February Retirement Plan Newsletter

February Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

FEBRUARY RETIREMENT PLAN NEWSLETTER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

About the Author, Joel Shaprio, JD, LLM

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

EFFECTIVE EMPLOYEE EDUCATION

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

 

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

 

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

 

HEY JOEL!

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

Hey Joel,

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

 

Dear Tardy,

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

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

 

Punctual and proud,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

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

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

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

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

 

  1. Make a Budget

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

 

  1. Pay More Than the Minimum 

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

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

 

  1. Apply Raises and Tax Refunds to Your Student Loans

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

 

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

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

 

DISCLOSURE INFORMATION

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

For more important disclosure information, click here.

Q1 FIDUCIARY HOT TOPICS

HARDSHIP WITHDRAWALS - THE INTERNAL REVENUE SERVICE ISSUES PROPOSED REGULATION REFLECTING STATUTORY CHANGES

This past November, the IRS issued proposed regulations to effectuate changes made for hardship withdrawals in the Bipartisan Budget Act of 2018. Comments were due by Jan. 14, 2019. Although the statutory changes are effective beginning in 2019, the proposed regulations do not require any changes in how hardships are administered until 2020.

Plan documents must be amended to reflect changes to the safe harbor rules. Most recordkeepers updated their systems so participants are no longer suspended from making contributions following a hardship distribution, but they have not set a time frame for when plan sponsors can expect to receive the necessary amendments. The deadline for amendments will be the end of the second calendar year beginning after the hardship changes appear on the IRS’ Required Amendments List. The proposed regulations include some changes that go beyond what is required to conform to the statutory changes. While the changes generally make hardship distributions more accessible, the IRS makes it clear that plan sponsors are free to add their own restrictions, such as limiting the sources eligible for hardship distributions.

Current Law

Prior to age 59½, in-service distribution of elective deferrals is limited to certain events including hardship. A distribution qualifies as a hardship only if made on account of an “immediate and heavy financial need.” The amount distributed cannot exceed the amount necessary to satisfy this need. The determination of whether the participant has “an immediate and heavy financial need” must be based on “all relevant facts and circumstances.” A distribution is considered necessary to meet “an immediate and heavy financial need” only if other resources are not available to the participant. Plan sponsors may accept a participant’s representation that he/she has no alternative resources, unless the sponsor has actual knowledge to the contrary. Certain sources are not eligible for hardship distributions – post 1988 earnings, safe harbor contributions, QNECs and QMACs.

Existing Safe Harbor Rules

Although not a legal requirement, the majority of plan sponsors follow the safe harbors. If a plan sponsor follows the safe harbor rules, the IRS will not challenge hardships on audit. These rules are included in virtually all prototype and volume submitter documents. There are two aspects to the safe harbor rules:

  • First, six events are deemed to qualify as “an immediate and heavy financial need:” (1) deductible medical expenses; (2) costs associated with purchase of a principal residence: (3) tuition and other expenses associated with post-secondary education; (4) payments to prevent eviction; (5) funeral expenses and (6) deductible expenses associated with repairing damage to a participant’s principal residence if deductible as a casualty loss.
  • Second, a distribution is deemed necessary to satisfy the immediate and heavy financial need if the participant has taken all other available plan distributions, including loans, and the participant is suspended from contributing for six months.

What Has Changed

  • The six-month suspension of contributions is eliminated (optional for 2019).
  • The requirement to take a loan first is now optional.
  • Except for 403(b) plans, all account sources are now eligible for hardships, but sponsors may elect to limit the sources eligible.
  • Earnings remain ineligible for all 403(b) plans, along with QNECs and QMACs in custodial accounts.
  • Casualty losses related to home repairs are now deductible only if the taxpayer resides in an area declared to be a federal disaster. The proposed regulation clarifies that a participant is eligible for a hardship distribution for such losses whether or not a federal disaster is declared.
  • All expenses related to an event declared by FEMA to be a federal disaster qualify for hardship if the participant resides in or works in the disaster area.
  • Expenses incurred by the primary beneficiary that are qualifying medical, education or funeral expenses are eligible for a hardship distribution. Under prior law, this was limited to the participant, spouses and dependents.

The “all relevant facts and circumstances” evidentiary standard no longer applies. The participant must first take any available distributions under all plans of the sponsor. This includes non-qualified plans. And, beginning in 2020, the participant must represent in writing (or by electronic medium) that he/she has no other available resources to satisfy the need. The sponsor may accept this representation unless it has actual knowledge to the contrary

AS THEY ALWAYS SAY, THINGS NEVER MATTER UNTIL THEY MATTER

Municipal bond holders may not appreciate the risks they are undertaking. Municipal bonds have always been viewed as an ultra-safe investment. However, in recent years a number of pundits have predicted widespread defaults on these bonds precipitated by growing unfunded state and local pension liabilities. With some exceptions (Detroit, Puerto Rice and Stockton, CA), these predictions have not come to pass. Investors have given little heed to these warnings.  Ratings agencies and fund managers in this sleepy sector continue to operate on the assumption that things will somehow work out.  The liabilities of state and local governments are now estimated at about $8 billion – half owed to bond holders and half to pensioners. Rising stock markets and low interest rates in recent years would seem to have been the perfect environment for state and local governments to improve the pension funding. However, things have continued to deteriorate making it more likely that predictions of widespread defaults may pan out. At the beginning of the financial crisis, according to the Pew Charitable Trust, state and city pension plans were on average 86 percent funded.  Unfunded liabilities have now grown to $1.4 trillion and just 66 percent are funded. This is based on states’ and cities’ own rosy assumptions that future returns on pension assets will on average equal 7.5 percent.  Decreasing this assumption by only one percent increases pension liabilities by about $400 billion. Using more realistic assumptions, the American Legislative Exchange Council estimated that the funding of Connecticut, Illinois and New Jersey, the three states with the biggest challenges, is only 19.7 percent, 23.3 percent and 25.7 percent respectively. Cities can cut back on services and take on more debt without bouncing checks to pensioners or bondholders. But rising interest rates, declining stock markets and/or a recession may be the tipping point. In the last recession, state revenues across the country declined on average by 8 percent. When crunch time comes, municipal bonders may be in for a shock. In those bankruptcies to date, pensioners have fared far better than bond holders. When the municipal bond market start to reflect the real risks, bond holders will be asking why no one saw this coming.

THE PBGC ASSUMES RESPONSIBILITY FOR SEARS PENSION PLANS

The Pension Benefit Guaranty Corporation (the PBGC) is a government insurance program that guarantees all private defined benefit pensions. There is no comparable insurance for defined contribution plans. The PBGC pays benefits to almost a million participants covered by 4,800 failed pension plans and is responsible for future payments to another half a million individuals. The PBGC faces an uncertain financial future and its challenges continue to grow due in large part due to the long-term decline in defined benefit pension plans. Its liabilities now exceed assets by almost $80 billion. With Sears in bankruptcy the PBGC has no choice but to assume responsibility for its two pension plans covering about 90,000 participants. The PBGC has been working with Sears for several years to improve the funding of its plans. The proceeds from the sale of its Craftsmen brand and certain real estate properties were contributed to the plans. These measures notwithstanding, the unfunded liabilities for these plans are about $1.4 billion. Assuming responsibility for these two plans is the biggest hit the PBGC has taken since the United Airlines bankruptcy in 2002.

LITIGATION UPDATE: ONGOING LITIGATION AGAINST COLLEGES AND UNIVERSITIES - DUKE SETTLES BUT IT'S HARDLY A WINDFALL FOR PARTICIPANTS

Since 2016, more than 20 lawsuits have been filed against fiduciaries of university retirement plans. The defendants are among the largest and most prestigious schools in the country, as they present very visible targets. Many of these suits were filed by the same law firm, Schlichter, Bogard & Denton of St. Louis, one of the leading plaintiffs’ firms in ERISA litigation. Plaintiffs have not fared all that well. Although the University of Chicago settled in May of last year for $6.5 million, four schools have successfully made their case in court – Washington University in St. Louis, New York University, the University of Pennsylvania and Northwestern University. Also, plaintiffs voluntarily withdrew a suit brought against the University of Rochester. The first of these suits was filed against Duke – Clark versus Duke University. The plaintiffs alleged a series of fiduciary breaches including a dizzying array of investment choices; using four different recordkeepers; not offering index funds; paying excessive asset-based recordkeeping fees because the fiduciaries failed to leverage their large size in fee negotiations. While some of these practices are questionable, overall Duke’s approach has been typical of how large university retirement plans are administered. A settlement was announced only two weeks after Duke filed a motion asking the judge to dismiss the case. The trial had been set to begin in July. The settlement requires Duke to take the following steps:

  •  In the first and second years of the settlement period, provide plaintiffs’ counsel a list of the investment options, the fees and the IPS;
  • No later than Jan. 1, 2020, communicate in writing to plan participants the new investment lineup and provide a link to a web page showing performance and fees;
  • During the third year of the settlement, retain a consultant to advise it on RFPs for recordkeeping and administrative services; and
  • Plan assets may no longer be used to pay salaries and fringe benefits of employees performing services for the plan.

The settlement is hardly a windfall for the approximately 40,000 participants.

  • Named plaintiffs are seeking $25,000 each.
  • Legal counsel is requesting $3.5 million in fees and $825,000 in expenses.
  • Newport Trust Company is acting as an independent fiduciary at a cost of $30,000.
  • Analytics, LLC is serving as settlement administrator at a cost of $146,000.
  • This leaves a paltry $150 each for participants.

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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

January Retirement Plan Newsletter

January Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

JANUARY RETIREMENT PLAN NEWSLETTER

SIX EASY STEPS TO KEEP YOUR PLAN ASSETS SAFE

Six Easy Steps to Keep Your Plan Assets Safe

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

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

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

 

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

 

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

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

 

About the Author, Joel Shapiro

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

RECORDS AND THEIR EXPIRATION DATES

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

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

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

 

chart 1

 

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

chart 2

 

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

 

About the Author, Joel Shapiro

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

HEY JOEL!

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

Hey Joel,

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

 

Dear Anxious,

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

 

Also Anxious,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

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

PARTICIPANT CORNER: KEEP YOUR PLAN ASSETS SAFE

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

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

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

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

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

 

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

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

 

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

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

DISCLOSURE INFORMATION

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

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

Lutz Financial adds Joe Carlson

Lutz, a Nebraska-based business solutions firm, welcomes Joe Carlson to its Omaha office’s financial division. Joe joins Lutz Financial as a Financial Planner. He is responsible for assisting Lutz Financials’ advisers…

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

December Retirement Plan Newsletter

December Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

DECEMBER RETIREMENT PLAN NEWSLETTER

EXCHANGE YOUR OLD RETIREMENT SOLUTIONS FOR NEW ONES

JONATHAN COOMBS, INVESTMENT ANALYST

What is an Exchange?

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

 

Retirement Readiness

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

 

Fiduciary Risk Mitigation

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

 

Administrative Relief

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

 

Cost Effectiveness

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

 

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

 

About the Author, Jonathan Coombs

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

HEY JOEL!

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

 

Hey Joel,

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

 

Dear Generous,

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

 

Always here to give advice,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

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

PARTICIPANT CORNER: HOLIDAY BUDGETING

Holiday Ballin' on a Budget

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

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

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

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

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

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

DISCLOSURE INFORMATION

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

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

Lutz Financial adds Joe Carlson

Lutz, a Nebraska-based business solutions firm, welcomes Joe Carlson to its Omaha office’s financial division. Joe joins Lutz Financial as a Financial Planner. He is responsible for assisting Lutz Financials’ advisers…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

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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

November Retirement Plan Newsletter

November Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

NOVEMBER RETIREMENT PLAN NEWSLETTER

HOW AND WHEN TO PAY PLAN EXPENSES WITH PLAN ASSETS

How and when to pay plan expenses with plan assets

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

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

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

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

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

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

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

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

 

About the Author, Tom Bastin

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

 

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

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

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

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

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

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

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

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

HEY JOEL!

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

 

Hey Joel,

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

 

Dear Florida,

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

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

 

Uncrossing Fingers,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

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

PARTICIPANT CORNER: TIPS TO WEATHER A TURBULENT MARKET

Tips to Weather a Turbulent Market

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

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

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

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

DISCLOSURE INFORMATION

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

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

Lutz Financial adds Joe Carlson

Lutz, a Nebraska-based business solutions firm, welcomes Joe Carlson to its Omaha office’s financial division. Joe joins Lutz Financial as a Financial Planner. He is responsible for assisting Lutz Financials’ advisers…

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

October Retirement Plan Newsletter

October Retirement Plan Newsletter

OCTOBER RETIREMENT PLAN NEWSLETTER

HOW DO YOU MONITOR A DASH? EVALUATING CASH EQUIVALENT FUNDS

How Do You Monitor a Dash? Evaluating Cash Equivalent Funds

RYAN HAMILTON, INVESTMENT ANALYST

Evaluating cash equivalent funds

As you read your plan’s lineup, you see the scores listed in the chart above.

Periodically you review your plan’s fund lineup; you place some funds on Watchlist, you replace under-performers and you continue to monitor those funds that score acceptably. But, you see a dash next to your cash fund and wonder, what should you do? Traditional evaluation metrics can be difficult to apply to cash funds. You can look at returns, but without

an appropriate benchmark or a way to directly measure the risk taken by the fund, the market value performance number can be difficult to interpret. Perhaps fees can provide the answer, but there are wrap fees, investment management fees and trustee fees, all assuming there is a stated fee to review in the first place. What is a fiduciary to do?

While cash fund due diligence can be intimidating, there are key differentiators among stable value funds that fiduciaries can review to document that a fund is a good fit for their participants. Ultimately stable value funds are not too different from other funds within a plan lineup and the strategies to evaluate them are similar. There exists an established methodology incorporated into your IPS for evaluating these standard funds. Let’s evaluate how well that framework can be applied to the stable value universe.

The first component for evaluation of the RPAG Scorecard is a fund’s style. Does the fund stick to its professed asset class? Do the same for a stable value fund’s portfolio. Is it allocating to assets and securities that are appropriate for a high-quality, short-term fixed income fund? Also evaluate the fund’s diversity of allocation. Monitoring its allocating across a variety of subsectors of fixed income (treasuries, corporate bonds, mortgage backed securities, etc.).

The next criteria is evaluation of risk and return. There are a plethora of data points for evaluating stable value fund risk and return. With regard to return, examine a fund’s crediting rate or its yield relative to the stable value universe to evaluate this fund’s performance. Similar to traditional funds, performance needs to be examined relative to the risk taken. For evaluating risk the underlying portfolio is important. Review the credit ratings of the underlying securities, verify the average duration or maturity relative to the funds’ peers, and evaluate the asset managers investing the underlying portfolio. Also review the number of wrap providers for the portfolio and their credit rating.

The final quantitative component of the RPAG Scorecard is peer group review. Once again a stable value fund’s evaluation can follow this same methodology. Evaluation of a fund’s market-to-book ratio, relative to its peers, is a key component of portfolio health and to identify potential issues early.  Cash flows in and out of a fund relative to the universe give valuable insight to how quickly the portfolio can react to changing market conditions.

For qualitative components, look at the same key characteristics that are evaluated for standard funds, as well as a few unique characteristics to stable value. A long tenured and constant management team is important no matter the type of fund. Also, while there are additional fees in the stable value universe, evaluating them relative to the universe is still important. Unique to stable value is a fund’s exit provisions (is there a put, and if so how long) and the fund’s high yield policy to ensure both align with participant best interests.

Stable value funds seem unique, and they do have peculiar challenges when evaluating them, it’s still a crucial task for fiduciaries.  The same process that has been established within the plan’s IPS to evaluate the core line-up, can be adapted to evaluate stable value funds in a similar manner.

All the data points identified as key components of evaluation can be found on the RPAG stable value fund factsheets.

Stable Value Fund Terminology Cheat Sheet

 

About the Author, Ryan Hamilton

Ryan HamiltonRyan works closely with advisors and plan sponsors on investment due diligence and in-depth analysis of manager performance and platform and provider benchmarking. Prior to joining RPAG, Ryan worked for a third-party administrator as an associate administrator managing annual compliance for defined contribution and defined benefit plans.  He earned a Bachelor of Arts degree from UCLA and is a CFA Level III Candidate.

 

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

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

 

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

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

 

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

For more background on the Form 5500, visit the Society for Human Resource Management online. See “Regulatory 5500: What is Form 5500, and where are instructions for completing it?”

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 prospect is a 501(c)(3) organization that is not affiliated with a church or school. Are they eligible for a 401(k) plan? Are there any benefits over a 403(b) plan? – Contemplating in Kansas

Dear Contemplating,

Contemplate no more! A 501(c)(3) organization is a nonprofit organization and can sponsor either a 401(k) plan or a 403(b) plan. In 1996, the law changed allowing nonprofit organizations to choose either the 401(k) or 403(b) plan for their employees. Here are some key differences between the two types of plans:

  • Unlike 401(k) plans, 403(b) plans are not subject to nondiscrimination testing requirements for salary deferral contributions. The nondiscrimination testing rules that apply to 401(k) plans sometimes require that salary deferral contributions be returned to highly compensated employees due to the results of nondiscrimination testing. This does not happen with 403(b) plans.
  • Annual limits are the same for both a 401(k) plan and 403(b) plan, except that the 403(b) plan may elect an additional form of catch-up contribution for participants who have 15 years of service, giving participants more flexibility.
  • 403(b) plans must follow the “universal availability” rule for eligibility to defer salary, meaning that if an employer permits one employee to defer salary into a 403(b) plan, they must extend the offer to all employees.
  • Some nonprofit organizations have established 401(k) plans in recent years, as the 401(k) is more well-known to their employees.

 

Hopefully, that sheds some light on the differences between a 401(k) plan and a 403(b) plan.

The ERISA Wizard,

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: SKIP THE LINE, BUT DON'T SKIP THE MATCH

This month’s employee flyer encourages participants to meet their employer match and not leave money on the table. Hang the memo in your lunchroom or distribute to employees along with their paychecks. Download the flyer from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

Skip the Line, But Don't Skip the Match!

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

Lutz Financial adds Joe Carlson

Lutz, a Nebraska-based business solutions firm, welcomes Joe Carlson to its Omaha office’s financial division. Joe joins Lutz Financial as a Financial Planner. He is responsible for assisting Lutz Financials’ advisers…

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

September Retirement Plan Newsletter

September Retirement Plan Newsletter

SEPTEMBER RETIREMENT PLAN NEWSLETTER

USE PLAN ANALYTICS TO EVALUATE YOUR RETIREMENT PLAN

Use Plan Analytics to Evaluate Your Retirement Plan

MICHAEL VILJAK, SENIOR PLAN ADVISOR

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

 

Plan analytics you should explore:

  • Median age, tenure and savings rates of plan participants

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

 

  • Participants not contributing sufficiently to receive all eligible employer match

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

 

  • Participants, by age, in each target date fund

Another demographic that can be helped by focused participant communications.

 

  • Participants taking loans

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

 

  • Loan default rates

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

 

  • Dollar amounts of employee contributions by type and source

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

 

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

For assistance in analyzing your plan analytics, please contact your plan advisor.

 

About the Author, Michael Viljak

Michael Viljak joined RPAG in 2002 and has over 30 years of experience in the pension field, on both the wholesale and retail levels, focusing on 401(k) 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.

HEALTH MODIFICATION CAN INCREASE RETIREMENT DOLLARS

A top concern for individuals nearing retirement is out-of-pocket healthcare costs. A recent study revealed that 74 percent (of 1,316 U.S. adults aged 50 or older) admit that one of their top fears is out-of-control healthcare costs, and 64 percent are terrified of what healthcare costs may do to their retirement plans (up from 57 percent in 2015).

Although fear is clearly real, there is something people can do to mitigate future healthcare costs. Personal care and healthy lifestyle choices can reduce healthcare costs and increase retirement dollars.

Many organizations are initiating wellness programs to promote healthy living among their employees. These programs focus on employee engagement and correcting the health epidemics facing Americans today. Eighty-seven percent of the world’s workers are disengaged. Additionally, sedentary office culture is being linked to lifestyle-related conditions such as diabetes and heart disease.

A case study conducted by HealthyCapital follows a typical 45-year-old male (John) diagnosed with high blood pressure. The study showed that John will spend $1,591 more annually out of pocket today versus a healthy person. With a few simple lifestyle adjustments (exercising, limiting alcohol intake, choosing healthy fats and limiting dietary salt) he could save an average of $3,285 annually over his lifetime, extend life expectancy by three years and reduce his pre-retirement (age 50-64) healthcare costs by $65,697. If he invested his annual savings into a typical retirement portfolio, John could generate an additional $100,348 for retirement by age 65.

 

Annual Out-Of-Pocket Healthcare Costs

Annual Out of Pocket Healthcare Costs

 

Moving from an average lifestyle to well-managed living is a clear win – not only does the well-managed person feel better, they also have additional income in both pre-retirement and retirement.

Encouraging employees to live a well-managed life through wellness programs is not only a benefit for employees, but employers as well through reduction in medical-related employee absence and increased productivity and morale.

To learn about implementing a wellness program for your employees, please contact your plan advisor.

HEY JOEL!

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

Hey Joel,

I volunteer on the Board of Directors, so I don’t have liability right? – Can’t Touch This in Colorado

Hey Can’t,

Liability is a complicated topic. If the plan is an ERISA plan, then state law is immaterial. Compensation has zero impact on whether an individual is a fiduciary. It is role and control that are the determinants. If you can exercise control or authority over the assets or management of the plan, you are a fiduciary. Ultimately the terms of the plan document will govern, but 90 percent of the time the organization is the named fiduciary or plan administrator. Because the board controls the organization, and thus can control the plan, the members thereof are typically fiduciaries.

If you sit on a committee and partake in fiduciary decisions, you have potential liability. I would recommend fiduciary liability insurance and specifically make sure it covers all committee members regardless of their employee status.

 

2 legit 2 quit,

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: BACK TO SCHOOL

This month’s employee flyer encourages participants to ask questions and be educated about their retirement plan. Hang the memo in your lunchroom or distribute to employees along with their paychecks. Download the flyer from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see the flyer below.

School's In Session! Are You Asking the Right Questions?

 

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