October Retirement Plan Newsletter 2021

October Retirement Plan Newsletter 2021

 

LUTZ BUSINESS INSIGHTS

 

PUBLISHED: OCTOBER 18, 2021

OCTOBER RETIREMENT PLAN NEWSLETTER

DOL CYBERSECURITY TIPS

In this age of relying heavily on technology, it is vital to take the necessary cyber security precautions. You want to make sure that all sensitive information is highly protected. This document showcases some tips and tricks for plan sponsors.

Topics include: Security Standards, Establishing a Formal Cybersecurity Program, Using Multi-Factor Authentication, Cybersecurity Insurance, and much more.

Per the DOL, plan sponsors should ask the service provider about the following:

  • Security Standards
  • Security Practices
  • Security Policies
  • Audit Results
  • Security Validation Process
  • Security Levels Implemented
  • Past Security Breaches
  • Cybersecurity Insurance
  • Cybersecurity Guarantee

Per the DOL, plan sponsors should consider the following actions:

  • Establish a formal Cyber Security Program
  • Conduct annual risk assessments
  • Hire third party to audit security controls
  • Define and assign information security roles
    and responsibilities
  • Establish strong access control procedures
  • If data stored in cloud or with third party conduct
    security reviews
  • Conduct cyber security awareness training
  • Implement secure system development life cycle
  • Create effective business resiliency program
  • Encrypt sensitive data
  • Respond to cyber security events

Per the DOL, plan participants should consider the following actions:

  • Register your account
  • Regularly monitor your account
  • Use strong and unique passwords
  • Use multi-factor authentication
  • Keep personal contact information current
  • Close or delete unused accounts
  • Do not use free Wi-Fi
  • Beware of Phishing attacks
  • Do not store login information in your email account
  • Use up to date anti-virus software
  • Report identity theft to your employer and the
    record-keeper

REGRET AVERSION: FIGHTING THE FOMO OF THE FINANCIAL WORLD

Regret aversion is a construct in behavioral finance theory that suggests investing decisions are, at least in part, driven by fear of later regretting a “wrong” choice. And this isn’t just some psychological mumbo jumbo. Functional MRI neuroimaging studies of the brain have demonstrated a biological correlate to this phenomenon in the form of increased activity within the medial orbitofrontal cortex and amygdala. The fear is real — and it can have serious consequences for participants.

 

How Does Regret Aversion Impact Investors?

There’s no singular effect of regret aversion on investor decision making because the fear of regret may relate to either taking action or not taking action. And that fear may translate into greater risk-taking — or excessive attempts to minimize risk.

Carried on a wave of exuberance and fear of missing out (FOMO), investors may jump on a “hot stock,” even when the purchase is not rationally justified by its underlying fundamentals. Or they may avoid engaging in the market altogether after going through a painful downturn, missing out on typical recovery cycles. Regret aversion can also lead investors to hang on to a poorly performing investment too long, not wanting to lock in losses, even when that’s exactly the decision that’s called for to achieve a better long-term result.

While regret aversion can motivate us to take positive action, such as starting up a fitness routine to avoid regretting the health consequences of not taking care of ourselves years from now, it’s not a sensible approach to making most investment and retirement planning decisions.

 

So, What Can Be Done?

1. Teach participants about regret aversion.

Educate employees about the principles of behavioral finance. Learning to identify and combat faulty thinking can help people make better personal finance and investment decisions. Use real-world examples to provide historical data about bubbles, market recoveries and long-term returns when participants stay invested through down markets.

2. Encourage a rules-based investment decision process.

Fiduciaries are not mandated to produce positive outcomes for participants, only establish and maintain prudent processes regarding their retirement plans. Similarly, employees should focus on establishing and adhering to a sound investment decision-making approach rather than trying to see around every corner along the way.

3. Foster an attitude of acceptance.

Explain to participants why an investment strategy wholly oriented around the goal of avoiding regret might not yield the results they desire. They should understand that taking on some degree of risk is inherent in pursuing higher returns. Encourage trust in the process and acceptance that logging some losses along the way is an expected part of it.

4. Leverage regret aversion to encourage beneficial investor behavior.

Even with education, you simply can’t completely “deprogram” regret aversion from every participant’s brain. And if it’s going to exert some influence, make sure you use it to foster positive behavior. How will employees feel at retirement if they come up short after delaying plan enrollment, failing to escalate contributions or steering clear of all but the most conservative investments?

 

Bottom Line

We’ve all had situations in life when we did the “right” thing but didn’t get the result we wanted. Just because an investment decision didn’t pan out doesn’t necessarily mean that it was a “bad” one. No one has a crystal ball. And we shouldn’t abandon sound principles just because they can’t promise success 100% of the time.

Regret is natural. And it can even be helpful when it motivates us to make better future decisions. Regret in itself isn’t the problem — the excessive fear of regret is.

It may be useful to reframe the concept of a “mistake” for participants as succumbing to fear as opposed to trusting the sound strategy you’ve established together to achieve their retirement goals. In the end, the best way to help participants may be to teach them to regret fear — as opposed to fear regret — when it comes to making investment decisions.

 

Sources

https://www.researchgate.net/publication/7645216_Regret_and_Its_Avoidance_A_Neuroimaging_Study_of_Choice_Behavior

https://thedecisionlab.com/biases/regret-aversion/

SELF-DIRECTED BROKERAGE ACCOUNTS + TO ADD TO YOUR PLAN OR NOT: THAT IS THAT QUESTION

Participants may be attracted to self-directed brokerage accounts (SDBAs) because of the seemingly infinite choice of investment options. While it’s tempting to please these often-vocal employees, much consideration should be given when contemplating an SDBA option for your qualified retirement plan. There are several fiduciary issues your committee should discuss, decide, and document.

 

Outside Advisors

The impetus for the interest may be that participants want to take advantage of the advice from an outside advisor with the intention of giving them access to the account to make trades. If so, the advisor may be said to perform as a discretionary investment manager. ERISA Section 3(38) requires the plan sponsor to enter into an agreement with the advisor, as well as monitor the advisor’s actions.

 

“Unsuitable” Investments

The plan sponsor could be exposing themselves to an ERISA lawsuit from beneficiaries unhappy their selected advisor was allowed to buy investments “unsuitable” for retirement plans such as illiquid investment options, life insurance, etc. Plan sponsors can attempt to mitigate this risk by limiting what can be purchased via the SDBA account to stocks, bonds, mutual funds, or ETFs.

 

Responsibility to Monitor Fees

The plan sponsor needs to understand the fees associated with the SDBA and determine their reasonableness. Just because the participant elects to utilize an SDBA account does not mean the plan sponsor has abdicated responsibility for ensuring costs are reasonable.

 

Plan Sponsor Relief

Remember, plan sponsors have safeharbor protection under ERISA Section 404(c) which states that the participant has assumed control over their account by electing to invest via the SDBA. However, 404(c) relief is lost if the investment options pose an imprudent risk of loss. In addition, there are over 50 subsections to 404(c) that must be met to achieve the safeharbor protection. Noncompliant fiduciaries are accepting liability for whatever investments decisions the participant makes within an SDBA account. And ERISA Section 404a-5 still applies to SDBA accounts. The plan sponsor must ensure the participant is receiving an annual disclosure of fees that is accurate. All too often this does not take place with SDBA accounts.

 

Participants Matter Most

An SDBA account can offer plan participants new opportunities to invest for retirement. It’s important though to understand and address the risks associated to avoid mistakes that could harm your employees’ long-term financial future.

PARTICIPANT CORNER: WHAT IS ROTH AND WHAT DOES IT MEAN FOR ME?

When you hear Roth 401(k), Roth IRA, or just Roth, this is generally referring to a specific type of tax benefit your savings may receive. You pay taxes on Roth contributions for the taxable year in which they are made. “Traditional” contributions typically means that your contributions were taken out of your paycheck on a pre-tax basis. In other words, you’re going to pay taxes on that money in a later year. Many plans offer an option to make Roth contributions. Also, most plans do not just offer one or the other, you typically have the option to make both, or either, type of contribution!

 

Here are some things to consider when choosing between making traditional or Roth contributions:

Growth

Traditional

When you withdraw the funds at retirement, you will be paying income taxes on the entire amount, the initial contribution, and the investment growth.

Roth

If you meet certain timing rules, no tax is owed on the growth upon distribution. You already paid taxes when you contributed the original amounts to the plan, and the investment growth will accumulate tax-free.

 

Tax Savings

Traditional

You receive a current tax benefit. By making these contributions pre-tax, your taxable income will be reduced, lowering the taxes you owe that year.

Roth

Does not provide current tax savings.

 

At Distribution

Traditional

When you have reached retirement age and start taking distributions, this will be treated as taxable income. This will be comprised of both your initial contribution and the growth.

Roth

Again, if you have met certain timing requirements, you will not owe any taxes on distribution.

 

Things to Consider

Individuals in current low tax brackets may benefit more by paying the taxes up front with a Roth contribution. Also, if you’re a young investor, the account has much more time to grow and avoiding taxes on this growth could prove to be very favorable.

If you are looking to save money on current income taxes, a traditional contribution accomplishes this goal by deferring taxation until distribution.

Your tax bracket may also be a factor to consider when making this decision. If you believe that you will be in a lower tax bracket at retirement, you may want to pay taxes then, and choose traditional.

Don’t forget that you may have the option to do both! You may want to split your contribution up between the two types of contributions, thereby accruing some tax assistance today while also lessening your tax hit upon distribution.

DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial (“Lutz”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a Lutz client, please remember to contact Lutz, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Lutz shall continue to rely on the accuracy of information that you have provided.

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What Investors Can Learn From Sports Betting + Financial Market Update + 10.12.21

What Investors Can Learn From Sports Betting + Financial Market Update + 10.12.21

FINANCIAL MARKET UPDATE 10.12.2021

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

WHAT INVESTORS CAN LEARN FROM SPORTS BETTING

A major criticism that active stock-pickers levy against a broadly diversified approach is something I’ll call the ‘no losers rule.’ Proponents of active stock-picking contend that if you are fully diversified, you are forced to own all companies, including the unattractive ones. Through their careful analysis, these managers claim the ability to improve returns, in part, by identifying and excluding those bad companies. Admittedly, this argument appears to be extremely compelling. Unfortunately, this claim ignores some key features of the stock market, which essentially eliminates its usefulness.

To understand why this is the case, let’s consider the example of college football betting. Each week there are dozens of games where an avid football fan could confidently predict the winner. There are usually even a handful of games where a casual fan could do so. Let’s look at an example. In early September, the Alabama Crimson Tide hosted the Mercer Bears. Anyone with a pulse knew Alabama was going to win that game. If you wanted to bet on Alabama to win with even odds, you would have had a tough time finding someone to take the other side. To encourage gamblers to bet against the favorite, the sportsbooks can adjust the odds. Through this process, the favorite is handicapped to the point where the expected payoff is roughly even regardless of which team the bettor selects.

There are a variety of ways to handicap a matchup, including the use of a point spread. The spread was set at 54 points for the Mercer vs. Alabama game. For a bettor to make money on Alabama, they didn’t just have to win; they had to win by more than 54 points. That’s a high hurdle to clear, even for a team like Alabama.

Source: Covers.com

While Alabama was the obvious choice in a straight-up contest, simply knowing which team was better was not enough to help you make money. The betting markets updated the odds and, therefore, the expected payoff of the decision. The clearly superior Alabama program won the game but did not cover the spread, losing money for anyone that went with the favorite.

The stock market is loaded with Mercer Bears. These companies are nowhere near as good as the Crimson Tides of the business world (Apple, Amazon, Google, etc.). They might be slower growing, less profitable, less scalable, and/or more capital intensive. Frankly, you’ve probably never even heard of them. That does not mean these ‘losers’ are bad investments, however. Like the sportsbooks in Vegas, the stock market is an incredibly efficient handicapping mechanism. Through changes in price, the market can ensure every company appears to offer a reasonable return on equity given their degree of exposure to a variety of risk factors.

Investors bid up the price of popular stocks. In doing so, the bar is raised on the results those companies must deliver in order to justify their price. Similarly, as investors shun the ‘losers,’ their price can fall to the point where even mediocre results can lead to a stellar return. An active stock picker cannot hope to achieve superior results by simply identifying the best and worst companies for the same reason a bettor won’t win simply by knowing who the best and worst teams are. What matters are the spreads on the games and the prices of the stocks. Neither is likely to be exactly right, but they do represent the best possible estimates at any point in time.

WEEK IN REVIEW

  • Last Friday, the Bureau of Labor Statistics published its updated jobs report for the month of September. For the second month in a row, the number of new jobs added in the economy disappointed. Nonfarm payrolls increased by 194k vs. expectations of 500k. The figure was held lower by a 123k decrease in government jobs, mostly attributable to public schools. The unemployment rate fell to 4.8% from 5.2%, reflecting a combination of the payroll increase as well as people dropping out of the labor force.
  • Earnings season is slated to kick off this week for S&P 500 companies. After nearly doubling on a YoY basis last quarter, investors will be looking for continued growth to justify elevated equity market valuations. According to the WSJ, analysts are expecting a 28% growth rate for the 3rd quarter. Investors will be paying close attention to the degree that rising input costs and supply chain bottlenecks are pressuring margins.
  • Notable data to be published this week includes inflation data and the minutes from the last FOMC meeting on Wednesday, jobless claims and producer prices Thursday, and finally retail sales, consumer sentiment, and business inventories on Friday.

ECONOMIC CALENDAR

Source: MarketWatch

HOT READS

Markets

  • September’s Jobs Creation Comes Up Short With Gain of Just 194,000 (CNBC)
  • A Record 4.3 Million Workers Quit Their Jobs in August, Led by Food and Retail Industries (CNBC)
  • IMF Cuts Global Growth Forecast Amid Supply-Chian Disruptions, Pandemic Pressures (WSJ)

Investing

  • Two Stories From Nature That Teach Us a Few Things About Investing (Morgan Housel)
  • An SEC Rule Was Meant to Protect Individual Investors. Chaos Ensued. (WSJ)
  • Reading the Tea Leaves Why Technical analysis is dumb (Jonathan Clements)

Other

  • A Huge Subterranean ‘Tree’ Is Moving Magma to Earth’s Surface (Wired)
  • How to Remember What you Read (Farnam Street)
  • 1 Billion TikTok Users Understand What Congress Doesn’t (The Atlantic)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + CHIEF INVESTMENT OFFICER

Josh Jenkins is the Chief Investment Officer at Lutz Financial. With 12+ years of relevant experience, he specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership as well as analytics and operational efficiency for the Firm's Financial division. He lives in Omaha, NE.

AREAS OF FOCUS
  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading System Operation & Execution
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

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What Investors Can Learn From Sports Betting + Financial Market Update + 10.12.21

The Fed Announcement Explained + Financial Market Update + 9.28.21

FINANCIAL MARKET UPDATE 9.28.2021

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

THE FED ANNOUNCEMENT EXPLAINED

Last week was headlined by the Federal Reserve announcement that followed the September meeting. There were several developments that came from the official post-meeting statement and press conference that have been in the news. Today we’ll break down and provide some background on a few of the larger storylines.

Rates Left Unchanged

As expected, the committee left its benchmark federal funds rate (FFR) unchanged. The FFR is the primary tool used by the Federal Reserve for setting monetary policy, representing the rate at which commercial banks can borrow or lend their excess reserves to each other on an overnight basis. As a part of the Federal Reserve’s accommodative monetary policy response to the COVID-19 pandemic, the FFR has been set to a range of 0.00% – 0.25% since March of 2020. The chart below provides some historical context to this benchmark rate. A few things to notice:

  • The nearly 20% rate level in the 1980s as the Federal Reserve battled high inflation
  • The prolonged period of near 0% interest rates following the Financial Crisis of 2007-08
  • The gradual trend higher beginning in 2015, before ultimately falling back to the zero-bound during the pandemic

Something that tends to confuse people is how the financial media discusses interest rate moves daily, despite the Fed leaving rates unchanged near zero for the last 18 months. There are a couple of nuances to understand with this. First, short-term interest rates, in general, are heavily influenced by the FFR but fluctuate due to changes to supply and demand in the marketplace. Additionally, they are often higher than the FFR to reflect a premium to compensate the lender for additional liquidity and credit risks. Long-term interest rates are also impacted, although less directly. Long-term rates can be thought of as short-term rates plus an additional premium to compensate the lender for the longer term, lower liquidity, the potential difference in credit quality, and risk of inflation.

 

The Dot Plot

Once a quarter, the Federal Reserve publishes its Summary of Economic Projections (SEP), which reflects the median forecast of the committee members for a variety of economic variables. The table below summarizes the current estimates vs. the previous ones published in June. The revisions were generally unfavorable for the current year (2021):

  • Real GDP was lowered
  • The unemployment rate was increased
  • Inflation was increased

Summary of Economic Projections. Source: Federal Reserve, released 9/22/2021. 1) For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the average of the two middle projections. 4) Longer-run projections for Core PCE inflation are not collected.

 

Although the GDP growth rate was revised lower for this year, it was increased for both 2022 and 2023. The projected path of the federal funds rate was also revised, with the median estimate now calling for the first hike to come in 2022 as opposed to the previously estimated 2023. The expectation that rate hikes may come sooner was likely related to the sharp increase in the inflation estimate. Though the inflation estimate returns toward the Fed’s 2.0% target by 2022, it seems the high inflation readings of the past few months have proved more persistent than what the Fed originally expected. The projected path of the FFR is better illustrated in the ‘Dot Plot’ below.

Source: Federal Reserve, released 9/22/2021

Note that while the market tends to fixate on the Dot Plot, Fed Chair Jerome Powell frequently cautions against putting too much weight on the estimates. He contends the figures represent individual forecasts, some of which are made by non-voting members of the committee and do not reflect an actual plan by the committee. I would expect these warnings from Powell are largely ignored by the market. The expectation that rate hikes may be coming sooner could be the catalyst for the roughly 0.20% increase to the 10-year Treasury yield that has occurred over the last week.

 

Fed Taper Coming Soon

In March 2020, the Federal Reserve launched a quantitative easing (QE) program to provide additional stimulus above and beyond lowering the FFR to 0.00% – 0.25%. This program consisted of the Fed purchasing $80 billion of Treasury bonds and $40 billion of mortgage-backed bonds each month. The goal of the program was to put additional downward pressure on longer-term interest rates by introducing additional demand for bonds of longer maturities through their purchases. Similar programs were used following the Financial Crisis of 2007-08.

When the Federal Reserve went to unwind the previous QE program in the Spring of 2013, the market was caught off guard. As a result, long-term interest rates shot dramatically higher over the remainder of the year, and the episode of volatility was dubbed the ‘taper tantrum.’ This time around, the Fed took extra efforts to ensure it was providing enough forward guidance to allow the market to price in changes to the program in a more orderly fashion.

For the entirety of 2021, the Fed has suggested that it will continue its pace of purchases until “substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” In the post-meeting statement released last week, the Fed added language stating, ‘moderation in the pace of asset purchases may soon be warranted.’ Shortly after the release of the official statement, Chairman Powell gave his customary post-meeting press conference, saying, “the purpose of that language is to put notice out that that could come as soon as the next meeting.”

The general expectation is that the Fed will begin steadily reducing the amount of bonds it purchases each month until the program is eliminated by the middle of next year. The Fed has suggested that they would not begin to increase rates until bond purchases were completely halted and that the bar for raising interest rates is much higher than it is for tapering. Still, given the dot plot, it may not be unreasonable to expect rate increases as early as the second half of next year.

WEEK IN REVIEW

  • The main event last week was the conclusion of the Fed meeting. The FOMC voted to leave its benchmark fed funds rate unchanged, they signaled the beginning of tapering soon, and the dot plot revealed that two additional committee members penciled in at least one rate hike in 2022, which bumped the median estimate up to one hike for the year from none.
  • Data published on Monday showed that new orders for durable goods rose a healthy 1.8% in August, which was higher than expectations. Business investment used in the calculation for GDP comes from the shipments of non-defense capital goods excluding aircraft figure, which grew 0.7% in August. Business investment is on pace to be a nice tailwind for GDP in Q3 and is currently growing at an annualized 8.6% rate vs. the previous quarter.
  • Other notable economic data to be published this week includes jobless claims and the next revision of Q2 GDP on Thursday. On Friday, we will see realized inflation, expected inflation, manufacturing activity, and consumer sentiment. Typically the jobs report is published on the first Friday of every month. Since this month’s 1st Friday is on 10/1, the publication has been pushed back to the following week to provide time to compile the report.

ECONOMIC CALENDAR

Source: MarketWatch

HOT READS

Markets

  • US Core Capital Goods Orders, Shipments Rise Strongly in August (CNBC)
  • Congress Must Raise Debt Limit By Oct 18, Treasury Secretary Yellen Warns in New Letter as Default Looms (CNBC)
  • Fed Chair Powell to Warn Congress that Inflation Pressures Could Last Longer than Expected (CNBC)

Investing

Other

  • Much of What You’re Going to Do or Say Today is Not Essential (Farnam Street)
  • Justin Tucker and the Data Behind the NFL’s Record 66-Yard Field Goal (WSJ)
  • Everything Amazon Announced – Including a Cute Security Robot (Wired)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Do you want to receive financial market updates in your inbox? Sign up here! 

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + CHIEF INVESTMENT OFFICER

Josh Jenkins is the Chief Investment Officer at Lutz Financial. With 12+ years of relevant experience, he specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership as well as analytics and operational efficiency for the Firm's Financial division. He lives in Omaha, NE.

AREAS OF FOCUS
  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading System Operation & Execution
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

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Build Back Better Act + Impact on High Net-Worth Family Estate Planning

Build Back Better Act + Impact on High Net-Worth Family Estate Planning

 

LUTZ BUSINESS INSIGHTS

 

build back better act + impact on high net-worth family estate planning

joe hefflinger, director & investment adviser

 

Last week, the House Ways and Means Committee released its proposal to pay for the $3.5 trillion Build Back Better Act. While the potential legislation contains a wide array of adjustments to the tax code, this post will focus more directly on the proposed changes that could impact your estate planning. For further context on these issues and a general overview of how our estate laws work, see my previous post here:  https://www.lutz.us/high-net-worth-families-review-estate-plans-pre-election/).

It’s important to note that if a bill ultimately gets passed, it may look materially different from the provisions I will highlight below. Also, it’s essential to understand that time could be of the essence. While some of the changes wouldn’t go into effect until January 1, 2022, certain crucial planning tools that your estate attorney would likely want to implement before year-end could be rendered ineffective as of the date of the bill’s passage (which could technically happen at any time now). The outcome is uncertain at this point; those with a high net-worth (in this case, I’m referring to couples with a net worth approaching $20 million or greater or individuals approaching $10 million) should be reviewing options with their estate attorney now.

 

Key Estate Changes Proposed by the House Ways and Means Committee

Decrease in the Estate/GST and Gift Tax Exemption

The current transfer tax exemptions are $11.7 million per person in 2021 ($23.4 million per couple). Under current law, those exemptions are scheduled to “sunset” and decrease to $5 million each adjusted for inflation on January 1, 2026. The recent proposal accelerates this to January 1, 2022, meaning they will roughly be cut in half next year to approximately $6 million per person (or $12 million per couple) adjusted for inflation.

 

Valuation of “Non-Business Assets”

It’s currently common when transferring an interest in a closely held business for estate purposes to discount the value based on a lack of control and a lack of marketability. This approach will still be available for interests in operating (active) businesses but not for family entities funded with marketable securities (passive assets). This change would apply to transfers made on or after the date the new law is passed.

 

Income Taxation of Grantor Trusts

Much of the sophisticated planning done by estate attorneys to help clients minimize estate taxes has centered around the use of grantor trusts. These trusts allow you (the grantor) to transfer assets that are removed from your estate while also allowing you to continue to pay the income taxes associated with the trust’s assets on behalf of the trust beneficiaries (without counting as a gift). Because the grantor is still treated as the owner of the trust for income tax purposes (but not for estate tax purposes), transactions between the trust and the grantor are “disregarded.” This means assets can be sold or exchanged with the trust, and the trust can pay interest on low-interest notes owed to the grantor without triggering any income tax consequences.

The recent proposal would cause any gain inherent in an asset sold to a grantor trust to be recognized and thus create taxation (where under current law, there would be none). In addition, it’s common for a grantor to “swap” assets of equal value with other trust assets in a transaction that is typically disregarded for income tax purposes. The recent proposal would seem to create a taxable event in this scenario. These changes would apply to grantor trusts created on or after the date the new act is passed.  Existing grantor trusts would be “grandfathered,” but future contributions to existing trusts would not be.

 

Estate Taxation of Grantor Trusts

Under the proposal, any portion of a grantor trust’s assets that a person is the “deemed owner” will be included as a part of their taxable estate. Any distribution from a grantor trust will be treated as a taxable gift (with limited exceptions). Lastly, if a trust’s grantor status is terminated during the grantor’s lifetime, the assets will be treated as being gifted at that time by the grantor.

These three provisions effectively render most grantor trusts useless for estate planning purposes. This potentially impacts (subject to future clarification) some of the most useful estate planning techniques commonly employed by estate planners, namely intentionally defective grantor trusts (IDGTs), grantor retained annuity trusts (GRATs) and spousal lifetime access trusts (SLATs), each of which is discussed in more detail below. As outlined above, the effective date for these changes to grantor trusts would be the date of bill passage, and grandfather status would be allowed for existing trusts.

 

Irrevocable Life Insurance Trusts (ILITs)

ILITs are designed to ensure that a life insurance death benefit is not subject to estate tax and are typically structured as grantor trusts. Existing ILITs would be grandfathered, but it would appear that future contributions to ILITs for purposes of paying insurance premiums could cause some of the death benefit to be included in the estate. This would be a major limitation on the usefulness of ILITs going forward if not carved out from the final bill.

 

Relief for Farmers

One of the positive changes in the proposal is a welcome change for those in the farming community. Current law allows property used in farming to be valued based on “use” (typically a lower value) and not its true market value, but the downward adjustment is limited to $750,000. The proposal would allow a downward adjustment of up to $11.7 million.

 

Notable Changes Not Included in the Recent Proposal (but still could be)

Increase in the Estate and Gift Tax Rates

The current proposal leaves the estate and gift tax rates at 40%. It had been speculated that a return to the 45-55% range we’ve seen in the past 10-20 years was possible.

 

Change in the Basis Rules at Death

Under current law, your heirs will typically receive any assets you leave them upon your death with a “stepped-up basis,” meaning they get to hold those assets with a basis equal to their fair market value on the date of your death. At various times, factions in DC have floated the idea of eliminating the basis step-up at death (meaning heirs would take a lower carryover basis instead) or alternatively the realization of capital gains at death (meaning the deceased individual’s estate would owe capital gains tax on appreciated assets at death). This could obviously be a major complication for your heirs if you hold assets with a large amount of appreciation. As of now, these changes are not included in the proposal.

 

Estate Moves High Net-Worth Families Should be Considering Right Now

Given the potential estate law changes that could be made effective as soon as a bill passes, what estate updates should high net-worth families be evaluating now? Here are a few to consider:

 

Outright Gifts

If the estate and gift exemptions are reduced next year, you could miss out on a great opportunity to pass a large amount of wealth free of tax. To lock in the use of the current larger exemption this year, you’d need to be in a position to have at least one spouse transfer upwards of $11.7 million out of their estate. Even if you’re not comfortable gifting that full amount, gifting a lower amount would still be effective in removing that reduced amount and any future appreciation out of your estate.  These types of outright gifts are commonly made to irrevocable trusts (often grantor trusts) for the future benefit of your children and/or grandchildren. Treasury Regulations from 2019 indicate that transfers covered under an individual’s exemption in the year of transfer can’t be “clawed back” later at their death if the exemption has subsequently been reduced.

 

SLATs

If the thought of transferring that amount of wealth outright this year makes you uneasy, talk to your estate attorney about a spousal limited access trust (SLAT). If structured correctly, SLATs can potentially allow for trust distributions of the transferred assets back to the transferor’s spouse during their lifetime. You wouldn’t go down this route if you expected to need the funds in the future. However, if there is some type of unexpected financial hardship down the road, it can be comforting to know that you have the ability to access the funds again (indirectly through your spouse) if needed. Obviously, the possibility of a future divorce or the premature death of the spouse beneficiary needs to be considered.  SLATs are typically grantor trusts and will be impacted under the current proposal.

 

Estate “Freeze” Techniques

If you aren’t comfortable making a large outright gift, an estate freeze may be a better fit for you. A freeze transaction has the net effect of removing the future appreciation of an asset (above a predefined “hurdle” rate established by the IRS) from your estate. There are several different structures to accomplish this. Some of which involve transferring assets to a trust in exchange for a promissory note equal to the fair market value of the assets sold. The transfer to the trust can be structured as either a sale or a gift (or some of each), depending on whether you want to use up some exemption (and if so, how much).

Two of the more common freeze structures are IDGTs and GRATs (referenced above). Your estate attorney can highlight the key differences between each and examine the appropriate fit for your situation. Both IDGTs and GRATs are typically grantor trusts and can be powerful tools under current law, especially in a low-interest-rate environment where the hurdle rate that the transferred asset has to beat is so low. These tools can also be leveraged even further if you have an asset to transfer whose value can be discounted when transferring for estate purposes (as discussed above).

Keep in mind, however, that the ability to use SLATs, GRATs, IDGTs and some discounts could be rendered ineffective as of the date a new bill is passed (which could come at any time now).

 

Call Your Estate Attorney Today

So, what does all of this mean to you? If your personal balance sheet is approaching the $20 million range or greater for couples ($10 million for individuals), it means you should at least be reaching out to your estate attorney and other advisors now to discuss what impact these potential changes could have on your personal planning. If you are uncertain about what amount of assets you can transfer and still have enough left over to comfortably live on, we at Lutz Financial can do a cash flow analysis to help you better answer that question. From a timing perspective, keep in mind that high-level estate planning of this nature usually takes some time to complete (and your attorney will likely already be busy due to high demand). Whether you ultimately decide to make any estate updates now or not, it’s essential that you at least talk to your advisors and understand your options. If you have any questions, please feel free to contact us.

Important Disclosure Information

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.

ABOUT THE AUTHOR

402.827.2300

jhefflinger@lutzfinancial.com

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JOE HEFFLINGER, JD, CFP®, CAP® + DIRECTOR & INVESTMENT ADVISER

Joe Hefflinger is an Investment Adviser and Director at Lutz Financial. With 15+ years of relevant experience, he specializes in comprehensive financial planning and investment advisory services for professionals, business owners, and retirees. He lives in Omaha, NE, with his wife Kim, and daughters Lily and Jolie.

AREAS OF FOCUS
  • Retirement Cash Flow Planning
  • Insurance Planning
  • Estate Planning
  • Business Owner Exit Planning
  • Charitable Planning
  • Tax Planning
AFFILIATIONS AND CREDENTIALS
  • National Association of Personal  Financial Advisors, Member
  • Financial Planning Association, Member
  • Nebraska State Bar Association, Member
  • Omaha Estate Planning Council, Member
  • CERTIFIED FINANCIAL PLANNER™
  • Chartered Advisor in Philanthropy®
EDUCATIONAL BACKGROUND
  • JD, Creighton University School of Law, Omaha, NE
  • BS in Economics, Santa Clara University, Santa Clara, CA
COMMUNITY SERVICE
  • Partnership 4 Kids - Past Board Member
  • Omaha Venture Group, Member
  • Christ the King Sports Club, Member

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What Investors Can Learn From Sports Betting + Financial Market Update + 10.12.21

Panic Selling + Financial Market Update + 9.21.21

FINANCIAL MARKET UPDATE 9.21.2021

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

PANIC SELLING

Equity markets have been under pressure recently, with the S&P 500 closing lower in nine of the thirteen trading sessions so far in September. While the Index is only about 4% from a recent record-high, volatility tends to make investors antsy. As Mike Tyson famously said, ‘everyone has a plan until they get punched in the mouth.’ A recent research paper published by a group of MIT professors analyzed the propensity of investors to engage in ‘Panic Selling’(1). The conclusions of the paper are worth considering in light of recent market gyrations.

The study looked at the trading patterns within 600,000 individual brokerage accounts belonging to just under 300,000 households during the period between 2003 to 2015. The goal was to derive some insight into panic selling by individual investors, which they defined as a decline of 90% of a household account’s equity assets over the course of one month, where at least half of the decline was due to trading. Below are the main takeaways from the research.

Driven by Volatility

About 9% of the households analyzed panic sold during the period of analysis. The study showed that while panic sales occurred regularly over the thirteen-year observation period, they were overwhelmingly clustered around episodes of heightened volatility in the stock market.

Demographics of Panic the Sellers

Certain individual characteristics suggested a higher likelihood of panic selling. These include:

  • Male
  • Older than 45
  • Married
  • High number of dependents
  • Self-declared high level of investing experience/knowledge

These characteristics likely do not come as a surprise. Other behavioral studies have shown that men tend to struggle with overconfidence more so than women(2). Older investors may be closer to retirement and, therefore, might be more concerned about their portfolio’s ability to quickly recoup losses suffered in a downturn. The most interesting characteristic was the high level of investing experience and knowledge. This group apparently knew just enough to be dangerous, as they were substantially more likely to panic sell than the investors with limited/no investing experience/knowledge.

Panic Selling Hurt Performance

The study showed that when timed well, selling risky assets in the early stages of a large market downturn did, in fact, protect investor capital. The problem with this, however, is that it is impossible to know when you are in the early stages of a large downturn. Consequently, the median investor in the study earned a negative return following their panic sell. Interestingly, rather than being a function of exiting the market at the wrong time, most of the underperformance was due to waiting too long to get back into the market. In fact, nearly a third of the investors that panic sold in the study never reinvested in the stock market.

As we discussed (here), volatility is a normal and healthy feature of the market. Historically the S&P 500 has experienced a 5% or greater drawdown about three times per year on average. Thus far, in 2021, we have not had one. While we do not know if the current bout of volatility will take us there, rest assured there will be more 5%+ drawdowns in the future. This study serves as a good reminder that investors are best served by tuning out the noise and sticking with their long-term plan.

1. Elkind, Daniel and Kaminski, Kathryn and Lo, Andrew W. and Siah, Kien Wei and Wong, Chi Heem, When Do Investors Freak Out?: Machine Learning Predictions of Panic Selling (August 4, 2021). Available at SSRN: https://ssrn.com/abstract=3898940 or http://dx.doi.org/10.2139/ssrn.3898940

2. Brad M Barber and Terrance Odean. Boys will be boys: Gender, overconfidence, and common stock investment. The Quarterly Journal of Economics, 116(1):261–292, 2001.

WEEK IN REVIEW

  • This week will be headlined by the conclusion of the FOMC meeting Wednesday afternoon. The official committee statement will be released at 1 CT, followed shortly thereafter by a press conference by Chairman Jerome Powell. The consensus is that the Fed will leave interest rates unchanged at the zero-bound. What there is less agreement on is whether or not the Fed will announce its intention to begin ‘tapering’ its bond purchase program. There generally seems to be some agreement that they will begin to scale back purchases this year.
  • In addition to the press release, the Fed will publish its Summary of Economic Projections and the dot plot (which it does at the conclusion of every other meeting). The market pays close attention to the dot plot, as it illustrates each individual committee member’s expected path of interest rate movements over the next few years. The median estimate is often viewed as a proxy for the Fed’s expected path of interest rates (something that Powell repeatedly cautions against). The June dot plot surprised investors as two committee members penciled in two 0.25% hikes in 2023, despite no expected hikes per the March dot plot.
  • Other economic data to be published this week includes flash PMIs, jobless claims and the Index of Leading Economic Indicators on Thursday. Additionally, on Friday, several Fed officials are slated at various public speaking events.

ECONOMIC CALENDAR

Source: MarketWatch

HOT READS

Markets

  • Retail Sales Post Surprise Gain a Consumers Show Strength Despite Delta Fears (CNBC)
  • China’s Embattled Developer Evergrande is on the Brink of Default. Here’s Why It Matters (CNBC)
  • Powell’s Taper Tightrope Could Be Complicated by Fed ‘Dots’ (WSJ)

Investing

Other

  • For the Three- and Four- Point Stance: Is This the End of the Line? (SI)
  • iOS 15 Is Here: The iPhone Software Update’s Small Tricks Make a Big Difference (WSJ)
  • Why You’ll fail the Milk Crate Challenge (Wired)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

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JOSH JENKINS, CFA + CHIEF INVESTMENT OFFICER

Josh Jenkins is the Chief Investment Officer at Lutz Financial. With 12+ years of relevant experience, he specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership as well as analytics and operational efficiency for the Firm's Financial division. He lives in Omaha, NE.

AREAS OF FOCUS
  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading System Operation & Execution
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

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FORM CRS RELATIONSHIP SUMMARY

October Retirement Plan Newsletter 2021

September Retirement Plan Newsletter 2021

 

LUTZ BUSINESS INSIGHTS

 

PUBLISHED: SEPTEMBER 20, 2021

SEPTEMBER RETIREMENT PLAN NEWSLETTER

WHEN IT COMES TO FINANCIAL WELLNESS... THE TIME IS NOW

While one could say it’s always a good idea to focus on well-being of any type — whether that’s physical, mental, or financial wellness — there’s perhaps never been a more important time to help employees improve their financial literacy, behaviors, and resilience than right now.

 

More workers under greater financial strain.

It would be difficult to overstate the overarching impact that the pandemic has had on the financial lives of American workers. Sadly, many are struggling under increased budgetary and inflationary pressures, which can put retirement readiness at risk — or out of reach altogether. And while lately it may feel like COVID-19 exerts an uncontrollable influence on daily life, personal finance is one area where plan sponsors can help foster a greater sense of agency for plan participants through robust financial wellness programming. Financial wellness education and services that respond to the evolving needs of a changing workforce can help increase participation rates, enhance retirement readiness, bolster emergency savings, and reduce 401(k) loans.

 

Increased emotional and physical strain.

Fears for the health of themselves and loved ones, social isolation, changes in work and personal routines and even decreased access to preventive care due to fear or financial pressures can put workers’ emotional and physical health at risk. And just when a transition to post-pandemic life seemed around the corner, new concerns have emerged with worrisome variants. The connection between mental and physical health is well established, especially as mediated by the effects of stress on the body — and anything employers can do to reduce stress can only help their workers in this regard. Responsive financial wellness programs designed and implemented to meet the needs of all employees can help reduce stress and improve morale. And an added benefit to employers can be a reduction in health care costs and fewer missed days of work.

 

Tightening job market.

When businesses shuttered or were restricted during the pandemic, the demand for labor understandably dropped. But now that companies are hiring once again, the labor force participation rate has remained stubbornly low over the last few months, remaining unchanged at 61.6% in June — and down from 63.3% before the pandemic. Rising wages suggest heightened competition for qualified workers. Companies are doing all they can to attract and retain top talent during the “Great Resignation” — and offering a robust retirement plan and comprehensive financial wellness programming can help organizations do just that.

WellCents can help both sponsors and retirement plan participants weather the storm that COVID-19 has brought, and which now appears to be lingering on our shores. There are few events in history with such widespread national impact as the pandemic. With a greater proportion of employees under stress and in need, a program like WellCents that boasts an average utilization rate of 35% to 75%, compared to rates in the 1% to 2% range of comparable programs, can make all the difference. There’s no better time than now to help your employees establish and maintain their financial health for today — and for whatever the future may hold.

 

Source

https://www.nytimes.com/2021/07/02/business/economy/jobs-economy-covid.html

THREE WAYS TO STRENGTHEN YOUR RETIREMENT PLAN COMMITTEE

Retirement plan committees aren’t required by ERISA, but they can be extremely beneficial nonetheless — especially for larger plans. And if they’re constructed and operated appropriately, they can even help in the event a sponsor is sued. Depending on the size of the plan, some organizations split up committee responsibilities into investment oversight, administration, and settlor functions. But no matter how you structure them, here are three ways to make retirement plan committees a more effective tool for your organization.

 

1. Ongoing fiduciary training and education.

Fiduciary committee members take on significant risk for their service. And even though there are no specific job titles or requirements to participate on a retirement plan committee per ERISA — such as being a financial or human resources officer, it’s vital that committee members be prudently appointed and that only individuals qualified for the role take on this responsibility. They should have an understanding of ERISA fundamentals and the workings of retirement plan structures and operations. But perhaps most importantly, members must have a commitment to working solely for the interests of plan participants and beneficiaries. The functioning of the committee can be further strengthened with ongoing continuing education on fiduciary responsibility and training to keep members abreast of any regulatory or other ERISA, DOL or IRS changes that could impact the retirement plan they oversee. Schedule regular training — perhaps quarterly — and consider fiduciary liability insurance to provide an added layer of protection for members, whose performance should be closely and regularly monitored.

 

2. Retirement plan committee charter and documentation.

Documentation is a key for fiduciaries. Many advisors will take minutes that record agenda items for each meeting, which might include a review of areas such as investment performance, plan fees and documents such as the investment policy statement or form 5500. Additionally, any recommended changes or amendments to the plan — or its providers — should be documented along with the processes that led to such changes. The minutes should be reviewed and approved by the committee members and records retained. And while ERISA does not mandate a retirement plan committee charter, it’s considered a best practice to use one to document who possesses delegated fiduciary functions. The charter can also be used as part of a legal defense in the event of a lawsuit.

 

3. Committee member diversity.

As with other leadership groups in your company, the retirement plan committee should reflect the diversity within your organization. Representation in terms of age, ethnicity, culture, socioeconomic background and gender can help ensure the committee understands the needs and concerns of all the participants and beneficiaries in whose interests they’re entrusted and obligated to act — and how best to serve, educate and communicate with them. Including first-line workers as opposed to only members of your C-suite can be particularly useful when it comes to appreciating the perspectives of employees with greater financial need or those who are not (or are under-) participating in the plan. And for individuals who don’t possess fiduciary education or experience, be sure to limit committee responsibilities to an advisory role that does not involve direct decision-making.

Assembling a qualified, representative and responsive retirement plan committee — well equipped with a comprehensive charter and ongoing fiduciary training — can be a highly effective tool to help plan sponsors discharge their fiduciary duties to plan participants and beneficiaries.

 

 

Sources

https://401kbestpractices.com/best-practices-for-401k-committees/

https://sponsor.fidelity.com/pspublic/pca/psw/public/library/manageplans/establishing_fiduciary_committee.html

https://401ktv.com/retirement-plan-committee-charter-required-fulfill-fiduciary-duties/

https://www.plansponsor.com/in-depth/improving-retirement-plan-committee-diversity/

https://www.plansponsor.com/in-depth/establishing-retirement-plan-committee/

BENEFICIARY OF UNINTENDED CONSEQUENCES

Upon becoming eligible to participate in your company’s 401(k) plan, participants are asked to select investments, contribution rate and to indicate a beneficiary designation. This is obvious and it is likely that an application would not be accepted unless this information was completed. What is often less obvious is the need to update beneficiary designation in event of significant life changes acknowledging that their 401(k) assets may not then coincide with the terms of a will addressing other assets.

Not changing the designation when appropriate may at the least subject your intended beneficiaries to the inconvenience and distress of the probate process and likely delay distribution of assets. Identifying and updating participants’ beneficiaries for 401(k) plan assets can ensure a smooth transition of 401(k) assets to the people who need them in their absence.

This issue is often manifest in the event participants become divorced and eventually remarry. They may know to update their will and contact their life insurance company to change their beneficiary so that the new spouse will be entitled to their assets upon their death, but often people neglect to update their 401(k) plan beneficiary. In this event, their 401(k) plan assets may go to their former spouse because they neglected to update their 401(k) beneficiary designation form.

In order to avoid these potential negative experiences, encourage participants to periodically review their 401(k) beneficiary designation forms, especially if they’ve had major family changes since they set up or last updated their beneficiary designation.

PARTICIPANT CORNER: SCHOOL IS NOW IN SESSION!

Let’s check if you’re preparing for retirement and review the following items we’ve listed below.

Contribute to your Retirement Plan

It is imperative to keep track of your retirement plan and set aside a percentage of your income. It’s recommended to save at least 10% of your income for an enjoyable retirement.

Assign or Update Beneficiaries

A critical part of having a retirement plan is to assign the accounts beneficiaries. It’s important to periodically check or update the account after major life events like the death of a spouse, marriage, divorce, etc.

Familiarize yourself with your Company Offerings

Does your company offer long-term care insurance and/or healthcare plans? It’s a good idea to be familiar with their benefits and frequently check to see what new perks they offer.

Be Aware of Cyber Security

Cyber-attacks are common and should be recognized by retirement plan participants to ensure their information is safe. It’s essential to frequently update your passwords and educate yourself on cyber security.

DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial (“Lutz”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a Lutz client, please remember to contact Lutz, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Lutz shall continue to rely on the accuracy of information that you have provided.

For more important disclosure information, click here.

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