate, and 43% plan to change the default investment fund to a qualified default investment alternative, such as a target maturity fund, balanced fund, or managed account. Another 19% of companies plan to apply automatic enrollment to additional classifications of workers and expand the feature beyond new hires.
“The provisions of the Pension Protection Act and the Department of Labor’s guidance are accelerating the rapid shift toward automation in 401(k) plans,” Ms. Hess explained. “What’s particularly encouraging is we see an increasing number of companies focusing their efforts on improving the quality of 401(k) participation, particularly under automatic enrollment—choosing more appropriate default contribution rates and investment funds, and/or coupling automatic enrollment with other automated tools, targeted education, and resources. Implementing these tools will not only get employees into the 401(k) plan, but help them save and invest more wisely.”
The Hewitt survey noted that the defined benefit plan environment continues to be challenging, particularly with new legislation, new accounting rules, and a continued low interest rate environment. However, despite these challenges, the majority of companies offering defined benefit plans are not likely to make changes to their plans in 2007, which is consistent with the past two years. Only 6% of companies sponsoring “open” defined benefit plans reported that they are likely to close participation to new employees, 4% plan to freeze accruals, and 11% are likely to change the design of their plan. An additional 6% intend to move from a traditional defined benefit plan to either a cash balance or a pension equity plan.
While most companies do not plan to make changes to their defined benefit plans this year, they still intend to address the challenges of sponsoring their plans in the current environment. The survey found that companies—both those with ongoing plans and those with closed and frozen plans—are likely to focus attention on funding policy and asset allocation in 2007, with 81% reporting that they are very likely or somewhat likely to perform funding and accounting projections and 73% very likely or somewhat likely to review funding strategy. Nearly half (46%) of companies are very likely or somewhat likely to adjust the overall asset allocation of their plans.
According to Hewitt’s study, 50% of companies indicated that they plan to review their defined contribution fund operations, including fund expenses, revenue sharing, and communication to employees, and 48% plan to conduct a comprehensive review of fund offerings. However, only 12% reported that they were very likely to find ways to reduce the costs of the funds that they currently offer.
Other findings of Hewitt’s survey include the following:
For further information, visit http://www.hewitt.com.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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