The “Sandwich Generation” and the Changing Family Dynamic

The “Sandwich Generation” is becoming a more commonly used term as more and more individuals begin caring for not only their aging parents, but their children as well, all the while planning for their own personal retirement.  According to an April 2010 Merrill Lynch Affluent Insights Quarterly survey, more than one-third of affluent Americans financially support their children and parents while trying to maintain and build upon what they have set aside for retirement.  According to the Pew Research Center, 1 of every 8 Americans aged 40 to 60 is both raising a child and caring for a parent, in addition to between 7 to 10 million adults caring for their aging parents from a long distance.  The US Census Bureau statistics indicate that the number of older Americans aged 65 or older will double by the year 2030, to over 70 million.

With the complex equation of most individuals within the sandwich generation being baby boomers, added to the intricate family dynamics, financial advisors are finding themselves advising over three generations.  What is the family dynamic like?  Many boomers work full time jobs while raising a family or supporting children in college, in addition to serving as the primary caregiver to one or both parents.  How do these families cope with the changing dynamic?  Most consider trade-offs, such as significantly cutting back on personal luxuries, making lifestyle sacrifices to support their family’s needs, and even cutting back on their own personal retirement.

So, what kind of help can advisors give to those facing the pending or already existent sandwich generation?  First and foremost, ease the stress of competing demands by identifying core values and priorities to find balance in life.  Always keep open lines of communication – of course it’s difficult to discuss the financial impact of diminishing health and the eventual loss of a loved one, but putting off that conversation can leave you unprepared for the consequences.  Implementing a plan of affairs for aging parents can off-set the negative consequences of a life-changing event.  Be sure to know where your family members keep important financial and medical documents, as well as the contact information of doctors, lawyers and advisors.  Always know the type of long term care, and how much it will cost.

When it comes to financing children’s education, only 12% of the sandwich generation said they were cutting back on contributions.  What’s the biggest tip for parents?  Start saving early.  Teach your children early on the skills necessary to embrace financial independence, budgeting, and the importance of credit and planning for retirement.  You can even bring your kids with you to an advisor meeting to discuss all these great education finance tips.

I’m sure you’re thinking: but what about me?  Get with an advisor and review your investment strategy, as well as home financing, asset allocation, insurance, securities, your portfolio, and your general retirement strategy in general.  This way, advisors can help shift financial securities based on the family’s specific dynamic.  According to the survey, 54% of the members of the sandwich generation work with an adviser, and among them, 32% wish that they had started working with one sooner.  Among the remaining 46% who don’t work with an adviser, 83% think that they would benefit from such a relationship.


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Discretionary Trustees vs. Directed Trustees

Trustees Catherine Ripley and Ken Gibson
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Plan sponsors need to understand that their service provider does not, ordinarily, assume any fiducisry liability. Many service providers use a marketing gimmick to sell plans by making empty promises. If you read the fine print a ‘fiduciary warranty’ offers virtually no protection.

Perceptions and Reality
A directed trustee is the most common kind of trustee associated with plan assets. The functions assigned to the trustee in most standardized plan documents and trust agreements such as prototype plans are those of a directed trustee. In many cases, a directed trustee is a trust company that provides an asset custody service as part of a mutual fund family that offers bundled record-keeping services such as the case with Fidelity Management Trust Company and the Fidelity investment arm in DeFelice, and Merrill Lynch Trust Company and the Merrill Lynch investment arm in WorldCom.The perception that trust companies and other such entities ordinarily provide legal protection to plan sponsors for the selection, monitoring, and replacement of plan assets is wrong. While the custodial and trustee services offered by trust companies and other such entities are valuable, even a directed trustee under ERISA, such as a trust company, cannot offer plan sponsors legal cover simply because their agreements with these sponsors make sure that the sponsors–not the directed trustee–remain ultimately liable for plan assets, in accordance with the law of ERISA.

As I’ve noted in previous columns, mother always said to read the fine print. So once again, I’ll remind advisors to remind their fiduciary clients to read their agreements with trust companies and other such entities because it is usually these documents that will govern the ultimate legal liability of their clients, not oral sales representations or written sales brochures.

Plan sponsors need to understand the difference between marketing gimmicks and actual transfer of risk.

Please comment or call to discuss how this affects you and your company retirement plan.

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Walmart, Merrill Lynch Agree To Pay $13.5 Million To Settle 401(k) Fiduciary Lawsuit

Merrill Lynch HarbourFront
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Merrill Lynch successfully defended its assertion that they were not fiduciaries in the Enron case. Plan sponsors will need to verify that all fees are reasonable and justified.

One interesting aspect of the settlement is that Merrill Lynch, which initially wasn’t a named defendant, would pay $10 million of the $13.5 million. This is presumably due to an explosive allegation that emerged during the litigation.As recounted in a 2009 Forbes story, the lawsuit was filed in 2008 by Braden, a Walmart employee in Highlandville, Mo. It charged that Walmart–famous for using its size to squeeze suppliers to get the lowest possible price to pass onto customers–did nothing of the sort with mutual funds offered in its 401(k) plan. The company offered just 10 investment options, most of them mutual funds charging “retail” fees, code for very high charges. High fees will eat tremendously into the nest eggs that employees are trying to accumulate for retirement. The lawsuit alleged various violation of fiduciary duty and federal pension law.

The trial judge’s dismissal of the case was reversed by the federal appeals court in St. Louis. Then, in an amended complaint, Braden added Merrill Lynch as a defendant, saying the giant investment firm received undisclosed “kickback payments” from outside mutual fund companies simply for allowing them to be in the plan.

The new fee disclosure regulations take effect April 1, 2012. This type of law suit may become more frequent.

Please comment or call to discuss.

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