Hatch's remarks on Pension Reform - Financial Services Roundtable:

Really interesting read on where the thinking in this area is, the whole speech can be found in this article -->

http://www.stgeorgeutah.com/news/archive/2014/12/15/hatch-outlines-pension-reform-retirement-savings/#.VI9NpHuEzaV

Here are the parts on private Pension Reform:

"....The good news is that the private employer-based retirement savings system in the United States – particularly 401(k) plans and Individual Retirement Accounts, or IRAs – has become the greatest wealth creator for the middle class in history and represents truly shared prosperity.

The bad news is that the retirement of the baby boom generation is putting enormous pressure on public programs like Social Security and Medicare.

And, as part of the unending effort on Capitol Hill to find more revenue to pay for increased spending, some have proposed reducing the allowed contributions to 401(k) plans and IRAs.

That, in my view, would be both short-sighted and foolish. - GREAT LINE!!!

Some in Congress seem to have forgotten that this is well-covered territory.  Indeed, Congress has already examined this issue and made the policy call decidedly against contribution reductions.
In 2001, Congress increased the limits for contributions to 401(k) plans and IRAs.
Congress also added a catch-up contribution feature that allows workers to contribute several thousand dollars more per year beginning in their 50s, an age when many workers finally get serious about saving.



One thing we have learned over the years is that the key to successful retirement savings is participation by employees in a plan at work, and the key to convincing employers to sponsor a plan at work is a healthy contribution limit.


Since 2000, the year before Congress raised the contribution limits, retirement assets in defined contribution plans have grown from around $3 trillion to nearly $6 trillion, despite the market downturn in 2008.  Assets in IRAs have grown from $2.6 trillion to $6.5 trillion.

In fact, increased contribution limits worked so well that, in 2006, Congress made those provisions permanent, and the vote to make them permanent was overwhelming:  in the Senate, the vote was 93 to 5.

We have spent a lot of time in recent years defending the gains we have achieved in the 401(k) system.  But in 2015 we can, and in my opinion should, go on offense. Toward that end, we must encourage employers who don’t sponsor plans to set them up.  That’s why last year I introduced legislation to create the Starter 401(k), a plan designed for small or start-up businesses that are not in a position to contribute to a plan but still want to help their employees save.

A Starter 401(k) is a new kind of plan that does not come with all the administrative burdens or expenses of a traditional 401(k) plan.  The plan allows employees to contribute between $8,000 and $10,000 per year, which is a little bit less than what would be allowed under a traditional 401(k), but much more than an IRA.



I believe the Starter 401(k) plan in my legislation could help to revolutionize retirement savings for employees of small businesses throughout the country.  My bill also allows unrelated small employers to pool their assets in a single 401(k) plan to achieve better investment outcomes, lower costs, and easier administration.  This idea, which is called an “Open MEP” is one that many on both sides of the aisle in Congress support.  It’s an idea whose time has come.


Of course, we cannot talk about retirement savings without discussing the importance of lifetime income.  We have fought for years to enact policies that will encourage greater savings and investment.  But, I don’t think our efforts will provide much to comfort those whose retirement assets run out before the end of their lives.

That’s why the legislation I introduced last year encourages the purchase of fixed annuity contracts for retirement.  In fact, the bill is called the Secure Annuities for Employee Retirement Act, or the SAFE Retirement Act.

Why life insurance annuity contracts?  Well, lifetime income is a form of life insurance.  Most people tend to think of life insurance as insurance against the risk of living an unexpectedly short life.  And that is certainly true.  But life insurance also includes insurance for the possibility that someone might live an unexpectedly long life.

We call that form of life insurance a life annuity and it only makes sense to encourage the use of annuities to provide retirement security.

My legislation encourages the use of annuities in 401(k) plans.  First, we remove obstacles to adding annuity-purchase options to 401(k) plans and, second, we provide employers a liability safe-harbor.  That way, employers are encouraged to add annuity options to their plans and employees are encouraged to use them......"

Senator Hatch goes on a bit about public pension reform as well, but key takeaways from this.  There's a strong advocate for the proliferation of the 401(k) and future versions of it in Congress now, who's thinking smartly and creatively about ways to expand coverage, reduce barriers to usage and protect participants.  That's leadership that I can get behind.  Let's hope that these measures make it through and become law.

- Jason Grantz

MEPs - New legislation could cause some unintended consequences

Back in April, The Cooperative and Small Employer Charity Pension Flexibility Act of 2014 was enacted (CSEC Act).  In this act, according to this blog post on the Business of Benefits website
 (linked here --> http://www.businessofbenefits.com/2014/11/articles/multiple-employer-plans/hidden-new-mep-5500-legislation-requires-substantial-new-reporting-for-2014-plan-year/

New MEP 5500 Legislation Requires Substantial New Reporting for 2014 Plan Year!

According to the post (written by Bob Toth, thanks Bob), MEPs will now have to report all of their participating employers, their EIN and a good faith estimate of the “percentage of the contributions made by all participating employers made by each employer relative to the total contributions made by each employer.”

The new reporting rules apply to all MEPs, including those 401(k) MEPs run by PEOs and payroll companies.  This will have a significant impact on these types of arrangements:  now that each participating employer name and EIN will be listed in the Form 5500, one would expect these plans to see substantially increased audit activity from both the DOL and the IRS.  Prior to this rule, only the Lead Employer in a MEP would (as a practical matter) be audited.

In addition to what will amount to increased MEP costs and increased MEP scrutiny will be, most likely, an unintended consequence.......increased marketing to and selling to adopting employers of MEPs.  A common area of mining for attractive potential new business is via the 5500 filings.  Up until now, one of the benefits of adopting an MEP is that the 5500 was filed as a group, but the members of the group all remained individually veiled.  So while these new reporting requirements will almost certainly lead to increased scrutiny from the DOL and IRS, it will also almost certainly lead to increased selling against the MEPs to the various adopting employers simply by being unveiled to the general public.  Time will tell, but very interesting developments to keep an eye on especially if any "Open MEP" legislation gets passed in the next year or two.

- Jason

I'm on the Radio! Hear a 30 minute interview discussing Cash Balance Plans from 'The 401(k) Study Group'!

Last week I was lucky enough to be interviewed on the radio by Chuck Hammond of The 401(k) Study Group and we discussed Cash Balance plans.  It is a continuation from the previous posting on this blog about Cash Balance plans.  Hope you enjoy listening to it.  Linked Here.

http://www.blogtalkradio.com/the401kstudygroup/2014/10/10/cashing-in-on-cash-balance

Best - Jason

Cash Balance Plans - Simplified

So, what's all of this noise about this "new" kind of Retirement Plan that's all the rave, called a Cash Balance Plan and how do I 'Cash In'? 

The following information is meant to be informative, while not necessarily all encompassing.

What is a Cash Balance Pension Plan?
A cash balance plan is a type of Defined Benefit (DB) plan that looks and feels like a Defined Contribution Plan (DC) such as a 401(k) or Profit Sharing Plan.  However, just because it looks like a DC plan doesn't mean that it is one, in fact it has more similarities to its' brother the traditional DB pension than it does to its' cousin the 401(k) Plan.  Like traditional DB plans, Cash Balance plans are backwards-looking in that that they guarantee a determinable benefit to eligible participants and use annual contributions plus investment earnings to get to that end benefit at some later date. 

What do you mean it looks/feels like a DC plan?
The allocation formula and the promised benefit are stated as a hypothetical account balance.  They are hypothetical because they do not reflect the actual contributions to and gains/loses allocatable to the account.  Rather they are attempting to give the participant a fair estimate of what their "balance" is in the plan.  Realistically, the benefit they receive is the predetermined balance defined by the plan that won't be achieved until that participant reaches retirement age.

How does it work?
Like all DB plans, the investments are pooled and set up in a trust, allowing for economies of scale to be gained on investment expenses and eliminated the need for "daily valued" record keeping.  Also like other DB plans, these plans are tax-qualified under the IRC and governed under ERISA .  They are required to have fiduciaries in charge, namely the Plan Sponsor, Trustee and Plan Administrator and require the use of an Actuary.  Many of these functions can be outsourced as well.

In a typical cash balance plan, each participant's hypothetical account is comprised of two parts; the pay credit and the interest credit.  The pay credit is typically a fixed amount (such as $25k/year) or a fixed percentage of compensation, like 5% for example.  The interest credit is either a fixed or variable rate linked to an index, such as the 30-Year Treasury. 

These contributions are made annually and invested.  The earnings on investments ought to be engineered to achieve the Interest Credit as a return, no more no less.  The goal most often associated with Cash Balance plans is to maximize tax deductible contributions for the owners, key personnel and highly paid group.  Unlike DC plans, however, contribution amounts from year to year can be theoretically unlimited since the contributions over time must equal what is needed to finance (fund) the promised benefit.  This allows contributions to often go well north of the DC Plan 415 limit of $52,000.  Often these contribution amounts could near $200,000/year for an individual person.

Who would use a Cash Balance Plan and why?
Cash Balance plans are popular among companies that are very rich in revenue while maintaining a fairly low number of employees.  Employers such as law firms, professional groups, CPA firms and medical practices come to mind.  These business' often have strong cash flows historically and prospectively, large budgets, relatively low numbers of employees where most of them are making substantial wages (north of $125k for example), have multiple owners or partners, max out on DC contributions and have mostly an older highly paid workforce.

What about costs and other barriers?
The main costs associated with Cash Balance plans are the contributions themselves since they tend to be much higher and are employer funded plans.  Administrative costs are typically not more burdensome than other plan administrative expenses and sometimes less.  Investment expenses are typically low due to the need to pool investments in a trust and the conservative nature of the investing.  Cash Balance plans can be for any type of employer, however, note that they must be contributed to for a minimum of three years.

Hopefully, this was helpful in explaining some of the main points about Cash Balance plans.  Obviously, this was an overview.  If anyone has questions, they can comment on this post or reach me directly at jason.grantz@unifiedtrust.com.

 

Brokerage Windows in 401k Plans: Get Off the Beach!!!

Linked below is a really nice Op-Ed on Brokerage Accounts as pertains to using in 401(k) Plans. Really like the analogy regarding foolish people on a beach during Hurricane Sandy.  The author does a nice job of explaining the issue in a non-technical way.  Enjoy.

http://www.employeefiduciary.com/brokerage-windows-in-401k-plans/

Discretionary Trustee vs. Inv. Mgr. or other fiduciary roles

An old colleague and current competitor of mine, and ours at my firm recently put out a very nice blog post articulating some of the nuances of the trustee role in context vs. other fiduciary roles, Investment Managers and directed trustees.  Certainly worth a quick read, linked here.

http://pentegra.com/expertise/current-thinking/misconceptions-about-the-three-principal-fiduciary-roles-in-a-retirement-plan-the-trustee.aspx

Enjoy!
Jason

Curbing Enthusiasm for 401(k) Plan Loans

Here are some friendly tips for employers when considering the loan provisions available in the 401(k) Plan they offer to their employees.  Enjoy!

 

SITUATION:

We allow our employees to borrow against their 401(k) plan account balances. We understand that the ability to take out a loan can reassure employees that they have access to their account assets if they need them and can increase plan participation and contribution rates. However, we have to spend time and money administering the loans. And we’re concerned our employees may be hurting their chances for a comfortable retirement by borrowing too much and too often.

 

QUESTION:

Other than not offering loans, what can we do to discourage employees from taking unnecessary plan loans?

 

ANSWER:

You can take a number of actions to limit plan loans, including educating employees about the pitfalls of plan loans and placing restrictions on loans.

 

DISCUSSION:

Eliminating plan loans entirely might hurt plan participation.  Instead, to discourage employees from taking plan loans they may not really need, provide information about both the advantages

and disadvantages of borrowing from a 401(k) plan account. While employees may already know about the ease and convenience of plan loans, they might not be aware that:

 

• Loan repayments are made with after-tax money.

• Taxes will be paid again when the money is distributed from the plan.

• It can be difficult to continue to save for retirement and pay back a loan.

• If they leave employment, loans generally must be repaid at that time.

• If a loan isn’t repaid, the outstanding balance would be treated as a taxable withdrawal subject to both income tax and a possible 10% early withdrawal penalty.

Before processing a loan request, provide employees with a summary of the potential disadvantages of a plan loan.  Other actions you can take to discourage excessive loans include:

 

• Limiting the number of outstanding loans an employee can have at one time.

• Limiting the number of loans an employee can take in a 12-month period.

• Restricting borrowing to only money that the employee has contributed.

• Increasing the loan origination fee.

To potentially reduce the number of loan defaults, arrange for repayment to be made through payroll deductions or automatic checking account deductions.

Not all 3(38) Fiduciaries are alike - Repost

Pulled this brief blog post from Ary Rosenbaum's blog.  Linked below.

http://www.jdsupra.com/legalnews/not-all-338-fiduciaries-are-alike-01959/

In this post Ary discusses one of the current industry trends, the selling of 3(38) services and discusses briefly how they come in different shapes and sizes and he equates many of these new services to getting a meal at McDonald's.  Love his sarcasm.

About 18 months ago, I authored a paper on this topic as well.  It has many of the same themes as Ary's post, but goes a bit deeper into the topic.  Below is a link to that paper.  Enjoy!

https://www.unifiedtrust.com/documents/Third-Party-Fiduciaries-Myth-and-Reality.pdf

Participants Still Need Basic Retirement Plan Education

In a June 12, 2014, PLANSPONSOR.com article – They write that 401(k) plan participants still do not understand some of the basics about saving and investing in their plans as suggested by an recent survey.  The survey is authored by MFS Investment Management.  Complete article linked here.

 

http://www.plansponsor.com/NewsStory.aspx?id=6442498306

 According to MFS Investment Management’s (MFS) 2014 DC Pulse survey, nearly three-quarters (74%) of participants say having a little bit invested in each option of a 401(k) plan is the best way to diversify.  More than 20% say they have no idea how best to diversify a retirement account.  

More than half (52%) of 401(k) participants are not aware of the tax impact on take-home pay from a contribution of $100, and nearly half (46%) say they believe the money saved in their retirement plans is a good source of funding for other financial needs, like paying off debt or saving for college.

The survey finds participants often contribute just enough to receive the maximum employer match, and nearly one-quarter (23%) of plan participants surveyed indicate they believe there is no additional benefit to contributing more than is necessary to receive the employer matching contribution. The number jumps to 37% among Generation Y respondents (younger than age 34).

More than one-third (37%) of survey respondents say a major drop in the stock market poses the greatest risk to their retirement savings—not contribution amounts or behaviors. Only 8% base plan contributions on projected retirement needs and goals, while 46% contribute what they feel they can currently afford. Only 17% believe the amount of time they are invested has the greatest favorable impact on their retirement account balance, and just one in four know early withdrawals may lead to tax penalties.

65% of survey respondents incorrectly believe index funds are safer than the overall stock market, and nearly half (49%) believe index funds have better returns than the stock market.

These statistics are startling, albeit not surprising to many industry practitioners.  I believe this makes a clear case for an option within the system engineered to do everything for the participant (not target date funds).  Automate an appropriate savings rate, escalate that rate over time, professionally asset allocate and asset select for the participant, adjust as needed and define an endpoint retirement age that will be the target.  This system should be the prevailing system, just a thought.

 

How to Fix the 401(k) - Wall Street Journal's thoughts

Earlier this week an article was published in the Wall Street Journal and the topic of the article was on how to fix the 401(k).  This is a favorite topic of mine, although based on the title one would assume that the 401(k) is broken which I do not agree with.  Not to say that the industry doesn't have its problems, it does, but to paint the whole tax code section as broken is a little too far.  Linked below is the article.

http://online.wsj.com/articles/how-to-fix-the-401-k-1401743224?KEYWORDS=Fix+the+401k

Within this article there is the usual anti-401(k) rhetoric from the usual suspects, Monique Morrisey of the Economic Policy Institute calls the system broken and then opines that the issue with the system is one of confidence; that people will save more if they are confident in the outcome.  This is a very Ivory Tower opinion from someone whom, I suspect, has never conducted an employee enrollment or education meeting or actual sat with participants and observed first hand what the inhibition to adequate savings actually was.  The savings issue, in my experience, is not one of confidence, but rather one that has two primary obstacles. 

1.) Affordability - Participants who do want to save, may not actually be able to afford to save.  So they put away what they can afford, and often that isn't enough.  Is that a confidence issue?  Not to me it isn't.

2.) Behavioral issues such as inertia, procrastination, distractions, etc. inhibit people from giving the retirement plan benefit the importance it deserves.  This is especially prevalent with younger workers, workers new to the workplace or transient workers.  Again, not a confidence issue, something else entirely.

The author of the article suggests Five Ways to "Fix the 401k".  Here they are in order.

1.) Simplify Fee Disclosure - Can't argue this point.  I agree, a simplified method for clearly and plainly stating all fees is a good idea.  In fact, this was what 408(b)-2 was supposed to do, but the regulation left too many loopholes and many of the providers are highly motivated to keep fees opaque.   While this is true, I don't think that fee clarity (or lack thereof) is an inhibitor of plan formation or of participation in plans.  Nonetheless, it is a good idea. 

But the article goes too far, it cites data that big plans pay a lower percentage than small plans, but doesn't show the math that the big plans pay a HUGELY larger dollar amount for service than small plans.  Simple math will tell you that $1000 cost on a $1m plan is 0.1%, but $1000 on a $100k plan is a full 1%.  Same dollars bigger % for the smaller plan.  The article even cites the Center for American Progress to require that funds carry a warning label akin to cigarettes or alcohol.  Are we trying to scare people into not saving or not investing?  REALLY!?  Actually, maybe this would be a way to get the 18-21 year olds into a plan (tongue firmly planted in cheek).

2.) Require plans to offer low-cost index funds - I/we would generally agree that index funds are a good idea to put into retirement plans.  The selection of which ones to use and in which asset classes index funds are most useful is a matter of debate, but good process will generally lead to a good selection in this area.  My issue is with the mandate of offering them.  Question: which ones do we use, I'm sure Vanguard will want to weigh in on this debate.  Which asset classes?  All of them?  I'm sure there would be lots of arguments among investment professional regarding where passive investing makes sense and where it doesn't. 

***By the way, this is really an extension of the first "fix", which is an effort to reduce fees***  How about instead, we require that all 401(k) plans use institutionally priced investments with a uniform conformity (call them K shares) which are no-load, don't have revenue sharing or other embedded distribution fees and level the playing field.  I'm sure this would accomplish the same thing while leaving choice in place.

3.) Require plan features that nudge people to save more - This is a good idea.  Employ Automatic Enrollment and Automatic Savings Escalators with employee opt out provisions.  We suggest these ideas to virtually every client we meet with.  However, before forcing a plan design feature with a mandate that requires additional administration (and the additional mistakes that come with it), we should tread lightly and acknowledge that not every plan sponsor has the practical capabilities to handle these types of designs. 

4.) Have those providing guidance be fiduciaries - This isn't new ground.  This has been getting thrown around for years and, at this point, most of those of us that are serious in this industry are already acknowledged fiduciaries or at least act like them even if they can't say that they are.

5.) Start a national 401(k) Plan for small employers - Again this is all back to the first issue, fees.  Fees, fees, fees, fees, fees!!!!!   It seems to be the only thing that critics can really focus on which is a shame b/c, we operate in a free market.  The private industry has its "cheap fee" providers, it's expensive providers and those in the middle.  Just like in the auto industry, the telecom industry and every other industry.  If a 5 person company with no employees really wanted to start a 401(k) plan, buy cheap recordkeeping and pick Vanguard index funds for their employees.....that service is out there already!  It's only when they want to start adding services, like advice, custom plan design, fiduciary services, etc. that fees go up.

The govt. option will be another burden to the tax payer, many of which would not benefit from this new system.  I don't disagree that small plans should be allowed to pool together somehow to gain economies of scale, perhaps in a Multiple Employer Plan (MEP) format.  But again, that can be handled by private industry, just need the rules to allow such things.

So, did this WSJ article do its job in "fixing" the 401(k).  Hardly, this was a weak effort by a highly respected periodical. 

Revenue Sharing - What's the right way to apply it in a 401(k) Plan?

In order to understand the question of how to apply Revenue Sharing in a 401(k) plan, it begs explanation as to what Revenue Sharing really is, what form it takes and how it's commonly applied.  In short, revenue sharing typically takes the form of basis points (bps) built into the underlying expense ratio of certain mutual funds, collective investment funds or annuity sub-accounts (referred to herein as "funds").  Not every fund has revenue sharing, but many do.  

Ex.) The Vanguard S&P 500 Index Admiral Share Class (VFIAX) costs 0.05%.  There isn't any revenue sharing in this fund.  Whereas, the Dodge & Cox Income fund (DODIX) costs 0.43%, but contains 0.08% (8 bps) of revenue sharing, making the underlying net expenses, 0.35%. 

Both of these funds are considered very good or excellent by most methods of evaluation, yet one has excess revenue built into it and one does not.  So what is this revenue?  Why is it there? What should a plan trustee do with it since it is a plan asset?

Revenue sharing came about as an industry concern as technology advanced in the late 1990's.  It comes in various forms or names.  Some of these names are Sub Transfer Agency (Sub-TA) fees, shareholder servicing fees, finder's fees or even 12(b)-1 fees which are typically used to pay brokerage commissions.  

If one were to look back at what the 401(k) product landscape looked like in the mid and late 1990's, it would be observed that there were two dominant types of products.  The first, is the Group Variable Annuity, where the investments were sub-advised funds, and the second was a mutual fund product offered by a mutual fund company containing only their mutual funds.  These "proprietary products" were often recordkept by that insurance company or that mutual fund company's transfer agency.  Transfer agencies are required by the investment industry and act as the record keeper for such things as share-lot accounting, tax basis, customer information and the like.  Transfer agencies are not revenue generating centers, rather they are a cost center to the investment houses.  They are financed by a ledger transaction on the fund company balance sheet called a 'Transfer Agency Fee' or a TA Fee.

During this period of time, technological systems and customer demand necessitated the creation of 'Multiple Fund Family' products, a predecessor to true open architecture.  These products still exist today.  Typically, this type of product would be distributed by a group of fund families partnered together.  Ex.) 8 fund families, 400 funds. Arguably, this is better than one fund family's 40 fund product on its own.  Often these products would only include those funds typically distributed by brokers for a commission (so no Vanguard, no DFA, etc.), and it is here that we find the birth of Revenue Sharing as we see it today.

Technology gave rise to "independent" record keeper service providers.  These record keepers were independent of the fund families, and often had superior technology and the ability to link together investment trading for multiple fund houses.  They took over the fund companies role as transfer agent for the 401(k) clients.  This freed up the aforementioned TA Fee for these types of accounts.  It didn't take the fund companies long to realize that this TA Fee could become an incentive to the record keepers for priority shelf space, similar to having a sugary cereal at eye level for a seven year old to see.  This incentive became the SUB-Transfer Agency fee (Sub-TA).  This was/is a legal practice, but it did have some systemic abuses.  In the following 5-15 years it was mainly a hidden secret of the retirement industry.  It was really in the mid-late 2000's when it gained notoriety, and then with the advent of the fee disclosure rules, primarily 408(b)-2 it became more widely known.

All that said, revenue sharing can be a good or bad thing.  It has its place in the fiduciary decision tree on the mechanics of paying for necessary services.  The question now shifts away from discovery of the existence of revenue sharing in the funds in a plan to how to properly allocate this revenue sharing.  

The Department of Labor (DOL) has been somewhat vague on this.  The 'Frost Letter', DOL Advisory Opinion 97-15A is the best guidance the industry has and essentially says that if a provider is a plan fiduciary, that it cannot retain revenue sharing received from funds and that it must credit it back to the plan.  This avoids any potential Conflict of Interest in the form of Self Dealing.  Okay, fair enough.  We, the fiduciary, pick a fund, it has revenue sharing, we collect it and give it back to the plan.  That makes sense.  Hey DOL, so how do we give it back?  In other words, what is the appropriate method?  The DOL is silent on this issue.  

Last year, in DOL Advisory Opinion 2013-03A, the DOL had a chance to illuminate the industry on what is the appropriate allocation method and, specifically, it opted not to; saying "this letter also does not address any fiduciary issues that may arise from the allocation of revenue sharing among plan expenses or individual participant accounts . . .”   Leading ERISA Attorney, Fred Reish reminds us that the method of allocation is a fiduciary decision and must be prudently considered by the responsible plan fiduciary (http://fredreish.com/advisory-opinion-2013-03a/).

The argument some in the industry make is this. Since only some funds have revenue sharing, while others do not, and revenue sharing is experienced as a cost by those who invest in those funds, but not experienced by participants who don't invest in those funds, shouldn't the revenue sharing be rebated back ONLY to those participants who experienced it as a cost?  Sounds right.  That's how other rebates work in other industries.....however, common industry practice is for revenue sharing to offset provider costs. If these costs are not offset, they would've been passed to ALL of the participants prorata.  Some providers don't give the plan trustees the option.  Some do.  Some providers provide a gross invoice that is then offset by revenue sharing and then give the client the choice to write a check on the net invoice or pass it to the participants.  

Some providers have shifted to the "participant-level" revenue sharing rebate process.  This then begs the question of when?  When is it applied, daily, monthly quarterly, annually?  What if the amount expected to receive differs materially from what is actually received?  How does one collect and then apply the difference?  Are their earnings adjustments required, if so who pays for those?  Could plan discrimination issues arise, benefits, rights and features issues?  All these are valid questions.  The issue of application of revenue sharing has now become a differentiating issue for providers, i.e. a product feature issue that can be sold or sold against.

After reading Fred's blog post linked above, he mentions forewarned is forearmed.  Rather than this becoming a potential fight one needs to be armed for, how about this instead?  As a challenge to the DOL, PLEASE COME UP WITH A 'SAFE HARBOR' METHOD ON HOW TO APPROPRIATELY ALLOCATE REVENUE SHARING WHEN IT EXISTS WITHIN A 401(K) PLAN!!!!  This would sure solve a lot of unnecessary problems or potential future problems.