ERISA Expert Advocates for 401(k) Loan Default Protection
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Transcript of ERISA Expert Advocates for 401(k) Loan Default Protection
2RET IREMENT LOAN ERASER
Speaker:ThomasG.Schendt,AHorney
§ Partner, Alston & Bird, LLP, Washington, D.C.
§ Specializes in Employee Benefits and ERISA
3RET IREMENT LOAN ERASER
Twowords:Re6rementLeakage
§ Limited awareness by plan sponsors on the magnitude of the problem
§ The very real fiduciary risk … going unacknowledged
§ The impact on parKcipants’ reKrement outcomes and financial wellness
TheWhy…AndWhyWeCare
Asanindustry,whytalkabouttheproblemwhenwecansolveit?
4RET IREMENT LOAN ERASER
Taxes
Penal6es
LostEarnings
CashOuts
TheTipofTheIceberg
Only 8% of loan defaults are reported on Form 5500
LoanDefaultsPeopleSee
TheTrueProblem
Lostre6rementsavingsupto$20-30billionayear
5RET IREMENT LOAN ERASER
1. Managing risk
2. Increasing plan effecKveness
3. Avoiding a noncompliance surprise
TopPlanSponsorConcernsfor2017
Source:AnnualDefinedContribu&onBenchmarkingSurvey,DeloiHe,Interna&onalFounda&onofBenefitPlans,2015
WhatPlanSponsorsSay
§ 83% want to improve the reKrement readiness of acKve parKcipants
§ 77% want to reduce plan risk and potenKal fiduciary responsibility
Source:WillisTowersWatson,January11,2017
8RET IREMENT LOAN ERASER
SponsorsMustTakeAffirma&veAc&on
§ Approving a loan is a fiduciary funcKon
§ Required steps to preserve plan assets
§ Using account balance as “adequate security” actually diminishes plan assets
NolongeranobscureERISArequirement
ERISA 29 CFR 2550.408b-1(d)(vii) requires a plan to adopt "steps that will be taken to preserve plan assets in the event of such (loan) default.”
9RET IREMENT LOAN ERASER
LoanDefaultsInvi&ngAHen&onofAuditors
“Simplyput,thegreaterthenumberofdefaults,thegreaterthelikelihoodofaudit.”
-PLANSPONSOR,June,2016
§ Auditors are looking under the “plan hood.”
§ Determining if plan sponsors have adequate procedures for loan defaults and are taking affirmaKve steps.
10RET IREMENT LOAN ERASER
Though`ulInnova&onAdvancesTheIndustry
§ Loan protecKon prevents defaults, reduces fiduciary risk and improves reKrement outcomes
§ Let’s work together on this issue