Blog

Every company offers a 401(k) plan, don’t they? & What do 401(k) participants want?

By: David I Gensler, MSPA, MAAA, EA

401(k) plans are so ubiquitous that we assume that every employer offers a retirement plan to their employees. But that perception is just that; a perception. There are a fair number of small to mid-size firms that do not sponsor a 401(k) retirement program for their employees. The question is why don’t they?

According to research from Pew Charitable Trusts, the two primary reasons given for not offering a 401(k) plan was that they were “too expensive to set up”(37% of the respondents) or “my organization does not have the resources” (22%).

I find both of those statements curious. Read More

Tastes Great vs. Less Filling

By: David I Gensler, MSPA, MAAA, EA

When I was younger (much, much younger) Bud Lite ran a series of commercials where quasi- celebrities (most of them were retired athletes) argued back and forth about whether they drank Bud Lite because it “tasted great” or because it had less calories and thus was “less filling” (they had not yet discovered that carbs were bad for you – I told you; this was many, many years ago).

Anyway, this same argument now exists in the 401(k) world in a slightly different form. Which is better – Bundled or Unbundled?

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Six Things You Probably Did Not Know About 401(k) Catch-Up Contributions

By: David I Gensler, MSPA, MAAA, EA

The catch-up contribution got its name because it was designed to help older workers “catch up” on contributions they may not have made when they were younger. Simply stated, it is an opportunity to make up for lost time.

Anyone who turns age 50 at any point during a calendar year can make an annual catch-up contribution. In 2017, the catch-up can be as much as an additional $6,000. That is above and beyond the $18,000 401(k) dollar maximum. So an individual turning age 50 during 2017 could defer as much as $24,000 [$18,000 + $6,000].

However, according to research done by Vanguard, only about 16% of plan participants took advantage of the catch-up contribution.

The following are six things that you may not know about catch-up contributions.

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Leakage: It’s A Big Problem (But Perhaps Not The Problem That You Thought It Was)

David I Gensler, MSPA, MAAA, EA

“Leakage” sounds like something seniors need to worry about. It is certainly not a term that one would associate with a 401(k) plan. But leakage can come in many different forms. And in a recent article in the Wall Street Journal, it is leakage from their 401(k) plans that has many American companies concerned.

Leakage is a term from the retirement plan industry that is used when participants tap into or pocket retirement funds early. The article stated that this practice can cause an employee’s ultimate retirement nest egg to shrink by up to 25%.

Many employers have taken some aggressive steps (like auto-enrollment and auto-escalation) to encourage their employees to save in 401(k) plans. But like a bucket with a hole in it, while those savings find their way into a company’s 401(k) plan, there is a growing awareness that the money is not staying there. If older workers cannot afford to retire, it can create a logjam at the top, leaving little room for younger, less-expensive hires.

Leakage primarily takes two forms: loans and distributions that are not rolled over. Let’s look at each one and see how some companies have found some ways to, if not solve the problem, at least slow it down.

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IRS Guidance On Hardship Withdrawals: How To Shift The Documentation Responsibility To The Participant

By: David I Gensler, MSPA, MAAA, EA

In April of 2015, in an article in the IRS publication Employee Plan News (yes, there really is such a publication) they clarified that when taking a hardship withdrawal, that it was not sufficient for certain third party administrators (TPAs) to rely on plan participants to keep copies of the documents that proved a hardship withdrawal was due to “an immediate and heavy financial need.”  Documents like the explanation of benefits for medical expenses, the purchase agreement for a participant’s primary residence and/or an invoice for funeral expenses are all examples of the paperwork that the TPA should collect before granting a hardship withdrawal. The IRS further stated that, when examining a plan under audit, the failure of the TPA to keep their own independent records was a plan qualification issue. Whenever the qualification of the plan is at risk, the topic gets my attention.

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Tales From The Front: How Not To Hire The Wrong Person

David I Gensler, MSPA, MAAA, EA

With the national unemployment rate at 4.8%, the country is essentially at full employment. This of course means that hiring the right person is harder than ever. So we do our due diligence, reviewing the candidate’s resume, doing background checks, checking references where we can. Have you ever considered however, the cost to your organization and to the firm’s other employees, of hiring the wrong person?

What to Look Out For

So what are the red flags that should pop up when interviewing prospective candidates? While the following list is certainly not meant to be all inclusive, here, from a recent poll are the top five red flags that emerged from the interview process when it comes to hiring people:

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Tibble v Edison – Five Lessons Learned

By: David I Gensler, MSPA, MAAA, EA

Tibble v Edison broke new ground in terms of clarifying that plan stewards have “an ongoing duty to monitor plan investments.” In the Tibble case, the Supreme Court rejected the argument that an initial fund review was sufficient when facts and circumstances may have changed to preclude the need for an ongoing assessment of a retirement plan’s fund lineup.

However, the defendants in Tibble actually did a lot of things right that many retirement plans fail to do. Here are the top five:

1. They had a formal investment committee 

Two heads are better than one, three heads are better than two, etc. ERISA does not require that the plan’s fiduciary form an investment committee. However, it does require that if you lack the requisite expertise to make the sorts of investment decisions unique to 401(k) plans (establishing the metrics that funds will be benchmarked against, evaluating the fund lineup, etc.), you should reach out to someone or an organization that has that expertise. Forming an investment committee to review the plan’s investment performance is just a wise thing to do.

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When Is A Sure Thing Not A Sure Thing? You Need To Question These Four Retirement Plan “Givens”

By: David I Gensler, MSPA, MAAA, EA

What if I had come up to you in January and said that I would give you 5,000 to 1 odds on these two things happening in 2016: the Cubs will win the World Series and Donald Trump will be the next president of the United States. Would you have taken my bet or checked to see if I had forgotten to take my meds?  We have been trained to make decisions based upon events that have happened in the past.  Or, if we are told something often enough by people who we perceive to be experts, we believe them.  Maybe we even make some pretty important decisions based upon their recommendations (Lehman Brothers go out of business?  Ridiculous!  Buy their stock and then buy some more!).  Here are four retirement “sure things” that you need to question:

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The Best Laid Plans of Mice and Men

David I Gensler, MSPA, MAAA, EA

Some of us do a really good job of planning for the future. Many of us do not.  In trying to gauge how much we need to save for retirement, we assume that our life in retirement will be pretty similar to the life we led before we retired. We forget that our paycheck serves as our ultimate “goalie.” If the refrigerator breaks and we need to buy a new one or if we get into a car accident and need to go out of pocket on our deductible, we always have the money we earn from working to back us up. Of course, we don’t really plan for these painful financial events; they happen and we swallow hard and just deal with them.

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Who Completed The Provisions In Your Trust Document? And Was It For Your Benefit?

By: David I Gensler, MSPA, MAAA, EA

Would you ever have a legal document completed by a complete stranger? Someone you never met or talked to, someone who knew little or nothing about what you wanted it to say and how you wanted it to operate? What if that document was related to a trust that had millions (or tens of millions) of dollars in it? Before you answer “don’t be silly, of course not” what if I were to tell you that you that there is a good chance that you may have already done that? Multiple times, in fact. That document is your retirement plan. For many companies the provisions within it that governs how your plan will operate (the plan’s eligibility rules, its entry dates, whether the match is fixed or discretionary, what the plan’s vesting schedule will be, etc.) may all have been selected for you, without your knowledge or consent by someone you never met or spoke to.

Prototype plans are the retirement plan document of choice for most of the recordkeeping and investment platforms. They do serve a useful purpose. All of the language within it has been pre-approved by the IRS. You (or someone) decides how the plan will be operate by checking a box. The question is, who exactly is making that decision and deciding which box to check?

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