Assignment 8 - 401K Practice Issues Flashcards
All provided by a single provider:
- recordkeeping
- trustee
- inv.
- mgmt
- communication services
bundled services
processing inv. orders, safe-keeping assets
- not responsible for making inv. decisions
Directed trustee responsibility
also called non-discretionary trustee
instructs risk-adverse investors on a method to construct portf. to optimize or maximize expected return based on given level of market risk
modern portf. theory
(4) steps in portfolio selection
- security valuation
- asset allocation
- portf. optimization
- perf. measurement
looks at the human tendancies to make irrational inv. decision
behavioral finance inf.
thoughtful approach regarding the portab. and transferability b/w providers of 401K plans and IRAs
distribution planning
ability of plan sponsors and plan participants to easily and accurately identify the fee that are being charged against their plans.
fee transperancy
(6) categ. of fees
- set up and conversion fees
- recurring and admin costs
- comm. expenses
- inv. mgmt fees
- distrib. fees
- mortality fees
(3) most critical elements for plan to meet objectives
- will ER provide ER contribs.
- the level of ER contrib.
- menu of inv. options offered
(5) operational functions in 401K plan mgmt
- plan compliance
- plan comm.
- inv. mgmt services
- recordkeeping services
- directed trustee services
Plan Compliance (operational function in 401K plan mgmt)
- ERISA and IRC = comply w/ to retain tax-qualified status
- IRS and DOL
- assures plan conforms w/ legal requirements
- must conduct certain ongoing admin. functions
foundational features for 401K plans
- offering ROTH?
- level of ER matching contribs.
- # / type of inv. options
- adopt safe harbor plan?
- automatic enrollment?
- how plan provides for adequate inv. diversif.
- means by which inv. edu. and inv. advice will be provided
theory describing the periodically rebalancing of the portf. in order to maintain a L/T goal for asset allocation
strategic asset allocation
how can plan sponsors comply w/ nondiscrim testing requirements
- engage in normal means of testing involving the exam. of each partic’s deferrals
- utilize the safe harbor plan designs where the ER uses either formulaic plan matches or nonelective contribs.
- implementing formulaic ER matching or nonelective contribs. in conjunction w/ an automatic enrollment feature
one-time costs arising in the establ. of 401K plan at inception or conversion
Set-up and conversion fees