Retirement Plan Blog

07 | 1 | 2008 Posted By Jerry Kalish

Two recent 401(k) plan terminations in our little corner of the retirement plan world does not a trend make. But it's a sign that the economic slowdown is also affecting plan sponsors.

Two clients who had not made employer contributions for some time decided that because of the relatively few employees contributing, it simply was not worth the time, trouble, expense, and fiduciary responsibility to continue. Employee account balances will be distributed, and hopefully rolled over to IRAs.

So now what? Nick Curabba in his post, Ways and Means Committee to Discuss IRAs, on Baker & Daniels' Benefit Biz Blog discusses one public policy solution to the retirement savings issue.  Mark Iwry, a former Treasury Department official is advancing the new idea of requiring employers to default employees into an "automatic" payroll deduction IRA.

I blogged about Mark before in my post, 401(k) Automatic Enrollment or How to Overcome Employee Inertia. Mark is now involved with helping make automatic enrollment happen and "simpler". He is the Managing Director of the Retirement Security Project (RSP) and Nonresident Senior Fellow at the Brookings Institution.

While serving in the U.S. Treasury Department, overseeing the regulation of the nation’s private pension system, Mark led the government’s initiative to define, approve, and promote automatic 401(k)s beginning nearly a decade ago.

But ten years is too long a time period as an answer to "now what?".

06 | 28 | 2008 Posted By Jerry Kalish

The results of a recent survey by Putnam Investments come as no surprise to those of us that are involved with 401(k) plans on a daily basis.

Putnam found that because of the current downturn in the economy employees are putting away less money in their 401(k) accounts: 21% of 401(k) participants are now contributing at a lower rate and 4% have stopped altogether.

But there is a way employers can help employees put more dollars in their paychecks at no additional expense to them. In fact, tax savings are available to both employers and employees.

So what is it, and how does it work? It’s an oft forgotten program that allows employers to offer employees the opportunity pay for certain transportation expenses on a pre-tax basis under Internal Revenue Code Section 132 and the Transportation Equity Act for the 21st Century (TEA-21).

Pre-tax means before income taxes and FICA. Pre-tax benefits are valuable to employees because they effectively increase take-home pay. These benefits are also valuable to employers because the employer avoids paying its share of FICA.

Qualified transportation expenses generally include payments for the use of mass transportation, e.g., train, subway, bus fares), and for parking. Amounts are indexed for inflation. For 2008 the maximum monthly pre-tax contribution for mass transit is $115.00, and $220.00 for parking.

And there’s one more goodie. While Section 132 benefits are similar to the pre-tax flexible spending accounts available for medical expenses and dependent care under Section 125, there’s one important difference. The transportation benefit does not include a "use it or lose it penalty," as required with medical/dependent care flexible spending accounts.

06 | 23 | 2008 Posted By Jerry Kalish

The late Robert King Merton, the distinguished American sociologist, published an article in the December, 1936 issue of the American Sociological Review titled The Unanticipated Consequences of Purposive Social Action. It's since been popularized as The Law of Unintended Consequences. 

Kinda like, say, trying to drive through a flooded road in one of the storm ravaged parts of this country. Or in case of a business owner using the tax laws to exclude Non-Highly Compensated Employees (Non-HCEs) from his or her retirement plan if asset protection is a key objective.

Why? Because a retirement plan covering only the business owner and/or the owner’s spouse is not an ERISA plan, and does not  qualify for anti-alienation protections under Title I of ERISA. Put another way, what seems like a good idea at the time could turn out to be bummer.

06 | 20 | 2008 Posted By Jerry Kalish

That's the Stock Broker, one of the many characters voiced by Wally Wingert on Family Guy, the animated television sitcom created by Seth MacFarlane and airing on Fox.

If you're not up on pop culture, the show centers on a dysfunctional family that lives in the fictional town of Quahog, Rhode Island. In the real world of small 401(k) plans and 403(b) plans, however, a broker/adviser/consultant is a critical element in the retirement plan's ultimate success. And in most cases, his or her compensation is in the form of commissions.

Bob Toth talks about this in the context of 403(b) plans in his recent post, 403(b) Commissions: In Defense Of (Reasonable) Compensation, on Baker & Daniels' Benefits Biz Blog:

I do not argue in defense of those unethical salesmen who sell the wrong product at the wrong fee to the wrong person. There are employers and employees for whom some of the products are unsuitable. But, as we issue new RFPs to support the new regulations, we are finding that there are very real services being provided in this market.

The impeding 403(b) changes to which Bob alludes means that if it looks like a 401(k), acts like a 401(k), and sounds like a 401(k), then it must be a 403(b) - Part 1 and Part 2.

And so what will evolve with 403(b) plans are a set of best practices provided by the the most professional 401(k) brokers. Those individuals who:

• Identify plan sponsor and participant needs
• Manage the RFP process
• Involve themselves in the process of changing service providers
• Provide an investment policy statement
  
• Assist with fund selection and performance monitoring
• Conduct employee enrollment meetings
  
• Provide assistance to individual participants
• Continually involve themselves with the plan sponsor and the other service providers
• Communicate rollover and other options to terminating employees

06 | 17 | 2008 Posted By Jerry Kalish

Pardon my generation gap, but I don't always effectively communicate the importance of saving for retirement to the Generation X employee. So the index card below is another way of "looking" at it. For us verbal folks, index cards are that old school analog method of organizing information. Jessica Hagy, however, uses the centuries-old 3-by-5 card (76 by 127 mm if you're on the metric system) as a canvas to express her creativity.

You can see more of her work on her blog, Indexed, on which she uses charts, graphs, and Venn diagrams drawn on index cards to make social commentary in her own humorous way. She has a new book of the same name, Indexed, in which she's taken 100 of her "greatest hits" and new material that expresses relationships better than most of us can express in words.

06 | 5 | 2008 Posted By Jerry Kalish

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Exit strategies for business owners - particularly the baby boomers - is a matter to which they are giving increased attention. And so are their attorneys. Yesterday I participated in a continuing education program sponsored by the Financial Insitution Committee of the Chicago Bar Association for its members on this topic.

Our particular focus was ESOP as an Exit Strategy. I was joined by Grant McCorkhill, a Partner at Holland & Knight who specializes in transactional matters; and David Blum, a commercial banker and Vice President of First American Bank, an ESOP lender. We discussed:

• Exit Strategies for the Business Owners
• ESOP Essentials
• How an ESOP Gets Done

Click here to download a copy of our presentation (PDF, 20 pages).

06 | 4 | 2008 Posted By Jerry Kalish

It's a global economy, of course, and most of us - irrespective of size - are doing business outside the U.S. In our case, we have non-U.S. company clients with employees here. So I'm always interested what benefits non-U.S. companies are providing their employees in the home country.

I've posted before that employee ownership is not just for U.S. workers. The  European Federation of Employee Share Ownership (EFES), the leading voice of  employee ownership in Europe, has just published their first Annual Economic Survey of Employee Ownership in European Countries.

The main finding is that employee ownership is growing faster in Europe than expected. Projections are that employee ownership is going to double within the next 5-10 years, from 8.2 million employee owners to 16 million, from 26.2% of all employees in large European companies to 40-50%, and capitalization held by employees going to increase from 2.35% now to 4 - 4.5%.

Here is a link to subscribe to the EFES newsletter if you're interested in more information about employee ownership outside the U.S. It's also an opportunity for you to practice your Spanish, Italian, German, Dutch, Portuguese, Danish, Greek, Finish, Swedish, Hungarian, Polish, Bulgarian, Czech,Estonian, Latvian, Lithuanian, Romanian, Slovakian, Slovene, Turkish, Russian, Chinese, or Japanese.

05 | 28 | 2008 Posted By Jerry Kalish

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Both modern art and a fund prospectus can be totally incomprehensible. 401(k) participants may not be exposed to modern art, but they sure are provided mutual fund prospectuses - at least by those plan sponsors looking for 404(c) protection.

Understanding modern art will have to wait for an Art Apprec course. The Securities and Exchange Commission ("SEC") is trying to do something about making the fund prospectus more user-friendly.

Last November, the SEC proposed changes to the prospectus that would make it more streamlined while still requiring the funds to make the more complete prospectus available to investors. The deadline for submitting comments was February 28, 2008. Most were favorable. The mutual fund industry as represented by the Investment Company Institute (“ICI”) supports the SEC proposal. Commentators have projected the proposal to be finalized as early as this summer.

Sounds good, doesn't it. But I'm a little bit concerned because of its name. It's called a Summary Prospectus like that ERISA document that also has the word Summary in its name as in Summary Plan Description (SPD). Hopefully, the Summary Prospectus will not get the sometimes response by a plan participant who upon receipt of the SPD asks, Yes, but what does it mean?

Photo by shutterberry via flickr of Autumn Rhythm (Number 30), 1950 by Jackson Pollack.

05 | 27 | 2008 Posted By Jerry Kalish

Retirement is not about the proverbial gold watch any more. Today, our focus is on retirement security, and the newly created National Institute on Retirement Security (NIRS) is adding to the dialogue. The NIRS was established in in 2007 by the Council of Institutional Investors (CII), the National Association of State Retirement Administrators (NASRA), and the National Council on Teacher Retirement (NCTR).

Their goal was to create an organization "dedicated to fostering a deep understanding of the traditional pension system in the U.S.", and they're off to a quick start. The NIRS has just launched their new website, nirsonline.org, and issued their first Research Brief, Retirement Readiness: What Difference Does A Pension Make?

The Brief written by Beth Almeida, NIRS' first Executive Director, 

... reviews the evidence on the role DB pensions play in ensuring that older Americans have the resources they need to be self-sufficient in retirement. It examines recent trends in pension coverage and discusses the effect these trends have had on the state of retirement readiness among American workers. Finally, it points in the direction of areas worthy of exploration for policymakers seeking to address specific retirement security goals.

You can download the Brief here (PDF).