Tag Archives: Kari Jakobe

Lifelong income solutions for retirees

While employers may want to provide better options to their employees, the fiduciary, financial, and administrative hurdles are steep. Retirees will have to pick from a small list of solutions until new alternatives are developed. This article by Milliman’s Kari Jakobe summarizes some of the existing approaches commonly used by retirees to convert their retirement distributions into a lifetime of retirement income.

A major change to correction procedures provides much needed relief for sponsors

Jakobe-KariOn April 2, the Internal Revenue Service (IRS) rolled out major changes to the correction methods related to failure to implement automatic enrollment or to having missed participant-elected deferral changes.

Previously, the prescribed correction in the Employee Plans Compliance Resolution System (EPCRS) was for the employer to make up 50% of the missed deferrals and 100% of the match, plus earnings on both. This was often a windfall for participants and penalty for sponsors that deterred many from adopting auto-enroll provisions in their plans.

There are now two new safe harbor corrections: one for plans with auto-enroll provisions, another for faulty elective deferrals. The general guideline of the new correction methods are as follows:

For plans with auto-enroll features:
• If the failure is found within nine months of the plan year-end in which the auto-enroll should have begun:
o Start the deferral immediately
o Send a notice of the failure to the participant
o 100% of any missed match is made up and adjusted for earnings

• If the failure is found outside the nine-month window following the plan year-end, the old procedure remains in place.

For other elective deferral changes that are not completed as requested by the participant, if the failure is found within three months:
• Start the deferral immediately
• Send a notice of the failure to the participant
• 100% of any missed match is made up and adjusted for earnings

If found after three months from the date the change was to be effective:
• Start the deferral immediately
• Send a notice of the failure to the participant
• 100% of any missed match is made up and adjusted for earnings and the participant must receive a qualified nonelective contribution (QNEC) in the amount of 25% of the missed deferral, plus earnings

For a more detailed explanation on the new regulations, see the recent Client Action Bulletin published by Milliman.

Top Milliman blog posts in 2014

Milliman consultants had another prolific publishing year in 2014, with blog topics ranging from healthcare reform to HATFA. As 2014 comes to a close, we’ve highlighted Milliman’s top 20 blogs for 2014 based on total page views.

20. Mike Williams and Stephanie Noonan’s blog, “Four things employers should know when evaluating private health exchanges,” can help employers determine whether a PHE makes sense for them.

19. Kevin Skow discusses savings tools that can help employees prepare for retirement in his blog “Retirement readiness: How long will you live in retirement? Want to bet on it?

18. The Benefits Alert entitled “Revised mortality assumptions issued for pension plans,” published by Milliman’s Employee Benefit Research Group, provides pension plan sponsors actuarial perspective on the Society of Actuaries’ revised mortality tables.

17. In her blog, “PBGC variable rate premium: Should plans make the switch?,” Milliman’s Maria Moliterno provides examples of how consultants can estimate variable rate premiums using either the standard premium funding target or the alternative premium funding target for 2014 and 2015 plan years.

16. Milliman’s infographic “The boomerang generation’s retirement planning” features 12 tips Millennials should consider when developing their retirement strategy.

15. “Young uninsureds ask, ‘Do I feel lucky?’” examines the dilemma young consumers face when deciding to purchase insurance on the health exchange or go uninsured.

14. Last year’s #1 blog, “Retiring early under ACA: An unexpected outcome for employers?,” is still going strong. The blog authored by Jeff Bradley discusses the impact that the Patient Protection and Affordable Care Act could have on early retirees.

13. Genny Sedgwick’s “Fee leveling in DC plans: Disclosure is just the beginning” blog also made our list for the second consecutive year. Genny explains how different fee assessment methodologies, when used with a strategy to normalize revenue sharing among participant accounts, can significantly modify the impact of plan fees in participant accounts.

12. Doug Conkel discusses how the Supreme Court’s decision to rule on Tibble vs. Edison may impact defined contribution plans in his blog “Tibble vs. Edison: What will it mean for plan sponsors and fiduciaries?

11. In her blog “Retirement plan leakage and retirement readiness,” Kara Tedesco discusses some problems created by the outflow of retirement savings. She also provides perspective on how employers can help employees keep money in their plans.

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Auto enrollment errors are expensive

Auto enrollment is becoming more popular with employers that sponsor defined contribution (DC) plans. This feature can help increase plan participation, enhance retirement outcomes among participants, and improve discrimination testing results. On the other hand, administrative oversights can prove costly.

In this article, Milliman’s Kari Jakobe identifies two common errors administrators commit related to auto enrollment. She also provides two examples showing the monetary effects that result from these mistakes.

Here is an excerpt from the article:

The two most common failures for auto enrollment plans are: 1) failure to notify employees of the plan provision, and 2) failure to enact the auto enrollment and withhold deferrals on a timely basis, or at all. These failures nearly always result from bad data—incorrect date of hire on a payroll file, for example, a miscoded rehire, or a keying error when entering deferral changes into a payroll system. The possibilities are numerous and the corrections can be costly.

In general, the Internal Revenue Service (IRS) has prescribed corrective action for missed deferrals with less than nine months remaining in the year, requiring the plan sponsor to deposit:

• 50% of missed deferrals
• 100% of missed match
• Earnings at a reasonable interest rate

Consider the scenario shown in Figure 1 of missed deferrals that are due to failure to start the withholding on a timely basis, for a client with a 4% auto enrollment rate and a match formula of 100% up to a maximum of 6% deferred.

Auto enrollment_figure 1

The full correction of $8,937.00 is funded by the employer (not the employee) in the form of a qualified non-elective contribution (QNEC). That means the money is 100% vested immediately and does not count against the 402(g) limit for the participant. Most plan sponsors will choose to communicate the specifics about these corrections via correspondence letters to the affected participants and should be prepared to field an array of resulting questions.