More on DOL's Fee Disclosure Proposed Regulations

As discussed in breaking news from the DOL last week, the Federal Register dated July 23, 2008 consisted of the proposed regulations from the DOL on the new fee disclosure requirements for participant directed (401(k)-style) plans.

The entire 32 page proposed regulation was a result of an extensive study of data gathered during the comment period last year. As we discussed on the post last week, there were many comments obtained from all sorts of interested parties, which in and of itself makes for fascinating reading and can be found here.

On pages 30 and 31 of the Federal Register linked above are the proposed model disclosures that the DOL is seeking to make mandatory effective January 1, 2009. Part 1 of the disclosure consists of a listing of funds and their historical financial performance (click on the pic for a sharper image): Part 2 of the disclosure relates to fees (click on the pic for a sharper image):

They are not kidding around this time folks. This is getting deep.

More TSP News - House Approves TSP Automatic Enrollment Measure

Alyssa Rosenberg of GovExec.com (hat tip to Benefitslink.com) is reporting: "House approves TSP automatic enrollment measure." (As some knowledgeable readers know, the TSP is the federal government's 401(k)-style Thrift Savings Plan.) Important takeaways:

• New federal employees will be automatically enrolled into the plan at a modest 3%-of-pay contribution level (Side-note: http://www.usajobs.opm.gov/ is the official federal government job search site)
• The funds from automatic enrollments would be invested in the stable government securities fund to insulate new participants from any potential large losses
• Federal employees who were hired after 1984 will be granted credit for unused sick time in their pension calculations
• The measure would require the Federal Retirement Thrift Investment Board to include a Roth Individual Retirement Account option in the plan. The article quoted Gregory Long, the TSP Executive Director as saying they would study this provision since the TSP is premised on pre-tax contributions
• A new provision will relieve the TSP's fiduciaries of legal liability for allowing plan participants to invest in self-directed investment funds or restricting them from making such investments
• Two other liability provisions were included in the measure passed by the House, one of which blocked federal employees from suing the fiduciaries over automatic enrollment or investing automatic enrollment funds in the government securities fund.

Senator Kohl Criticizes IRA Rollover Ads

The Wall Street Journal [subscription required] reported yesterday that Senator Herb Kohl ((D., Wis.), chairman of the Senate's Special Committee on Aging, says investment vendors TIAA-CREF and Fidelity Investments and have run "misleading" advertisements to entice government employees to roll over their money to them.

In a letter released Tuesday by Sen. Kohl, New York-based TIAA-CREF agreed to pull a print ad directed at participants in the Thrift Savings Plan, a $225.7 billion 401(k)-style retirement fund for federal employees and the military. Fidelity, however, decided not to change its ad and defended its pitch as potentially beneficial to investors.

TIAA-CREF's print ad, which ran in the Washington area, said: "Do you know when your TSP retires? Your TSP won't last forever...make sure your assets continue to work for you throughout your retirement. So roll over your TSP to a TIAA-CREF IRA."


Officials with the Thrift Savings Plan, who complained to Sen. Kohl in a recent hearing, say the trouble with the ad is that people who leave federal service are under no obligation to take their assets out of TSP when they retire; rather, they are encouraged to leave their funds in the plan because of its low fees, which are around 15 cents per $1,000 in an account. The plan contains index funds managed by Barclays PLC's Barclays Global Investors unit.

IRS Too Easy on Payroll Taxes

Martin Vaughan reports today in the Wall Street Journal [subscription required]: "IRS Too Easy On Payroll Taxes, Study Finds."

The Internal Revenue Service is too lenient with business owners who fail to remit payroll taxes to the federal government, congressional investigators said in a study to be released Tuesday.

More than 1.6 million businesses are behind on payroll-tax payments, for a total of $58 billion owed as of Sept. 30, 2007, the Government Accountability Office said. In pointed language, the GAO said the IRS is slow to file liens and focuses too much on voluntary compliance rather than using stronger medicine.

"IRS's collection philosophy focuses on gaining voluntary compliance, even for recalcitrant businesses that repeatedly fail to remit payroll taxes and whose actions indicate no intention to become compliant," according to the report. "It is incumbent upon IRS to revise its approach ... to prevent businesses from continuing to accumulate payroll tax debt."

The GAO findings take center stage at a Tuesday hearing of the Senate Permanent Subcommittee on Investigations, which has a history of pressuring the IRS to more aggressively pursue delinquent taxpayers.

At issue are Social Security taxes -- both the 6.2% of wages withheld from employees, and the employer match -- and Medicare taxes that the employer holds "in trust" and is required to remit to the federal government. Failure to do so is a felony, and the IRS has authority to seize the personal assets of business owners if they are found to be "willful" in diverting payroll taxes.

This trend may seem to go against what we are led to believe in the DOL/EBSA world with respect to the timing of remittance (i.e. separation from the employer's general assets) of participant's 401(k) contributions.

The GAO recommended that the IRS revise its procedures to allow for more prompt filing of liens against property, along with other administrative improvements.
The IRS agreed with all of the GAO's recommendations. In response to the report, it noted that the IRS collects 99.8% of all payroll taxes assessed. The $58 billion is a cumulative total of uncollected debts over 10 years. The IRS considers about half of that debt to be uncollectible because the businesses in question are insolvent or defunct.

The GAO said it found "extensive evidence of abuse and potential criminal activity" in a review of IRS cases related to payroll-tax collection. It said in a number of cases, business owners made extravagant personal purchases or made business investments even as they continued to flout their payroll-tax obligations.

Wait, wait, wait, here's the punchline... There had to be a human element to this story:

For instance, one dentist who owes the IRS more than $500,000 after 15 years of underpaying, lives in a $700,000 home that is deeded to a spouse, and sold property to children at below-market rates to pre-empt tax liens.

Weekend DOL Blotter - 7/27/2008

Once again, the EBSA was hard at work last week protecting America's pensions. Two new cases were announced: One case involved North Valley Precision Products of Reno, Nevada, where the alleged misuse of the plan's assets resulted in 12 former employees being unable to access their retirement plan accounts.

The suit, filed in the U.S. District Court for the District of Nevada, alleges that the company violated the Employee Retirement Income Security Act (ERISA) when $26,506 in plan assets were transferred to a corporate account and used for non-plan expenses. The company also failed to appoint a successor to administer the plan after it ceased doing business in 2006.

The suit seeks to restore any losses to the plan that resulted from the misuse of the plan assets. The suit also seeks to remove the company as a fiduciary and appoint an independent fiduciary to administer the plan. The independent fiduciary will be responsible for terminating the plan and distributing the assets to eligible employees and beneficiaries.

“This case demonstrates the department’s commitment to taking action to protect the benefits promised to workers,” said Billy Beaver, regional director of the Labor Department’s Employee Benefits Security Administration (EBSA) office in San Francisco. “Plan participants have been unable to access their funds – money they’ve counted on for their retirement. We hope that, through this action, these workers and their families will have access to their retirement savings.”

North Valley Precision Products manufactured sheet metal boxes used for gaming machines and medical devices.

The second case, where a court order had been obtained by the DOL in which two officers of defunct New York City and Santa Monica, California-based textile companies American Fabrics Co. and Beverly Trimming Co. agreed to restore $111,260 to the companies’ 401(k) plan to resolve a Labor Department lawsuit.

The suit, filed in the U.S. District Court for the Southern District of New York in December 2006, alleged that the companies, along with plan trustees Richard Haik and Mitchell Ostrover, violated ERISA by failing to remit to the plan contributions and loan repayments deducted from employees’ paychecks between January 2002 and December 2003.

“Trustees of a 401(k) plan have a responsibility to ensure that the assets of the plan are used solely to benefit participants. One of the most important responsibilities is putting money from workers’ wages into their 401(k) accounts on time,” said Bradford P. Campbell, assistant secretary of the Labor Department’s Employee Benefits Security Administration (EBSA).

American Fabrics, which also had operations in Bridgeport, Connecticut, and Bogalusa, Louisiana, ceased operations in the summer of 2006. Beverly Trimming ceased operations in 2004. The American Fabrics Co. 401(k) Savings Plan covered approximately 106 participants from both companies and held $821,139 in assets as of June 30, 2006.

A consent judgment obtained by the Labor Department orders Haik and Ostrover to restore to the plan $111,260 plus lost opportunity costs owed to the plan. The defendants also are ordered to appoint Jacqueline Carmichael of JM Pension Advisory Inc. as the plan’s independent fiduciary responsible for plan management, termination of the plan and distribution of its assets to eligible participants and beneficiaries. In addition, the defendants are permanently barred from serving as fiduciaries to any ERISA-covered plan.