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.
Tuesday, June 3, 2008
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:
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...
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...
Wednesday, May 14, 2008
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. "
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. "
Wednesday, April 30, 2008
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)
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)
Wednesday, April 2, 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.
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.
Wednesday, March 12, 2008
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.
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.
Thursday, March 6, 2008
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.
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