September Retirement Plan Newsletter 2020

September Retirement Plan Newsletter 2020

 

LUTZ BUSINESS INSIGHTS

 

PUBLISHED: SEPTEMBER 22, 2020

SEPTEMBER RETIREMENT PLAN NEWSLETTER

GOOD NEWS 401(K)

 T. Rowe Price did a deep dive into its recordkeeping data and surfaced with a few important points.

Its “Reference Point Report is an annual client data benchmarking report so plan sponsors can review trends and benchmark their progress and participant behavior across the firm’s client base… ‘We continue to see the importance and significant impact plan design and financial wellness programs have on keeping participants on track with their financial priorities’ by John Sullivan, Editor-In-Chief “

  • Plan participation was greater than 79%
  • Over 61% of plans at Rowe Price automatically enroll participants, with 37% enrolling at a 6% default deferral
  • Average account balances rose to over $100,000, an increase of 8%, although over 34% of eligible participants did not contribute to their plans in 2019
  • Employers are increasing match formulas from 3% to a 4% to 5% effective match rage
  • Direct rollovers of plan assets increased to 76% in 2019 from 74% in 2018
  • Lower rates for cash-out distributions and loans
  • Participant usage of loans decreased in 2019 to 22.1%, down from the seven-year high of 24.9% in 2013, but the optional loan provisions included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act could change that trend
  • Allocations to company stock investments increased more than 11%

For more information on 401(k) participant behavior and plan design trends, see the article in 401k Specialist.

MORE GOOD NEWS

Scoring the Progress of Retirement Savers, a recent report by Empower, shows that the median projected income replacement among participants in our study was 64%. In other words, Americans are on track to replace 64% of their current income in retirement.

“Plan sponsors can take several steps to help facilitate savings within a plan. The first is automatic enrollment. We find an 11-point difference in median income replacement percentages between participants who enrolled automatically versus those who opted into the plan. The difference may reflect an important benefit of auto-enrollment: Many participants begin saving earlier in their tenure, because enrollment begins as soon as they are eligible.

A second feature that correlates with higher median income replacement is auto-escalation. Our survey found that people who participate in a plan with this feature achieve a median retirement income replacement of 107%, a full 27 percentage points higher than participants in plans without it.”

For more information, read Empower’s report on Scoring the Progress of Retirement Savers.

HAVE YOU EVER CONSIDERED OFFERING A PHASED RETIREMENT PROGRAM?

Phased retirement includes a range of flexible retirement approaches that would allow employees approaching normal retirement age the option to reduce the hours worked while phasing into complete retirement.

For employees, phased retirement may be seen as a benefit by many older workers. It allows them to gradually ease into retirement while maintaining a higher income than they would receive if they quit work entirely. It could also help employees prepare for greater retirement readiness.

“Changes in Social Security have made it easier for recipients to continue working after reaching full retirement age without losing their benefits; Americans are living longer, which means that retirees will need greater financial resources to support themselves. In 2020, the IRS allows for $18,240 of income per individual before affecting social security benefits (before reaching full retirement age).”* For employers, phased retirement programs can be used to retain skilled older employees who would otherwise retire.

Employers can benefit from tenured employees knowledge and experience while reducing employer payroll and benefits costs. These employees may want to continue to make a meaningful contribution to your company, while working reduced hours. This concept may involve employees working remotely. During the Covid-19 pandemic, many workers are already becoming comfortable working remotely, and employers in some industries may derive continued benefits of a partially remote workforce.

Employers will likely be surprised at the number of workers willing to accept reduced hours or a lighter workload. A recent study from the Transamerica Center for Retirement Studies* found “that nearly three- quarters of employers polled at 1,800 companies of all sizes reported that many of their employees expect to work past age 65 or do not plan to retire at all. In addition, 43% of working baby boomers are already contemplating a phased retirement. While 4 out of 5 companies surveyed said they plan to support senior employees who want to continue working, just 4 in 10 of the firms currently offer flexible retirement schedules.”*

Working with retirement plan providers and benefit advisers can also help employees smoothly transition out of the workforce. They can consider the plan’s distribution options, financial planning opportunities and individual financial consulting, where appropriate, on how to make savings last.

For more information on this topic, read Transamerica Center’s 17th Annual Retirement Survey.

ARE YOU HEARING ABOUT FINANCIAL WELLNESS?

Employers have heard a lot about financial wellness. However, employers don’t always recognize the connection between financial wellness and improved retirement savings behavior as well as a more productive workforce overall. All employees, no matter what generation they belong to, want to work in a friendly environment where they don’t have to stress about their job. In particular, when it comes to finances. People tend to change jobs more often for one simple reason – money. As a result, companies experience a higher turnover rate and need to take extra efforts to provide their employees with stable and well-paid jobs. Because a happy employee is a productive employee.

A financial wellness program can improve employee productivity, increase employee satisfaction, reduce absenteeism and even help cut down on stress related health care claims. Comprehensive financial wellness programs reduce the disruptions in the employee’s day from concerns over debt, collection calls, missed payments and poor credit scores. Surveys regularly show that finances are the leading cause of stress for Americans, above family obligations, health, and even work. An employee who is financially prepared for expected and unexpected eventualities will exhibit greater engagement at work with less to worry about in their finances.

Financial wellness programs helps employers realize the value of a workforce that is prepared for a successful and secure retirement. With a focus on employee engagement, the best of these platforms offer financial well-being resources that provide a foundation for goal setting, as well as educational material to enhance understanding of retirement planning strategies. With the best financial wellness tools, all employees – regardless of compensation or savings level – should also have access to financial planning support to assist them in achieving their retirement goals.

It is worth looking into a financial wellness program with your advisor, to provide stability to employees. Employees will feel appreciated and motivated. That will translate into higher productivity and better results. Perhaps today is the day to start an internal discussion about how a financial wellness program might support a healthy, focused workforce and the role it can play in affecting your organization’s bottom line.

Speak with your financial professional regarding the best programs that are available!

PARTICIPANT CORNER: FOUR TIPS FOR INCREASING YOUR RETIREMENT DOLLARS

Don’t Cash Out Retirement Plans When Changing Employment

When you leave a job, the vested benefits in your retirement plan are an enticing source of money. It may be difficult to resist the urge to take that money as cash, particularly if retirement is many years away. If you do decide to cash out, understand that you will very likely be required to pay federal income taxes, state income taxes, and a 10 percent penalty if under age 59½. This can cut into your investments significantly and negatively impact your retirement savings goals! In California, for example, with an estimated 8 percent state income tax, someone in the 28 percent federal tax bracket would lose 46 percent of the amount withdrawn. When changing jobs, you generally have three options to keep your retirement money invested – you can leave the money in your previous employer’s plan, roll it over into an IRA, or transfer the money to your new employer’s plan.

Take Your Time: Give Your Money More Time to Accumulate

When you give your money more time to accumulate, the earnings on your investments, and the annual compounding of those earnings can make a big difference in your final return. Consider a hypothetical investor named Chris who saved $2,000 per year for a little over eight years. Continuing to grow at 8 percent for the next 31 years, the value of the account grew to $279,781. Contrast that example with Pat, who put off saving for retirement for eight years, began to save a little in the ninth and religiously saved $2,000 per year for the next 31 years. He also earned 8 percent on his savings throughout. What is Pat’s account value at the end of 40 years? Pat ended up with the same $279,781 that Chris had accumulated, but Pat invested $63,138 to get there and Chris invested only $16,862!

Don’t Rely on Other Income Sources, and Don’t Count on Social Security

While politicians may talk about Social Security being protected, for anyone 50 or under it’s likely that the program will be different from its current form by the time you retire. According to the Social Security Administration, Social Security benefits represent about 34 percent of income for Americans over the age of 65. The remaining income comes predominately from pensions and investments. They also state that by 2035, the number of Americans 65 and older will increase from approximately 48 million today to over 79 million. While the dollars-and-cents result of this growth is hard to determine, it is clear that investing for retirement is a prudent course of action.

Consider Hiring a Financial Professional!

Historically, investors with a financial professional have tended to “stay the course”, employing a long- term investment strategy and avoiding overreaction to short-term market fluctuations. A financial professional also can help you determine your risk tolerance and assist you in selecting the investments that suit your financial needs at every stage of your life.

For more information on retirement tips, contact your financial professional.

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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Omaha, NE 68154

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Hastings, NE 68901

P: 402.462.4154

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Lincoln, NE 68508

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September Retirement Plan Newsletter 2020

August Retirement Plan Newsletter 2020

 

LUTZ BUSINESS INSIGHTS

 

AUGUST RETIREMENT PLAN NEWSLETTER

IT'S THAT TIME AGAIN! BACK-TO-SCHOOL FOR FIDUCIARIES

Can you hear the bells ringing? It’s that time of year to review your to-do list of fiduciary responsibilities. Ask yourself the following questions to make sure you are on top of your responsibilities and liabilities.

  1. Are you practicing procedural prudence when making plan management decisions?
  2. Do you clearly understand the Department of Labor’s (DOL) TIPS on selecting and monitoring your QDIA in order to obtain fiduciary protection?
  3. Are you documenting each plan management decision and its support?
  4. Are you familiar with current trends in fiduciary litigation?
  5. Are you certain that your plan is being administered in accordance with your plan document provisions?
  6. What fiduciary liability mitigation strategies are you following? (Fiduciaries are personally financially responsible for any fiduciary breaches that disadvantage participants.)
  7. Are you kept abreast of regulatory changes?
  8. Are you appropriately determining reasonableness of plan fees, services and investment opportunities?
  9. How do you define “success” for your plan and what metrics do you use to track progress?
  10. Is your current plan design communicating the appropriate messaging to encourage success for your participants and plan fiduciaries?
  11. Is your menu efficiently designed for benefit of participants and plan fiduciaries?
  12. Are you certain you are providing all required communications and distributions to plan participants (including former participants with account balances)?
  13. Are you handling missing participants appropriately?
  14. Are you appropriately monitoring and documenting your fiduciary activities and those of your service providers?
  15. Are you maintaining plan records appropriately?

Many fiduciaries are unaware of their fiduciary responsibilities or do not understand them. If you need help uncovering the answers to any of these important questions, do not hesitate to reach out to your financial professional.

 

About the Author, Morgan Davis

Morgan is responsible for guiding plan sponsors through the intricacies of investment analysis and innovative plan design and making it easy to understand. Blending employer and employee objectives, Morgan encourages plan design initiatives to create optimal retirement plan outcomes for participants. Morgan is a graduate of Michigan State University where she earned a Bachelor of Arts in marketing.

COLLECTIVE INVESTMENT TRUSTS - THE FASTEST GROWING INVESTMENT VEHICLE WITHIN 401(K) PLANS

For almost a century, collective investment trusts (CITs) have played an important role in the markets. They were originally introduced in 1927. According to a 2020 study, they are now used in more than 70 percent of plans.¹

For the vast majority of their existence, CITs were available only in defined benefit (DB) plans. In 1936, CIT use expanded in DB plans when Congress amended the Internal Revenue Code to provide tax-exempt (deferred) status to CITs. CITs then gained widespread adoption in the 1950s when the Federal Reserve authorized banks to pool together funds from pensions, corporate profit-sharing plans and stock bonus plans. The IRS also granted these plans tax-exempt status.

In the 1980s, 401(k) plans became primary retirement plans and mutual funds became the primary investment vehicle, due to daily valuation. In the 2000s, CITs gained significant traction in defined contribution (DC) plans due to increased ease of use, daily valuation and availability. During this time, CITs were also named as a type of investment that qualifies as a qualified default investment alternative (QDIA) under the Pension Protection Act of 2006. 

 

From 2011 to 2018, total assets in CITs grew by approximately 64 percent. During which their share of 401(k) assets reached nearly 28 percent, or approximately $1.5 trillion.2

The advantages of CITs are plentiful:

  • Lower operational and marketing expenses
  • A more controlled trading structure compared to mutual funds
  • They’re exempt from registration with SEC, thereby avoiding costly registration fees

On the other hand, CITs are only available to qualified retirement plans and they may have higher minimum investment requirements.

While CITs have traditionally only been available to large and mega-sized plans, continued fee litigation – as well as increased CIT transparency, reporting capabilities and enhanced awareness – has amplified the allure of CITs to plan sponsors across all plan sizes. However, CITs have not been widely available to all plans — until now.

Through your advisor’s strategic partnership with RPAG, a national alliance of advisors with over 60,000 plans and $600 billion in retirement plan assets collectively⁴, they can provide their clients with exclusive access to actively managed, passively managed and target date CITs, featuring top-tier asset managers⁵ at a substantially reduced cost. For more information on CITs, contact your financial professional.

 

¹Callan-2020-DC-Trends-Survey

²Collective Investment Trusts: An Important Piece in the retirement Planning Puzzle-Wilmington Trust-2020

³DST kasina with data from Department of Labor, Investment Company Institute.

As of 1/1/2020.

Top-tier asset managers include BlackRock, Franklin Templeton and Lord Abbett.

The target date is the approximate date when investors plan on withdrawing their money.  Generally, the asset allocation of each fund will change on an annual basis with the asset allocation becoming more conservative as the fund nears target retirement date. The principal value of the funds is not guaranteed at any time including at and after the target date.

Collective investment trusts available only to qualified plans and governmental 457(b) plans. They are not mutual funds and are not registered with the Securities and Exchange Commission.

ALLOWABLE PLAN EXPENSES: CAN THE PLAN PAY?

The payment of expenses by an ERISA plan (401(k), defined benefit plan, money purchase plan, etc.) out of plan assets is subject to ERISA’s fiduciary rules. The “exclusive benefit rule” requires a plan’s assets be used exclusively for providing benefits. ERISA also imposes upon fiduciaries the duty to defray reasonable expenses of plan administration. General principles of allowable expenses include the following:

  • The expenses must be necessary for the administration of the plan.
  • The plan’s document and trust agreement must permit use of plan assets for payment of expenses.
  • The expenses must be reasonable and incurred primarily for the benefit of participants/beneficiaries.
  • The expense cannot be the result of a transaction that is a prohibited transaction under ERISA, or it must qualify under an exemption from the prohibited transaction rules.

In light of today’s plan fee environment, it is incumbent upon fiduciaries to request full disclosure of fees and expenses, how they breakdown with services provided, as well as a request for full explanation of who will be the recipient of fees. Ultimately, the ability to pay expenses from a plan trust is a facts and circumstances determination that needs to be made by plan fiduciaries. Because it is possible that the DOL may challenge such determinations it is important that fiduciaries consult ERISA counsel prior to paying questionable expenses from a plan trust and document the decision and reasoning. For more information on this topic, contact your financial professional.

PARTICIPANT CORNER: RETIREMENT PLAN CHECK-UP

This month’s employee memo encourages employees to conduct a regular examination of their retirement plan to determine whether any changes need to be made. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

It is important to conduct regular check-ups on your retirement plan to make sure you are on track to reach your retirement goals. Below are a few questions to ask yourself, at least annually, to see if (and how) they affect your retirement planning.

 

1. Review the Past Year

Did you receive a raise or inheritance?

If yes, you may want to increase your contributions.

Did you get married or divorced?

If yes, you may need to change your beneficiary form.

Are you contributing the maximum amount allowed by the IRS?

In 2020, you can contribute up to $19,500 ($26,000 for employees age 50 or older).

Did you change jobs and still have retirement money with your previous employer?

You may be able to consolidate your assets with your current plan. (Ask your human resources department for more details.)

2. Set a Goal

What do you want your retirement to look like? Do you want to travel? Will retirement be an opportunity to turn a hobby into a part-time business? Will you enjoy simple or extravagant entertainment?

Take time to map out your specific goals for retirement. Participants that set a retirement goal today, feel more confident about having a financially independent retirement down the road.

3. Gauge Your Risk Tolerance

Understanding how comfortable you are with investment risk can help you determine what kind of allocation strategy makes the most sense for you. Remember, over time, and as your life changes, so will your risk tolerance.

4. Ask for Help

If you have questions about your retirement plan or are unsure of how to go about saving for retirement, ask for help. Your financial professional can help you evaluate your progress with your retirement goals, determine how much you should be saving and decide which investment choices are suitable for you.

 

For more information on reaching your retirement plan goals, contact your plan’s financial professional.

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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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 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

September Retirement Plan Newsletter 2020

July Retirement Plan Newsletter 2020

 

LUTZ BUSINESS INSIGHTS

 

JULY RETIREMENT PLAN NEWSLETTER

ARE YOUR PARTICIPANTS EXPERIENCING A FEE IMBALANCE?

Subsequent to the 2012 implementation of ERISA fee reporting regulations (ERISA 408(b)(2) & 404(a)(5)), the Department of Labor (DOL) began to consider the appropriateness of the allocation of plan fees among participants. This is a subject that generally had not been on the radar screen of many plan fiduciaries, but once identified, tends to generate considerable traction due to its obvious validity. Ironically, a plan sponsors’ diligent attention to obtaining the lowest accessible share class for new funds in plan menus has contributed to this fee imbalance among a plan’s participants.

Fred Reish, a partner with Drinker Biddle in the Los Angeles office has weighed in on this issue by stating, “While there are no requirements to charge equitable fees, in Field Assistance Bulletin (FAB) 2003-03, the Department of Labor (DOL) indicated that allocating plan expenses is a fiduciary decision that requires fiduciaries to act prudently… Whatever allocation method is used, failure by fiduciaries to engage in a prudent process to consider an equitable method of allocation of plan costs and revenue sharing would be imprudent and a breach of fiduciary duty.”

While ERISA does not prohibit the passing on of reasonable plan fees to participants, others concur with Reish that having a process to consider how fees are charged to each participant is a best practice sponsors need to consider.

Most plans contain funds in their menu that include fee ingredients, such as various revenue-sharing payments, that can contribute to participant fee imbalance. While there are some investments that do not offer a share class that has zero revenue sharing, many do. The simplest way to solve for the fee imbalance is by eliminating this fee ingredient altogether, wherever possible. But, this typically generates a revenue loss to your plan’s recordkeeper that needs to be recovered in some form. This revenue loss can be offset with an alternative, and more levelized form of revenue recovery, such as a fixed dollar quarterly participant fee (which is the ultimate in simplistic fee transparency), or an asset wrap fee (fees can increase as assets grow) or some combination of both. Combining both the quarterly fixed fee and asset wrap fee becomes of interest to plan fiduciaries when they realize that the fixed fee approach advantages the high account balance participant and the asset wrap approach advantages the low account balance participant. Some plans having an ERISA budget account established can remit revenue- sharing fees back to this account. Another method is for the provider to issue fee credits to participant accounts to achieve fee levelization.

Many plans have not yet addressed participant fee levelization. Some reasons for this are lack of awareness on the part of plan fiduciaries, recordkeeper system limitations, and imperfect current solutions. Most industry people believe that participant fee levelization will eventually become ubiquitous as recordkeeper systems are adapted. Fee levelization is a difficult concept to refute as it logically makes sense and ignoring this issue may potentially lead to fiduciary liability concerns.

Most providers have been working on options that can remediate fee levelization concerns to some extent, if not fully. At this time, a prudent approach for plan fiduciaries is to investigate the appropriateness of current fee allocation structure among plan participants, consider opportunities to approach fee levelization with your current providers, and document the consideration process and conclusions.

WHY YOU NEED TO COMMUNICATE WITH EMPLOYEES

Businesses understand how vital it is for employees to understand retirement options and are increasingly including employee education in fiduciary risk management, whether it’s in the form of one-on-one counseling or educational seminars. Take a look at these reasons why you should communicate with and educate your employees.

Gossip Can Be Dangerous

If retirement opportunities are not properly explained, employees will likely ask each other instead. Someone could accidentally relay incorrect information and create the misconception that your savings plan options aren’t effective, leading to disgruntled, unsatisfied employees. This tends to snowball into frustration and a lack of trust. Make sure your employees know that you have their best interest at heart.

Open Communication

Create a culture of open communication. Encourage employees to approach you with questions, suggestions on benefits they’d like to see, or concerns, whether they’re positive or negative. Intentionally respect, honor, and reward that honest communication. This helps employees feel valued and happy, and a happy employee is a productive one.

Competitors Communicate

If you don’t provide the educational support your employees need, chances are good that there are competitors who will. If you struggle to find and retain great workers, this could be a contributing factor. Employees may believe your plan is inadequate when compared to what other businesses offer, so by conveying your plan’s many benefits, you can avoid this problem and keep employees happy.

Employee Success Is Business Success

Employees are interested in working for thriving companies that offer exceptional benefits. Since high employee morale has been connected1 to great customer service, know that if you take care of your employees, they will in turn take care of your clients. Satisfied customers will recommend you to friends and your business will continue to grow.

Communication is an important part of fiduciary risk management2. By making an effort to counsel and educate your employees on 401(k) programs, HSAs, and other retirement options, you’ll improve morale and quickly grow your business.

 

[1]https://siclytics.com/employee-morale-and-customer-satisfaction-go-hand-in-hand/

[2]http://fiduciaryfirst.com/fiduciary-risk-management

WHAT CONSTITUTES PROPER DOCUMENTATION OF RETIREMENT PLAN COMMITTEE MEETINGS?

With most retirement plans, the fiduciary responsibility of selecting and monitoring the plan’s menu of investments is designated to a retirement plan investment committee. This committee usually includes financial officers and human resources officers of the employer. The committee meets periodically (anywhere from annually to quarterly) to consider agenda items including investment due diligence, fees and services of plan providers, status of plan goals, etc.

From a fiduciary perspective it is just as important to properly document these meetings as it is to hold the meetings. Proper documentation serves as proof that the committee’s responsibilities are being prudently executed. Often plans question the degree of documentation necessary. Below are a few suggestions of what the retirement plan investment committee meeting minutes should include:

  • A listing of all parties present with identification of roles (committee member, guest, financial professional, provider representative, attorney, accountant, etc.);
  • A description of all issues considered at the meeting: fund performance of investments offered, participant communication/education initiatives, plan demographic and provisional review, investment policy statement review, market summary and other topics as appropriate to achieving and maintaining a successful plan;
  • Documentation of all materials reviewed during the meeting;
  • Documentation of all decisions made and the analysis and logic supporting each decision; and
  • Identification of any topics to be continued in subsequent meetings.

For those topics which are relevant to services provided by us, complete documentation will be included in the Executive Summary which your financial professional provides after each meeting. These documents should also be posted for you to access at any time during the year. For more information, contact your plan’s financial professional.

PARTICIPANT CORNER: GOOD HEALTH IS THE BEST WEALTH

This month’s employee memo encourages employees to make small lifestyle changes to reduce their out-of-pocket health costs. The memo shows the difference in savings between an average-managed patient and a well-managed patient. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

Believe it or not, staying healthy just might make you wealthy. With small lifestyle changes and healthy choices, you may reduce your annual healthcare costs and increase your income. These lifestyle changes can be as simple as limiting your salt intake or taking your prescribed medication regularly.

 

 

Alisha and Jasmine are both 45 years old and both sought medical treatment for high blood pressure. Alisha doesn’t follow the lifestyle changes her doctor suggested, whereas Jasmine diligently follows her doctor’s recommendations. With Jasmine’s small changes she saves more than $1,000 in out-of-pocket healthcare costs. Additionally, Jasmine’s combined pre-retirement and in-retirement savings will be $89,456 more than Alisha, as shown in the table below.

Annual Out-of-Pocket Healthcare Costs:

Alisha Jasmine Jasmine’s Savings in Health Expenditures
Age 45 $2,477 $1,286 $1,192
Age 64 $13,936 $7,343 $6,592
Total Pre-Retirement $138,288 $72,591 $65,697
Total In Retirement $51,790 $28,031 $23,759
Grand Total $190,078 $100,622 $89,456

For illustrative purposes only. The hypothetical case study results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. No representation is made as to the accurateness of the analysis.

Q2 2020 FIDUCIARY HOT TOPICS

CARES ACT ALERT!

On March 27, 2020, the Coronavirus, Aid, Relief, and Economic Security (CARES) Act (the “Act”) was signed into law. A portion of the Act is intended to loosen access to retirement plan funds and provide relief for individuals impacted by the COVID-19 pandemic. The following is a summary of the retirement-related provisions of the Act:

Coronavirus-related distribution (CRD)

  • Waiver of 10% penalty on early withdrawals for amounts up to $100,000 from a retirement plan or IRA taken between January 1, 2020 and December 31, 2020 (so can be retroactively applied to distributions taken prior to enactment of the Act)
  • CRDs are only available to a qualified individual (see “qualified individual” below)
  • Individuals may elect to pay the tax on a CRD ratably over a three-year period; and
  • Individuals may elect to repay the CRD back to the plan, tax-free, over the three years from the date of the withdrawal (not limited by plan limits). May be repaid back into the plan allowing the withdrawal, another qualified plan or an IRA that accepts rollovers.
  • Plan sponsor has discretion whether to offer this design, with modifications (if so desired and their service provider can accommodate), in their qualified plan
  • Act does not limit a CRD to active employees (should check with service provider if they will allow CRDs to terminated participants)

Plan loans

  • For participant loans taken from plans between enactment of the Act and September 23, 2020, loan limits may be increased for qualified individuals (see “qualified individual” below) to the lesser of:
    • $100,000; or
    • 100% of their vested account balance.
    • Plan sponsors may elect to set a lower limit, but cannot allow for loans that exceed these limits
  • Qualified individuals (see “qualified individual” below) with existing outstanding loans with a repayment due from the date of enactment of the Act through December 31, 2020 may delay each of those loan repayments for up to one year. Loan repayments will resume with the first repayment due on or after January 1, 2021. Interest will accrue on the delayed payments. The plan can choose to extend the term of the loan for the period of delay (equal to the first payment delayed through December 31, 2020) as well. Doing so would allow participants to avoid a financial hardship when they do resume repayment by keeping their repayment amount close to the same amount (adjusted within the reamortization for interest accrued) as prior to the suspension of the repayment.
  • Plan sponsor has discretion whether to implement these design elements, with modifications (if so desired and their service provider can accommodate), in their qualified plan

Qualified individual

  • Eligibility for the CRD and the adjustment to the loan limits is conditioned upon a participant meeting one of the following criteria:
    • Is diagnosed with COVID-19;
    • Whose spouse, or dependent (as defined by the Internal Revenue Code) is diagnosed with COVID-19;
    • Who experiences adverse financial consequences due to furlough, quarantine, layoff, reduction in hours, inability to work due to lack of child care due to COVID-19, or closing of business/reduction of hours by individual due to COVID-19; or
    • Factors determined by the Secretary of the Treasury
  • Importantly, the Act does not require the plan sponsor to verify whether an individual qualifies for the COVID-19 adjusted loan limits or the CRD. The plan sponsor may rely upon a participant’s certification for eligibility.
  • Also important to note, the emphasized word “participant” above. A spouse experiencing any of the third bullet does not qualify.

Required minimum distributions

  • The Act waives RMD payments for 2020.
    • Includes RMD attributable to 2019 which was not paid by January 1, 2020;
    • Includes RMD if made prior to enactment of the Act in 2020; but
    • Does not include RMD distributions that were made in 2019.
  • For RMDs that were made prior to enactment of the Act in 2020 the participant may defer taxes and roll it back to the plan from which it was made or roll it to another qualified plan or IRA which accepts rollovers. Additional guidance regarding any potential impact to the 60 day rollover period is expected from the IRS.

Defined benefit plans

  • The Act allows these plans to delay any contributions due in calendar year 2020 (including all quarterly contributions) until January 1, 2021. The new January 1, 2021 due date applies for all quarterly contributions (they would no longer be separately due).
  • Leveraging the delayed due date would subject the employer to interest on the delayed contributions from the original due date(s) at the effective rate for the plan year that includes the date of payment.
  • Plan sponsors should expect leveraging delay should lead to higher contributions in 2021.

Reporting and notices

  • The Act empowers the Department of Labor to extend certain deadlines for notices – more information expected in the coming weeks.

Plans can adopt the new rules immediately. The plan will eventually need to be amended on or before the last day of the first plan year beginning on or after January 1, 2022, or later if prescribed by the Secretary of the Treasury.

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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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 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

September Retirement Plan Newsletter 2020

June Retirement Plan Newsletter 2020

 

LUTZ BUSINESS INSIGHTS

 

JUNE RETIREMENT PLAN NEWSLETTER

IS IT TIME FOR A PLAN REFRESH?

The duty to provide participants with sufficient information to make consistently informed retirement investment decisions is a basic fiduciary responsibility under ERISA Section 404(a). However, there could be some plan committees who feel their participants are not consistently making prudent decisions.

According to a 2016 JP Morgan survey¹ nearly 75 percent of participants say they are not confident with selecting investments. It is no surprise they found that 80 percent of participants surveyed have portfolios that do not match their stated risk tolerance. Also, according to an Investment Company Institute (ICI) research report², only six percent of participants changed their asset allocation in 2016. This percentage has been similar since 2007 including during the 2008 market crash. No rebalancing after violent market movement? This does not look like “consistently informed investment decisions” as per ERISA.

Plan refresh is a process by which participants are notified that all existing assets and future contributions will be invested in the plan’s target date fund (TDF) (Qualified Default Investment Alternative (QDIA)) based on each participant’s date of birth, unless the participant notifies the plan otherwise. This is the same process as for other QDIA default actions.

The primary motivation for a plan refresh should be to improve participant investing. Assuming an appropriate TDF is offered as QDIA, why not affirm to participants that this is typically where they should invest, as opposed to giving them an array of mutual funds and anticipating that they will choose prudently? Surveys show that employees look to their employers for messaging which they assume to be in their interest.3 For many employers it seems this messaging may not be working and often results in participant confusion and imprudent investment selection, thereby diluting retirement readiness. A plan refresh could help solve this problem and also can have significant fiduciary liability mitigation benefits.

Benefits of investment refresh:

For participants this can help: 1) Improve asset allocation*;  2) solve for legacy assets (prior default no longer appropriate); 3) solve for employees who asked HR what may be a suitable investment option; 4) solve for inertia; and 5) solve for rebalancing investments.

We find that refresh is frequently used at the point of a recordkeeper change or menu reconstruction. Assuming that doing a refresh makes sense and yields the type of results you want to see, why wait for a recordkeeper change?

Unfortunately, there is a pervasive misperception that participants may push back, as was anticipated when auto enrollment was first introduced. Let’s look at the data:

  1. According to JP Morgan Plan Participant Research in 2016, one in two participants would rather push the easy button
  2. 75 percent of participants are not confident they know how to best allocate contributions
  3. 82 percent of participants support employers conducting a re-enrollment

Often, many re-enrolled participants stick with the default investment long term. With good communication, pushback can be often non-existent, as with original auto enrollment.

Another misperception is that participants will opt out. Vanguard noted that the percentage of participants who fully opt out of refresh remains low. In fact, after one year, QDIA was held by 92 percent of participants and captured 81 percent of plan assets. A small group, 7 percent of participants, held what Vanguard described as “extreme” positions, a group that it said was comprised predominantly of participants who fully opted out of the target date default fund and constructed their own portfolios. This is exactly how refresh is supposed to work.⁴

We’ve covered the symptoms, diagnosis, prognosis, prescription and implementation. Can you recall a business decision that appears so clearly beneficial for plans, their participants and fiduciaries? Ask yourself if you were faced with making a decision that impacted the productivity or profitability of your company that is so clearly documented and supported… would you not act on it or wait?

*Asset allocation does not protect against loss of principal due to market fluctuations.  It is a method used to help manage investment risk.

1 P. Morgan Plan Participant Research 2016. https://am.jpmorgan.com/gi/getdoc/1383355101755

2 ICI report. https://www.ici.org/pdf/ppr_16_rec_survey_q4.pdf

3 NYU Law Review. “The Behavior of Defined Contribution Plan Participants.” 2002. www.nyulawreview.org

Vanguard. Reenrollment: One year later. 2017. https://institutional.vanguard.com/iam/pdf/REEROLL.pdf?cbdForceDomain=false

BEWARE OF THE IRS AND DOL: FOUR RED FLAGS THEY SEEK ON FORM 5500

The Form 5500 is an ERISA requirement for retirement plans to report and disclose operating procedures. Advisors use this to confirm that plans are managed according to ERISA standards. The form also allows individuals access to information, protecting the rights and benefits of the plan participants and beneficiaries covered under the plan.

Make sure you are compliant. Be aware of red flags that the IRS and DOL look for on Form 5500 filings:

  1. Not making participant deferral remittances “as soon as administratively possible” is considered a fiduciary breach and can make the plan subject to penalties and potentially disqualification. Delinquent remittances are considered to be loans of plan assets to the sponsoring company.
  2. An ERISA fidelity bond (not to be confused with fiduciary insurance) is a requirement. This bond protects participant assets from being mishandled, and every person who may handle plan assets or deferrals must be covered.
  3. Loans in default for participants not continuing loan repayments, or loans that are 90 days in arrears, are a fiduciary breach that can make the plan subject to penalties and disqualification.
  4. Corrective distributions, return of excess deferrals and excess contributions, along with any gains attributed must be distributed in a timely manner (typically two and a half months after the plan year ends). In some cases these fiduciary breaches can be self-corrected if done within the same plan year in which they occurred, and may be considered additional breaches if they extend beyond the current plan year.

This is a partial, non-exhaustive list of common Form 5500 red flags. If you’re concerned about ERISA compliance, contact your advisor sooner, rather than later.

HOW AND WHEN TO PAY PLAN EXPENSES WITH PLAN ASSETS

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 recordkeeper 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 plan advisor.

PARTICIPANT CORNER: HOW CAN YOU PREPARE FOR HEALTHCARE EXPENSES IN RETIREMENT?

Rising healthcare costs are on everyone’s mind, even for affluent people. In fact, 69 percent of affluent pre-retirees cite rising healthcare costs as one of their top fears in retirement, according to a survey from the Nationwide Retirement Institute. In fact, 63 percent of these affluent pre-retirees describe themselves as “terrified” of what healthcare costs may do to their retirement plans. But more than half (53 percent) say they are not comfortable talking to their spouse about these fears. One in ten stated they just didn’t want to think about it.

However, ignoring a problem doesn’t make it go away. Here are some steps you can take to plan for your healthcare in retirement:

Start budgeting. Figure out how much Medicare will cover and how much you’ll need to come up with. Medicare won’t cover all your medical expenses and it isn’t free. Understanding what Medicare covers and what it doesn’t will help you plan your healthcare strategy. For more detailed information, visit medicare.gov.

Look at long-term care insurance. Don’t assume that you won’t face a healthcare crisis. In fact, seven in ten people eventually need long-term care. The time to plan is now before you need help.

Get healthy. One of the best investments you can make is to pursue a healthy lifestyle. Exercise and proper nutrition can help you reduce future medical costs. And if you’ve been procrastinating about seeing your doctor or having a procedure done, schedule those appointments now.

For more tips on preparing for healthcare costs in retirement, contact your plan advisor.

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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Toll-Free: 866.577.0780  |  Privacy Policy

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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 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

September Retirement Plan Newsletter 2020

May Retirement Plan Newsletter 2020

 

LUTZ BUSINESS INSIGHTS

 

MAY RETIREMENT PLAN NEWSLETTER

SHOULD YOUR COMPANY IMPLEMENT A STUDENT LOAN ASSISTANCE PROGRAM?

The simple answer is yes! By doing so, you’ll attract, retain and engage top college-educated talent at your company.

Twenty-six percent of the U.S. workforce and 69 percent of 2018 college graduates are encumbered by student loans, with the national total student loan debt total climbing steadily towards $1.6T. Student loan assistance has quickly become the #1 benefit desired by college-educated talent. For many, getting out from under student debt is a more meaningful accomplishment than:

  • Graduating college
  • Getting their first job
  • Receiving a promotion

When employers offer student loan assistance, they quickly notice three improvements:

They Hire Top Talent 13 Percent Faster

The Bureau of Labor Statistics reports1 that August’s U.S. unemployment rate was 3.8%, and college-educated unemployment2 was even lower at 2.0%, continuing the trend where unemployment rates have reached their lowest point in over 50 years.

In today’s highly competitive market for talent, offering student loan assistance as a benefit is the best way for employers to attract the right people, and fast. The Millennial Benefit Preferences Study3 found that 85 percent of respondents would accept a job offer if student loan repayment was included.

Employee Tenure Increases by 36 Percent

Job hopping is high and replacing talent is expensive and time-consuming. Recruiters must spend both time and money on finding the perfect replacements, and there is often a decrease in overall company productivity after an employee departs.

Employers who make contributions to workers’ student debt engage them in a meaningful way, and in turn, save on costs of recruitment and turnover.

Gender and Cultural Diversity Improve

Did you know?

  • ⅔ of student debt is held by women
  • African Americans and Hispanics, on average, hold two times more student debt than their white peers

Companies that help pay down student loans can capitalize on a unique opportunity to engage these often underrepresented groups and accelerate the positive impact of gender and cultural diversity within their workplace and beyond.

 

Peanut Butter is a benefit administration firm built from the ground up to help employers attract, retain, and engage college-educated talent by providing student loan assistance. Are you ready to offer the benefit that 33% of U.S. workers (and 55% of Millennials) are calling a “must have?” Visit getpeanutbutter.com today to get started.

1 https://www.bls.gov/news.release/pdf/empsit.pdf

 https://www.bls.gov/news.release/empsit.t04.htm

3 https://www.getpeanutbutter.com/download-millennium-benefits-study/

COMPLYING WITH ERISA 404(C)

According to ERISA, plans intending to comply with 404(c) must ensure that participants: Have the opportunity to choose from a broad range of investment alternatives (which are adequately diversified); may direct the investment of their accounts with a frequency which is appropriate; and can obtain sufficient information to make informed investment decisions. The plan sponsor must provide annual written notification to participants with its intent to comply with 404(c), and be able to provide the following:

  • Information about investment instructions (including contact information of the fiduciary responsible for carrying out participant investment instructions);
  • Notification of voting and tender rights;
  • Information about each investment alternative; and
  • A description of transaction fees and investment expenses.

Compliance with section 404(c) of ERISA protects plan fiduciaries from liability for losses that result from the investment decisions made by participants. Conversely, failure to comply with 404(c) could result in liability for losses due to poor investment decisions made by plan participants. To comply with some of the important requirements of 404(c), you should execute a formal 404(c) policy statement and employee notice and send the notice at least annually to all employees. For more information on complying with ERISA, contact your plan advisor.

ARE YOU READY FOR AN AUDIT?

 

Several events can trigger a DOL or IRS audit, such as employee complaints or self-reporting under the annual submission of the Form 5500. Oftentimes an audit is a random event, which is why you should always be prepared. Listed below are several key items typically requested in an initial letter sent by the IRS or the DOL in connection with a retirement plan audit. These items should be readily accessible by the plan administrator at all times the plan is in operation.

  • Plan document and all amendments
  • Summary plan description
  • Investment policy statement
  • Copy of the most recent determination letter
  • Copies of Forms 5500 and all schedules
  • Plan’s correspondence files (including meeting minutes)
  • Plan’s investment analyses
  • ADP and ACP testing results
  • Most recent account statements for participants and beneficiaries
  • Contribution summary reports (i.e., evidence of receipt of these monies by the plan’s trust)
  • Loan application, amortization/repayment schedule (for all loans)

If you have questions about preparing for an audit, or need plan design review assistance, please contact your plan advisor.

PARTICIPANT CORNER: FOUR BASIC STEPS FOR A SUCCESSFUL RETIREMENT

We know that most plan participants are not financial experts, and that can make planning for retirement difficult. Fortunately, there are some basic steps that you can follow to work toward a successful retirement.

Learn the basics of saving and investing.

Understand the basic types of investment products, like stocks, bonds, and money market accounts. Each of these has its risks and rewards, and plan participants should know what those are, and how they can fit together in an investment portfolio. Plan participants should have a firm grasp on what their retirement plan offers and how they can benefit from that.

Avoid common mistakes.

Not diversifying, not rebalancing asset allocations, becoming too emotional, and not having an investment plan: these are all common errors that you might make. The best way to avoid these mistakes is by starting with the last item on that list, an investment plan. Developing a sound investment program could be one of the best paths to retirement.

Focus on three critical components of an investment plan.

While some things, like bull and bear markets, are beyond your control, there are three things you do control: When to start saving, how much to save, and when to retire. Starting sooner and saving more have much more to do with a successful retirement than the actual returns their investments make. Deciding when to retire is crucial, as well. Delaying retirement means more time for investments to potentially grow.

Monitor the plan, and adjust as necessary.

A strong investment program should evolve as your circumstances change. Changes in income, new family members, financial windfalls or setbacks, or any other major event in your life should trigger a financial review to make sure you’re still on track for 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

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 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

September Retirement Plan Newsletter 2020

April Retirement Plan Newsletter 2020

 

LUTZ BUSINESS INSIGHTS

 

april RETIREMENT PLAN NEWSLETTER

CLOSING THE RETIREMENT GENDER GAP: HOW RETIREMENT PLAN ADVISORS CAN HELP

Despite the fact that women tend to live longer, female workers typically have lower retirement account balances than their male counterparts. Many factors may contribute to this disparity, including lower earnings, greater part-time work and time off for child and eldercare, lower levels of financial literacy and lower risk/lower return investment choices.

As a result, women can face significant hardships during their retirement years, which they may have to deal with on their own. Is there anything retirement plan advisors can do to help reverse this troubling trend? A 2015 study by several state agencies in Wisconsin attempted to answer this question.

EMPOWERing Women

Researchers examined the effect of a multimedia education program called Embracing and Promoting Options for Women to Enhance Retirement (EMPOWER), geared toward increasing female employees’ retirement savings by providing educational content and increasing motivation for contribution. Data was collected on 31,000 male and female Wisconsin public sector workers.

Over a period of several months, some employees received information, motivation and challenges via multimedia channels including email, webinars and live presentations. Workers were not incentivized to participate and were offered individual financial counseling sessions to address their individual retirement needs. To measure the impact of the program on retirement savings, administrative data over four years compared savings rates between men and women before and after implementation and among agencies that did and did not use the EMPOWER protocol.

The study found that women who received the educational program increased their contributions by 2.6 percent, effectively reducing the gender retirement gap in this sample by more than 50 percent.

Employers Can Make a Difference

These findings suggest that the departments tasked with helping employees improve their financial wellness have a potentially powerful tool at their disposal that can help women increase their retirement preparedness. By improving female employees’ financial literacy and motivation for greater participation in retirement savings programs, employers are empowered to close the financial wellness gender gap by a significant margin.

To learn more about closing the retirement gender gap, contact your plan advisor.

ANOTHER WAY TO SAVE: NEW TAX CREDIT FOR PLAN PARTICIPANTS

According to a Transamerica Center for Retirement Studies (TCRS) report fewer than four in ten U.S. workers know about a tax credit that may help them save for retirement, per the IRS. The Saver’s Credit is available to eligible taxpayers who are saving for retirement.


The Saver’s Credit is a non-refundable tax credit, and can be applied up to the first $2,000 of a participant’s contributions to a retirement plan The maximum credit is $1,000 for a single filer and $2,000 for married couples filing jointly. In addition to the tax-advantages of saving for retirement in a 401(k), 403(b) or IRA, the Saver’s Credit is an added benefit to reduce federal taxes.

This credit is available to workers ages 18 years or older who have contributed to a retirement plan in the past year and meet the Adjusted Gross Income (AGI) requirements:

  • Single tax filers with an AGI of up to $32,000 in 2019 or $32,500 in 2020 are eligible;
  • For the head of a household, the AGI limit is $48,000 in 2019 or $48,750 in 2020; and,
  • For those who are married and file a joint return, the AGI limit is $64,000 in 2019 or $65,000 in 2020.
  • Please note, the filer cannot be a full-time student and cannot be claimed as a dependent on another person’s tax return.

Participants who are eligible to claim the Saver’s Credit are often also eligible to take advantage of this program that offers federal income tax preparation software for free to tax filers earning $69,000 or less. Ten companies make their tax preparation software available through this program at www.irs.gov/FreeFile, though certain restrictions may apply.

Individuals who are eligible but did not save last year can still contribute to an IRA until April 15, 2020, and may be able to claim the Saver’s Credit for the tax year 2019.

To learn more about the Saver’s Credit, contact your plan advisor.

 

ADDRESSING EMPLOYEE EDUCATION STRATEGICALLY

An educated employee is an empowered employee, especially when it comes to retirement savings and financial wellness. To help employees better understand their fiduciary process, the key features of your company’s retirement plan, and the importance of setting aside money for their future, it’s crucial to offer financial education. Financial education can come in many forms, but the best way to start the conversation about financial wellness is to follow a few simple points.

Correct Misconceptions

Employees may misunderstand exactly what goes into your retirement plan. To dispel any misconceptions, companies should aim to communicate retirement plan information in simple, easy-to-understand terms. Keep in mind that employees are easily overwhelmed by a surplus of options! Make yourself available to help guide them toward choices that are best for them, and encourage them to approach you with questions. If they don’t ask you, there is a good chance they are taking matters into their own hands by searching for answers online or from other employees, which only increases the odds of miscommunication.

Offer Multiple Education Formats

In recent years, nearly one half of companies provided employees with financial education, whether as a large education session, one-on-one meetings, or within an online module. This results in employees with improved financial management skills who better understand budgeting, debt management, and proper savings techniques.

During these sessions, start by discussing the savings basics and why it’s important to start saving as soon as possible. Consider reviewing asset classes to help employees understand their options when it comes to investment options such as stock or real estate, and how it ties back into their retirement plan savings through your program. This is also a great time to educate them on asset allocation strategies, especially in a one-on-one meeting. Help your employees learn more about balancing risks and rewards, equities, and fixed incomes, and why it’s important to know these things when they decide to invest in saving for retirement.

Discuss Company Match

As you focus on clear communication and education, ensure that your employees understand how to receive the highest company match. Reiterate just what that match is, how to receive it, and how it positively affects their savings. Ask a recordkeeper to run a report analyzing which one of your employees aren’t contributing enough to receive the highest match — or any match — and then target those specific employees with an invitation to a group or one-on-one education session.

Ultimately, the education strategy you choose should be specific to your company and your employees. Encourage them to ask questions about their fiduciary process so you can help them achieve financial health and stability.

For tips on addressing employee education, contact your plan advisor.

PARTICIPANT CORNER: FIVE KEY DECISIONS FOR A SUCCESSFUL RETIREMENT

Life is a series of decisions, and everyone has to live with the results of the decisions they make. One of the most serious decisions that we all face is how to prepare for retirement, but frequently we don’t make the best choices to protect our futures. What are some of the most critical decisions you should make about retirement?

Start Saving Now

Starting as soon as possible makes saving for retirement much easier, because you can take full advantage of the power of compounding. A 25-year-old that saves $300 each month and earns an average annual return of 6 percent in a retirement plan will have over half a million dollars ($557,153) saved at age 65. If that same person waits until age 40 to start saving the same amount, he or she will only have $197,516 at age 65.

Wait to Take Social Security

People who are eligible can start claiming Social Security at age 62, but the payments increase each year to delay filing. According to the Wall Street Journal, each year you delay filing for Social Security up until age 70 adds 8 percent each year to your benefit amount. That’s a significant return on your “investment” by delaying.

Delay Retirement as Long as Possible

A person who retires at age 65 may need enough money to fund 30 or more years of retirement. Waiting to retire means you can continue to accumulate funds, plus you’re not tapping into your savings. Working two or three more years, or even working part-time, can make a big difference.

Opt for Retirement Plan Matching

Employer contributions to a retirement plan can significantly boost retirement savings. If our hypothetical 25-year-old (above) got a 50 percent employer match on that $300 monthly contribution to his or her retirement plan, he or she would have $835,724 by age 65. That’s a difference of $278,571.

Don’t Touch Your Retirement Plan until Retirement

It may be tempting to tap into these funds to finance short-term needs, but cashing out or even borrowing from a retirement plan can seriously impact retirement savings. Once those savings are gone, they can’t be replaced. More importantly, you’ll never get the time back – time that allowed your returns the potential to compound. And taxes and penalties can be severe, because early withdrawals may be subject to both taxes and a 10 percent penalty.

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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