Newsletters

Millennials, Student Debt And Saving For Retirement: What’s The Correlation?

By: David I Gensler, MSPA, MAAA, EA

Everyone assumes (at least I did) the following about Millennials:

  • That they are being crushed by student debt, and as a result;
  • It restricts their ability to save for retirement through their company’s’ 401(k) plan.

 

Well, you know that old bromide about assumptions… So what impact does the student loan debt carried by Millennials actually have? As it turns out, not much according to a white paper called “How Does Student Debt Affect Early-Career Retirement Savings?” by researchers Matthew S. Rutledge, Geoffrey T. Sanzenbacher and Francis M. Vitagliano.

What these researchers found is that the relationship between student debt and participating in their employer’s retirement plan is “small and statically insignificant.” Even more surprising was that the authors found that contrary to all expectations, individuals with large loan balances were likely to accept participating in their employer’s retirement plan, if one was offered.

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When Is A Retirement Plan Really Terminated? When The IRS Or The Department of Labor Says So, That’s When!

By: David I Gensler, MSPA, MAAA, EA

Yogi Berra once said “it ain’t over ‘til it’s over.” He was not talking about terminating a qualified retirement plan, but he could have been. If the steps necessary to terminate a retirement plan are not adhered to, and in the right order, the plan termination process can become a nightmare. As long as the plan continues to have assets in it, you are responsible for its ongoing administration (filing Form 5500, keeping track of the benefits of the participants who have not been paid out, etc.). Indeed, in certain cases failure to properly distribute all of the plan’s assets can force you to start the whole plan termination process all over again.

Note – All of the following pertains to terminating a defined contribution plan (a profit-sharing plan, a 401(k) plan, etc.).  It is not intended to be a guide to terminating a pension plan (a defined benefit plan). Terminating a defined benefit plan is a good deal more complicated than terminating a defined contribution plan.  I will deal with the nuances of that in a future blog.

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Why Should A Plan Sponsor Care About Automatic Enrollment?

By: David I Gensler, MSPA, MAAA, EA

No one could argue the fact that automatic enrollment, when properly implemented is a positive benefit for employees. Automatic enrollment, when coupled with automatic escalation (the automatic increase in deferrals rates) will help participants who might not otherwise be inclined to participate in your 401(k) plan save for their retirement.

We can easily identify the following benefits to the plan participants: Read More

Ho Hum, Another Day, Another Lawsuit

By: David I Gensler, MSPA, MAAA, EA

Another mega-plan is being sued. This time it’s the Disney Savings and Investment Plan. The law firm that is involved found one participant (that’s all it takes to get the ball rolling) to challenge the plan’s continued holding of the Sequoia Fund.

The lawsuit alleges that the Sequoia Fund violated the fund’s own investment policy as well as the plan’s diversification requirements. They further allege that the Sequoia fund was more expensive, was imprudently concentrated in Valeant stock and that it “underperformed all 10 of the most common alternative funds.” They further claim that the stock was particularly risky and that numerous warning signs were ignored. The plaintiffs also allege that not only was the investment irresponsible, but it resulted in losses to the participants. If they could have, the plaintiffs would have blamed them for the sub-prime crisis and the breakup of the Beatles.

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The Department of Labor Does Not Giveth But It Sure Can Taketh

By: David I Gensler, MSPA, MAAA, EA

Ever heard of the 2015 Inflation Adjustment Act? Well neither had I.  The act provides a formula as to how the Department of Labor should adjust its civil monetary penalties for inflation. The new civil penalty amounts will be applicable to penalties assessed after August 1, 2016 where the associated violation occurred on or after November 2, 2015.

These violations and their associated financial sanctions already exist under Title I of ERISA. However, the dollar amounts that may be assessed as financial sanctions have not changed in many years. What the Inflation Act does is update them for inflation. After this, in accordance with the Act, the sanctions will be adjusted annually for inflation.

So what are these violations and how much have the financial sanctions been increased? Read on:

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What Does The IRS Know That You Don’t That Makes Using E-Certification For Hardship Withdrawals Inadequate?

By: David I Gensler, MSPA, MAAA, EA

The plan sponsor is responsible for the proper administration of hardship withdrawals. Under IRS regulations, hardship withdrawals must satisfy two criteria:

  1. The participant must be experiencing (and be able to demonstrate) an immediate and heavy financial need, and;
  2. The distribution is necessary to satisfy that immediate and heavy financial need.

IRS exams have shown that self-certification is permitted to show that a distribution was the only way to alleviate a hardship. That satisfies item number two. However, allowing participants to self-certify the nature of the hardship is not in the eyes of the IRS, sufficient. (number one).   Since both (1) and (2) must be satisfied for a proper hardship distribution, plan sponsors must request and retain additional documentation to prove the nature of the hardship. IRS exams have shown that this is where many retirement plans and plan sponsors fall short.

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What Could Cause Your Plan To Be A Candidate For Excessive Fee Litigation?

By: David I Gensler, MSPA, MAAA, EA

There has been enough excessive fee litigation through the years that certain patterns have emerged. So what common traits do most of the excessive 401(k) fee litigation cases share?

The Plan Assets Are In The Multi-Billion Dollar Range – Nearly every lawsuit filed since 2006 has been against plans with assets in excess of $1 billion. That is not surprising.  These cases rarely go to trial.  They almost always get settled.  As Woodward and Bernstein were advised, just “follow the money.”  But given the enormous resources that these plans and the companies that sponsor them have, what has caused them to be so open to litigation and why did the plan sponsors almost universally choose to settle?  And what can smaller plans learn from their experiences?

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The Empire Strikes Back – John Hancock Responds to John Oliver

By: David I Gensler, MSPA, MAAA, EA

OK, so I am being a bit overly dramatic here. John Hancock is not an empire and they are not exactly striking back.  However Manulife, the Canadian insurance company that owns John Hancock is ranked number 212 in Fortune magazine’s 2015 list of the Fortune Global 500.  So they are a pretty big company.  And on its own, insurance company John Hancock is not exactly chopped liver either.

Manulife and John Hancock published an open letter in response to John Oliver’s segment on Last Week Tonight https://www.youtube.com/watch?v=gvZSpET11ZY about its experience with John Hancock when it attempted to set up a 401(k) plan (you can get a copy of the letter here) for the show’s staff.

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John Oliver Riffs On Retirement Plans and Makes Some Excellent Points!

By: David I Gensler, MSPA, MAAA, EA

In a recent airing of Last Week Tonight, John Oliver devoted an entire episode to money in general and 401(k) retirement plans in particular.  The piece can be seen in its entirety at https://www.youtube.com/watch?v=gvZSpET11ZY. It runs for 20 minutes but the actual discussion regarding retirement plans begins at about 11 minutes into the piece (if you have time, watch the whole thing – it is really, really funny). Note – There are more than a few four letter words thrown around.

In his general discussion about money, Oliver makes a statement that “money is the thing everyone likes to think they’re good with despite the evidence provided in every episode of the Suze Orman Show.” Oliver highlights Orman shooting down one woman’s request to spend money on a trip to Iceland to become a “certified elf spotter.” Oliver generously offers to provide the woman with her very own elf spotter certificate, thus saving her the expense of the trip.

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How Could Two Little Retirement Plans Have Such Big Problems?

By: David I Gensler, MSPA, MAAA, EA

An advisor who I have known for many years called me for help. His client has a problem with their retirement plans and the IRS. The company that sponsors the plans consists of four employees: a father (the business owner), his spouse, his son and his daughter in law. They maintain two plans: a defined benefit pension plan and a profit-sharing plan.

The retirement plan consulting firm that set up the plans had the father covered by the defined benefit plan with the other employees waiving out of that plan. The profit-sharing plan covers the other three employees. The father waived out of profit-sharing plan. Their goal was to give the father a large benefit in the defined benefit pension plan and have the other employees receive smaller benefits from the profit-sharing plan. I have not seen the waivers but I was assured that the signed waivers exist.

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