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Retirement Plan Archives | R | W Investment Management

Top Ten Fiduciary Responsibilities

A plan fiduciary plays an important role in the organization’s financial health. Not only do they oversee the fiduciary process, but they identify and serve the best interests of a retirement plan’s participants and beneficiaries. Here are 10 important responsibilities to keep in mind.

1. Limit liability: As a fiduciary, it is imperative that you understand ERISA so you can keep yourself and your business safe from liability.
2. Find the right plan provider: Finding a retirement plan provider is much more complicated than many realize.
3. Keep costs low: No matter how big your business’s budget, always monitor fees to ensure you are getting the best deal.
4. Oversee plan performance: Once a retirement plan is in place, continuously monitor its performance.
5. Educate plan participants: Regardless of position and hierarchy, employees may come to you asking about plan options. What should you say?
6. Stay informed: Your role is to know more about your business’s retirement savings plan than everyone else, so education is vital.
7. Avoid personal gain: As a fiduciary, it’s important to distance yourself from any situation that could be perceived as personal gain from the retirement plan.
8. Diversify investments: The investment options offered in your plan should be diversified. This limits financial risk and helps balance risks and rewards.
9. Monitor participant satisfaction: Evaluate employee satisfaction with the plan. Follow up on complaints, and regularly gauge the plan needs to determine the right time for change.
10. Ensure employees understand their options and monitor their satisfaction levels.

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. 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.

Summer Homework

We know you’re enjoying summer! But how’s your retirement plan doing?

Summer can serve as a preview of your retirement — long days in the sun and spending time with your loved ones. So what better
time to do a routine check-up on your retirement plan? Protect your loved ones and ensure you are keeping up to date with your
retirement plan with our summer homework assignments.

  • Update or Assign Beneficiaries
    Did you experience a major life change this year, such as marriage, divorce, birth or death? Consider updating your
    beneficiaries when you go through a major life change.
  • Review Cyber Security Best Practices
    Retirement plans are a major target for cyber attacks. Retirement plan participants often have weak passwords and can
    unknowingly fall for phishing schemes. Educate yourself on cyber security best practices to ensure you are keeping your
    information and assets safe.
  • Increase Contributions
    Raise your plan contributions once a year by an amount that’s easy to handle, on a date that’s easy to remember —for example,
    2 percent every Fourth of July. 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.
  • Revisit Asset Allocation
    Rebalance your portfolio back to the original asset allocation by selling assets that have outperformed and use the proceeds
    to those that have lagged behind. This discipline ensures you adhere to your investment strategy based on your risk
    tolerance and time horizon.
  • Remember Sunscreen!
    Wearing sunscreen reduces your risk of developing skin cancer, it keeps your skin looking younger and protects you from UVB
    rays. What other reasons do you need to wear it?

Four Ways to Increase Employee Retirement Contributions

As a retirement plan sponsor, you want your employees to save the most they can in order to reach their maximum retirement potential. A significant amount of research says that you can improve both employee participation and their saving rates. Here are four ways you can help your employees start building a confident retirement:

Boost employee participation with automatic enrollment. Choosing to automatically enroll all new employees in your retirement plan can dramatically improve your participation rates. According to the Center for Retirement Research (CRR) at Boston College, in one study of automatic enrollment, participation increased by 50 percent, with the largest gains among younger and lower-paid employees.1 While auto enrolled employees are allowed to opt out of the retirement plan, most generally stay enrolled.

Set the initial default contribution rate higher. Many companies who use auto enrollment set their default contribution rate relatively low at 3 percent, according to the CRR, which is lower than the typical employer match rate of 6 percent. Workers who might have contributed more to their savings passively accept the lower default rate, which means they’re sacrificing employer matching funds along with saving less of their own pay.

Adopt auto escalation. Plans that use auto escalation automatically increase their participants’ contribution rate every year, typically by 1 percent. Over time, that can significantly improve savings rates among workers. The CRR cites a 2013 study of Danish workers where the majority of workers who experienced automatic increases simply accepted them, and savings rates dramatically increased.

Automate investment decisions with target date investment products. Investing is complicated, and many employees don’t want to take the time to learn how to manage their portfolios. Target date strategies automatically adjust an employee’s investment allocations over time, shifting them to a more conservative asset mix as the target date (typically retirement) approaches. The ease of use of target date funds means their popularity is increasing. The CRR notes that in 2014, nearly 20 percent of all 401(k) assets were in target date funds, and about half of plan participants used target date funds.2

      1http://crr.bc.edu/wp-content/uploads/2016/08/IB_16-15.pdf
      2http://crr.bc.edu/wp-content/uploads/2017/01/IB_17-2.pdf
About the Author, Michael Viljak
Michael joined RPAG in 2002 and has over 30 years of experience in the retirement plan industry, on both the wholesale and retail levels, focusing on retirement plans ever since their inception in 1981. Michael has an interest in fiduciary-related topics and was part of the team that created RPAG’s proprietary Fiduciary Fitness Program. He also authors many of the firm’s newsletter articles, communication pieces and training modules.

How and When to Pay Plan Expenses with Plan Assets

Tom Bastin, JD, LLM, AIF, CEBS, Managing Director, Southeast Region

Some retirement plan expenses can be paid for with plan assets — but many can’t. Which are the “reasonable and necessary” retirement plan expenses that can be paid out of plan assets?

Generally, services required to maintain the plan’s compliance and administration can be paid from plan assets. Obvious examples include the annual nondiscrimination testing and preparation of the annual Form 5500. Another example is a plan amendment or restatement that is required because of a legislative change.

Optional services generally cannot be paid out of plan assets. One clear example is costs for projections that are optional and benefit the company, not the plan participants.

Some service fees may not be easy to classify. Fees for resolving plan corrections — such as delinquent deferral remittances or contributions determined with a definition of compensation not supported in your plan document. In the event of an incorrect test result, regardless of who was at fault, the law ultimately holds the plan sponsor responsible for the proper maintenance of the plan. As a result, the plan sponsor cannot shift the financial burden for the corrections to the plan.

All in all, it’s perfectly acceptable and common to charge reasonable and necessary transaction-based and recordkeeper administrative fees to participants. However, it is critical to ensure that similarly situated participants are treated the same. It would be discriminatory and, therefore not allowed, for non-highly compensated employees to pay administrative fees while highly compensated employees did not.

If you are unsure whether a specific fee can be paid from plan assets, please contact your advisor. We’ll happily talk through the particulars of your situation to help you arrive at an appropriate decision.

About the Author, Tom Bastin 
Tom uses his expertise in plan design, administration, recordkeeping, compliance, investment analysis, fee analysis, vendor benchmarking, fiduciary governance and participant education to help plan sponsors and participants reach their retirement goals. PlanAdvisor ranked Tom one of the “Top 100 Retirement Plan Advisers” in 2013 and 2015. Financial Times ranked him one of the “Top 401 Retirement Advisers” in 2015. Tom earned a Bachelor of Arts at Purdue University, a Juris Doctor at Nova University and an LL.M. in Taxation Law from the University of Miami.

Is it Time for a Retirement Plan Check-Up?

It’s important to conduct regular check-ups on your retirement plan to make sure you are on track to reach your retirement goals. Below are a few questions to ask yourself, at least annually, to see if (and how) they affect your retirement planning.

 

  1. Review the Past Year
  • Did you receive a raise or inheritance?
    If yes, you may want to increase your contributions.
  • Did you get married or divorced?
    If yes, you may need to change your beneficiary form.
  • Are you contributing the maximum amount allowed by the IRS?
    In 2018 you can contribute up to $18,500 ($24,500 for employees age 50 or older).
  • Did you change jobs and still have retirement money with your previous employer?
    You may be able to consolidate your assets with your current plan. (Ask your human resources department for more details.)
  1. Set a Goal

What do you want your retirement to look like? Do you want to travel? Will retirement be an opportunity to turn a hobby into a part-time business? Will you enjoy simple or extravagant entertainment?

Take time to map out your specific goals for retirement. Participants that set a retirement goal today, feel more confident about having a financially independent retirement down the road.

  1. Gauge Your Risk Tolerance

Understanding how comfortable you are with investment risk can help you determine what kind of allocation strategy makes the most sense for you. Remember, over time, and as your life changes, so will your risk tolerance.

  1. Ask for Help

If you have questions about your retirement plan or are unsure of how to go about saving for retirement, ask for help. Your retirement plan advisor can help you evaluate your progress with your retirement goals, determine how much you should be saving and decide which investment choices are suitable for you.