Title: ERISA Update: 5 Big Changes Plan Sponsors Need to Know

If navigating a worldwide pandemic weren’t enough, the world of employee benefits continues to throw curve balls at employers and plan sponsors who must constantly keep up. Below are 5 big changes that retirement plan decision-makers should know about. 

1.  How far will retirement savings go

All defined contribution (DC) plan benefits to be expressed as lifetime income. The SECURE Act requires that participant account balances in DC plans be expressed as both a life annuity and a qualified joint and survivor annuity (“QJSA”). A new DOL regulation applies the rule to defined contribution plans, whether or not they in fact provide annuities as a form of distribution.

Each benefit statement issued after September of 2021 must contain the required disclosures. The new disclosures must be made once every 12 months. So long as they are fully in accordance with the new regulation, plan sponsors, fiduciaries and others are shielded from any liability arising from such disclosures.

2.  Pooled Employer Plans are coming

Is their strength in numbers or is it better to stay independent? One mission of the SECURE Act is to expand retirement savings. One of the ways in which that statutory purpose is achieved is through conditionally permitting groups of unrelated employers to form a new shared retirement plan called pooled employer plans (PEPs). 

Among other requirements, PEPs must designate a pooled plan provider (PPP) to serve as a named fiduciary and plan administrator. Additionally, the PPP must register with the Department of Labor and the Treasury Department before beginning operations. It is anticipated that those participating in a PEP will save on administrative costs as only one Form 5500 will be filed. This will be a developing topic for 2021, and we will keep you informed. 

3.  CARES Act follow up

What is one more long-haul impact of the pandemic? The CARES Act, passed in response to the COVID-19 crisis, created many new features for retirement plans including special COVID- related loans and distributions. These and other changes are allowed without formal amendments to plan documents. Plan sponsors must ensure that plans are properly amended per CARES Act rules. 

Additionally, a unique feature of COVID-related distributions presents a challenge to plan sponsors. Special attention may be required. Given the three-year window available to pay back COVID distributions to a qualified plan, it is possible that plan sponsors may be asked that COVID distributions from another plan be allowed into their plan, because the participant has a new employer (you) since taking the COVID related distribution. Plan sponsors should have a process in place to address this unique situation. 

4.  401(k) Cyber theft causes ongoing litigation

How should you digitally protect your retirement plan? In a recent court case, Bartnett v. Abbott Laboratories, et al., a plan participant who had assets stolen from their retirement account by a sophisticated cybercriminal, sued both the plan sponsor and the third-party administrator. The lawsuit raises important and unique questions about whether ERISA’s fiduciary duties can be breached under such circumstances and how applicable state laws interact with ERISA’s regime. 

Plan sponsors should pay close attention to such lawsuits to understand how the law develops and any new best practices. Plan sponsors should also be asking questions to their insurance brokers to find out whether insurance coverage is available to cover cybercrime, as it appears not to be slowing down. For more best practices on cybersecurity, contact us for a helpful checklist: Hacked, how protected is your company’s 401(k) plan? 

5.  Should Dunder Mifflin be worried?

E-disclosure regulation permits web posting and email delivery of retirement plan documents. Retirement plan administrators who want to use electronic media as a default to furnish covered documents to covered individuals now have a safe harbor via new DOL regulations.

There are two options for electronic delivery: website posting and email delivery. Previous safe harbor guidance on electronic disclosures remain available to plan sponsors who want to keep relying on it. For more information on e-disclosure, read our article, Think Green: Have you considered 401(k) e-disclosures? 

Plan sponsors are constantly bombarded with legislative and regulatory changes, as well as court opinions that affect how they run their benefit plans. To make sense of it all, plan sponsors should seek out qualified advisors to assist with their compliance needs. Contact us today to discuss how these changes may impact your plan.

Disclosures:

Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

Why it’s Important to Review, Refresh, and Revise Retirement Plan Documents

You likely recognize the importance of seeing your doctor for an annual physical to keep your health in tip-top shape, or taking your car in for routine maintenance to keep it running like new.

But what about checking the health of your retirement plan? When is the last time you reviewed your retirement committee charter, investment policy statement (IPS) and other key retirement plan documents to monitor your plan’s compliance with specific standards of conduct and fiduciary responsibilities under the law?

Ideally, you should meet with your plan’s advisor at least once a year to evaluate the overall health of your retirement plan, which includes reviewing plan documents and operations to help ensure they are up to date with current guidance and regulations.

Always a Fiduciary: An Ongoing Responsibility

As a retirement plan fiduciary, adhering to plan documents is one of your most important roles. As a plan sponsor, you are a fiduciary to the plan. This means you have an ongoing and continuous responsibility to monitor the plan, service providers, investment offerings and operations. It’s your job to ensure they are being managed in the sole interest of your participants and their beneficiaries, and for the exclusive purpose of providing benefits and paying plan expenses.¹ Not following these standards of conduct could subject you to personal liabilities. In addition, courts could take action against plan fiduciaries who breach their responsibilities. There has already been a plethora of lawsuits against plan fiduciaries in recent years.

Associate Supreme Court Justice, Stephen J. Breyer, famously submitted his verdict of the landmark Tibble v. Edison case, which set a precedent for fiduciary breach cases regarding the monitoring and selection of retirement plan investments. He stated that “… a trustee has a continuing duty — separate and apart from the duty to exercise prudence in selecting investments at the outset — to monitor, and remove imprudent, trust investments.” In short, monitoring and managing your retirement plan, its investments and operations are not responsibilities to be taken lightly.

Compliance Never Sleeps

Moreover, government and regulatory agencies such as the Department of Labor are continually monitoring plan fiduciaries to make sure they are following plan documents and procedures in accordance with the Employee Retirement Income Security Act (ERISA), the law that governs employer- sponsored retirement plans. Ultimately, this puts the onus of compliance and proper plan management on you. That said, it can be helpful to partner with your plan advisor to perform annual plan reviews for any common mistakes while managing your retirement plan and investments.

Addressing six common mistakes:

1. Poor investment oversight. Create an investment committee, led by a qualified financial professional and conduct periodic investment reviews and ongoing monitoring towards ensuring the plan’s investment options and fees are appropriate for all participants.
2. Failure to conduct periodic plan reviews. Regulations are constantly evolving and changing. Conducting a periodic plan review or benchmarking process, preferably with an independent third party, can help ensure that plan fees are reasonable and the plan is promoting positive outcomes for participants.
3. Failure to take timely action. Having knowledge of potential compliance, investment, plan fees or other significant issues, but failing to remedy them in a timely manner, can result in serious penalties or personal liability for plan fiduciaries..
4. Lack of an up-to-date Investment Policy Statement (IPS). Typically maintained by the retirement plan investment committee with help from the plan advisor, the IPS guidelines address how the plan’s investment options are selected, monitored and managed. The IPS should be periodically reviewed and updated to reflect the plan’s current goals. Many employers create an IPS but fail to follow or update it, putting them at risk for a breach of fiduciary duty.
5. Lack of a proactive participant education and communication plan. Three markers of retirement plan success are widespread participation, high savings rates and adequate investment diversification. An effective participant education and communication program can help increase deferrals and promote proper asset allocation for participants. It can also make a significant difference in your plan’s success.
6. Not following the terms of the plan document. It’s important to make sure employees are being enrolled as they become eligible, participants are receiving the correct employer matching contributions, and loans and distributions are being handled according to the policies and procedures in the plan documents.

If you identify operational or compliance errors during your annual review — don’t panic. The Internal Revenue Service (IRS) and Department of Labor (DOL) have programs to assist you in fixing mistakes. Your plan’s advisor and third-party administrator (TPA) can help with operational and compliance errors, too.

Keep in mind that once you’ve identified and corrected any plan errors, you should put processes in place to avoid future mistakes. In addition to conducting annual reviews, you should also perform regular maintenance to ensure your plan remains in good health — just like sticking to a healthy diet and exercise regimen prevent illness and performing routine tune-ups on your car keep it performing at its best.

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¹ U.S. Department of Labor. “Fiduciaury Responsibilities.”

Disclosures:

Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

This information has been developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance regarding your specific situation.

© 401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

Tracking Down Your Missing Participants

If you have terminated participants with balances in your 401(k) plan, some of whom you can’t locate, you’re not alone; missing participants are an industry-wide problem.

What is a missing participant? A missing participant is a former employee who has left funds in a qualified retirement plan (ex. 401(k) plan) at their former employer but has failed to keep their contact information current and is no longer actively managing their plan account.

A 2018 survey by Boston Research Technologies and the Retirement Clearinghouse estimates that 11% of terminated employees have stale addresses in their plans and one of five relocations results in a missing plan participant; their research also suggested an excess of three million missing participants. ¹

The Problem of Missing Participants

There are two main reasons why participants disappear. The first is frequent job-hopping, and the second is not keeping plan contact information up-to-date. Boston Research Technologies found another reason—one-third of their respondents didn’t know they had an account with a previous employer. ²

Missing participants have become a big enough problem that it has caught the attention of the Internal Revenue Service (IRS) and Department of Labor (DOL), who are stepping up plan audits to see if you’re making the requisite effort to find your plan’s missing participants.

It’s important to find your missing participants; they cost you money and increase your fiduciary liability. Plus, it’s much easier to administer a plan with clean data.

• It’s important to find your missing participants; they cost you money and increase your fiduciary liability. Plus, it’s much easier to administer a plan with clean data.

• TPAs and recordkeepers typically charge by the number of participants in the plan so terminated participants present an increased administrative cost.

• 401(k) plans are required to be audited when the number of participants, including the terminated ones, exceeds 100.

• Terminated employees with vested account balances who leave their accounts in the plan for more than a year must be reported to the IRS on Form 8955-SSA.

• Terminated participants with balances must be mailed benefit statements and other required plan notices, which increases administrative costs.

• Uncashed distribution checks increase your fiduciary liability, as does the failure to locate the missing participants to whom the money belongs.

• The DOL is stepping up its enforcement efforts, such as plan audits, to hold plan sponsors responsible for finding their missing participants.

• Your plan could be disqualified if you haven’t made a genuine effort to find your missing participants.

Plan Sponsor Responsibilities

As a plan fiduciary, you are required under the Employee Retirement Income and Security Act of 1974 (ERISA) to make every reasonable effort to find your plan’s missing participants. However, you have a couple of challenges facing you, says David Kaleda of the Groom Law Group: ³

• First, identifying who is missing, discovered chiefly through returned mail or emails, unanswered phone calls or uncashed checks.

• Secondly, if there are uncashed benefit checks, you and your financial institution/trustee should work together to find the missing participants. Uncashed checks are still plan assets and if unclaimed, represent a serious fiduciary liability.

But it’s not easy and there’s a lot of uncertainty around how to go about it. The most recent guidance is from the DOL, Field Assistance Bulletin (FAB 2014-01), but it only addresses the missing participants of terminated plans. The guidance can be useful to ongoing plans; however, some plan sponsors are using it as a roadmap to find their missing participants.

FAB 2014-01 recommends taking the following steps: ⁴

• Send a notice via certified mail to the participant’s last known address

• Check related plan and employer records

• Contact the designated plan beneficiary

• Use free electronic search tools

• Use additional methods if the above don’t produce a correct address:

oProprietary electronic search tools

o Commercial locator services

o Credit reporting agencies

Finally, document everything! It’s important to have a written policy in place detailing the steps to be taken to identify missing participants. Conduct an annual review to identify these participants. Document the methods used and the results of each search. The DOL will want to know this information if they ever audit your plan.

¹ Boston Research Technologies and Retirement Clearinghouse. “The Mobile Workforce’s Missing Participant Problem.” March 13, 2018.

² [Boston Research Technologies and Retirement Clearinghouse. “The Mobile Workforce’s Missing Participant Problem.” March 13, 2018.

³ David Kaleda. “Lost Participants: It is sponsors’ duty to locate their terminated ‘missing persons.’” PLANSPONSOR. January/February 2019.

⁴ U. S. Department of Labor. “Field Assistance Bulletin No. 2014-01.” EBSA. August 14, 2014.

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Disclosures:

Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

This information has been developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance regarding your specific situation.

© 401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

Staying the Course through Volatile Markets

Turbulent times can bring turbulent markets. Many factors cause chaotic swings in the investing world including housing bubbles, political elections, international instability, and as we have seen recently, a global health pandemic.

Despite the financial queasiness this can have, experts consistently have one piece of advice for investors: stay calm and stay the course. Maintaining a long-term investment strategy can help weather the storm of a volatile stock market, whereas reacting irrationally, or panicking, is the last thing investors should do.

History Tends to Repeat

There are a few ways to keep nerves at bay amidst a sea of daunting headlines.

First, a historical review shows that market fluctuations are normal. This should serve as a comforting reminder during unstable conditions. According to Fidelity, “...while market downturns may be unsettling, history shows stocks have recovered and delivered long-term gains.” ¹

From 1995 to 2019 (a period that includes major drops due to the tech bubble burst, the 2008 market crash and the Great Recession), the average growth rate of the S&P 500 (which tracks the stock performance of 500 large companies on U.S. stock exchanges) was 11.9 percent (including dividends).²

While no one can predict the stock market with absolute certainty, the significant crashes of the last century all saw periods of recovery. For example, after the 2008 market crash, the recovery began almost immediately and achieved an eventual increase of 178% in 5-year returns.³

These past events reinforce the importance of focusing on long-term financial strategies and goals, not short-term fluctuations. The markets will have bull and bear runs which need time to play out without trying to anticipate short-term trends.

Don’t Try to Catch a Falling Knife

Another potential mistake that investors can make is to stop saving during a market downturn. On the heels of the 2008 crash, one study found that more than a quarter of respondents either stopped saving for retirement or stopped adding to their 401(k).⁴

However, had they stayed put, their returns would have likely had substantial gains.

Fidelity Investments reports that the average 401(k) retirement plan balance rose by 466% to $297,700 between 2009 and 2019. Furthermore, the average retirement savings of millennials, many of whom would have been at the early stages of their work career, would have experienced an upward portfolio shift of 1,762% from $7,000 in Q1 of 2009 to just under $130,000 in 2019.⁵ While past performance is no guarantee of future results, it’s important to point out in this example that when participants stay the course, it can really pay off.

A popular way to continue savings momentum when nerves are being tested is dollar-cost averaging, or in other words, investing a fixed amount on a regular schedule (e.g. per pay period) that generally results in buying more shares when prices are low and less shares when they are high.

Dollar-cost averaging is a stabilizing approach. It can take away some of the fear of timing risk and become less of a system shock than lump sum investing. Dollar-cost averaging does not ensure a profit and does not protect against loss in declining markets.

You Need Lemons to Make Lemonade

Downturns are a perfect time to consult with a financial professional to review different strategies and also rebalance your portfolio. It might be time to look at investments that have lost value. This can help to manage risk exposure and could be an opportunity to reposition the portfolio for a potential recovery.

Another possibility is to consider a Roth conversion. If your plan allows for a Roth conversion — moving money from a 401(k) to a Roth 401(k) account — then a downturn could help. A conversion in a downturn might result in a lower tax bill for the same number of shares sold, and then the participant can experience the benefits of a Roth account, allowing qualified distributions of future growth to be tax free.⁶

Market downturns are a part of any investing lifecycle so it’s best to keep a steady hand, consult with your advisor and consider all options so you can weather through this market cycle - and the next one.

Information provided herein is not, and should not be regarded as, investment advice or as a recommendation. Investing involves risk, including potential loss of principal.

¹ Fidelity Viewpoints. “6 Tips to Navigate Volatile Markets.” Fidelity. July 2020.

² Moneychimp. “Compound Annual Growth Rate (Annualized Return).” July 2020.

³ Fidelity Viewpoints. “6 Tips to Navigate Volatile Markets.” Fidelity. July 2020.

⁴ Betterment. “Betterment’s Consumer Financial Perspectives Report:10 Years After the Crash.” Sept 2018.

⁵ Fidelity. “Q1 2019 Retirement Analysis.” May 2019

⁶ Fidelity Viewpoints. “6 Tips to Navigate Volatile Markets.” Fidelity. July 2020.

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Disclosures:

Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

This information has been developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance regarding your specific situation.

© 401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

4 Qualified Plan Tax Advantages for Employers

By choosing to offer your employees a 401(k) plan, you’re sending a powerful message — that you’re invested in their future and committed to helping them work towards financial security in their retirement. As a business owner, you can also benefit from setting up a retirement savings plan. Not only does it provide you with the opportunity to save money for your own retirement, it also enables you to take advantage of tax savings thanks to special deductions and tax credits. Here are four ways that a 401(k) can help you reduce taxes:

#1 Personal tax benefit

Depending on the type of plan you offer, you and your employees can save for retirement in two ways:

• P> re-tax> : Contributing pre-tax dollars to the 401(k) plan while working reduces your current taxable income and allows you to defer paying taxes until you withdraw the money at retirement.

• > After-tax (Roth)> : If you opt for a plan with a Roth feature, you and your employees can save on an after-tax basis. While it doesn’t reduce your current tax bill, generally you can take the money out tax-free at retirement. ¹ This includes your contributions, along with any investment growth.

If you are considered an employee of the business, you can take advantage of these pre- or after-tax savings, too. Moreover, having a 401(k) can provide additional savings opportunities for you.

For instance, if your income exceeds the Roth limits that would prohibit you from making contributions to a Roth Individual Retirement Account or taking deductions for traditional IRA contributions, a qualified plan could eliminate these issues because contributions to a pre-tax or Roth 401(k) do not have an income ceiling.

Keep in mind that participants can save up to $19,500 in a qualified retirement plan such as a 401(k) in 2020, per IRS limits. These contributions can be split between pre-tax and Roth deferrals — much higher than the $6,000 IRA contribution limits. In addition, employees age 50 and older can make additional catch-up contributions of $6,000 to a 401(k). These maximum limits exclude any employer matching or profit-sharing contributions. ²

2 Tax-deductible employer contributions

Many employers choose to make retirement plan matching contributions, although it isn’t required. Offering an employer match can help you attract top talent, making your retirement plan more competitive and improving employee retention.

Plus, company contributions are tax-deductible as a business expense — up to certain limits, including both matching and non-elective contributions (those made directly by the employer regardless of whether or not employees contribute to the plan).

#3 Business tax credits

A qualified retirement plan is an employee benefit. Therefore, any plan-related expenses you pay may be tax-deductible, including employer contributions and the administrative costs for running the plan. These could include fees paid to a Third Party Administrator (TPA), recordkeeper, auditor or other consultants you hire to help with your plan. All of these costs can potentially be written off.

In addition, the IRS has created tax credits to incentivize small business owners to offer 401(k) plans. Employers may claim a tax credit for some of the ordinary and necessary costs of starting a qualified plan. For 2020 and beyond, employers may qualify for a credit of at least $500. Additional credits may be available, and employers may be able to take the lesser of:

• $250 for each non-highly-compensated employee (NHCE) eligible to participate

• $5,000

The credit is available for the first three plan years. ³ Specific criteria apply, so talk to a tax professional to understand how the credit could impact your specific situation.

#4 Increased tax savings with profit-sharing

You can further customize your 401(k) plan by adding a profit-sharing component. Profit-sharing plans offer similar tax benefits to a traditional 401(k), but they have higher contribution limits, which allow employers to enjoy additional tax savings.

With profit-sharing plans, employers contribute to employees’ retirement savings based on the company’s profitability within a given year. These plans offer employers a lot of flexibility — you can choose how much you want to contribute and even skip contributions in less-profitable years.

Profit-sharing plans provide an opportunity for you and your employees to save beyond the annual limits. For instance, employees can make salary deferrals up to $19,500 (the annual limit in 2020). However, maximum employer contributions are even higher: up to 100% of an employee’s annual salary or $57,000 per year ($63,000 including catch-up contributions for employees age 50 and older), whichever is higher. Note, combined employer and employee contributions may not exceed the $57,000 limit.

The tax laws can be favorable for business owners who offer a 401(k) or similar qualified retirement plan. It’s a great way to help you and your employees save for the future while getting tax benefits for doing so. Now is a good time to take a closer look at the options available to your business and consider how providing a competitive benefit can help attract and retain talent, save on taxes and positively impact your bottom line.

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¹ A Roth 401(k) offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

² “Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits.” Internal Revenue Service, Jan 2020.

³ “Summary of The Setting Every Community Up for Retirement Enhancement Act Of 2019 (The Secure Act).” Ways and Means. Mar 2020.

Disclosures:

Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

 This information has been developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance regarding your specific situation.

© 401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

Title: Pros and Cons of Taking Coronavirus-Related Distributions from Retirement Savings

The COVID-19 pandemic has undoubtedly shaken our economy to the core. Many businesses have struggled to keep their doors open which has caused unemployment claims to soar. Record unemployment, coupled with a U.S. society that has an average household savings account of about $8,800¹, has many people looking to their retirement savings as a “piggy bank” for necessary funds to keep their heads above water.

Withdrawing retirement savings should be carefully considered, even in view of the loosening of restrictions around withdrawals as a result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act because any withdrawal can have a multiplying impact on long-term retirement goals.

However, we are living in unknown times and if your participants need to access their retirement savings, the passage of the CARES Act makes it easier.

The CARES Act and new ways to access retirement savings

The CARES Act relaxed certain provisions around withdrawals and loans from 401(k) plans due to the economic severity brought on by the pandemic. Under the CARES Act, a person who meets certain criteria and has experienced hardship can qualify for a Coronavirus-Related Distribution (CRD) from their IRAs and eligible defined contribution retirement plans, such as 401(k).

To help navigate the new changes, the Wagner Law Group, experts in ERISA and employee benefits, have established a COVID-19 resources site to help employers better understand the various regulations, criteria and exceptions.²

If you are considering adding these provisions, remember that amending your plan is a fiduciary decisionand should be thoughtfully considered and your actions documented. Keep in mind that to provide for these expanded distribution and loan options, the plan needs to be formally amended; and it’s best to contact your plan administrator for the required steps.

From a high-level, CRDs from a qualified retirement plan:³

● are available to individuals who meet certain criteria.

● are not subject to the normal 10% early penalty up to $100,000 per person.

● unlike regular hardship withdrawals, CRDs may be repaid into the plan, or another qualified plan, within three years to avoid incurring taxes. The repayment is not subject to annual retirement plan contribution limits.

● if the individual does not recontribute the distribution within the three-year time period, taxation on the distribution can be spread over a 3-year period.

With regard to loans from qualified plans:⁴

● The limit on loans doubled from 50% of a participant’s vested account balance (up to $50,000) to 100% of the participant’s vested account balance (up to $100,000).

● The due date for any repayment by a qualified individual of a participant loan that would occur from the date of enactment through December 31, 2020, is delayed for up to one year. ● A qualified individual who could be eligible for these expanded loan limits and loan delays is one who could meet the same coronavirus-related criteria forwithdrawals.

● The coronavirus loan provisions are temporary and are in effect for 180 days from the March 27, 2020 date of enactment.

If possible, seek other options

Although the CARES Act makes 401(k) withdrawals and loans easier to access, participants should understand how these actions could affect the future of their retirement savings. As general guidance, participants should consider other financial reserves before removing funds from their retirement savings. These accounts could include emergency funds, refinancing current debt, HELOCs, CDs, brokerage accounts, cash value life insurance options, personal lines of credit or potentially a loan from a family member.

Importance of financial wellness

Many lessons will be learned from the COVID-19 crisis. One positive impact this pandemic may have within your workforce is the importance of financial wellness. A good program can help employees manage expenses, budget, set financial goals and priorities, while encouraging them to establish a 3 to 6 month emergency savings. Due to COVID-19, the vast majority of the workforce has been significantly affected. With tangible experience, the silver lining is that it can lead to better budgeting, financial oversight, and hopefully inspire more people to focus on the importance of a long-term retirement savings plan.

¹ Garcia, Adrian. “This is the average amount in savings accounts — how does your cash stack up?” Dec 3,2018.

²Wagner Law Group. “COVID-19 Resource Center.” April 20, 2020.

³ Wagner Law Group. “Retirement Plan Provisions of CARES Act.” March 27, 2020.

⁴ Wagner Law Group. “Retirement Plan Provisions of CARES Act.” March 27, 2020.

Disclosures:

Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

 This information has been developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance regarding your specific situation.

© 401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

5 Ways Total Rewards Can Help Recruit Top Talent

A good total rewards program helps you attract and retain the best possible talent for your organization. Add a great workplace culture and environment and you could be on your way to becoming an employer of choice among job-seekers.

What is a total rewards program?

A total rewards program is adopted by a company that provides benefits for its employees including:

1. Compensation -base pay, overtime, bonuses

2. Work/life balance - flexible scheduling, remote work opportunities

3. Benefits - health, life, dental and vision insurance, retirement plan, and voluntary benefits such as wellness

4. Recognition - feedback regarding performance and areas needing improvement, employee recognition programs

5. Growth and development - performance development planning, career paths, internal and external training, tuition reimbursement

However, the playing field has changed with the COVID-19 pandemic.

We’ve gone from record employment to record unemployment. That should make it easier to recruit

top talent, right? It might—but only if your benefits are up to the challenge.

First, confirm that your pay and benefits are competitive. Compensation is the first step in preparing a comprehensive total rewards program; however, it is not the whole picture when it comes to winning those all-star candidates.

According to Deloitte’s 2019 Global Human Capital Trends survey, perks and pay aren’t what matter most to many employees—it’s personalized rewards that help meet their needs. Furthermore, only 11% of companies in Deloitte’s survey felt their rewards strategy was highly aligned with their organization’s goals.¹

What does this mean for you? You might have some gaps to fill between the components of your total rewards program and employee needs. And since the survey was conducted in 2019 before COVID-19 appeared, your future employees’, and thus applicants’, needs are evolving.

WHAT ARE THE KEY BENEFITS TO CONSIDER?

Here are five important benefits you might want to include in your total rewards program during this work from home (WFH) new normal:²

1. Comprehensive healthcare. Your applicant needs to know they will be covered if they become ill. Without this type of coverage, they could face financial hardship in covering expenses. In addition, short and long-term disability benefits could kick in if the illness persists.
2. Paid sick leave. According to the Bureau of Labor Statistics, employees in private industry had an average of 7 days of sick leave for 1 year of service in 2018.³ Given recent events, this may not be enough because, with the new coronavirus, recovery often takes significantly longer than 7 days. Seven days, and only after 1 year of service, may not be adequate for your new hire.
3. Remote work. WFH has been encouraged—even required—because of social distancing and shelter-in-place policies to reduce the spread of COVID-19. What is your applicant’s attitude toward working alone?
4. Mental health assistance. WFH may be beneficial in many ways, but along with the accompanying isolation, it can be mentally exhausting. An Employee Assistance Program can help to alleviate the stress and distress caused by WFH isolation.
5. Financial wellness programs. Financial wellness programs seek to help employees with their #1 stressor – finances. The program can help them prepare for unexpected emergencies, student loan debt, future college savings, and/or retirement. With the pandemic, financial wellness has become even more important for employees facing additional challenges such as higher medical bills or the possibility of losing a job. Applicants and new hires may find it reassuring that such a program exists should they need it.

Does your total rewards program contain these benefits?

If there are opportunities for improvement, work with your HR and benefits teams to discuss ways to adjust benefits within the program. It will take some planning, but it could be worth the effort if it means being the employer of choice for top talent. In considering changes:

Top job seekers are not only looking for a good salary but also excellent benefits. To recruit the best, you have to be the best, and part of that is having an outstanding total rewards program.

To learn how your retirement plan compares to other similar firms, contact us to discuss a benchmarking report.

¹ Deloitte Insights, “Employee Rewards: What Do Employees Value Most?” 2019.

² Kathryn Mayer, Human Resource Executive, “8 benefits employers should zero in on during the COVID-19 pandemic,” March 24, 2020.

³ U.S. Bureau of Labor Statistics. “Private industry workers with sick leave benefits received 8 days per year at 20 years of service,” March 8, 2019.

Disclosures:

 Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

This information has been developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance regarding your specific situation.

© 401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

5 Things Employers Need to Know about CalSavers Plans

California recently launched the CalSavers Retirement Savings Program, which is mandated for all private employers in the state with more than five employees and don’t have a qualified retirement or IRA-based plan in place. 

As employers consider this program, or whether to implement a different retirement plan, here are five important things you need to know about CalSavers.

1. Why was CalSavers started?

According to the State Treasurer's Office, CalSavers was launched to provide an estimated 7.5 million private-sector workers in California with “access to a retirement savings program without the administrative complexity, fees, or fiduciary liability of existing options for employers”. The program offers participants “a completely voluntary, low cost, portable retirement savings vehicle with professionally managed investments and oversight from a public, transparent board of directors, chaired by the State Treasurer.” Employers subject to CalSavers are those with at least five full- or part-time employees who are over the age of 18, with at least one employee working in California.

 

2. When does CalSavers go into effect and what are employers required to do? 

CalSavers is being phased in annually, on June 30th, over the next three years based on employer size. The first deadline is 2020 for employers with more than 100 employees, 2021 for those with more than 50 employees, and 2022 for employers with five or more employees. Employers who choose to participate in CalSavers must do so by the above effective dates or risk fines of $250 per eligible employee if they aren’t compliant within 90 days of the noted deadline.  An additional fine of $500 is imposed if they are not compliant after 180 days, for a total of $750 per employee. While there is no cost to register for the program, there are a number of additional administrative tasks required of employers including management of employee enrollment and tracking of account details.  

3. How does CalSavers work?

CalSavers is structured as a Roth IRA. Employees will have tax free earnings and distributions in retirement. Employees are automatically enrolled with a default contribution rate of 5 percent of gross pay, which will automatically escalate by 1 percent a year, up to a maximum contribution of 8 percent. The maximum contribution is $6,000 per year, or $7,000 for ages 50 or older. CalSavers offers only six investment funds and if an employee does not choose an option, the default investment will be the CalSavers Money Market Fund for the first $1,000, and subsequent contributions will be invested in the CalSavers Target Retirement Fund. Employees can change their contributions at any point and can also opt out of CalSavers altogether. Employers participating in CalSavers are not eligible to contribute or match employee contributions.

4. What are the employer responsibilities under CalSavers?

Employers must register to set up their CalSavers account by a specific deadline based on company size (see #2 above). CalSavers employers must also take on additional responsibilities including creating a payroll list in order to enroll employees, selecting a payroll service provider, submitting participating employee contributions via payroll deduction (to be managed by a third-party administrator), updating contribution rates including auto-increases, adding new/eligible employees, and unenrolling employees if they opt out or leave the company.  

 

5. Is CalSavers the only retirement plan option for California employers?

No. There are several retirement plan options for employers that, unlike CalSavers, provide full administrative support as well as tax benefits. Working with a qualified 401(k) provider to offer a retirement plan that meets the needs of employers and employees provides significant benefits including:

• Higher Contribution Rates Help Employees Save Faster: In 2019, annual contribution rates for employees are up to $19,000 for a 401(k) or $13,000 for a Simple IRA -- significantly higher than CalSavers’ $6,000 annual contribution maximum. Rates for employees over 50 are also higher with 401(k)s and Simple IRAs ($25,000 and $16,000, respectively) compared to CalSavers’ maximum of $7,000.  

• Employer Tax Benefits: When an employer sets up a Simple IRA or 401(k) plan, they are eligible for a tax credit of up to $500 per year for the first three years. CalSavers’ employers receive no tax benefit for opting into the plan. Also, under CalSavers, employers cannot contribute to or match employee contributions and therefore receive no tax deductions accordingly. However, since Simple IRAs and 401(k)s allow for employers to contribute or match, they can claim tax deductions pursuant to IRS guidelines.

• Administrative support: When working with a Simple IRA or 401(k) plan provider, many administrative tasks are handled for you. With CalSavers, you are responsible for oversight of enrollment and ongoing participant management.

Is CalSavers best for you? Or should you consider a retirement plan that is designed for your company and employees? Don’t wait! Contact FMN today to learn about your options.  

Is Your Plan’s Investment Lineup As Good As It Could Be?

Is Your Plan’s Investment Lineup As Good As It Could Be?

CITs Can Deliver Considerable Cost Savings and Fiduciary Support

Minimizing retirement plan fees is critical to helping participants achieve their long-term savings goals. With a heightened focus on a lack of retirement readiness and fee litigation, it’s more important than ever for plan sponsors and fiduciaries to proactively look for ways to lower retirement plan costs, particularly when it comes to reducing investment fees.

But where to begin? Plan sponsors can start by assessing the plan’s existing investment lineup. Is it as good as it could be? Are there lower-cost share classes available? There may be alternative options that offer lower expenses and fees, but have the same investment objectives and underlying funds.

 In fact, plan sponsors may find that the lowest-cost share class may not be a mutual fund share class at all — it may actually be a collective investment trust (CIT). To that end, CITs may be an attractive solution for plan sponsors seeking to offer a lower-cost investment option for participants.

 What is a CIT?

Collective investment trusts (CITs), also known as commingled trusts or collective trust funds, are generally offered by banks and trust companies. CITs are similar to mutual funds in that investor money is pooled together and managed by professional money managers. Like mutual funds, CITs are also available in a wide variety of asset classes — both passively and actively managed — including stocks, bonds, stable value and alternatives. Additionally, CITs have become popular in target date funds (TDFs).[1]

 There are some noteworthy differences between CITs and mutual funds. Whereas mutual funds are available to all investors, CITs are typically offered to large pension plans that meet the minimum threshold.  Since CITs are designed exclusively for retirement plans, they aren’t subject to the same regulatory requirements as mutual funds.

A cost-effective investment solution

 With recent fee-related lawsuits shining a spotlight on retirement plan fees and fiduciary responsibility, the cost benefits alone make CITs worthy of consideration. Typically, CITs tend to be more cost-effective and may offer flexible pricing. These cost savings are due to a variety of factors[2],[3]:

1. CITs have low overhead costs, resulting in lower management fees from retail investments.

2. Combined assets are managed in a single fund, which creates scale and cost efficiencies. It also helps reduce reporting and administrative fees.

3. CITs are available only inside employer-sponsored retirement plans. As such, they are not allowed to advertise to the public, which minimizes marketing costs.

4. CITs aren’t regulated by the SEC and are not required to file prospectuses, shareholder reports or proxy statements, so compliance costs are lower.

5. Typically, CITs offer tiered pricing arrangements, allowing issuers the ability to deliver lower fees as invested assets grow. This allows retirement plans to leverage scale while capturing cost reductions. Conversely, institutional mutual fund shares, for example, may be available at the same cost regardless of plan size.

6. CITs also offer plan sponsors an opportunity to negotiate custom fee arrangements, mutual funds do not.

7. CITs are not publicly traded, therefore, they aren’t available to retail investors.

Clearly, the cost savings inherent to CITs are passed on to plan sponsors and participants in several ways. In fact, plans can reap tremendous savings benefits — an average of 39%[4] — simply by swapping the mutual fund share class out of the investment lineup and maintaining all of the underlying funds in the equivalent CIT. Another benefit: CITs provide investment flexibility. For example, they are designed to hold other CITs as underlying investments, whereas mutual funds cannot. Again, that results in additional savings opportunities.

 Another benefit of CITs is that their issuing banks and trust companies serve as fiduciaries to the plans that invest in them. As such, they fulfill similar fiduciary requirements as plan sponsors when it comes to acting solely in the best interests of plan participants and their beneficiaries.

Due to their cost savings and built-in flexibility, CITs have become a popular option for defined contribution (DC) plan sponsors of all sizes. Choosing cost-effective investment solutions like CITs can result in significant savings for plans and participants.   

Financial Management Network has helped hundreds of retirement plan sponsors review and assess the appropriateness of their plan investments. We can help you determine if the cost-savings and efficiencies of CITs are a good fit for your plan and participants, while building a stronger lineup of investment offerings designed to help you meet your fiduciary obligations and improve retirement readiness.

[1] The Coalition of Collective Investment Trusts. “CIT Myths and Facts.” April 2015.

[2] Investopedia. Entry for “Commingled Trust Fund.” February 2018.

[3] Iacurci, Greg. InvestmentNews. “Collective investment trusts getting more attention from 401(k) advisers.” June 2017.

[4] Wilshire Trust CITs available to RPAG member firms.

Don’t Panic: Stock Market Fluctuations are Normal

Don’t Panic: Stock Market Fluctuations are Normal

Nothing is more unsettling than a roller coaster stock market, which can send participants into panic mode as they nervously watch wild dips in their 401k plans.

Always remember the time-honored saying: it’s a marathon not a sprint. Simply put, long-term investing is meant to weather the storm of a volatile stock market and reacting irrationally is the last thing investors should do.

How do you keep calm amidst blaring headlines of financial fear and collapse? Here are a few simple tips that can keep nerves at bay.

This is Normal

We’ll say it again: market fluctuation is absolutely normal. According to Fidelity, “history shows that the US stock market has been able to recover from declines and can still provide investors with positive long-term returns.” They add that in the past 35 years, the market experienced an average drop of 14% from high to low during each calendar year, yet still produced positive annual returns in more than 80% of the calendar years in this period.[1]

Stay the Course

Having a plan —and sticking to it— is vital. Most 401k participants don’t need their investments right away so as long as they have a diversified asset mix that reflects “time horizon, financial situation, and risk tolerance,” they should ride it out. [2]

Also, what seems like a wild ride in the moment, is barely a blip in the long-run of investing.

When the 1987 market crash had “the S&P 500® Index careening down about 20% in 4½ days, sending shivers through investors’ veins,” a chart showing that exact time period makes the drop look intense.[3] However, when taken in a 40-year perspective, the same dip is barely noticeable.[4]

Markets Recover

The good news is that even with down months, or years, in the stock market, its rebound is just a matter of time.   

Historically, the major crashes of the last century saw predictable periods of recovery. Even the most recent 2008 market crash that lead to a 178% drop in 5-year returns began its recovery almost immediately.

By 2013, the stock market was seen as fully recovered and by February 2018, the Dow Jones Industrial Average had set more than 250 closing records.[5]

Keep Calm and Invest On

Besides staying calm, what else should investors do during a bear market? Here are three options that experts recommend investors consider:[6]

Buy when prices are low during a downturn. Invest a fixed amount on a regular schedule, which generally results in buying more shares when prices are low and less when they are high.

Review and rebalance your portfolio. Add some of the “beaten-down” investments, which can help manage risk level and position a portfolio for a potential recovery.

Assess your allocation. Based on your retirement date, you should be invested appropriately. If you have a longer time horizon you can stand to have more aggressive investments, but if you are nearing retirement, your investments should be a bit more secure. Think about it: if you’re driving down the highway and your exit is coming up in 100 ft, would you rather be going 85 in the left lane or preparing to merge into the exit lane with your blinker on?

We’ve Seen it Before

As investment advisors and retirement specialists, we’ve helped hundreds of clients weather market volatility.  We’re happy to discuss any of these tips or help develop a strategy for individual or institutional   retirement plan solutions.

Remember, the most important advice is to remember to breathe, don’t panic, and focus on the light at the end of the investment tunnel.

 CURTIS S. FARRELL, CFP® AIF®

949.455.0300 x222 | cfarrell@fmncc.com | fmncc.com

***

Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

[1] Fidelity Viewpoints. “6 tips to manage volatile markets.” 20, Dec. 2018.

[2] Fidelity Viewpoints. “Beat market volatility fears.” 3, Dec. 2018.  

[3] Carlson, Mark, Board of Governors of the Federal Reserve, “A brief history of the 1987 stock market crash with a discussion of the Federal Reserve response.” 25, Nov. 2006.

[4] Fidelity Viewpoints. “Beat market volatility fears.” 3, Dec. 2018.  

[5] Amadeo, Kimberly. “Stock Market Crash of 2008.” The Balance. 6, Nov. 2018.  

[6] Fidelity Viewpoints.” The upside of a down market.” 29, Jan, 2019.

DELIVERING BENEFITS YOUR EMPLOYEES ACTUALLY WANT

DELIVERING BENEFITS YOUR EMPLOYEES ACTUALLY WANT
4 tips for forward thinking plan sponsors

As we sail past the holidays and into the new year, we look at ourselves and start putting together ideas for our New Year’s resolutions – goals we set for near-term improvement like shedding a few pounds or learning a new skill. But what about long-term goals like retirement? Compared to even the most ambitious resolutions, reaching a comfortable retirement on a timely schedule can seem overwhelming. However, as an employer, you have the power and opportunity to help your employees achieve that goal nonetheless. (They’ll be on their own with the rest of their resolutions, though!)

According to the 2018 Annual Plan Participant Survey from the American Century, employees want plan features that accelerate retirement savings, and they look to their employers for help. In fact, 8 in 10 participants want a nudge from employers, while 10% say they could use “a kick in the pants” to get their savings on track for retirement. [1]

To help you deliver the benefits your employees actually want, here are 4 forward-thinking tips employers can put into practice to give participants the push they so desperately need:  

Send Targeted Messages to Low Savers
At this point you’ve gotten the message: “saving for retirement is important,” the question is, have your employees? Some of them certainly have, but what about those who aren’t saving enough for retirement? You could always send out an email blast reminding everyone to up their deferrals, but wouldn’t that just irritate the ones who are already saving enough? What about a one-size-fits-all message…that would probably sail right past the people who need it and go straight into their spam folders. What’s an employer to do?

As it turns out, recordkeepers have made huge strides in their data-crunching abilities in recent years, to the point that it’s easy to drill down and identify specific groups of plan participants – like those who are saving less than a certain percentage of their pay. Nowadays, it’s easy to send out a custom email campaign targeted specifically to low savers, complete with a personalized message for each participant.

It is important that you choose an impactful message. Here is an example: savers credit available to low wage earners. Simply stated, people that make below $64,000 (married) and/or $48,000 (head of household) can get a tax deduction for a portion of their 401(k) or IRA contributions. Essentially, the Saver’s Credit is an incentive for low- to moderate-income taxpayers to save for retirement! To learn more about the program, we’ve provided a couple of helpful links:

INFO | FORM

Offer a Meaningful Match
A company match is a powerful tool. Whether your focus is on recruitment and retention or retirement readiness, a retirement plan match is an extremely well-regarded and cost-effective benefit to consider. Believe it or not, 3 out of 4 employees prefer a 3% match over a 3% raise in pay.[2]

Many employees interpret the employer match as a guideline for how much they should save for retirement. Match 100% of the first 3% of pay an employee defers, for instance, and most of your employees will take it as a suggestion that they can save exactly 3% each year and have enough for retirement. Unfortunately, in most cases they will need to save much more. So, it is important that you find a formula to incentivize participants to defer a meaningful amount and meets your budget. Actual cost will be lower depending on your vesting schedule.

 Implement Auto Features
Auto features have become more and more commonplace these days: nearly 6 out of 10 plans have already adopted auto-enrollment, and three-fourths of those plans automatically increase default deferral rates over time.[3] When discussing these powerful features with plan sponsors, we are often met with resistance, mainly because they fear pushback from their employees. It may rest your worried mind to know that 2 out of 3 of participants feel positive about a company that offers auto enrollment and automatic increases.[4]

What if you had the ability to automatically get new employees on track toward retirement? Employers that implement auto enrollment have seen participation rates increase from 47% to 93%.[5]

According to T. Rowe Price, the average default rate has reached an all-time high! For the first time ever, more plans have a default deferral rate of 6% than the previous industry standard of 3%.[6] While this is a great start, many experts believe that Americans need to save 12-15% per year in order to achieve a comfortable retirement. We believe this is achievable by adding an auto increase feature to your plan; this plan design feature makes accelerated saving simple by slowing ramping up deferral rates each year, generally by 1-2% annually. The illustration shows a couple saving scenarios and how long it would take to get employees the recommended savings rate.

Roll Out Re-enrollment
Even if you implement auto-enrollment, it is possible that not all eligible employees are reaping the benefits. Most employers implement auto-enrollment only for new hires, so employees who were already with the company when auto-enrollment was first implemented got passed over. Also, some new hires may have opted out of enrollment when they first joined, or reduced their deferral sometime after being hired due to financial concerns; even if their financial state has improved since, most won’t take the initiative to sign up for participation on their own.

Consider re-enrollment for all eligible employees either not currently participating in the plan or contributing less than the initial default deferral rate. If your initial default deferral rate is 6%, for example, re-enrollment would include non-participating employees as well as active participants, who are saving less than 6%. Some employers do re-enrollment as a one-time event; others do it every year. Which way makes the most sense depends on the company.

Partner with us and we can help you implement these and other ideas to get your employees on track to a well-earned comfortable retirement. We can work with your recordkeeper to target campaigns to specific participants, help you choose the right deferral rate for your employees and budget constraints, figure out a match formula that optimizes employee contributions, and decide whether re-enrollment is right for your plan.

[1],2 American Century Investments. “5th Annual National Survey of DC Plan Participants.” Dec 2017.    

[3] Greenan, Hattie.” PSCA Releases Results of 60th Annual Survey of Profit Sharing and 401(k) Plans.” 12 Feb. 2018.

[4] American Century Investments. “5th Annual National Survey of DC Plan Participants.” Dec 2017.  

[5] Clark, Jeffrey W., and Jean A. Young. “Automatic Enrollment: The Power of the Default.” Vanguard Institutional, Feb. 2018.

[6] T. Rowe Price. “Reference Point Annual Survey.” Dec. 2017.

PLAN ADMINISTRATION IS A HASSLE....but does it have to be?

PLAN ADMINISTRATION IS A HASSLE
…but does it have to be?
3 Tips for Managing 401(k) Plan Administration Headaches

As an HR professional, you have mastered the art of juggling and hopefully you look good in hats, because you’re likely to find yourself wearing a number of them in varying situations. Being the administrator of your 401(k) plan adds a few extra hats to the rack. Your role changes from accountant for payroll, to attorney when reviewing plan documents or a teacher for the plan participants.

In this article we hope to lend some helpful information, tools and ideas that may help you manage your responsibilities as a plan sponsor and hopefully make your life a bit easier.

Payroll
Every payroll period, administrators are required to submit payroll and 401(k) contributions in a timely manner. If you are still taking a manual entry approach, you understand how arduous that process can be. Many administrators may feel like the middleman stuck between your payroll provider and recordkeeper, or a rock and a hard place.  Fortunately, payroll is a process that can be automated and integrated to reduce potential data input errors and give you back valuable time.   

Partnership with a quality provider that can bear this burden or a seamless payroll integration may ease the pain of this ongoing task. The solution that’s best for you will depend on a few different factors, however, here are the three most common approaches:

180° integration — Your payroll provider and 401(k) recordkeeper are integrated to share critical information on participant contributions. Data flows automatically from payroll to the recordkeeper, but only in one direction. Think of this like a 1-way street.

360° integration — Similar set up as 180° integration, but data flows in both directions between the payroll firm and the 401(k) recordkeeper, like a 2-way street.

Third Party Services — You could alternatively choose to delegate the responsibility to a Third Party. This would be similar to calling an Uber to get you where you need to go, you don’t have to worry about which streets go which direction.

Following Plan Documents
Failure to follow plan documents has been cited as one of the top 3 ERISA violations.[i] In the landmark case of Tussey v. ABB, Inc., some pretty steep penalties were paid: $36.9 million in damages was awarded to plan participants.  Among the fiduciary violations was failure to follow the terms of plan documents.[ii]

Fortunately, you can learn from this case and with a bit of guidance, you may be able to avoid that same fate. If it has been a while, consider dusting off and reviewing theses governing documents:

• plan document
• trust agreement
• service provider agreements
• committee by laws or charter
• investment policy statement (IPS)
• summary plan description (SPD)

If this important fiduciary step seems daunting, you are not alone. Documents can be difficult to decipher as they are often written in tedious legal language and can be hundreds of pages long. (Your advisor can help with this process.)

One of the most heavily utilized and referenced items on that list is a condensed version of your plan document, a “Summary Plan Description”. An SPD is a summary of the key features of your 401(k) plan and eases understanding, allowing its use for participant education and administrative reminders as needed.

We have developed an abridged version that outlines some of the most referenced items such as eligibility timeline, enrollment periods, and distributions. Download our free template by clicking the button below.

Employee Education
How often are you approached with technical questions about your company’s retirement plan? Did you know that the simple act of discussing certain aspects of the company retirement plan with your employees could open you up to fiduciary risk? This a job for your advisor, not a burden you should have to bear. We understand that vesting schedules, risk tolerance, retirement income replacement ratios, social security integration, and non-qualified deferred compensation contributions are not your full-time job.  As Retirement Specialists, this is what we do! We are licensed and available to answer the complex questions your employees may have. 

Many of the tasks involved in plan administration can seem time consuming, tedious or just an outright pain in the neck at times. However, we like to look at these responsibilities as a safeguard and believe that, if done right, they may help you dodge fiduciary nightmares. For more information on how Financial Management Network can help relieve some of your administrative stress, contact us today!

[i] Donaldson, David. “Plan Management: Through the Eyes of a Former DOL Senior Investigator.” ERISA Smart. 2015.
[ii] Wagner, Marcia. “Legal Update: Tussey vs. ABB, Inc.” Jan. 2015.

Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.

The Top DC Advisor Firms is an independent listing produced annually (September 2017) by The National Association of Plan Advisors(NAPA). The NAPA Top DC Advisor Firms is a compilation of leading individual advisor Firms, or teams, ranked by DC assets under advisement. This award does not evaluate the quality of services provided to clients and is not indicative of this advisor’s future performance. Neither the advisors nor their parent firms pay a fee to NAPA in exchange for inclusion on this list.

The “Top 100 Retirement Plan Advisers 2016” list by PLANADVISER Magazine recognizes individuals, teams, and multi-office teams according to quantitative measures, including the dollar value of qualified plan assets under advisement as well as the number of plans under advisement. Nominations were solicited online from retirement plan advisers, their employers and/or broker/dealers, and plan sponsors, as well as from working partners of these advisers, including investment vendors, accountants and attorneys, and pension administrators.

The Financial Times 401 Top Retirement Plan Advisors is an independent listing produced by the Financial Times (September 2016). The FT 401 is based on data gathered from financial advisors, regulatory disclosures, and the FT’s research. The listing reflects each advisor’s status in seven primary areas, including DC plan assets under management, growth in DC plan business, specialization in DC plan business, and other factors. This award does not evaluate the quality of services provided to clients and is not indicative of this advisor’s future performance. Neither the advisors nor their parent firms pay a fee to Financial Times in exchange for inclusion in the FT 401.

Debunking 401(K) Myths

DEBUNKING 401(K) MYTHS

Myth #1: “We’re all set”

Over our years working with business owners and employers, we’ve encountered a number of common myths that plan sponsors hold on to despite proof to the contrary. These myths can be harmful to plan sponsors and employees alike, and here we aim to debunk some of the most frequently occurring offenders.

 Myth #1: “We’re all set.” Plan sponsors use this phrase often to describe their level of satisfaction with their plan. It also serves as a roadblock to any discussion regarding potential improvements to their retirement plan offerings. “We’re all set” – “everything is fine; nothing needs to be changed.” Unfortunately, this is generally anything but the case. There are two key elements that demand careful examination: fiduciary awareness and retirement readiness.

 FIDUCIARY AWARENESS
Nearly half (49%) of plan sponsors don’t recognize their status as fiduciaries.[1] Unawareness of your position and/or responsibilities is a good way to get hit with unexpected complications down the road. Here’s a quick guide to help you determine whether you are a fiduciary, and if so, what your responsibilities are:

Am I a fiduciary?

1.      Are you named in plan documents as a fiduciary?
2.      Do you exercise control over the management or administration of the plan or its assets?
3.      Do you provide ongoing investment management or advice to the plan or plan participants?
4.      Do you select or supervise other plan fiduciaries?
5.      Do you sit on a committee that manages the plan?

 What are my responsibilities as a fiduciary?[2]

1.      Act solely in the interest of plan participants and their beneficiaries.
2.      Prudently carry out your duties.
3.      Follow plan documents (unless inconsistent with ERISA).
4.      Diversify plan investments.
5.      Pay only reasonable plan expenses  .

 RETIREMENT READINESS
How prepared are your employees to retire? According to BlackRock’s annual DC Survey, plan participants are almost universally confident about their overall financial situation, but over half of plan sponsors are concerned:

This startling gap in confidence might stem from many factors. Many employees might simply not know enough to accurately evaluate their financial situation; 81% of Americans say they aren’t sure how much money they'll actually need in retirement. [4]  Alternately, they might believe that plan sponsors are solely responsible for their retirement: during a recent employee education meeting, we were approached by an employee who asked, “isn’t the company required to pay for everything?” After addressing the employees’ misconceptions, we worked with the plan sponsor to implement automatic plan design features and rolled out a more robust employee education program to help motivate savings.

 Plan Design

As a plan sponsor, you control one of the most powerful savings vehicles available to your employees. To help your employees harness that power, you might consider enhancing your plan with Auto-Increase, or an enhanced employer matching formula.

 Auto-Increase allows participants to automatically increase contributions little by little each year– typically by 1%. One percent per year may not seem like much, but it adds up over time!

*This illustration uses a hypothetical 7% rate of return. It is not representative of any specific situation and your results will vary. The hypothetical rate of return used does not reflect the deduction of fees and charges inherent to investing.

If your plan uses a typical match formula of dollar-for-dollar up to 3% of pay, you might want to consider Stretching the Match. For example, you could match fifty cents on the dollar up to 6% of pay. This simple scenario would increase employee savings while keeping employer contributions the same (3% of pay).

Employee Education
Employee education sessions can be effective! The secret is to make them relevant to your employees: use the time to get them excited about financial wellness programs and incentives, incorporate retirement readiness concepts, discuss auto-features and match formulas, and even debunk some common 401(k) myths (e.g. “isn’t the company required to pay for everything?”)

 Understanding and fulfilling your fiduciary duties and moving your employees toward retirement readiness are two ways to help ensure that your plan truly is “all set.” But these aren’t “one-and-done” tasks. We work closely with employers to help them meet their fiduciary duties and keep their employees educated and engaged. For more information on how Financial Management Network can help you build a prudent fiduciary process and dynamic employee education, contact us today!

 [1] AllianceBernstein L.P. " Inside the Minds of Plan Sponsors" A/B Research. Dec 2017.

[2] Department of Labor. “Meeting Your Fiduciary Responsibilities.” DOL.gov. Sept. 2017.

[3] BlackRock. “2018 DC Pulse Survey.” March 2018.

[4] Age Wave/Merrill Lynch, "Finances in Retirement: New Challenges, New Solutions," 2017.

[i] Donaldson, David. “Plan Management: Through the Eyes of a Former DOL Senior Investigator.” ERISA Smart. 2015. 

[ii] Wagner, Marcia. “Legal Update: Tussey vs. ABB, Inc.” Jan. 2015.

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Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.
The Top DC Advisor Firms is an independent listing produced annually (September 2017) by The National Association of Plan Advisors(NAPA). The NAPA Top DC Advisor Firms is a compilation of leading individual advisor Firms, or teams, ranked by DC assets under advisement. This award does not evaluate the quality of services provided to clients and is not indicative of this advisor’s future performance. Neither the advisors nor their parent firms pay a fee to NAPA in exchange for inclusion on this list.
The “Top 100 Retirement Plan Advisers 2016” list by PLANADVISER Magazine recognizes individuals, teams, and multi-office teams according to quantitative measures, including the dollar value of qualified plan assets under advisement as well as the number of plans under advisement. Nominations were solicited online from retirement plan advisers, their employers and/or broker/dealers, and plan sponsors, as well as from working partners of these advisers, including investment vendors, accountants and attorneys, and pension administrators.
The Financial Times 401 Top Retirement Plan Advisors is an independent listing produced by the Financial Times (September 2016). The FT 401 is based on data gathered from financial advisors, regulatory disclosures, and the FT’s research. The listing reflects each advisor’s status in seven primary areas, including DC plan assets under management, growth in DC plan business, specialization in DC plan business, and other factors. This award does not evaluate the quality of services provided to clients and is not indicative of this advisor’s future performance. Neither the advisors nor their parent firms pay a fee to Financial Times in exchange for inclusion in the FT 401.

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Could Education Debt Shrink Your Social Security Income? $1.1 billion has been garnished from retirement benefits to pay back old student loans.

Provided by Ryan Maroney, CFP®

Do you have a federal student loan that needs to be repaid? You may be surprised at what the government might do to collect that money someday, if it is not paid back soon enough.
   
If that debt lingers too long, you may find your Social Security income reduced. So far, the Department of the Treasury has carved $1.1 billion out of Social Security benefits to try and reduce outstanding student loan debt. It has a long way to go: of that $1.1 billion collected, more than 70% has simply been applied to fees and interest rather than principal.1,2
 
How many baby boomers & elders are being affected by these garnishments? Roughly 114,000 Social Security recipients older than 50. In the big picture, that number may seem insignificant. After all, 22 million Americans have outstanding federal student loans.1,2,3
   
What is not insignificant is how quickly the ranks of these seniors have increased. According to the Government Accountability Office, the number of Americans older than 65 who have been hit with these income cuts has risen 540% since 2006.2
 
A college education is no longer an experience reserved for the young. As older adults have retrained themselves for new careers or sought advanced degrees, they have assumed more education debt. 
  
The financial strain of this mid-life college debt is showing. Since 2005, the population of Americans aged 65 or older with outstanding education loans has grown 385%. The GAO says roughly three-quarters of those loans have been arranged for the borrower’s own higher education.2
  
Separately, data from the Federal Reserve Bank of New York shows that student loan balances held by Americans older than 60 grew from $6 billion in 2004 to $58 billion in 2014. No other age group saw education debt accumulate so dramatically in that time.1
 
In 2015, the GAO found that a majority of federally backed student loans held by borrowers older than 75 were in default – that is, a year or more had transpired without a payment. Overall, just one in six federal student loans are in default.1,3
  
Paying off a student loan in retirement is a real challenge. Household cash flow may not readily allow it, and the debt may not be top of mind. Even declaring bankruptcy may not relieve you of the obligation. The Treasury has the authority to garnish as much as 15% of your Social Security income to attack the debt, and it can claim federal tax refunds and wages as well.1
  
Is this the right way to solve this problem? It seems like cruel and unusual financial punishment to some. Taking a 5%, 10%, or 15% bite of a retiree’s monthly Social Security benefit is harsh – possibly harsh enough to induce poverty.
  
In 2015, more than 67,000 people age 50 and older carrying unsettled federal student loans had their Social Security benefits taken below the poverty level because of these income reductions. A Social Security recipient is allowed to retain at least $750 of a garnished monthly benefit – but that $750 minimum has never been adjusted for inflation since that rule was established in 1996. Last year, the federal government defined the poverty level at monthly income of $990 for an individual.2
  
Some people file for Social Security without knowing that they have unpaid student loans. As the GAO notes, 43% of the borrowers that had their Social Security incomes docked because of this issue had loans originated at least 20 years earlier.2
   
Is some forgiveness in order? That can be debated. A student loan is not a gift, and a student borrower is tasked to understand its terms. On the other hand, it is a pity to see people go back to school or train themselves for new careers at 40 or 50 only to carry student debt past their peak income years into retirement.  
     
Ryan Maroney, CFP® may be reached at 949-455-0300

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
  
     
Citations.
1 - time.com/money/3913676/student-debt-into-retirement/ [6/30/15]
2 - marketwatch.com/story/more-borrowers-are-losing-social-security-benefits-over-old-student-loans-2016-12-20 [12/20/16]
3 - time.com/money/4284940/student-loan-payments-debt-college/ [4/7/16]

Do Our Attitudes About Money Help or Hurt Us? We may need to change them to better our financial prospects.

Provided by: Financial Management Network

Our relationship with money is complex & emotional. When we pay a bill, go to the mall, trade in a car for a new one, hunt for a home or apartment, or pass someone seemingly poor or rich on the street, we feel things and harbor certain perceptions.

Are our attitudes about money inherited? They may have been formed when we were kids. We watched what our parents did with their money, and how they managed it. We were told how important it was – or, perhaps, how little it really mattered. Parental arguments over money may be ingrained in our memory.

This history has an effect. Some of us think of money, finance, investing, and saving in terms of getting ahead, in terms of opportunity. Others associate money and financial matters with family struggles or conflicts. Our family history is not responsible for our entire attitude about money – but it is, undoubtedly, an influence.

Our grandparents (and, in some cases, our parents) were never really taught to think of “retirement planning.” Just a century ago, the whole concept of “retiring” would have seemed weird to many Americans. You worked until you died, or until you were physically unable to do your job. Then, Social Security came along, and company pensions for retired workers. The societal expectation was that with a company pension and Social Security, you weren’t going to be impoverished in your “old age.” 

Very few Americans can make such an assumption today. Many are unaware of the scope of retirement planning they need to undertake. An alarming 54% of pre-retiree respondents to a 2016 Prudential Financial survey had no clue how much they needed to save for retirement. Additionally, 54% had balances of less than $150,000 in their workplace retirement plans. Have they been lulled into a false sense of security? Did they inherit the attitude that when you retire in America, Social Security and a roof over your head will be enough?1

How can pessimistic attitudes about money, saving, & investing be changed? Perhaps the first step is to recognize that we may have inherited them. Do they stem from our own experience? Or are we simply cluttering our minds with the bad experiences and negative assumptions of years ago?

Very few Americans can make such an assumption today. Many are unaware of the scope of retirement planning they need to undertake. An alarming 54% of pre-retiree respondents to a 2016 Prudential Financial survey had no clue how much they needed to save for retirement. Additionally, 54% had balances of less than $150,000 in their workplace retirement plans. Have they been lulled into a false sense of security? Did they inherit the attitude that when you retire in America, Social Security and a roof over your head will be enough?1
 
How can pessimistic attitudes about money, saving, & investing be changed? Perhaps the first step is to recognize that we may have inherited them. Do they stem from our own experience? Or are we simply cluttering our minds with the bad experiences and negative assumptions of years ago? 
    
One example of this leaps readily to mind. Earlier this year, Bankrate surveyed investors per age group and learned that just 33% of millennials (Americans aged 18-35) owned any equities, while 51% of Gen Xers did. (That actually represented a dramatic increase: in 2015, only 26% of millennials were invested in equities.)2,3
 
College loan debt and early-career incomes aside, millennials watched equity investments, owned by their parents, crash in the 2007-09 bear market. Some are quite cynical about the financial world. A 2015 Harvard University study showed that a mere 14% of respondents aged 18-29 felt that Wall Street firms "do the right thing all or most of the time” as they conduct business.3
  
How do you feel about money? What were you taught about it when you were growing up? Did your parents look at money positively or negatively? These questions are worth thinking about, for they may shape your relationship with money – and saving and investing – here and now.  

Very few Americans can make such an assumption today. Many are unaware of the scope of retirement planning they need to undertake. An alarming 54% of pre-retiree respondents to a 2016 Prudential Financial survey had no clue how much they needed to save for retirement. Additionally, 54% had balances of less than $150,000 in their workplace retirement plans. Have they been lulled into a false sense of security? Did they inherit the attitude that when you retire in America, Social Security and a roof over your head will be enough?1
 
How can pessimistic attitudes about money, saving, & investing be changed? Perhaps the first step is to recognize that we may have inherited them. Do they stem from our own experience? Or are we simply cluttering our minds with the bad experiences and negative assumptions of years ago? 
    
One example of this leaps readily to mind. Earlier this year, Bankrate surveyed investors per age group and learned that just 33% of millennials (Americans aged 18-35) owned any equities, while 51% of Gen Xers did. (That actually represented a dramatic increase: in 2015, only 26% of millennials were invested in equities.)2,3
 
College loan debt and early-career incomes aside, millennials watched equity investments, owned by their parents, crash in the 2007-09 bear market. Some are quite cynical about the financial world. A 2015 Harvard University study showed that a mere 14% of respondents aged 18-29 felt that Wall Street firms "do the right thing all or most of the time” as they conduct business.3
  
How do you feel about money? What were you taught about it when you were growing up? Did your parents look at money positively or negatively? These questions are worth thinking about, for they may shape your relationship with money – and saving and investing – here and now.  

How do you feel about money? What were you taught about it when you were growing up? Did your parents look at money positively or negatively? These questions are worth thinking about, for they may shape your relationship with money – and saving and investing – here and now.  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - businessinsider.com/reasons-for-americas-retirement-crisis-2016-11 [11/29/16]

2 - ibtimes.com/should-you-invest-stock-market-why-millennials-might-be-missing-out-when-it-comes-2389589 [7/6/16]

3 - thestreet.com/story/13135109/1/why-millennials-dont-trust-wall-street-or-investing-in-stocks.html [5/2/15]

Retirement Planning for Single Parents. It is a challenge – and it must be met.

How does a single parent plan for retirement? Diligently. Regularly. Rigorously. Here are some steps that may help, whether you are just beginning to do this or well on your way.

Setting a household budget can be a wise first step. Most households live without budgets – and because of that financial inattention, some of the money they could save and invest routinely disappears. When you set and live by a budget, you discipline yourself to spend only so much and save (or invest) some of the rest. You need not track every single expense, but try and track your expenses by category. You may find money to save as a result.

Save first, invest next. If you are starting from scratch, creating an emergency fund should be the first priority. It should grow large enough to meet 6-9 months of living expenses. If no financial emergency transpires, then you will end up with a cash reserve for retirement as well as investments.

You may want to invest less aggressively than you once did. Young, married couples can take on a lot of risks as they invest. Divorcees or widowers may not want to – there can be too much on the line, and too little time left to try and recoup portfolio losses. To understand the level of risk that may be appropriate for you at this point in life, chat with a financial professional.  

There may be great wisdom in “setting it and forgetting it.” Life will hand you all manner of distractions, including financial pressures to distract you from the necessity of retirement saving. You cannot be distracted away from this. So, to ward off such a hazard, use retirement savings vehicles that let you make automatic, regular contributions. Your workplace retirement plan, for example, or other investment accounts that allow them. This way, you don’t have to think about whether or not to make retirement account contributions; you just do.

Do you have life insurance or an estate plan? Both of these become hugely important when you are a single parent. Any kind of life insurance is better than none. If you have minor children, you have the option of creating a trust and naming the trust as the beneficiary of whatever policy you choose. Disability insurance is also a good idea if you work in a physically taxing career. Name a guardian for your children in case the worst happens.1

Have you reviewed the beneficiary names on your accounts & policies? If you are divorced or widowed, your former spouse may still be the primary beneficiary of your IRA, your life insurance policy, or your investment account. If beneficiary forms are not updated, problems may result.  

College planning should take a backseat to retirement planning. Your child(ren) will need to recognize that when it comes to higher education, they will likely be on their own. When they are 18 or 20, you may be 50 or 55 – and the average retirement age in this country is currently 63. Drawing down your retirement accounts in your fifties is a serious mistake, and you should not entertain that idea. Any attempt to build a college fund should be secondary to building and growing your retirement fund.2    

Realize that your cash flow situation might change as retirement nears. Your household may be receiving child support, alimony, insurance payments, and, perhaps, even Social Security income. In time, some of these income streams may dry up. Can you replace them with new ones? Are you prepared to ask for a raise or look for a higher-paying job if they dry up in the years preceding your retirement? Are you willing to work part-time in retirement to offset that lost income? 

Consult a financial professional who has worked with single parents. Ask another single parent whom he or she turns to for such consulting, or seek out someone who has written about the topic. You want to plan your future with someone who has some familiarity with the experience, either personally or through helping others in your shoes.

Provided by Ryan Maroney, CFP®       

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - cnbc.com/2016/07/20/5-winning-money-strategies-for-single-parents.html [7/20/16]

2 - aol.com/article/2016/05/03/the-average-retirement-age-in-all-50-states/21369583/ [5/3/16]

Holiday Wrap-Up: A Look Back at 2016 Thus Far

Presented by: Ryan Maroney, CFP®

The year in brief. Investors will likely remember 2016 as a year of two momentous votes and one monetary policy decision. This year brought the Brexit referendum in the United Kingdom and a surprise presidential election victory for Donald Trump, and it now appears probable that the Federal Reserve will raise interest rates in December. As Thanksgiving week began, the S&P 500 sat comfortably near 2,200, while the Dow Jones Industrial Average pushed toward breaking 19,000. Some analysts felt both indices would post single-digit advances in 2016, but they may yet surpass those expectations – the S&P was up 7.3% YTD when Thanksgiving week started, and the Dow had advanced 8.6% YTD. Some major overseas indices were also in line for nice 2016 gains. Away from the equity markets, 2016 has been a fine year for commodities, with oil prices rebounding, and a great year for home sales. Investors approached the holidays in a bullish mood.1

Domestic economic health. Economically speaking, 2016 resembles 2015: a poor first quarter, then improved GDP in succeeding quarters. An anemic 0.8% GDP reading for Q1 preceded 1.4% growth in Q2 and a 2.9% rate of expansion in Q3 (a two-year high).2

The headline jobless rate had been at 5.0% in December 2015; by May 2016, it had descended to 4.7%. Then it rose and fell again to end up at 4.9% in October. The U-6 rate, measuring underemployment as well as unemployment, jumped 0.7% to 10.5% in January, but fell to 9.2% by October.3,4

On Main Street, the pace of consumer spending flattened in March, jumped 1.1% in April, retreated 0.1% in August, and then advanced 0.5% in September to close out the third quarter. Consumer sentiment indexes drifted lower as the year unfolded. The University of Michigan’s household sentiment index ended 2015 at 92.6 and was one point lower by October 2016; its 2016 high point of 94.7 came in May. The reading on the Conference Board’s consumer confidence gauge has varied from 92.4 to 103.5 this year; at 98.6 in October, it was 2.3 points higher than where it was in December.5,6,7

The Institute for Supply Management’s twin purchasing manager indices, tracking the growth of American manufacturing and services firms, showed the sectors in good shape. ISM’s non-manufacturing PMI went from 55.8 in December 2015 to 54.8 ten months later; despite the decline, the distance above the 50 mark indicates a solid rate of expansion. The Institute’s manufacturing PMI came in at 51.9 in October, up from 48.0 last December.8,9

By October, annualized consumer inflation had hit 1.6%, the highest level since October 2014. Energy prices increased 3.5% in October, their largest monthly jump in more than three years (gas prices rose 7.0% last month).10

At this writing, the Federal Reserve seems poised to increase the benchmark interest rate in December. This month, Fed chair Janet Yellen told Congress that a rate move could occur “relatively soon,” calling current monetary policy “only moderately accommodative.”11

Global economic health. This past summer, voters in the United Kingdom decided that the country should leave the European Union. This seismic geopolitical event has yet to play out, but the time frame for it has been established: U.K. Prime Minister Theresa May says that she will invoke Article 50 of the Lisbon Treaty in March 2017 at the latest, paving the way for the nation’s exit from the E.U. by summer 2019.12

The eurozone economy did not fall apart in the wake of the vote. Its annualized GDP rate was at 1.4% when the third quarter ended (its Q3 GDP advance was 0.3%), and its yearly inflation was still minimal – just 0.5% as of October. Some economists are expecting things to pick up in Q4.13

The Philippines has replaced China at the top of the economic growth rankings for the Asia Pacific region. Its Q3 GDP stood at 7.1% versus 6.7% for the P.R.C.14

China’s own economy showed signs of renewed strength this fall. In October, its industrial output rose 6.1%; that marked the sixth straight month of gains of 6.0% or greater. In October, the Republic’s official non-manufacturing PMI showed the Chinese service sector growing at the fastest pace in four months.15

World markets. By November, major YTD gains had been amassed by three emerging market indices: Russia’s RTS was up 30.9% for the year as of November 18; Brazil’s Bovespa, 38.3%; and Argentina’s MERVAL, 40.3%. The Nikkei 225 and Shanghai Composite were respectively down 5.6% and 9.8% for the year on that date; Hong Kong’s Hang Seng and India’s Sensex had respectively advanced but 2.0% and 0.1% YTD. Pakistan’s KSE 100 was setting the pace for Asia Pacific benchmarks at a gain of 29.0%. Most major European indices were in the red YTD as Thanksgiving week started. The Stoxx Europe 600 was down 7.2% for the year; France’s CAC-40, down 2.9%; Germany’s DAX, off 0.7%; and Spain’s IBEX 35, in the red 9.7%. The U.K.’s FTSE 100 was a notable exception at +8.5% YTD.16 

Commodities markets. The dollar strengthened notably in the fall, taking the U.S. Dollar Index to a close of 101.41 on November 18. A year earlier, it had settled at 99.61. More than ten months into 2016, oil and gold were having a very good year – on November 21, WTI crude was up 13.7% from where it had been a year ago, while the yellow metal had risen 13.0% YOY.17,18

How were other key commodities faring as Thanksgiving approached? Here is a quick rundown of YOY performance: corn, -5.1%; soybeans, +17.8%; wheat, -17.1%; cocoa, -27.2%; coffee, +32.6%; cotton, +17.7%; sugar, +30.8%; heating oil, +10.9%; natural gas, +33.1%; unleaded gas, +6.6%; silver, +17.5%; platinum, +8.6%; copper, +24.7%.18

Real estate. Data from the National Association of Realtors showed existing home sales up 0.6% YOY through the end of the third quarter, maintaining a very healthy 5.47 million annual sales pace. New home purchases increased 29.8% during the year ending in September, according to the Census Bureau, with the annual pace of sales at 593,000.19,20

Regarding construction, additional Census Bureau data reveals the pace of housing starts increased 23.3% between October 2015 and October 2016. The rate of permits issued for builders rose 4.6% in that 12-month window. NAR recently stated that the year ending in September saw a 2.4% gain in housing contract activity.21,22

Mortgage rates descended in the middle of 2016, but by late fall, they were close to where they had been a year ago. Interest on a 30-year fixed-rate loan averaged 3.94% in Freddie Mac’s November 17 Primary Mortgage Market Survey, while average interest on a 15-year fixed-rate loan was at 3.14%. In Freddie’s November 19, 2015 survey, a conventional home loan carried an average interest rate of 3.97% and interest on the 15-year FRM averaged 3.18%.23,24

Looking back...looking forward. The Dow, S&P 500, Nasdaq Composite, and Russell 2000 all closed at record highs 72 hours before Thanksgiving. Could the Dow hit 20,000 sometime in early 2017? Will major changes in the federal tax code soon occur? Will American productivity and growth continue to increase? All of this could happen in the coming months or years; in the meantime, investors can be thankful that the market has exceeded some expectations in 2016.25

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

«RepresentativeDisclosure»

Citations.

1 - markets.wsj.com/us [11/21/16]

2 - tradingeconomics.com/united-states/gdp-growth [11/21/16]

3 - ncsl.org/research/labor-and-employment/national-employment-monthly-update.aspx [11/21/16]

4 - ycharts.com/indicators/us_u_6_unemployment_rate_unadjusted [11/21/16]

5 - tradingeconomics.com/united-states/personal-spending [11/21/16]

6 - tradingeconomics.com/united-states/consumer-confidence [11/21/16]

7 - bloomberg.com/quote/CONCCONF:IND [11/21/16]

8 - instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm [11/3/16]

9 - instituteforsupplymanagement.org/ISMReport/MfgROB.cfm [11/1/16]

10 - tradingeconomics.com/united-states/inflation-cpi [11/21/16]

11 - marketwatch.com/story/yellen-says-fed-may-hike-interest-rates-relatively-soon-2016-11-17 [11/17/16]

12 - bbc.com/news/uk-politics-37710786 [10/22/16]

13 - nytimes.com/2016/11/01/business/international/europe-economy-gdp.html [11/1/16]

14 - asianjournal.com/news/the-philippines-is-fastest-growing-economy-in-asia/ [11/20/16]

15 - tinyurl.com/gsjro36 [11/20/16]

16 - online.wsj.com/mdc/public/page/2_3022-intlstkidx.html [11/21/16]

17 - marketwatch.com/investing/index/dxy/historical [11/21/16]

18 - money.cnn.com/data/commodities/ [11/21/16]

19 - ycharts.com/indicators/existing_home_sales [11/21/16]

20 - marketwatch.com/story/new-home-sales-run-at-annual-593000-rate-in-september-as-market-grinds-slowly-higher-2016-10-26 [10/26/15]

21 - census.gov/construction/nrc/pdf/newresconst.pdf [11/17/16]

22 - tradingeconomics.com/united-states/pending-home-sales [11/21/16]

23 - freddiemac.com/pmms/archive.html [11/21/16]

24 - freddiemac.com/pmms/archive.html?year=2015 [11/21/16]

25 - marketwatch.com/story/wall-street-stocks-set-to-struggle-for-direction-in-a-holiday-shortened-week-2016-11-21/ [11/21/16]

Dow Closes Near Record High After Trump Victory

A day after Donald Trump’s election win, Wall Street experienced a surprising upswing. It was feared the market would plunge on November 9 since many investors were anticipating Hillary Clinton to triumph in the presidential race. Quite the opposite happened. 

As the trading day ended, the Dow Jones Industrial Average notched a close of 18,589.69, thanks to a 256.95 gain. The Nasdaq Composite rose 57.58 to a close of 5,251.07, while the S&P 500 settled at 2,163.26 after a 23.70 jump. Gold futures gained 0.29% to $1,278.20; light sweet crude futures rose 0.80% on the NYMEX to settle at $45.34. Meanwhile, bond prices fell and the yield on the 10-year Treasury rose to 2.08% Wednesday.1,2

The key European markets also seemed to be accepting the idea of a Trump presidency with relative calm. November 9 saw gains of 1.56% for Germany’s DAX index, 1.49% for France’s CAC-40, and 1.00% for the United Kingdom’s FTSE 100. The Stoxx Europe 600 advanced 1.46%.1

This did not apply for the important Asian markets, where the trading day ended hours before action on Wall Street began. The biggest loser among the indices was the Nikkei 225. The Japanese benchmark slid 5.36%. Lesser losses were incurred by Hong Kong’s Hang Seng (2.16%), India’s Sensex (1.23%), and China’s Shanghai Composite (0.62%).1

Why did Wall Street turn so bullish a day after the upset? Credit was quickly given to the victory speech Trump delivered very early Wednesday morning. In speaking to the Associated Press, Eric Weigard, senior portfolio manager at U.S. Bank’s Private Client Reserve, noted Trump’s “remarkably conciliatory posture,” which communicated a “presidential disposition, and gave a greater sense of calm.” Also, some institutional investors saw a buying opportunity: billionaire Carl Icahn told Bloomberg he was devoting about $1 billion to equities on Wednesday. “People are starting to realize that a Trump presidency is not the end of the world,” remarked Tom di Galoma, managing director of trading at Seaport Global Securities. Investors are hoping the optimism displayed on Wall Street Wednesday will be sustained.2

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - markets.wsj.com/us [11/9/16]

2 - stltoday.com/business/local/u-s-stocks-rally-following-trump-victory-dow-closes-just/article_250baf34-2237-5cee-a725-c1f2d2dc0415.html [11/9/16]

Tax Planning for the Self-Employed

Self-employment is the opportunity to be your own boss, to come and go as you please, and oh yes, to establish a lifelong bond with your accountant. If you're self-employed, you'll need to pay your own FICA taxes and take charge of your own retirement plan, among other things. Here are some planning tips.

Understand self-employment tax and how it's calculated

As a starting point, make sure that you understand (and comply with) your federal tax responsibilities. The federal government uses self-employment tax to fund Social Security and Medicare benefits. You must pay this tax if you have more than a minimal amount of self-employment income. If you file a Schedule C as a sole proprietor, independent contractor, or statutory employee, the net profit listed on your Schedule C (or Schedule C-EZ) is self-employment income and must be included on Schedule SE, which is filed with your federal Form 1040. Schedule SE is used both to calculate self-employment tax and to report the amount of tax owed.

Make your estimated tax payments on time to avoid penalties

Employees generally have income tax, Social Security tax, and Medicare tax withheld from their paychecks. But if you're self-employed, it's likely that no one is withholding federal and state taxes from your income. As a result, you'll need to make quarterly estimated tax payments on your own (using IRS Form 1040-ES) to cover your federal income tax and self-employment tax liability. You may have to make state estimated tax payments, as well. If you don't make estimated tax payments, you may be subject to penalties, interest, and a big tax bill at the end of the year. For more information about estimated tax, see IRS Publication 505.

If you have employees, you'll have additional periodic tax responsibilities. You'll have to pay federal employment taxes and report certain information. Stay on top of your responsibilities and see IRS Publication 15 for details.

Employ family members to save taxes

Hiring a family member to work for your business can create tax savings for you; in effect, you shift business income to your relative. Your business can take a deduction for reasonable compensation paid to an employee, which in turn reduces the amount of taxable business income that flows through to you. Be aware, though, that the IRS can question compensation paid to a family member if the amount doesn't seem reasonable, considering the services actually performed. Also, when hiring a family member who's a minor, be sure that your business complies with child labor laws.

As a business owner, you're responsible for paying FICA (Social Security and Medicare) taxes on wages paid to your employees. The payment of these taxes will be a deductible business expense for tax purposes. However, if your business is a sole proprietorship and you hire your child who is under age 18, the wages that you pay your child won't be subject to FICA taxes.

As is the case with wages paid to all employees, wages paid to family members are subject to withholding of federal income and employment taxes, as well as certain taxes in some states.

Establish an employer-sponsored retirement plan for tax (and nontax) reasons

Because you're self-employed, you'll need to take care of your own retirement needs. You can do this by establishing an employer-sponsored retirement plan, which can provide you with a number of tax and nontax benefits. With such a plan, your business may be allowed an immediate federal income tax deduction for funding the plan, and you can generally contribute pretax dollars into a retirement account. Contributed funds, and any earnings, aren't subject to federal income tax until withdrawn (as a tradeoff, tax-deferred funds withdrawn from these plans prior to age 59½ are generally subject to a 10 percent premature distribution penalty tax--as well as ordinary income tax--unless an exception applies). You can also choose to establish a 401(k) plan that allows Roth contributions; with Roth contributions, there's no immediate tax benefit (after-tax dollars are contributed), but future qualified distributions will be free from federal income tax. You may want to start by considering the following types of retirement plans:

• Keogh plan
• Simplified employee pension (SEP)
• SIMPLE IRA
• SIMPLE 401(k)
• Individual (or "solo") 401(k)

The type of retirement plan that your business should establish depends on your specific circumstances. Explore all of your options and consider the complexity of each plan. And bear in mind that if your business has employees, you may have to provide coverage for them as well (note that you may qualify for a tax credit of up to $500 for the costs associated with establishing and administering such a plan). For more information about your retirement plan options, consult a tax professional or see IRS Publication 560.

Take full advantage of all business deductions to lower taxable income

Because deductions lower your taxable income, you should make sure that your business is taking advantage of any business deductions to which it is entitled. You may be able to deduct a variety of business expenses, including rent or home office expenses, and the costs of office equipment, furniture, supplies, and utilities. To be deductible, business expenses must be both ordinary (common and accepted in your trade or business) and necessary (appropriate and helpful for your trade or business). If your expenses are incurred partly for business purposes and partly for personal purposes, you can deduct only the business-related portion.

If you're concerned about lowering your taxable income this year, consider the following possibilities:

• Deduct the business expenses associated with your motor vehicle, using either the standard mileage allowance or your actual business-related vehicle expenses to calculate your deduction
• Buy supplies for your business late this year that you would normally order early next year
• Purchase depreciable business equipment, furnishings, and vehicles this year
• Deduct the appropriate portion of business meals, travel, and entertainment expenses
• Write off any bad business debts

Self-employed taxpayers who use the cash method of accounting have the most flexibility to maneuver at year-end. See a tax specialist for more information.

Deduct health-care related expenses

If you qualify, you may be able to benefit from the self-employed health insurance deduction, which would enable you to deduct up to 100 percent of the cost of health insurance that you provide for yourself, your spouse, and your dependents. This deduction is taken on the front of your federal Form 1040 (i.e., "above-the-line") when computing your adjusted gross income, so it's available whether you itemize or not.

Contributions you make to a health savings account (HSA) are also deductible "above-the-line." An HSA is a tax-exempt trust or custodial account you can establish in conjunction with a high-deductible health plan to set aside funds for health-care expenses. If you withdraw funds to pay for the qualified medical expenses of you, your spouse, or your dependents, the funds are not included in your adjusted gross income. Distributions from an HSA that are not used to pay for qualified medical expenses are included in your adjusted gross income, and are subject to an additional 20 percent penalty tax unless an exception applies.

Mind Over Money

Emotion often drives our financial decisions, even when logic should.

Provided By: Ryan Maroney, CFP®

When we go to the grocery store, we seldom shop on logic alone. We may not even buy on price. We buy one type of yogurt over another because of brand loyalty, or because one brand has more appealing packaging than another. We buy five bananas because they are on sale for 29 cents this week – the bargain is right there; why not seize the opportunity? We pick up that gourmet ice cream that everyone gets – if everyone buys it, it must be a winner.

As casual and arbitrary as these decisions may be, they are remarkably like the decisions many investors make in the financial markets.

A degree of emotion also factors into many of our financial choices. There is even a discipline devoted to how our emotions affect our financial decisions: behavioral finance. Examples of emotionally driven financial behaviors are all around us, especially in the investment markets.

Behavior #1: Believing future performance relates to past performance. In truth, there is no relation. If an investment yields 8-10% for six consecutive years, that does not mean it will yield 8-10% next year. Still, we may be lulled into expecting such performance – how can you go wrong with such a “rock solid” investment? In behavioral finance, this is called recency bias. Bullish investors tend to harbor it, and it may lead to irrational exuberance.1     

Similarly, investors adjust risk tolerance in light of past performance. If their portfolio returned spectacularly last year, they may be tempted to accept more risk this year. If they took major losses in the equity markets last year, they may become very risk-averse and get out of equities. Both behaviors assume the future will be like the past, when the future is really unknown.1

Behavior #2: Investing on familiarity. Familiarity bias encourages you to make investment or consumer choices that are “friendly” and comfortable to you, even when they may be illogical. You go with what you know, without investigating what you don’t know or looking at other options. Another example of familiarity bias is when you invest in a company or a sector largely because you are attracted to or familiar with its “story” – its history, its reputation.2

Behavior #3: Ignoring negative trends. This is known as the ostrich effect. We can ignore the reality of a correction or a bear market; we can ignore the fact that our credit card debt is increasing. Studies suggest that investors check in on their portfolios with less frequency during market slumps – they would rather not know the degree of damage.3

Behavior #4: Wanting decisions to pay off now. Patience tends to be a virtue in both equity investing and real estate investing, but we may suffer from hyperbolic discounting – a bias in which we want a quick payoff today rather than an even larger one that might result someday if we buy and hold.3

Behavior #5: Falling for a decoy. When given a third consumer choice, instead of two consumer choices, we may choose a different product than we originally would, and perhaps make a choice we would not have otherwise considered. Once, an ad in The Economist offered three kinds of subscriptions: $59 for online only, $159 for print only, and $159 for online + print. The $159 print-only option was an illustration of the decoy effect – the choice existed seemingly just to make the $159 online + print option look like a better deal.3

Behavior #6: Seeing patterns where none exist. This is called the clustering illusion. You see it in casinos where a slot machine pays out twice an hour, and people line up to play that “lucky” machine, which has, in fact, just paid out randomly. Some investors fall prey to it in the markets.3

Behavior #7: Following the herd. The more consumers or investors that subscribe to a particular belief, the greater the chance of other consumers or investors to join the herd, or “jump on the bandwagon,” for good or bad. This is the bandwagon effect.3

Behavior #8: Buying the amount of something that we are marketed. In our minds, we believe that there is an optimal amount of something per purchase. This is called unit bias, and when marketing suggests the ideal amount should be larger, we buy more of that product or service.3

There are dozens of biases we may harbor, temporarily or regularly, all subjects of study in the discipline of behavioral finance. Recognizing them may help us to become a better consumer, and even a better investor.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - marketwatch.com/story/a-financial-plan-to-help-you-simplify-and-succeed-2016-09-23 [9/23/16]

2 - abcnews.go.com/Business/stock-stories-fairy-tales/story?id=42529959 [10/3/16]

3 - businessinsider.com/cognitive-biases-2015-10 [10/29/15]