June 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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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

June 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

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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 

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

June 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.

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

Quarter in Review + Financial Market Update 6.30.2020

Quarter in Review + Financial Market Update 6.30.2020

As we get ready to roll into July, it’s hard to believe we are already at the midpoint of 2020. It has been a tale of two quarters so far this year, as one of history’s most vicious selloffs stopped on a dime and transitioned into a record-setting…

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 

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

June Retirement Plan Newsletter 2020

March Retirement Plan Newsletter 2020

 

LUTZ BUSINESS INSIGHTS

 

MARCH RETIREMENT PLAN NEWSLETTER

CONSIDERING A TRADITIONAL SAFE HARBOR RETIREMENT PLAN?

It may be advantageous for a plan sponsor to consider adopting a traditional safe harbor design for their retirement plan. Adopting a safe harbor retirement plan design permits an employer to essentially avoid discrimination testing (the testing is deemed met). Remember, this testing limits highly compensated employees’ contributions based upon non-highly compensated employees’ contributions. By making a safe harbor contribution highly compensated employees can defer the maximum amount allowed by their plan and Internal Revenue Code limits, without receiving any refunds. General rules for all safe harbor contributions include the following:

  • Safe harbor contributions are 100 percent vested.
  • There may be no allocation requirements imposed on safe harbor contributions, for example, a 1,000-hour service requirement or a last day employment rule.
  • Safe harbor contributions may be used toward satisfying the top heavy plan minimum contribution requirement.
  • All eligible participants must receive a written notice describing the applicable safe harbor provisions between 30 and 90 days before the beginning of the plan year. This notice must be provided for each year the plan will be safe harbored unless the plan is going to elect safe harbor treatment after commencement of the plan year and utilize nonelective contributions to meet the safe harbor contribution requirement per the SECURE Act, which passed in December, 2019.

Generally, there are two types of safe harbor contributions:

  1. The non-elective contribution, which is a 3 percent contribution to all eligible participants (or 4 percent if safe harbor is going to be elected later than 30 days prior to plan year end, in accordance with the SECURE Act), or
  2. A matching contribution to participants who are contributing to your plan.

There are two options from which to choose for the matching contribution, either the basic or the enhanced match. The basic safe harbor matching contribution is defined as a 100 percent match on the first 3 percent of compensation deferred and a 50 percent match on deferrals between 3 percent and 5 percent of compensation. Alternatively, the employer may choose an enhanced matching formula equal to at least the amount of the basic match; for example, 100 percent of the first 4 percent deferred. All that said, employers wishing to explore a safe harbor solution should also be aware that it may entail more cost if their present contribution structure is less than the required safe harbor required structure.

Alternatively, a plan can adopt a qualified automatic contribution arrangement (QACA) design and receive the same safe harbor benefits with automatic enrollment and escalation features. To learn if a traditional safe harbor feature is appropriate for your plan, or to explore the workings of QACA, contact your plan advisor.

IS YOUR TURNOVER RATE ROUTINE? WHAT YOU NEED TO KNOW ABOUT PARTIAL PLAN TERMINATIONS

A partial plan termination is presumed by the IRS to occur when 20 percent or more of a company’s employees are no longer eligible to participate in the plan in a determined span of time (typically one plan year, but it can be other spans of time based on facts and circumstances). Routine turnover during the year is generally not considered a partial plan termination.

To determine whether your turnover rate is routine, consider the following factors:

  • What was your turnover rate during other periods and what was the extent to which terminated employees were actually replaced?
  • Do the new employees perform the same functions as the previous employees? Do they have the same job classification or title? Do they have comparable compensation?

There is no requirement to notify the IRS of a partial plan termination, but all affected employees must be 100 percent vested in their account balance as of the date of their termination. If this hasn’t happened, a Voluntary Correction Program would be appropriate. For more information on partial plan terminations, please contact your plan advisor.

TIPS FOR PREVENTING UNCASHED RETIREMENT CHECKS

Managing uncashed retirement checks may be considered a nuisance by plan administrators. Nevertheless, the employer still has fiduciary responsibility when a former employee fails to cash their distribution. Search efforts to locate a missing plan participant consume time and money and may fail to locate the participant. Likewise, going through the process of turning over dormant accounts to the state can also consume time and resources.

Decrease the burden of uncashed checks by:

  1. Discussing with terminating employees during the exit interview the options for their retirement plan. They may forget they have a company-sponsored retirement plan, or don’t know how to manage it.
  2. Reminding departing employees that they can roll over their retirement assets into their new employer’s plan. Your plan’s service provider or the new employer can answer questions the former employee may have about the rollover process.
  3. Letting employees with an account balance of $1,000 or less know they should expect to receive a check in the mail after a certain amount of time.
  4. Having the employee verify their current address to where the check can be sent. 

Remember, fiduciary responsibility and liability extends to terminated employees with assets in the plan. This responsibility includes delivery of all required distributions and all fiduciary prudence responsibilities. It’s very important to stay in touch with this important group.

PARTICIPANT CORNER: SIMPLE SECRETS FOR RETIREMENT SUCCESS

Retirement planning can often seem complicated and daunting. Really, though, most of the actions you need to take to work toward a confident retirement are very simple.

Follow a Plan
Successful investors have a plan and they stick to it. You have access to a qualified plan like a 401(k). With that comes access to educational materials and often, personalized information about saving for retirement. Creating a retirement plan, assessing risk tolerance, and setting up an asset allocation are easy steps to take toward retirement, and can always be readjusted later as circumstances change.

 

Focus on Saving More than Spending
Saving as much as possible is one of the most important steps for you to take. You should strive to live below your means and save the remainder. A qualified plan makes saving easy, since the money comes out before you receive it. Someone who starts saving 3 percent of income and increases that by 1 percent every six months will be saving 13 percent in five years.

 

Maximize Matching
If your qualified plan matches contributions, you should take full advantage of it. In this situation, the top priority is to contribute enough to get the maximum matching contribution. This “free money” can add tens of thousands of dollars to your retirement portfolio.

 

Seek Tax Deferred Retirement Plans

Tax-deferred plans are another huge boon to retirement savings. Money is contributed to the plan before taxes, and continues to grow and compound free of taxes, until withdrawal. This means that funds that would normally have gone to the government stay in your retirement account, boosting returns.

Q1 2020 FIDUCIARY HOT TOPICS

NEVER SAY NEVER - THE SECURE ACT BECOMES LAW
  • Last December, President Trump signed into law the “Setting up Every Community for Retirement Enhancement (SECURE) Act” (gotta love the name).
  • Although the most significant law affecting retirement plans in many years, all in all, it is a modest piece of legislation, as compared to prior laws such as Pension Protection Act of 2006 and the Tax Reform Act of 1986.  It is really a hodge podge of policy initiatives that have been bouncing around the halls of Congress in recent years.
  • The stated concerns of Congress in enacting this legislation are that almost half of the American work force is not covered by an employer sponsored retirement plan and many of those who are covered are not saving enough to provide adequate income in retirement.
  • Some of the provisions in the SECURE Act reduce or defer federal tax revenues. To pay for this the taxation of inherited IRAs is changing. Under current law, individuals who inherit an IRA may elect to take distributions based on their life expectancy which can be many years.  Going forward, non-spouse beneficiaries must take all distributions from an inherited IRA within 10 years. This change does not affect individuals who inherit an IRA from their spouse.
OPENING THE GATE FOR ANNUITIES IN 401(K) PLANS
  • One of the most important changes in the SECURE Act is removing a major stumbling block to offering annuities in 401(k) plans.
  • Only about 10 percent of 401(k) plans currently offer an annuity as an investment option. One of the main reasons for the reluctance to offer annuities is the potential fiduciary liability if the provider becomes insolvent, which may occur many years after the provider is selected.
  • The SECURE Act provides for a safe harbor that relieves plan fiduciaries of potential liability in regards to selection of annuity provider. This does not excuse plan fiduciaries from making a prudent and well considered decision in the initial selection and monitoring the provider ongoing. Additional guidance will be issued by the Department of Labor regarding the requirements to gain such protection.
  • The upside to including annuities in 401(k) plans is this offers participants an investment option that will provide a steady stream of income in retirement. This has become a greater concern in recent years as the American population ages and plan participants move from the accumulation phase into retirement. The concern is that annuities are complex and expensive, and the fees can be difficult for the average investor to discern.
  • Notwithstanding the potential complexities of annuities, participants who decide to invest in an annuity will probably be better off if the plan fiduciaries select the annuity provider, as opposed to participants rolling their account to a brokerage firm and then purchasing an annuity which frequently occurs under current law.
  • The SECURE Act makes a second important accommodation for offering annuities in plans. Where a plan sponsor eliminates a lifetime income option, the Act permits individuals to transfer this investment to another plan or to an IRA.
LIFETIME INCOME DISCLOSURE NOW REQUIRED
  • At present a few record keepers include on participant statements an estimate of the monthly income a participant’s account might generate. Often this estimate is based on a projected account balance at retirement.
  • The SECURE Act requires an annual disclosure on participant statements of the estimated monthly income a participant’s accrued benefit might produce in the form of a either a single life annuity or, if married, a joint
    life annuity.
  • The Department of Labor is directed to develop standards for making life time income projections. The Department has a year to develop these standards. This notice does not have to be provided to participants until after these standards are published.
AGE FOR REQUIRED DISTRIBUTIONS PUSHED BACK TO 72/AGE 70 1/2 LIMIT REMOVED FOR TAX DEDUCTIBLE IRA CONTRIBUTIONS
  • The SECURE Act increases the age at which minimum required distributions (MRDs) must commence.
  • The MRD rules are designed to prevent individuals from effectively using retirement plans and IRAs for estate planning and deferring income taxes on retirement benefits until the next generation. This rule requires individuals to begin taking distributions each year based on life expectancy and paying income taxes on these distributions. Under current law, for retirement plans, MRDs must commence in the year individuals reach age 70½, or if later, the year the individual retires. For IRAs, it is always the year the individual attains age 70½. The Act pushes this back to the year individuals reach age 72.
  • WARNING – This change is effective for individuals who do not reach age 70½ until 2020. Individuals who reached age 70½ in 2019 must take their first MRD April 1st, 2020.
  • The SECURE Act allows individuals to make tax deductible contributions to IRAs after age 70½. Under current law, only Roth contributions are permitted after age 70½. This change takes effect immediately and allows deductible contributions for 2019.
LONG TERM PART TIME WORKERS MUST BE OFFERED OPPORTUNITY TO DEFER
  • Current law allows plan sponsors to exclude part time workers who work less than 1,000 hours a year. The SECURE Act requires sponsors to allow “long term” part time workers to participate in their retirement plans. A “long term” part time worker is someone who works at least 500 hours in three consecutive years.
  • Employers are only required to offer these part time workers the opportunity to defer and do not have include these workers in any company contributions. These part time workers may be excluded from
    discrimination testing.
  • Practically speaking, this provision is not effective till 2023 as it does not require employers to begin tracking part time workers until 2021.
TAX CREDIT TO ENCOURAGE SMALL EMPLOYERS TO SET UP PLANS INCREASES TO $5,000 AND TO INCLUDE AUTOMATIC ENROLLMENT
  • The existing tax credit of $500 to encourage small employers to set up plans will increase to $5,000 per year for the first three years.
    • There is an additional tax credit of $500 for small employers that add an automatic enrollment feature to
      their plan.
    KEY PROVISIONS + APPLICABILITY AND EFFECTIVE DATES

    Multiple employer plans

    Defined contribution (DC) plans

    Plan years beginning after 2020

    Tax credits to encourage small employers to set up plans

    Qualified plans (e.g., 401(k) plans), SIMPLE IRA and Simplified Employee Pension (SEP) plans

    Tax years beginning after 2019
    Credit for small employers that add automatic enrollment401(k) and SIMPLE IRA plansTax years beginning after 2019
    Participation by long-term part- time employees401(k) plansPlan years beginning after 2020
    Lifetime income disclosure on participant statementsDC plans12 months after the DOL provides guidance
    Fiduciary safe harbor for selecting insurer to provide lifetime income

    DC plans

    Date of enactment–December 20, 2019
    Portability of lifetime income optionsDC, 403(b) and 457(b) plansPlan years beginning after 2019

    Increase in the automatic escalation cap to 15% in the automatic enrollment safe harbor

    401(k) plans

    Plan years beginning after 2019

    Simplification of the rules for nonelective safe harbor 401(k) plans

    401(k) plans

    Plan years beginning after 2019

    Penalty-free withdrawals for birth or adoption expensesQualified DC plans, 403(b) plans and IRAsDistributions made after 2019
    Increase in the age when distributions must beginQualified plans, traditional IRAs, 403(b) and 457(b) plansIndividuals who reach age 70 ½ after 2019
    Changes to the required minimum distribution rules for nonspouse beneficiariesQualified DC plans, traditional and Roth IRAs, 403(b) and 457(b) plansEffective with respect to participants and account holders who die after 2019
    Permit traditional IRA contributions after 70 ½Traditional IRAsContributions for tax years beginning after 2019
    Expand tax-free distributions from 529 plans529 college savings plansDistributions made after 2018
    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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    June Retirement Plan Newsletter 2020

    February Retirement Plan Newsletter 2020

     

    LUTZ BUSINESS INSIGHTS

     

    FEBRUARY RETIREMENT PLAN NEWSLETTER

    TOO MANY CHOICES: HOW MANY INVESTMENT OPTIONS SHOULD YOU OFFER?

    Many plan providers struggle with deciding how many investment options to offer in their retirement plans. While people generally like to have lots of options when making other decisions, having too many plan options can potentially lead to poor investment decisions by plan participants. In addition, increasing plan options can also increase plan costs, as well as the administration associated with the plan.

    Choice Overload

    In a study on retirement plan options, researchers concluded that it is possible to present plan participants with too many options1. The researchers began by offering people selections of jams and chocolates. Some were offered a wide variety, while others received fewer choices. The wide variety of jams got more attention from people, but more people purchased jams when the choices were limited. When sampling chocolates, people enjoyed choosing from the larger selection more, but also expressed more dissatisfied with the choices. Those who sampled from a smaller selection were more satisfied and more likely to buy chocolates again. The study showed that as the number of options increased, people became concerned with the possibility of making the wrong choice, and were increasingly uncertain that they had made the best choice possible.

    Looking at Plan Options

    Chocolates and jams aren’t big decisions but the researchers found that these same behaviors carried over to retirement plans. They examined participation rates for 647 plans offered by the Vanguard Group, a large investment management company, covering more than 900,000 participants. They found that as plans increased the number of options, employee participation decreased. In fact, for every 10 options added to the plan, participation dropped by 1.5-2 percent. Plans offering fewer than 10 options had significantly higher employee participation rates.

    Rising Costs

    In addition, more plan options can increase costs both for participants, in the form of fees, and for plan sponsors, who may face additional administrative charges from third-party administrators for additional options. Further, auditing and other costs may increase, since the number of options could increase the time necessary to conduct audits.
    It’s important to balance choice overload against the requirements of ERISA Section 404(c) which requires plan sponsors to have at least three diversified investment options with different risk and return characteristics.

    For more information on plan options, consult your plan advisor.

    1 http://www.columbia.edu/~ss957/articles/How_Much_Choice_Is_Too_Much.pdf

     

    USE PLAN ANALYTICS TO EVALUATE YOUR RETIREMENT PLAN

    Your retirement plan is a valuable resource for your employees and serves as a vehicle to attract and retain top talent. Ensuring plan success is crucial. Examining plan analytics can help evaluate its success.

    Plan analytics you should explore:

    • Median age, tenure and savings rates of plan participants

    These analytics can be helpful to determine which age groups are not strongly participating and may be encouraged to do so via on-site meetings, focused mailings and other communication and education.

    • Participants not contributing sufficiently to receive all eligible employer match

    Participants “leaving money on the table” can be studied to explain why contributing to the employer match maximum is so advantageous (e.g., with a 50 percent match, participants automatically earn 50 percent “return” on their contribution before any investment gains occur).

    • Participants, by age, in each target date fund

    Another demographic that can be helped by focused participant communications.

    • Participants taking loans

    It is important for plan fiduciaries to determine if the plan loan provision is being abused. This can result in significant asset leakage with participants and oversight concerns for plan fiduciaries.

    • Loan default rates

    Loan defaults also create problems for participants (taxation & penalties for premature distributions) and plan fiduciaries (loan defaults at 90 days arrear are a fiduciary breach).

    • Dollar amounts of employee contributions by type and source

    These analytics allow for a deep dive into appropriateness of participant behavior potentially impacting plan menu design decisions, employee investment assistance, Roth utilization, TDF utilization and more.

    Many factors impact the success of your plan. Studying your plan’s analytics helps you improve your plan and ensures your employees reach their retirement goals.

    TARGET DATE FUNDS AND FIDUCIARY OBLIGATIONS

     Target date funds (TDFs) — which rebalance investments to become more conservative as a fixed date approaches — are a convenient way for plan participants to diversify their portfolios and reduce volatility and risk as they approach retirement, making them an increasingly popular choice. However not all TDFs are created equal, and selecting and monitoring them can pose unique challenges for plan sponsors and fiduciary advisors.

    TDFs were first introduced in 1994. A little over ten years ago, just 13% retirement plan participants were invested in TDFs. Today, that number has risen to more than 50%, according to a new report from Vanguard, which also estimates that 77% of Vanguard participants will be invested in a single TDF by 2022.

    However, the “automatic” rebalancing feature of TDFs doesn’t supplant the obligation to monitor funds and educate participants. The Department of Labor (DOL) provides guidance on TDFs in the form of tips for ERISA plan fiduciaries. A fiduciary advisor can help plan sponsors understand the rules and assist with compliance.

    TDF Tip Highlights

    • Establish an objective process for comparing and selecting TDFs. Some of the things DOL suggests you consider include: fund performance, fund fees and expenses and how well the fund’s characteristics align with your employees’ ages, retirement dates and salaries.
    • Establish a process for periodic review of your plan’s TDFs. If there are significant changes in any of the criteria you considered when you added the TDF – management staff of the fund, performance, objectives – consider replacing it.
    • Understand the fund’s investments and how these will change over time. Aside from the primary strategy and underlying risk, another important aspect to consider is the fund’s “glide path.” Some TDFs reach their most conservative state closer to the target date, while others continue to become more conservative as participants move through their retirement years, with the assumption that funds will be withdrawn over a longer period of time.
    • Review the fund’s fees and expenses. Even small differences in fees can have a large impact on the growth of participants’ savings over time. In addition to fees and expenses charged by the component funds held by the TDF, are there additional charges for rebalancing or other services?
    • Ask whether a customized TDF that includes component investments not managed by the TDF vendor would be better for your plan. There may be additional costs associated with a custom TDF, but it may be worth it and you should ask the question.
    • Develop effective communications about TDFs for your plan participants, especially disclosures required by law. Check EBSA’s website for updates on regulatory disclosure requirements.
    • Use available sources of information, such as commercially available resources and services, to evaluate and review TDFs as well as any recommendations received concerning their selection.
    • Document your process for choosing and reviewing TDFs, including the decision-making process regarding individual investment options.

    *Read the full DOL Target Date Retirement Funds — Tips for ERISA Plan Fiduciaries document here https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/target-date-retirement-funds.pdf). The trend toward TDFs has changed the landscape for retirement plan investors, and it’s a trend that shows no signs of slowing down anytime in the near future. For assistance navigating this relatively recent evolution in retirement planning and investing contact your plan advisor.

    1 https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/target-date-retirement-funds.pdf

    2 https://pressroom.vanguard.com/news/Press-Release-Vanguard-Launches-How-America-Saves-2018-060518.html

    3 http://www.ucs-edu.net/cms/wp-content/uploads/2014/04/I_ABriefHistoryOfTargetDateFunds.pdf

    PARTICIPANT CORNER: TAKE ADVANTAGE OF YOUR COMPANY'S RETIREMENT PLAN MATCHING PROGRAM

    Over 40 percent of employers now offer at least a small retirement plan match to employees, who can help manage their financial wellness by taking advantage of this offer. Even if your employer only matches a small percentage, you’re losing money by not participating. But before you sign up for your company’s retirement plan, it’s important to know how to make the most of it. Here are a few tips that can help.

    Get the Details

    If you haven’t already clarified the details of your business’s retirement plan offerings, it’s never too late to find out. Ask your HR representative to list the benefits and find out how you can maximize your savings. Some employers offer a 50 percent match for each dollar you put in, while others match a dollar for every dollar. Find out what your company’s maximum match contribution is and decide whether you want to save only to that point or more.

    Don’t Be Afraid to Contribute More

    If your employer only matches up to a certain amount, don’t feel you have to only save that up to that point. Every dollar you save will grow tax-free over the years, providing a healthy cushion for your retirement years. The IRS does impose contribution limits, but those are fairly high, so it’s likely you won’t need to worry about it.

    Don’t Assume You’re Enrolled

    New employees often assume they were automatically enrolled in a business’s retirement, especially if the employer match was a selling point during the pre-hiring process. Make sure to ask if there’s something you need to do to enroll in the retirement plan program and take advantage of the match. Ask for program details and pay particular attention to any vesting schedule. If your employer-sponsored program has vesting requirements, you may find that you only receive the full benefits after a set time of employment.

    An important part of financial wellness is getting every benefit possible out of your work-sponsored retirement program. This often comes in the form of an employer match to your retirement plan, which will help you get a big head start on saving for your future!

    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

    Quarter in Review + Financial Market Update 6.30.2020

    Quarter in Review + Financial Market Update 6.30.2020

    As we get ready to roll into July, it’s hard to believe we are already at the midpoint of 2020. It has been a tale of two quarters so far this year, as one of history’s most vicious selloffs stopped on a dime and transitioned into a record-setting…

    read more

    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

    Tax Credits Increase for Companies Establishing a Retirement Plan in 2020!

    Tax Credits Increase for Companies Establishing a Retirement Plan in 2020!

     

    LUTZ BUSINESS INSIGHTS

     

    tax credits increase for companies establishing a retirement plan in 2020!

    chris wagner, investment adviser

     

    On December 20th, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law.  One of the major enhancements included in the bill is the increase in tax credits available to small businesses who establish a retirement plan after 12-31-2019.  A small business is considered to have less than 100 employees who make at least $5,000 per year. 

    Small businesses cite the biggest reason they don’t offer a company sponsored retirement plan is costs.  Under the SECURE Act, the tax credit for the first 3 years equals 50% of the plan’s startup costs up to the greater of $500, or $250 multiplied by the number of Non-Highly-Compensated employees eligible to participate, to a maximum of $5,000 per year.  A non-highly-compensated employee (NHCE) is classified as making less than $130,000 of compensation in 2020 and less than 5% ownership. 

    Additionally, a new tax credit equal to $500 for up to 3 years is available if the small business adds automatic enrollment to a new or existing plan.  Automatic Enrollment enrolls employees in the company retirement plan at a pre-determined percentage of pay upon meeting eligibility requirements.  It simply changes the enrollment process by requiring employees to opt out of participating vs going through the process of opting into the plan.  According to research by Vanguard, among new hires, retirement plan participation rates nearly double to 93% under automatic enrollment compared with 47% under voluntary enrollment. 

     

    Let’s review a few examples:

    1. XYZ Company has 10 eligible Non-Highly-Compensated employees and implements a 401(k) plan in 2020. XYZ Company would be eligible for up to $2,500 ($250 x 10) per year in tax credits to cover start up and plan administrative costs.  This credit would be available for 3 years assuming they maintain 10 eligible employees.  If the plan includes automatic enrollment XYZ Company will receive an additional $500 tax credit for 3 years.
    2. ABC Company has 40 eligible Non-Highly-Compensated employees and implements a 401(k) plan in 2020. ABC Company would be eligible for the maximum $5,000 ($250 x 40 = $10,000) per year in tax credits to cover start up and administrative costs.  This credit would be available for 3 years assuming they maintain at least 20 ($250 x 20 = $5,000) eligible employees.  If the plan includes automatic enrollment XYZ Company will receive an additional $500 tax credit for 3 years.

     

    Why is it important that small businesses provide their employees with access to a company sponsored retirement plan?

    According to the U.S. Small Business Administration Office of Advocacy, small businesses employ approximately 48% of the workforce.  A Labor Department report estimates that only half of the workers employed by companies with fewer than 50 employees have access to a retirement savings plan through their employer.  Most workers without access to a company sponsored retirement plan do not save on their own and have little or no retirement savings. 

    Implementing a company sponsored retirement plan also provides substantial benefits for the employer.  Opportunities for ownership and key employees to make meaningful tax deferred contributions, an enhanced benefit package to attract qualified employees in the low unemployment job market and a financially secure workforce just to name a few.  Companies can now provide this great benefit at a substantial discount for the first 3 years thanks to the SECURE ACT.  That is a win for everyone!

    Important Disclosure Information

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

    ABOUT THE AUTHOR

    402.827.2077

    cwagner@lutz.us

    LINKEDIN

    CHRIS WAGNER, CHFC®, CFP®, CPFA® + INVESTMENT ADVISER

    Chris Wagner is an Investment Adviser at Lutz Financial. With 15+ years of relevant experience, he specializes in providing company and corporate retirement plan consulting and investment advisory services. He lives in Elkhorn, NE, with his wife Kristin, and children Brynn and Owen.

    AREAS OF FOCUS
    • Retirement Plan Consulting
    • Investment Product Analysis
    • Provider and Fee Benchmarking
    • Fiduciary Guidance
    • Plan Design Analysis
    • Investment Advisory Services
    • Participant Education
    AFFILIATIONS AND CREDENTIALS
    • National Association of Plan Advisors, Member
    • CERTIFIED FINANCIAL PLANNER®
    • Certified Plan Fiduciary Advisor®
    • Chartered Financial Consultant
    EDUCATIONAL BACKGROUND
    • BSBA in Marketing, Midland University, Fremont, NE
    • American College of Financial Services, Bryn Mawr, PA
    COMMUNITY SERVICE
    • Knights of Columbus, Member
    • St. Wenceslaus, Volunteer Coach

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