Retirement plan shift is creating a generation of workers unable to retire

Posted on November 12, 2012 by Tony — No Comments ↓

The provisions in the Pension Protection Act of 2006 allows plan sponsors to provide a more pension fund like plan for their employees. Auto-enrollment and auto-escalation are tools to help employees successfuloly retire. Atomatically enrolling employees into an age appropriate portfolio will reduce employee anxiety and improve results.

“The ongoing shift from [defined benefit] to [defined contribution] plans due to cost and cost volatility is helping to create a next generation of retirement-age workers who may not be able to afford to retire when they would ideally like to,” said Towers Watson consultant Kevin Wagner in a statement.As a result, older workers are delaying retirement, potentially clogging up promotional opportunities for younger workers and helping keep unemployment levels high for the younger generation. And this next generation is beginning to learn from the unfortunate circumstances of the current generation of retirement age workers.

“Interestingly, as this shift in retirement plans continues, other Towers Watson research shows that younger workers are finding DB and hybrid plans more appealing than DC plans,” said Alan Glickstein, another retirement consultant at Towers Watson.

The bottom line is that workers of all ages need to start expressing preferences for retirement plans that will enable some level of financial security in their retirement years. Such options include sponsoring traditional pension plans; sponsoring hybrid plans that offer the potential for lifetime retirement income; adequately funding DC plans; and providing retirement income options in DC plans. And there are good business reasons for employers to step up to the plate to help insure the retirement security of their workers.

We can no longer afford to ignore the long-term consequences of short-term thinking about our retirement programs. But we don’t need to look to our federal government to solve these problems. Employees and their employers can work together to make it a priority.

via cbsnews.com

Now is the time for employees to save for retirement. If you even delay for a short time your retirement may never arrive.

Please comment or call to discuss how your company retirement can be improved to guide employees.

Posted via email from Curated 401k Plan Content

Should the 401(k) Be Reformed or Replaced?

Posted on November 1, 2012 by Tony — No Comments ↓

The 401(k) plan will work if employers take a more active role in helping their employees reach a successful retirement. The Pension Protection Act of 2006 provides the rules to accomplish just that.

David John, a pension expert at the conservative Heritage Foundation, dismisses the likelihood of enacting far-reaching changes like those supported by Senator Harkin and Ms. Ghilarducci. Partly because of industry opposition, he said, “starting something wholly new would be virtually impossible.”

Mr. John argued that it would be wise to keep the 401(k) system, imperfect as it is, and improve it. With some reservations, he praised the automatic enrollment features of the Pension Protection Act of 2006, which allows companies that offer plans to automatically enroll new employees,, typically at 3 percent of pay, although workers can opt out.

He also praised the law’s automatic escalation provisions, which enable companies to ratchet up employees’ contribution rate from 3 percent in an employee’s first few years unless workers opted out. He criticized Congress for essentially setting 3 percent of pay as a default investment level. “The 3 percent level is a huge mistake,” he said.

He wants Congress to raise the automatic enrollment’s default participation rate to 6 percent. That, he said, would hardly reduce enrollment and would create a larger nest egg for retirement.

The battle over whether the 401(k) system needs some fine-tuning or radical surgery is still gathering force. “A czar would be able to fix this easily,” Mr. Bogle said. “Whether politicians can fix this is something else again.”

via cnbc.com

The 401(k) can be saved simply by treating it more like a pension fund rather than a trading platform. Most participants are ill-prepared to effectively manage their own retirement plan.

Please comment or call to discuss.

Posted via email from Curated 401k Plan Content

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How To Fix Your Lousy 401(k) Retirement Plan: Pool It, Like a Pension Fund

Posted on October 19, 2012 by Tony — No Comments ↓

I agree with the basic premise of this approach. However, I believe there is an alternative approach. to improving your plan and turing it into a pension fund ‘like’ plan without all the concerns of this approach. Most if not all investors are incapable of doing what needs to be done when it comes to successful investing.

I’m not one who’ll argue that the average investment professional can beat the stock market indexes. But a seasoned professional can excel by reducing the fees that many mutual funds charge and making sensible choices on how to allocate your employees’ retirement dollars in a constantly changing economic climate.Let’s start with those fees. The Center for Retirement Research studied the costs that afflict a typical self-directed 401(k) plan. Administrating the plan normally costs 0.1 to 0.2 percent of assets—peanuts. The heftier charge is the 1.3-1.5 percent whack for managing the investments.

Half of that 1.3-1.5 percent cost is disclosed by the portfolio managers who operate your mutual funds. You know them as the funds’ “expense ratios,” which include the 12b-1 fees that pay for the marketing and selling of the funds as well as communications with shareholders. But the other half, the researchers explained, are trading costs—bid-ask spreads and commissions paid to market makers and dealers. Neither of these trading costs are disclosed. They’re excised from a mutual fund’s profits by the traders who fulfill the fund’s buy and sell orders.

In the hands of a good investment pro, the trading costs and management fees should be significantly less. For one thing, if all your employees’ retirement funds are pooled into a single large account, the manager will be able to use exchange-traded funds or directly invest in stocks, bonds and real estate investment trusts. These alternatives can have lower trading costs, avoiding the expenses mutual funds incur by having to be constantly ready to sell investments and provide a lot of liquidity to nervous, impatient retail investors.

via forbes.com

There is an alternative to the pooled 401(k) plan which reduces the concerns stated in this article. The Pension Protection Act of 2006 allows plan sponsors to automatically enroll employees in an age appropriate portfolio. The employee has the option of signing a simple agreement and choose their own fund mix.

Please comment or call to discuss how this affects you and your company 401(k) plan.

Posted via email from Curated 401k Plan Content

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What Small Businesses Should Look for in a 401(k) Plan

Posted on August 2, 2012 by Tony — No Comments ↓

Due to the provisions in the Pension Protection Act of 2006 plan sponsors can provide a 401(k) plan which looks more like a pension plan. Plan particiapnts are automatically assigned an age appropriate portfolio. They can then change the risk level or sign a simple form and choose their own fund mix.

Employee of the Month Reserved Parking Sign (Photo credits: myparkingsign.com)

Understanding 401(k) Fee DisclosuresAs of July 2012, a new Fee Disclosure Rule was put in place by the Department of Labor. Known as Rule 408(b)(2), it requires 401(k) plan administrators to fully disclose their fees in a way that makes it easier for the plan sponsors, or employers offering 401(k)s, to understand what they are paying for. It’s a step in the right direction, says Carpenter, but not necessarily enough. Business owners, and especially small business owners who don’t have the same leverage that larger companies have when dealing with 401(k) plan administrators, still need to ask more questions about exactly where each dollar goes.That means digging into expense ratios, the fees that you pay for mutual funds. Who gets each dollar your employees pay? And what about the share class? Even if the mutual fund being offered is a good one, there might be a cheaper version of it in a different share class.

“Fees matter,” Carpenter says. “Over a long period of time even a quarter of a percent or less makes a huge difference in the value of the investment at retirement. The plan sponsor who has his or her eye of the ball needs to know this so they can make the best decisions about the employee’s money.”

via retireplan.about.com

Plan sponsors primary goal for now is the understand the new fee disclosure regulations. Many service providers will continue to confuse plan sponsors by ‘hiding’ the fees in mountains for documents.

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

Posted via email from Curated 401k Plan Content

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Big Jump in 401(k) Investors Seeking Diversification

Posted on July 31, 2012 by Tony — No Comments ↓

If plan sponsors wish to turn their 401(k) plan into a more pension fund like plan they need to promote professionally managed portfolios. Because of provisions in the Pension Protection Act of 2006 plan sponsors can automatically place a participant in an age appropriate portfolio. The particiapnt can stay in the portfolio or change risk levels or opt out and pick their own fund mix. This, is the right way to manage a plan.

Some question the benefits of 401(k) plans because they transfer investment decision-making to generally inexperienced participants,” said Jean Young, chief author of the “How America Saves” report, in a statement. “Now, however, an increasing number of participants can leave the asset allocation, investment selection and ongoing management responsibilities of their account to the professionally managed allocation options available in their defined contribution plans.

via advisorone.com

This trend will continue for all those investors unable to predict the future.

Please comment or call to discuss.

Posted via email from Curated 401k Plan Content

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Retention levels higher for employers with defined benefit plans.

Posted on May 29, 2012 by Tony — No Comments ↓

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.

via ebn.benefitnews.com

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

401(k) Plans: A Tale of Unrequited Love(401kplanadvisors.com)
Top Tax Write-offs for the Self-Employed(turbotax.intuit.com)
54% of workers would switch jobs to get a better DC plan – Pensions & Investments(401kplanadvisors.com)

Younger Workers Look for Employers with DB Plans

Posted on March 29, 2012 by Tony — No Comments ↓

There are plan designs available for successful small business owners and professional service firms to add a hybrid defined benefit plan and attract and retain talented employees. These plan designs have become a viable solution by provisions in the Pension Protection Act of 2006. This plan design does not work for all companies however when it does work it is very attractive.

The survey found that the number of DB plan participants hired within the last two years who said the retirement program was an important factor in deciding to join their employer jumped from 27% in 2009 to 70% in 2011. At employers with DB plans, employees hired within the past two to five years were more than 3.5 times as likely to say their retirement program strongly affected their employer choice decision (67% versus 18%). Meanwhile, retirement programs have become only slightly better attraction tools at companies with only a DC plan. Of this group, 19% of employees hired over the same time span reported that the retirement program was an important reason for their employer choice.Many more workers who accept a job that offers a DB plan intend on a long career with their employer. More than three-fourths (77%) of new hires at companies with a DB plan say the retirement plan gives them an important reason to stay on the job, and 85% hope to work for their employer until retirement.

via planadviser.com

For companies to remain competitive for younger, talented employees they must listen to what these prospective employees are looking for. There are plan designs available to accommodate a defined benefit plan for smaller employers.

Please comment or call to discuss what options are available for your company.

Is the Recession Causing Small Retirement Plans to Skimp on Compliance Efforts? (401kplanadvisors.com)
Majority of Plan Participants Lost on Retirement Planning, Seek Direction From Employers (401kplanadvisors.com)
The Defined-Benefit Plan (moneymanager.com)

Corporate Pension Pain Mounts

Posted on March 1, 2012 by Tony — No Comments ↓

The retirement fund crisis in the public sector will determine how employees in the private sector save and invest for retirement. This crisis should teach everyone that you cannot rely on the government for your financial future. More and more companies are freezing their pension plans. This will put more focus on the 401(k) plans and how they are offered. Americans must begin a disciplined approach to saving for their own future.

Companies from defense contractor Lockheed Martin Corp. to aviation-electronics maker Honeywell International Inc. are caught in a vise: the Federal Reserve Board’s vow to keep rates at current levels until 2014 means pension plans’ fixed-income investments are stagnating just as new rules shorten the time available to shore up funding.“They’re going to have to kick money in,” said John Ehrhardt, a consulting actuary at Seattle-based Milliman. “We’re basically seeing historically low interest rates driving historically high employer contribution requirements.”

That’s money that won’t go back to shareholders through dividends or buybacks, or toward expansion, said Kevin McLaughlin, a pension risk management specialist with consultant Mercer in New York.

Under the federal Pension Protection Act, which was passed in 2006 and mostly took effect in 2008, tighter accounting rules gave employers seven years to fully fund their retirement plans and required them to use a specified, market-based rate of return to compute liabilities instead of a company estimate.

via treasuryandrisk.com

The decline in the number of firms offering a pension plan will continue. The result of this is more focus on the importance of the 401(k) plan as a retirement savings vehicle. The 401(k) plan of tomorrow will have a more pension fund like feel. This means model portfolios and less options. Leave the investment choice and strategy to professionals.

Please comment or call to discuss how this can affect you and your organization.

GM takes final step to eliminate pension plans, switch entirely to 401Ks (autoblog.com)
Bank of America to freeze pension plan (jobmarketmonitor.com)
401k Plan Sponsors and the Risk of Fiduciary Liability (401kplanadvisors.com)

What Does Your Company 401(k) Plan Look Like?

Posted on February 17, 2012 by Tony — No Comments ↓

The 401(k) plan, defined contribution, has become the sole source of retirement for more and more Americans. Just recently General Motors announced it will suspend its pension plan for salaried employees. All company contributions will be made to the 401(k) plan. In fact defined contribution dollar totals surpassed defined benefit plans, pension in 2011 for the first time. This trend will continue.

Remember the 401(k) plan was first introduced in 1981 as a supplement to a defined benefit plan by a bank seeking additional retirement funds for executives. It has been sold to companies, as a supplement, since then. It is time for plan sponsors to offer a plan that looks and acts more like the defined benefit pension plan. Currently plans offer a list of funds and the employee is expected to choose the right mix for their situation. This is usually done by looking at the past performance of the funds offered and choosing the funds with the highest performance. This is a huge mistake and often results in unacceptable results.

It is a mistake to offer a huge amount of fund choices and expect employees to make the right decisions. It is important to understand that providing too many choices is a bad thing. The more choices you include in your 401(k) plan, the higher the likelihood that the plan participants will do nothing and simply not participate in the plan or incorrectly allocate their funds.

Most plan participants feel uncomfortable and confused about how to best allocate their 401(k) contributions. When the employee is ready to retire the confusion continues with how to take distributions to make their savings last a lifetime.

As a result of the Pension Protection Act of 2006 401(k) plan sponsors can direct their employees to professionally managed risk adjusted model portfolios based on age. The employee then has the option to change the level of risk or opt out of the models and choose their own mix. Studies have shown that a majority of plan participants will remain in the original model portfolio. The result will be improved performance and less anxiety for the participant. When uncertainty is reduced participants will save more and worry less.

Please comment or call to discuss how your company 401(k) plan can be improved and become the employee benefit you and your employees deserve.

These 5 Stocks Have Big Pension Problems (dailyfinance.com)
GM ending pensions for white-collar workers (msnbc.msn.com)
Benchmarking: The Key to a 401k Plan Sponsor’s Fiduciary Compliance Review (401kplanadvisors.com)

Cash balance retirement plans: Annuity options

Posted on February 10, 2012 by Tony — No Comments ↓

The cash balance plan design can allow small business owners and professional service firms to take significant tax deductions to a qualified retirement plan. Provisions in the Pension Protection Act of 2006 clearly allow the cash balance plan to work for many successful business owners and professionals. Statistics show many successful baby boomers have not set enough aside for retirement and this plan design allows them to catch up while providing an employee benefit which will attract and retain top talent.

Cash balance defined benefit plans are offered by many large employers; according to a recent survey by Towers Watson, 25 percent of the Fortune 100 offer these retirement plans to their employees. A cash balance plan is a hybrid retirement plan that shares some features of both a traditional pension plan and a 401(k) plan.
Here’s how they work:- Like a 401(k) plan, your benefit is an account that grows with contribution and interest credits. Usually you can take the full amount in your account with you when you terminate or retire.

– Like a pension plan, your employer takes any investment risk; before you retire, your account always earns the interest crediting rate that’s specified in the plan, even if the assets in the pension trust tank due to a market downturn.

– As with a pension plan, at retirement, you have the option to have the plan pay you a monthly retirement income — a.k.a. an annuity — for the rest of your life, or take the money and roll it over to another type of income-generating account.

So when you retire, should you take your account and roll it over to another type of account that could generate a monthly income for you, such as an IRA or annuity, or should you elect to have the plan pay you the monthly annuity? One way to come up with the best answer to this question is to compare the monthly income you would get from your employer’s cash balance plan to the annuity income you’d get if you took the lump sum payout and bought an annuity from an insurance company.

via cbsnews.com

The cash balance plan is an excellent plan design for many closely held businesses and professional service firms. This is not appropriate for all companies but when it works it is a very attractive benefit to attract and retain top talent.

Please comment or call to discuss how this plan design might work for your company.

New Annuity Rules for 401(k)s (money.usnews.com)
Wrong pension choices could mean longer at work (gateway-homes.co.uk)
Eight suggestions for improving your 401(k) plan (401kplanadvisors.com)

...a Main Street Solution to a Wall Street Problem...

Pension Protection Act of 2006

Retirement plan shift is creating a generation of workers unable to retire

Should the 401(k) Be Reformed or Replaced?

How To Fix Your Lousy 401(k) Retirement Plan: Pool It, Like a Pension Fund

What Small Businesses Should Look for in a 401(k) Plan

Big Jump in 401(k) Investors Seeking Diversification

Retention levels higher for employers with defined benefit plans.

Younger Workers Look for Employers with DB Plans

Corporate Pension Pain Mounts

What Does Your Company 401(k) Plan Look Like?

Cash balance retirement plans: Annuity options

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