The DOL press release (http://www.dol.gov/opa/media/press/ebsa/EBSA20111653.htm) says “The measures will expand transparency in the 401(k) plan marketplace and broaden the availability of retirement plan options so that Americans can maximize their ability to save responsibly and securely.”

The final regulations are 109 pages long, but the DOL has also provided a Fact Sheet (http://www.dol.gov/ebsa/newsroom/fs408b2finalreg.html ) and a summary of the changes from the interim rules (http://www.dol.gov/ebsa/408b2changes.html )

However, many eligible employees are guilty of “mistakes” involving 401(k) plans. What is particularly frustrating is that these errors are relatively easy to avoid. Here are five common mistakes to watch out for:

Mistake #1: The participant sits on the sidelines. Many participants bailed out of their 401(k) plans in the wake of the stock market decline of 2008–2009 or cut back or eliminated deferrals. But history has shown that, despite the inherent risks, investing through a 401(k) will generally provide long-term rewards. For 2011, the deferral limit is $16,500, plus an extra $5,500 contribution is allowed for someone age 50 or older. Furthermore, an employer may “match” a participant’s contribution up to a stated percentage of salary. This matching contribution costs the employee zero.

Mistake #2: The participant does not invest carefully. As with investments outside a 401(k) plan, a participant should avoid an overly heavy concentration in one particular offering. Other errors include over-diversification such as investing in every possible mutual fund or other available option. Try to find the proper balance. A logical approach is to allocate assets based on current age, expected retirement age, the annual contribution amount and tolerance for risk. Caveat: There are no absolute guarantees with any investment.

Mistake #3: The participant “raids” the 401(k) early in life. A 401(k) plan is meant to be a savings vehicle for retirement. However, participants often take distributions well before retiring, especially if they are changing jobs. This reduces the funds that would be available in retirement. As a general rule, a distribution made prior to age 59½ is subject to a 10% penalty tax on the taxable portion, in addition to the regular income tax that is owed. Note: If a participant switches jobs and rolls over funds from a 401(k) to an IRA or another qualified plan in a timely fashion, the rollover is exempt from current income tax. A direct trustee-to-trustee transfer is recommended.

Mistake #4: The participant borrows money from the plan: As with raiding, a participant should be discouraged from taking a loan from the 401(k). Even though the participant is effectively being paid back, it will be more difficult to meet retirement goals. The participant will not have access to the funds that could have been earned if the principal had remained intact. Borrowing may be necessary in an emergency, but it should generally be viewed as a last resort.

Mistake #5: The participant does not seek assistance. Recent law changes encourage 401(k) participants to obtain advice within certain parameters. There is no need to go it alone. With professional guidance, 401(k) participants can sidestep the common pitfalls outlined above.

Lisa:      Hi, this is Lisa Hastings.  Stephanie Turner and I attended the AICPA National Conference in Washington, DC just before Christmas, and want to share with you what we learned there. We enjoy attending this conference, as it gives us the opportunity to hear from some of the top talent in this industry, like the Chief Accountant for the DOL (Department of Labor) and expert panels. Would you like to start us off, Steph?

Stephanie: What we are hearing from the DOL is that their hot buttons are about educating plan participants.  The focus for 2012 is on transparency.  The biggest concern on Capitol Hill this year is that as people are approaching retirement, they no longer have defined benefit pension plans to rely on, and they really have no idea how to fund their retirement.  With the trend moving away from the employer-sponsored DB plans towards more of the DC plans, distributions are occurring in lump sums. Unfortunately this can result in people not having enough savings to last throughout their entire retirement.

Lisa: Pretty scary. I also heard them say that there are now more funds in IRAs than there are in all of the employer-sponsored retirement plans, and they are concerned because IRAs are much less regulated.

Stephanie:  Another hot topic that Ian Dingwall & Phyllis Borzi, of the DOL, talked about was fee disclosure. This will be useful to our clients in benchmarking their plans’ expenses against national survey data that will be available for different ranges of plan assets.

Lisa:  I enjoyed the tax and regulatory session, also. The speaker emphasized that forfeitures should be allocated on an annual basis, in accordance with the plan document, but that many plans let forfeited monies linger.

The session on compliance issues was interesting, too.  The speakers said that the problem they see most often is a misinterpretation of compensation, for example, bonuses, tips and commissions not being properly addressed in terms of compensation as defined by the plan document.  They also talked about whether severance is considered compensation in relation to the plan, and that it is important to understand how the plan document defines compensation on a case by case basis.

Stephanie:  There was a fair amount of discussion about timely remittance of employee deferrals in 401K plans. The DOL and other speakers were firm in stating that you need to pick a standard remittance schedule, within the acceptable time frame and stick with it, do not to vary from it.

Something new for the 2011 employee benefit plan audits will be that the internal control reports of service organizations, which was formerly known as SAS 70 report, is now known as a SOC 1 report.  Your auditors will be asking for a SOC 1, type 2 report, although there are other types of SOC reports for different purposes.  The speakers also noted that the reporting and disclosures of plan assets have gotten more strenuous over the past several years, for the clients as well as for the auditors.  The intention is for management to have a greater understanding of plan investments, and the increased audit requirements around plan investments mean the auditors are asking more about them, as well.

Lisa: One of the last sessions of the conference was about trends in employee benefit plans, which is always of great interest.  They presented the findings of a study showing overall investment return in professionally-managed funds exceeded individually-managed assets (like IRAs) by 100-200 basis points.   That is a significant net gain to employees and a real incentive for them to participate in employer-sponsored retirement accounts.

They also highlighted that, through this recession, there has been a lot of what they called “leakage” of employee retirement assets, through hardship withdrawals, loans and distributions if they are terminated, rather than rolling the assets over into IRAs, but all of which result in the individuals having less assets set aside for their retirement. Throughout the surveys they were also finding a greater importance being placed on retirement plans by the employers than by the employees, which is very discouraging for the employers, and the DOL is not very happy about it either.

Stephanie:  In defined contribution plans, they noted a trend towards life cycle or target date funds. Increased disclosures regarding investments, fees and expenses are also a trend, as we mentioned before, and The DOL website has good information about fee disclosures that can be very helpful for plan administrators.

Lisa:  Overall, there was definitely a disparity between what employers are willing to commit to retirement assets and what the DOL wants to see. Only about 20% of all employees have access to defined benefit plans these days, so the idea that people will not have enough money to retire is of great concern, and there are no easy answers forthcoming on that.

I think that’s about it, Steph, do you think we have covered it all?

Stephanie: I think that we hit the highlights, but if anyone has questions about anything we covered, please give one of us a call!