How to keep your retirement package competitive with benchmarking

Benchmarking a retirement package should include a number of different metrics — not just fees — and that’s where many employers fall short.

“The whole idea behind benchmarking is to give you a sense of where you are, the problem areas that you need to work on and what techniques you should then use to improve the metrics for the plan,” says Daniel Halle, AIF®, RPA®, vice president and manager of Retirement Plan Advisors at Fragasso Financial Advisors.

From a fiduciary perspective, you want your fees in line with the market, but you also want to benchmark the performance of your funds, which can drive cost. If you’re running more of an index strategy, the costs may be lower but returns could be lower over the short term.

It’s also critical to consider participant outcomes, including employee participation rates, deferral rates, proper asset allocation and amounts saved. Remember your employees are why you set up a retirement plan in the first place, Halle says.

Smart Business spoke with Halle about how to benchmark your retirement package and then use that data to improve the plan.

If benchmarking isn’t required, why do it in the first place?

There’s no obligation to benchmark your retirement package, but you’re doing a disservice to your employees if you don’t.

It’s also good business. As a fiduciary, you must act in the best interest of the participants. If you don’t review or benchmark your fees, it’s difficult to make the case that you’ve fulfilled your fiduciary duty. And if participants file a lawsuit later, as a fiduciary you could be held personally liable for any breach of fiduciary duty.

With the uncertainty of Social Security and the decline of defined benefit pension plans, employees have more responsibility and are more aware of retirement. A competitive retirement package can be used for recruiting and retention.

How often should retirement plan sponsors benchmark their plans?

Every three to five years, employers need to search the market and bring in proposals to compare to their existing plan. Year after year, fee and cost structures have declined, so it’s wise to see if there’s been compression in their market size.

On an annual basis, retirement plan sponsors also need to look at other metrics to see if progress has been made in closing some of those gaps, which can include paying too much, poor performing investments or poor participant utilization. They should compare investment options to their peers and look at participant outcomes.

Why is it so important to keep benchmarking data current and compare it?

A benchmarking report that sits on your desk isn’t helpful. You need to take that data to identify problem areas in your employees’ investment allocations or contribution gaps, then provide education to fill those gaps and measure the results annually to see if you drove positive outcomes.

If employees aren’t saving enough, change your education process to talk about why saving is important or consider adding an auto-enroll/auto-escalation feature. Or maybe employees aren’t aggressive enough with their investment options, so target your education to change that behavior.

Take an active role in getting employees to save more for retirement. Employers are so focused on managing health care renewals, but if they spent a little more by increasing the match or putting in auto-enroll/auto-escalate, it gives people the retirement balances they need to leave the workplace — ultimately controlling health care costs.

Should retirement plan sponsors do this internally or seek outside help?

When 401(k) plans were started, the idea was a company could manage its own plan. But is it a good use of the company time and resources? That’s why many employers now outsource most 401(k) work to third-party administrators or record-keepers.

It’s the same for benchmarking. There are tools and resources available, and a lot of benchmarking uses your own metrics like participation or deferral rates, but it may be more cost effective and productive to outsource. If you leave it to the professionals that specialize in this business, they understand what to watch out for and focus on. Some investment advisers even include benchmarking as part of their services.

Insights Wealth Management is brought to you by Fragasso Financial Advisors

Why you need to diversify your assets to maximize return and minimize risk

Diversification is a critical component for any sound investment plan, but it requires regular monitoring to ensure it’s still producing the desired results in good and bad times.

“Whether you are managing your own money or working with a financial professional, you need to review things regularly,” says Raymond N. Sussel, CLU, a financial professional at AXA Advisors, LLC. “We have clients we meet with every quarter. Other clients ask to meet every few years because not much has changed in their life.”

The challenge for some investors is understanding diversification.

“People think their portfolio is diversified,” Sussel says. “And when we review their holdings, we’ll see they own 100 to 300 different individual stocks and bonds. They might be missing small cap stocks or emerging markets as an example.”

Smart Business spoke with Sussel about keys to effectively diversifying your assets.

How has the definition of assets changed? 

Traditionally there were three different kinds of asset classes: stocks, bonds or fixed income, and cash. The landscape has changed. It used to be that stocks and bonds moved in opposite directions. Recently, the correlation has become more positive, meaning they move in similar directions. In 2008, both had a rough time in terms of investment returns.

Today, the words ‘alternative investment’ are used a lot, especially for higher net worth individuals as a way to diversify into other asset classes that have negative correlation. The traditional asset classes of stocks, bonds and cash have been augmented by alternative investments, which can include commodities, real estate, different types of fixed income including domestic and overseas, currencies and long and short funds to bet against the market. It is by utilizing these assets that we seek to help manage risk.

What are some key strategies to achieve healthy diversity? 

First, understanding what your financial goals are is important. Time horizon is critical as well. If you were considering a three- to five-year period, you should not invest aggressively. Conversely, if you’re looking at a 30-year period, you probably don’t want a lot of money sitting in bonds. Most of our clients think of their investments in terms of buckets. Money that is needed in the next few of years should be in a short-term bucket. Perhaps funds are in a bank or a money market account and earning a little bit of interest. But the risk level is low as is the return.

Some clients fall into the middle-term category. Perhaps you are going to buy a second home, or are getting ready to put the kids through college. The hard part is figuring out how to invest that money so you are satisfied with the return, but not taking on additional risk. It really comes down to your tolerance for risk. If you can’t stomach a couple down days in a row, or if you see your $100,000 is suddenly worth $90,000 and you are very concerned, you are probably investing too aggressively. You should also consider the amount of money invested. A financial professional is going to invest $25,000 differently than $2.5 million. You can’t diversify $25,000, or even $250,000 as easily. The larger the amount of money, the more you are able to diversify, not only with asset-class diversification, but advisor diversification; hence utilizing multiple advisors or investment companies.

Any other tips for helping to manage the ups and downs of the markets? 

The average investor should not look at their investments every day. Because of technology, there is a lot of information available at our fingertips. It gives the average person access to things to which 15 or 20 years ago they didn’t have access. Success in the market requires patience. You should also consult with a financial professional to make sure you are on the right track, and continue to review and monitor your investments at regular intervals. ● 

Securities offered through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/ SIPC. Insurance and annuity products offered through AXA Network, LLC.

GE-97673 (9/14) (Exp. 9/16)

Insights Wealth Management is brought to you by AXA Advisors, LLC.

How to better prepare for changes in the dynamics of your family business

Small and midsize businesses are particularly vulnerable to life altering changes. Successful business leaders include contingency plans in their business for such events. However, certain business disruptions — serious injury or disability to key personnel, loss of a spouse or other unexpected “life altering” events — may come as a surprise, especially in a family business.

“Having had the important conversations ahead of time, you are better prepared to deal with significant changes when they occur within your business,” says Betty Uribe, Ed.D., Executive Vice President at California Bank & Trust.

“I have personally witnessed during this economic downturn that the businesses that weather the storms are the ones that planned for change ahead of time and remained flexible to changes as they came,” she says.

Smart Business spoke with Uribe about key points to remember when there are changes in the dynamics of a family business.

Why can these kinds of disruptions have such an impact on family business?

People do not plan for life change. We think we are going to live forever. We think our business is going to last forever. We think our partners are going to be our partners forever. We think our customers are going to be our customers forever.

Normally a business leader is able to keep personal issues separate from the organization’s operations. But during a divorce, for example, if both individuals are involved in the company, whether in day-to-day management or not, such change begins to infiltrate the business. This, in turn, affects the decision-making and the future of the business, and has an impact on employees.

How does emotion play into these kinds of situations?

You have to try to remove emotions from the decisions you make about your business, which is difficult for any business owner — family business or not. The owner has created the business from his or her sweat and tears, so it becomes almost like his or her child.

In addition, changes in a family-owned business can be harder because of the emotional ties to the business. You do not necessarily treat a family member as an employee and in doing so, instead of helping him or her grow, you may end up enabling weaknesses.

What planning would you recommend family business owners make prior to changes?

As a smart business owner, plan before emotion and turmoil kicks in. Create a board of directors that can deliver objective third-party feedback. Consider including your banker, CPA, business attorney, insurance agent, etc., in regular business planning and strategy meetings.

An independent board can help put together a business strategy, which includes areas such as business transfer and contingency plans. You know in case of fire to take the stairs and go out the back door, so why wouldn’t you adopt contingency plans for your company?

By establishing plans and controls in advance, you are in a better position when disruption occurs. During a divorce, one of the first things an attorney will say is to keep your children out of the conversation and decision-making. So, treat your business like that child and keep business operations separate.

The same thing goes for succession planning. You need objective opinions, because the fact that your child is a competent individual and business owner does not always make him or her the best successor to manage your business. The chosen successor must agree with your vision for the business, in order to truly preserve your legacy.

You may not be able to plan for everything in your business but having a plan in place allows you to proceed with minimal disruption. That plan may involve limiting the number of family members in management, or turning to selected professionals on your board in decision-making roles so if your children suddenly have to step in and take over the management of the company, they will have the appropriate assistance in place to help them navigate complex changes.

Preparation is the best way to avoid disruption. Planning is essential to insure your business lives on from generation to generation. ●

Insights Wealth Management is brought to you by California Bank & Trust

How to shift from saving to taking income for your retirement

Retirement planning means saving early and often while developing a balanced and diversified portfolio. Once you are within three to five years of retirement, however, reality sets in that your paycheck must be replaced with some combination of Social Security, pension funds, distributions from your IRA, annuities and/or pulling from an investment account.

“It’s kind of a shift,” says Adam Spiegelman, wealth management advisor at Northwestern Mutual. “The brakes come on, and you ask, ‘How do we draw down? How do we take income? Where does that paycheck come from?”

Smart Business spoke with Spiegelman about preparing for retirement.

If someone has a large chunk of money, is it better to invest it at once or spread it out?

If you’re moving money over from an existing 401(k) or IRA, it’s best to invest it at once. If it’s cash, like from a home sale or inheritance, it’s better to invest it over a period of three to four months, which helps mitigate against market volatility.

What is the appropriate strategy for providing financial gifts?

First, make sure you’re squared away for your own retirement.

After that, it depends on the needs of your dependents. Some might be OK financially, while others may need help. Be sure to keep score in your estate plan as you gift. If you help a child or grandchild, earmark that amount so everything is equitable in the end.

Wealthier couples also may gift out of their estate to mitigate a future tax exposure. Under normal circumstances you would only consider this for the final 10 or 15 years of your life. You don’t want to gift too early and be left short of funds.

How and when do annuities work?

Annuities are like private pension plans that provide a guaranteed source of income, which can help even out cash flow. With an annuity as part of your portfolio, you can be strategic with how you pull from investment accounts. If the market is down, you can let your account build back up and live on the annuity income.

If, however, you’re unhealthy and/or single, annuities are less attractive because you’re paying a large sum for income you only get for a short time.

How will Social Security affect retirement? When should you delay drawing upon it?

Social Security was never meant to replace your pre-retirement income, but it can help supplement it. There are numerous strategies for drawing Social Security. An increasingly popular one for many married couples is the file and suspend strategy, where the main breadwinner applies for Social Security at age 66 and immediately suspends payment. In most cases, this allows his or her spouse to collect half of their benefit, while the 66-year-old’s benefit increases by 8 percent every year until age 70 — a 32 percent total increase.

The key here is sit down with a Social Security consultant in conjunction with your financial adviser to make sure you aren’t leaving money on the table.

What do people need to consider when taking a payout option from their pension?

With pension plans, you’re provided with a number of payout options, including a lump sum. It surprises many that you might do better investing the lump sum versus taking the company’s offered annuity. This depends on numerous things like the current interest rate environment, inflation protection within the pension plan, the company’s financial strength, etc. It’s best to discuss this thoroughly with your financial adviser.

How can you invest conservatively, securing your nest egg, while still beating inflation?

Inflation should be considered, since it can easily erode your retirement. Often, people underestimate the power of inflation, but even a small amount can become significant over a 10- or 20-year period.

With the help of your adviser, you can be diversified and conservative in the markets, employing investment vehicles like mutual funds, dividend-paying stocks, bonds or treasury inflation protected securities, while protecting your buying power over the course of your entire retirement.

Insights Wealth Management is brought to you by Northwestern Mutual

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Spiegelman is an insurance agent of NM and Registered Representative of Northwestern Mutual Investment Services, LLC (securities), a subsidiary of NM, broker-dealer, registered investment adviser, member FINRA and SIPC.

How to leave a legacy for your heirs beyond the financial

Eighty percent of high net worth individuals today didn’t grow up with wealth. They can’t follow the example set by their parents and grandparents, and they may not know the right questions to ask financial advisers.

“This segment of the population — these ‘self-made’ millionaires — wants to help their kids but, for the most part, they don’t want them to be dependent on trust funds. They prefer their children to have a good work ethic and contribute to society,” says Deborah F. Graver, CFP®, CLU®, senior vice president of Advanced Planning at Fragasso Financial Advisors. “Although they are willing to give some money to their children, they also want to give back.”

Using tools like a charitable trust or family foundation, people are able to support their core values while teaching their heirs how to manage money and give back to society.

Smart Business spoke with Graver about some effective estate planning vehicles that allow you to leave a legacy behind.

What does it mean to ‘leave a legacy’?

To leave a legacy is to transfer your core values, along with your assets, to benefit family or society as a whole. Some people choose to establish family trusts to ensure their name and assets last for future generations. Others are more interested in creating a family philanthropy that helps create a positive social change. It’s more far-reaching than simply estate planning; it’s multi-generation planning.

Does that mean some people need to think more broadly about estate planning?

It’s hard to cast a net over everyone. But if you work with professional advisers who take time to understand who you are and what you care about, they can help you create a thoughtful and effective estate plan, which may include charitable giving. Some clients establish charitable entities to last a lifetime and beyond to support causes that help those with special needs, companion animals and faith-based organizations, to name a few.

It’s also noteworthy that baby boomers are expected to transfer $30 trillion over the next 30 to 40 years. Statistically, however, 70 percent of inherited wealth is lost by the first generation, and 90 percent by the second. So, if these baby boomers leave money outright to their kids, it’s going to be gone.

What are some tools to pass on your legacy?

Always take a holistic approach. Try to incorporate charitable giving strategies in high tax years, which may occur when selling your business or exercising company stock or stock options. In addition to the altruistic and goodwill benefits of charitable giving, it can also have significant tax advantages.

You can establish a charitable trust or create a family foundation and transfer assets on a tax-deductible basis to provide income to you or to the charities of your choice for years and possibly generations to come. For example, if a couple has stock with a zero cost basis, they’d have to pay capital gains tax on the entire amount when it’s sold. Instead, they can gift the stock to a charitable trust that provides income for life. It could be used as supplemental income or to buy life insurance to replace the assets gifted away. At the end of their lives, the trust’s remaining principle is given to named charities and any insurance proceeds flow to their heirs.

What’s the timing for this kind of planning?

First, get young children involved in volunteering so they learn the value and importance of why you want to help others less fortunate than yourself. Then, when your kids are old enough to understand the benefits of charitable giving, start talking to them about your desire to leave a legacy.

Is there anything else you recommend?

You need to educate and communicate your family’s values to the next generation to help ensure — and there are no guarantees — that the money lasts. A financial adviser who focuses on legacy planning can facilitate family communication while the elders are alive and document core family values. Your heirs need to be part of the process so they understand your wishes. It will help them take the responsibility more seriously, and they will be better equipped to manage their inheritance and family philanthropies.

If you’re not working with someone who specializes in legacy planning or includes it as part of their services, get a second opinion on any planning to ensure what you want to accomplish will, in fact, happen.

Insights Wealth Management is brought to you by Fragasso

Simple steps that can help you and your employees manage your wealth 

Many employers are working harder than ever to help employees develop responsible habits when it comes to managing their money. When your people are in a good place financially, it can only help them to be a more productive worker at your company.

“A lot of the education isn’t and shouldn’t be around the 401(k) plan that the employee has through your company,” says Gregg LaSpisa, executive vice president at AXA Advisors, LLC’s Cleveland branch. “Part of the conversation should always be around investment options and the value of financial planning. It’s more about financial literacy, something you can do on a broad basis where everyone can takes bits and pieces and apply it to their own strategy.”

There is a misconception that wealth management is only for the affluent part of the population, but LaSpisa says that could not be further from the truth.

“The segment of the population that is being missed is the middle class,” LaSpisa says. “There is advice out there to be had. They just need to be more engaged.”

Smart Business spoke with LaSpisa about what you can do to help both you and your employees find suitable financial strategies.

What are the key components to a good wealth building strategy? 

One is to get started early. Encourage employees to take advantage of employer-sponsored plans whether it’s a 401(k), a 403(b) or a 457 plan that is geared toward city and municipal workers. It’s something that is going to give them tax benefits and the ability to contribute dollars systematically, which is important because it allows them to dollar-cost average.

One trend a lot of employers are picking up on is having a default into their 401(k) plan.

If someone joins XYZ Co., the employer will default new employees into the plan at 3 or 4 percent of the employee’s pay. Employees don’t even need to sign up and would have to elect to not be in the plan. It has increased participation rates because people are automatically in the plan from day one.

Encourage employees to take advantage of all the employer money that may be available. If the match is on 3 percent of contributions, make sure they at least take advantage of that. Those are free dollars that they have access to.

How does wealth management differ from retirement planning? 

It could be trying to eliminate debt, trying to pay down a mortgage to build up more equity or taking a look at an insurance based portfolio. A person’s entire financial situation is addressed, not just retirement planning.

What about making investments in the stock market? 

A common problem for investors is when they try to time the market so they can get in and get out quickly with a pile of cash. But it’s not timing the market that can help your wealth. It’s time in the market.

That steady course, that consistent dollar-cost average and rebalancing of your account can means a huge difference in the amount of wealth one can accumulate over a 30- to 40-year period of time. When people see the market go down drastically, they often pull out and move to cash. They’ll never recapture that lost opportunity because they tried to time the market.

Get a strategy that is long term and manage it for that horizon. Don’t manage it day by day or year by year. If you have a 30-year time horizon, one year doesn’t mean a whole lot. One month means absolutely nothing because you’re going to have a lot of months over that period of time.

Financial services available to individuals and business owners through AXA Advisors, LLC include: strategies and products for financial protection and investments; asset allocation, college, retirement, business and estate planning strategies; life insurance, annuity and investment products, including mutual funds. Securities products are offered through AXA Advisors, LLC, NY, NY, member FINRA, SIPC, 10104 (212) 314-4600. Insurance and annuity products are available through an affiliate, AXA Network, LLC and its subsidiaries.
GE-96186 (Exp. 7/2016) 

Insights Wealth Management is brought to you by AXA Advisors, LLC 

Why a happy retirement requires a mix of both planning and discipline

It’s one thing to maintain spending discipline when you are still working. You can afford to take a big vacation with the kids or make a major improvement to your house because you are still drawing paychecks on a regular basis to replenish your account.

It all changes when you decide to retire.

“The biggest exercise we go through with clients is retirement income planning,” says Gregg LaSpisa, CLU, executive vice president at AXA Advisors, LLC’s Cleveland Branch.

“You go through your working career and you always contributed money to your 401(k) plan or your retirement plan and you are more in an accumulation mindset. When you retire, you have this big lump sum asset. How do you get income off of that? The retirement income plan is critical. You have to match expenses with income.”

Smart Business spoke with LaSpisa about why it’s never too late to put yourself in a better position to enjoy retirement.

What are the most significant retirement planning challenges?

One of the biggest issues is the fact that we are living longer. Of course, it’s great that we are living longer, healthier lives. But the downside is when you are talking to a financial professional about planning for your retirement, because now you have to plan to live to 90, 95 or even 100. Previous generations were only planning to live to age 75 or 80, so the total money needed for retirement was a lot less.

How do lower interest rates figure in?

It’s huge. If you think back to the 1980s, interest rates were at 12, 13 or 14 percent. Most pension plans invest in government bonds or some sort of bond portfolio. Now many of those rates are at 2 percent or less. Corporations need more capital to generate the income they are guaranteeing. The trend has been to get away from pension plans and push the responsibility for retirement to the employee as opposed to the employer.

What’s the most important thing I can do to plan for retirement?

Have a realistic budget of what it’s going to cost at retirement. How much income do you need to cover your expenses? People will say, ‘My home is paid off, so I won’t have that expense.’ That may be true, but there are expenses you will have, such as health care, that will increase. If you want to help pay for your grandkids to go to college, you’ll need money for that too.

So you need to know what your income sources are going to be and what kind of protection you have against inflation.

We talk about the withdrawal rate in terms of how much you can take out of your portfolio. Some clients want to take 8 to 10 percent out a year. That’s often way too high. On average, you should plan to take maybe 4 percent out a year. That’s the kind of discipline you need to have.

How can I help my financial planner?

Have an understanding or have access to all of your accounts. In other words, be aware of what benefit plans you have from work or the CDs, IRAs or 401(k) plans that you have set up. Take the responsibility to know where your assets are and gather all those documents before you meet with your planner. If you don’t tell your planner what you have, they can’t do their job effectively.

Is it ever too late to start?

It’s never too late to start. There are ways to improve your position and it may not get you to the ideal situation, but it can certainly improve your current situation. If you have done planning, it’s a good idea to review your plan every six months to make sure it is still in accordance with all your objectives and has been updated to include any major changes in your status. The goal of a planner is to make you aware of the issues that are out there because there are too many moving parts to do it alone. Engage a professional and take ownership of your future.

Financial services available to individuals and business owners through AXA Advisors, LLC include: strategies and products for financial protection and investments; asset allocation, college, retirement, business and estate planning strategies; life insurance, annuity and investment products, including mutual funds. Securities products are offered through AXA Advisors, LLC, NY, NY, member FINRA, SIPC, 10104 (212) 314-4600. Insurance and annuity products are available through an affiliate, AXA Network, LLC and its subsidiaries. GE-95292 (06/2016).

Insights Wealth Management is brought to you by AXA Advisors, LLC

Five key insights you need to know about retirement

Many people don’t give retirement enough thought and wait until it is too late to plan.

It’s important to start with the end game in mind. Dream big and plan ahead.

“Our philosophy is that you should start from the other end of the equation and ask yourself several questions. What do you want to accomplish? What do you envision yourself doing? If you could fast forward five, 10 and 15 years ahead in time, what does your ideal lifestyle look like?” says Adam Spiegelman, wealth management advisor at Northwestern Mutual in San Francisco.

Once you have answered the basics you can start by filling in the specifics. You need to determine what your lifestyle will cost.

Retirement can look very different for everyone, he says. Many business owners want to continue to consult in some capacity but still have the flexibility of not having to go into the office on a daily basis.

Smart Business spoke with Spiegelman about what to consider now in order to make your future dreams a reality.

How much should you be saving?

A big misnomer is that in retirement you’ll only spend 60 to 80 percent of your pre-retirement budget. Today, that’s often not true, especially if you step up travel, join a country club or buy a second home.

It takes a tremendous amount of capital to provide a modest amount of income in retirement. People are living longer and that needs to be taken into account when formulating your plans.

Save as much as you can, even if your significant wealth building doesn’t occur until your 40s and 50s. Plan for extra costs, like grandkids or helping your child out with a wedding or a down payment on a home.

Where does risk management factor in?

Often overlooked, a well-defined exit strategy needs to be laid out well in advance.

Consider diversifying away from your business as well. Your business is your home run. Because there is inherent risk in putting all your eggs in one basket, it’s important to spread out the risk. Real estate or investing in the stock market can provide diversification.

Your exit strategy needs to protect you and your family in the event of a disability or premature death. Consider writing and funding a buy-sell agreement. Do you want to work with your partner’s widow in the event of their untimely death? How long can your business support paying your partner if he/she has a stroke and can’t work again?

What should employers consider prior to retirement in terms of employee benefits?

You can put money away for your retirement and help your employees at the same time. If you have a 401(k) plan, consider including a profit sharing component. Sharing profits with your employees may allow you to max out a contribution for yourself. The end result can be quite beneficial to you both.

How do taxes fit into the big picture?

People often overlook small decisions that can have adverse tax consequences. Not making that extra contribution to a pre-tax plan or taking less of a distribution from an IRA in retirement can potentially cost money by altering the tax bracket you are in. The best thing you can do is to arm yourself with a good accountant, a strategic thinker who understands your situation and can develop a long-term strategy.

What are keys to investment management and strategies for strong financial planning?

Fees and investments need to be transparent. Although many do not want to know all of the details, a strong adviser will help provide the level of detail you can understand.

Also, remember every portfolio is unique. If someone with a $10 million net worth wants to invest $2 million, that portfolio will look entirely different than if someone with a $3 million net worth wants to invest $2 million of it. The investors’ situation and their tolerance for risk will be very different.

After determining the lifestyle you want, take into account Social Security and pension benefits, whether inheritance factors in, how much you’ve accumulated and how much you’ll pay in taxes. These are all pieces to the puzzle, and every puzzle is unique.


Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Spiegelman is an insurance agent of NM and Registered Representative of Northwestern Mutual Investment Services, LLC (securities), a subsidiary of NM, broker-dealer, registered investment adviser, member FINRA and SIPC.


Insights Wealth Management is brought to you by Northwestern Mutual

How natural gas is changing Western Pennsylvania’s business climate

Bob Taylor, Senior Corporate Banker, Senior Vice President, First Commonwealth Bank

Bob Taylor, Senior Corporate Banker, Senior Vice President, First Commonwealth Bank

With drilling in both the Marcellus and Utica Shale formations, Western Pennsylvania is sitting on one of the largest U.S. natural gas fields.

Even if you’re not directly affected, Bob Taylor, Senior Corporate Banker and Senior Vice President at First Commonwealth Bank, says the multiplier effect ripples out into the economy.

Each well site has about 250 different jobs associated with it, and Marcellus alone has about 6,378 active wells.

“It’s an engine that is going to drive the region here for the next 20 years,” he says.

Smart Business spoke with Taylor, an energy lender, about where Western Pennsylvania’s natural gas industry is going.

What is the current situation with Marcellus and Utica?

Small companies first explored Marcellus, finding the sweet spots to de-risk the field. Then larger companies like Exxon Mobil Corp., CONSOL Energy and Chevron Corp. bought up these companies and their acreage to move into steady production drilling. Three years ago, more then 45 operators were drilling in Marcellus. By 2013 that was down to 33, according to the Pennsylvania Department of Environmental Protection.

With Utica, the large companies stepped in first to acquire acreage. This consolidation has impacted area service providers that supply the well operators in Utica.

Overall, there has been a strong impact in counties like Washington and Greene. Pittsburgh will be affected now that an agreement has been reached to drill under the airport, bringing in $50 million upfront and $450 million in royalties over the next 20 years.

How are natural gas prices impacting the rig count and service providers?

Marcellus has been ranked as one of the lowest cost fields; operators can get a 10 percent ROI with prices as low as $2.75 per 1,000 cubic feet (mcf) for dry gas and $2.25 per mcf for wet gas. With today’s price around $3.50 to $4.25 per mcf, Marcellus is profitable.

Wet gas is more valuable because it has additional liquids that can be separated out and sold, such as ethane used to make plastics. Utica is principally dry gas in Pennsylvania, but Marcellus has both wet and dry gas.

Several years ago prices were high, but supply began to exceed demand, depressing prices. Therefore, some rigs moved to the wet gas in Ohio’s Utica play. Marcellus went from 100 rigs last year to around 53. Many service companies also have crossed the border.

However, each region has a field manager — service companies that supply products in Pennsylvania have to re-qualify for Ohio. The overriding factor is safety. For example, a service provider’s truck can’t be within 100 feet of the wellhead and must have fire extinguishers.

In the future, the volatility of price should moderate to around $3 to $7 per mcf, with increased demand from export, vehicles, manufacturing and electric generation.

What gas-gathering infrastructure is developing?

Many wells have been drilled and completed, so the next push will be to lay pipe to gather the gas and bring it to production facilities. It costs about $1 million per mile to lay pipeline, and about $3 billion to $5 billion is being spent in Pennsylvania alone.

Just like drilling, laying pipe has a number of associated jobs from engineers, steel pipe manufacturers, excavators and welders to safety inspectors who monitor pipelines.

Why is wastewater treatment the wild card?

Water is injected into the ground at high pressure to frack the shale rocks and release natural gas. Flow-back water that comes up has salt brine, minerals, dirt, sand, etc. Originally, the solids were removed and the water was reused for fracking.

With the drilling slowdown, there is excess wastewater. The cheapest elimination method is deep injection wells, but there are environmental concerns. The Environmental Protection Agency (EPA) may stop or limit deep injection wells sometime in the future. The EPA could require an evaporation and crystallization technique that distills the wastewater, but cost estimates for these reclamation facilities vary from $2.5 million to $100 million.

Bob Taylor is a Senior Corporate Banker and Senior Vice President at First Commonwealth Bank. Reach him at (412) 690-2214 or [email protected]

To learn more, call (800) 711-BANK (2265), or visit

Insights Wealth Management is brought to you by First Commonwealth Bank

How to ensure your estate plan is doing things for you, not to you

Geoffrey M. Zimmerman, CFP®, senior client advisor, Mosaic Financial Partners, Inc.

Geoffrey M. Zimmerman, CFP®, senior client advisor, Mosaic Financial Partners, Inc.

Estate planning is more than just having documents. It needs to be tied to long-term intent and aligned with your goals. What works for one person may not work well for the next, and what worked 10 years ago may not work now.

Geoffrey M. Zimmerman, CFP® practitioner, senior client advisor at Mosaic Financial Partners Inc., says many treat their estate plan like a transaction, even though the moving parts may have changed.

“They may have a document that is doing things to them and to their beneficiaries, and not really working well for them,” he says. “That’s why it’s important to review the plan periodically. It might take a visit to your attorney and the cost of several hours of time to update it. But in terms of relieving the headache on a surviving spouse or beneficiaries, those can be dollars well spent.”

Smart Business spoke with Zimmerman about why your estate plan should be continually adjusted.

What recent changes make updating your estate plan important?

Although the estate tax exemption did not reset as many feared, there are new items to consider. Undistributed income from an irrevocable trust can reach the top federal income tax bracket of 39.6 percent plus the Medicare tax of 3.8 percent after only $11,950. Those trusts can also see capital gains rates increase from 15 to 20 percent. This might impact a surviving spouse with capital gains assets in a credit shelter trust (also called a bypass trust) and assets in a marital trust.

How could outdated plans create problems?

In 1996, a couple with a $3 million estate would typically use a bypass trust to allow both spouses to use their respective $600,000 exemption to non-spouse beneficiaries, effectively allowing $1.2 million to pass to heirs free of estate tax. The remaining $1.8 million — plus any additional growth — was taxed at the death of the surviving spouse at rates up to 55 percent. A common planning strategy at the death of the first spouse was to put growth assets into the trust, as there would be no estate taxes on those assets. Heirs would still pay capital gains taxes, but capital gains taxes were (and still are) lower than estate taxes.

Today, the estate tax exemption has increased to $5.25 million per person. In our example above, the surviving spouse’s estate of $2.4 million worth of property could more than double before reaching $5.25 million and triggering any estate taxes.

Also, with the new laws, there is a now a new feature called ‘portability,’ which allows the surviving spouse to use the deceased spouse’s unused exemption amount. So in theory, a surviving spouse could pass up to $10.5 million worth of assets to heirs free of estate tax without using a bypass trust.

Older trusts that call for the creation and funding of a bypass trust may incur other unintended consequences. For example, formulas that call for funding the bypass trust to the maximum amount available without triggering an estate tax could leave the surviving spouse at a disadvantage with little or no assets in the survivors trust. Subtrusts that contain highly restrictive conditions for distributions to the survivor can create further complications. Finally, estates that contain large amounts of illiquid  assets that would need to be split between multiple trusts may also be problematic.  Periodic reviews, including a flowchart to understand what assets are going where, may be particularly helpful.

Also, as mentioned earlier, undistributed income in the bypass trust can hit top tax rates at very low levels of income, whereas the surviving spouse may not reach top tax brackets until he or she reaches $400,000 in taxable income.

Does this mean subtrusts are no longer useful?

They are still useful in cases where control over the disposition of assets is important, such as preventing a surviving spouse from disinheriting children from a previous marriage. You must balance the need for control against the surviving spouse’s needs, and your goals for your non-spouse beneficiaries. The surviving spouse and beneficiaries may have different interests — income versus growth. Proper planning, which includes a good understanding of goals and motivations, can help improve the odds of a successful outcome.

Geoffrey M. Zimmerman, CFP® practitioner, is a senior client advisor at Mosaic Financial Partners Inc. Reach him at (415) 788-1952 or [email protected]

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.