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

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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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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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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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

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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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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