Updated attribution credits and recordkeeping fees

Recently, Vanguard evolved our approach to how our funds apply attribution credits toward recordkeeping fees. Plan sponsor fee disclosure regulations require recordkeepers to provide plan sponsors with a reasonable estimate of the fees paid for recordkeeping. Vanguard “attributes” a portion of a Vanguard fund’s expense ratio to recordkeeping.

Per a prior communication, effective January 1, 2017, Vanguard moved to a fund-by-fund methodology whereby the difference in expense ratios between the Investor share class and the next lowest share class (that is available without an investment minimum to recordkeeping clients) of a fund is now the crediting rate of that fund. For example, the expense ratio of the 500 Index Investor share class (0.16%) minus the expense ratio of the 500 Index Admiral share class (0.05%) results in a recordkeeping credit of 0.11%. If there is no lower share class without a minimum, the attribution rate will be 0.00%. The methodology may impact your quarterly bill, which will depend on the share classes of your Vanguard investments and the choices your employees have made within the plan.

By moving away from crediting our funds at a share-class level using an average, there will be greater transparency between investment management and recordkeeping fees. If you have any questions, please contact Vanguard at 888-684-401K.

For more information about Vanguard funds, visit institutional.vanguard.com or call 888-684 401K to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

All investing is subject to risk, including the possible loss of the money you invest.

© 2017 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.

Simple by design: Plan and employee website enhancements

This spring, we're transforming our plan and employee websites based on research that shows what users really want.

Plan website updates

With powerful search functionality and quick access from the dashboard to the most popular and important items, the new web design makes it easier for you to complete plan activities and stay on top of plan performance. Take a tour.

Employee website updates

With simple navigation, a clear presentation of account information, and improvements to the Retirement Outlook tool, the new web design provides employees with a better way to set goals, take actions, and save for their retirement. Take a tour.

Morningstar Managed Accounts service fee reduction

We believe in making investment advice cost effective for your employees. This April, we’re reducing the facilitation fee for participants enrolled in the Morningstar Managed Accounts service. As a result, the annual participant fee will be reduced from 0.45% to 0.35% of the account balance. Affordable access to professional investment support is one more way we’re committed to helping your employees prepare for the future. Learn more.

Important: If your plan currently offers the Morningstar Managed Accounts service, you must notify participants about the fee reduction. A message with additional details and a participant disclosure template are available on your plan website.

Updated enrollment guide on the way

We've updated the enrollment guide to ensure that the content is current with new industry regulations. The new guides, which will continue to simplify the decision-making process for your employees, will be available this spring. Several companion materials for your participants, such as the enrollment meeting email and promotional flyer, are also being updated.

Once available, please discard any printed copies of the previous enrollment guides to ensure that what you deliver to your employees is compliant with new industry regulations. Look for notification on your plan website once they are available. Learn more.

Proposed regulations allow use of forfeitures to make QNEC, QMAC, and safe harbor contributions

On January 18, 2017, the IRS issued proposed regulations making a change to the time by which qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs), including those made as 401(k) safe harbor contributions and those used to correct plan operations failures and nondiscrimination test failures, must be made. The change allows the use of plan forfeitures to fund such contributions.

Timing Is Everything
QNEC and QMAC contributions must be 100 percent vested and subject to distribution restrictions similar to elective deferrals. Until now, IRS regulations stated that those conditions were required to be met when QNECs and QMACs were contributed to a plan. In recent years, the IRS let it be known that it interpreted its regulation literally, preventing the use of forfeitures of employer contributions to make QNECs or QMACs because, at the time the forfeited contributions were originally made to the plan (e.g., as matching or profit sharing contributions), they were not 100 percent vested and did not meet the elective deferral distribution restrictions.

The IRS took this position despite the fact that if forfeitures were used to reduce QNECs or QMACs they would become fully vested and be subject to the elective deferral restrictions when they were contributed (allocated) to the accounts of participants under the plan. The IRS’ narrow interpretation resulted in many plan sponsors having to make additional plan contributions even though their plans contained forfeitures and allowed forfeitures to be used to reduce contributions. This result was the basis for many in the industry to advocate change.

The IRS responded with proposed regulations that impose the special distribution and vesting requirements at the time QNECs and QMACs are allocated to participants’ accounts, rather than when contributed to the plan.

Going Forward
Although the proposed regulations apply to taxable years beginning on or after the date they are issued as final regulations, the IRS is allowing plan sponsors to rely on the proposed regulations immediately. Plan sponsors wanting to use forfeitures to make QNEC or QMAC contributions— including 401(k) safe harbor contributions—must review their plan documents to make sure they

• allow forfeitures to be used to reduce employer contributions, and 
• do not contain language restricting the use of forfeitures to fund QNEC or QMAC contributions. 

Conclusion
Although the IRS’ change to the actual language in the proposed regulation is minor, the implications of its change are far-reaching and beneficial to plan sponsors, who can now make 401(k) safe harbor contributions and correct plan defects less expensively by using forfeitures instead of making additional plan contributions to achieve the same result.