April Retirement Plan Newsletter

April Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

APRIL RETIREMENT PLAN NEWSLETTER

TEN REASONS TO ROLL OVER INTO YOUR PLAN VERSUS AN IRA

 TEN REASONS TO ROLL OVER INTO YOUR PLAN VERSUS AN IRA

Do you have employees in a prior employer’s retirement plan? Should they transfer these assets to a personal IRA or into your employer-sponsored retirement plan?

Review the pros and cons of an individual retirement account (IRA) versus consolidating into the current retirement plan with your employees to help them make this decision.

 

  1. Performance results may differ substantially.

As an institutional buyer, a retirement (401(k), 403(b), 457, etc.) plan may be eligible for lower cost versions of most mutual funds. Cost savings with institutional share classes can be considerable and can have significant impact on long-term asset accumulation.

One recent study by the Center for Retirement Research indicated that the average return retirement plan participants experienced was nearly 41 percent greater than other investors. Share class savings likely contributed to this result.

 

  1. The IRA rollover balance may be too small to meet minimum investment requirements.

Many of the low expense mutual fund share classes available to investors outside of retirement plans have minimum investment requirements in excess of $100,000. Some are $1 million or more. As a result, the average retirement plan participant who rolls a balance into an IRA may not have access to certain investments and/or will often end up investing in one of the more expensive retail share classes.

 

  1. IRA investment advisors may not be fiduciaries.

In a 401(k) or 403(b) plan (and even many 457 plans), both the employer and the plan’s investment advisor may be required to be a fiduciary. This means that investment decisions they make must be in the best interests of plan participants. This is the golden rule of fiduciary behavior and if not explicitly followed can lead to heavy economic impact to those organizations.

A non-fiduciary IRA broker or advisor is not necessarily required under law to act in the client’s best interests, and as a result, there is the possibility that their recommendations may be somewhat self-serving.

 

  1. Stable value funds are not available.

While money market funds are available to IRA investors, they do not have access to stable value funds or some guaranteed products that are only available in qualified plans. Historically money market fund yields have often been below that of stable value or guaranteed interest fund rates.

 

  1. IRAs typically apply transaction fees.

Many IRA providers require buy/sell transaction fees on purchases and sales. Retirement plans typically have no such transaction costs.

 

  1. Qualified retirement plans (like 401(k), 403(b), and 457) offer greater protection of assets against creditors.

Retirement plan account balances are shielded from attachment by creditors if bankruptcy is declared. In addition, retirement balances typically cannot be included in any judgments.

7. Loans are not available in IRAs.

Loans from an IRA are not allowed by law, unlike many qualified retirement plans which may allow for loans. Although we do not generally recommend participants take loans from their retirement plan, as they may hinder savings potential, some individuals prefer having such an option in the event they run into a financial emergency. Also, as a loan is repaid through payroll deduction, participants pay themselves interest at a reasonable rate.

 

8. Retirement plan consolidation is simple and convenient.

It is easier and more convenient for participants to manage their retirement plan nest egg if it is all in the same plan rather than maintaining multiple accounts with previous employers or among multiple plans and IRAs.

 

9.Retirement savings via payroll deductions are convenient and consistent.

The convenience of payroll deductions is very helpful for consistent savings and achieving the benefit of dollar cost averaging.

 

10. For present retirement saving strategies retirement plans can provide greater savings than IRAs.

The law allows you to make a substantially larger contribution to many retirement plans than can be saved with an IRA.

Although personal circumstances may vary, it may be a good idea for participants to roll over their balance in a former employer’s retirement plan into your current plan rather than an IRA. It could be a mutually beneficial decision as your plan’s assets will grow and your employees’ savings potential will not be as limited as with an IRA.

 

About the Author, Michael Viljak

Michael joined RPAG in 2002 and has over 30 years of experience in the retirement plan industry, on both the wholesale and retail levels, focusing on retirement plans ever since their inception in 1981. Michael has an interest in fiduciary-related topics and was part of the team that created RPAG’s proprietary Fiduciary Fitness Program. He also authors many of the firm’s newsletter articles, communication pieces and training modules.

LOSS AVERSION AND FIGHTING FEAR

Loss aversion sounds like a good thing — trying to avoid losing. What could be wrong with that? Unfortunately, if taken too far, it can actually be a threat to retirement plan participants’ long-term financial health. Loss aversion is the tendency to prefer avoiding potential losses over acquiring equal gains. We dislike losing $20 more than we like getting $20. Yet, this common bias can come with a heavy cost.

Excessive risk avoidance can hurt participants when, for example, it keeps their money out of the market and tucked away in low-risk, low-interest savings accounts — where purchasing power can be eroded by inflation over time. Delaying enrollment in an employer-sponsored retirement plan due to fear of market downturns can cripple opportunities for future growth.

Loss aversion can also lead to undue stress and anxiety. Participants stay invested, but worry constantly, which can create health and other problems. Finally, it can result in short-sighted decision making, causing participants to jump ship during volatile and down markets rather than staying in for the long term. All these things can greatly compromise retirement preparedness.

Fortunately, the fact that people are susceptible to loss aversion doesn’t mean they have to succumb to it. It’s especially important not to during periods of high market volatility. Here are five things you can recommend your participants do to fight the fear.

  1. Understand it. Merely knowing about and identifying loss aversion tendencies can give greater insight and conscious control over decision making. Your participants should consider the potential consequences of loss aversion before making important financial decisions.
  1. Take the long view. Maintaining a long-term outlook on markets can be helpful. Let your participants know they should look at historical trends and how investments have performed over extended periods of time. Otherwise, it’s just too easy to get caught up in the latest financial fear mongering on the nightly news.
  1. Don’t obsess. Recommend setting limits on how frequently your participants check the performance of their portfolios and limiting consumption of financial news reporting. If the daily ups and downs of the stock market make their stomachs turn, suggest trying to limit reviews to quarterly performance reports instead.
  1. Get an outsider’s perspective. Your participants should consider speaking with your advisor — someone with more experience and greater objectivity. Participants tend to get very myopic when it comes to their own finances; it can help to seek out the advice of experts when they may be losing perspective.
  1. See the big picture. Take a balanced view of the overall economy, which comprises a lot more than stock market performance. Factors like increased growth, low unemployment and low interest rates are all favorable economic indicators during periods of volatility.

No one likes to lose, that’s for sure. It’s perfectly normal to prefer upswings over downturns, but the lesson is to not let fear take hold when it can compromise financial decision making and hurt long-term best interests.

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

Hey Joel,

Should we consider life insurance in our retirement plan? – Beefin’ up my plan in Buffalo

Hey Beefin’,

I’m not a fan of having this type of “investment” within a retirement plan.  I often explain my position by asking a client what the purpose of their retirement plan is.  Most will answer that it is a vehicle that helps their participants save towards retirement at or around age 65. When you introduce insurance into the plan, you are increasing your fiduciary liability by offering a product that in most cases becomes an important investment after retirement.  In other words, you’re introducing a product that is designed to assist during the payout period, which could be measured in 10-20 years (or more) beyond when they actually worked for you.  You have to monitor the insurance product, just like a mutual fund.  If it doesn’t perform well, as a fiduciary, you may have to choose an alternative.  In addition the credit worthiness of the insurance provider can come under question, and this can happen many years after introducing the product. This becomes problematic if participants have accrued a benefit in an insurance product that they may lose if a change takes place. If a mutual fund has an issue it is very easy to change.

I do feel there is a place for insurance for many people, but let them do it outside of their retirement plan.  Once that money leaves the plan, it is no longer a concern of fiduciaries.

One of the benefits of having life insurance in the plan is that it provides a “floor” value for a participant’s account that can limit the impact of market downturns. The fees are so high though, that the investments score a watch-list amount. Performance is mediocre at best. Those that offer it often see the exposure it adds to their plan –  sometimes their outside counsel also will have concerns, sometimes the plan sponsor must consider a freeze of this and no longer allow participants to add to the product and sometimes they experience poor service with their recordkeeper, who is also the insurance provider, and this is limiting their ability to find a new recordkeeper.  If the plan sponsor leaves, they may force participants to cash out of this. These companies may use this to lock in a client and it becomes difficult to do anything different.

There are other plan design alternatives you may discuss with your plan advisor to beef up your plan in other ways.

 

Pumpin’ up plan sponsors,

Joel Shapiro

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: TAX SAVERS CREDIT REMINDER

This month’s employee memo reminds participants about the annual tax savers credit. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

You may be eligible for a valuable incentive, which could reduce your federal income tax liability, for contributing to your company’s 401(k) or 403(b) plan. If you qualify, you may receive a Tax Saver’s Credit of up to $1,000 ($2,000 for married couples filing jointly) if you made eligible contributions to an employer sponsored retirement savings plan. The deduction is claimed in the form of a non-refundable tax credit, ranging from 10% to 50% of your annual contribution.

Remember, when you contribute a portion of each paycheck into the plan on a pre-tax basis, you are reducing the amount of your income subject to federal taxation. And, those assets grow tax-deferred until you receive a distribution. If you qualify for the Tax Saver’s Credit, you may even further reduce your taxes.

Your eligibility depends on your adjusted gross income (AGI), your tax filing status, and your retirement contributions. To qualify for the credit, you must be age 18 or older and cannot be a full-time student or claimed as a dependent on someone else’s tax return.

Use this chart to calculate your credit for the tax year 2019. First, determine your AGI – your total income minus all qualified deductions. Then refer to the chart below to see how much you can claim as a tax credit if you qualify.

 

FILING STATUS/ADJUSTED GROSS INCOME FOR 2019

Amount of Credit

Joint

Head of Household

Single/Others

50% of amount deferred $0 to $38,500 $0 to $28,875 $0 to $19,250
20% of amount deferred $38,501 to $41,500 $28,876 to $31,125 $19,251 to $20,750
10% of amount deferred $41,501 to $64,000 $31,126 to $48,000 $20,751 to $32,000

 

For example:

  • A single employee whose AGI is $17,000 defers $2,000 to their retirement plan will qualify for a tax credit equal to 50% of their total contribution. That’s a tax savings of $1,000.
  • A married couple, filing jointly, with a combined AGI of $39,000 each contributes $1,000 to their respective company plans, for a total contribution of $2,000. They will receive a 20% credit reducing their tax bill by $400.

With the Tax Saver’s Credit, you may owe less in federal taxes the next time you file by contributing to your retirement plan today!

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.

RECENT LUTZ FINANCIAL POSTS

Best Practices for Plan Fiduciaries

Are you offering a competitive retirement plan? In this webinar, Chris Wagner of Lutz Financial covers the step by step process for making fiduciary decisions and administering…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

March Retirement Plan Newsletter

March Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

MARCH RETIREMENT PLAN NEWSLETTER

DEPARTMENT OF LABOR ISSUES RELIEF GUIDANCE FOR VICTIMS OF CALIFORNIA WILDFIRES

Department of Labor Issues Relief Guidance

The U.S. Department of Labor (DOL) recently issued benefit plan guidance and relief for plans and participants affected by the 2018 California Wildfires.  The DOL recognizes that plan sponsors and participants may be affected in their ability to achieve compliance with various regulatory requirements.  The guidance generally applies to all parties involved in employee benefit plans located in areas identified by FEMA as disaster areas, listed here:  www.fema.gov/disasters. 

The guidance provides relief from procedures related to plan loans and loan repayment, distributions, contributions and blackout notices.  In general, the DOL will not take enforcement actions if plans follow the guiding principle to act reasonably, prudently and in the best interests of workers and families who rely on the plans for their economic well-being. 

Specific guidance is offered in certain areas:

  • Loans and Distributions: Plan sponsors must make a good faith effort to follow procedural requirements under the plan, but the DOL will not assist with requirements and if unable, make a reasonable attempt to assemble any missing documentation as soon as practicable.
  • Participant Contributions and Loan Repayments: The DOL recognizes that some employers in these disaster areas may not be able to forward amounts withheld from employee wages within prescribed timeframes.  Employers are required to act reasonably, prudently and in the interest of employees and comply with the regulations as soon as practicable.  The DOL will not take enforcement action if timelines were not met solely due to the 2018 California Wildfires, in the FEMA-identified areas. 
  • Blackout Notices: Generally, 30 days’ advance notice is required when a participant’s rights under a plan will be temporarily suspended, limited or restricted due to a blackout period.  The DOL regulations provide an exception to this requirement when the inability to provide notice within the required timeframe is due to events beyond the plan sponsor’s or fiduciary’s control. 

The full DOL fact sheet can be found here.  Your advisor is available to answer any questions you may have or help you determine practical approaches to meeting fiduciary duties and requirements. 

 

About the Author,Bill Tugaw

Bill specializes in public sector 457(b) deferred compensation, 403(b) and 401(a) defined contribution plan consulting. He is a faculty instructor for the International Foundation of Employee Benefit Plans (IFEBP) on Public Sector 457(b), 401(a) and 403(b) plans.  Bill earned a Bachelor of Science degree from the W.P. Carey School of Business at Arizona State University and is co-author of two books: Deferred Compensation / Defined Contribution: New Rules / New Game for Public and Private Plans and Defined Contribution Decisions: The Education Challenge.

VISUALIZE RETIREMENT | WHAT ARE YOUR PARTICIPANTS SAVING FOR?

All too often, retirement planning success is measured purely by financial metrics: savings amounts (15 percent per year), income replacement ratios (75 percent of preretirement income), or withdrawal strategies (4 percent per year). And the most critical part of planning for retirement is forgotten: the plan itself.

 

Put another way: how can an employee know how much money they’re going to need in retirement if they don’t know what they’re saving for?

74% of 50-59-year-olds have made a serious effort to plan for financial aspects of retirement.

Only 35% of 50-59-year-olds have made a serious effort to prepare for the emotional aspects of retirement.

Visualize Retirement addresses the one planning need that many pre-retirees don’t even know they have: preparing for the nonfinancial side of retirement.

 Three key areas that studies and actual retiree responses, indicate are key drivers of happiness in retirement are:

1. LIFESTYLE: how participants will spend their time in retirement (family, leisure, travel, work, etc.).

Workers’ Vision for Retirement:

  1. 70% want to travel
  2. 57% want to spend time with family and friends
  3. 50% want to pursue hobbies
  4. 30% say they want to work

 

2. HEALTH CARE: how participants want to give and receive needed care.

Concern About Personal Events:

Concern About Personal Events Chart

 

3. MEANING: how participants will create a sense of purpose fulfilment.

Following almost 1,000 people, a study found that people with “high purpose” were:

  • 4x Less Likely to be afflicted with Alzheimer’s
  • Less Likely to develop mild cognitive impairment
  • Less Likely to develop disabilities or die young

 

 Benefits for Plan Sponsors

Workforce Management Flexibility:

  • Large amounts of time, money and resources go to offer and maintain benefits programs that help prepare employees for the next phase of their lives (retirement plans, company matching money, physical/financial wellness programs, healthy incentive programs).
  • What happens when the employee – due to a lack of emotional and psychological preparedness – doesn’t end up retiring?
  • That backlog can create recruitment and retention issues – as younger talent may seek opportunities elsewhere if A) there is no “foot in the door” position open, or B) they see minimal opportunities to advance internally.

 

Food for thought: Even if widespread workforce management issues are not prevalent, consider the type of employee that may have a difficult time moving on: the “career-minded executive” whose identity is wrapped up in their achievements and stature within the organization.

Long-term Cost Mitigation:

  • As a workforce’s age and tenure increase, so do the costs related to keeping that employee
  • An aging demographic – many of whom may not be emotionally prepared to retire – could impact organizational costs such as increased health care, payroll, or worker’s compensation.

To learn more about the Visualize Retirement program and plan sponsor and participant resources associated with it, please contact your plan advisor. The monthly participant memo companion piece to this newsletter is the Visualize Retirement workbook that helps participants visualize their retirement and define their purpose in retirement.

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

Hey Joel,

My client wants to conduct an RFP for an ERISA attorney, what are important questions they should include? – Questioning the Expert

Hey Questioning,

While it is a somewhat unusual step to formally RFP for an ERISA counsel search, it can be a good exercise to ensure your client finds the best fit for their organization. Note, ERISA counsel typically does act in a fiduciary capacity in providing legal advice, so selection of ERISA counsel would likely not engender the same fiduciary scope as selection of an advisor, record-keeper or TPA. Fees, if paid out of plan assets, have to be reasonable, but that can be difficult to determine as legal fees can have an incredible variance.

All that said, here are a few excellent questions to assist the client in identifying ERISA counsel who will be a good fit:

  • Do you require a retainer? If so, what is the required amount? Does it need to be replenished on a regular basis, or is it just an initial engagement requirement?
  • What is your hourly fee?
  • Do you provide project-based fees? If so…
    • What falls into the scope of a project?
    • How are scopes determined?
    • How are scopes tracked to ensure the original quote is met?
  • What services do you anticipate will be included on an ongoing basis on an annual basis? What do you project the cost to be?
  • What issues do you commonly see arise with plans of similar size and design that require legal assistance? Please provide an estimate of cost for legal work for each.
  • Who in your firm will provide the work on our engagement? Please list all attorneys, paralegals, and anyone else whose time might be billed to us with their bio and their potential/anticipated role on our engagement.
  • Please provide three referrals for three clients who sponsor plans of a similar size and complexity.

The Expert,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: VISUALIZE RETIREMENT WORKBOOK

Visualize Retirement Image

This month’s employee memo is from our partner, T. Rowe Price, and gives participants a questionnaire so they can determine their priorities for retirement. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

Retirement planning is both a financial and nonfinancial process. You may have received financial resources from your employer or financial advisor. But putting money aside now for a future date may be more meaningful to you if you have a good idea of what you’re saving for. This workbook is intended to help you visualize your retirement.

Retirees defined a personal retirement vision as follows¹: 50% said, “Working with my spouse/partner to define what we want in retirement”; 46 percent said, “creating a picture of what my retirement lifestyle could be”; 42 percent said, “defining how I would like to receive required health care in retirement”; and 32 percent said, “defining my purpose in retirement.”

 

1. Rank this list in the order of who you spend the most time with today. (1=most)

  •  Family/Household
  • Friends
  • Work/Former Work Colleagues
  • Social Groups (Clubs, Sports, Worship)
  • Neighbors/Community/Volunteerism
  • Other:

2. Now, reorder this list based on who you think you will spend the most time with in retirement.

  • Family/Household
  • Friends
  • Work/Former Work Colleagues
  • Social Groups (Clubs, Sports, Worship)
  • Neighbors/Community/Volunteerism
  • Other:

3. Who will be on your wellness support team in retirement, meaning who will provide you with care if needed?

  • Spouse/Partner
  • Siblings
  • Children
  • Other family members
  • Friends
  • Other:

4. Whose wellness support team do you anticipate being on, meaning, to whom will you provide care if needed?

  • Spouse/Partner
  • Siblings
  • Children
  • Other family members
  • Friends
  • Other:

Next Step: What can you do today to ensure you have the social and support network you will need in retirement?

5. Rank this list in the order of how you spend your time now (1=most)

  • Work
  • Leisure/Fun Activities
  • Physical Activities/ Exercise
  • Kids/Parents/Grandkids
  • Pets
  • Social
  • Learning/Education
  • Religious/Spiritual
  • Travel
  • Other:

6. Now, reorder this list based on how you plan to spend your time in retirement.

  • Work
  • Leisure/Fun Activities
  • Physical Activities/ Exercise
  • Kids/Parents/Grandkids
  • Pets
  • Social
  • Learning/Education
  • Religious/Spiritual
  • Travel
  • Other:

7. What activities will you pursue in order to have a vibrant retirement? (choose all that apply)

  • Exercise Regularly
  • Eat Well
  • Manage Your Weight
  • Be Proactive About Preventative Care With Doctors
  • Adopt a Positive Mindset
  • Learn New Things to Keep Your Mind Sharp
  • Engage With Others Socially
  • Do Mental Exercises
  • Spend Time With Family and Friends
  • Do Nice Things for Yourself (“Pampering”)
  • Other

Next Step: What changes can you make today so that you can spend your time in retirement doing what you want/need to do

8. Rank the following factors in deciding where to live in retirement. (1=most important)

  • Closeness to Family
  • Climate
  • Urban/Suburban/Rural
  • Access to Local Resources (Culture, Education, Recreation, Spiritual)
  • Cost of Living
  • Low Crime
  • Access to Good Health Care
  • Proximity to Work
  • Peaceful/Beautiful Location(s)
  • Access to Public Transportation
  • Social Access
  • Other

9.When you think about your primary home in retirement, what’s most important to you? (choose all that apply)

  • Stay in Your Current Home
  • Downsize
  • Upsize
  • Low Maintenance
  • Low Cost of Living and/or Taxes
  • Nice Climate
  • Live With Family
  • Live in Planned Community
  • Live in Resort Location
  • Live in College Town
  • Other

Next Step: What can you do now to help you prepare for where you want to live in retirement?

10 When would you like to retire, based on your personal definition of retirement?

  • At age:
  • At Asset Level:
  • In Which Timeframe:
    1. 55 (Early)
    2. 65 (Average)
    3. 75 (Late)

11. What is the primary reason for your expected timing?

  • Financial Readiness
  • Satisfaction With My job
  • Reaching My Intended Retirement Age
  • Want to Start a New Chapter/Do Other Things
  • Health-Related Issues (mine or others)
  • Feeling Personally/Emotionally Ready
  • Becoming Eligible for Government Benefits (Social Security, Medicare)
  • Other

Next Step: What can you do now to prepare to retire when you would like to

12. What provides you with the most fulfillment or meaning in your life today? (1=most)

  • Success In My Job
  • Family Time
  • Staying Healthy and Energized
  • Continuous Learning/Education
  • Traveling to New Locations
  • Nonwork-Related Hobbies
  • Religious/Spiritual Activities
  • Neighborhood/Community Involvement
  • Other

13. Now, reorder this list based on how your sense of fulfillment or meaning may change in retirement.

  • Success In My Job
  • Family Time
  • Staying Healthy and Energized
  • Continuous Learning/Education
  • Traveling to New Locations
  • Nonwork-Related Hobbies
  • Religious/Spiritual Activities
  • Neighborhood/Community Involvement
  • Other

Next Step: What can you do now to help you move towards a future retirement that aligns with what’s important to you?

 

You’ve thought about what and who is important to you today, and how that may change after the initial transition to retirement. Now, write your “dust jacket”: the personal profile of your retired life.

Think about your responses for each section in the workbook and how your rankings changed based on priorities and preferences. Incorporate your action items and key components from your vision that will lead to a happy, fulfilling retirement.

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.

RECENT LUTZ FINANCIAL POSTS

Best Practices for Plan Fiduciaries

Are you offering a competitive retirement plan? In this webinar, Chris Wagner of Lutz Financial covers the step by step process for making fiduciary decisions and administering…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

February Retirement Plan Newsletter

February Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

FEBRUARY RETIREMENT PLAN NEWSLETTER

REPAY STUDENT LOANS OR SAVE IN A RETIREMENT PLAN? WHY NOT BOTH?

Repay Student Loans or Save in a Retirement Plan? Why Not Both?

Many employees feel squeezed to both pay off their debt and save for their future. A recent Private Letter Ruling (PLR) opens the door for employers to help them.

The average student graduating in 2016 has $37,172 in student loan debt.¹ According to the New York Federal Reserve, more than two million student loan borrowers have student loan debt greater than $100,000, with approximately 415,000 of them carrying student loan debt in excess of $200,000.

What do these numbers mean for you? They mean that debt repayment is typically an employee’s foremost priority. It’s not just the newly minted graduates, either – typically, student loan repayment is stretched over 10 years with close to an 11 percent default rate.

In this climate, don’t be surprised when a desired prospective or current employee inquires how you can help them with their priority – debt reduction. Nor should you be surprised when you find that your debt-burdened employees are not using the savings opportunity of their retirement plan. Many employees feel too squeezed to both pay off their debt and save for their future. Those employees are frustrated not only by their lack of opportunity to save early, as is prudent, but also because they frequently miss out on employer matching contributions in their retirement plans.

Some employers are attempting to solve these issues. On Aug. 17, 2018, the IRS issued PLR 201833012. The PLR addressed an individual plan sponsor’s desire to amend its retirement plan to include a program for employees making student loan repayments. The form of this benefit would be an employer non-elective contribution (a student loan repayment contribution, or “SLR contribution”).

The design of the plan in the PLR would provide matching contributions made available to participants equal to 5 percent of compensation for 2 percent of compensation deferred, it includes a true-up. Alternatively, employees could receive up to 5 percent of compensation in an SLR contribution in the retirement plan for every 2 percent of student loan repayments they made during the year. The SLR contribution would be calculated at year-end. The PLR states that the program would allow a participant to both defer into the retirement plan and make a student loan repayment at the same time, but they would only receive either the match or the SLR contribution and not both for the same pay period. Employees who enroll in the student loan repayment program and later opt out without hitting the 2 percent threshold necessary for an SLR contribution would be eligible for matching contributions for the period in which they opted out and made deferrals into the plan.

The PLR asked the IRS to rule that such design would not violate the “contingent benefit” prohibition under the Tax Code. The Code and regulations essentially state that a cash or deferred arrangement does not violate the contingent benefit prohibition if no other benefit is conditioned upon the employee’s election to make elective contributions under the arrangement. The IRS ruled that the proposed design does not violate the contingent benefit prohibition.

All that said, it is important to note that a PLR is directed to a specific taxpayer requesting the ruling, and is applicable only to the specific taxpayer requesting the ruling, and only to the specific set of facts and circumstances included in the request. That means others cannot rely on the PLR as precedent. It is neither a regulation nor even formal guidance. However, it does provide insight into how the IRS views certain arrangements. Thus, other plan sponsors that wish to replicate the design of the facts and circumstances contained in the PLR can do so with some confidence that they will not run afoul of the contingent benefit prohibition.

Companies are increasingly aware of the heavy student debt carried by their employees, and are exploring a myriad of programs they can offer to alleviate this burden. This particular design is meant to allow employees who cannot afford to both repay their student loans and defer into the retirement plan at the same time the ability to avoid missing out on the “free money” being offered by their employer in the retirement plan (by essentially replacing the match they miss by not deferring with the SLR contribution they receive for participating in the student loan repayment program). This design is not meant to help employees accelerate their debt payoff. If that’s your goal, you would have to do so directly into the student loan repayment program – there is no conduit to do so through the retirement plan.

While the IRS ruled in regard to the contingent benefit prohibition, the PLR states definitively that all other qualification rules (testing, coverage, etc.) would remain operative. Thus, if you wish to pursue adding such provisions to your retirement plan, you must take care as you undertake the design.

The facts provided in the PLR were very basic, and the plan design is very basic in that it requires deferral/student loan repayment equal to 2 percent for a 5 percent employer contribution (either match or SLR contribution) with no gradations. This is important because gradations could create separate testing populations for each increment of the SLR contribution plan, since it is a non-elective contribution, not a matching contribution. This could become a nightmare scenario for non-discrimination testing and administration.

Alternatively, to avoid the potential nondiscrimination testing issues, the benefit could be designed to exclude highly compensated employees. However, that still doesn’t alleviate the potential administrative burden placed on your payroll and human resources teams. Most of the debt repayment programs are not yet integrated with retirement plan recordkeepers. That means that administering some of the interrelated elements of the two plans would have to be undertaken in-house.

There are more than a few consequential elements that you should be wary of while exploring opportunities to assist your employees and employment targets. In all cases it is recommended that you involve your retirement plan’s recordkeeper, advisor and even – in some sophisticated design scenarios – outside counsel to make certain they: (1) don’t inadvertently create qualification issues, (2) understand the potential for additional testing and perhaps additional financial considerations of the design; and (3) are prepared for any additional administration the program may require.

This month’s employee memo gives ideas for eliminating student loan debt. Even if you are not yet offering this benefit, the memo offers other practical ideas to assist your employee population with student loan debt.

 

About the Author, Joel Shaprio, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

EFFECTIVE EMPLOYEE EDUCATION

Fiduciary duty requires you to provide your employees and participants with educational opportunities so they can make informed investment decisions.  It’s not always easy to know what your participants need, want or will take advantage of.  Using a simple framework for your educational program may increase the effectiveness of your program.

 

  1. Provide a consistent, ongoing program using a variety of communication mediums. This can include group meetings, podcasts, online tools, one-on-one meetings or other mediums attractive to your participants. 
  2. Vary the content of your program to provide broad education. Content should include plan basics, such as Basic Investing/Getting Started, but may also include topics related to a participant’s entire financial picture – e.g., Saving for College, Estimating Retirement Income Sources and Needs, Health Care Options – and other topics of consideration to a retiree’s financial well-being.  
  3. Offer online and professional advice tools to help retirees determine how much they need to save and how they will invest their contributions.
  4. Fully disclose to participants, in easily understandable terms, information about the fees associated with their different investment options.
  5. Offer participants opportunities to discuss their risk tolerance level, and help them understand how much risk they are willing to take when investing for their retirement.
  6. Consider allowing employees to take advantage of educational opportunities and/or one-on-one meetings during working hours. This helps send a message to employees that their employer values this important benefit and is interested in helping employees prepare for their future.
  7. Survey employees to determine if they find the educational program valuable, are taking advantage of it, what would make it more attractive and other feedback they may have to help continuously improve the program.

 

Every plan and its participant base is different, and there is no one right structure for an educational program. By starting with the above and being willing to modify your program’s offerings according to participant feedback, your educational program will get stronger, you will meet this responsibility and you may even see employee engagement increase!

 

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

Hey Joel,

What are the risks for late 5500 filings? – Tardy in Tallahassee

 

Dear Tardy,

The main risk is the daily penalties that accrue from the IRS and DOL for each day the filing is not submitted past the deadline. There is a process you can go through that reduces the amount of daily penalties, but there is a filing charge associated with this process as well.

The DOL has a good Q&A document about the program for correcting a late filing: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/dfvcp.pdf. Some of the penalty dollar amounts may have changed since this was published as they are adjusted on occasion.

 

Punctual and proud,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: DON'T LET STUDENT LOAN DEBT GET IN YOUR WAY OF FINANCIAL SUCCESS

This month’s employee flyer gives participants ideas to assist in eliminating student loan debt. Download the flyer from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt on the next page.

If you find yourself in a position of not being able to pay off your student loan debt and save for your future, you’re not alone. According to the New York Federal Reserve, more than two million student loan borrowers have student loan debt greater than $100,000, with approximately 415,000 of them carrying student loan debt in excess of $200,000. Here are some steps you can take to help eliminate your student loan debt:

 

  1. Make a Budget

Do you have a budget that you’re following each month? If not, create one today! With a monthly budget you can track where you are spending your money and where you can cut back. Then take your savings and put it towards your student loans!

 

  1. Pay More Than the Minimum 

It’s no secret that paying the minimum each month will not

get you far. By paying more than the minimum you can attack the principal at a quicker rate. Then your loans will be paid off faster.

 

  1. Apply Raises and Tax Refunds to Your Student Loans

When you get some extra dough from a raise or tax refund it may be tempting to run out and spend it. Wouldn’t it be so much more beneficial to put any extra money you receive towards your debt? Doing this will get you to your goal of being debt-free much quicker.

 

  1. Find Out if Your Employer Offers a Student Loan Repayment Program

Last year the IRS issued a Private Letter Ruling stating that companies offering a retirement plan can amend their plan to include a program for employees making student loan repayments. Under this program, employers make retirement plan contributions into the accounts of employees who are making student loan repayments.

 

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.

RECENT LUTZ FINANCIAL POSTS

Best Practices for Plan Fiduciaries

Are you offering a competitive retirement plan? In this webinar, Chris Wagner of Lutz Financial covers the step by step process for making fiduciary decisions and administering…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

January Retirement Plan Newsletter

January Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

JANUARY RETIREMENT PLAN NEWSLETTER

SIX EASY STEPS TO KEEP YOUR PLAN ASSETS SAFE

Six Easy Steps to Keep Your Plan Assets Safe

Cyber fraud is a growing concern globally. Individuals are typically very careful to keep their bank account and email authentication information safe, but they aren’t always smart with the rest of their personal information.

Participants need to be vigilant with their retirement savings accounts as well. In the past year we’ve seen a slew of cases of attempted fraud – some successful – against retirement savings plan participants across a multitude of recordkeepers.

The good news is that virtually all recordkeepers view security as a prominent priority and diligently update their technology. However, their security can only go so far if the participant isn’t being equally vigilant. Educate your plan participants on the following tips to ensure the security of their retirement savings accounts.

 

  1. Use all available levels of authentication. If your plan’s recordkeeper comes out with a new type of authentication, your participants should implement it immediately.
  2. If participants frequent a website or have an account with a company whose website and information has been compromised, they should change all their passwords for all online accounts.
  3. Remind participants to use strong passwords. Utilize letters, capitalization, numbers and symbols. Don’t use recognizable words. Don’t use the same password for multiple purposes. Have the password be at least 14 characters in length. Consider changing passwords frequently. Using a password manager can make this task less unwieldly.
  4. Don’t send authentication information to any third parties, and remind participants to limit authentication access to use on sites which are navigated to independently – not through a link or other prompt.
  5. Check your participants’ accounts frequently and address any irregularities, and remind participants to keep an eye out, too.
  6. Ask participants to immediately contact you if they receive any “updates” that look suspicious so you can notify your recordkeeper.

 

Keep your participants in the know. We recommend sending them the participant memo that is included with this newsletter on the importance of remaining vigilant when it comes to cybersecurity – it’s one of the most important investments your participants can make.

For more information on keeping your plan assets safe from cyberattack, please contact your plan advisor.

 

About the Author, Joel Shapiro

Joel ShapiroAs a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

RECORDS AND THEIR EXPIRATION DATES

“What records should I keep? How long should I keep them? How should I organize my files?”

Advisors have been asked these questions time and time again by plan sponsors looking for a general guideline for record expiration dates.

Record retention doesn’t need to be a mystery, and the filing system doesn’t need to become a tomb. For audits, remember the following requirements.

 

chart 1

 

As for organizing your fiduciary file, we suggest a format that includes the following sections:

chart 2

 

If a participant or DOL agent requested plan information, could you find it quickly? The key is twofold: keep the things you need and store them so you can find them easily.  Of course, these are only general guidelines. For questions about your specific case, contact your plan advisor to discuss best practices for keeping records.

 

About the Author, Joel Shapiro

Joel ShapiroAs a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

Hey Joel,

Will hardship suspensions go away in January 2019? If someone takes a hardship today, do we stop the suspension on Jan. 1 2019? – Anxious in Alabama

 

Dear Anxious,

First, understand that we are all still awaiting further guidance from the IRS/Treasury on the new hardship safe harbor rules. The suspensions don’t so much as “go away” as much as the necessity to suspend deferrals potentially becomes optional. That said, if a plan wants to keep the suspension, I believe they may do so.
The only question would be whether or not the safe harbor remains intact for the plan sponsor. As originally stated, we are still waiting on additional guidance from the IRS/Treasury on whether or not all the new rules would be required, or are just optional, for the safe harbor protection.

 

Also Anxious,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: KEEP YOUR PLAN ASSETS SAFE

This month’s employee memo reminds participants to remain vigilant when it comes to the cybersecurity of their retirement plans. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

You work hard for your money. You wisely choose to defer a portion of your salary for your interests in your retirement years. The plan is designed to help you grow your savings to an appropriate amount of money to support you once you reach your retirement years.

But as you are aware, the plan is only as effective as you make it. If you defer too little or make unwise investment decisions there is a chance that you will not reach your goals. Similarly, if you drain your plan balance over the years, you understand you will find a shortfall in retirement. What many participants do not think about is being responsible for the security of their savings as well.

Cyber fraud has been a growing concern globally for years. Individuals are typically very careful to keep their security measures (passwords, authentication codes, etc.) private with regards to their banking and electronic mail accounts. However, in the past few years, there have been breaches of major companies containing personal information of individuals. And unfortunately, much of the personal information has become accessible by bad actors on the dark web.

Participants need to be vigilant with their retirement savings accounts as well. In the past 12 months, there have been a slew of cases of attempted fraud, some successful, enacted on retirement savings plan participants. And these attempts have occurred across a multitude of recordkeepers. The good news is that virtually all recordkeepers have security as a prominent priority and spend. They are constantly updating their security technology and protocols. But their security can only go so far if the participant is not being equally vigilant.

 

The following are a few prudent tips for participants in ensuring the security of their retirement savings accounts:

  • Use multiple levels of security and authentication – if your plan’s recordkeeper comes out with a new level/type of authentication, engage it immediately.
  • If you frequent a website or have an account with a company, whose website and information has been compromised, change all your passwords. For example, Yahoo recently had a large breach – a breach containing passwords – if you ever had a Yahoo account you should change your password.
  • Make sure your password is strong – utilize letters, capitalization, numbers, and symbols. Don’t use recognizable words. Don’t use the same password for multiple purposes. Have the password be at least 14 characters in length. Consider changing your password on a frequent basis.
  • Never send your authentication to anyone requesting it. It should be limited to use on sites on which you navigated to independently of any outside request.
  • Check your account on a semi-regular basis for any irregularities.
  • Immediately contact your plan administrator and/or the recordkeeper if you receive any update that sparks your concern – do not wait, the money could leave the U.S. quickly.

 

As your employer, we are always looking out for your wellbeing. We trust that the plan is in good hands with our recordkeeper. We have reviewed their cyber security protocols and technology. But we felt a need to provide a gentle reminder that your involvement is crucial in maintaining the security of your account too.

We want your savings experience to be as simple and easy as possible. We want you to someday enjoy your retirement years.

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.

RECENT LUTZ FINANCIAL POSTS

Best Practices for Plan Fiduciaries

Are you offering a competitive retirement plan? In this webinar, Chris Wagner of Lutz Financial covers the step by step process for making fiduciary decisions and administering…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

December Retirement Plan Newsletter

December Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

DECEMBER RETIREMENT PLAN NEWSLETTER

EXCHANGE YOUR OLD RETIREMENT SOLUTIONS FOR NEW ONES

JONATHAN COOMBS, INVESTMENT ANALYST

What is an Exchange?

An exchange is a turnkey solution for businesses that allows you to provide the benefit of a retirement plan while offloading much of the administrative and fiduciary responsibilities at a potential cost reduction. A team of professionals work together on your behalf so you can focus on running your business, not your retirement plan.

 

Retirement Readiness

An exchange is a great way to help your employees reach retirement readiness by providing them with a savings vehicle like a 401(k) plan, but with less administrative burden and by transferring certain risks.

 

Fiduciary Risk Mitigation

The fiduciary has a legal obligation to carry out its plan responsibilities with prudence, good faith, honesty, integrity, service and undivided loyalty to beneficiary interests – in this case, retirement plan participants. When joining an exchange, a fair amount of fiduciary responsibility is taken off your hands.

 

Administrative Relief

Employers oftentimes don’t have the resources to effectively manage the complex requirement of administering a qualified retirement plan. With an exchange all plan administrative duties can be outsourced – a benefit typically only available to very large companies.

 

Cost Effectiveness

There’s strength in numbers. By teaming up with other businesses in an exchange, you can benefit from economies of scale and seamless processing that help reduce the costs associated with operating and maintaining a retirement plan.

 

For more information on exchanges, please contact your plan advisor.

 

About the Author, Jonathan Coombs

Jonathan provides guidance to plan sponsors across the country on retirement best practices regarding fee benchmarking, investment analysis, plan design, fiduciary compliance and participant outcomes. As an asset allocation specialist, Jonathan project manages key business development initiatives in the custom solution arena. He also serves as a fixed income analyst. Jonathan attended The Julliard School, where he obtained a Bachelor of Science in music and a Master of Music.

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

 

Hey Joel,

Should I distribute the Fiduciary Investment Review to plan participants? – Generous in Georgia

 

Dear Generous,

I appreciate your desire to provide detailed information to your plan participants, but hold your horses. While there is nothing legally preventing the sharing of the Fiduciary Investment Review (FIR) with participants, we do not recommend it and, in fact, strongly discourage it. The FIR is designed for delivery to fiduciaries, not participants. This is not only because the fiduciaries are more sophisticated but because the report is better understood (I would even say, only understood) when presented/explained by an advisor that knows the data. The average participant may be alarmed by watchlisted funds and take inappropriate action (i.e., remove them from his/her portfolio when that’s not the recommendation.) Further, we fear that participants will move all their money into the funds scoring 9 or 10 and as you can imagine, doing so would ignore the critical strategy of diversification. Instead of sharing the report itself, I always recommend an employee communication from the plan sponsor. Something like – “Hey employees, the company has met with our plan advisor to review the plan investments and all is doing great. We take the monitoring seriously, we do it regularly and will let you know when/if a change is needed… Until then, don’t forget to join, increase your deferral, diversify, etc, etc.” No need to create alarm unnecessarily.

 

Always here to give advice,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: HOLIDAY BUDGETING

Holiday Ballin' on a Budget

This month’s employee flyer gives participants tips for budgeting during the holiday season. Download the flyer from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

The holidays are a time for giving, but often people can be a little overgenerous during this time of year and later find themselves in financial trouble. Consumer counseling agencies see a 25 percent increase in the number of people seeking help in January and February, mostly by people suffering from an influx of holiday bills.¹

Here are our top tips for saving money during the holiday season:

1. Create a Holiday Budget
Monthly Income – Monthly Expenses = Your Holiday Budget
Make a list of everyone you will buy for and how much you will spend on each person, then stick to it!

2. Pay with Cash
When you pay with cash, you can get a better handle on how much you’re spending. You’re forced to stick to your budget, because you can’t spend cash you don’t have!

3. Pay with Gift Cards
There are websites and stores where you can purchase gift cards at a discounted price. Shop with them and you’re automatically saving money. Shop for items on sale or at a discount store and save even more money!

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.

RECENT LUTZ FINANCIAL POSTS

Best Practices for Plan Fiduciaries

Are you offering a competitive retirement plan? In this webinar, Chris Wagner of Lutz Financial covers the step by step process for making fiduciary decisions and administering…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

November Retirement Plan Newsletter

November Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

NOVEMBER RETIREMENT PLAN NEWSLETTER

HOW AND WHEN TO PAY PLAN EXPENSES WITH PLAN ASSETS

How and when to pay plan expenses with plan assets

TOM BASTIN, JD, LLM, AIF, CEBS, MANAGING DIRECTOR, SOUTHEAST REGION

Some retirement plan expenses can be paid for with plan assets — but many can’t. Which are the “reasonable and necessary” retirement plan expenses that can be paid out of plan assets?

Generally, services required to maintain the plan’s compliance and administration can be paid from plan assets. Obvious examples include the annual nondiscrimination testing and preparation of the annual Form 5500. Another example is a plan amendment or restatement that is required because of a legislative change.

Optional services generally cannot be paid out of plan assets. One clear example is costs for projections that are optional and benefit the company, not the plan participants.

Some service fees may not be easy to classify. Fees for resolving plan corrections — such as delinquent deferral remittances or contributions determined with a definition of compensation not supported in your plan document.

In the event of an incorrect test result, regardless of who was at fault, the law ultimately holds the plan sponsor responsible for the proper maintenance of the plan. As a result, the plan sponsor cannot shift the financial burden for the corrections to the plan.

All in all, it’s perfectly acceptable and common to charge reasonable and necessary transaction-based and record-keeper administrative fees to participants. However, it is critical to ensure that similarly situated participants are treated the same. It would be discriminatory and, therefore not allowed, for non-highly compensated employees to pay administrative fees while highly compensated employees did not.

If you are unsure whether a specific fee can be paid from plan assets, please contact your advisor. We’ll happily talk through the particulars of your situation to help you arrive at an appropriate decision.

 

About the Author, Tom Bastin

Tom BastinTom uses his expertise in plan design, administration, recordkeeping, compliance, investment analysis, fee analysis, vendor benchmarking, fiduciary governance and participant education to help plan sponsors and participants reach their retirement goals. PlanAdvisor ranked Tom one of the “Top 100 Retirement Plan Advisers” in 2013 and 2015. Financial Times ranked him one of the “Top 401 Retirement Advisers” in 2015. Tom earned a Bachelor of Arts at Purdue University, a Juris Doctor at Nova University and an LL.M. in Taxation Law from the University of Miami.

 

DON'T LET YOUR RETIREMENT PLAN TURN FROM BENEFIT TO LIABILITY

A retirement plan is important to your business — and to all the employees relying on it for income later in life. However, mistakes and confusion can turn retirement plans from an attractive benefit into a liability.

A properly administered retirement plan avoids unnecessary costs and administrative problems, and ultimately mitigates liabilities for plan fiduciaries. The IRS recommends periodic plan reviews as part of proper administration and recently released a short bulletin with helpful tips and information about how to create and implement a retirement plan check-up.

A plan checkup should include a review of your plan documents and communications. A comprehensive review will confirm that the plan’s current terms are being administered correctly and that the current plan language still makes sense and isn’t unnecessarily limiting based on practical administrative considerations.

Unintentional fiduciary breaches typically involve administration issues like delinquent deferral remittances, a definition of compensation that’s inconsistent with the definition expressed in the plan document, missed participant notifications or misinterpreted eligibility provisions (such as confusing “hours of service” with “elapsed time”).

These errors can be time-consuming and costly to resolve — but when recognized early, it’s easier and less costly to resolve them. The IRS and the DOL offer voluntary correction programs to help you. Under certain circumstances, a company may self-correct administrative errors internally without informing the IRS, based on their self-correction program.

There is no substitute for proper administration of your retirement plan, but some document language is cryptic. Accidents can go unnoticed, and most plans can benefit from assistance in interpretation to ensure proper administration of the provisions in their plan document.

A second perspective can be invaluable. For assistance reviewing your plan, please contact your advisor.

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

 

Hey Joel,

Can I avoid an audit by splitting my employees into two plans? – Fingers Crossed in Florida

 

Dear Florida,

There are some organizations out there promoting this approach. Here is the problem: There is no regulation indicating a situation in which two separate plans would be acceptable so you can avoid an audit. There are plenty of regulations regarding control groups, affiliated service groups, etc., indicating this is not acceptable. Upon audit by either the IRS or DOL you have zero guarantee they won’t disallow all 5500s filed without an audit subjecting both companies to penalties (IRS $25 per day, DOL $1,100 per day) for late filing since no audit was included. Both the IRS and DOL will ask questions pertaining to ownership of all entities by the owners of the company that is audited. In other words, they are going to discover there is a second plan.

In addition, under the Prudent Man Standard of Care you will need a strong reason for separating plans and exposing participants to higher costs as a result (all the 403(b) fee lawsuits center around record-keeper consolidation in order to achieve cost savings in addition to fund consolidation to obtain lower cost share classes). Thus, I would not go this route receiving a legal opinion the plan sponsor can rely upon given the potential for thousands of dollars of fines. The legal opinion should be made out to the plan sponsor and not the TPA or advisor marketing the approach. The plan sponsor needs someone they can turn around and sue when this blows up on them.

 

Uncrossing Fingers,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: TIPS TO WEATHER A TURBULENT MARKET

Tips to Weather a Turbulent Market

This month’s employee memo reminds participants that market volatility is normal and provides tips on steps they should be taking in both up and down markets. Download the flyer from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

With the recent market volatility, it’s understandable that you may be concerned about your investments. Volatile markets can make you wonder if you’re on track to meet your retirement goals. Don’t be discouraged and most of all, don’t panic. Instead, be proactive! Consider the following steps you should be taking in both up and down markets:

  1. Review Your Portfolio. Know your investment mix and be sure you are invested in the appropriate asset classes (based on your risk tolerance and time horizon to retirement). Times like these reinforce the need to diversify (while diversification does not guarantee against loss of principal, it can help spread your risk among different asset classes and market segments).
  2. Check Your Contribution Rate. How much you contribute each month can directly impact how much you will have at retirement. Have you done a retirement needs calculation? Do you know how much you should be contributing each month to reach your goal? Are you increasing that amount each year or more often based on your income and age?
  3. Rebalance. This will readjust your portfolio back to your original investment strategy attempting to “sell high and buy low.” Essentially, when you rebalance, you tend to sell some appreciated assets and purchase others with lower valuations. Regular rebalancing (as a rule of thumb, at least once a year) may increase the overall return of your portfolio over time.
  4. Consult with a Professional. Don’t go it alone. Financial planning resources are available through our retirement plan advisor.

Remember, staying invested in times of market turbulence will help you participate fully in potential market gains. While there is never any certainty in the market, it is worth noting that some of the sharpest market declines were followed by steep rebounds. History has taught us that volatility is to be expected. The implications surrounding the current turmoil should call on plan participants to focus on what they should otherwise be doing on a regular basis.

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.

RECENT LUTZ FINANCIAL POSTS

Best Practices for Plan Fiduciaries

Are you offering a competitive retirement plan? In this webinar, Chris Wagner of Lutz Financial covers the step by step process for making fiduciary decisions and administering…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850