The Hidden Danger That Could Destroy Your Savings

Hire an objective financial professional to help you protect your assets from speculators and the government.

English: Power of attorney for Abram Ioffe by ...
English: Power of attorney for Abram Ioffe by Vladimir Lenin to represent USSR with Estonia. Русский: Доверенность, выданная В.И.Лениным Абраму Иоффе на представление РСФСР в переговорах с Латвией, Литвой и Эстонией. (Photo credit: Wikipedia)

in the Journal of the American Medical Association cautions that early signs of inability to manage finances are an inability to count money, trouble paying bills, concerns about stolen or missing money, calls from financial institutions about problems with accounts and financial abuse.Advance planning is critical to avoid the dire consequences of cognitive impairment. Since every situation is different, you need to discuss this issue with your attorney. A common recommendation is a durable power of attorney that names a designated agent who is authorized to take over your finances if you become incapacitated. If the power of attorney is not “durable,” it will automatically terminate once you become impaired, which defeats its purpose.

Another option is a “springing” power of attorney, which becomes effective only once a determination of impairment has been made. Usually the diagnosis has to be from one or two qualified physicians. The problems with these requirements are that the diagnosis can be difficult and doctors are often reluctant to make it. For these reasons, many attorneys prefer a durable power of attorney that does not require the satisfaction of these conditions.

If you have significant assets, you should consider appointing a trust company to manage your assets in the event of impairment. Your attorney should consult with the legal department of the trust company to be sure the power of attorney you execute is in a form acceptable to them.

You worked your entire life to save for retirement and to leave a legacy to your loved ones. With a little advance planning, you can protect your assets from the hidden danger of cognitive impairment.

This is an issue that needs to be addressed sooner rather later. Seek the advice of a trusted financial professional.

Please comment or call to discuss how this affects you and your family.

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Step-Children Are Not Beneficiaries (Unless They Are)

Why do individuals forget about their financial planning? Will it magically fix itself? Don’t let this happen to you and your family.

English: Seal of the United States Court of Ap...
English: Seal of the United States Court of Appeal for the Fifth Circuit. As indicated below, this image is a work of the United States Government and under copyright protection is not available for any work of the U.S. government. Image available here on the United States Court of Appeals for the Fifth Circuit website. (Photo credit: Wikipedia)

A retirement plan participant can designate a beneficiary other than a spouse, but a waiver is required.  Many plans have specific provisions that provide for the order in which distributions will be made in the event a specific beneficiary is not designated.  For plan administrators, the rules about beneficiary designations require strict adherence to the plan documents, which can mean that those who think they have a right to benefits may not in fact have those rights and that leads to litigation.Such was the case in Herring v. Campbell, a recent case decided by the Fifth Circuit Court of Appeals.  In this case, a plan participant designated his wife as his primary beneficiary with no secondary beneficiary.  His wife died before he did, but he made no other beneficiary designation.  When he died, the plan distributed his account balance in accordance with the plan rules, to his surviving siblings.  Of course, he happened to have step-children, who sued the plan administrator for not giving them the money.  The plan rules provided that in the absence of a beneficiary designation, surviving children get a the distribution before the deceased participant’s siblings.

The Court upheld the plan administrator’s interpretation of the definition of “children” to mean biological or legally adopted children.  Step-children did not meet this definition so they were not entitled to the benefits.  The step-children argued that they had been “equitably adopted” but the Court found that this concept applies only to those seeking to require a parent to recognize a child, not a benefit plan making distributions.  So in the end, the Court decided that the plan had properly distributed the benefits to the siblings and excluded the step-children.

So when considering the distribution of benefits from a participant’s account, the participant certainly can designate step-children as beneficiaries by an affirmative designation.  And step-children can become “children” through adoption, which would give them “child” status when considering plan distribution rules.  But, as we see in this case, unless a “child” clearly satisfies the plan’s definition of beneficiary (that is if they are in fact children under the definition of the plan), they will not be entitled to a distribution as a beneficiary.

Just a reminder to everyone to review beneficiary designations often.

Please comment.

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Is It Time to Consider a Cash Balance Plan?

Many small business owners and professionals have delayed saving for retirement for a variety of reasons. The cash balance plan or other hybrid defined benefit plans might be the solution. Depending on the demographics of your firm you could retain more tham 90% of the contributions to the plan. It is a win for your employees because you will contribute more for their retirement. You win because you can pack 20 years of saving into 10 years or less. Increasing your tax deductions while offering a benefit which will help attract and retain top talent.

English: The Frances Perkins Building located ...
English: The Frances Perkins Building located at 200 Constitution Avenue, N.W., in the Capitol Hill neighborhood of Washington, D.C. Built in 1975, the modernist office building serves as headquarters of the United States Department of Labor. (Photo credit: Wikipedia)

For a small but growing number of companies, cash balance plans offer a third alternative. Cash balance plans have existed for many years. However, until relatively recently, regulatory and legal uncertainty kept many companies from adopting these plans. Since cash balance plans have gotten the final stamp of approval from the IRS and the U.S. Department of Labor, their numbers have been increasing.Compared to the hundreds of thousands of 401(k) plans in existence, cash balance plans remain a relative drop in the bucket. According to the 2012 National Cash Balance Research Report published by Kravitz Inc., the number of cash balance plans increased 21% last year. The most recent IRS data from 2010 shows 7,064 active cash balance plans. Just ten years ago in 2001, that number was 1,337. However, the report found that growth of cash balance plans continues to outpace the growth in any other type of retirement plan.

Only through an analysis can we determine if the cash balance plan or other hybrid defined benefit plan is right for your firm.

Please comment or call to discuss if this is right for you.

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  • The 401(k) On Steroids
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Get Beneficiary Designations in Order

Regulations are changing everyday. Individuals need to review their beneficiary designations regularly. This should occur automatically when a life changing event happens. Remember some vehicles over

Posted via email from stevenblom's posterous
Posted via email from stevenblom's posterous (Photo credit: Wikipedia)

ride your will.

A beneficiary designation form provides important estate planning for what may be one of an individual’s most valuable financial asset.  One must be completed for each of an individual’s retirement accounts, and reviewed and updated at least once per year or whenever there are life changing events that affect the beneficiaries. If the beneficiary is a charity or other non-person, a verification process must be used to make sure it is still in existence and in good standing.Custodians and plan administrators usually want to do the right thing, and presenting a beneficiary designation form in a manner that is consistent with their operational requirements, policies, and procedures will help them to do just that.  Bear in mind that the individuals handling the designation forms are usually customer service associates with no legal background. Therefore, where possible, the designation should be as straightforward as possible. The more sophisticated designations should be submitted to the firm’s legal department for review and approval.

This is not a set it and forget decision.

Please comment or call to discuss.

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The 401(k) On Steroids

When the demographics of a business are right the defined benefit hybrid plan is a great option for many small business owners as well as professional service firms. Assets in a qualified retirement plan provide asset protection from creditors and an accelerated saving rate, up to $250,000 deduction. Many small business owners and professionals are guilty of not saving enough for retirement. This option gives them the opportunity to catch up.

English: Retirement savings for various period...
English: Retirement savings for various periods with squirrel and nut analogy (Photo credit: Wikipedia)

Would an extra $2.5 million come in handy at retirement? Would you like to defer taxes on over $200,000 of current income each year? Would you like to see a higher proportion of your retirement plan expense go to yourself, or your key people if you own a business?Whether you are a realtor, consultant, physician, attorney, independent contractor, sole proprietor, owner or a partner in a small or large business, you can turbo-charge your retirement with a cash balance plan on top of your existing 401(k) plan. You can be a one person shop, or highly paid executive or professional in a large firm.

While not for everyone, the cash balance plan or other hybrid plans are a great way to accelerate your retirement savings

Please comment or call to discuss how this might be a great solution for you and you company..

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The Great Annuity Rip-Off.

The brokerage firms, banks and insurance companies have a product for every situation. Right now the situation is fear and they feed this fear with ‘safe’ products. These firms make money when money moves. They do not make money if investors develop a prudent portfolio and remain disciplined to that strategy. Annuities help people believe their money is safe, when in fact in the long term they lose money. Best advice, stay wawy from annuities.

Souvenir Programme, inside cover
Souvenir Programme, inside cover (Photo credit: CT State Library)
Any prospective customer who takes the time to understand annuities runs away screaming. A recent report by consulting firm Cerulli Associates puts the matter as delicately as it can: “Information about variable annuity purchases reveals that they do not appear to be based on educated decisions.”
Consider the experience no-load fund giant T.Rowe Price had when it sent potential customers software to help them determine whether variable annuities were right for them. The program factored in the investors age, income, tax bracket and investment horizon — and it regularly told potential buyers that they would be better off in a plain old fund. An educated consumer, as it turned out, was not a good prospect for annuities.
If folks really knew what they were buying, how could you explain the $21 billion of annuities sold in 1996 that went into IRAs? IRAs, already tax-sheltered, benefit not a whit from the annuities deferral feature.

Insurance agents and stockbrokers make a heft commission when selling variable annuities, much more than the commission on mutual funds or stocks. This hugh incentive costs consumers big in the short and long term.

Please comment or call to discuss.

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How To Financially Prepare for Entrepreneurship

Everyone wants to be their own boss, make the rules, stop living under the proverbial “man,” but it can be a scary plunge to take.  Owning your own business requires financial responsibility and risk that many people aren’t willing to take on, but if you are up for the challenge and are going to chase down that elusive American dream then there are a few ways to keep things from coming to a screeching halt before they even start.  The transition into the life of owning your own business can be an expensively slow and rocky road, but there are some things you can do put yourself on the right path, from the start.  Before you venture on this journey, here’s what you need to do prepare for the ride.

1.       Payoff all your credit cards.  If you can’t pay off the balances on your credit cards now, you certainly won’t be able to once you start your business.  You will also find yourself tempted to use those cards to cover the expenses of your business.  Use these as your last resort.  Paying off those cards now will give you some room to use them later, but relying on them for too many things in the startup process can quickly shut everything down.

2.       Find your monthly budget, and then reduce it.  You need to keep track of your basic expenses for the month: rent, food, insurance, gas and so on.  When you do this think about how this will change when you start your small business.  Will you save money on gas with a shorter commute?  Will you eat out more when you have less time?  Once you have a number in front of you that highlights your current expenses, try to make that number smaller.  This isn’t anyone’s favorite part, but you will appreciate the savings later.  Do you need the run the air conditioning at home, or can you open the windows?  Do you need the super fancy touch screen phone?  Do “Fruity O’s” really taste that different from the real thing? It’s cutting back on little things that can send money your way from places you never thought about before.  Also, it’s smart to make the transition to these saving habits months before you make your move into entrepreneurship to reduce the shock you may experience when you lose those extra 30 channels during hockey season.

3.       Fill your piggy bank.  Before you take a single step towards your new business, you need to have a stock of money saved up.  You should take the cost of your monthly expenses determined earlier, multiply that by six months, and set the bar there.  You should have at least six months of your expenses saved up before you begin.  With this, you need to make sure that you are realistic about how often you will be cracking into that piggy bank.  A lot of people get the “do-it-yourself-bug” when they start their own projects.  They think that they will do it all by themselves to save money.  Know what you can do, and what you will need others to do.  Will you hire an accountant? Will you need a handyman for small changes to your business space?  Think about these future expenses when you are saving for your plunge.

4.       Understand the benefits that you will lose.  One of the biggest changes that small business owners incur is the cost of individual health insurance.  Think about how to reduce this cost, for example switching your insurance plan before prior to your next birthday before they can increase the premiums based on age.  Look at your retirement plans and understand how your investments will change when you don’t have a 401(k) matching plan to double your contributions.  These changes don’t have to be life altering, but they are simple things that, if planned for in advance will remain simple.

5.       Don’t get hasty and quit your job.  You need to give yourself time to startup your small business, and keeping your source of income can be a huge help during this time.  There is a long list of expenses you need to pay before you can even think of opening up your doors, and it’s smart to keep your current job until you have those taken care of.

Entrepreneurs are some of the hardest working, committed individuals in the workforce.  It can be the most frustrating and rewarding experience at the same time, but taking the time to plan before you plunge can save you some of that frustration and bring forth more of the rewards.

Photo courtesy of: http://www.innovatrs.com

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Retention levels higher for employers with defined benefit plans.

President George W. Bush signs into law H.R. 4...
President George W. Bush signs into law H.R. 4, the Pension Protection Act of 2006, Thursday, Aug. 17, 2006. Joining him onstage in the Eisenhower Executive Office Building are, from left: Secretary of Labor Elaine Chao; Rep. Buck McKeon of California; Rep. John Boehner of Ohio; Senator Blanche Lincoln, D-Ark.; Senator Michael Enzi, R-Wyo., and Rep. Bill Thomas of California. (Photo credit: Wikipedia)

Many employers are looking for benefits to attract and retain talented employees, while increasing their own deductible contributions. The hybrid defined benefit/defined contribution plan may be the answer. Changes to retirement plans in the Pension Protection Act of 2006 make this option very attractive for many small business owners and professional firms.

“Employers that provide DC-only retirement plans recognize they need to increase employee engagement with their plans in order to improve their employees’ retirement readiness. Effective DC retirement plans require that workers understand and take full advantage of them, which is why organizations are moving beyond merely making these benefits available,” says Mike Archer, senior retirement consultant at Towers Watson.Other key findings from the survey include:

• Hybrid plans, primarily cash balance plans that combine features of 401(k) plans and traditional pension plans, are now the most prevalent type of DB plan for new hires. More than half (54%) of DB plans are hybrid plans, while 46% are traditional plans.

• Over three-fourths (78%) of DB plan sponsors for new hires believe employees value the guaranteed benefits from pensions more than other features, compared with only 50% of DC-only sponsors.

• Additionally, 54% of DB sponsors for new hires believe employees value income throughout retirement, while only 28% of DC-only sponsors do. Other Towers Watson research shows a growing number of employees are willing to pay more from each paycheck to ensure a guaranteed retirement benefit.

To attract and retain talented employees, employers will need to offer excellent employee benefits. There are numerous options for employers to improve their retirement plan options.

Please comment or call to discuss what these options are and will they work for your firm.

Posted via email from Curated 401k Plan Content

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State Pension Debate: Black, White & A Whole Lot of Grey

It comes as almost no surprise that states governments are getting hit in their pocketbooks throughout the recession just as everyone else is.  The difference is, state governments often have a lot more people that they need to write checks to.  One of these checks that has been given a lot of attention lately is the retirement plans for government workers, and it’s no secret that state and local governments are looking for ways to reduce the number the write in the dollar amount section.

 

According to statistics from The National Conference of State Legislatures, 43 states have changed their retirement plans since 2009 in hopes of finding that ever elusive balance for their budget.  Many states have taken different approaches to that task, implementing plans that increase the amount of money that workers contribute to their retirement, increasing the age in which benefits can be reaped and more.  These changes have put a bad taste in the mouths of most public employees who have stood behind the shield of laws that protect their pensions as these battles continue to fill our courtrooms with various appeals and challenges.

 

It’s a messy issue that is causing upheaval in nearly every state, flooding local news outlets with protests, sit ins and even a Governor’s recall election or two.  Like any heavily involved controversy, it isn’t black and white.  The shades of grey hovering over this issue are more numerous than many people realize, or want to try wrap their heads around.

First of all, many of the changes (or proposed changes) do not have any effect on current workers who have spent their lives in a job planning for the benefits to come after retirement.  Most people accepted government jobs, many times with lower pay than the private sector, because of the shining light of their pensions at the end of the long tunnel of employment.  Of course, there are a few states, such as Louisiana and Florida, which are asking (or in other words, are attempting to make a state law requiring) current employees to contribute more to their retirement funds but these laws are facing the most stiff defense from labor groups and unions.  With the exception of a few cases, the changes in pension policies will affect only those who are hired after the legislation passes.

Something else that most private sector employees don’t take into account in these battles is the soft little pillow we like to call Social Security.  Many employees who are covered by a public retirement pension program, a program that they are now at risk of losing, are not covered by Social Security.  When the Social Security system was created it didn’t include any public sector employees.  This changed after many states made what are called “Section 218 agreements” with the Social Security Administration to give their employees some coverage under the federal program.  Later, a 1991 federal law gave Social Security coverage to any public employee that weren’t involved in the Section 218 agreements or didn’t have pension programs through their agency.  So although times have changed, many employees rely on their pension programs to fill in for their lack of Social Security benefits.  They don’t have the safety net waiting to catch them in the end, because they have spent their lives in a system that was supposed to replace that.

 

One aspect of this controversy that seems to be the most transparent, but most obvious shade of grey is the simple fact that state governments are, at their roots, a business.  When private sector businesses can’t cover the expense of their employees, they cut costs, lay people off, or in the worst cases, go out of business.  Well state governments can’t shut down, for obvious reasons.  They can’t fire all their workers, again, for obvious reasons.  Their only choice is to cut costs.  Like any business, state and local governments have a balance sheet, with liabilities and assets, and there are new accounting rules which will change how those will be calculated.  With many states lacking the assets needed to cover their employee retirement programs, some missing over 70% of the necessary funds, they are not looking very valuable to Mr. Moody and his ratings for investors.  If states can’t find a way to cut their deficit, many investors will begin to expect a higher yield to make up for the higher risk and lower ratings, which will add further costs to the government.  With all of the emotions involved in the fiery battles around the nation, the bottom line for many states is simply, “It’s not personal, it’s business.”

 

Overall, the battle over state pensions involves both the worker’s money and their future and there are few things life that people fight harder to protect than that.  The problem is that the states are fighting for the same two things.  This dispute over worker pensions is a sea of grey in a dizzying world of passionate black and white.  Round and round with the issues we go, where we will stop, nobody knows.

Photo courtesy of: http://ioanalazarov.com

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“As Goes Small Business, So Goes The Nation”

Small businesses are a staple in our society.  “They are the heart of America.” “They are the epitome of the American dream.” So on and so forth… Well for the past few years they have had a rough go of it.  Small businesses have been in the spotlight throughout the recession, and it’s no secret that it has been a long, hard road, but that road may be getting a little smoother. A recent report from the National Federation of Independent Business shows that the confidence of small business is rising to its highest levels in over a year.  The Small Business Optimism Index from the NFIB showed a 2 percentage point rise up to 94.5%.

 

So to most of us, that number doesn’t mean a whole lot.  You’re probably thinking, “94.5%, that would earn you a solid “A” back in your grammar school days.”  But there is a lot to examine inside of that number before we start putting “Superb” stickers on this test.   That number is the wizard, but we want to see what’s behind the curtain.  Here’s a quick breakdown of the numbers behind that 94.5% and what it means to you.

 

One large factor in the increase was in the net earnings of the companies.  The subindex in this category jumped 11 points, giving it the highest numbers we have seen since 2007.  This increase can claim half of that total increase for the overall optimism.  So the good news is that the 11 point jump was due mostly in part to increased sales, which means people are beginning to open their wallets back up as we approach what some hope to be a steep climb out of our recession.

 

But there’s bad news… the small businesses aren’t jumping on the recovery bandwagon as they continue to be slow to hire.   The net change in employment for the small businesses per firm remained at a dismal .10 for the third straight month.  Now that .10 maybe slightly misleading, but it essentially means that every small business in America hired one tenth of a person in April. It doesn’t seem very impressive, but we can take a quote out of President Obama’s book of wisdom “If you’re walking down the right path and you’re willing to keep walking, eventually you’ll make progress.”  As long as small business owners don’t get tired, they seem to be moving slowing in the right direction.

 

Unfortunately, there is another famous quote, this one from Dr. Martin Luther King, that is just as applicable. “All progress is precarious, and the solution of one problem brings us face to face with another problem.”  That other problem is inflation.  More and more small businesses are raising their prices to cover the increasing costs of labor and supplies.  The net percent of businesses raising selling prices jumped 2 points to 8% for the month of April. The Federal Reserve is depending on low inflation rates to support their policy for future years, but trends show that small businesses are fading away from price cutting and are being forced to push their prices higher and higher.  This inflation is something that will be of concern for small business owners in the coming months.

 

Speaking of those coming months, the portion of the study that measures the expected business conditions for the next six months increased 3 points, bringing that percentage up to only -5%.  It’s a step in the right direction, although many Americans are tired of steps and are looking for the giant leaps they have been waiting for.

 

What may be the most important factor stemming from these numbers is the effect that they will have on voters come November.  The economy has been, and will continue to be, the central issue around which the presidential election will revolve.  These numbers are extremely suggestive as to how small business owners, and people on Main Street in general, are feeling about the economy and the direction that they believe it is headed.

 

So, we return to the old adage, “As goes small business, so goes the nation!”  Small business owners are still on their long and arduous journey through our economic struggles but they continue to make moves toward success.  We aren’t quite ready to hand out that “Superb” sticker just yet, but a “Good Effort” or “Keep It Up” stamp would be well deserved.

Photo courtesy of: http://www.growmap.com
http://www.nfib.com/research-foundation/surveys/small-business-economic-trends

 

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