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Melissa Warwick

4 Tips to Save for Retirement

Don’t cash out retirement plans when changing employment

When you leave a job, the vested benefits in your retirement plan(s) are an enticing source of money. It may be difficult to resist the urge to take that money as cash, particularly if retirement is many years away. Generally you will have to pay federal income taxes, state income taxes, and a 10 percent penalty if under age 59½. This can cut into your investments significantly and negatively impact your retirement savings goals. In California, for example, with an estimated 8 percent state income tax, someone in the 28 percent federal tax bracket would lose 46 percent of the amount withdrawn. When changing jobs, generally you have three options to keep your retirement money invested – you can leave the money in your old employer’s plan, roll it over into an IRA, or transfer the money to your new employer’s plan.

Put time on your side

When you give your money more time to accumulate, the earnings on your investments, and the annual compounding of those earnings, can make a big difference in your final return. Consider a hypothetical investor named Martha who saved $2,000 per year for a little over eight years. Continuing to grow at 8 percent for the next 31 years, the value of the account grew to $279,781. Contrast that example with George, who put off saving for retirement for eight years, began to save a little in the ninth and religiously saved $2,000 per year for the next 31 years. He also earned 8 percent on his savings throughout. What is George’s account value at the end of 40 years? George ended up with the same $279,781 that Martha had accumulated, but George invested $63,138 to get there and Martha invested only $16,862!

Don’t count on Social Security

While politicians may talk about Social Security being protected, for anyone 50 or under, it is very likely that the program will be very different from its current form by the time you retire. According to the Social Security Administration, Social Security benefits represent about 34 percent of income for Americans over the age of 65. The remaining income comes predominately from pensions and investments. They also state that by 2035, the number of Americans 65 and older will increase from approximately 48 million today to over 79 million. While the dollars-and-cents result of this growth is hard to determine, it is clear that investing for retirement is a prudent course of action.

Work with a financial advisor

Historically, investors with a financial advisor have tended to “stay the course,” employing a long-term investment strategy and avoiding overreaction to short-term market fluctuations. A financial advisor also can help you determine your risk tolerance and assist you in selecting the investments that suit your financial needs at every stage of your life.








In addition to the options listed here, there may be other options available. You should also consider your other options before rolling over retirement savings. Consider the differences in investment options, services, fees and expenses, withdrawal options, required minimum distributions, other plan features, and tax treatment. This material is not intended to replace the advice of a qualified attorney, tax advisor, investment professional or insurance agent.
This is a hypothetical illustration and does not represent an actual investment. There is no guarantee similar results can be achieved. If fees had been reflected, the return would have been less.

Stocks Won

October 9, 2017 First Trust Monday Morning Outlook

Brian S. Wesbury – Chief Economist  ·  Robert Stein, CFA – Dep. Chief Economist  ·  Strider Elass – Economist

Today, October 9th is exactly ten years from the stock market peak before the Financial Panic of 2008.

Imagine that Doctor Doom, the perceived “best analyst in the business,” told you on that night, when markets peaked, that financial authorities would allow mark-to-market accounting rules to burn the banking system to the ground, with many well-known financial firms failing or being taken over by the government. You knew the unemployment rate was going to soar to 10% and the economy would experience the deepest recession since the 1930s. You also knew the US would soon elect a president that would socialize much more of the health care system, raise top income tax rates, and push the Medicare tax for high income earners up by an additional 3.8%. Finally, you knew that ten years later all of those new taxes and expanded health care policies would still be in place.

Then imagine you knew the federal debt would be more than 100% of GDP, with massive annual deficits predicted as far as the eye could see.

Then, imagine you were allowed one investment choice, a choice you had to stick to for the next ten years, through thick and thin, no reallocation allowed. Put all your investable assets in the S&P 500, a 10-year Treasury Note, gold, oil, housing, or cash. Pick just one of these assets and let your investment ride.

Which asset would you have picked? Be honest! In that environment, with that kind of foresight, right at a stock market peak, it would have been awfully tough to pick stocks.

And yet, on the basis of total return, over the last ten years, that’s the asset that did the best. Assuming no major shift in the next week, the S&P 500 has generated a total return (capital gains plus reinvested dividends) of 7.2% per year, essentially doubling in value in ten years.

Gold did well, but lagged stocks, increasing 5.7% per year. A 10-year Treasury Note purchased that night (now coming due), would have generated a yield of 4.7%. Oil was a laggard, down 4.3% per year. Home prices increased about 1% per year, on average, and “cash” averaged 0.4%, both trailing the 1.6% average gain in the consumer price index.

You might have slept better by investing in 4.7% Treasury Notes. Certainly the volatility of stocks, and the cascade of financial news headlines predicting doom and gloom over the past ten years, wouldn’t have bothered you as much. But you’d have fewer total assets today than if you would have kept the faith and stayed long stocks. And if you wanted to reinvest, now, for the next ten years, your rate would be roughly 2.3%.

If you knew exactly when to buy and sell each of these investments over the years, you could have done better, but no one did that and no one knew how to do that.

So, what’s our point? You would have been better off by ignoring all those pessimists who became famous in 2008-09. Investing in companies, and allowing world class business managers to use your money to build wealth, was once again the best investment strategy. Ten years on, we still think that’s true.

Read this article online at First Trust Economics Blog.

Consensus forecasts come from Bloomberg. This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

On the Other Hand…

Depending on what news feed you use these days we should all be frightened. With the many comings and goings at the White House and tensions on the Korean Peninsula, you would think we should all be in a state of fear.

However, the economic data says otherwise. While the US economy is not growing at its potential, things still look rosy.

In previous outlook letters I expressed concern with the ongoing federal budget deficit and high outstanding public debt.  White House policy issues and international tensions aside, our economy is not living up to its potential because high-levels of public debt bring about slower economic growth.

Since the financial crisis ended in 2009 US real gross domestic product has grown at an average annual rate of only 2.1 percent, compared to an average of 3.1 percent over the prior six decades.[1]

A one percent difference may not seem like much, but it has long-term consequences.  When the economy grows at 3 percent per year the living standards of the young are twice that of their parents.  But when the economy grows at only 2 percent it takes two generations before living standards double.  Slow economic growth leads to a “lost generation.”

This may be why we hear younger generations complaining about their prospects for a better life.

However, as we near the last quarter of 2017 economic and financial market indicators give a favorable economic outlook. Labor market conditions are strong, bond prices indicate low inflation expectations, and stock prices reflect good expectations for earnings growth.

At 4.3 percent, the U.S. unemployment rate is below what many economists consider normal. There is always some unemployment as new businesses start and old ones close, leading to displacement of some workers. Historically, a five percent unemployment rate is normal.

However, this below-normal rate has not been coupled with the normal rise in wages, and therefore living conditions. One explanation for this unusual result is that employees now receive more of their compensation in terms of benefits rather than wages. Over the past decade inflation-adjusted, total compensation has risen faster than the overall economy at 3.8 percent.[2]

The outlook for our cost of living, i.e. inflation, is also favorable. Interest rates on U.S. Treasury bills, notes, and bonds remain well below historical levels. The yield spread, or difference between rates on short-term and long-term US debt, predicts relatively low inflation for the next decade.[3]

Meanwhile, stock prices as measured by the Dow Jones Industrial Average are nearly 60 percent higher over the last decade. Higher stock valuations indicate expectations for either normal or higher than average economic growth.

So what should we be afraid of?

The big caveat to the favorable economic conditions described above is the ongoing presence of financial repression.

Financial repression occurs when government authorities channel funds from one area of the economy to another, most often by using the government’s own debt. Since 2008, large US Treasury debt purchases by the Federal Reserve and the continuing federal government deficit have suppressed risk measures in the stock market and created a higher than normal level of uncertainty in the overall economy.

After their most recent meeting, the Federal Reserve’s Open Market Committee (FOMC) announced plans for ending the practice of reinvesting the proceeds of US Treasuries that mature. As the Fed reduces its portfolio of bonds over time interest rates should rise, which implies stock values should fall, all else being equal. However, the FOMC said that this process would be gradual.[4]

While the Fed keeps supporting bond prices foreign investors continue to push up stock prices. The most recent data on foreign investment shows that the US is a favored destination for capital. The value of foreign holdings of U.S. equity securities continues to rise while the value of US holding of foreign equity securities declines.[5]

Funds are flowing to the capital markets of the United States because the outlook for economic growth is worse elsewhere. Financial repression is even higher in Japan and Europe, while also rising in the developing markets of China and elsewhere.

Indicators in the U.S. labor, bond, and stock markets may all look good relative to historical averages, but a deeper look tells a different story. For conditions in these markets to improve, and economic growth return to its 3 percent long-run average, financial repression must decline.

When government spending and public debt start declining, the labor and financial markets will reflect a truly healthy economy.

The views expressed here are those solely of the author and do not represent Northwest Nazarene University or R|W Investment Management.



Peter R. Crabb, Ph.D.

Professor of Finance and Economics

Department of Business and Economics

School of Business, Northwest Nazarene University

[email protected]




Dr. Crabb holds a Ph.D. in Economics from the University of Oregon and an MBA in Finance from the University of Colorado.  His research in economics and finance is published in the Journal of Business, the Journal of Microfinance, and the International Review of Economics and Finance, among others.  Dr. Crabb lives with his wife, Ann, and their four children in Canyon County, Idaho.

Dr. Crabb’s regular Financial Economics column is published by the Idaho Statesman. Previous work experience includes international trade, banking, and investments.










Qualified Versus Nonqualified Plans

For most employees, qualified retirement plans are a critical component of their retirement savings strategy. For others, qualified plans place restrictions on their utilization of such plans, so they have to look for other ways to save. That’s why employers often offer both qualified and nonqualified plans.

Why are there two classes of plans, and how do they differ?

In the simplest of terms, qualified plans qualify for favorable tax treatment if they meet specific requirements set forth in Internal Revenue Code (IRC) 401a and ERISA. Nonqualified plans comply with IRC 409A and are exempt from most parts of ERISA. Therefore, such plans don’t qualify for the same favorable tax treatment as qualified plans.

Qualified Retirement Plans

Qualified plans are broad-based employee retirement plans, meaning all employees who meet participation requirements are permitted to join the plan. The term “qualified plan” refers to two plan types: defined contribution and defined benefit. Examples of such plans are 401(k), 403(b), profit-sharing plans, pension plans, individual retirement accounts (IRAs), 457 plans and other retirement plans. The tax advantages of these plans to participants are that:

  • Contributions are deducted from taxable wages in the year in which they’re made
  • Accumulated earnings on those contributions are tax deferred
  • Account balances may be rolled over into a new employer’s plan or to an IRA upon termination of employment

Employers may also deduct contributions as wages in the year in which they’re made, and there are no taxable consequences to the employer on plan earnings.

Highly compensated employees are most often the senior leaders/executives in the organization. All employees who aren’t determined to be highly compensated (as defined by the IRC) may enjoy the full benefits offered by their plans. For 401(k) plans, the broad base of employees may contribute up to the IRC contribution maximum ($18,000 for 2017). However, those who are defined as highly compensated are often restricted from contributing the maximum. Their deferral percentages are limited to an amount based on plan tests, such as the Average Deferral Percentage (ADP)/Average Contribution Percentage (ACP). These tests are used to ensure that all participants are benefiting equally from the plan and to determine that participants are not exceeding the IRC contribution limits.

Nonqualified Deferred Compensation Plans

Nonqualified plans are for a select group of management and/or highly compensated employees. They don’t qualify for the same favorable tax treatments as qualified plans and are exempt from many IRC and ERISA requirements (including testing) because they aren’t broad-based employee retirement plans.

Examples of nonqualified plans are deferred compensation plans, supplemental executive retirement plans, split-dollar arrangements and other similar arrangements.

Contributions to a deferred compensation plan will reduce an employee’s gross income, but there’s no rollover option upon termination of employment. Contributions into a nonqualified plan aren’t deductible as wages by the employer until distribution of the amounts in the participant’s account. Nonqualified plans are established for a number of reasons, such as to help restore retirement parity (due to testing and contribution limits as described above). The plans also provide a means to recruit senior leadership and reward/incentivize strong performance.

Though nonqualified plans are not broad-based employee benefit plans, they still must comply with IRC 409A. This is a section of the code that provides guidance regarding the timing of deferrals and distributions. The amounts deferred into these plans aren’t segregated assets as in a qualified plan; instead, they’re held as general assets of the organization. Thus, there’s risk of forfeiture to the highly compensated employee in the event of bankruptcy. This is one of the main reasons a nonqualified plan is not available as a broad-based employee retirement option.

Another notable difference is the crediting of interest/earnings to a nonqualified plan. These plans are informally funded, which means that assets aren’t set aside from the general assets and also aren’t within the control of participants. Most organizations end up investing in mutual funds or corporate-owned life insurance (COLI) to help them offset the growing account balances. However, any interest or realized gains in a mutual fund are taxable to the organization. These plans should be designed with the financial impact to the organization in mind while balancing that with the needs of the participants.

The Bottom Line 

Both qualified and nonqualified plans are key components in an employer-sponsored retirement package. While both plan types should be reviewed regularly for legal and accounting compliance, they should also both have their funding (qualified plans) and corporate financing (nonqualified plans) options reviewed. As plans grow, more investment options become available for qualified plans, and the corporate tax liability on nonqualified plans should be more actively managed. With the help of an experienced advisor, organizations can structure a retirement package that can meet the needs of all employees without being costly and inefficient at the corporate level.

This article is an excerpt from the “Retirement Times,” a monthly publication by Retirement Plan Advisory Group’s marketing team.” The “Retirement Times” is published monthly by Retirement Plan Advisory Group’s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent.
(c) 2017. Retirement Plan Advisory Group.
This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.

The 10% Savings Goal

Most people need to save more — often a lot more — to build a nest egg that can meet their needs. Many financial experts recommend putting away 10 to 15 percent of your pay for retirement. There’s a relatively painless way to reach that goal.

Take small steps

  • Begin by contributing enough to receive your employer’s matching contribution
  • Consider gradually raising your contribution amount to 10 percent or higher
  • Raise your plan contributions once a year by an amount that’s easy to handle, on a date that’s easy to remember—say, 2 percent on your birthday. Thanks to the power of compounding (the earnings on your earnings), even small, regular increases in your plan contributions can make a big difference over time.

A little more can mean a lot

Let’s look at Minnie and Maxine. These hypothetical twin sisters do almost everything together. Both work for the same company, earn the same salary ($30,000 a year), and start participating in the same retirement plan at age 35. In fact, just about the only difference is their savings approach:


Minnie contributes 2 percent of her pay each year. Her salary rises 3 percent a year (and her contributions along with it), and her investments earn 6 percent a year on average. So, after 30 years of diligent saving, Minnie will reach retirement with a nest egg worth $68,461.

Maxine gets the same pay raises, saves just as diligently, and has the same investments as her sister—except for one thing: She starts contributing 2 percent, but raises her rate by 1 percent each year on her birthday until she reaches 10 percent. She will keep saving that 10 percent for the next 22 years, until she retires by Minnie’s side.

Maxine tells Minnie that she’s never really noticed a difference in take-home pay as her savings rate rises. Instead, she looks forward to having $285,725 in her retirement fund by age 65. Think ahead and take action now. To increase your deferral percentage, contact your HR department today.

This memo was contributed by Transamerica. This example is hypothetical and does not represent the performance of any fund. Regular investing does not guarantee a profit or protect against a loss in a declining market. Past performance does not guarantee future results. Initial tax savings on contributions and earnings are deferred until distribution. You should evaluate your ability to continue saving in the event of a prolonged market decline, unexpected expenses, or an unforeseeable emergency.

When Rates Go Up, Do Stocks Go Down?

Should stock investors worry about changes in interest rates?

Research shows that, like stock prices, changes in interest rates and bond prices are largely unpredictable.1  It follows that an investment strategy based upon attempting to exploit these sorts of changes isn’t likely to be a fruitful endeavor. Despite the unpredictable nature of interest rate changes, investors may still be curious about what might happen to stocks if interest rates go up.

Unlike bond prices, which tend to go down when yields go up, stock prices might rise or fall with changes in interest rates. For stocks, it can go either way because a stock’s price depends on both future cash flows to investors and the discount rate they apply to those expected cash flows. When interest rates rise, the discount rate may increase, which in turn could cause the price of the stock to fall. However, it is also possible that when interest rates change, expectations about future cash flows expected from holding a stock also change. So, if theory doesn’t tell us what the overall effect should be, the next question is what does the data say?

Recent Research

Recent research performed by Dimensional Fund Advisors helps provide insight into this question.2  The research examines the correlation between monthly US stock returns and changes in interest rates.3  Exhibit 1 shows that while there is a lot of noise in stock returns and no clear pattern, not much of that variation appears to be related to changes in the effective federal funds rate.4

For example, in months when the federal funds rate rose, stock returns were as low as –15.56% and as high as 14.27%. In months when rates fell, returns ranged from –22.41% to 16.52%. Given that there are many other interest rates besides just the federal funds rate, Dai also examined longer-term interest rates and found similar results.

So to address our initial question: when rates go up, do stock prices go down? The answer is yes, but only about 40% of the time. In the remaining 60% of months, stock returns were positive. This split between positive and negative returns was about the same when examining all months, not just those in which rates went up. In other words, there is not a clear link between stock returns and interest rate changes.


There’s no evidence that investors can reliably predict changes in interest rates. Even with perfect knowledge of what will happen with future interest rate changes, this information provides little guidance about subsequent stock returns. Instead, staying invested and avoiding the temptation to make changes based on short-term predictions may increase the likelihood of consistently capturing what the stock market has to offer.

  1. See, for example, Fama 1976, Fama 1984, Fama and Bliss 1987, Campbell and Shiller 1991, and Duffee 2002.
  2. Wei Dai, “Interest Rates and Equity Returns” (Dimensional Fund Advisors, April 2017).
  3. US stock market defined as Fama/French Total US Market Index.
  4. The federal funds rate is the interest rate at which depository institutions lend funds maintained at the Federal Reserve to another depository institution overnight.





Discount Rate: Also known as the “required rate of return,” this is the expected return investors demand for holding a stock.

Correlation: A statistical measure that indicates the extent to which two variables are related or move together. Correlation is positive when two variables tend to move in the same direction and negative when they tend to move in opposite directions.


Fama/French Total US Market Index: Provided by Fama/French from CRSP securities data. Includes all US operating companies trading on the NYSE, AMEX, or Nasdaq NMS. Excludes ADRs, investment companies, tracking stocks, non-US incorporated companies, closed-end funds, certificates, shares of beneficial interests, and Berkshire Hathaway Inc. (Permco 540).

Source: Dimensional Fund Advisors LP.
Results shown during periods prior to each Index’s index inception date do not represent actual returns of the respective index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains.
Eugene Fama and Ken French are members of the Board of Directors for and provide consulting services to Dimensional Fund Advisors LP.
There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal.
All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

R|W Investment Management named to the FT 300

top financial advisersR|W Investment Management was named to the FT 300: 2017 list of top US registered investments advisers published by Financial Times.

This fourth edition of the FT 300 assesses registered investment advisers (RIAs) on desirable traits for investors.

R|W is honored to represent Idaho on the 2017 FT 300 list. To read more about the assessment and see the full listing, click here.


Selection Criteria: The fourth edition of the Financial Times 300 has assessed registered investment advisers (RIAs) on desirable traits for investors. To ensure a list of established companies with deep institutional expertise, we examine the database of RIAs registered with the US Securities and Exchange Commission and select those that reported to the SEC that they had $300m or more in assets under management (AUM). The Financial Times’ methodology is quantifiable and objective. The RIAs had no subjective input. The FT invited qualifying RIA companies – more than 1,500 – to complete a lengthy application that gave us more information about them. We added to this with our own research into their practices, including data from regulatory filings. Some 520 RIA companies applied and 300 made the final list. The formula the FT uses to grade advisers is based on six broad factors and calculates a numeric score for each adviser. Areas of consideration include adviser AUM, asset growth, the company’s age, industry certifications of key employees, SEC compliance record, and online accessibility. The reasons these were chosen are as follows: *AUM signals experience managing money and client trust. *AUM growth rate can be a proxy for performance, as well as for asset retention and the ability to generate new business. We assessed companies on both one-year and two-year growth rates. *Companies’ years in existence indicates reliability and experience of managing assets through different market environments. *Compliance record provides evidence of past client disputes; a string of complaints can signal potential problems. * Industry certifications (CFA, CFP, etc) shows the company’s staff has technical and industry knowledge, and signals a professional commitment to investment skills. Online accessibility demonstrates a desire to provide easy access and transparent contact information. Assets under management and asset growth, combined, comprised roughly 80 to 85 percent of each adviser’s score. Additionally, the FT caps the number on companies from any one state. The cap is roughly based on the distribution of millionaires across the US. We present the FT 300 as an elite group, not a competitive ranking of one to 300. This is the fairest way to identify the industry’s elite advisers while accounting from the firms’ different approaches and different specializations. The research was conducted on behalf of the Financial Times by Ignites Distribution Research, a Financial Rimes sister publication.

Should You Rock Alternative in Your Lineup?


The term “alternative investments” may conjure images of classic automobiles, fine wine, rare art and valuable jewels. Some may think about the Honus Wagner baseball card that sold for $3.12 million at auction in 2016.  Or about the 1962 Ferrari 250 GTO that sold at auction for a whopping $34.65 million in 2014. Or maybe they set their sights even higher and think about the Hope Diamond, with an estimated value of $200-$250 million.

While these treasures are fun to picture, they would not be permissible or practical investments within a retirement plan.  So what exactly is an alternative investment in this context? A simple way to comprehend these investments is right in their name—alternative—they are not conventional investment types, e.g. stocks, bonds and cash.  Alternative investments include private equity, hedge funds, managed futures, real estate, commodities and derivatives contracts.

Alternative investments, like REITs (real estate investment trusts) and Commodities, have their place in a well-managed portfolio within proper asset allocation parameters and with regular oversight. The danger is when participants misuse and/or don’t fully understand this asset class.  Alternative investments can be difficult to valuate and can be subject to enhanced volatility.  Consider the most recent financial crisis.  In the aftermath of global equity markets plummeting, some investors sought safe haven in gold which buoyed its price to record levels.  As a result, some plan participants observed this phenomenon and were swayed to reallocate some, or even all, of their retirement plan assets there.

Subsequently, along with the meteoric rise in the price of gold, came a decline. Gold peaked at $1,920.70 in August 23, 2011 and fell to $1,048.30 by December 17, 2015.¹ An investor who bought at the high and sold at the low, realized a loss of 45.4 percent over this time period. A $100,000 investment would have fallen to $54,579.  Let’s contrast that with a diversified portfolio with its foundation in core asset classes and only a portion allocated to alternatives. Consider a hypothetical portfolio allocated as follows: 40% U.S. Equity, 10% International Equity, 40% Core Fixed Income, 5% Commodities, and 5% Global REITs.¹ Over the same time period, this portfolio achieved a positive return of 46.48 percent.  So a $100,000 investment would have grown to $146,480.

A broader stand-alone Commodities fund would have proven just as dangerous.  Commodities (as measured by the Bloomberg Commodity Index) produced a negative return every year between 2011 and 2015, for five consecutive years.  Annualized five-year returns in Commodities were negative 10.27 percent.¹ This means a $100,000 investment would have fallen to $58,169 during this time period. Again, if an investor instead used a diversified portfolio during this time period they would have achieved annualized returns of 7.62 percent, turning the original investment into $144,366. Again resulting in a much better outcome in the diversified portfolio.

Under both scenarios, participants would have been disappointed had they invested their retirement plan assets exclusively in alternative investments. As seen in the examples above, if these were just portions of a well-diversified portfolio, the effects could have been minimal. Some exposure could have been helpful in 2016, with Commodities finally turning the corner and returning almost 12 percent and Gold up almost 8 percent.¹

While alternative investments can perform well and occasionally produce great returns, you may want to think twice about using them as stand-alone investment options in a retirement plan. Risk/reward optimization can be maximized within the confines of a well-constructed asset allocation, such as a target date fund. These funds are professionally managed, rebalanced and enjoy constant oversight to appropriate asset allocation across various asset classes.

¹All return data derived from MPI Stylus and Morningstar Direct. Hypothetical diversified portfolio is comprised of U.S. Equity (S&P500), International Equity (MSCI EAFE), Core Fixed Income (Barclays Aggregate), Commodities (Bloomberg Commodity), and Global REIT (S&P Global REIT).

Fiduciary Risk when Using Industry Average Reports to Determine Fee Reasonableness

This is a very important and often misunderstood issue. Industry average fee data can serve as a good general “second opinion” of fee reasonableness. The industry recognizes that fees can be very plan-centric in nature.  National averages may not capture the nuances of plans that drive cost (both in a positive and negative manner). Thus a more tailored approach (such as what is provided in a live-bid environment, like usage of the B3 Provider Analysis™) may not only be best practice, but can be more determinative of what a plan’s actual value on the open market is at any one point in time.  The detail of the B3 Analysis can be more determinative of fee reasonableness as it is based on what other providers would actually charge to provide the same services for the specific plan. It is a direct apples-to-apples comparison.

Moreover, benchmarking fees in a vacuum can paint an incomplete picture.  In addition to providing benchmarking of fees, the B3 incorporates benchmarking of services and investment opportunities.  All three of these elements must be viewed in conjunction with one another to fully vet “reasonableness” of an engagement.  Also, the B3 Analysis serves as an educational tool for fiduciaries in addressing the various components of plan fees including revenue sharing.

Based on Department of Labor (DOL) expressed intent and related fee litigation, use of averages and estimates have not been considered sufficient for determining fee reasonableness as they likely do not reflect the specific plan considerations which may impact pricing. The DOL has stated that plans should solicit live bids on a pro-active basis.  Only a periodic (every 3-4 years) robust live-bid process, like the B3 Analysis, is most likely to be considered a sufficient and prudent process for determining fee reasonableness by plan fiduciaries.

A related recent case in point involves fee reasonableness litigation against City National where the court found that in City National’s determination of fee reasonableness by use of “…averages and estimates,” rather than directly tracked expenses was not satisfactory.


The B3 Provider Analysis™, RPAG’s proprietary retirement plan fee benchmarking and request for proposal (RFP) system, utilizes live-bid benchmarking to provide a comprehensive benchmarking of a plan’s fees, services and investments in one robust report.

Retirement IQ Test

If you’re participating in your company’s retirement plan, you understand the importance of saving now for your future. But, how savvy are you when it comes to knowing how much you should be saving for a comfortable retirement? Take this short quiz and find out!

1) In order to maintain living standards in retirement, what percent of annual income do financial professionals think people should save?

A.      About 3%

B.       About 6%

C.      About 9%

D.      About 12%

E.      About 15%


2) If an investor could set aside $50 each month for retirement, how much might that end up becoming 25 years from now, including interest if it grew at the historical stock market average?

A.      About $15,000

B.       About $30,000

C.      About $40,000

D.      About $50,000

E.     More than $60,000


3) Roughly how much do many financial professionals suggest people think about saving by the time they retire?

A.      About 2-3 times the amount of your last full year income

B.      About 4-5 times the amount of your last full year income

C.      About 6-7 times the amount of your last full year income

D.     About 8-9 times the amount of your last full year income

E.       About 10-12 times the amount of your last full year income


4) Which of the following do you think is the single biggest expense for most people in retirement?

A.      Housing

B.       Health care

C.      Taxes

D.      Food

E.       Discretionary expenses


5) About how much will a couple retiring at age 65 spend on out-of-pocket costs for health care over the course of retirement?

A.      $50,000

B.      $100,000

C.      $170,000

D.     $260,000

E.     $350,000



  1. E. About 15%. 2. C. About $40,000¹. 3. E. About 10-12 times the amount of your last full year income. 4.  A. Housing². 5.  D. $260,000³.


How did you score? Is it time to increase your deferral percentage? Contact your Human Resources department for assistance.


This information is intended to be educational and is not tailored to the investment needs of any specific investor. Investing involves risk, including the risk of loss.
¹This hypothetical estimate assumes the individual or household sets aside $50 a month for 25 years. Rate of return is 7.0% annual interest which is compounded monthly. Estimated increases in retirement monthly income are in constant 2015 dollars. This estimate assumes the $50 deferral amount stays constant through the entire 25 year period and represents a nominal value. It is assumed that the participant took no loans or hardship withdrawals from these savings. All dollars shown are pretax dollars. Upon distribution, applicable federal, state, and local taxes are due. No federal, state, or local taxes; inflation; or account fees or expenses were considered. If they were, the estimated amount would be lower. Actual realized value may be significantly more or less than this illustration. ²Bureau of Labor Statistics, “The Experimental Consumer Price Index for Elderly Americans” ³Estimate based on a hypothetical couple retiring in 2016, 65-years-old, with average life expectancies of 85 for a male and 87 for a female. Estimates are calculated for “average” retirees, but may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care. Life expectancies based on research and analysis by Fidelity Investments Benefits Consulting group and data from the Society of Actuaries, 2014.
Distributions before the age of 59 ½ may be subject to an additional 10% early withdrawal penalty.