A Moment of Reflection

New Year's Eve...a time to reflect upon the past, and look forward to the new...

As I look back at the past 18 months, I am very proud of the direction Wells Thomas, LLC has taken, and I feel the journey ahead will bring out the best in us yet. I am ever thankful to my staff for all of their hard work and dedication to their clients. Not only is the experience of my staff impressive, but the comments I get from clients about the relationships they are building with our staff is a cornerstone of our service model, on which we will continue to build.

The past year has also seen some expansion on the services and activities we have become involved in. In March we began a series of quarterly meetings with local investment advisors, with the intent of providing simple, yet vital, information they can use in supporting their clients' retirement plan needs. I am happy to say that we have already lined up multiple sponsors for 2009, and will continue these quarterly meetings in the coming year.

In a similar vein, I began doing presentations for local broker/dealers and investment advisory firms in Connecticut. These question and answer meetings have topics ranging from "how to sell a retirement plan" to issues of plan design and administration, all with the purpose of providing knowledge and support to investment professionals interested in working with retirement plans. As a non-producing Third Party Administrator, the bulk of our referrals come from investment advisors, so we wish to actively support them in all of their needs for retirement plans.

Other highlights of the year include:

* Rolling out our new website (www.wellsthomas.com), which allows our clients to have greater and easier access to plan data
* Working to develop a relationship with New England Payroll Services, LLC, a payroll company in Hamden, which will streamline data transfers for mutual clients
* Testifying before the Connecticut Commerce Committee at the State Capitol regarding retirement plan matters
* Bringing on new members of our staff to strengthen our position as a local TPA
* Being named one of the select TPAs in Connecticut to offer the American Funds Plan Premier program
* Being selected as one of the few TPAs in the country to become a Strategic Administrator with Nationwide Trust Company

In closing, though there are a multitude of people I would like to thank for their ongoing support and work with Wells Thomas, LLC, I would like to take a moment to thank a special few:

My staff: Nancy, Frank, Margaret, Laurie, Lori, Terri, Tracy and Kris
My family for their support in this wonderful adventure
Those who have continued to support Wells Thomas, LLC with referrals, including: Bonnie, Mike, Glenn, Heidi, Lori, Kevin, Michelle and Roland, to name just a few
And finally, to all of my friends, old and new...

Thank you,
Sean

Congress Passes Economic Relief and Technical Corrections Bill

On December 11, 2008, the House and Senate passed The Worker, Retiree and Employer Recovery Act of 2008 (HR 7327), which will become law when signed by the President. [For a complete copy of the bill, click on the title of this post to be taken to the site.]

This bill includes short term provisions to help individuals and plan sponsors deal with the market downturn, as well as the PPA technical corrections package.

A few of the highlights of the bill are:

*Effective for plans beginning after December 31, 2009, rollovers by non-spouse beneficiaries are generally subject to the same rules as eligible rollovers. This means plans are required to provide a direct rollover option for non-spousal beneficiaries and must provide an IRC Sec 402(f) notice to the non-spousal beneficiaries.

*The requirement that gap period income be distributed on excess deferrals is eliminated. Thus, gap period income is no longer required on excess contributions, excess aggregate contributions, and excess deferrals distributed to satisfy IRS Sec 401(k)/(m) or 402(g).

* Effective for plan years beginning after 2008, defined benefit plans sponsored by small employers (100 or fewer employees) can provide a fixed 5.5% interest rate for determining maximum lump sum benefits under IRC Sec 415.

* The minimum required distributions otherwise due for 2009 under IRC Sec 401(a)(9) would be waived for qualified retirement plans, IRC Sec 403(a) and IRC Sec 403(b) plans, governmental IRC Sec 457(b) plans and IRA's.

As these are just a few highlights of the entire bill, we encourage you to call our office if you have any questions.

403(b) Plans Get Extension to Complete Written Plan Documents

On December 11, 2008 the IRS issued a notice announcing relief for retirement plans covering employees at public schools, colleges and universities, and other tax exempt organizations (usually referred to as 403(b) plans), that do not have a written plan document in place by January 1, 2009.

Due to the difficulty in satisfying the written document requirement by January 1, 2009 that many plan sponsors have expressed, the IRS will treat these plans as meeting the requirements of 403(b) and the regulations during the 2009 calendar year if:

* By December 31, 2009, the sponsor of the plan has adopted a written 403(b) plan that is intended to satisfy the requirements of 403(b) and the regulations.

* During 2009, the plan sponsor operates the plan in accordance with a reasonable interpretation of 403(b) and the related regulations.

* By the end of 2009, the plan sponsor makes its best effort to retroactively correct any operational failure during the 2009 calendar year to conform to the written plan.

Further guidance is expected from the IRS regarding 403(b) plans, including a revenue procedure establishing programs for 403(b) plans to obtain IRS approval of the plan document and allowing these plans to make remedial amendments to retroactively fix plan provisions under rules similar to those that apply for 401(a) qualified plans.

Plan Your Budget Today For 2008 & 2009 Safe Harbor Plans

As we approach the end of the year, now is the perfect time to review your company's retirement plan to determine if there are any design changes you want to make BEFORE 2009 begins. One of the most important design considerations is that of the 401(k) Safe Harbor.

For those companies that currently maintain a 401(k) Safe Harbor plan, reviewing your budget today could save you some financial grief down the road, especially in the current economic conditions. Keep in mind that:

• Safe Harbor Contributions are NOT optional. If your plan has a Safe Harbor provision in it for 2008, the company WILL be obligated to make the required Safe Harbor Contribution by the time the 2008 company tax return is filed, REGARDLESS OF YOUR CASH FLOW SITUATION.
• As you review your projected budget, if you feel the company's cash flow will not allow for the contribution for the 2009 plan year, the Safe Harbor provision must be amended out of the plan document prior to December 21, 2008.
• If the Safe Harbor provision is removed from your plan, the Employee Deferrals will be subject to the ADP testing, and the Employer Matching Contributions (if applicable) will be subject to the ACP testing. This could result in a significant decrease in the amount the Highly Compensated Employees may defer in 2009. You should speak to your Third Party Administrator about the possible impact this change could have on your participants.

For those companies that do not currently maintain a Safe Harbor 401(k) plan, but are considering doing so:

• If you currently have a 401(k) provision in your plan, the Safe Harbor feature may only be added at the START of the next plan year.
• Due to the notices that must be provided to participants 30 days prior to the start of a plan year, any company that wishes to maintain a new Safe Harbor 401(k) provision for 2009 must have the plan documents in place, and the notices provided to the participants by December 1, 2008.
• The Safe Harbor provision will allow the Highly Compensated Employees to defer up to the IRS maximum each year, and not be restricted by what the Non-Highly Compensated Employees defer.

As this is an extremely brief summary of the requirements of stopping, or starting at Safe Harbor 401(k) plan, we suggest you contact your Third Party Administrator as soon as possible to review the impacts on your particular plan.

The IRS Has Released the 2009 Cost Of Living Adjustments

The IRS has recently announced the Cost Of Living Adjustment for 2009. For the complete listing, click on the title of this post above to be taken to the IRS Announcement 2008-118. For your convenience, below are the major limitations that impact retirement plans:

401(k) & 403(b) Deferral Limit: $16,500

401(k), 403(b), 457 Catch-Up Contribution Limit: $5,500

SIMPLE Deferral Limit: $11,500

SIMPLE 401(k) & IRA Catch-Up Contribution Limit: $2,500

Annual Compensation Limit: $245,000

DB 415 Limit: $195,000

DC 415 Limit: $49,000

Dollar Limit for HCE: $110,000

Dollar Limit for Key Employee: $160,000

Social Security Taxable Wage Base: $106,8000

Fee Disclosure Is Coming

It looks like it is going to be reality. On September 23, the 408(b)(2) regulation (which will require disclosure of fees and potential conflicts of interests of all service providers to ERISA retirement plans) was submitted to the Office of Management and Budget. This is generally the last step in the process before final approval.

It is expected that "final regulations should be issued by November 1, 2008."

If approved by November 1, the regulation should be issued in final form by Thanksgiving. If the effective date of 408(b)(2) for all new contracts is January 1, 2009, this will not provide a great deal of time to update and modify all service contracts to meet the new requirements.

Stay tuned for more information...

Oops they did it again

In a classic instance of the left hand not knowing what the right hand is doing, the IRS has sent out a number of DENIALS for the Application For Extension Of Time to File an Employee Plan Return in error.

On the latest Form 5558, the instructions specifically state that no signature is required on the Application for Extension of Time, however the IRS began rejecting those submitted without signature, until someone there realized their mistake.

After speaking with a representative at the IRS, our office was given the following instructions for responding to the DENIAL letter:

* Write a letter back to the IRS explaining the form was not signed due to the change in the instructions

* Include a copy of the original Application for Extension of Time

* Include a copy of the DENIAL Letter

If you (or your clients) receive a DENIAL letter from the IRS, please forward it to our office immediately so that we may respond in the above manner timely.

Just another day in the Retirement Plan world...

Learn More about ASPPA's QPFC Program

In a recent post I mentioned that ASPPA has rolled out a new designation for Investment Professionals of Qualified Retirement Plans, QPFC. I am pleased to announce that ASPPA will be hosting a FREE on-line seminar with more information about the designation, course materials and costs. Below is information about this from the ASPPA website:


WEBCAST –(FREE) ASPPA’s QPFC Program – The “Gold Standard” of the Industry
Presented by: Sarah Simoneaux, CPC, and Chris Stroud, MSPA

Join ASPPA for a free webcast designed especially for financial consultants and sales/marketing support staff who specialize in retirement plans. Learn more about ASPPA’s QPFC (Qualified Plan Financial Consultant) credentialing program, which has become the “gold standard” in the industry for financial advisors who wish to distinguish themselves in the retirement plan marketplace. The webcast will provide an overview of the QPFC program and why it is important to you, as well as details about course materials, costs, benefits, etc. One significant benefit is that the exams required to earn the QPFC credential provide significant continuing education credits for CFP, ChFC and CLU. There will be time allocated during the webcast for additional questions on the QPFC program of ASPPA.

Sarah Simoneaux, CPC, and Chris Stroud, MSPA, will be hosting the webcast. They are both recent past presidents of ASPPA and currently work as E&E Program Advocates. Sarah has worked in the employee benefits industry since 1981 and Chris has worked in the industry since 1978. Sarah is the author of Retirement Plan Consulting for Financial Professionals, the required textbook for ASPPA's first Plan Financial Consultant exam (PFC-1), and Chris is the Editor of The ASPPA Journal. Sarah and Chris offer consulting services through Simoneaux and Stroud Consulting Services to for-profit companies providing retirement services and to non-profit organizations. Their firm specializes in business planning, business consulting, professional development, industry research and customized skill building workshops.

To register via fax, download the registration form at: http://www.asppa.org/archive/gac/2008/webcasts/goldstandard/promofax-092408.pdf, complete it, and fax it to ASPPA at 703.516.9308.

EGTRRA Document Restatements

Well, we've FINALLY started the latest mandatory document restatement process. One of our document providers has, at last, released 401(k) and profit sharing plan documents on their system! So we're now beginning to go through all of our clients' documents to update them to the EGTRRA approved document. In the process we will be:

* Informing our clients of recommended plan design changes
* Letting our clients know of various options in the designs available
* "Cleaning up" some of those pesky take-over plans

What does this mean to you? Be sure that you (or your clients) are aware this restatement MUST be completed. If the plan is a Defined Contribution Plan, and is using a Volume Submitter or Prototype Document, the restatement must be completed by April 2010. THIS INCLUDES SOLO 401(k) PLANS!

If you, or your client, has a Solo 401(k) Plan, and you need a non-proprietary plan document which will not restrict the investment provider to be used under the plan, contact our office for pricing. We have a standard Solo(k) document available that is cost effective, and meets all EGTRRA requirements.

Western Benefits Conference

This year's Western Benefits Conference was held in Seattle, WA, and as always there were some interesting topics and speakers. One of the highlights for me personally was attending the ASPPA PAC reception, and meeting Sal Trapodi, among others.

ASPPA (a co-sponsor of the event) had a large presence. All of our employees are required to pass at least the first two ASPPA exams, and Administrators are encouraged to obtain various ASPPA designations. While discussing this with ASPPA's educational representative, I was informed about one of their latest initiatives: Certifications for Investment Professionals, being slated as the "CFP for retirement plans". More information will be posted on this shortly.

A hot topic over the course of the conference was the DOL's focus on 2 things: 1. PPA Implementation; and 2. Fee Transparency. For the DOL's summary on these topics go to www.dol.gov/ebsa, however future postings to this site will focus on these issues.

Other issues discussed (which, again, will be covered in future postings) include: updated 402(f) notices to terminated participants, the HEART Act, 401(k) Safe Harbor Deposit Timing, Cash Balance Plans, and various proposed bills.

Seattle is a beautiful, and CLEAN, city...if you ever get the chance, take a few days to walk around the city and check out Pike Street Market and, of course, the Space Needle. On another note, I rounded out the week by attending day 1 of the inaugural Mile High Music Festival in Denver, CO. Though there were many great acts there that night (Tom Petty & The Heartbreakers, Mike Gordon, Moe. and more), I have to say that once again Steve Winwood blew me away. He sounds as great today as he did 40 years ago!

Economy Going Down, Participant Loans Going Up

For those of us in the Retirement field, the latest survey released by the Transamerica Center for Retirement Studies came as no surprise. What the survey found was that 'the number of workers with loans outstanding on retirement accounts...rose to 18 percent in 2007 from 11 percent a year earlier.'

As retirement plan administrators, we can predict fairly accurately when the upswing in participant loan requests will occur: the start of the school year when tuition bills arrive and just before and just after the Christmas holiday shopping time. But with the recent trends in the market, the rising costs of living, and the current mortgage 'crisis', we have certainly witnessed a significant, and steady rise, in loan requests in the past months.

As a rule of thumb, we encourage plan sponsors to hold off adding loan provisions to a plan as long as possible, because we often see that once the floodgates have opened, participants see the loan option as a quick fix to their current situations. In reality participants are damaging their retirement savings, while (in many cases) just delaying the inevitable.

Many participants look at plan loans as a viable option because they pay THEMSELVES back the interest instead of a bank or lending institution. But what they fail to realize, especially in a downward trending market, is that when the assets are liquidated, and the loan check cut from their account, they have most likely just committed the cardinal sin of investing: they bought when the market was high, and sold when the market was low. Worse still, if the market turns around while the loan payments are still ongoing, they will then be buying back in at a higher value.

What is more troubling, in real world applications of loans, is that there are a number of participants that terminate employment with outstanding loan balances. If these loans are not paid in full immediately (or if an arrangement is not made for ongoing loan payments), the loan balance is deemed in default, and will be a taxable event to the participant. This can certainly further the financial strain on those already feeling the crunch.

Take time to educate participants about the pros and cons of taking a loan from a retirement plan, and when possible, have them look for other alternatives. They may not realize it now, but come retirement they'll be glad...

Kicking Off the 3rd Quarter

As we quickly head into the 3rd quarter of 2008, at last week's Advisor Breakfast, we took a look at some new ventures and marketing opportunities that are coming up.

First: On July 1, 2008 American Funds is rolling out their new PlanPremier TPA platform. This multi-fund product will allow clients to utilize the best of American Funds along with various outside mutual funds, along with the tailored plan design and high level of service clients have come to expect with a TPA. This is particularly exciting for Wells Thomas, LLC as we are one of a handful of TPAs in Connecticut that have been pre-approved to work with this platform. For more information, please call or office to schedule a meeting with us and an American Funds representative.

Second: We are now in the midst of the latest document restatement process for all of our Defined Contribution Plans using Prototype or Volume Submitter plan documents. All of these must be restated to the EGTRRA document no later than April 2010. This is a great opportunity to meet with your clients and ensure that the plan design is appropriate for the current company make-up, as well as meeting the goals of the company owner(s) or key employee(s). Now is the perfect time to solidify your relationship with your existing clients by providing proactive services...and could be a great time to market to potential clients by using this as a way to review their current plan satisfaction.

Third: We are pleased to announce that Wells Thomas, LLC and New England Payroll Services, LLC will be offering a seamless, online data transfer program for our mutual clients. Currently we are in the design stages of the system, but the end result will significantly lessen the data entry time spent by clients in ongoing contributions as well as year-end data collection. Once a client enters the appropriate payroll information into New England Payroll Services, LLC's website (or directly with a payroll representative), contribution data files will automatically be generated and Wells Thomas, LLC will coordinate the transfer of the data to the appropriate custodian of the client's retirement plan. Our goal is to provide not only an easy way to consolidate data entry, but to also help our clients ensure they are meeting the deposit timing standards as mandated by the DOL (see article below on proposed deposit timing). More information will follow as we move forward with this exciting new venture.

We'd like to thank all of those who attended this quarter's meeting, and look forward to seeing you next quarter. Invitations will be sent out in early September with details on when and where the next meeting will be held.

ADVISOR BREAKFAST

• Interested in learning more about the American Funds PlanPremier TPA program?
• Want to know the lastest about the mandatory document restatement process, and how your clients will be impacted in the next two years?
• Do you have any general questions on retirement plan issues you'd like to ask?
• Or how about having an informal round table discussion with other investment advisors in the area to find out how they are handling issues?

Come join us for an informal discussion on these issues at our quarterly get-together. This time we'll be hosting the meeting in-house and providing breakfast.

So join us on Wednesday, June 25, 2008 at 8 am at our office. RSVP through the 'Comment' section below.

APPROVED AMERICAN FUNDS PLAN PREMIER TPA

We are pleased to announce that Wells Thomas, LLC has been approved to work with American Funds' PlanPremier TPA program. Effective July 1, 2008, this new TPA program will allow us to provide Third Party Administration on plans wishing to use American Funds' multi-fund product.

More information will be provided as we approach the launch date of July 1, however please feel free to call our office if you would like more details on this exciting new venture.

Wells Thomas, LLC Named Nationwide Pinnacle PPA

For the second year in a row, Wells Thomas, LLC has been named a Pinnacle PPA with Nationwide. This distinction provides our office with more direct service and support with Nationwide, and gives us advance insight into new systems and products on the horizon. Only a select number of Nationwide PPAs are awarded Pinnacle status, and we are proud of this achievement.

This year's Pinnacle Conference was held in Sarasota, FL, and once again Nationwide did a great job of providing great educational sessions, along with some classic entertainment. Among the highlights of this year's conference:

• We were provided with advance viewings of the new loan reporting system to be unveiled later this year. This system will allow for greater ease, and online requests and processing of participant loans. We were able to provide feedback on the layout, data and functionality of the system, as it is still under development at the moment. With this feedback Nationwide hopes to make the system as user-friendly as possible.


• Dr. Groppel spoke of the "Power of Full Engagement." It was an interesting hour about increasing your focus and energy levels in all aspects of life by focusing on the bio-physical habits we have (diet, exercise, growth and recovery time). Some very interesting points were made about how our moods and productivity are strongly tied to our energy level and overall health.


• Bridget Hagan (Nationwide's Associate Vice President of Government Relations) spoke at length about the trends on Capitol Hill that focus on retirement plans, including the Miller Bill, which is a proposal currently under consideration. Once again, the focus is being put on 'protecting' plan participants, and complete fee disclosure and investment education.


• And of course, the conference would not have been complete without the entertainment. Capping off this year's conference was a performance by Starship (with Mickey Thomas). Though Grace Slick and Paul Kratzner are no longer with the band, it was still a great walk down memory lane with the classics from throughout the long history of the band (including Jefferson Airplane and Jefferson Starship). They played everything from "White Rabbit" and "Miracles" to "Sarah" and "We Built This City", and many forgotten classics in between...capping off the night with a good cover of AC/DC's "You Shook Me All Night Long".

I would like to thank our staff, and the advisors that we work closely with who use the Nationwide platforms, for their hard work and continued support and confidence in Wells Thomas, LLC. Together we hope to achieve this level again next year...

No News Is Good News

The proposed state-run 401(k) plan did not come up for vote in the House before the session ended, and therefor did not pass. This certainly does not mean the issue is dead as we may see a similar bill proposed in the future, but we will not see this plan in the immediate future.

Below are a few examples of some of the House amendments to the bill that were drafted. Many were voted down, and most were not even called, but I find them to be interesting insights into the minds of those proposing the bill. I believe that, not only do we need to educate small business owners in Connecticut (and throughout the country) about how qualified retirement plans work, but we need to educate our elected officials as well. A more educated population will be more inclined to support the retirement plan industry, rather than try to work around us.

A sampling of the proposed amendments to CT SB-652:

* After line 20, insert the following: "(d) The state hereby waives sovereign immunity with respect to any claims arising out of the implementation or administration of the program established by this section. "

* Strike everything after the enacting clause and substitute the following in lieu thereof: "Section 1. (Effective July 1, 2008) (a) The Department of Economic and Community Development shall conduct a study evaluating tax-qualified defined contribution retirement programs that provide retirement investment plans, including, but not limited to, those created under Section 401 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, to self-employed individuals, small employers and organizations qualifying as tax-exempt pursuant to Section 501(c)(3) of said Internal Revenue Code.
(b) On or before January 1, 2009, said department shall submit the results of such study, in accordance with the provisions of section 11-4a of the general statutes, to the joint standing committee of the General Assembly having cognizance of matters relating to commerce. "

* Strike lines 6 to 8, inclusive, in their entirety: In line 9, strike "amended" and insert in lieu thereof "plans that have a maximum fee structure of one and one-half per cent of gross assets"

* Strike lines 2 and 3 in their entirety and insert the following in lieu thereof: "small employer" means an employer that has not more than ten employees. "

* In line 2, strike "hundred" and insert "thousand" in lieu thereof

* In line 2, strike "one hundred" and insert "fifty" in lieu thereof

* After line 20, insert the following: "(d) A small employer shall not be liable for financial losses incurred by employees through investments made pursuant to the tax-qualified defined contribution retirement program established pursuant to subsection (b) of this section. "

* After the last section, add the following and renumber sections and internal references accordingly: "Sec. 501. (NEW) (Effective from passage) As part of the tax-qualified defined contribution retirement program established pursuant to subsection (b) of section 1 of this act, the third-party administrator chosen pursuant to subsection (c) of said section 1 shall, at no cost to the employer or employees, contact in person or by telephone each employee on their own time once every three months to (1) review the performance of said employees' investments, (2) make necessary adjustments to said employees' portfolios as applicable, (3) ensure that employees are educated in understanding market fluctuations, and (4) protect the financial interests of said employees. "

* After line 20, insert the following: (d) The Comptroller shall not implement the provisions of this section until obtaining a performance bond or general liability insurance in an amount sufficient to insure any judgments against the state of Connecticut, the Treasurer, or the Investment Advisory Council established pursuant to section 3-13b of the general statutes, that may arise out of the implementation of this section. "

* After line 20, insert the following: "(d) The Comptroller shall not establish such plan if the Comptroller determines that such plan would not be in compliance with the requirements of the Employee Retirement Income Security Act of 1974. The Comptroller may begin to allow purchase and investment into the plan if the Comptroller determines that the state plan is compliant with said act. "

Update on CT Small Business Retirement Plans (click here to go to the CT State Website for complete status of bill)

Below is an update of the status of "An Act Concerning Small Business Retirement Plans" in Connecticut. According to the latest version, $500,000 will be appropriated to establish the plan. In addition, this latest version requires that all ongoing costs are passed along to the plan participants, and that all start-up costs will be recovered from the program assets. At a start-up cost of $500,000, it would require at least $50,000,000 in program assets simply to make this recovery cost be LESS THAN 1% of the total program assets. This is in addition to ongoing expenses.

When the bill was proposed, it was with the argument from the Comptroller that the fees would be reduced by 50% (though no one could answer the question of 50% of what?). With the above being the case, the plan sponsor fees MAY decline, however the fees plan participants will pay will most likely be higher than the current average.


General Assembly
File No. 603
February Session, 2008
Substitute Senate Bill No. 652
Senate, April 14, 2008
The Committee on Appropriations reported through SEN. HARP of the 10th Dist., Chairperson of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT CONCERNING SMALL BUSINESS RETIREMENT PLANS.
Be it enacted by the Senate and House of Representatives in General Assembly convened:
Section 1. (NEW) (Effective from passage) (a) As used in this section, "small employer" means a business with one hundred or fewer employees. (b) The Comptroller shall establish a tax-qualified defined contribution retirement program to provide retirement investment plans, including, but not limited to, those created under Section 401 of the Internal Revenue Code, of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended to self-employed individuals, small employers and organizations qualifying as tax-exempt pursuant to Section 501(c)(3) of said Internal Revenue Code. In administering such plan, the Comptroller shall seek to minimize costs by helping small employers and individuals purchase retirement savings plans, arrangements and investments through economies of scale, standardization and other measures. (c) In carrying out the provisions of this section, the Comptroller shall contract with a third-party administrator for the management of such plan or plans and shall recover from program assets expenses incurred to initiate, operate and administer the program established pursuant to subsection (a) of this section.

This act shall take effect as follows and shall amend the following sections:
Section 1
from passage
New section
CE
Joint Favorable C/R
APP
APP
Joint Favorable Subst.

The following fiscal impact statement and bill analysis are prepared for the benefit of members of the General Assembly, solely for the purpose of information, summarization, and explanation, and do not represent the intent of the General Assembly or either chamber thereof for any purpose:

OFA Fiscal Note

State Impact: FY 09 $500,000
Note: GF=General Fund
Municipal Impact: None

Explanation

The bill requires the comptroller to establish a 401(k) plan for self-employed individuals, employers with 100 or fewer employees, and certain nonprofits. The bill specifies the program is to be administered by a third party and the plan design must include a fee to participants in order to recover costs associated with the program.

Funding in the amount of $500,000 is appropriated to the Comptroller's Office in sHB 5021, the Appropriations Act, as favorably reported by the Appropriations Committee, to establish the program. The funding will be used as follows: $125,000 for the preparation of an Employee Retirement Income Security Act (ERISA) compliant document plan, $125,000 for production of educational and marketing materials, $100,000 for production and distribution of documents and retirement planning tools, $150,000 for advertising, mailing, and outreach to small business.
It is estimated that there are approximately 500,000 employees of businesses with 100 or fewer employees that do not currently participate in a retirement plan. The amount of time it takes the state to recover funds appropriated for the program will be a function of the fee charged and the level of small business participation.

OLR Bill Analysis

SB 652 AN ACT CONCERNING SMALL BUSINESS RETIREMENT PLANS.

SUMMARY:
This bill requires the state comptroller to establish a tax-qualified defined contribution retirement program to provide retirement investment plans, including 401(k) plans, to (1) self-employed individuals, (2) businesses with 100 or fewer employees, and (3) certain nonprofit organizations. In administering the plan, the comptroller must seek to minimize costs by helping small employers and individuals purchase retirement savings plans, arrangements, and investments through economies of scale, standardization, and other measures.
The bill requires the comptroller to (1) contract with a third-party administrator to manage the plan or plans she creates and (2) recover from program assets the expenses incurred to initiate, operate, and administer the program.

EFFECTIVE DATE: Upon passage

COMMITTEE ACTION

Commerce Committee

Joint Favorable Change of Reference
Yea 14
Nay 5
(03/13/2008)

Appropriations Committee

Joint Favorable Substitute
Yea 32
Nay 21
(03/28/2008)

Dinner Meeting with Investment Professionals

We held our first Dinner/Educational Meeting for Investment Professionals in our area on March 26th, and it was a success. We reviewed various 'hot topics' in the retirement plan world such as:

Fiduciary Responsibility and Liability
Qualified Default Investment Alternatives (QDIA)
Automatic Enrollment Feature
Latest CT Legislative Proposal and Supreme Court Rulings

Held in a casual, informal atmosphere, we had a lot of discussion with the Investment Professionals who attended, and some great roundtable discussions. Not to mention some delicious food.

I also want to thank our sponsor, Nationwide, who not only provided us with this opportunity, but gave some great solutions to the advisors who attended on ways Nationwide can help with the topics discussed.

We look forward to hosting more of these meetings in the future, and also will be hosting a quarterly roundtable discussion at our office for any advisor who wishes to attend. More information will be posted soon.

In the meantime, if you are interested in attending a future educational meeting, please feel free to contact our office and we will put you on the invitation list for the upcoming events.

A bill was presented to the Connecticut Commerce Committee on Tuesday, March 11, 2008. SB No. 652 'AN ACT CONCERNING SMALL BUSINESS RETIREMENT PLANS', would allow the Comptroller to establish and administer a retirement plan that will be available to small employers and individuals. Because of the complex nature of 401(k) plans, along with the potential liability the State could incur by becoming a Fiduciary of these retirement plans, Sean Thomas of Wells Thomas, LLC testified before the committee in opposition of this proposed bill. Sean, along with other TPA firms in Connecticut, and representatives of ASPPA, attended the hearing and presented numerous reasons for their opposition to this bill.

Though we applaud the state for recognizing the need to make small companies in Connecticut aware of the need to plan for retirement on behalf of all employees, we feel the proposed measure was not a viable solution.

Here is copy of the testimony Sean presented to the Commerce Committee (below the testimony please find a copy of the bill as proposed):

March 11, 2008


Commerce Committee
Room 110, Capitol Building
Hartford, CT 06106

Re: SB No. 652 (Raised) An Act Concerning Small Business Retirement Plans

Dear Members of the Connecticut Commerce Committee:

My name is Sean Thomas and I am the president of Wells Thomas, LLC, a Third Party Administrative company in Branford, Connecticut. My company, with a staff of ten retirement plan administrators and support personnel, provides retirement plan design and administrative services to approximately 370 small companies. We strongly oppose SB Number 652 – An Act Concerning Small Business Retirement Plans.

This Act would permit the State Comptroller to “establish a tax-qualified defined contribution retirement program to provide retirement investment plans, including, but not limited to, those created under Sections 401 of the Internal Revenue Code, of 1986…”

While we agree that efforts should be made to entice small companies to establish qualified retirement plans for their employees, we do not agree with the method proposed in this bill. It has been our experience that low cost generally equates to low service to the plan sponsor, which in turn results in little participation by the eligible participants. Our industry is one predicated on service to our clients, with the goal of increasing participation and retirement savings for all employees.

The key stumbling block we see in designing retirement plans for potential clients is not the administrative costs, nor the investment fees, but the restrictions in plan contributions. In short, most small company owners opt to implement a plan and make ongoing contributions to the plan if, and only if, the owners are able to see a tax advantage in doing so. Often this can only be achieved through more complicated plan designs.

In our complex profession, we strive to provide each client with an individually designed retirement plan that suits the need of that particular company. In an effort to accumulate sufficient retirement benefits for all level of employees, we recognize the need for ongoing monitoring of the plan design as well as education and service to both the employer and employees.

There are already a number of low- or no-cost plan design alternatives available to small companies, such as SIMPLE 401(k) Plans (which have very little administrative costs) and SIMPLE IRAs (which have no administrative costs). In addition, Safe Harbor Plans have been available for a number of years, which reduce administrative costs by eliminating certain plan testing requirements. These plans generally require the employer to make only a 3% of pay contribution to the employees and allow all employees to contribute higher amounts to the plan.

The current marketplace has continuously reduced the fund and asset management expenses under retirement plans. Several providers have released new products with lower expense ratios in order to compete in the qualified plan market. Many funds offered are Institutional or Retirement Class shares, with front and back end loads waived. Recent focus on fee disclosure has helped drive down Investment Advisor Fees.

In operation, if SB No 652 were to pass, an RFP for the state sponsored plans would be issued each time the current contract expires. If a change in the provider occurs, this would result in forced changes in investments by plan participants, mandating notices and education to all those affected in order to meet Fiduciary Requirements. This would create an extremely large administrative burden, with associated costs going to plan participants or Connecticut taxpayers.

These are just a few of the many reasons why we feel SB No. 652 is not a viable mean to increase the number of small companies sponsoring retirement plans. The administrative costs for the services provided by our industry result in each employer’s qualified plan being treated individually, as required by the Employee Retirement Income Security Act of 1974. We feel that having a so-called “streamlined” state-sponsored plan would likely side-step this important tenet in retirement plan administration.

Again, I ask that you oppose SB No 652 as, not only would it potentially take away the majority of our client base (as well as tax revenue to the state from our profession), but in doing so it would likely lessen the services these clients receive.

In addition, a Committee member asked of someone who testified earlier today: 'What additional questions should the Committee ask in seeking out all of the necessary information on the State taking this step.' I believe one of the more immediate concerns is that of Fiduciary Liability. The fact that the State Comptroller will put out RFPs and make the decision on which investment provider will be offered, would, under the terms of ERISA, make the State Comptroller a Fiduciary to EACH of the individual small company plans that elect to take part in this. This matter should be looked into very carefully as it brings with it great liability.

I thank the Committee for its time today.


Sincerely,


Sean W. Thomas, QKA
President


Here is a copy of the act as presented to the Commerce Committee:
AN ACT CONCERNING SMALL BUSINESS RETIREMENT PLANS.
Be it enacted by the Senate and House of Representatives in General Assembly convened:
Section 1. (NEW) (Effective from passage) (a) As used in this section, "small employer" shall have the same meaning as in the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
(b) The Comptroller shall establish a tax-qualified defined contribution retirement program to provide retirement investment plans, including, but not limited to, those created under Section 401 of the Internal Revenue Code, of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended to self-employed individuals, small employers and organizations qualifying as tax-exempt pursuant to Section 501(c)(3) of said Internal Revenue Code. In administering such plan, the Comptroller shall seek to minimize costs by helping small employers and individuals purchase retirement savings plans, arrangements and investments through economies of scale, standardization and other measures.
(c) In carrying out the provisions of this section, the Comptroller may contract with a third-party administrator for the management of such plan or plans and may recover from program assets expenses incurred to initiate, operate and administer the program established pursuant to subsection (a) of this section.

We wish to thank all of the members of the Commerce Committee for their time in listening to both sides of this important issue. The members of the Committee asked some very thought-provoking questions, and were genuinely interested in looking at the problem from all angles.

DOL PROPOSES DEPOSIT TIMING REGULATIONS

The proposed regulations are intended to provide small plan sponsors with a clear safe harbor to ensure compliance with the deposit standards. Under the proposed safe harbor, participant contributions to a pension or welfare benefit plan with fewer than 100 participants at the beginning of the plan year will be treated as complying with the regulations if the contributions are deposited no later than the 7th business day following the day on which the amounts would have been payable to the participant in cash or following the day on which such amount is received by the employer (in the case of a participant loan payment given to the employer). As a safe harbor, contribution deposits satisfying the requirements of the proposed regulation will be treated as having been made timely even if such contributions could clearly have been segregated from employer assets more rapidly.

Marketing Campaign

Recently Wells Thomas, LLC began an active marketing campaign, the first venture into this new world that we've undertaken. Shore Publishing, LLC has desgined and printed various pieces for us for use in print advertising and as stand-alone handouts. Above is an example of one of their pieces created exclusively for us.

Wells Thomas, LLC would like to thank those members of Shore Publishing, LLC's design staff for their excellent work!