August Retirement Plan Newsletter 2019

August Retirement Plan Newsletter 2019

 

LUTZ BUSINESS INSIGHTS

 

august RETIREMENT PLAN NEWSLETTER

FOUR REASONS TO INTEGRATE HEALTH SAVINGS INTO YOUR RETIREMENT PLAN

As Americans look into the future and towards retirement, many understand that maintaining their health will be an important part of their overall quality of life after they stop working. However, uncertainty around healthcare costs – both now and in retirement – is a major financial worry among Americans preparing for retirement. So how can you help your workers reduce financial anxiety about retirement preparedness and increase the likelihood that they will be able to meet their healthcare costs in retirement?

Health savings accounts (HSAs) present retirement plan sponsors a unique opportunity to address both the wealth and health of employees planning for retirement. HSAs are a popular way for individuals to save for medical expenses while reducing their taxable income – in effect, using their

HSA as a long-term investment vehicle. And though HSAs typically are introduced to employees as part of their high deductible healthcare plans (these are the only plan types which currently offer HSAs), many recordkeepers are beginning to offer them in an integrated platform where that can be reviewed alongside retirement savings.

Here are four reasons to integrate HSAs into your retirement plan offering:

1. Health Savings Accounts Address Concerns About Future Costs

In today’s retirement plan marketplace, holistic approaches increasingly feature a multi-faceted program that offers numerous features, all aimed at improving retirement readiness. While in the past it was sufficient to offer employees a straight-forward savings vehicle and trust that they would responsibly go about making contributions, today’s plan sponsors have seen that the introduction of sophisticated plan design features such as automatic enrollment, automatic escalation and financial wellness consultation go a long way towards boosting outcomes for their employees. With healthcare being such an important factor in quality of life, we see HSAs as one more tool you can wield in improving overall plan health.

HSAs are designed to assist individuals in paying for healthcare expenses both now and in the future. Today, a healthy 65-year-old male retiree can expect to pay $144,000 to cover healthcare expenses during retirement, and many studies show that we can expect health costs to rise at a rate that outpaces inflation, meaning this number will only grow over time. As HSAs are designed to provide a savings vehicle dedicated to covering qualified healthcare expenses, their ability to grow contributions tax-free helps defray the effect of future cost increases.

 

2. Health Savings are Triple Tax-Free Now and in Retirement

HSAs are unique in that they are designed specifically for healthcare expenses yet act more like an individual retirement account (IRA). HSAs are the only triple-tax advantaged savings vehicle of its kind. Participants with an HSA make contributions with pre-tax income, earnings and interest grow tax-free, and withdrawals are tax-free when used to pay for qualified medical expenses. Once in retirement, HSAs include no minimum required distributions and no Social Security or Medicare tax on contributions.

 

3. HSAs Can be Easily Integrated into an Existing Plan

You may be concerned about the administrative burden of incorporating an HSA into an existing plan, but in reality it can be done with little added administrative effort. In fact, it is possible for you to reduce administrative complexities with a single platform for both defined contribution plans and HSAs (as mentioned previously, many major recordkeepers offer their own HSA programs). With one portal that handles enrollment, retirement plan management, financial wellness programs, and HSA management, participants and sponsors can enjoy the added benefits of having these additional features seamlessly incorporated into their existing accounts. To improve the overall implementation of HSAs into a plan, we also encourage plan sponsors to incorporate HSA education into the front end of employee training, alongside other educational efforts for defined contribution plans and healthcare benefits.

 

4. Health Savings Accounts can Boost Employee Recruiting and Retention

If American workers are as anxious about medical expenses in retirement (and financial wellness in general) as surveys indicate, then a holistic retirement plan offering can be leveraged for marketing to potential new hires. A retirement plan that alleviates an employee’s concerns about the future will help employers retain existing workers and help attract new talent. By integrating an HSA into a robust retirement plan, your company signals that it understands the challenges to retirement preparedness and is ready to offer benefits that do the most to prepare them. The HSA account also rolls over in the same way a retirement account does, even if they choose to change jobs later on, making the benefit to the employee portable.

 

Conclusion

With the ultimate goal of providing a holistic retirement plan that prepares participants for financial security in retirement, you may want to consider adding HSAs to your plan offering. As a unique vehicle designed to reward savers with triple-tax benefits, HSAs can be seamlessly integrated into existing retirement plans while helping employee recruitment and retention. With healthcare costs continuing to increase with each passing year, HSAs provide a welcome sense of financial preparedness for Americans planning for their retirements.

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

 

About the Author, Kameron Jones

Kameron provides extensive knowledge of the provider marketplace to help reduce plan-related costs and improve plan-related services. He has assisted hundreds of mid- to large-market 401(k), 403(b), 457(b), 401(a), NQDC, Cash Balance, and DB plans. Kameron was also voted as a National Association of Plan Advisors (NAPA) top advisor under 40. Kameron graduated from the University of Pennsylvania with a Bachelor of Arts in philosophy, political science and economics and played outside linebacker on UPenn’s football team.

ANTHEM SETTLEMENT AWARDS PARTICIPANTS MORE THAN $23M

Recently the Bell vs. ATH Holding Company, LLC (a subsidiary of Anthem, Inc.) lawsuit settled. This is frequently referred to as the “Anthem Settlement” (the “Settlement”). The Settlement received quite a bit of attention from both the industry and mainstream press for a number of reasons, not the least of which include the size of the 401(k) plan ($5.1 billion), the size of the monetary settlement ($23,650,000), as well as inclusion of somewhat unusual non-monetary terms.

The Anthem 401(k) is considered a “jumbo” plan with over $5.1 billion in plan assets.  All but two of the plan’s investments were Vanguard mutual funds.  Vanguard mutual funds have a reputation for being low-cost investment alternatives.

Plaintiffs made the following allegations:

  • The plan’s fiduciaries breached their duties to the plan by using more expensive share classes of investments than was necessary. For example, the plan offered the Vanguard Institutional Index Fund with an expense ratio of 0.04%, but a lower share class was available at 0.02%.
  • Less expensive vehicles should have been explored for the same investment strategies, for example utilization of collective investment trusts (CITs) or separate accounts (SAs).
  • The plan should have offered a stable value investment instead of a low-yielding money market fund.

In discussing the Settlement it is important to remember that the case has not actually been adjudicated.  In other words, no court has ruled on the merits of the allegations made against, nor the actions taken by, the plan’s fiduciaries.  Also, it would be incorrect to state that any inferences can be made about the prudence, or lack thereof, of the fiduciaries’ actions or inactions in regards to any of the allegations.  Rather, what may be gleaned from the Settlement are concepts that fiduciaries should understand to best protect themselves from similarly targeted lawsuits.

Settlement Terms

The following are monetary, and some of the more interesting non-monetary, settlement terms:

  • $23,650,000 – split amongst two classes of participants. One class contains participants with account balances greater than $1,000 as of a certain date.  The other class contains participants who would have experienced a reduction of their account at a rate of $35/year due to revenue sharing for a certain period of years.
  • The plan’s committee will provide a targeted communication to participants invested in the money market that includes a fund fact sheet (or something similar that explains the risks of the money market fund), the historical returns of the money market over the past 10 years, and the benefits of diversification.
  • The plan’s fiduciaries must conduct an RFP for recordkeeping services within 18 months of the Settlement period. The RFP must explicitly request a fee proposal based on total fixed fee and on a per participant basis.
  • The fiduciaries must engage an independent investment consultant, review said consultant’s recommendations, and make decisions based on those recommendations, taking into account the lowest-class share class available, whether or not revenue sharing rebates are available, and alternative investment vehicle (CIT or SA) availability. 

Takeaways

Fiduciaries should take away the following concepts from the Settlement:

  • Plaintiff’s counsel seems to have a preference for per participant fee structures. This is not legally required, and in fact may not always be the most cost efficient fee design. Plaintiff’s counsel’s actions are a sober reminder that fiduciaries should, at a minimum, educate themselves regarding available fee structures and choose prudently among them.
  • Pushing for the lowest share class seems to be a recurring theme in lawsuits and settlements. Again, this is not a requirement under the law.
  • The desire to see more plans use investment vehicles that may be less expensive than their mutual fund counterparts is increasing. CITs and SAs are designed for institutional use, such as qualified retirement plans. Fiduciaries need to be educated on their availability and when it may be prudent to offer them in their plans.

As always, we will keep you abreast of significant industry developments and provide you with practical applications for your roles as a plan sponsor and fiduciary.

HEY JOEL!

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

Hey Joel,

Is it ok to use the same company for my plan’s recordkeeping, 3(38) advisory services, and administration? – Consolidating in California

Dear Consolidating,

It may seem logical to bundle all of your retirement plan’s services with one provider – recordkeeping, 3(38) advisory services, and administration. How easy would it be to have a one-stop-shop for everything? However, this might not be as good of an idea as you would think.

Having an independent 3(38) or 3(21) adviser is critical in monitoring the providers that are working on your plan. Without an independent expert on your side, how will you know whether, 1) mistakes are being identified, and 2) if mistakes are identified, are they being properly dealt with? An independent adviser will ensure providers are taking proper actions even if it costs them money.

You wouldn’t want the fox guarding the hen house, would you?

 

Expanding Horizons,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

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

PARTICIPANT CORNER: WHAT'S AN HSA AND IS IT RIGHT FOR YOU?

This month’s employee memo gives participants answers to common questions on HSAs. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

Health savings accounts (HSAs) have grown tremendously in popularity over the past few years. You’ve probably heard of them or maybe your employer offers one. This memo will uncover answers to common questions you may have about HSAs.

What’s an HSA?

A type of savings account that allows you to set aside money on a pre-tax basis to pay for qualified medical expenses.

 

Can anyone get an HSA?

In order to open an HSA, an individual must first enroll in a qualified high deductible health plan (HDHP).

 

I’ve heard HSAs have triple-tax advantages, what are they?

  1. Contributions are tax free.
  2. Contributions can be invested and grow tax free.
  3. Withdrawals aren’t taxed, if used for qualified medical expenses.

If I change employers, what happens to my HSA?

HSAs are completely portable for employees, meaning you may take it with you if you change employers.

 

Do I lose my HSA funds at the end of the year?

No. The balance can grow and carry from year to year and can also be invested.

 

What can I pay for with my HSA?

Generally HSA funds can be used to pay for anything that your insurance plan considers a “covered charge,” including charges not paid by your health insurance because they were subject to a co-pay, deductible or coinsurance.

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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VIEW MODIFIED SUMMER HOURS HERE

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

July Retirement Plan Newsletter 2019

July Retirement Plan Newsletter 2019

 

LUTZ BUSINESS INSIGHTS

 

JULY RETIREMENT PLAN NEWSLETTER

SUMMER HOMEWORK FOR FIDUCIARIES

As you bask in the glory of summer over the next couple of months, don’t forget the three Fs that define this cherished season — fun, Fourth of July, and fiduciary! While you’re enjoying the fruits of summer, don’t forget your 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 DOL’s 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. As you contemplate these important questions while staying cool this summer, if you need help uncovering the answers to any of these important questions, do not hesitate to ask your plan advisor.

 

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.

THE SECURE ACT

LEGISLATION TO HELP AMERICANS SAVE MORE FOR RETIREMENT

It’s no secret that Americans are not saving enough for retirement. The U.S. Government Accountability Office (GAO) recently reported that 48 percent of households aged 55 and over have no retirement savings.

To address this issue, a new retirement-related bill is making its way through Congress, The Setting Every Community Up for Retirement Enhancement (SECURE) Act. Its purpose is to help Americans save more for retirement by creating new rules to expand and preserve retirement savings, improve the administration of retirement plans, provide additional benefits and create revenue provisions. Highlights of the Act include:

Increase Auto Enrollment Safe Harbor Cap

Qualified automatic enrollment arrangements (QACAs) would be able to auto increase employee deferrals up to 15 percent instead of the currently required 10 percent cap.

Pooled Employer Plans (aka Open MEPs)

The legislation will allow for a new type of plan whereby unrelated employers could pool their resources to optimize buying power in a new type of plan called a “pooled employer plan” (PEP). By and large, the PEP is what was previously referred to as an open multiple employer plan (open MEP). Open MEPs were an issue that PEPs are designed to remedy. PEPs would be treated as a single plan under ERISA. The legislation also purports to eliminate the “one bad apple” rule whereby the qualification issue of one adopting employer would not taint the qualified status if the entire PEP for the remaining adopting employers.

 

Increase Credit Limit for Small Employer Plan Start-Up Costs

To make it more affordable for small businesses to implement retirement plans, the legislation will increase the credit for small businesses by changing the calculation of the flat dollar amount limit on the credit to the greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000. The credit applies for up to three years.

 

Child Birth or Adoption Withdrawals

The SECURE Act would allow participants to take up to $5,000 from their plan or IRA for birth, or adoption, related expenses incurred within a year of the action. These could be taken on a penalty-free basis.

 

Small Employer Automatic Enrollment Credit

The legislation will create a new tax credit of up to $500 per year to small employers to provide for startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment.

 

Allowing Long-Term and Part-Time Workers to Participate In 401(k) Plans

Under current law, employers are not required to include part-time employees (those working less than 1,000 hours per year) in their defined contribution plan. The legislation will require employers maintaining a 401(k) plan to have at least a dual eligibility requirement under which an employee must complete either one year of service (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service, except in the case of collectively bargained plans. For employees that are eligible based solely on the second new rule, employers may exclude those employees from testing under the nondiscrimination and coverage rules and from the application of top-heavy rules. In addition, those employees that are eligible based solely on the second new rule may be excluded from employer contributions.

 

Other Changes

Other changes such as increased filing failure penalties, PBGC premiums, 529 plans, some tax implications to certain identified individuals, and church plans are also included in the legislation.

 

It’s important to note that the SECURE Act is not yet finalized and has not been signed into law. As always, we will stay abreast of the legislation and will inform you when any significant changes are made.

HEY JOEL!

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

Hey Joel,

One of my current employees recently received a notice from Social Security saying that they might be entitled to a retirement benefit. Is it my responsibility to track this money down? – Investigating in Illinois

 

Dear Investigating,

Employers are required to file Form 8955-SSA with the IRS each year to report former participants with balances remaining in the plan. The information is provided to the Social Security Administration, which in turn notifies retirees of benefits.

While the form does allow employers to “un-report” these participants once they take distributions, it is common practice to only list newly terminated employees without ever removing those who have received their benefits.

I suspect that the employee in question here recently filed a claim for Social Security benefits and that the Social Security Administration (SSA) sent them a letter stating that they MAY be entitled to pension benefits under the plan. But, I also suspect that the plan paid the employee their account balance back when they terminated employment. But, without clear records showing that the employee already received their benefits, it may be difficult for the employer to convince the employee that the letter they received from the SSA is incorrect.

So, what is an employer to do? Here are my general thoughts.

  1. Check and see if someone at the employer has kept Form 1099Rs for plan distributions.
  2. Check with the prior recordkeepers and see if they still have any participant records for the plan that would show distributions.
  3. I don’t think the Form SSA is available to look up online, and as noted earlier, most employers do not “un-report” participants after they have received their benefits. But, if the employer does have past Form SSAs they can access, it would not hurt to at least take a look and see if the form lists previously reported participants who have received their benefits.
  4. If the employer cannot come up with any records that show the employee previously received their benefits from the plan, the employer could advise the employee that a) the employer has no records showing that the employee is owed money from the plan, b) they may have been listed on a Form SSA way back in 2003 showing that they had an account balance under the plan, and c) the employee likely previously received their benefit from the plan sometime following termination of employment. The employer should include a copy of the plan’s SPD along with the following note: “Attached is a copy of the plan’s Summary Plan Description, which includes a description of the plan’s claims procedure. The claims procedure outlines what the plan requires for you to file a claim and information on where to file, what to file, and who to contact if you have questions.”
  5. Going forward, the employer should put in place a system to retain all participant distribution forms and Form 1099Rs.

 

Dispelling Scrutinizing,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

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

PARTICIPANT CORNER: SUMMER HOMEWORK FOR PARTICIPANTS

This month’s employee memo gives participants “Summer Homework” encouraging them to do routine checks on their plan details to ensure that everything is in line. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

Summer can serve as a preview of your retirement — long days in the sun and spending time with your loved ones!  So, what better time to do a routine check-up on your retirement plan! Protect your loved ones and ensure you are keeping up to date with your retirement plan with our summer homework assignments!

 

Update/Assign Beneficiaries

Did you experience a major life change this year, such as marriage, divorce, birth or death? It’s important to consider updating your beneficiaries when you go through a major life change.

 

Review cyber Security Best Practices

Retirement plans are a major target for cyber attacks. Retirement plan participants often have weak passwords and can unknowingly fall for phishing schemes. It’s important to educate yourself on cyber security best practices to ensure you are keeping your information and assets safe.

 

Increase Contribution

Raise your contributions once a year by an amount that’s easy to handle, on a date that’s easy to remember – for example, 2 percent every Fourth of July. Thanks to the power of compounding (the earnings on your earnings), even small, regular increases in your plan contributions can make a big difference over time.

 

Revisit Asset Allocation

Rebalance your portfolio back to the original asset allocation that took into account your risk tolerance and time horizon, this ensures you adhere to your investment strategy. You rebalance by selling assets that make up too much of your portfolio and use the proceeds to buy back those that now make up too little of your portfolio.

 

Remember Sunscreen!

Wearing sunscreen reduces your risk of developing skin cancer, it keeps your skin looking younger and protects you from UVB rays. What other reasons do you need to wear it?

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

Is Value Investing Dead?

Value investing has been around for nearly a century, developing a devout group of followers over time. Some of the world’s most prominent investors employ a variation of the strategy, including Omaha’s…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

VIEW MODIFIED SUMMER HOURS HERE

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

June Retirement Plan Newsletter 2019

June Retirement Plan Newsletter 2019

 

LUTZ BUSINESS INSIGHTS

 

JUne RETIREMENT PLAN NEWSLETTER

MILLENNIALS KNOW IT ALL. BUT, ARE THEY SAVING FOR RETIREMENT?

Millennials

Millennials – they’ve infiltrated the workplace and bring expertise in social media, individuality, technology and hipster bars. But, what do they know about saving for retirement? Typically, younger people don’t make retirement savings a priority. Living expenses, student debt, rent or house payments, and other day-to-day expenses mean that retirement savings take a back seat. In fact, a Franklin Templeton Investments survey from January 2016 says that 40 percent of millennials don’t have a retirement plan in place, and 57 percent haven’t started saving.1 That attitude, however, will make it much more difficult to have a secure retirement later,  according to seasoned retirement plan advisors.

The main thing that millennials are sacrificing by not saving now is time. Time allows funds to grow through compounding, and that can turn relatively modest savings into much larger nest eggs. For example, saving $50 each month in a retirement account earning 6.5 percent annually and compounded monthly would generate retirement savings of $226,781 over 50 years. A millennial who starts saving the same amount 30 years later, allowing it to only compound for 20 years, would have only $24,525 at the end of the 20 years.2

And $50 each month isn’t a huge amount, even for a cash-strapped millennial. Some other retirement savings tips you can share with your millennial employees are:

  • Take full advantage of employer-sponsored retirement plans, like 401(k) or 403(b) plans. Funds contributed to these tax-advantaged programs grow free of taxes, which means more money stays in the account to generate interest.
  • Contribute at least as much as your employer is willing to match. If your employer matches three percent of your salary, you should start by contributing that much.
    • Otherwise, you’re “leaving money on the table.” Your employer match instantly increases your contribution, and your money grows faster.
  • Don’t worry about not being an investment expert. Many retirement plans now offer target-date funds (TDFs). Also known as lifecycle or age-based funds, TDFs automatically adjust your investment assets as you age, so you don’t need to balance your funds yourself.

One common objection millennials have about contributing to an employer-based retirement fund is that they may not stay with that employer. Actually, very few people stay with a single employer for their entire careers, and they should be reminded that retirement plan funds can be rolled over into a new employer’s plan or rolled over into an IRA if they leave their job.

 

¹http://money.usnews.com/money/personal-finance/articles/2016-05-27/who-needs-a-retirement-plan-apparently-not-millennials

2http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

 

About the Author, Jamie Hayes

Jamie has over 10 years of experience in employer retirement plan fiduciary services and corporate pension consulting. Jamie works extensively with matters pertaining to the financial operation of employer-sponsored retirement plans. Jamie combines powerful behavioral finance strategies with the maximization of fiduciary risk management to help promote retirement confidence for both employers and employees. Jamie graduated with a Bachelor of Science degree in economics and high honors from University of Michigan.

THE EVOLVING WORKSCAPE

Longevity, demographic changes and technological innovation have revolutionized the world of work.

As many employers face a coming wave of baby-boomer retirements, the resulting gaps in unique skills, experience and institutional knowledge may be difficult to fill. Keeping mature workers engaged may help ensure that your company retains the employee knowledge necessary to compete.1 Going forward, successful workplaces will not only leverage the skills and institutional knowledge of mature workers, but also ensure that the expertise mature workers possess is shared with other employees.

Here’s how:

  • Offer educational opportunities
  • Be flexible
  • Promote collaboration

Offer Educational Opportunities

More than 80 percent of workers age 45 to 64 say the opportunity to learn something new is critical to them, and over 70 percent say that job training is an essential element of that ideal employment.1

Experienced workers are eager to get additional training so they can keep their skills sharp and make themselves more employable.

While large employers with abundant resources may already be providing this training, smaller companies can still manage to do this and reap the benefits. Assess your company’s existing training model and determine opportunities for bolstering your employees’ skillsets.

  1. Use free or low-cost options

Highly skilled employees might be your best trainers. Ask them to pass on their skills and knowledge to others.

  1. Promote internal learning opportunities

Don’t limit your training offerings. Host a variety of training and business building sessions and engage with your employees to find out what they like, don’t like, and what they want to learn more about.

  1. Subsidize training programs

Thanks to modern technology, there are more educational opportunities than ever before, such as online courses and tuition reimbursement programs.

 

Be Flexible

Workplace flexibility is a way to attract talent because it accommodates active lifestyles and child or eldercare. One study revealed that 77 percent of millennials think that flexibility is not only desirable but also is key to productivity. The idea is also appealing to baby boomers, who are seeking flexibility as they near their retirement years.2

  1. Evaluate your company’s existing policies. Which aspects do you currently offer?
  • Flexible hours
  • Working remotely
  • Job sharing
  1. Consider offering part-time work or a phased retirement

Promote Collaboration

Employees of all ages can benefit from a sense of community in the workplace. Sharing ideas is one way to foster this feeling. Whether it’s informal with shadowing and project partnerships, or formal with mentorship and reverse mentorship programs, generational and experiential differences are a learning opportunity.

  1. Brainstorming

Brainstorming brings employees together to work toward a common goal by offering various perspectives and solution.

  1. Create a reverse-mentorship program

In this program, older employees can pick up something fresh from their younger counterparts. For example, those who are less skilled at using technology might rely on another employee to teach them how to use a certain application or tool. Conversely, more experienced employees can teach younger ones how to develop business and share valuable insights.

  1. Provide spaces that support all of the above

Employees are more likely to be happy and collaborative when they have places to meet together comfortably, participate in training or seminars, or work independently when necessary.

In the workscape of tomorrow, employees of traditional “retirement age” want more, and workplaces must adapt if they want their business to succeed. In order to retain and attract the best talent across generations, including would-be retirees, it is critical to:

  • Offer educational opportunities for employees hungry to learn;
  • Be flexible to accommodate the employees with different lifestyles; and
  • Promote collaboration to foster a community and creative thinking.

People are living longer, better lives. And the happiest, most productive workplaces are those that are adapting to support these lifestyle changes.

 

1Employers Need To Train Their Older Workers, Too. Forbes.com. Oct. 17, 2017.

2More Than Avocado Toast: How Millennials Will Make Retirement Better For Baby Boomers. Forbes.com. Jan. 29, 2018.

This article was contributed by our valued partner, Hartford Funds, with minor edits made for spacing reasons.

HEY JOEL!

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

Hey Joel,

Should stable value information be included in our investment policy statement? – Paranoid in Portland

Hey Paranoid,

The cash or principal preservation alternatives can be quite varied in scope. As a result it is extremely difficult to create language that would be widely applicable to all vehicles available for such plan goals. Money market funds, stable value funds, guaranteed income contracts, and general accounts are very different in their design, tertiary goals, holdings, and regulatory aspects. Thus one set of standard specific criteria would be unwise for an IPS.  The primary goal of these vehicles in an efficient plan investment menu is the preservation of principal and minimization of risk. Thus focusing on the credit quality and stability of the provider are appropriate as primary criteria. Note that our IPS template states that criteria should include “credit quality, diversification and stability of insurance provider” but, it also states that criteria “should not be limited to” those items. Thus other criteria are well within the scope of what fiduciaries may, and perhaps should, be reviewing depending on the type of vehicle being utilized. As a result our team of former practicing ERISA attorneys is confident in this language. Supporting that confidence is the fact that over 40 independent ERISA attorneys have reviewed our IPS template and provided comment and none of them provided any additional recommended language or edits in regards to this particular language.

 

Dispelling Paranoia,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

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

PARTICIPANT CORNER: MILLENNIALS START SAVING NOW!

This month’s employee memo informs young participants, particularly millennials, about the benefits of saving early. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

Typically, younger people don’t make retirement savings a priority. Living expenses, student debt, rent or house payments, and other day-to-day expenses mean that retirement savings take a back seat. In fact, a Franklin Templeton Investments survey from January 2016 says that 40 percent of millennials don’t have a retirement plan in place, and 57 percent haven’t started saving.1 That attitude, however, will make it much more difficult to have a secure retirement later, according to seasoned retirement plan advisors.

The main thing that millennials are sacrificing by not saving now is time. Time allows funds to grow through compounding, and that can turn relatively modest savings into much larger nest eggs. For example, saving $50 each month in a retirement account earning 6.5 percent annually and compounded monthly would generate retirement savings of $226,781 over 50 years. A millennial who starts saving the same amount 30 years later, allowing it to only compound for 20 years, would have only $24,525 at the end of the 20 years.2

And $50 each month isn’t a huge amount, even for a cash-strapped millennial. Some other retirement savings tips include:

  • Take full advantage of employer-sponsored retirement plans, like 401(k) or 403(b) plans. Funds contributed to these tax-advantaged programs grow free of taxes, which means more money stays in the account to generate interest.
  • Contribute at least as much as your employer is willing to match. If your employer matches 3 percent of your salary, you should start by contributing that much.
    • Otherwise, you’re “leaving money on the table.” Your employer match instantly increases your contribution, and your money grows faster.
  • Don’t worry about not being an investment expert. Many retirement plans now offer target-date funds (TDFs). Also known as lifecycle or age-based funds. TDFs automatically adjust your investment assets as you age, so you don’t need to balance your funds yourself.

One common objection millennials have about contributing to an employer-based retirement fund is that they may not stay with that employer. Actually, very few people stay with a single employer for their entire careers, and retirement plan funds can be rolled over into a new employer’s plan or rolled over into an IRA if you leave your job.

 

1http://money.usnews.com/money/personal-finance/articles/2016-05-27/who-needs-a-retirement-plan-apparently-not-millennials

2http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

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

Is Value Investing Dead?

Value investing has been around for nearly a century, developing a devout group of followers over time. Some of the world’s most prominent investors employ a variation of the strategy, including Omaha’s…

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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 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

May Retirement Plan Newsletter

May Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

MAY RETIREMENT PLAN NEWSLETTER

FOUR WAYS TO INCREASE EMPLOYEE RETIREMENT CONTRIBUTIONS

 As a retirement plan sponsor, you want your employees to save the most they can in order to reach their maximum retirement potential. A significant amount of research says that you can improve both employee participation and their saving rates. Here are four ways you can help your employees start building a confident retirement:

  1. Boost employee participation with automatic enrollment. Choosing to automatically enroll all new employees in your retirement plan can dramatically improve your participation rates. According to the Center for Retirement Research (CRR) at Boston College, in one study of automatic enrollment, participation increased by 50 percent, with the largest gains among younger and lower-paid employees.1 While auto-enrolled employees are allowed to opt out of the retirement plan, most generally stay enrolled.
  2. Set the initial default contribution rate higher. Many companies who use auto-enrollment set their default contribution rate relatively low at 3 percent, according to the CRR, which is lower than the typical employer match rate of 6 percent. Workers who might have contributed more to their savings passively accept the lower default rate, which means they’re sacrificing employer matching funds along with saving less of their own pay.
  3. Adopt auto escalation. Plans that use auto escalation automatically increase their participants’ contribution rate every year, typically by 1 percent. Over time, that can significantly improve savings rates among workers. The CRR cites a 2013 study of Danish workers where the majority of workers who experienced automatic increases simply accepted them, and savings rates dramatically increased.
  4. Automate investment decisions with target date investment products. Investing is complicated, and many employees don’t want to take the time to learn how to manage their portfolios. Target date strategies automatically adjust an employee’s investment allocations over time, shifting them to a more conservative asset mix as the target date (typically retirement) approaches. The ease of use of target date funds means their popularity is increasing. The CRR notes that in 2014, nearly 20 percent of all 401(k) assets were in target date funds, and about half of plan participants used target date funds.2

1http://crr.bc.edu/wp-content/uploads/2016/08/IB_16-15.pdf

2http://crr.bc.edu/wp-content/uploads/2017/01/IB_17-2.pdf

 

About the Author, Michael Viljak

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

HOW MANY INVESTMENT OPTIONS SHOULD YOU OFFER?

 Many plan sponsors 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 administrative paperwork associated with the plan.

In a study on retirement plan options, researchers concluded that it is possible to present plan participants with too many options.1 The researchers began by offering people selections of jams and chocolates. Some were offered a wide variety, while others received less choices. The wide variety of jams attracted more attention from people, but more people purchased jams when offered limited choices. When sampling chocolates, people enjoyed choosing from the larger selection more, but also were more dissatisfied with the choices. Those who sampled from a smaller selection were more satisfied and more likely to buy chocolates again. In other words, as the number of options increased, people became more concerned by the possibility of making the “wrong” choice–they became uncertain that they had made the best choice possible. 

Chocolates and jams aren’t very 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 they offered, 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.

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.

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

HEY JOEL!

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

Hey Joel,

What’s the appropriate number of members and positions for a retirement plan committee? – Plannin’ in Pennsylvania

Dear Plannin’,

There is no specific guidance on the appropriate number of committee members. It’s important to have committee members who can contribute to the topics to be focused on. When there is one committee, as opposed to separate committees (for investments, plan design, employee communications, etc.) perhaps a CEO and/or CFO, an administrative executive and a participant communications representative would be appropriate committee members.

Ideally, these would be people who want to be on the committee to make a contribution to plan success and who are willing to accept fiduciary responsibilities, not the least of which is personal financial liability in event of a fiduciary breach. (Our Fiduciary Fitness Program (FFP) is designed to substantially mitigate this liability if followed appropriately.)

You can also have, as a regular or a non-voting member (guest with no intent as fiduciary), someone who can represent an employee base.

Most importantly, when setting up a committee, is to determine who the “named fiduciary” for the plan is. The named fiduciary will be identified in the plan document and this person or entity is the primary fiduciary for the plan. Note, if the named fiduciary is listed as “the Company” this is interpreted to mean the board of directors (if a C corporation or managing partners, if a partnership). The named fiduciary is expected to be the entity who has the authority to decide to have a retirement plan. The named fiduciary can delegate the majority of their fiduciary duties to co-fiduciaries (e.g., a retirement plan steering committee). Typically they would be anxious to do so as they likely would not want to be responsible for day-to-day management of the plan. The Committee Charter and ancillary paperwork (in our FFP) is designed expressly for this purpose.

 

The Committee Planner Extraordinaire,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

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

PARTICIPANT CORNER: TEN REASONS TO ROLL INTO YOUR EMPLOYER'S PLAN VERSUS AN IRA

This month’s employee memo informs participants about the benefits of joining their employer’s plan versus an IRA. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

Do you have retirement plan assets with a former employer’s plan that you’re not sure what to do with? Review the pros and cons of consolidating into your current employer’s retirement plan versus an individual retirement account (IRA).

1. Performance results may differ substantially.

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

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

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

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

3. IRA investment advisors may not be fiduciaries.

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

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

4. Stable value funds are not available.

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

5. IRAs typically apply transaction fees.

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

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

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

7. Loans are not available in IRAs.

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

8. Retirement plan consolidation is simple and convenient.

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

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

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

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

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

 

Although personal circumstances may vary, it may be a good idea for you to rollover your balance in a former employer’s retirement plan into your current employer’s plan rather than an IRA. Your savings potential will not be as limited as with an IRA.

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.

Q2 FIDUCIARY HOT TOPICS

RETIREMENT IS A LONG WAY OFF UNTIL IT'S NOT - SHOULD I SUPPLEMENT MY RETIREMENT SAVINGS WITH AN IRA?

IRAs are an effective way for individuals covered by employer-sponsored retirement plans to supplement their retirement savings. Anyone can make IRA contributions up to the annual limit. For 2019, this limit is $6,000, plus an additional catch-up contribution of $1,000 for taxpayers 50 and older. For traditional IRAs, contributions are tax deductible in the year made. Taxes are deferred on both contributions and earnings until the year withdrawn. For Roth IRAs, contributions are after tax and withdrawals (if certain requirements are satisfied) are completely tax free, including earnings.

While everyone with income can contribute to an IRA, there are phase-outs for high earners. These phase-outs reduce or eliminate the ability to make deductible or Roth contributions. The phase-outs for deductible contributions only apply to individuals covered by an employer-sponsored retirement plan.  The phase-outs for Roth contributions apply to all high earners.

  • Individuals subject to these phase-outs can still make nondeductible contributions. Nondeductible contributions to an IRA are advantageous as taxes are deferred on earnings until the year withdrawn. This can be especially attractive for individuals who expect to be in a lower tax bracket after retirement.
  • For 2019, if covered by a retirement plan, the phase-outs for deductible contributions are:
    • Single taxpayers: $64,000 – $74,000
    • Married filing jointly:
      • For the spouse covered by a plan: $103,000 – $123,000
      • For the spouse not covered by a plan: $193,000 – $203,000
  • For 2019, for all individuals, the phase-outs for Roth contributions are:
    • Single taxpayers: $127,000 – $132,000
    • Married: $193,000 – $203,000

WELLS FARGO - PRINCIPAL AGREES TO BUY RETIREMENT BUSINESS

Wells Fargo sold off a number of business units in an effort to better focus on its core banking business. In the latest deal, Principal Financial Group agreed to purchase Wells Fargo’s retirement and trust services business for $1.2 billion. This is a substantial acquisition. This business represents $827 billion in retirement plan assets with 7.5 million participants. This transaction will increase Principal’s footprint in the mid-size market as the majority of Wells Fargo’s plans range from $10 million to $1 billion in assets. In terms of assets, Principal will become the third largest recordkeeper, trailing only Vanguard and Fidelity. It is possible significant layoffs will occur as this transaction is obviously attractive to Principal because of the opportunity to achieve economies of scale.  This is part of an ongoing wave of consolidation in the industry that includes a number of significant acquisitions: Empower- JP Morgan, John Hancock – New York Life, and One America – Bank of Montreal.

DOL'S NEW FIDUCIARY RULE & THE SEC'S BEST INTERESTS RULE - IS NO NEWS GOOD NEWS?

 Neither the Department of Labor (DOL) nor the Securities & Exchange Commission (SEC) has given any indication of how they are progressing with their new respective fiduciary rules. Last year, both agencies said they would publish their respective rules in September of this year. At this point, it seems unlikely either agency will meet this deadline. Additionally, it is possible these rules may never materialize due to the current administration’s general view on regulations.

In March of last year, almost 10 years after the DOL’s Fiduciary Rule was first proposed, the Fifth Circuit of the U.S. Court of Appeals vacated the rule in its entirety. The DOL elected not to appeal to the Supreme Court. Quickly following this decision, and to no one’s surprise, the SEC issued a package of its own proposed advice standards. This includes a “Regulation of Best Interest.” The Commission indicated that a final rule would be forthcoming this fall.

In October, DOL released its regulatory agenda for 2019 which includes plans to issue a revised Fiduciary Rule in September of 2019.  The essence of the DOL’s original Fiduciary Rule was that persons advising plans, participants or IRA holders, are acting as fiduciaries and may only make recommendations that are in the “best interests of the client.” The SEC’s new rule goes beyond the existing rule of suitability and requires that brokers and advisors put the best interests of their clients ahead of their desire to make money. Both rules have generated controversy. They have been criticized as unnecessary and overly complex (DOL’s rule is 176 pages long and the SEC’s proposed rule is almost 1,000 pages). The DOL’s rule experienced challenges in the courts on the grounds that the attempt to regulate the financial services industry went beyond the Department’s statutory authority. Although the aims of these two agencies are similar, they have made no attempt to coordinate their efforts.

LITIGATION UPDATE: ABB SETTLES FOR $55 MILLION

ABB recently announced the settlement of a lawsuit involving its 401(k) Plan. This settlement is another victory for the law firm of Schlichter, Bogard & Denton in St. Louis. Earlier this year, it obtained a $10 million settlement in a suit brought against Duke University. Filed in 2013, this suit has now dragged on for almost 13 years. It was one of the first class action suits against a retirement plan under ERISA. As in all such class actions, the plan in question is substantial. ABB has 24,000 employees and about $2 billion in plan assets. The alleged fiduciary violations are typical for these kinds of suits – poor investment choices and excessive fees that, in this case, were used to subsidize services provided to other plans. The case went to trial in 2010, resulting in a $36 million judgment for the plaintiffs. On appeal, the judgment was overturned and the case remanded for further proceedings.  The Schlichter firm has obtained large settlements in other class actions including $57 million against Boeing and the largest settlement to date in these types of suits – $62 million against Lockheed Martin. Attorney’s fees and other details of the settlement have yet to be announced.

RECENT LUTZ FINANCIAL POSTS

Is Value Investing Dead?

Value investing has been around for nearly a century, developing a devout group of followers over time. Some of the world’s most prominent investors employ a variation of the strategy, including Omaha’s…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

VIEW MODIFIED SUMMER HOURS HERE

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

April Retirement Plan Newsletter

April Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

APRIL RETIREMENT PLAN NEWSLETTER

TEN REASONS TO ROLL OVER INTO YOUR PLAN VERSUS AN IRA

 TEN REASONS TO ROLL OVER INTO YOUR PLAN VERSUS AN IRA

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

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

 

  1. Performance results may differ substantially.

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

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

 

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

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

 

  1. IRA investment advisors may not be fiduciaries.

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

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

 

  1. Stable value funds are not available.

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

 

  1. IRAs typically apply transaction fees.

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

 

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

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

7. Loans are not available in IRAs.

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

 

8. Retirement plan consolidation is simple and convenient.

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

 

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

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

 

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

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

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

 

About the Author, Michael Viljak

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

LOSS AVERSION AND FIGHTING FEAR

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

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

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

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

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

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

HEY JOEL!

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

Hey Joel,

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

Hey Beefin’,

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

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

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

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

 

Pumpin’ up plan sponsors,

Joel Shapiro

About Joel Shapiro, JD, LLM

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

PARTICIPANT CORNER: TAX SAVERS CREDIT REMINDER

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

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

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

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

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

 

FILING STATUS/ADJUSTED GROSS INCOME FOR 2019

Amount of Credit

Joint

Head of Household

Single/Others

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

 

For example:

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

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

DISCLOSURE INFORMATION

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

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

Is Value Investing Dead?

Value investing has been around for nearly a century, developing a devout group of followers over time. Some of the world’s most prominent investors employ a variation of the strategy, including Omaha’s…

read more

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13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

March Retirement Plan Newsletter

March Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

MARCH RETIREMENT PLAN NEWSLETTER

DEPARTMENT OF LABOR ISSUES RELIEF GUIDANCE FOR VICTIMS OF CALIFORNIA WILDFIRES

Department of Labor Issues Relief Guidance

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

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

Specific guidance is offered in certain areas:

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

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

 

About the Author,Bill Tugaw

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

VISUALIZE RETIREMENT | WHAT ARE YOUR PARTICIPANTS SAVING FOR?

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

 

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

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

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

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

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

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

Workers’ Vision for Retirement:

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

 

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

Concern About Personal Events:

Concern About Personal Events Chart

 

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

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

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

 

 Benefits for Plan Sponsors

Workforce Management Flexibility:

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

 

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

Long-term Cost Mitigation:

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

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

HEY JOEL!

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

Hey Joel,

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

Hey Questioning,

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

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

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

The Expert,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

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

PARTICIPANT CORNER: VISUALIZE RETIREMENT WORKBOOK

Visualize Retirement Image

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

DISCLOSURE INFORMATION

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

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

Is Value Investing Dead?

Value investing has been around for nearly a century, developing a devout group of followers over time. Some of the world’s most prominent investors employ a variation of the strategy, including Omaha’s…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

VIEW MODIFIED SUMMER HOURS HERE

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850