Phishing Texts Appearing to be from Schwab

We have received reports of a recent SMS/text phishing campaign that impacts both Schwab and non-Schwab clients who are receiving text messages that purport to be from Charles Schwab. Recipients have been directed to click on a link that pulls up a faked Schwab website, prompting them to enter their credentials.  Schwab has contacted the site administrator and the site is being removed.

Please do not click on the link or provide any information.  Delete the text immediately.

RECENT Developments

Social Security Update

In its annual report on the financial well-being of the Social Security Trust Funds, the Social Security Board of Trustees stated that during 2016, an estimated 171 million people had earnings covered by Social Security and paid payroll taxes. Benefit payments were paid to 44 million retired workers and their dependents and 6 million survivors of deceased workers. Also in 2016, the asset reserves of the Old-Age and Survivors Insurance (OASI) Trust Fund grew by $21.1 billion to a total of $2.8 trillion. The asset reserves of the OASI Trust Funds are projected to be exhausted in 2035, the same year as projected in 2015, with sufficient income to pay 75% of scheduled benefits.


Putting Off Retirement

According to a recent Bureau of Labor Statistics (BLS) report, almost 19% of Americans age 65 or older were working at least part-time during the second quarter of 2017. More specifically, the percentages of those working within the overall group broke out as follows: 65 to 69: 31.4%; 70 to 74: 18.9%; 75 and older: 7.6%. The BLS has estimated that 36.2% of Americans between the ages of 65 and 69 will be working in 2024 (an increase from 21.9% in 1994), as will 22.8% of individuals between ages 70 and 74, compared to 11.8% 30 years prior.


Views on Retirement Plans

A study by the Investment Company Institute shows that, in the fall of 2016, 70% of U.S. households had very or somewhat favorable impressions of 401(k) and similar types of retirement accounts. Of households owning a defined contribution account, 90% stated that having an employer-sponsored retirement account helped them think about their long-term needs, and 44% stated they believed they probably would not save for retirement if they did not have a retirement plan at work.

Retaining Plan Records

As a plan sponsor, you know that you have significant reporting and disclosure responsibilities under the pension law (ERISA). Additionally, ERISA requires plan sponsors to retain broad categories of records related to meeting those responsibilities. To do so, a plan sponsor should understand the applicable rules and put in place a record retention policy governing how it periodically reviews, updates, preserves, and discards documents related to plan administration.


Six-year Requirement

ERISA Section 107 requires that any person required by ERISA to file any report (such as Form 5500) must maintain, generally, for a period of “not less than six years” after the document is filed, a copy of such report. Also required is retention of all records supporting information detailed in a plan’s Form 5500 and other reports and disclosures.

Supporting documents on this list include any records a government auditor might need to confirm the accuracy and completeness of any information in the original report or disclosure. These include, but are not limited to, service provider information, corporate income tax returns (for reconciling deductions), and the plan’s nondiscrimination and coverage test results.

Indefinite Period

Records that need to be kept for an indefinite period include those necessary to determine benefits and eligibility for plan participation. By necessity, such records would include any related to dates of service, eligibility, vesting, contributions, and more. These records must be maintained for as long as the possibility exists — whether through request or litigation — that they might be relevant to determine any benefits due (or which may become due) to employees and beneficiaries. In some cases, former employees may wait many years — possibly until retirement — to inquire about benefits.

Specific Information To Keep

Records that should be retained include:

  • The original signed and dated plan document
  • Plan documents and communications given to plan participants
  • The determination, advisory, or opinion letter for the plan
  • Any financial records
  • Copies of Form 5500
  • Payroll records used to determine eligibility and contribution
  • Proof of the plan’s fidelity bond
  • Documents relating to plan loans, withdrawals, and distributions
  • Nondiscrimination and coverage test results
  • Personal information of employees, including name, Social Security number, date of birth, and marital/family status
  • Employment history information
  • Officer and ownership history and familial relationships
  • Election forms for deferral amount, investment direction, beneficiary designation, and distribution requests
  • Listing of contribution and distribution transactions
  • Notarized spousal consents and waivers

Electronic Documentation

As long as the retention system meets ERISA requirements, records for the most part can be kept electronically. Generally, the retention process must:

  • Allow easy conversion to legible and readable paper copies to satisfy ERISA’s reporting and disclosure requirements
  • Have reasonable controls to ensure the accuracy, reliability, and authenticity of the records
  • Maintain records in reasonable order and in a safe and accessible place to allow indexing, retaining, preserving, retrieving, and reproducing
  • Not be subject to any agreements or restrictions that would compromise or limit compliance with ERISA’s reporting and disclosure requirements
  • Establish and implement adequate records management practices including, but not limited to, following procedures for labeling of electronic records and saving backup electronic copies

Generally, paper records can be disposed of any time after being transferred to a compliant electronic record system. However, the retention of an original paper record is required if the electronic record would not constitute a duplicate or substitute record under the terms of the plan and applicable federal or state law.

New Proposal for Employee Benefit Plan Audits

The Auditing Standards Board of the American Institute of Certified Public Accountants recently issued a proposed Statement on Auditing Standards (SAS) that, if adopted, would affect audits of employee benefit plans subject to the pension law (ERISA). Particularly affected would be limited-scope audits, for which DOL regulations allow auditors to rely on certain statements and information prepared by regulated banks or similar institutions or insurance carriers, provided that those entities certify the statements to be “complete and accurate.”

Key elements of the proposal include additional testing with respect to certain aspects of the plan document, changes in the auditor’s report for limited scope audits, expanded written representations by management, and considerations relating to the Form 5500 filing.

Plan sponsors should be aware of possible effects of the exposure draft, including the potential for increased auditing costs. In addition, sponsors should ensure that their own procedures and controls are well documented and followed and that any service agreements clearly delineate the respective responsibilities of each party.

The proposed SAS would be effective for audits of financial statements for periods ending on or after December 15, 2018.

Markets in Review

Domestic equity markets continued their upward trend during the third quarter of 2017, with the S&P 500 Index returning 4.5%. This represents the 8th consecutive quarter of positive gains for the index, which has also been positive in 18 out of the last 19 quarters. Strong corporate earnings reports early, coupled with a late rally in response to the GOP’s tax reform plan, drove the upward momentum. Although news during the quarter was dominated by the series of hurricanes and natural disasters that struck the U.S., the market as a whole was largely unaffected.

Growth-oriented stocks outpaced their value-oriented counterparts, adding to their significant advantage for the year thus far; although, value stocks were able to recover some momentum during the final weeks of the quarter. Small-cap stocks outperformed large-cap stocks during the quarter, with the Russell 2000 Index returning 5.7% compared to the Russell 1000 Index at 4.5%. Technology was the best performing S&P sector with an 8.6% gain during the quarter, while Consumer Staples was the worst performing, down 1.3%.

International equity markets collectively outperformed the domestic markets. Emerging markets were the strongest performer, with the MSCI EM Index returning 7.9% (USD) for the quarter, noting Brazil, Russia, and China as the top performers within the index. Developed markets also performed well, with the MSCI EAFE Index returning 5.4% (USD). International performance during the quarter can be attributed to strong economic growth, solid corporate earnings, and a rise in oil prices. An increase in the strength of many major currencies against the U.S. dollar also contributed.

The yield on 10-year Treasury notes fell from 2.3% to a 10-month low of 2.1% early in September, then rebounded to 2.3% by the quarter’s end. The 2-year Treasury note finished the quarter just below 1.5%, the highest level in almost 9 years, causing the yield curve to flatten. Boosted by investor demand for higher yields, as well as generally healthy fundamentals, emerging markets debt was the best performing fixed income sector, with the BBgBarc Emerging Markets Index returning 2.3% during the quarter. The Federal Open Market Committee (“FOMC”) left rates unchanged during the quarter. Current expectations are for a rate hike in December, followed by three increases in 2018. At its September meeting the FOMC officially announced plans to begin unwinding its $4.5 trillion balance sheet, beginning in October.

The initial estimate of third quarter GDP is 3.0% annualized growth, beating consensus expectations. A rise in inventories, strong consumer spending, increased nonresidential investment, and a narrowing net export deficit all contributed to the better-than-expected economic growth. One of the few weaknesses noted in the report was a 6% decrease in residential investment. The global economy also continued its relatively steady, synchronized expansion, supported by export-oriented sectors and manufacturing activity.

Job gains averaged 91,000 per month during the quarter, despite losing 33,000 jobs in September as a result of the ferocious hurricanes that struck Texas, Florida, and neighboring states. The unemployment rate fell from 4.4% to 4.2%, reaching its lowest level since January 2001, while the labor force participation rate increased slightly from 62.9% to 63.1%.

Headline inflation rose from 1.6% to 2.2% during the quarter, whilst core inflation, which excludes food and energy, remained flat at 1.7% for the fifth consecutive month. Much of the increase in headline inflation can be attributed to a hurricane-related 6.1% increase in energy prices.