Retirement Report. News and updates for plan sponsors and fiduciaries of defined contribution plans. 2nd Quarter 2015

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1 2nd Quarter 2015 Retirement Report News and updates for plan sponsors and fiduciaries of defined contribution plans Content & Frequency of Retirement Plan Committee Meetings We often receive questions regarding the content and timing of retirement plan committee meetings. Most committees wonder, How frequently should we meet? For most, quarterly meetings are sufficient. Plans with minimal activity may be satisfied with one annual meeting, so long as meetings occur with adequate frequency to handle items critical to properly manage the plan. The purpose of retirement plan committees is to oversee investment and administrative issues. Committees should be formalized via a written document (i.e., Committee Charter) which identifies the members and establishes specific roles and responsibilities. During the course of each plan year the following items should be considered by the committee: 1. Review and monitor the plan s investments pursuant to procedures contained in the Investment Policy Statement, including selection and replacement when appropriate. 2. Review plan expenses. The committee should understand and determine reasonableness of plan expenses. Recent litigation in this area has reinforced the primacy of this issue for fiduciaries. A complete fee analysis and benchmarking of providers should occur every three to five years. 3. Review plan services available and those currently being provided. This is a key component going hand in hand with the expense review. Quantity and quality of services provided should certainly be among the factors considered in addressing the appropriateness of expenses. Also, the breadth and scope of services are constantly expanding and the committee should be aware of those services which may produce a value-added impact on their plan. 4. Consider emerging trends, legislation, and external/internal factors which may impact the plan. Examples include the significant implications of recent litigation, Roth 401(k), asset allocation accounts (lifetime/lifecycle), automatic enrollment/escalation, etc. 5. Review plan demographics. Are plan provisions understood and being administered properly? How do these provisions compare to industry norms or best practices guidelines? Do plan fiduciaries understand and practice their roles and responsibilities accordingly? 6. Review participant demographics. Are participants in position to achieve a financially successful retirement experience? Specific items for fiduciary review are participation rates, average deferral rates, appropriate asset allocation/diversification and average account balances. 7. Review participant communication/education programs. Fiduciaries are required to ensure all participants have sufficient information to make informed investment decisions. Is there evidence this is currently the case? If not, what would be appropriate courses of action? Be sure to pursue the above issues, and any others, with the appropriate degree of procedural prudence as required of ERISA fiduciaries. Investigate the issues, take the appropriate action, and document the entire process. Contact your plan consultant for assistance with any of the areas identified above. Are You Ready for an Audit? Several events can trigger a DOL or IRS audit, such as employee complaints or self-reporting under the annual submission of the Form Often times an audit is a random event, which is why you should always be prepared. Listed below are several key items typically requested in an initial letter sent by the IRS or the DOL in connection with a retirement plan audit. These items should be readily accessible by the plan administrator at all times the plan is in operation. Plan document and all amendments Summary plan description your single business resource Have retirement plan or wealth management questions? We have answers. Visit for more information. Retirement Report is a publication of McGladrey LLP. 2014

2 Retirement Report Investment policy statement Copy of the most recent determination letter Copies of Forms 5500 and all schedules Plan s correspondence files (including meeting minutes) Plan s investment analyses ADP and ACP testing results Most recent account statements for participants and beneficiaries Contribution summary reports (i.e., evidence of receipt of these monies by the plan s trust) Loan application, amortization/repayment schedule (for all loans) If you have questions about preparing for an audit, or need plan design review assistance, please contact your plan consultant. Understanding Plan Eligibility Is your company s eligibility attracting and retaining quality employees? Is it competitive with other companies? Eligibility is a waiting period and an age requirement for participants to meet in order to become eligible for a retirement plan. Some plans may also require an employee to work a certain number of hours to become eligible and there may be on-going requirements in order to receive company contributions. The maximum waiting period that a company can choose is two years and the age requirement cannot exceed 21. If a plan has a two year waiting period, the employee must be 100% vested immediately in employer contributions. The maximum number of hours that an employee can be required to work to become eligible is 1000 hours. Immediate eligibility is permissible and plans are not required to have a waiting period, age requirement or hours worked requirement. Most companies have a waiting period of one year or less and choose age 21 or age 18 as the age requirement. To align with other employee benefit plans, companies will commonly choose the same waiting period as they have for their other employee benefits. As an on-going requirement, companies can require employees to be employed on the last day of the plan year and/or work at least 1000 hours during the 12-month plan year to be eligible for a company contribution. Plans can have different waiting periods for employee contributions and employer contributions. For example, companies can choose dual-eligibility and allow employees to begin contributing their own contributions after three months of employment, but complete a year of service to be eligible for company matching contributions. Companies will consider this option if employer matching cost and employee turnover are a concern. Once an employee has met the eligibility requirements for the plan, they will enter the plan on pre-established intervals. These entry dates can be anywhere from immediate entry (1st pay period after meeting eligibility requirements) to an annual entry date which is only available if the plan has immediate eligibility and no waiting period. Common entry dates are immediate, monthly and quarterly. For plans that choose a waiting period of less than one year of service and less than age 21, annual ADP/ACP non discrimination testing rules allow plans to test the group of employees with less than a year of service and less than age 21 separately from those that have met the one year of service and age 21. The annual ADP/ ACP non discrimination testing compares the average contributions from highly compensated employees to non-highly compensated employees and if the difference between the averages is above the permissible amount, a correction needs to be made to pass the test. This usually results in taxable refunds back to highly compensated employees. Generally speaking, plans have lower participation from shorter term employees and companies can choose to use the test with the more favorable results those with a year of service and age 21 and those without. A company s eligibility requirements should be monitored to ensure that eligible employees have access to join the plan. Also, companies should have automated processes in place to administer their eligibility requirements effectively. 2 Retirement Report is a publication of McGladrey LLP. 2014

3 Retirement Report McGladrey Wealth Management LLC provides investment advisory services, financial planning and other wealth management services to individuals and businesses. McGladrey Wealth Management LLC is an SEC-registered investment advisor. The Retirement Report is published monthly by Retirement Plan Advisory Group s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. To remove yourself from this list, or to add a colleague, please call This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. Tax and accounting services are provided by McGladrey LLP, a registered CPA firm. Investment advisory, financial planning and other wealth management services are provided by McGladrey Wealth Management LLC, an SEC-registered investment advisor. Insurance services and products are offered and/or facilitated through Birchtree Financial Services LLC, doing business in California as Birchtree Financial & Insurance Agency LLC, a licensed insurance agency and a wholly-owned subsidiary of McGladrey Wealth Management LLC. McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey, the McGladrey logo, the McGladrey Classic logo, The power of being understood, Power comes from being understood, and Experience the power of being understood are registered trademarks of McGladrey LLP McGladrey LLP. All Rights Reserved. Retirement Report Month 2014 Printed in U.S.A.

4 McGladrey Wealth Management LLC MARCH 2015 I MARKET COMMENTARY Market Notes: For the month ended March 2015 AUTHOR: Dan Avery, CFP Investment Services Director CONTACT DETAILS: dan.avery@mcgladrey.com Global markets pause Capital markets produced mixed results in March as investors contemplated global economic developments, geopolitical concerns in Yemen, and an upcoming increase in U.S. interest rate policy. Domestically, U.S. small cap stocks provided positive returns while their large cap peers pulled back. A rising dollar continued to be a headwind for securities linked to foreign currencies, such as commodities, emerging market bonds and international and emerging market stocks. A look at commodities investing March 2015 Russell 1000 (U.S. Large Cap Stocks) -1.2% Russell 2000 (U.S. Small Cap Stocks) 1.7% MSCI EAFE (Developed International Stocks) -1.5% MSCI Emerging Markets (Emerging Markets Stocks) -1.4% Bloomberg Commodity Index -5.1% S&P Global REIT Index (Real Estate Investment Trusts) Barclays U.S. Aggregate (Broad Domestic Bond Market) Commodities provide investors with an opportunity for inflation protection, as well as added diversification outside traditional stocks and bonds. Mutual funds are a common and convenient way to gain access to commodities, as they can provide investors diversification within the asset class along with daily liquidity. -0.1% 0.5% Barclays Muni 5 Yr (Tax Exempt Fixed Income) -0.1% JP Morgan GBI Global ex U.S. Hedged (International Fixed Income) JP Morgan GBI EM Diversified (Emerging Markets Fixed Income) 0.9% -3.0% Source: Morningstar Direct A common benchmark for these funds is the Bloomberg Commodity Index. This index was constructed with the intent to represent the global commodities market, with constraints put in place to promote diversification. For example, commodities are weighted to account for their economic significance and market liquidity, but no single commodity group (e.g. energy, precious metals, livestock) may constitute more than 33 percent of the index target weights for Bloomberg Commodity Index Group (examples of commodities) Energy (natural gas, oil, diesel, gasoline) Grains (corn, soybeans, wheat) Industrial Metals (copper, aluminum, zinc, nickel) Precious Metals (gold, silver) Softs (sugar, coffee, cotton) Livestock (live cattle, lean hogs) Total Source: Bloomberg.com % index 31.2% 23.0% 16.6% 16.2% 7.7% 5.3% 100.0% The group closest to this allocation limit is energy, which Bloomberg has assigned a target weight of 31.2 percent for With this significant weighting, energy prices can have a substantial effect on the overall return of the Commodity Index. The poor recent performance experienced by many commodities investors serves as evidence of this. Since gasoline prices hit their 2014 peak in June of last year, energy prices have put a major drag on overall commodity prices. Energy prices have fallen over the past several months, due largely to increased global oil supply coupled with falling demand. Despite this, the Organization of Petroleum Exporting Countries (OPEC) opted against cutting production levels last November, keeping downward pressure on prices.

5 MARCH 2015 Value of $1 invested Jun 30, 2014 Mar 31, 2015 The decline in oil prices has been accentuated by the rise in the U.S. dollar. As the dollar increases in value relative to foreign currencies, imports such as oil become even cheaper to import to the United States. That is to say, the price of oil (and as a result, commodities) in U.S. dollars declines even further. Despite the severe decline, we believe commodities still provide the opportunity for inflation protection and valuable portfolio diversification. However, Note: Values illustrated are weekly. Source: Morningstar Direct in order to take advantage of these opportunities, it s important for investors to maintain a disciplined approach to their asset allocation. Avoid the temptation to move out of asset classes that have been out of favor. Furthermore, consider opportunities for rebalancing. Price fluctuations provide investors with opportunities to take advantage of relative value between asset classes while maintaining the appropriate risk profile for your portfolio. Debt ceiling hit again In February of last year, Congress passed legislation suspending the limit for government borrowing until March 15, Until then, the federal government was essentially able to borrow to fund daily operations. The debt ceiling has now been reinstated at the amount currently borrowed approximately $18.1 trillion, meaning the U.S. Treasury Department has no room to take on more debt. As a result, the Treasury Department began taking extraordinary measures to delay more borrowing for as long as possible. Those measures can include discontinuing investments in a retirement fund for federal employees and suspending the issuance of special purpose securities to state and local governments. (Source: treasury.gov) The Congressional Budget Office estimates these measures, along with the cash currently available, will keep the government from exceeding the current debt limit until October or November of this year. If Congress and the President don t reach an agreement before that time, the concern is that the government would need to shut down and the United States potentially could default on its debt This report is for illustrative purposes only. Past performance is not indicative of future results. The performance numbers displayed herein may have been adversely or favorably affected by events and economic conditions that will not prevail in the future. The indices discussed are unmanaged and do not incur management fees, transaction costs or other expenses associated with investable products. It is not possible to directly invest in an index. This content contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. Tax and accounting services are provided by McGladrey LLP, a registered CPA firm. Investment advisory, financial planning and other wealth management services are provided by McGladrey Wealth Management LLC, an SEC-registered investment advisor. Insurance services and products are offered and/or facilitated through Birchtree Financial Services LLC, doing business in California as Birchtree Financial & Insurance Agency LLC, a licensed insurance agency and a wholly-owned subsidiary of McGladrey Wealth Management LLC. McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey, the McGladrey logo, the McGladrey Classic logo, The power of being understood, Power comes from being understood, and Experience the power of being understood are registered trademarks of McGladrey LLP McGladrey LLP. All Rights Reserved. WS-NT-WMS-ALL-1014