May 2016

Inside this issue:


In early April, the U.S. Department of Labor finalized and released its long-anticipated final fiduciary rule, most of which will be effective April 2017. The regulatory package significantly expands the definition of retirement plan advice and will affect most financial advisers, making it difficult to serve ERISA retirement plans or IRAs in a non-fiduciary capacity.

This newsletter will provide more in-depth analysis of the new rule in next month’s issue, but we will provide a few preliminary observations oriented toward the plan sponsor perspective in today’s publication.

  1. How does this affect my fiduciary responsibilities as plan sponsor?
    Relatively little.  Your fiduciary role stays fundamentally the same.  However, it may affect the services your plan's advisor is willing or able to offer to you and your employees, depending on how they get paid and the type of advice they provide.

  2. What advisor services could be affected?
    Plan-level investment recommendations (e.g. which funds to offer in your 401(k) program) are more likely than before to make your advisor become a fiduciary to the plan.  This is good for you but could cause him or her to change their services, cease to offer certain investment products, or withdraw from your plan altogether. You should have a discussion with them.  

    In addition, any recommendation by an advisor about how assets will be rolled over, transferred or distributed from a plan or IRA will be considered fiduciary advice.  This does not mean that advice cannot be given.  It just means that when advice is provided, it must be conflict free and in the best interest of the participants.  For example, if a financial advisor recommends that a plan participant roll their account from the 401(k) plan into an IRA rather than leaving it in the plan, this advice is probably a fiduciary act.  IRA compensation generally is higher than plan advisory commissions or fees.  Under the new rule, the advisor would need to clearly document that the plan-to-IRA rollover recommendation was in the participant's best interest and that any resulting increase in compensation to the advisor was justified by the specific services he or she would offer.  

  3. Are some advisors or consultants affected more than others?
    Yes.  Very much so.  Those who work for a Registered Investment Advisor (RIA) on level fee basis and already acknowledge a fiduciary role under ERISA 3(21) or ERISA 3(38) will be the least affected, as they likely are already following many of the new Fiduciary Rule guidelines.

    Those who work for a brokerage firm on a commission basis will be most affected. They probably do not currently have to follow fiduciary standards in their recommendations, but now will be required to.  Their Broker-Dealer may or may not permit them to assume the liability of a fiduciary role or the requirement that forbids certain conflicts of interest in their advice.

    Montgomery Retirement Plan Advisors anticipates little to no effect on our client service practices, as we always serve in a fiduciary capacity.

  4. What actions should I take?  
    For starters, over the coming months you should plan to find out how your providers and their administrative procedures are affected by the new rules.  You should also have a discussion with your plan consultant / advisor to make sure you fully understand how they are paid, their fiduciary status, and whether their Errors and Omissions liability insurance covers retirement plan fiduciary acts.

  5. What is the likely impact upon the retirement plan marketplace?

    We believe the following trends will occur:
    • Many non-fiduciary advisors to retirement plans, particularly those compensated by commissions, will stop offering advisory services to retirement plans, accelerating the trend of the last decade toward fee-based retirement plan advisors with strong fiduciary credentials.
    • This fiduciary standard may cause advisors to reduce or eliminate their distribution and transaction assistance to your employees.  Those rollovers and plan distributions that are recommended by an advisor are likely to require significant additional documentation.
    • 401(k) recordkeepers will modify their educational materials and participant call center protocols to avoid the appearance of making investment recommendations or IRA product solicitations.


Early collective investment trusts (CITs) were pools of securities, traded manually, and typically valued only once a quarter. While popular in defined benefit plans, CITs were not as widely accepted in defined contribution plans due to operational constraints and a lack of information available to plan participants.

Today, there is growing concern over how employer sponsored retirement plans are structured and the costs involved. Due to operational improvements, competitive fees, and accessible information, we are seeing a resurgence in the popularity of CITs. Here we look at some of the myths these investment products still carry and shed some light on their benefits and how they should be used.

What is a Collective Investment Trust Fund (CIT)?

A CIT is a commingled (i.e., pooled) investment vehicle designed exclusively for use in qualified employee benefit plans that is administered by a bank or trust company and is regulated in the same manner as the administering bank or trust company. CITs are not guaranteed by the bank or FDIC and are subject to the same risks as any investment. CITs are also subject to oversight from the Internal Revenue Service (IRS) (Revenue Rating 81-100) and Department of Labor, and are held to ERISA fiduciary standards with respect to plan assets. As bank-maintained funds, CITs are exempt from registration with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940.

Myth vs. Reality
MYTH CITs are a relatively new investment option that is not widely available CITs lack the reporting and transparency necessary to fulfill ongoing due diligence requirements CITs are not regulated and are risky investments CITs provide fees comparable to mutual funds without any added value
REALITY CITs have long been popular in defined benefit plans, and are increasingly a choice in defined contribution plans CIT managers have worked diligently with Morningstar and other databases to report fund level data on a regular basis CITs have bank regulatory requirements, as well as additional oversight from the IRS and Department of Labor CIT fees tend to be more cost effective and may offer flexible pricing

The Advantages of CITs

Designed to streamline management and mitigate risk

  • Similar structure as mutual funds and other pooled vehicles – assets of investors with similar objectives are commingled in a single portfolio
  • Portfolio is professionally invested by a third party based on the select objective
  • Broad array of strategies available to meet demand
  • Only for retirement plan investors so all share a long-term investment perspective

Trustees may provide additional fiduciary protection within the meaning of sections 3(21) and/or 3(38) of ERISA

  • CIT trustees and sub-advisors serve as ERISA fiduciaries with respect to the assets invested in CITs
  • Must comply with ERISA fiduciary standards to avoid conflict of interest
  • Act solely in best interest of plan participants and beneficiaries

Cost advantages and greater pricing flexibility relative to mutual funds

  • Can be quicker and less expensive to create as costly registration fees and public disclosure requirements are eliminated
  • Often have lower administrative, marketing, and distribution costs than mutual funds
  • Savings offered by CITs can be passed on to plan sponsors and participants
  • Fees may be negotiable, especially for large institutions

Risks Associated With CITs

  • Plan participant assets cannot be rolled into the same investment vehicle if the participant changes employers
  • CITs typically have shorter performance track records and the performance track record may be difficult to verify due to lack of SEC regulation.

For more information on CITs, please contact your plan consultant.

This article was originally published by Manning & Napier.


Qualified plans have a requirement to not carry forward any unallocated assets from year-to-year. Unfortunately, this rule is frequently neglected by plan sponsors, much to their chagrin when the failure is discovered on audit by the IRS or Department of Labor (DOL). Thus, it is important to remember that forfeitures must be allocated on an annual basis. The process is typically determined per the provisions in your plan document, or by plan procedures.

Forfeitures should not be held over from year-to-year; if they remain accidentally unallocated, complications can result. On audit it is not uncommon for the regulatory agencies to require a plan sponsor to retroactively determine who should have received allocations on a year-by-year basis. Once those retroactive allocations have been made, the regulatory agencies typically require the plan sponsor come out of corporate pocket for earnings on all retroactively allocated amounts. This is not only a monetary burden, but an administrative burden as well due to the fact that fiduciaries must find participants who may have terminated, because they were due these allocations (and earnings) as well as participants who remain active. For questions on this topic, contact your plan consultant.



Many younger participants are simultaneously saving for retirement and paying off student loans. How do we help them successfully accomplish both?

A: Putting off retirement savings to pay down student loans is among the biggest financial mistakes younger workers can make. In fact, LIMRA found that a 22-year-old with $30,000 in student loan debt could have $325,000 less in savings at retirement than his or her debt-free counterpart.

So what’s a plan sponsor to do? Emphasize holistic financial well-being by:

  • Encouraging DC plan participants to make the minimum monthly payments on their student loans, and also reminding them to save enough in their retirement plan to get matching contributions. According to Financial Engines, 1 in 4 employees don’t take advantage of the match, meaning they’re leaving up to $43,000 on the table over 20 years.
  • Emphasizing creating an emergency fund for unforeseen expenses so they won’t be tempted to borrow from their retirement account or use credit cards.
  • Advising them to direct any remaining funds strategically, either by paying down high interest student loans or investing more into their retirement portfolios and putting the money to work through compounding.
  • Encouraging participants to stash that extra cash in their retirement accounts once their debt is paid off. Many experts say workers should be saving 15% of their income by age 25 to ensure a comfortable retirement.

Visit and to find out more about helping workers save for retirement while paying off student loans.


Consult your plan’s counsel or tax advisor regarding these and other items that may apply to your plan.

No strategy assures a profit or protect against loss.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

For Plan Sponsor use only – Not for use with Participants or the General Public.This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. 

Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.

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