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.

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Why things just got a lot tougher for 401(k) plan sponsors

The big question is..Why have service provders been fighting fee disclosure so diligently? Do they have something to hide? from plan sponsors or participants or both? Should participants pay for all the cost in their 401(k)? The 401(k) is the sole source of retirement for most Americans and must be treated as an employee benefit. When these regulations become effective many plan participants will ask many questions. Are You, the plan sponsor, prepared?

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Here’s where things start to go south. What happens if a service provider fails to disclose its feesor only discloses a portion of them? Will plan sponsors get by merely through offering their best efforts to obtain this fee information? Probably not, if you read between the lines of the DOL comments. Borzi’s actual comment to the press indicated the 401(k) plan sponsor must fire any service provider that fails to properly disclosure its fees.So, in addition to knowing all the ins and outs of their specific plans, and the ERISA laws that govern them, plan sponsors have now been summarily deputized by the DOL to enforce compliance on service providers.

If you think about it, it’s a smart move by the DOL. It’s also in keeping with the whole self-policing philosophy that pervades this Internet generation. What better way to protect the masses if the masses have the authority to unilaterally punish wrongdoers (albeit, it’s only by firing them). If the DOL is really inventive, it can create a disclosure site where plan sponsors can report their compliance related lack-of-disclosure firings.

This would help other plan sponsors become aware of potential non-compliance liabilities resulting from hiring these vendors. In turn, a public disclosure file, similar to the on-line “complaints” log the SEC provides to investors, might just provide an incentive for service vendors to comply.

In the end, this just might make things a lot easier for 401(k) plan sponsors.

The new fee disclosure regulations will make both the plan sponsors and plan participants on the fees they pay and why. The plan participants will benefit because lower expenses results in higher return. Remember an extra 1% in fees over 40 years of saving makes a huge difference.

Please comment or call to discuss how your plan will be affected by the new fee disclosure regulations.

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As a 401(k) plan sponsor, did you know that you must be prudent when you endorse service providers or products related to your retirement plans?

In 1996, an interpretive Bulletin 96 * 1, the Department of Labor (DoL) issued guidance concerning fiduciary advice and education for participants in that guidance the DoL state:

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The Department also notes that a plan sponsor or fiduciary would have no fiduciary responsibility or liability with respect to the actions of a third party selected by a participant or beneficiary to provide education or investment advice where the plan sponsor or fiduciary neither selects nor endorses the educator or advisor, nor otherwise makes arrangements with the educator or advisor to provide such services.


Put another way, if the participant selects their own adviser to help allocate their investments the plan sponsor is not required to monitor the performance of the adviser. However, should the plan sponsor allow the service provider to advise and educate their participants, the plan sponsor is required to monitor the performance and products sold by the service provider.


The DoL will investigate cases based on the facts and circumstances evident. In other words plan sponsors will be liable for products sold and advice given should it be found that the products or advice was imprudent.  Care must be taken when a plan sponsor allows the agent or broker who sold them the plan to advise their employees (participants).  This will be seen as an endorsement of the agent or broker and requires monitoring of their performance and product sold.


Many agents or brokers see the 401(k) as a lead generation tool to sell additional high commission products. The 401(k) should be treated as an employee benefit and not a marketing gimmick. The DoL will protect plan participants and their beneficiaries.


Please comment or call to discuss if you must monitor the performance and products of your service provider.


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Majority of Plan Participants Lost on Retirement Planning, Seek Direction From Employers

The most efficient solution for plan participants is a professionally managed risk adjusted globally diversified portfolio. This portfolio is best when it is automatically assigned based on age. Each employee can then determine the correct level of risk for their particular circumstance and make a change to the appropriate portfolio.. The final alternative would be allowing the employee to opt out of the managed portfolio and choose their own fund mix. I believe most employees will stay within the model portfolios and will experience better results with less anxiety.

The findings from the survey emphasize four areas of focus for employers and their participants: attitudes toward saving for retirement, awareness of automatic features in DC plans, awareness of long-term investment risks and nuances among age groups that impact likeliness to save.”Plan participants communicated loud and clear about what they need: simple steps and automated features,” said Kristi Mitchem, senior managing director and head of Global Defined Contribution for SSgA. “One of the most surprising and encouraging findings is the willingness of participants to take 401k direction from their employers. The ongoing volatility in the financial markets has increased anxiety amongst plan participants and a significant percentage want simplified and prescriptive guidance in order to make progress toward their retirement goals.”

Attitudes towards saving are changing, with 75 percent of survey respondents indicating they would be willing to be automatically enrolled in a 10 percent savings “boot camp” for six months. The survey concluded that 54 percent of participants say they are “very” or “somewhat confident” that their savings are on track to fund their planned retirement lifestyle. Other participants have a much less optimistic outlook. Most place the blame on themselves, with 55 percent indicating they lack confidence because their rate of savings is not high enough and 52 percent indicating they did not start saving early enough. Others blame the economy or the financial markets, and only a few blame their employer.

Plan sponsors(employers) will benefit from providing the proper guidance to their employees. If provided with a pension fund like plan stress and anxiety levels will drop. The result will be a more productive work force as well as their retirement plan viewed as a real employee benefit.

Please comment or call to discuss how your company plan can be improved.

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Does Your Broker Treat Your 401(k) Plan Like an Employee Benefit or a Lead Generation Tool?

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There has been much discussion on the fiduciary standard for all financial services salespeople. There has been new regulations requiring those brokers or agents selling retirement plans to become fiduciaries to the plans. This is vital to the success of the 401(k) as the sole source of retirement for most Americans.

Many retirement plans are sold today, not to improve the quality of investment vehicle offered to plan participants. But rather as a lead generation tool to sell other financial products to the participants which generate high commissions for the broker or agent. Some of the product sold is helping the participants reach their financial goals, however the plan sponsor cannot be assured that this is the case. Remember, your employees look to you for guidance and respect your decisions. These same employees will believe that you endorse everything the broker or agent proposes.

The retirement plan you provide to your employees should be treated like the important employee benefit you intended.  As a plan sponsor you have the fiduciary responsibility to act in the best interest of the plan participants and their beneficiaries. With this responsibility comes liability for you the fiduciary to the plan.

The 401(k) plan has become the sole source of retirement of most Americans. Like it or not, business owners are responsible for providing the best tools available for their employees to successfully retire. It is your responsibility to protect your employee’s future self from their current self. To do this, avoid any conflicts of interest by treating your 401(k) plan as an employee benefit not a lead generation tool.

Your company’s ability to remain competitive for talented employees and retain those employees is dependent on your ability to provide excellent employee benefits, including your 401(k) plan.

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Don’t Forget Your ERISA Bond

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Keep in mind this bond does not protect the plan sponsor from fiduciary liability. It offers protection in the event of fraud.

Who must be covered by the bond?
As a general rule, every plan fiduciary and every person who “handles funds or other property” of an ERISA-covered employee benefit plan (see below) must be bonded. It should be noted that administrative committee or investment committee members are often considered to be plan fiduciaries. A person is considered to “handle” plan funds if the person has physical contact with cash, checks, or other similar property, is able to secure physical possession of plan funds, or has the potential ability to direct (acting alone or with others) the transfer of plan funds to himself or herself or to third parties.What employee benefit plans are covered?
The bonding requirement applies to most employee benefit plans under ERISA, including:

tax-qualified retirement plans;

group medical, dental, and prescription drug plans; and

flexible spending arrangements (FSAs).

You should think about the ERISA bonding requirements any time that you or one of your employees or agents is handling employee money or plan assets.

TaxQualified Retirement Plans
Tax-qualified retirement plans will always require bonding because they involve plan assets that are set aside in a trust. Thus, any analysis will need to focus on whether the fiduciary in question “handles” the plan assets, not on whether plan assets exist.

The fidelity bond is extremely important and required by the regulations. It does not provide fiduciary protection to the plan sponsor.

Please comment or call to discuss.

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How to determine if a cash balance pension plan is right for your company

PensionRetirement plan design is vital to the success of very plan. The cash balance plan should be considered by professional service firms, closely held small businesses, and any firm with solid cash flowlooking for additional tax deductions. This plan design will help attract and retain top talent.

Companies that have maxed out their 401(k) plans but still have discretionary incomeand steady cash flow available for retirement benefits may want to consider a cash balance pension plan.“A cash balance pension plan is technically a defined benefit pension plan which has features that resemble a defined contribution plan,” explains Tom Sigmund, firm director and chair of the Employee Benefits & ERISA practice at Kegler, Brown, Hill & Ritter. “Like a traditional defined benefit pension plan, the employer bears all responsibility for funding and investing, and the value of the assets do not impact the promised benefit. However, the benefits are depicted as an account balance.”

Sigmund says that a cash balance pension plan is an especially popular tool for professional practices.

“If they have not maxed out their 401(k) plan, we recommend that they do so prior to establishing the cash balance pension plan. In combination, these two plans can enable the organization to cost effectively meet a variety of goals relative to the principles of the practice.”

The cash balance plan design is best suited for organizations will strong steady cash flow. Not only will be able to deduct significantly more, it will help you attract and retain talented employees.

Please comment or call to discuss how this would help you firm.

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5 retirement blunders of 2011

President George W. Bush signs into law H.R. 4...
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Whenever politicans get involved in a discussion on retirement saving watch out. One question must be, can you rely on the government for your retirement? You must be accountable for your own future.

1. Fuzzy math on tax reforms Remember the Obama-backed “Gang of Six” and the subsequent run-up to the supercommittee epic fail? Somewhere in the midst of the country’s biggest embarrassment of 2011, lawmakers considered eliminating, or at least scaling back, one of the biggest savings incentives for 401(k)s: tax benefits.

Number crunchers at ASPPA estimate the real potential savings of slashing this so-called “tax expenditure” comes in at almost 75 percent lower than figures from “budget hawks.”

Brian Graff, ASPPA’s executive director and CEO says the association’s analysis, “takes the same long-term view that economists employ in evaluating other forms of investment,” and it shows that “the short-term window used in Washington budget scoring overstates the cost of retirement savings incentives – and therefore the savings that would result from slashing these incentives. 401(k) plans and similar plans are the best way for Americans to save for the future. If we reduce the incentives for workers to save through these plans, we will send millions of low- to moderate-income workers into retirement with little savings.”

2. Auto enrollment gets a bad reputation

As a journalist, I can’t stress enough the power of a headline. The Wall Street Journal’s July story, “401(k) Law Suppresses Saving for Retirement,” elicited an alarming angle based on the most pessimistic assumption of a highly researched topic.

The article suggests the Pension Protection Act of 2006 was a catalyst – a legislative side effect, if you will – for a savings shortfall. Though the law encourages companies to automatically enroll participants, the default 3 percent deferral rate traps investors into an inertia that undermines their eventual retirement income.

Still, “The headline of the article reports that auto-enrollment is reducing savings for people. What it failed to mention is that it’s increasing savings for many more-especially the lowest-income 401(k) participants,” says Jack VanDerhei, research director for the Employee Benefits Research Institute – the same think tank that WSJ sought out to provide research on the subject.

EBRI isn’t the only thought analysis that proves auto-enrollment is more of a boon than bust for participation, and in turn, for retirement security. Fidelity reports half of their 401(k) participants are now in plans that offer auto-enrollment, up from 16 percent five years ago.

And, let’s face it, most people wouldn’t be saving at all if it weren’t for their 401(k). Fidelity also reports 55 percent of plan participants wouldn’t save without it and 20 percent have no savings outside the workplace plan.

The financial media does have a powerful influence on how plan sponsors view their company retirement plan. A view point can be skewed in either direction, many times to the detriment of the plan participants.

Please comment or call to discuss how plan design impacts the success or failure of your company retirement plan.

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Been There, Done That. Now What?

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Plan design is a very important component to allowing you plan to attract and retain top talent. This talent will be crucial in small to mid sized companies to remain competitive.

Paying Now or Paying LaterWhat we said: As with self-directed brokerage accounts, the Roth conversion window (and its affiliated tax acceleration) seems most likely to appeal to the highly compensated minority. The impetus for the conversion itself is not only the timing window, but also the (still) looming sunset of the Bush Administration’s tax cuts. Of course, the real issue may be a shift in assumptions about taxes; what if they won’t be dependably lower in retirement?

Where we are: Perhaps the most surprising trend to emerge from this year’s PLANSPONSOR Defined Contribution Survey was a huge increase in the offering of Roth 401(k)s, an option that “plan sponsors have long been reluctant to push since their pay-it-now concept on taxes seems at odds with the traditional tax-deferral mantra, and their benefits are often seen as skewed toward more highly compensated workers.” This year’s survey found that 38.2% of all plans now offer the option, compared with just 20.2% a year ago, and that increase was broad-based across market segments. Of course, just try finding someone today (who is not running for political office) who is expecting taxes to be lower in the future.

What’s ahead: As with self-directed brokerage accounts, the Roth conversion window (and its affiliated tax acceleration) seems most likely to appeal to the highly compensated minority. Many more plans are now offering the choice, but it remains to be seen if participants will respond in kind. I would guess not that many in the short term—but that, of course, could change.

Plan design is critical to many small businesses to realize a true employee benefit. One which will attract and retain talented employees.

Please comment or call to discuss how this could affect you and your company.

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Are your employees “retirement ready”?

An increasing amount of people are beginning to realize that they are responsible for their own financial future. Many are looking to their employer for guidance and the right tools. Are you fulfilling this need?

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When employers create an environment which promotes retirementreadiness, they can reduce the costs associated with an aging employee population and deliver a positive message to employees about planning for retirement.  While the responsibility to prepare for retirement will still largely rest with employees, employers now have a way to more accurately guide and prepare their employees to enter retirement at or near their normal retirement age.To develop a “retirement ready” workforce, employers should focus on the following steps:

1. Conduct a Company Retirement Readiness Assessment
When you have an understanding of how different segments of your population are utilizing (or not utilizing) your retirement plan and what their projected outcomes are, it is easier to strategically develop a plan to help improve the retirement readiness of your workforce.

2. Evaluate Plan Design
There are several opportunities within your plan design to help start and keep your employees on the right track towards retirement.  The key is understanding your workforce and then making decisions which support both employee retirement readiness and your corporate goals.

3. Develop Targeted Employee Communication Focused on Changing Behaviors
Employees want to be guided.  Their retirement readiness can be greatly improved when you communicate in a way they can understand and relate to which will allow them to easily and painlessly arrive at the right decisions.

Your employees look to you for guidance in many areas, including financial readiness for retirement. With the proper advice your company retirement plan can become a true employee benefit.

Please comment or call to discuss how this can affect the productivity of your company.

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