Much attention has been given to the fees and expenses of qualified retirement plans. Many questions are being asked about the reasonableness and quality of the current 401(k) landscape.

For decades, service providers have been charging excessive, and often hidden, fees to a countless number of plan participants. Similarly, plan investment options came under fire shortly after the 2008 financial crisis, which saw millions of workers lose significant portions of their retirement savings. This unfortunate combination — excessive fees and poor returns — was the driving force behind the recent regulatory changes.

Smart Business spoke with Eric N. Wulff and Christopher D. Bart, managing directors and principals at Aurum Wealth Management Group, about the Department of Labor’s (DOL) plan to address these issues.

What are some of the company’s fiduciary responsibilities relating to their retirement plan?

The three main concerns revolve around fees, service and investments.

On Feb. 3, 2012, the DOL issued a final regulation under the Employee Retirement Income Security Act of 1974 (ERISA). This regulation requires a 401(k) plan’s service providers to disclose all fee and compensation arrangements, effectively known as ‘full fee disclosure.’

From a service perspective, companies are required by the DOL to determine the reasonableness of fees. Industry best practices indicate the most effective means by which you can evaluate the reasonableness is to place the plan out to bid. Conducting a request for proposal process allows you to compare not only the cost and compensation arrangements, but also the nature and level of the service. If the service provider does not provide a level of service commensurate to its fee, it is the company’s fiduciary duty to terminate the provider.

As for investments, companies are required to maintain a documented process on the selection and monitoring of the investments in the 401(k) plan. Specifically, the DOL recently put out an advisory bulletin on target date funds requiring them to evaluate the absolute risk of these types of investments. Target date funds became a popular investment strategy because plan sponsors were given fiduciary relief if they offered them as a qualified default investment alternative. This turned out to be somewhat problematic when the market crashed in 2008 and 401(k) participants saw their investments drop by 20 percent or more.

How can companies minimize their fiduciary responsibility?

There are different types of advisers companies can engage to assist them with their responsibilities, and companies can do a better job understanding those options.

The two most common levels of fiduciary status under ERISA are 3(21) and 3(38). As a 3(21) fiduciary, the adviser serves as a co-fiduciary to the plan; in this role, the adviser monitors plan investments and makes investment recommendations to the plan sponsor, but does not have discretionary control of plan assets. As a 3(38) fiduciary, the adviser takes control of plan assets, makes all investment decisions and insulates the plan sponsor from fiduciary liability as it relates to plan investments. Hiring a 3(38) fiduciary is the highest level of fiduciary protection under ERISA.

Where do participants stand in all of this?

With most retirement plans, a big problem is that participants are not allocating assets correctly. So, many 401(k) plans are starting to implement more help features for participants. Studies show the average participant can earn an additional 2 or 3 percent per year by getting professional help. Unfortunately, the average participant tends to chase performance when determining their investment allocation.

Hopefully, these increased responsibilities on plan sponsors will continue to bring much needed change to help fix the nation’s structural problem with retirement savings.

Aurum Wealth Management Group is an affiliate of Skoda Minotti.

Eric N. Wulff is a managing director and principal at Aurum Wealth Management Group. Reach him at (440) 605-1900 or ewulff@aurumwealth.com.

Christopher D. Bart is a managing director and principal at Aurum Wealth Management Group. Reach him at (440) 605-1900 or cbart@aurumwealth.com.

Insights Accounting & Consulting is brought to you by Skoda Minotti

Published in Cleveland

The retirement plan marketplace is a buyer’s market right now. Plan sponsors that haven’t shopped around in the past couple years might not be getting the most value for their money.

“The retirement marketplace is constantly changing with the addition of new products and services and the compression of costs,” says John Adzema, Vice President of Sales and Consulting at Tegrit Group. “Plan sponsors need to be aware and take advantage of these enhancements.”

Smart Business spoke with Adzema about the necessity of reviewing and benchmarking your retirement plan.

How often should plan sponsors have retirement plans reviewed?

Have your plan reviewed every three years or as certain events dictate, such as company acquisitions/divestitures, workforce changes, etc. You also could look at your company and its demographics to see if it makes sense to add another plan type such as cash balance, employee stock ownership or non-qualified.

What should you discuss with your financial advisor during a review?

As the plan quarterback, the financial advisor typically is tasked with overseeing plan investments, taking some type of a fiduciary role and managing the involved service providers. So, you should ask:

  • Are my plan costs reasonable?
  • Are my plan’s service providers, including the financial advisor, meeting service standards and helping me meet my fiduciary requirements?
  • Are the plan investments performing as expected?
  • Is my plan receiving the best consulting and latest technology?
  • Are my employees getting the investment help they need?

What could happen if plans aren’t reviewed?

Even though you might not change anything, you need to compare your plan to the marketplace. You may save on costs or be able to expand to another fund family. You could get more tools for participants, website capabilities and educational materials. If your company acquires another  firm and the plan assets increase from $1.5 million to $8 million, not only do you need to review from an operational standpoint to ensure compliance, but as a bigger plan you’ll have more purchasing power.

There can be legal consequences as well. In March, a court ruled against the plan fiduciaries in Tibble v. Edison International because they selected retail mutual funds with higher fees when lower cost institutional funds were available. To protect against Tibble-type claims, fiduciary committees should:

  • Follow written plan documents and procedures, including any investment policy statements and committee charters.
  • Document committee meetings and decisions with respect to plan investments.
  • Review 408(b)(2) fee disclosure information and benchmark fees to comparable plans based on the number of participants and plan assets.

What’s the value of benchmarking?

Retirement plan benchmarking is the act of comparing your own plan’s qualities to similar plans. People immediately think about the plan investments or costs, but benchmarking also extends to a plan’s operating provisions and comparing your plan to plans of the same demographics, industry and geography. Benchmarking this helps ensure you are getting the best value for the price paid.

It’s wise to benchmark certain plan items like investment rates of return on an annual basis, but the entire plan’s workings and its service providers should be reviewed at least every three years.

Any final words on benchmarking?

Your financial advisor or another trusted party should carry out the benchmarking process for a consistent and independent approach. Generally you will get better pricing if you’re a bigger plan with larger average account balances and your plan is easier to run.

While benchmarking is a good indicator of what the masses are experiencing, your plan may have unique provisions that work well for you and your employees. If you pay a little more for someone to administer a plan that’s outside of the norm, then that’s OK.

John Adzema, QPA, QKA, TGPC, AIF, is vice president of sales and consulting at Tegrit Group. Reach him at (330) 983-0525 or john.adzema@tegritgroup.com.

Visit Tegrit’s Advisor Resource Center for additional retirement planning tips.

Insights Retirement Planning Services is brought to you by Tegrit Group

Published in Akron/Canton

As part of the planning and investment process — and pretty much anything in life — goals are fundamental to thinking about the future. However, very few people take time to set and write down specific goals. And, without a clear plan, you’re more likely to get absorbed in the day-to-day, losing sight of what’s truly important.

“For me, that’s the essence of financial planning. Too often people think about financial planning as just being investments or a calculation to see how much money they need to retire,” says Norman M. Boone, founder and president of Mosaic Financial Partners Inc. “Those are all important, but the greater value of financial planning is making sure you’re on track for the things that are important to you, not just things that you think you should be thinking about.”

Smart Business spoke with Boone about how asking the right questions can help you understand what you want and how to get there.

What is important when setting goals?

When you financially plan, the essence is: Where are you now, where do you want to be and how do you get there? You may have general ideas of your direction, but by writing down and sharing specific goals you are more likely to be successful.

For goals to be effective, they need to be SMART:

• Specific, as opposed to general.

• Measurable. Clear to all as to exactly what is to be accomplished, which usually means you’re able to measure the results or outcomes.

• Achievable, not unrealistic.

• Relevant to your overall role or purpose.

• Time bound. You need to be clear when you are going to finish.

How do you figure out your priorities to start goal setting?

You can use George Kinder’s three questions of life planning to find out what’s important to you.

• If you had enough money, how would you live your life? Would you do anything differently?

• If you go to the doctor and find out you only have five years to live, how would you live your life?

• If the doctor tells you that you have one more day to live, what would you think about? What things do you wish you had done, or said? What are your regrets?

These questions give you the incentive to think about your goals in the context of family, career, education, community involvement, friends, loved ones, personal accomplishments, etc. It’s rarely just about money. You find out what you really want in order to see how you go about making it happen.

How does an outside consultant help with seeing priorities and setting goals?

A consultant can help set up a plan that puts you on track toward accomplishing your priorities. Just like someone on a diet or an athlete in training, it’s hard to push yourself without outside help. You need someone to ask pointed questions, and just as importantly, wait and listen as you contemplate and struggle with the answers.

Almost everyone is too close to his or her own issues, problems and experiences, which blinds him or her to the possibilities. You get locked into what is, and have a hard time imaging what could be. You need that arm's length, 30,000-foot perspective.

Is there a certain time when you should set goals?

At minimum, you need to think about and get help with these kinds of questions at the major turning points in your life — when you finish school, when you get married and start having kids, etc. However, if you do it more frequently, such as once a year, it can be healthy. Maybe you come up with the same thing that you came up with last year and the year before, but maybe you don’t. When you get caught up in the day-to-day, you easily forget the things you’ve said all along were important.

Norman M. Boone, founder and president, Mosaic Financial Partners Inc. Reach him at (415) 788-1952 or norm@mosaicfp.com.

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

 

Published in National

Retirement plan sponsors, now more than ever, need to be diligent in carrying out their fiduciary responsibilities. The Department of Labor, IRS and other agencies have eyes on the industry, especially with new retirement planning fee disclosures and a soon to be proposed expanded definition of “fiduciary.”

“The business owner who says, ‘I’m hiring these service providers to run the plan and I don’t have to worry about it’ is nonetheless ultimately responsible if there are problems,” says Paula M. Lewis, Manager, Client and Advisor Experience, at Tegrit Group.

Smart Business spoke with Lewis about what business changes could signal that retirement plan adjustments are necessary.

Who do plan sponsors deal with?

Plan sponsor decision-makers depend on industry experts for assistance in managing their roles and responsibilities. Although some parties may serve multiple roles, the sponsor may engage an accountant, an investment advisor, an actuary, an ERISA attorney and a third-party administrator (TPA), with each having important and distinctive functions impacting the plan’s operation.

Despite having all these providers in place, the ultimate responsibility for the plan still lies with the plan sponsor. Employers sometimes put in a retirement plan and just let it ride, but then no one is ensuring the plan grows and changes with the company and its employees.

In this dynamic environment, it’s crucial that all parties communicate. It’s best if you know that your service providers work well together, which lessens the risk of something being missed, and the best course of action is being charted.

What changes need to be communicated?

Usually, over time there are changes to the employee demographics, financial standing and even the goals of a company. The company’s retirement plan should also change over time to reflect these changes in employees, finances and objectives. Certain changes always should be communicated to plan service providers, including:

  • Changes in ownership.

  • Acquisition or divestiture of another company.

  • Family members becoming employees of the firm.

  • Major compensation changes of key personnel.

  • Retirement plan goal changes of key personnel.

It’s confusing to know who to tell what, but generally, the investment advisor and TPA should be made aware of all of these changes, as they may impact fiduciary considerations and compliance. The investment advisor, along with the TPA, should be able to analyze any changes, determine which parties need to be informed, and make any plan changes to avoid any problems or penalties and ensure the plan is designed to maximize the benefits and goals of the company.

What can happen if changes aren’t reflected in the plan?

There are various penalties that are imposed if a plan falls out of compliance because of changes at the plan sponsor level. Late amendments and failed compliance testing are but two. For instance, if the spouse of the owner of one company purchases a separate company, the two companies can be considered a ‘control group,’ and for plan purposes are ‘one.’ Upon an IRS audit, the less generous company may have to increase its plan contributions, which could be an expensive correction avoidable with advance planning and appropriate plan designs.

When acquiring a company with a pension plan, you acquire its liability, especially if it’s underfunded — unless the acquisition agreements are carefully worded. Without advance planning, closing a division could produce a costly surprise as it could be considered a partial plan termination, requiring that the terminated employees be 100 percent vested.

Another area that can cause compliance issues is how certain family members of owners becoming an employee impacts the retirement plan. According to the IRS, he or she is considered highly compensated regardless of their salary. That could cause a plan to require corrective contributions. It is crucial to keep the lines of communication open with your advisors and TPA.

Paula M. Lewis, QPA, QKA, manager, Client and Advisor Experience, at Tegrit Group. Reach her at (330) 983-0485 or paula.lewis@tegritgroup.com.

 

Website: Visit Tegrit’s Advisor Resource Center at www.tegritgroup.com/arc for additional retirement planning tips.

 

Insights Retirement Planning Services is brought to you by Tegrit Group

 

Published in Akron/Canton

Too many business owners know they should save for retirement but put planning for it on the back burner. Forty percent of small business owners have no retirement savings or pension plan, according to a recent American College study, and some 75 percent have no written plan as to how to fund their retirement.

“Business owners shoulder the most responsibility for their businesses, yet often forget to pay themselves first,” says Jeff Manley, executive vice president, wealth services regional executive – Texas, at Cadence Bank. “But if they’re not taking care of themselves along the way, this can position them poorly for the future.”

Smart Business spoke with Manley about how business owners can plan for retirement.

What 401(k) plans suit business owners?

Small, medium and large businesses can use 401(k)s. These basic retirement plans work well for companies looking for a retirement plan that includes both the owner and employees. Making this more compelling is that the IRS raised contribution limits by $500 for 2013, making them $17,500 and $23,000 if age 50 or older, for the first time since 2008, boosting potential savings.

Individual 401(k)s and Uni-k plans are for sole proprietors, or one employee plus a spouse working for the business. These plans, which are similar yet with important differences, are the highest saving vehicles for individual business owners as they allow them to put money away on a pre-tax or after-tax basis, or a combination thereof. Business owners wear two hats — contributing $17,500 or $23,000 as an employee, and an additional 25 percent of income, up to a $51,000 maximum, as the employer. A trusted financial adviser can help determine which plan is best for you.

What IRA plans are available?

A traditional IRA is a tax-deferred retirement account, while a Roth IRA takes contributions after taxes. There are different theories on which is better for whom, with many business owners doing both. For 2013, both IRA types have maximum contributions of $5,500, $6,500 for those over age 50, so they can’t support a retiree.

A self-directed IRA is a tax-deferred account that allows creative, nontraditional investing such as private equity and real estate. Normally, IRAs only invest in securities registered with state or federal authorities. However, self-directed IRAs have a lot of regulations and not all investment advisers provide them.

A Savings Incentive Match Plan for Employees (SIMPLE) IRA, working like a traditional IRA, has relatively small contribution limits — $12,000 for 2013, with catch-up contributions of $2,500 for those over 50. Employees can get up to 3 percent company match. Although this doesn’t allow for much annual savings, it’s less expensive to administer than others.

A Simplified Employee Pension (SEP) IRA is a type of traditional IRA. The employer is the sole contributor, and the contribution must be an equivalent percentage for every employee. The 2013 contribution limit is 25 percent of a person’s salary, up to a maximum of $51,000 per employee. This plan works well with family-run businesses.

How much should be saved for retirement?

With the different contribution limits, the amount that can be saved annually varies dramatically — from $5,500 to $51,000 in 2013. Those early in their career should start saving now and try to max out the percentage they put away each year. Getting compounding earnings working early means more money in the future.

The general  rule is to save 10 to 15 percent of annual income in retirement-type savings vehicles. But those earning a good living now who want to continue their lifestyle through retirement may have to save millions. Ask a financial adviser about available options to understand what will work best for you. Retirement planning isn’t something that can be put off. Business owners need to weigh their options. ?

Guidance provided in this article is educational in nature, is not individualized, is not intended to provide legal or tax advice, and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions. You should consult with an attorney, tax or other qualified professional for specific advice regarding your unique circumstances.

Jeff Manley is executive vice president and wealth services regional executive – Texas at Cadence Bank. Reach him at (713) 871-3931 or jeff.manley@cadencebank.com.

Insights Banking & Finance is brought to you by Cadence Bank

 

Published in Houston

Yes, there are still many companies that maintain defined benefit plans, but most ceased crediting benefits years ago to stop the pension liability growth. However, even though the majority of Fortune 100 and 500 companies have frozen their plans, they often still have contributions due for what participants have already accrued, as plans typically aren’t 100 percent funded at the time they are frozen. If a company hasn’t settled its obligation or transferred the risk, then it still owns it.

Rich McCleary, Director, Actuarial Service, at Tegrit Group, says, “It’s a popular discussion topic. Our firm has over 300 defined benefit plan clients with whom we work, and many traditional plan sponsors we talk to want to find a way to terminate their plan.”

Smart Business spoke with McCleary about how business owners can mitigate their defined benefit plan risk.

How do defined benefit plans differ from other retirement plans?

A defined benefit plan promises a certain amount of benefits, typically in an annuity form, at retirement to plan participants. The company contributes to the plan and maintains the obligation to provide those benefits once they are earned or accrued. Much like the Social Security system, promises to plan participants are virtually irrevocable. If a company can’t fulfill them, the Pension Benefit Guaranty Corporation (PBGC), the governmental agency that insures pension plans, will step in.

What’s the current situation for defined benefit plans?

On the investment side, pension plan performance has been lackluster over the last decade, remaining steady or decreasing slightly against expectations. In addition, in this severely declining interest rate environment, liabilities have consistently gone up. Along with that, the federal government has continually passed regulations to make the funding requirements more stringent.

Companies maintain this liability and risk on their balance sheets, and the liability remains until the last participant or contingent beneficiary is paid out. Manufacturing in particular has been hit hard, as the industry often used these plans to meet union benefit demands. Also, the liabilities on the balance sheet don’t truly reflect the entire economic cost of the plan. There are numerous administrative expenses, such as fees for investment management, actuarial, legal and accounting, as well as PBGC premiums, which can add 3 to 5 percent to the liabilities.

What are some strategies for plan sponsors to mitigate risk?

Liability-driven investments are a popular way to drive down the risk. Investment managers can help with transferring the risk into fixed income investments that closely match the duration of the pension liabilities.

In order to reduce their pension risk, some large companies have offered lump sum payments to retirees and beneficiaries. Although there might be a higher initial cost, the pension liability is transferred either directly to the participant or an insurance company, which improves the stability of the balance sheet and ultimately, shareholder value. Amazingly, some companies have pension plans with liabilities that approach or exceed the total market capitalization of the company, creating volatility and jeopardizing profits.

Although a smaller company may not be publicly traded, it can find ways to get the necessary cash from other sources besides loan covenants or issuing bonds. As an example, one business took out a second mortgage on its building because it happened to be cheaper at the current mortgage interest rates and loan period than paying down the pension plan liability. However, there are accounting and tax implications that occur when transferring risk, so use expert advisers to carefully review the balance sheet and make sure the risk transfer makes sense.

Rich McCleary is Director, Actuarial Service at Tegrit Group. Reach him at (330) 983-0539 or richard.mccleary@tegritgroup.com.

Insights Retirement Planning Services is brought to you by Tegrit Group

Published in Akron/Canton
Tuesday, 20 November 2012 12:13

The golden years

As parents advance in age, it often falls on the shoulders of their children or other family members to begin handling their parents' financial affairs, according to Kurt Marlow, Financial Advisor with FirstMerit Financial Services.  "But this is often easier said than done," says Marlow. "Many seniors don’t like giving up control of their finances. They are not comfortable, for many reasons, divulging the details of their personal finances. However, failing to help elderly parents put their financial house in order leaves family members in a difficult situation when there is an untimely death or disability."

To initiate a conversation about this topic with parents and gain their cooperation, Marlow recommends that adult children begin by expressing their genuine concern and desire to help. A family meeting can sometimes be a helpful forum for this conversation.

"There are many different ways to go about planning a family meeting," says Marlow. "To start, I encourage my clients to meet with me separately beforehand. For example, I will visit with my mature clients privately to discuss their financial situation to make sure I understand the needs and concerns they have. We then set up a separate appointment with the children or a close family member to discuss the parent’s financials and long-term care wishes."

During the family meeting, extensive notes are taken outlining an inventory of the parents' assets. Marlow provides a form for their use; a Family Discussion Checklist, a tool that is unique to FirstMerit. The Family Discussion Checklist is designed to help organize all important financial documents in one place. It details monthly income and expenses, bank statements, investment account statements, insurance policies, long-term care insurance, trusts, loans and mortgage documents. The checklist identifies which financial documents currently exist, where they are located, and which documents are still needed.

After the checklist is complete, Marlow works with the family to analyze the parent's financial situation and see what help may be needed.

"I try to find out what their concerns are, or whether there is a particular piece of the financial puzzle they are concerned with," he says. "The answers vary from family to family based on each person's unique financial situation and goals. For example, we discuss adding a Power of Attorney, or after consulting a tax professional, we may decide to add a trusted family member as a joint owner or other similar arrangements may be a solution. In some instances, beneficiaries may be added to the parent's accounts so that the designation is in place if something unexpected happens to the parent."

"No matter what solutions are decided upon by the family," adds Marlow, "the service that many of our family clients value highly is the convenience and assurance of having a trusted advisor to work alongside them."

The process for connecting generations and coordinating the financial affairs of the older generation can be comprehensive, but at the end of the day, it can be a unifying experience for the entire family when parents have the assurance that their wishes are being followed even after they are gone.

For more information on managing finances for the elderly in your life, contact Kurt Marlow, Financial Advisor, FirstMerit Financial Services Inc., at (708) 529-2158.

Securities offered through FirstMerit Financial Services, Inc. Member FINRA, SIPC; Advisory Services offered through FirstMerit Advisors, Inc.; Insurance products offered through FirstMerit Insurance Agency, Inc., affiliates of FirstMerit Bank, N.A.

Investment and Insurance Products are: • ?Not FDIC Insured ? • May Lose Value • Not Bank Guaranteed ? • Not a Deposit • Not Insured By Any Federal or State Government Agency 

Published in Cleveland
Tuesday, 20 November 2012 12:08

The golden years

As parents advance in age, it often falls on the shoulders of their children or other family members to begin handling their parent's financial affairs, according to Ed Wojciechowski, Financial Advisor with FirstMerit Financial Services.  "But this is often easier said than done," says Wojciechowski. "Many seniors don’t like giving up control of their finances. They are not comfortable, for many reasons, divulging the details of their personal finances. However, failing to help elderly parents put their financial house in order leaves family members in a difficult situation when there is an untimely death or disability."

To initiate a conversation about this topic with parents and gain their cooperation, Wojciechowski recommends that adult children begin by expressing their genuine concern and desire to help. A family meeting can sometimes be a helpful forum for this conversation.

"There are many different ways to go about planning a family meeting," says Wojciechowski. "To start, I encourage my clients to meet with me separately beforehand. For example, I will visit with my mature clients privately to discuss their financial situation to make sure I understand the needs and concerns they have. We then set up a separate appointment with the children or a close family member to discuss the parent’s financials and long-term care wishes."

During the family meeting, extensive notes are taken outlining an inventory of the parents' assets. Wojciechowski provides a form for their use; a Family Discussion Checklist, a tool that is unique to FirstMerit. The Family Discussion Checklist is designed to help organize all important financial documents in one place. It details monthly income and expenses, bank statements, investment account statements, insurance policies, long-term care insurance, trusts, loans and mortgage documents. The checklist identifies which financial documents currently exist, where they are located, and which documents are still needed.

After the checklist is complete, Wojciechowski works with the family to analyze the parent's financial situation and see what help may be needed.

"I try to find out what their concerns are, or whether there is a particular piece of the financial puzzle they are concerned with," he says. "The answers vary from family to family based on each person's unique financial situation and goals. For example, we discuss adding a Power of Attorney, or after consulting a tax professional, we may decide to add a trusted family member as a joint owner or other similar arrangements may be a solution. In some instances, beneficiaries may be added to the parent's accounts so that the designation is in place if something unexpected happens to the parent."

"No matter what solutions are decided upon by the family," adds Wojciechowski, "the service that many of our family clients value highly is the convenience and assurance of having a trusted advisor to work alongside them."

The process for connecting generations and coordinating the financial affairs of the older generation can be comprehensive, but at the end of the day, it can be a unifying experience for the entire family when parents have the assurance that their wishes are being followed even after they are gone.

For more information on managing finances for the elderly in your life, contact Ed Wojciechowski, Financial Advisor, FirstMerit Financial Services Inc., at (708) 529-2158.

Securities offered through FirstMerit Financial Services, Inc. Member FINRA, SIPC; Advisory Services offered through FirstMerit Advisors, Inc.; Insurance products offered through FirstMerit Insurance Agency, Inc., affiliates of FirstMerit Bank, N.A.

Investment and Insurance Products are: • ?Not FDIC Insured ? • May Lose Value • Not Bank Guaranteed ? • Not a Deposit • Not Insured By Any Federal or State Government Agency 

Published in Chicago

The Pension Protection Act and recently passed pension legislation amounted to hundreds of pages of regulations affecting 401(k)s and other retirement plans. The size and heft of these laws speak volumes about the complexity and difficulty of administering retirement plans.

In addition, the Department of Labor has increased the number of retirement plans that it audits. DOL statistics show an estimated 70 percent of retirement plans audited in 2009 and 2010 were fined, received penalties or had to make reimbursements for errors. During this time period, the DOL collected $1.08 billion in corrections, reinstatements and fines.

“Fortunately, business owners who provide retirement plans for their employees don’t have to digest the Act or become experts in pension administration if they simply consult a local third-party administrator,” says Brian M. Smith, Director of Sales and Consulting with Tegrit Group.

Smart Business spoke with Smith about how to utilize third-party administrators (TPAs) when trying to decide how to structure your company’s retirement plan.

How can a TPA help with retirement plans?

TPAs provide a wide range of retirement plan services for business owners, from consulting on regulatory changes and maximizing retirement plan designs to administering defined contribution and defined benefit plans. Many small and medium-sized employers lack a dedicated, in-house specialist to administer retirement plans. Working with a local TPA fills the need to have a benefits expert close at hand.

TPAs work closely with dozens of business types in a variety of industries. They understand the challenges business owners face such as rising taxes and business expenses, health care reform, retaining talented employees and more. That means your local TPA is well equipped to help you design a retirement program that meets the unique needs of your company, squeezes the most out of your benefit dollars, provides incentives for your employees and helps you accomplish your own retirement goals.

Why is this kind of assistance so important to business owners?

Running a successful business of any kind is more difficult than ever in today’s challenging economic climate. For many business owners, offering a qualified retirement plan is an ideal way to attract and retain key employees, as well as help the owners plan for their own retirement. For example, given the competitive work landscape, employer match programs are becoming more popular as tides are turning.

The issue facing many business owners is determining the type of plan that is best for their employees and themselves. Is it a defined contribution plan like a 401(k) or a defined benefit plan?

Selecting the right plan for your business is a crucial step and a third-party administrator, with expertise in plan design and administration, can help assist you in meeting your fiduciary responsibility to the plan while providing a path for your participants to achieve their retirement goals.

Has it become common for business owners to utilize TPAs  to administer their retirement plans?

When you bring together years of experience implementing and serving plans, the retirement plans can be more specialized. Businesses can think more outside the box with the expertise of TPAs, as there’s no longer a check-the-box, cookie-cutter solution.

What should an employer look for when deciding on a TPA?

Before you team up with a local TPA firm, make sure you do your due diligence, as not every TPA has the same level of expertise. Ask the right questions to make sure you have a good fit, such as:

  • How extensive are the TPA’s services? Does the TPA specialize in a specific niche such as 401(k) plans, or does the firm consult on a broader range of retirement benefits?

  • What is the TPA’s reputation in the marketplace? Check references to determine if the TPA is easy to work with, whether or not it delivers quality service and if it designs effective retirement plans. Ask for specific case studies.

  • How long has the firm been in business? How many plans and participants does it service?

  • Is it willing to propose a retirement plan design for your company, at no cost, that takes into account your employee and business needs?

  • How many employees does it have? Do employees have credentials or receive training from professional organizations such as the American Society of Pension Professionals and Actuaries?

If you are unaware of the TPA firms that are available locally, contact the provider of your retirement or other benefits programs for referrals. Most providers work with a nationwide network of TPAs that most likely includes some in your area.

Is a team approach or one administrator better when using a TPA for your retirement plan?

There is no right or wrong answer as it depends on the needs of the business. However, a larger TPA firm has the ability to fill more needs than one CPA. The large firm can focus on a host of services from actuarial consulting to plan design to document services. A one-person CPA firm that provides TPA work will be limited in what it can do, so these firms often focus on one piece of the business.

Brian M. Smith is the Director of Sales and Consulting for Tegrit Group’s Columbus, Ohio, office. Tegrit Group is a national leader in actuarial consulting, plan administration and technology solutions for public and private retirement plan sponsors. Reach him at (614) 458-2060 or brian.smith@tegritgroup.com.

Insights Retirement Plan Services is brought to you by Tegrit Group

Published in Akron/Canton

Last month I introduced the concept of a “dress rehearsal.” So here is where the dress rehearsal comes in. If you’re five years from retirement, begin to live now on that bottom-line number you identified to be your future retirement income need. Working within your budget and with your advisor will help you focus on what nonessential expenses need to be eliminated or adjusted prior to retirement. Statistics indicate that retirees will need 70 to 100 percent of their pre-retirement income during their retirement years. Rather than guess what that required income need is, let’s identify your future bottom-line monthly number now.

So as you begin to determine the actual monthly income need for your eventual retirement, you may stumble across insurance expenses for life, disability, long-term care and other insurance needs. What will you need to maintain and eliminate in retirement? Hopefully your children will be financially responsible and living on their own, minimizing your responsibility to cover their liabilities and commitments. However, if you have made assurances to your family to cover any of the shortfalls in their future, consider how these promises will affect your overall retirement income needs.

Having a conversation with your property and casualty agent is a good starting point to determine what coverage is needed on your homeowner’s, auto and excess liability exposure. Hopefully you have had the conversation with your wealth manager/life planner as to where you plan on retiring. Your residence location will definitely impact your decisions. Determining where you will live during retirement and what risks you will need to cover will give your agent an idea as to what proposals to prepare.

As you begin to address your future property and casualty insurance needs, you’ll need to evaluate the other insurances that you have previously budgeted during your earning years. Begin by reviewing the needs, purposes and future status of these policies by creating a spreadsheet of all of your life, disability, long-term care, personal, and business policies. Identify the date of issue, premium amount, length of coverage, portability, and the ability to maintain coverage, and its importance in your overall strategic estate plan.

Some of the policies, e.g. disability insurance, may terminate at a specific time or event (such as at age 65 or when you are no longer gainfully employed due to retirement, etc.). There may be some insurance policies that you will have no control over whether they continue  in your portfolio. Other policies, such as long-term care and life insurance, may provide you more flexibility with incorporating them into your new legacy plan. However, applying for any improvements into these policies may be dependent upon your current health and other factors. Once the spreadsheet is completed, identifying the various polices owned, your wealth manager can help you determine the relevance of each policy and how it fits in with your strategic estate and legacy plan.

With the increasing expenses of health care costs, a long-term care insurance policy should be a fundamental building block as you create the foundation for the preservation and transfer of your family legacy. As you receive proposals from your insurance agent, share this information with your wealth manager. Together you will determine which plan might best accomplish your overall strategic estate vision. Reviewing your LTC policy during this dress rehearsal phase pre-determines the budget allocation in your retirement expense projection.

Another way to protect, preserve, and/or provide heirs with liquidity of your legacy is through life insurance. What policies have you listed on your spreadsheet, and how are they owned? Are the policies personal or business? Which one(s) can you maintain or will you want to keep? Which ones are scheduled to terminate prior to or during your retirement? Remember, your health situation may limit your ability to purchase additional coverage or replace obsolescent contracts. So don’t cancel anything prematurely until you have your estate plan review with your wealth manager. Your discussion with your life planner will determine the policies or techniques to include in your strategic direction.

Initially, you are attempting to get a handle on your insurance expenses during this dress rehearsal phase. This in-depth discussion on estate planning and budgeting will now better prepare you for your discussion with your estate planning attorney to begin changes or amendments to your existing documents.

The focus of a wealth manager/life planner is to help you develop an ultimate legacy strategy. Once the vision is clear, then the techniques and products can more easily be assimilated to create your desired outcome. Many clients agree that they have been blessed with abundance, and they are concerned for the welfare of their children, grandchildren and other heirs. Long-term care insurance and life insurance can be great tools for wealth replacement or wealth preservation. Insurance may also perpetuate your commitment to your philanthropic institutions, ensuring your contributions continue assisting the non-profit(s) in accomplishing their mission. I am not advocating a one-size-fits all rule for all individuals and families. An objective discussion and analysis about insurance’s relevance to your family’s situation is necessary. Exploring your desires, passions, values and purpose drives the decisions as to whether insurances play a major or minor role in completing your strategic estate plan. Again, during this dress rehearsal phase, we are also attempting to determine the extent of your retirement income needs.

Make this dress rehearsal a powerful experience. You are preparing for the next phase of your life: a successful retirement.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at rav@ravfinancial.com.

Insights Wealth Management is brought to you by RAV Financial Services LLC.

Published in Cleveland
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