Within Washington DC, debates are currently underway, which deal with the level of fee disclosure, 401k participants receive. If you don’t understand exactly the workings of the 401k plan, you will assume that more disclosure is always better. What do believe it if I tell you that this might not be the case with regards 401k plans?
When you get a closer look at all the factors involved you will realize that at the end of it, the beneficiaries will not be getting any additional benefit from clear disclosure. More disclosure is necessary, there’s no doubt about this. If provided with more adequate and detailed information, plan fiduciaries will be in a better position when they come to take important decisions regarding investments.
It is consequential disclosure that will make a positive difference. Nowadays if an individual would like to enquire about the expenses he is paying on his 401k plan, can do so without difficulty. Nor is it difficult to understand the content and the meaning of the information. The problem comes when the individual comes to interpret the information received, since a number without any base for comparison means nothing at the end of the day.
The truth is that most people don’t really care about the workings of their 401k plans, what they do care is about the sum of money they see on their statement. When going through their 401k plan information, individuals will not be able to point out which are the meaningful parts, and which parts require questioning.
And what about the cost of disclosure? Increasing disclosure would mean increased administration work, which at the end results in increased costs. I have no doubt in my mind that these costs will be then transferred to the individuals.
The benefit of disclosure for beneficiaries lies in their ability to be able to choose between the various investment options provided. They might also be able to push the committee to making beneficial changes on the choice of investments.
So in conclusion, better disclosure to the plan fiduciaries will have a constructive impact on the investment process, thus it will also put the contributors in a better position. On the other hand, better disclosure to contributors is not really of any assistance, since the contributors simply don’t have enough interest, thus this will only result in additional cost.
Reference: http://www.401khelpcenter.com/401k/graham_fee_disclosure.html
Tuesday, March 31, 2009
Clear Cut 401k plan fees
We are living in a country that believes in customer’s rights. This is why 401k plan participants should know exactly how much they are paying in fees on their retirement plan. A recent survey conducted by the AARP says that as much as 65% of plan participants didn’t know that their plan has fees.
At present lots of discussions are on the table at Washington DC regarding the fee disclosure of retirement plans. Plan fees have been hidden behind basis points and percentages, or maybe behind the excuse that ‘it’s always been done this way’.
Today the industry still uses the same pricing scheme that it was using in the 1980s, and this scheme is very complicated and hard to explain to the archetypal lay man in the street.
People who work in the retirement industry say that calculating effectively the 401k plan fees would be expensive, with the present pricing method. This cost would obviously be passed to the contributors. They also add that the pricing structure is difficult to explain. This is very true, and this is probably the reason why exact charges are never quoted anywhere.
Fee estimates won’t satisfy people who are used to being accurate and precise. Consumers should be shown exactly how much their plan is costing, and what gains they are making on the money they are paying. People will choose a fund that suits them most, and will not necessarily go for the cheapest. Some employees may assume that the more expensive fund will provide the greatest return. Testing should be done to understand better how people react.
This industry is full of intelligent people, who can easily come up with a simpler charge structure for the lay man in the street to understand without difficulty. All service industries in the US have a simple and clear pricing system, so why not the retirement industry? What we need is a strong retirement industry, and clear information is the only way forward.
Reference: http://www.401khelpcenter.com/ackley_fees.html
At present lots of discussions are on the table at Washington DC regarding the fee disclosure of retirement plans. Plan fees have been hidden behind basis points and percentages, or maybe behind the excuse that ‘it’s always been done this way’.
Today the industry still uses the same pricing scheme that it was using in the 1980s, and this scheme is very complicated and hard to explain to the archetypal lay man in the street.
People who work in the retirement industry say that calculating effectively the 401k plan fees would be expensive, with the present pricing method. This cost would obviously be passed to the contributors. They also add that the pricing structure is difficult to explain. This is very true, and this is probably the reason why exact charges are never quoted anywhere.
Fee estimates won’t satisfy people who are used to being accurate and precise. Consumers should be shown exactly how much their plan is costing, and what gains they are making on the money they are paying. People will choose a fund that suits them most, and will not necessarily go for the cheapest. Some employees may assume that the more expensive fund will provide the greatest return. Testing should be done to understand better how people react.
This industry is full of intelligent people, who can easily come up with a simpler charge structure for the lay man in the street to understand without difficulty. All service industries in the US have a simple and clear pricing system, so why not the retirement industry? What we need is a strong retirement industry, and clear information is the only way forward.
Reference: http://www.401khelpcenter.com/ackley_fees.html
Monday, March 30, 2009
The Trouble With 401k Plans
Let’s face it, it is a reality that we have problems with 401k plans. People are blaming the fact that the money is being invested in stocks rather than more stable bonds. This is however not the case, since over the long term, shares will outperform bonds by a wide margin. The reality however is that it’s the employers who are to blame for inaffective retirement plans, since they are not matching the employee’s contribution as they should.
With the present volatile market conditions and share prices on the floor, it seems that huge amounts of money have been knocked off the retirement plan values. The issue is not the volatility, since these plans are long term investments. The problem lies with the brokers, who do not wisely advise their clients not to panic when the market value falls. They are not selling properly, and explaining all the relevant details to their clients. This flaw is leading people to panic, and withdrawing funds from their plans at the worst moment they could possibly do so.
The same had happened in Ocotber of 1987, which is one of the biggest one day collapses recorded in history. Millions of depositors had lost out when two years later the S&P 500 had rose by over 30% .
Furthermore during congress in October, it was recommended that 401k plan managers invest funds in bonds rather than shares. Well thank God this didn’t happen, since by the end of October, the Dow Jones has increased in value by at least 10%.
Things are different in the Austalian continent, where retirees are required to contribute 9% of their salary into their pension plan, and so they stand now with more than enough funds in their portfolio. In the United States, the contribution is on of the lowest in the whole world, as it stands at a mere 3%. So finally the gist of all this is; the 401k plans should be reviewed and fixed, in a way that will benefit both employers and employees.
Reference: http://www.401khelpcenter.com/401k/white_401k_aarp.html
With the present volatile market conditions and share prices on the floor, it seems that huge amounts of money have been knocked off the retirement plan values. The issue is not the volatility, since these plans are long term investments. The problem lies with the brokers, who do not wisely advise their clients not to panic when the market value falls. They are not selling properly, and explaining all the relevant details to their clients. This flaw is leading people to panic, and withdrawing funds from their plans at the worst moment they could possibly do so.
The same had happened in Ocotber of 1987, which is one of the biggest one day collapses recorded in history. Millions of depositors had lost out when two years later the S&P 500 had rose by over 30% .
Furthermore during congress in October, it was recommended that 401k plan managers invest funds in bonds rather than shares. Well thank God this didn’t happen, since by the end of October, the Dow Jones has increased in value by at least 10%.
Things are different in the Austalian continent, where retirees are required to contribute 9% of their salary into their pension plan, and so they stand now with more than enough funds in their portfolio. In the United States, the contribution is on of the lowest in the whole world, as it stands at a mere 3%. So finally the gist of all this is; the 401k plans should be reviewed and fixed, in a way that will benefit both employers and employees.
Reference: http://www.401khelpcenter.com/401k/white_401k_aarp.html
The 401k Plan Reform Recommendations
Ms Theresa Ghilarducci has recently discussed in front of congress, her plans with regards to the future of 401k plans. It seems that she suggests changing the ‘risky’ 401k plans, into more stable government subsidized retirement accounts. What this would do, is make an already flawed system, worse.
Her proposal suggests switching investments in shares, into stable government bonds. Now over a long term, studies show that shares will outperform gains coming from stable government stocks. Also, the fact that contributions are done monthly, will average out the drastic share fluctuations. Ms Ghilarducci’s proposal suggests that if investments underperform in the long run, the plans will then be subsidized from tax money. This makes no sense at all.
Furthermore, had the congress amended the 401k plans, as per Ghilarducci’s recommendations, investors would right now be 10% worse off, since the Dow Jones has made an average improvement by this percentage.
Ghilarducci also proposed that everyone has the same plan, forking out the same $600 contribution. This is nonsense! At least 95% of Americans can easily afford their 401k contributions. The other 5% are probably so poor that anyway when they retire, their pension will be replaced by Social Security.
The 401k plan problems don’t lie with the underlying investments. The problem lies with the employers not matching their 3%. This is already one of the lowest rates in the whole world; even Mexican employers provide greater contribution! We should look at countries like Australia, where retirees will have more money in their pockets since the employer contributes a whopping 9% to the 401k plans.
Well the reform is currently being planned, and let’s hopes that the people who are in charge, will make it a point that our retirement plans will be worth it.
Reference: http://www.401khelpcenter.com/401k/white_donoharm.html
Her proposal suggests switching investments in shares, into stable government bonds. Now over a long term, studies show that shares will outperform gains coming from stable government stocks. Also, the fact that contributions are done monthly, will average out the drastic share fluctuations. Ms Ghilarducci’s proposal suggests that if investments underperform in the long run, the plans will then be subsidized from tax money. This makes no sense at all.
Furthermore, had the congress amended the 401k plans, as per Ghilarducci’s recommendations, investors would right now be 10% worse off, since the Dow Jones has made an average improvement by this percentage.
Ghilarducci also proposed that everyone has the same plan, forking out the same $600 contribution. This is nonsense! At least 95% of Americans can easily afford their 401k contributions. The other 5% are probably so poor that anyway when they retire, their pension will be replaced by Social Security.
The 401k plan problems don’t lie with the underlying investments. The problem lies with the employers not matching their 3%. This is already one of the lowest rates in the whole world; even Mexican employers provide greater contribution! We should look at countries like Australia, where retirees will have more money in their pockets since the employer contributes a whopping 9% to the 401k plans.
Well the reform is currently being planned, and let’s hopes that the people who are in charge, will make it a point that our retirement plans will be worth it.
Reference: http://www.401khelpcenter.com/401k/white_donoharm.html
In Reality, What Are Independent Advisors?
When discussing retirement plans, we normally hear the word independent coming up very often; be it independent consultation, independent brokers and so on. But what does the word independent really mean in relation to plans?
More often than not, you will hear people saying that the have an appointment with an independent advisor. When discussing in more detail, you will find out that this so called independent advisor, is actually employed with a brokerage firm. So is he really independent or is this just a cover? Is the brokerage firm in question deriving any revenue from this advisor’s sales?
Legislation was passed in the 1970’s, which established the regulatory framework that retirement plans should be based upon. The interpretation of the ERSA, has over the years established the fiduciary discretion parameters. One of the aspects that require caution is the choice of retirement plan advisors, making sure they are competent to do the job. This does not mention ‘independence’ from the company.
Conflicts of interest are another matter to consider, and this is where being ‘independent’ enters the picture. Independent should mean that the advisor provides objective advice to his client, without any conflict of interest.
Let’s provide an example. Conflict of interest occurs commonly when a service provider such as a bank, is the 401k plan’s main guidance and support provider, for appropriate investment choices. It is obvious that when making investment choices are being made, the advisors would be somewhat biased. Providers do recognize this issue, and are wary not to give ‘advice’.
Therefore as a conclusion, investment advisors should always retain objectivity when performing their fiduciary function, because conflicts of interest may undermine the client’s rights.
Reference: http://www.401khelpcenter.com/401k/graham_independent.html
More often than not, you will hear people saying that the have an appointment with an independent advisor. When discussing in more detail, you will find out that this so called independent advisor, is actually employed with a brokerage firm. So is he really independent or is this just a cover? Is the brokerage firm in question deriving any revenue from this advisor’s sales?
Legislation was passed in the 1970’s, which established the regulatory framework that retirement plans should be based upon. The interpretation of the ERSA, has over the years established the fiduciary discretion parameters. One of the aspects that require caution is the choice of retirement plan advisors, making sure they are competent to do the job. This does not mention ‘independence’ from the company.
Conflicts of interest are another matter to consider, and this is where being ‘independent’ enters the picture. Independent should mean that the advisor provides objective advice to his client, without any conflict of interest.
Let’s provide an example. Conflict of interest occurs commonly when a service provider such as a bank, is the 401k plan’s main guidance and support provider, for appropriate investment choices. It is obvious that when making investment choices are being made, the advisors would be somewhat biased. Providers do recognize this issue, and are wary not to give ‘advice’.
Therefore as a conclusion, investment advisors should always retain objectivity when performing their fiduciary function, because conflicts of interest may undermine the client’s rights.
Reference: http://www.401khelpcenter.com/401k/graham_independent.html
Saturday, March 28, 2009
Take charge of your 401k Plan
The United States Secretary of the Treasury is encouraging an increase in government regulation on investments such as 401k retirement plans. Mr Geithner suggests that vagueness in various financial instruments is one of the contributing factors, towards the financial crisis that we’re now living.
The 401k retirement plan is a plan that everyone invests in. Unfortunately the values of most 401k plans all around the United States, are currently undergoing a full on nose-dive. This problem started off just recently, since a few years back, the bull market was supporting most companies, even those which were financially unstable.
Since the chapter has turned however, so did the results of such companies, and everyone is now wondering whether the said financial experts, who were investing the people’s hard-earned money into such companies, actually knew what they were doing.
Were the 401k plan managers really considering where they were investing the money? Did these people realize that the future of many retirees was in their hands? Maybe such experts should not have been in charge at all. If the managers were the experts they said they were, they should have realized that a financial meltdown was around the corner.
So at the end of the day, my advice is this:
• Take responsibility of your own 401k plan, and instead of simply relying on what other people tell you, do your own homework.
• Ask or read through your documents, to verify whether you can choose the investment, into which your monthly contribution goes.
• Have a look at the fees you are paying on the plan. Cheaper plans might be available.
• If your company won’t sponsor you plan anymore, you can simply switch plan into something more suitable.
• Finally, consider asking for a financial planner’s advice, to help you analyze your alternatives.
Reference: http://www.bizzia.com/articles/is-it-time-for-better-401k-oversight/
The 401k retirement plan is a plan that everyone invests in. Unfortunately the values of most 401k plans all around the United States, are currently undergoing a full on nose-dive. This problem started off just recently, since a few years back, the bull market was supporting most companies, even those which were financially unstable.
Since the chapter has turned however, so did the results of such companies, and everyone is now wondering whether the said financial experts, who were investing the people’s hard-earned money into such companies, actually knew what they were doing.
Were the 401k plan managers really considering where they were investing the money? Did these people realize that the future of many retirees was in their hands? Maybe such experts should not have been in charge at all. If the managers were the experts they said they were, they should have realized that a financial meltdown was around the corner.
So at the end of the day, my advice is this:
• Take responsibility of your own 401k plan, and instead of simply relying on what other people tell you, do your own homework.
• Ask or read through your documents, to verify whether you can choose the investment, into which your monthly contribution goes.
• Have a look at the fees you are paying on the plan. Cheaper plans might be available.
• If your company won’t sponsor you plan anymore, you can simply switch plan into something more suitable.
• Finally, consider asking for a financial planner’s advice, to help you analyze your alternatives.
Reference: http://www.bizzia.com/articles/is-it-time-for-better-401k-oversight/
Buying Life Assurance? Have a look at this before you leap
You will hear various things coming from the mouths of agents who are trying to sell you some form of life insurance cover. Do a favour to yourself, and don’t believe everything they say. A cash value life policy may at times be a complete waste of money.
This does not however mean that no one requires Life Assurance. For some individuals, Life Assurance is really considered necessary. Here are three specific circumstances, in which an individual would need a specific form of cover:
• Parents of children, who are also the sole or primary source of income for the family, should purchase enough cover that will pay off any outstanding debts, over the children’s college expenses, and leave something for the surviving spouse.
• People who are subject to Estate Tax need to purchase life cover. A guaranteed life assurance policy, inside an insurance trust fund, is the most economical way to transfer wealth.
• The third type of cover is directed towards high income earners. People who find themselves in this category, should opt for a 412i Fixed Benefit plan. More than a life cover, this policy is better described as a retirement plan, than high income earners can opt for, instead of the 401k plan.
This plan, allows investors to make a larger contribution into their plan as opposed to the normal IRAs, and thus reduce the amount of taxable income. This plan is ideal for small business, where the number of employees is 10 or even less. This category includes estate agents, doctors, consultants or small business owners.
The contributions going to a 412i plan may be up to five times bigger, than contributions directed to other types of retirement plans. This would mean that, since the contributions come from pre taxed income, the taxable income value would be reduced, thus saving you tax money. Moreover, this plan will also provide a death benefit to its named beneficiaries, in the event that the life assured dies before reaching retirement age.
Reference: http://resorttown.blogspot.com/2009/03/truth-about-life-insurance.html
This does not however mean that no one requires Life Assurance. For some individuals, Life Assurance is really considered necessary. Here are three specific circumstances, in which an individual would need a specific form of cover:
• Parents of children, who are also the sole or primary source of income for the family, should purchase enough cover that will pay off any outstanding debts, over the children’s college expenses, and leave something for the surviving spouse.
• People who are subject to Estate Tax need to purchase life cover. A guaranteed life assurance policy, inside an insurance trust fund, is the most economical way to transfer wealth.
• The third type of cover is directed towards high income earners. People who find themselves in this category, should opt for a 412i Fixed Benefit plan. More than a life cover, this policy is better described as a retirement plan, than high income earners can opt for, instead of the 401k plan.
This plan, allows investors to make a larger contribution into their plan as opposed to the normal IRAs, and thus reduce the amount of taxable income. This plan is ideal for small business, where the number of employees is 10 or even less. This category includes estate agents, doctors, consultants or small business owners.
The contributions going to a 412i plan may be up to five times bigger, than contributions directed to other types of retirement plans. This would mean that, since the contributions come from pre taxed income, the taxable income value would be reduced, thus saving you tax money. Moreover, this plan will also provide a death benefit to its named beneficiaries, in the event that the life assured dies before reaching retirement age.
Reference: http://resorttown.blogspot.com/2009/03/truth-about-life-insurance.html
Is your 401k plan underfunded?
The problem of underfunding has lately been the topic of the day, and some experts believe that this predicament may evolve and even worsen. It seems that 401k plans are subject to testing that confirms that higher company officers, do not get returns that are better than the ones employees receive.
The economic recession however, may lead some companies to terminate the plans, since they will not be able to afford the plan contributions. This trend has already started, however experts believe that if the recession continues for a certain length of time, the problem will worsen.
Apart from this, it seems that some tight for cash companies, are withholding the employees 401k contributions, and instead of transferring the money into the employee’s fund, they are using it as operational capital.
Employees should take control of their plan by asking for statements, confirming the current balances, and that their contributions are actually being directed to their 401k plan.
From the employer’s side, 401k plans that offer the right features should work as a good tool for employee retention. There are various plans available, that all offer various features and can provide maximum benefit for the employee, accompanied by the lowest funding costs.
Options available are outlined below:
• Safe Harbour 401k plans – These plans are directed to high earning individuals, since they allow the maximum possible contribution, without the risk of failing the ACP test. This is why they are called safe harbor.
• New Comparability Plans – These plans are directed towards companies who would like to retain some form of caution in contribution funding, while amplifying the contributions of owners or high earning individuals.
• Defined Benefit Plans – These plans define the amount of money that individuals will be getting upon retirement age. These plans are better suited for smaller businesses.
Reference: http://www.credit.com/news/economic-crisis/2009-03-24/recession-causing-many-401ks-to-be-underfunded.html
The economic recession however, may lead some companies to terminate the plans, since they will not be able to afford the plan contributions. This trend has already started, however experts believe that if the recession continues for a certain length of time, the problem will worsen.
Apart from this, it seems that some tight for cash companies, are withholding the employees 401k contributions, and instead of transferring the money into the employee’s fund, they are using it as operational capital.
Employees should take control of their plan by asking for statements, confirming the current balances, and that their contributions are actually being directed to their 401k plan.
From the employer’s side, 401k plans that offer the right features should work as a good tool for employee retention. There are various plans available, that all offer various features and can provide maximum benefit for the employee, accompanied by the lowest funding costs.
Options available are outlined below:
• Safe Harbour 401k plans – These plans are directed to high earning individuals, since they allow the maximum possible contribution, without the risk of failing the ACP test. This is why they are called safe harbor.
• New Comparability Plans – These plans are directed towards companies who would like to retain some form of caution in contribution funding, while amplifying the contributions of owners or high earning individuals.
• Defined Benefit Plans – These plans define the amount of money that individuals will be getting upon retirement age. These plans are better suited for smaller businesses.
Reference: http://www.credit.com/news/economic-crisis/2009-03-24/recession-causing-many-401ks-to-be-underfunded.html
Thursday, March 26, 2009
Annual Funding Notice Necessities
The Labour Department of the United States, has recently supplied a Field Assistance Bulletin, which deals with the conformity to the annual funding notice requisite, for defining the various pension plans. This official statement also contains a model of how the notice should be compiled, for the benefit of single-employer plans.
Employers should normally provide the compiled notices, within a specified term of maximum 120 days after the closing of the plan year. Smaller sized plans that are entitled to use an end of year valuation date should provide this notice by the same date that they file the required Form5500.
Pension Plan administrators, are required to provide the above mentioned notice to the following parties:
• all the people who are contributing money into the pension plan
• all the plan beneficiaries
• all the labour organizations that are representing either the beneficiaries or the contributors.
Furthermore, the Pension Benefit Guaranty Corporation should also get a copy of the funding notice, in the case that the plan liabilities are in excess of the plan’s assets, by a sum that exceeds 50 million dollars. The Pension Benefit Guaranty Corporation may also send a written request asking for the notice. In this case, the plan administrators should send the funding notice within 30 days from the date of the written request.
The model version of the funding notice that was issued with the Field Assistance Bulletin is not required, however if properly completed, it will ensure that all the legal requirements are satisfied, until further notice.
Reference:
http://www.watsonwyatt.com/search/parser.asp?ID=20826
Employers should normally provide the compiled notices, within a specified term of maximum 120 days after the closing of the plan year. Smaller sized plans that are entitled to use an end of year valuation date should provide this notice by the same date that they file the required Form5500.
Pension Plan administrators, are required to provide the above mentioned notice to the following parties:
• all the people who are contributing money into the pension plan
• all the plan beneficiaries
• all the labour organizations that are representing either the beneficiaries or the contributors.
Furthermore, the Pension Benefit Guaranty Corporation should also get a copy of the funding notice, in the case that the plan liabilities are in excess of the plan’s assets, by a sum that exceeds 50 million dollars. The Pension Benefit Guaranty Corporation may also send a written request asking for the notice. In this case, the plan administrators should send the funding notice within 30 days from the date of the written request.
The model version of the funding notice that was issued with the Field Assistance Bulletin is not required, however if properly completed, it will ensure that all the legal requirements are satisfied, until further notice.
Reference:
http://www.watsonwyatt.com/search/parser.asp?ID=20826
Learn How to Protect Your Pension Plan
If you’re concerned about the value of your pension plan, then you’re not the only one. In today’s volatile economic environment, with the change in the pension legislation, many companies striving to keep afloat, and some of them even cutting illegally on their employees’ pension money, you have an obligation to look out for yourself and be attentive.
The guide ‘Protecting Your Pension For Dummies’ is an easy to follow book, that clarifies in a simplified manner, the recent changes in pension legislation, what your rights are, and gives details on how to keep your money safe and your mind at rest.
This guide goes through the different types of pension plans that are available, always in a straightforward manner, and also summarizes what it takes to be eligible for a pension. You will also find clear-cut explanations on how your pension plan is affected by loans, divorce, company mergers, personal bankruptcy, pension cut down and others.
This book will aid you in
• Understanding better the Pension Legislation
• Planning adequately for your retirement while you’re working
• Making sure that you get your saved pension when you retire
• Protecting your plan from your employer
• Evaluating the different options available
• And many others
Furthermore, the Protecting Your Pension for Dummies guide also comes with a full glossary of the terms used in the book, thus making it easier to understand. Moreover the book also comes with an appendix that consists of charts and also forms that are used throughout the book. This guide makes helps you in understanding everything you need to know about retirement, in a fast and easy way!
Reference: http://makemoneymyself.com/protecting-your-pension-for-dummies-robert-d-gary-esq-jori-bloom-naegele-esq/
The guide ‘Protecting Your Pension For Dummies’ is an easy to follow book, that clarifies in a simplified manner, the recent changes in pension legislation, what your rights are, and gives details on how to keep your money safe and your mind at rest.
This guide goes through the different types of pension plans that are available, always in a straightforward manner, and also summarizes what it takes to be eligible for a pension. You will also find clear-cut explanations on how your pension plan is affected by loans, divorce, company mergers, personal bankruptcy, pension cut down and others.
This book will aid you in
• Understanding better the Pension Legislation
• Planning adequately for your retirement while you’re working
• Making sure that you get your saved pension when you retire
• Protecting your plan from your employer
• Evaluating the different options available
• And many others
Furthermore, the Protecting Your Pension for Dummies guide also comes with a full glossary of the terms used in the book, thus making it easier to understand. Moreover the book also comes with an appendix that consists of charts and also forms that are used throughout the book. This guide makes helps you in understanding everything you need to know about retirement, in a fast and easy way!
Reference: http://makemoneymyself.com/protecting-your-pension-for-dummies-robert-d-gary-esq-jori-bloom-naegele-esq/
Saturday, March 21, 2009
Solo Retirement Plans
Solo is a custodian, who takes care of investing money on behalf of a self employed individual.
The Solo retirement plan was infact designed for self employed individuals, whose business does not employ any full time employees. These plans are known as qualified plans, because anyone can operate as a trustee.
This means that the investor, or in other words the self employed person can also be the trustee, and take care of the investment decisions on his retirement plan, himself. This makes the Solo401(k) plans, simpler and cheaper than their counterparts. To give an example, let us say that our self employed individual Harry, is serving the role of trustee, employer, participant, employee and administrator all in one. As employer he invests the maximum amount in the plan. Then Jane, Harry’s wife as employee can also invest herself another $46000.
There are however potential compliance and record maintaining problems with this retirement plan. Here is how you should avoid them:
• The only method with which this plan is controlled, is through the completion of a single form called 5500-EZ. Furthermore this form is only required when the total assets saved in the plan exceed the sum of 250,000 dollars.
• Legal compliance on this plan is not complicated to achieve. All investors and account holders should avoid making illicit transactions. The responsibility of this, lies solely on yourself.
As we have seen, the solo plan provides a very simple and straight forward structure, since a person can serve all the roles, thus making the decision making process less time consuming and complicated. This plan also allows you to invest in various investment options such as precious metals and foreign shares, where investment managers would normally refuse to invest.
The Solo retirement plan was infact designed for self employed individuals, whose business does not employ any full time employees. These plans are known as qualified plans, because anyone can operate as a trustee.
This means that the investor, or in other words the self employed person can also be the trustee, and take care of the investment decisions on his retirement plan, himself. This makes the Solo401(k) plans, simpler and cheaper than their counterparts. To give an example, let us say that our self employed individual Harry, is serving the role of trustee, employer, participant, employee and administrator all in one. As employer he invests the maximum amount in the plan. Then Jane, Harry’s wife as employee can also invest herself another $46000.
There are however potential compliance and record maintaining problems with this retirement plan. Here is how you should avoid them:
• The only method with which this plan is controlled, is through the completion of a single form called 5500-EZ. Furthermore this form is only required when the total assets saved in the plan exceed the sum of 250,000 dollars.
• Legal compliance on this plan is not complicated to achieve. All investors and account holders should avoid making illicit transactions. The responsibility of this, lies solely on yourself.
As we have seen, the solo plan provides a very simple and straight forward structure, since a person can serve all the roles, thus making the decision making process less time consuming and complicated. This plan also allows you to invest in various investment options such as precious metals and foreign shares, where investment managers would normally refuse to invest.
Points to consider on your company’s retirement plan
The recent financial crises is causing problems al over. This goes as well for people who are nearing retirement age, and had to postpone their giving up work, since their retirement plans have lost in value.
In America the court has ruled that a company can be held liable for the above mentioned losses, and this fact may have very serious consequences.
Points to look out for to avoid possible legal trouble:
• If as a company you are appointing another party to execute instructions re investment choices, make sure the work is done in a timely manner, and with necessary accuracy.
• A company is now required to separate the employees’ retirement contributions immediately, and no later than fifteen days after end of month. For smaller companies, the limit goes down to seven days.
• Make sure that your employees doe not for any reason, delay their monthly retirement payments. This will cause disruption, since the markets change daily, thus leading to potential losses.
• Consider the option of inviting a financial planning manager, to give a talk to your employees, and update them on the current financial position of their plan.
• Avoid errors that would later require to be corrected, when collecting the employees’ personal data.
• Make sure your files are annually updated with all necessary signatures; this will affect your audit.
• Ensure that your auditor understands the legal requirements of retirement plans, such that he can make sure that all your paperwork is legally up to date.
• Give your auditor a copy of all the signed agreements, and explain to him how the retirement system is currently being monitored.
• Last but not least, make sure that your auditor has all the contracts, forms and other paperwork he requires before he starts the audit.
In America the court has ruled that a company can be held liable for the above mentioned losses, and this fact may have very serious consequences.
Points to look out for to avoid possible legal trouble:
• If as a company you are appointing another party to execute instructions re investment choices, make sure the work is done in a timely manner, and with necessary accuracy.
• A company is now required to separate the employees’ retirement contributions immediately, and no later than fifteen days after end of month. For smaller companies, the limit goes down to seven days.
• Make sure that your employees doe not for any reason, delay their monthly retirement payments. This will cause disruption, since the markets change daily, thus leading to potential losses.
• Consider the option of inviting a financial planning manager, to give a talk to your employees, and update them on the current financial position of their plan.
• Avoid errors that would later require to be corrected, when collecting the employees’ personal data.
• Make sure your files are annually updated with all necessary signatures; this will affect your audit.
• Ensure that your auditor understands the legal requirements of retirement plans, such that he can make sure that all your paperwork is legally up to date.
• Give your auditor a copy of all the signed agreements, and explain to him how the retirement system is currently being monitored.
• Last but not least, make sure that your auditor has all the contracts, forms and other paperwork he requires before he starts the audit.
Retirement plan proceeds and wills
In the United States of America, the Supreme Court has made a very interesting ruling on a case, where retirement plan proceeds, went to the deceased’s ex-wife. But to understand how this came to pass here are the details of the case:
It seems that Mr W Kennedy, was saving regularly in his employer’s SIP – savings investment plan. Mr Kennedy had the power to name a beneficiary that would get his savings proceeds, after his death. The named beneficiary could also be revoked or replaced as agreed with the plan’s administrator.
Later on Mr Kennedy got married, and named his new wife sole beneficiary. The marriage did not last, and the divorce document stripped away the wife of her interest in her husband’s SIP profits.
When Mr Kennedy died, his daughter and executor of his estate, requested for the SIP money to be transferred to the estate. The plan administrator however, acted on the appointment Mr Kennedy had signed, and gave the funds to his now ex wife.
A grievance was obviously filed, contending that the x wife had waived her rights to the SIP funds. The district court ruled that the funds should be paid to the estate and that the administrator and the company were in breach of law. The ruling however was later reversed by a higher court, stating that Mrs Kennedy’s surrender was separation of her interest in the funds within the estate that was barred by legal section 1056d 1.
The administrator is in duty to always act by the documents that are signed by the SIP saver.
It seems that Mr W Kennedy, was saving regularly in his employer’s SIP – savings investment plan. Mr Kennedy had the power to name a beneficiary that would get his savings proceeds, after his death. The named beneficiary could also be revoked or replaced as agreed with the plan’s administrator.
Later on Mr Kennedy got married, and named his new wife sole beneficiary. The marriage did not last, and the divorce document stripped away the wife of her interest in her husband’s SIP profits.
When Mr Kennedy died, his daughter and executor of his estate, requested for the SIP money to be transferred to the estate. The plan administrator however, acted on the appointment Mr Kennedy had signed, and gave the funds to his now ex wife.
A grievance was obviously filed, contending that the x wife had waived her rights to the SIP funds. The district court ruled that the funds should be paid to the estate and that the administrator and the company were in breach of law. The ruling however was later reversed by a higher court, stating that Mrs Kennedy’s surrender was separation of her interest in the funds within the estate that was barred by legal section 1056d 1.
The administrator is in duty to always act by the documents that are signed by the SIP saver.
New Pension Laws
If you are an individual who is considered a high earner, on your retirement plan or 401k plan, than you have reasons to be happy. The IRS has raised its limits for 2009 through the new Pension Protection Act. You may also be exempt from further payments during this year.
Every year, companies are needed to execute testing on their retirement account, thus determining whether their employees will be getting a refund on their retirement plan contributions.
If you are a high earner, you would have previously had to wait until the audit is done to receive any refund. The new law has made contributions taxable within the same financial year. This means that you won’t need to wait to file your income tax forms.
The PPA, is an act that was signed a few years ago. Over the last years, employers have been underfunded due to government or management executives playing around with the pension funds, such that due benefits were exceeding the actual available funds, leaving the companies tight for cash and causing financial problems.
Moreover, you will also be able to receive tax refunds more rapidly. The rule also allows individuals to defer any increase in taxable income, to the following year. Thus you are going to be able to think of a better tax tactic for the year 2010.
This law is basically targeted towards the people. You can now plan better your taxes, and also defer taxable income, and also you don’t have to wait unnecessarily long to get your refunds on retirement plan contributions.
Every year, companies are needed to execute testing on their retirement account, thus determining whether their employees will be getting a refund on their retirement plan contributions.
If you are a high earner, you would have previously had to wait until the audit is done to receive any refund. The new law has made contributions taxable within the same financial year. This means that you won’t need to wait to file your income tax forms.
The PPA, is an act that was signed a few years ago. Over the last years, employers have been underfunded due to government or management executives playing around with the pension funds, such that due benefits were exceeding the actual available funds, leaving the companies tight for cash and causing financial problems.
Moreover, you will also be able to receive tax refunds more rapidly. The rule also allows individuals to defer any increase in taxable income, to the following year. Thus you are going to be able to think of a better tax tactic for the year 2010.
This law is basically targeted towards the people. You can now plan better your taxes, and also defer taxable income, and also you don’t have to wait unnecessarily long to get your refunds on retirement plan contributions.
Choosing your Retirement Plan Beneficiary
The job of selecting a beneficiary for your 401k retirement plan can be a difficult one. The task is however a very important one.
It is very common that when a person is married, he or she would name the spouse as beneficiary on the proceeds. There are however cases, when someone other than the spouse, needs to be made beneficiary of the plan, and this is when complications start arising.
When a person is married, and he needs to name a beneficiary that is not the spouse, the first thing he needs to get is approval from his spouse in a written form. In some states, not even this written approval is allowed, and the person would have to seek the court’s permission before making this arrangement.
The type of account held, will also have a bearing. Apart from the provisions for the 401k retirement account, other provisions exist for IRAs. The IRA provisions for example state that if a person’s residency, is not a community property state, even if he is married, he can name anyone as beneficiary.
Other community states have a special form that needs to be filled in, so always have a look and check that you are within the required regulations.
When someone inherits an IRA account, he may just file a claim as beneficiary and the account will be automatically changed into his name. In the above case, one would obviously need to provide the deceased’s death certificate, and also proof of his own identity such as the required searches can be done.
This procedure would make the descendant, the new owner of the IRA. The new owner then has the right to name a new beneficiary, thus not having to pay any income tax if the whole sum of money is not used.
Other options are also available; however one must always bear in mind legal fees that they incur, and possible taxes. The best thing to do is to seek legal advice, and thus make the most appropriate decision.
It is very common that when a person is married, he or she would name the spouse as beneficiary on the proceeds. There are however cases, when someone other than the spouse, needs to be made beneficiary of the plan, and this is when complications start arising.
When a person is married, and he needs to name a beneficiary that is not the spouse, the first thing he needs to get is approval from his spouse in a written form. In some states, not even this written approval is allowed, and the person would have to seek the court’s permission before making this arrangement.
The type of account held, will also have a bearing. Apart from the provisions for the 401k retirement account, other provisions exist for IRAs. The IRA provisions for example state that if a person’s residency, is not a community property state, even if he is married, he can name anyone as beneficiary.
Other community states have a special form that needs to be filled in, so always have a look and check that you are within the required regulations.
When someone inherits an IRA account, he may just file a claim as beneficiary and the account will be automatically changed into his name. In the above case, one would obviously need to provide the deceased’s death certificate, and also proof of his own identity such as the required searches can be done.
This procedure would make the descendant, the new owner of the IRA. The new owner then has the right to name a new beneficiary, thus not having to pay any income tax if the whole sum of money is not used.
Other options are also available; however one must always bear in mind legal fees that they incur, and possible taxes. The best thing to do is to seek legal advice, and thus make the most appropriate decision.
Action points for your company’s Retirement Plan
The economic crisis is causing older employees to postpone their retirement, since their saved money has dropped in value. Investments aren’t going to well, and this has also led to inspection regarding compliance.
Here are some points that will assist you in assuring the safety of your company’s retirement plan:
• If you are delegating the implementation of instructions to third parties, make sue that these are being done on time, and in an accurate fashion. This is more important now since most transactions are done without the use of paper. This provider also has the duty to inform the employee, of any changes in the investment value
• Make sure that employee benefits are separated from the company’s assets, because this is a legal requirement. This should legally not take more than 15 days, after the end of month when the payments are withheld from the employees’ wages.
• Do not in any event, delay the payment of the contributions. This may be considered as felonious. With the markets changing from one day to the next, a delay may harm the value of the investments; give rise to losses and thus increasing the possibilities of being sued by your employees. Definitely not worth all the trouble.
• Given the volatility of the markets, consider asking a financial planning manager to come along and give a talk to the employees, about the financial markets, how investments work, and also the value of their portfolios. This way the employees will feel more empowered, since they know what is going on.
• Check your retirement plan for any errors in employee data, and prepare an audit to make sure that the plan is in compliance with the legal requirements.
• Make sure you have all the necessary paperwork, make sure everything is properly signed as it should be.
• Contact an auditor that has experience in the field, ask him for advice and prepare all the necessary forms and documentation he will need to conduct a good audit.
If you follow the above mentioned points, you can sleep rested, knowing that your employees and your company are covered with regards to the retirement plan regulations.
Here are some points that will assist you in assuring the safety of your company’s retirement plan:
• If you are delegating the implementation of instructions to third parties, make sue that these are being done on time, and in an accurate fashion. This is more important now since most transactions are done without the use of paper. This provider also has the duty to inform the employee, of any changes in the investment value
• Make sure that employee benefits are separated from the company’s assets, because this is a legal requirement. This should legally not take more than 15 days, after the end of month when the payments are withheld from the employees’ wages.
• Do not in any event, delay the payment of the contributions. This may be considered as felonious. With the markets changing from one day to the next, a delay may harm the value of the investments; give rise to losses and thus increasing the possibilities of being sued by your employees. Definitely not worth all the trouble.
• Given the volatility of the markets, consider asking a financial planning manager to come along and give a talk to the employees, about the financial markets, how investments work, and also the value of their portfolios. This way the employees will feel more empowered, since they know what is going on.
• Check your retirement plan for any errors in employee data, and prepare an audit to make sure that the plan is in compliance with the legal requirements.
• Make sure you have all the necessary paperwork, make sure everything is properly signed as it should be.
• Contact an auditor that has experience in the field, ask him for advice and prepare all the necessary forms and documentation he will need to conduct a good audit.
If you follow the above mentioned points, you can sleep rested, knowing that your employees and your company are covered with regards to the retirement plan regulations.
Saturday, March 7, 2009
We have a new Google Gadget for iGoogle
Add our new Google Gadget to your iGoogle page or Google Desktop and stay on top of the latest breaking news and commentary on 401k's and pension plans. Also, be sure to look for the latest product announcements, reviews and news from the leading providers.
To add this gadget to your iGoogle page, do the following:
1 - select "Add Stuff" from the upper right link section of iGoogle
2 - select "Add feed or gadget" link on the lower left menu
3- paste this URL:
http://hosting.gmodules.com/ig/gadgets/file/117932485025915894878/ThePensionPunditv4.xml
into the text box replacing the "http://" with the above.
4 - Select OK when asked "You are about to add a feature that was not created by Google..."
Your Gadget will now show up on your iGoogle page. Use the "Edit Settings" menu on the gadget to change number of news entries that are displayed.
Our gadget will give the right amount of timely and useful information without bogging you down.
We welcome your comments and suggestions to improve this Gadget.
To add this gadget to your iGoogle page, do the following:
1 - select "Add Stuff" from the upper right link section of iGoogle
2 - select "Add feed or gadget" link on the lower left menu
3- paste this URL:
http://hosting.gmodules.com/ig/gadgets/file/117932485025915894878/ThePensionPunditv4.xml
into the text box replacing the "http://" with the above.
4 - Select OK when asked "You are about to add a feature that was not created by Google..."
Your Gadget will now show up on your iGoogle page. Use the "Edit Settings" menu on the gadget to change number of news entries that are displayed.
Our gadget will give the right amount of timely and useful information without bogging you down.
We welcome your comments and suggestions to improve this Gadget.
Friday, March 6, 2009
Welcome
Welcome to our new blog dedicated to keeping the HR and Benefits professional up to date with the latest breaking news in the industry.
Stay tuned....
-the Pension Pundit Team
Subscribe to:
Posts (Atom)