HSAs and 401(k)s are Becoming More Closely Linked

As HSAs continue to grow, more employers are starting to work HSAs into their retirement programs. Take a look at this great article by Brian M. Kalish from Employee Benefit News and see how employers are using HSAs as a tool to help their employee plan for their healthcare cost in retirement.

There has been progress among leading-edge advisers and employers to more closely link HSAs and 401(k)s in order to allow employees to use a health savings account to save for healthcare expenses post-retirement.

Eighty percent of Americans have a high concern about healthcare costs in retirement, according to Merrill Lynch, and healthcare is the largest threat to retirement savings and the most important part of a retirement income plan, according to Fidelity, which is why there has been a recent push to more closely link HSAs and 401(k)s, or health and wealth.

HSAs are triple tax-free, Brian Graff, CEO of the American Retirement Association, an Arlington, Va.-based trade group said at a recent event hosted by AFS 401(k) Retirement Services

The fact of linking health and wealth “is a big idea and there is some continued focus on it moving forward,” says Alex Assaley, managing principal of Bethesda, Md.-based financial services advisory company AFS 401(k).

“There is a lot more interest in HSAs by pretty much everybody,” explains Nevin Adams, chief of marketing and communications at the American Retirement Association.

According to the Employee Benefit Research Institute, nearly 30% of employers offered an HSA-eligible health plan in 2015 and that percentage is expected to increase in the future both as a health plan option and as the only health plan option. Most of the growth has been recent as more than four-in-five HSAs have been opened since the beginning on 2011, according to EBRI.

At an event hosted by Assaley’s firm in 2016, he said there was not a lot of traction around the idea of using HSAs to save for healthcare expenses post-retirement. But, now, there is a bigger push.

As HSAs continue to grow, employers, employees and advisers are “understanding there is an ability to accumulate money in the HSA and use that for healthcare or something [employees] want to set aside because they are not sure what their healthcare cost situation in the future is going to be,” Adams explains.

Assaley adds that there has “definitely been a good deal of refinement and evolution in the HSA marketplace [recently], whereby … you are now seeing more companies offering HSAs as a part of their medical and retirement strategy. You are also seeing more employees thinking about HSAs as part of their overall holistic fin wellness program.”

In one-on-one coaching sessions with employees, conversations are becoming more prominent, as advisers help employees, “understand how all employee benefits tie together to make wise financial decisions today, tomorrow and for their retirement,” Assaley says.

“With certainty, there has been a great deal of growth in the marketplace and evolution in how HSAs and 401(k)s are starting to interlock together,” he adds.

Saving for the future
Looking down the road, Assaley expects the linking to continue, especially if proposals to alter the maximum accounts that can be contributed pre-tax to an HSA is tweaked, as has been proposed by legislators on Capitol Hill. Some proposals shared amongst the industry, Assaley says, propose doubling the pre-tax amount.

“If that happens or there is any sort of meaningful increase, then I think you will see an exponential growth in the numbers of HSAs,” he says.

For advisers, the work is not done as they need to help employees better understand how a HSA works and from there help employees understand the benefits of a HSA and the different ways to structure one, Assaley explains.

“Even today, there is a large knowledge gap on what an HSA is, how it works and how someone can use one as part of health and retiree healthcare needs,” he says.

See the original article Here.

Source:

Kalish B. (2017 July 5). HSAs and 401(k)s are becoming more closely linked [Web blog post]. Retrieved from address https://www.benefitnews.com/news/hsas-and-401-k-s-are-becoming-more-closely-linked?feed=00000152-18a4-d58e-ad5a-99fc032b0000


retirement money

10 Ways Millennials are Saving for the Future

Have your millennial employees started saving for their retirement? Check out this article by Marlene Y. Satter from Benefits Pro and see what millennial across the country are doing to prepare themselves for retirement.

They’re called spendthrifts by other generations, are laden with student debt and burdened with lower-paying jobs.

But that doesn’t mean that millennials aren’t thinking about the future and saving for it.

And they could certainly use a little help—from human resources and from plan sponsors—to be more successful at it, since both the debt and the jobs don’t leave them much to work with when all expenses are accounted for.

Both HR and sponsors might want to consider how retirement savings plans and their features—auto-enrollment, auto-escalation, employer matching funds—could be tweaked to give millennials a boost in meeting major life goals and in saving for retirement, as well as for the health expenses it undoubtedly will bring along with it.

In the meantime, they can consider how millennials are already trying to stretch every dollar till it snaps—some in very unconventional ways.

In a survey, digital banking app Varo Money, Inc. has uncovered a range of methods millennials are using to make those paychecks go farther.

And while retirement is certainly on their radar, that’s not the only goal they’re pursuing; of course they have a whole life to live first. Some of their prime goals are travel, buying property and dreaming about a new car, while

Here are some of the strategies to which millennials resort in the quest to fund their futures. Can plan sponsors be less imaginative than some of these? Surely not….

10. Half of millennials surveyed save automatically.

While respondents say they aren’t fond of spreadsheets—they don’t track their money constantly, or input figures into programs like Excel or Mint to create detailed, category-based budgets—they do watch their bank balances regularly and are pretty aware of what they spend monthly.

They view it as “hands-off” money management.

What they do, however, is save automatically out of each paycheck, with 50 percent socking away a percentage every payday. So they’re prime candidates for savings plans with auto features—enrollment, escalation, etc.

report from the Society of Human Resource Management points to multiple studies indicating that auto escalation in particular—but to a high level such as 10 percent—results in higher savings for employees, since few actually opt out of a rate higher than they might have chosen for themselves.

9. Millennials are looking to climb the corporate ladder—to a higher paycheck.

An impressive 39 percent of millennials are on the prowl for a better-paying job opportunity, which is yet another reason that HR personnel and plan sponsors hoping to retain good staff might want to keep an eye on millennials’ rate of pay, as well as their rate of savings.

Reviewing other benefits wouldn’t hurt, either, since the more attractive an existing job is, the more likely an employee is to stay.

Considering the cost of finding, hiring and training replacements, a raise and better benefits might be cheaper in the long run.

8. Millennials know food is cheaper at home, especially with a partner to share it.

Millennials, despite their spendthrift reputation, are willing to skip little luxuries like the much-vaunted avocado toast or make coffee and meals at home.

In fact, 36 percent stick with the coffeepot on the counter instead of the barista at the corner, while 11 percent of men and 3 percent of women are willing to abandon the avocado toast—after all, everyone has his, or her, breaking point when economizing.

And 26 percent of respondents point out that cooking for two is cheaper than dining solo at home—much less in a restaurant.

7. Millennials recognize how much cheaper it is to live as a couple.

While 75 percent of millennials are conscious of the financial benefits in being half of a couple. 44 percent point to the cheaper rent when there are two to share the load.

And that helps them both save more.

Even those who aren’t part of a couple are looking for roommates, according to Mashable, which reports on a SmartAsset study finding that in high-rent cities like San Francisco, New York and Boston a person can save at least $700 a month by having a roommate.

Cue in the cooking-at-home technique for group meals, and the savings grow even more.

6. Millennials go on fewer dates to save money.

Being in a relationship, say 16 percent of millennials, is cheaper than still looking, since they save money by not going out on so many dates.

5. They save on taxes if they’re married.

Ever-practical, these millennials. They recognize that being half of a married couple can save on their tax bill—and they don’t forget that either when looking for cash to stash for the future.

4. They bargain-hunt for credit card perks.

Make no mistake, among millennials travel is a big deal: 58 percent said travel destinations are their favorite topic of conversation.

And asked what they would purchase with $2,000 if they could only spend it on one thing, 25 percent said plane tickets.

As a result, they tend to be particularly savvy when it comes to being able to travel, with 16 percent seeking out credit cards that provide big mileage bonuses.

3. They leverage perks to pursue other little luxuries without having to lay out cash for them.

In fact, they’re fond of doing it for travel, with 7 percent using airline miles to upgrade to business class.

In addition, 7 percent use status from premium credit cards for hotel upgrades, and 6 percent use premium cards for lounge access.

2. They’re planning on grad school.

While that may not seem like saving—even though it’s definitely ahead of the 11 percent of male millennials who are saving for a new luxury car and the 12 percent of female millennials saving for a new wardrobe—they’re looking toward an advanced degree for a leg up the job ladder.

Oh, and 27 percent are saving for a place of their own.

1. They stay away from credit cards.

Mashable reports that, despite their spendthrift reputations, millennials are actually opting for other types of technology—digital wallets, for instance—but not so much credit cards.

It cites a BankRate finding that in fact, 67 percent of millennials don't have credit cards—the lowest amount of people without credit cards in any demographic, among adults.

And they’d rather be paid in cash, thank you very much. So say 58 percent, and they’re smart; it wards off unnecessary purchases and helps keep them out of credit card debt.

See the original article Here.

Source:

Satter M.  (2017 June 29). 10 ways millennials are saving for the future [Web blog post]. Retrieved from address http://www.benefitspro.com/2017/06/29/10-ways-millennials-are-saving-for-the-future?ref=mostpopular&page_all=1


retirement money

What's Really Draining Employee 401(k) Accounts

Are your employees placing enough emphasis in their retirement? Here is a great article by Cynthia Loh from Employee Benefit Advisor on what employers can do to help their employees properly utilize their 401(k)s.

When it comes to debating the root cause of why Americans, as a whole, are short at least $6.8 trillion in retirement savings, it’s never long before someone points a finger at fees.

But while fees do their part to erode retirement nest eggs, there’s actually something far more detrimental to a comfortable retirement: the investing behavior of savers themselves. In fact, behavioral mistakes could cost savers 1.56% per year.

How does poor behavior add up to such a cost? Here are three core employee 401(k) missteps, and how plan sponsors can limit them.

1. Employees often make poor fund selections
Employees generally find it challenging to choose their own investments, and the task often ends up costing them.

For many employees, the initial obstacle of setting up a 401(k) plan stops them in their tracks. A large fund line-up can cause analysis paralysis, and actually reduce participation rates. One study found that for every additional 10 funds added to a set of plan options, participation drops by about 2%.

For those employees who do participate, they are left to fend for themselves with complex fund lineups. Ideally, they would establish an asset allocation with a correct level of risk and an optimal diversification for that risk tolerance. Unfortunately, a 2015 study by Financial Engines found that 61% of unadvised plan participants had inappropriate risk levels.

Finally, it’s not uncommon for employees to attempt investment selection without fully understanding proper diversification. Instead of balancing risk, participants might divide their money evenly between the options on an investment menu. For example, if six out of 10 options are stock funds, they are likely to end up at roughly 60% stocks. If 18 out of 20 options are stock funds, they will end up with 90% stocks.

So, what should you, the plan sponsor, do when your employees face a 401(k) situation that seems to inhibit participation, leads to unnecessary risk, and fails to encourage proper diversification?

Solution: Consider offering managed 401(k) accounts as a Qualified Default Investment Alternative
If employees find it challenging to make fund selections confidently, why not build in default investment advice to your plan? A Qualified Default Investment Alternative (QDIA) provides a standard, default offer of a portfolio customized to each employee. By constructing a diversified, optimized portfolio for each employee as a standard service, your 401(k) plan can help employees avoid uninformed decisions about their investments. The fund selection process will be more straightforward for new employees. As such, they may be less likely to opt for unduly high risk levels, and, by default, their investments will then be properly diversified.

In other words, rather than providing employees with a list of ingredients, provide them with a prepared meal customized to their palate and set up to satisfy their financial health.

2. 401(k) participants often “set it and forget it”
For those participants that successfully navigate participation, asset allocation, and fund selection, the ongoing maintenance of a 401(k) still presents challenges. Many plan participants choose their deferral rates and funds on the first day of work and might not change anything for the entire time they’re at that employer — or even after they leave. Meanwhile, they’re missing out on the benefits that could be had by rebalancing or switching investments based on macro trends, such as an ETF price decrease.

Plan sponsors should consider all the options available to them for helping employees understand the right asset allocation, appropriate fund allocations, ongoing portfolio maintenance — and the path forward to a secure, stable retirement.

Solution: Enable automation to help your employees maintain their 401(k)
401(k) maintenance is essential, but it shouldn’t fall on individual employees to disrupt their daily lives to keep things up-to-date. Technology can make the task of maintaining 401(k) investments far easier for employees.

If employees don’t want to actively revisit their deferral rates and asset allocations on an annual basis, automation can handle the process of portfolio rebalancing and tax optimization for the participant. While target-date funds (TDFs) have offered limited automatic adjustment for years, today, 401(k) plans built with automated advice tend to offer more personalized optimization for employees. For instance, TDFs usually rely on a generic set of assumptions about their investors to determine how they rebalance and adjust risk over time. Automated 401(k) plans can offer personalized rebalancing, tax optimization, and asset reallocation, solving for an individual’s specific characteristics and goals.

3. Poor investing behavior is a workplace issue
Employees talk to each other about their benefits, worry together from time to time, and often ask one another for advice. In short, water-cooler talk plays a role in how participants behave with regards to their 401(k).

In any given office, there’s at least one employee — we’ll call him Gary — who fancies himself a stock trading guru. Gary checks the morning headlines and stock tickers. He’s always offering unsolicited financial advice to his fellow colleagues. And he spends a lot of time at the water cooler.

For novice employees, having somebody like Gary in the office can either inspire them to gain financial literacy or drastically sway their investing behavior. As the plan’s fiduciary, the 401(k) plan sponsor should make sure the right financial advice reaches all employees, so that water-cooler talk from people like Gary doesn’t play too large a role in employees’ investing behavior.

Solution: Offer personalized financial advice in your 401(k) plan
A responsible way to give employees the information they need to make good decisions is to offer personalized financial advice with your 401(k) plan. Advice from a fiduciary adviser helps participants make decisions for their own individual situation, removing the confusion of what they hear at work, see on television, or learn from their peers.

That advice becomes more valuable when it takes into account personal goals such as buying a home and covers all assets, including 401(k) assets. Some 401(k) platforms have educational features built in that can anticipate when a participant has a question or appears confused and serves up tailored information that can help employees make a sound decision. Others make use of customer service centers that make it easy for employees to ask questions to experts when they need to, rather than front-loading them with information during an orientation.

Save your employees the cost of poor investing behavior
When it comes down to it, plan sponsors often underestimate just how confusing 401(k) plans can be for employees. Most employees know that saving for retirement is important, but few actually understand all they should do to maximize the benefit of their 401(k) contributions.

Help your employees save money by selecting a 401(k) solution that helps to minimize behavioral mistakes. Poor fund selection, lack of account maintenance, and bad advice shouldn’t detract from employees’ results. With elegant solutions like a managed account QDIA, investment automation, and expert advice, you can save your employees time, money and anxiety.

See the original article Here.

Source:

Loh C. (2017 June 13). What's really draining employee 401(k) accounts [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/whats-really-draining-employee-401-k-accounts


401(k) Borrowing Isn’t Free

Have your employees been dipping into their 401(k)s to support their financial needs? Then take a look at this article by David Sherman from Employee Benefit Adviser on why employees shouldn't dip into their 401(k)s and what employers can do to help employees support themselves financially without having to use the money saved in their 401(k)s.

When dire financial need strikes, employees often tap their retirement accounts. While there are cases in which a 401(k) withdrawal makes sense, these loans should be viewed as an absolute last resort.

There are significant downsides related to 401(k) loans such as including penalties, administration and maintenance fees as well as “leakage” from retirement accounts. This occurs when an employee takes a loan on their 401(k), cashes out entirely or leaves their job and rolls over their account to their new employer.

Borrowing from retirement plans presents hazards to the employer, as well. More employers are minimizing the ability of employees to dip into their 401(k) savings by limiting the number of loans from 66% in 2012 to 45% in 2016, according to SHRM. Despite this, the bottom line is that employees need access to low cost credit.

More than 1-in-4 participants use their 401(k) savings for non-retirement needs, according to financial education provider HelloWallet. That amounts to a startling $70 billion of retirement savings that employees are siphoning away from their future.

There are hidden costs to 401(k) loans. One of the perceived benefits of a 401(k) loan is that the borrower isn’t charged any interest. That’s a fallacy: 401(k) loans typically include interest rates that are 1 to 2 points higher than the current Prime Rate plus administrative fees. While the borrower pays this money to him or herself rather than to a bank, these “repayments” don’t take into account penalty of taking money out of a 401(k) for months or years when it might have enjoyed market gains.

The downside of the interest rate is that it makes paying back the loan more difficult and this will likely lead to 401(k) leakage. In some cases, loopholes that allow employees to raid their 401(k)s before retirement reduce the aggregate wealth in those accounts by 25%. Simply put, this translates into having the most senior and highest paid employees stay on the job because they do not have enough funds in their account to retire. From an HR administrator’s standpoint, that can increase overall costs, since employees who cannot afford to retire are drawing higher-than-average salaries. And thanks to their advanced age, they also run-up costs on the employer’s medical plan.

The financial wellness alternative

Employers should offer socially responsible alternatives to borrowing from their 401k. Not only to ensure that older workers can afford to retire and make room for younger, less-expensive hires, but to ease the financial burden for employees when emergencies do happen. This should be offered as a voluntary benefit with no risk to employers. In a recent Wall Street Journal article, “The Rising Retirement Perils of 401(k) ‘Leakage’” Redner’s Markets made that leap offering a low-cost Kashable loan to its employees. It stopped leakage and offered employees of the online grocer much needed relief from financial stress.

Adding a financial wellness solution to the employee voluntary benefits package that provides access to responsible credit is a first step in untangling employees’ financials. For employees struggling with college loans and credit card debt, this financial-wellness benefit allows them to borrow when needed at a low rate. For the 35% of employees surveyed by PWC in 2016 that said they had trouble meeting their monthly household expenses and the 29% that said they had trouble meeting their minimum credit card charges each month, this voluntary program provides multiple benefits. For the employee, it is an opportunity to build or improve their credit score, and provide relief from financial stress. To the employer, it’s a risk-free solution to stop the leakage from retirement accounts.

 

See the original article Here.

Source:

Sherman D. (2017 June 5). 401(k) borrowing isn't free [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/401-k-borrowing-isnt-free?feed=00000152-1377-d1cc-a5fa-7fff0c920000


Rising Health Care Costs Threatening Employees’ Financial Goals

Did you know that the rising costs of healthcare could be having a negative effect on your employees' financial goals? Check out this great read by Marlene Y. Satter from Benefits Pro on how your employees' finances are being impacted by the costs of healthcare.

Employees are under financial stress — big time. In fact, 56 percent of them are stressed about their financial situation, and more than half of them say it’s taking a toll on both their ability to focus and their productivity on the job.

That’s according to the latest Bank of America Merrill Lynch Workplace Benefits Report, which finds that not only are 53 percent of stressed employees having trouble concentrating on their work, the cost of health care is a big shadow cast over workers’ financial situations. And that’s already an issue, with 43 percent of employees owning up to spending 3 or more hours a week while at the office dealing with personal financial matters.

As more employees find themselves shelling out more from their own pockets to pay health care bills — 69 percent of workers said so in 2015, but 79 percent said so in 2016 — it’s no surprise to hear that health care costs are up 10 percent since 2015. No wonder they’re stressed; salaries certainly haven’t risen to match.

Those rising health care costs are taking a bite out of most employees’ other financial goals — among workers who have experienced increasing health care costs, 56 percent are having to save less toward other objectives.

Women in particular are abandoning more discretionary spending and debt management to cover health care costs than men, with 72 percent chucking spending on recreation or entertainment, compared with 59 percent of men; 63 percent saving less for retirement, compared with 62 percent of men; and 50 percent paying down less debt, compared with 46 percent of men.

And the more expensive health care becomes, the more employees appear to appreciate employer-provided health coverage — with workers ranking health benefits as their top employer benefit (40 percent), followed by their 401(k) plan (31 percent).

Even among employees who class themselves as optimists about their financial futures, worries about health care and its cost are weighing them down. And as might be expected, money woes weigh more on women than men, even — or perhaps especially — when it comes to health care. While 52 percent of men say that becoming seriously ill and unable to work is a major concern (even larger for men than having to work longer than they planned), 58 percent of women fear illness and subsequent absence from the workplace.

And more than half of employees say that financial stress is negatively affecting their physical health. Different generations feel the effects more, with 51 percent of boomers, 56 percent of Gen Xers and 68 percent of millennials saying money worries are literally making them sick. Employers need to be aware of this and take steps to deal with it, particularly since it translates into a toll not just on workers but on the employer’s bottom line — via higher absenteeism rates and higher health care costs.

See the original article Here.

Source:

Satter M. (2017 June 1). Rising health care costs threatening employees' financial goals [Web blog post]. Retrieved from address http://www.benefitspro.com/2017/06/01/rising-health-care-costs-threatening-employees-fin


Starting Early is Key to Helping Younger Workers Achieve Financial Success

Starting early is the best way to ensure dreams for life after work are realized, but when TIAA analyzed how Gen Y is saving for retirement, it found 32 percent are not saving any of their annual income for the future.

Knowing the importance of working with young people early in their careers to educate them about the merits of saving for a secure financial future, here are some approaches tailored to Gen Y participants:

  • Encourage enrollment, matching and regular small increases – Enrolling in an employer-sponsored retirement plan is a critical first step for Gen Y participants. Contributing even just a small amount can make a big difference, especially since younger workers benefit most from the power of compounding, which allows earnings on savings to be reinvested and generate their own earnings.

    Encouraging enrollment also helps younger workers get into the habit of saving consistently, and benefit from any matching funds. Emphasize the benefits of employer matching contributions as they help increase the amount being saved now, which could make a big impact down the line. Lastly, encourage regular increases in saving, which can be fairly painless if timed to an annual raise or bonus.

  • Help younger workers understand how much is enough – We believe the primary objective of a retirement plan is offering a secure and steady stream of income, so it’s important to help this generation create a plan for the retirement they imagine. Two key elements are as follows:
    • Are they saving enough? TIAA’s 2016 Lifetime Income Survey revealed 41 percent of people who are not yet retired are saving 10 percent or less of their income, even though experts recommend people save between 10 to 15 percent.
    • Will they be able to cover their expenses for as long as they live? Young professionals should consider the lifetime income options available in their retirement plan, including annuities, which can provide them with an income floor to cover their essential expenses throughout their lives.

      Despite the important role these vehicles can play in a retirement savings strategy, 20 percent of Gen Y respondents are unfamiliar with annuities and their benefits.

  • Provide access to financial advice – Providing access to financial advice can help younger plan participants establish their retirement goals and identify the right investments. By setting retirement goals early, and learning about the appropriate investments, Gen Y participants can position themselves for success later on.

    The good news is TIAA survey data revealed Gen Y sees the value financial advice can provide, with 80 percent believing in the importance of receiving financial advice before the age of 35.

  • Understand the needs of a tech-savvy and digitally connected generation – It’s important to meet this generation where they are—on the phone, in person or online. We’ve learned that this generation expects easy digital access to their financial picture, and we offer smartphone, tablet and smartwatch apps in response.
    • Engage Gen Y with digital tools - Choose ones that educate in a style that does not preach and allows them to take action. One way to reach Gen Y on topics such as retirement, investing and savings is through gaming.

      We’ve found that the highest repeat users of our Financial IQ game are ages 24-34, and that Gen Y is significantly more engaged with the competition, with 50 percent more clicks.

Perhaps more than any other generation, Gen Y needs to understand the importance of saving for their goals for the future even if it’s several decades away.  Employers play an integral role in kick-starting that process: first, by offering a well-designed retirement plan that empowers young people to take action; and second, by providing them with access to financial education and advice that encourages them to think thoughtfully about their financial goals—up to and through retirement.

See the original article Here.

Source:

McCabe C. (2017 April 14). Starting early is key to helping younger workers achieve financial success[Web blog post]. Retrieved from address http://www.benefitspro.com/2017/04/14/starting-early-is-key-to-helping-younger-workers-g?ref=hp-in-depth&page_all=1


Advisers Seek Innovative Ways To Increase Retirement Savings

Are you struggling to save for your retirement? Check out this great article from Employee Benefits Adviser on what employee benefits advisers are doing to help their clients prepare for their retirement by Cort Olsen.

In a recent forum co-hosted by Retirement Clearinghouse, EBRI, Wiser and the Financial Services Roundtable, experts shared how automated retirement portability programs could be the key to increased participation in private-sector retirement plans.

Today, at least 64% of Americans say they do not have sufficient funds for retirement and less than half of private-sector workers participate in workplace retirement programs. Former U.S. Sen. Kent Conrad, a Democrat from North Dakota, says these statistics could improve through better access to workplace retirement savings plans.

“So many small businesses tell [Congress], ‘Look we’d like to offer a plan, but we just can’t afford it,’” Conrad says. “We take the liability off of their shoulders, we take the administrative difficulty off their shoulders and allow a third party to administer the plans, run the plans and have the financial responsibility for the plans, which makes a big difference for employers.”

With these improved access points to savings plans, Conrad says the opportunity arises to create new retirement security plans for smaller businesses with fewer than 500 employees, enabling multiple employers — even from different industries — to band together to offer their workers low cost, well-designed options.

“Once the [savings plan] has been put in place for a period of time, we then introduce a nationwide minimum coverage standard for businesses with more than 50 employees,” Conrad says. “Any mandate is controversial, but legally if you dramatically simplify (don’t require employer match) really all they have to do is payroll deduction, and then it becomes not unreasonable for employers with 50 or more workers to offer some kind of plan.”

How to achieve auto-portability
Once plans have been made available for employers of all sizes, Jack VanDerhei, research director for the Employee Benefit Research Institute, recommends three different scenarios for auto-portability of retirement plans between employers.

1) Full auto-portability. VanDerhei considers this to be the most efficient scenario, where every participant consolidates their savings in their new employer plan every time they change jobs. The goal would be that all participants arrive at age 65 with only one account accumulated over the span of their working life.
2) Partial auto-portability. In this scenario, every participant with less than $5,000 — indexed for inflation — consolidates their savings in their new employer plan every time they change jobs. “If you have $5,000 or less in your account balance at the time you change jobs, leakage would only come from hardship withdrawals,” VanDerhei says. This means that money would only leave the account if the participant determined it necessary to take money out to pay for a necessity.
3) Baseline: status quo. In addition to hardship withdrawals, there is a participant-specific probability of cashing out and loan default leakage at the time of job transition. These participant specific leakages can be age, income, account balance and how long the participant has been with the employer.

VanDerhei says the younger the participants are to begin using full auto-portability of retirement plans, the more likely they are to get the most out of their retirement savings once they reach the age of 65.

“If you look at people who are currently between the ages of 25 and 34, under a partial portability there is a chance for accumulation to reach $659 billion and under a full portability there is a chance to reach $847 billion in accumulation,” VanDerhei says. “As you would expect, accumulation will decrease as the age increases if they choose to enter into auto-portability later in life.”

Spencer Williams, president and CEO of Retirement Clearinghouse, LLC, says although retirement portability has been codified into ERISA there are not enough mechanisms involved to encourage participants to continue to save for retirement rather than cashing out.

“We have a little more than a third of the population cashing out when they change jobs,” Williams says. “The research shows that if you fix that problem, the difficulty moving peoples’ money, we will begin the process of reducing leakage.”

Once a retirement account reaches a certain amount, Williams adds that participants will begin to take the account more seriously and have more desire to continue investing in the plan.

“We need to create an efficient and effective means by which people can have their money moved for them, and in doing that we begin to change peoples’ behavior,” Williams says. “Finally, if we increase access and coverage, along with auto-portability, all of those benefits accrue from all those new participants in the system.”

See the original article Here.

Source:

Olsen C. (2017 April 6). Advisers seek innovative ways to increase retirement savings [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/advisers-seek-innovative-ways-to-increase-retirement-savings


Do You Know What Your Retirement Plan Is?

"People don’t plan to fail they fail to plan. Retirement is about what you want out of life, what do you need to do to sustain the lifestyle you have become accustomed too? Unfortunately, most people in America never really retire because they have not planned properly. Retirement is a process that begins in your 20s, 30s, 40s.” - Garry Rutledge, Saxon Partner.

CIO

The biggest hurdle of retirement is getting something started. Getting a start on retirement early in life will provide a massive amount of appreciation over time. Even if only a small amount is put away early in life, compound interest will do much of the work. Here are some other ways to begin building your retirement funds.

20s

In your 20s, time is your biggest ally when it comes to saving for retirement. Many people in their twenties are just getting out of school and excited to live life rather than thinking about putting something away for retirement that seems so far down the road.

Investigate any company options

Consider employer sponsored plans available- 401k, 457, 403(b) – different sectors of the economy have different company sponsored retirement plans.

Know where you are headed.

  • Only 48% of people have even bothered trying to figure out how much they need to retire comfortably, according to the Employee Benefit Research Institute's 2015 Retirement Confidence Survey.
  • The rule of 72 is a math rule that determines how long it will take to double funds for any given rate of return. The amount returned divided by 72 would be the amount of time it takes to double your money. Ex. If your money is in a savings account earning three percent a year, it will take twenty-four years to double your money (72/3=24).

Save outside of work

  • A Roth is a type of retirement account that grows tax free meaning you only pay taxes on the money going into the account.
  • "I would heavily encourage a Roth, I am very pro Roth IRA versus the traditional tax deferred plan,” Garry advised. “The best analogy I can make to this is: 'would you rather pay taxes on the crop you harvest or would you rather pay taxes on the seeds you plant?' What this really means is that you can take a small handful of seeds and plant a crop that will amount to a huge harvest."

30s

It is about late 30s when people begin to realize retirement is not that far away. This is the time in life that people are thinking about beginning families and having kids, it is also the point in life that you can start understanding what realistic retirement goals look like. "In my 28 years of experience," Garry explained, "most people don't start planning for retirement until their late 30s." Whether you're already saving or just starting now, carrying good habits throughout your 30s can pay off in the future.

Company sponsored plans are key

  • If you are just beginning in 30s, consider company sponsored plans that will have a match of a percentage of one’s salary. That translates into a 100% return on your money and you haven't done any investing yet.
  • If you are already contributing into your company's plan, make small increases each year to work towards your savings goal.

Keep it balanced

  • "The 'perfect retirement plan' would have the perfect balance of pretax contributions, meaning before tax qualified plans and after tax contributions (brokerage accounts or Roth IRAs) allow both plans to complement each other."

College is important, but retirement comes first

  • A lot of people try to begin planning for their children's college at this point but retirement planning should come before planning for college. After all, people won't lend you money to retire with.

40s/50s/60s

The biggest thing at this point in life is "Do you know what your plan is and are you on track?" If you build a house, you start with a plan. Same is true for retirement.

This is the time to be deciding if you are on track for retirement. Do you have a plan and a budget? Have you created a financial plan? Do you know how you want to retire? Your perspective of what retirement looks like is truly your reality.

The closer you get to 65, the retirement age, more alarms that are beginning to go off. If you haven't done anything at this point you must take a serious look at what your plans are

Slow and Steady

  • If you've been planning and following a plan, keep up the good work! The only way to eat an elephant is one bite at a time.

If you have not begun planning...

  • Time isn't your ally at this point.
  • You will have to be more aggressive in your strategies.
  • Again, the most beneficial thing you can do is seek out company plans with matches.

Know your alternatives

• A thing to consider that most people don't plan for is long term care. This is a good option to explore because it is still cheap enough in your 50s to afford.

Consider how social security will play into your financial plan. Make sure you maximize your social security benefit.

• Have you changed your investment risk to meet your risk tolerance? As you get older your investments cannot generally tolerate the same amount of risk. The sequence of returns in retirement can devastate your retirement plan.

Seek professional help and guidance

  • Saxon takes a holistic approach to planning.
    • Company sponsored plan approach
      • While Saxon does not benefit from any contributions to your company plan, they know that this is the best place for a client's money to be.
    • Saxon can help you stay on track and give sound investment advice

"The advisors at Saxon can help you create a plan for the future and offer suggestions on how to invest money," explained Garry. "Asking for help is one of the best things you can do – people are busy – and developing a plan and having a ‘coach’ to make sure you stick to the plan when things seem bleak will reward you over time”.

 

To download the full article click Here.

 


The 10 Biggest 401(k) Plan Misconceptions

Do you know everything you need to know about your 401(k)? Check out this great article from Employee Benefit News about the top 10 misconceptions people have about their 401(k)s by Robert C. Lawton.

Unfortunately for plan sponsors, 401(k) plan participants have some big misconceptions about their retirement plan.

Having worked as a 401(k) plan consultant for more than 30 years with some of the most prestigious companies in the world — including Apple, AT&T, IBM, John Deere, Northern Trust, Northwestern Mutual — I’m always surprised by the simple but significant 401(k) plan misconceptions many plan participants have. Following are the most common and noteworthy —all of which employers need to help employees address.

1. I only need to contribute up to the maximum company match

Many participants believe that their company is sending them a message on how much they should contribute. As a result, they only contribute up to the maximum matched contribution percentage. In most plans, that works out to be only 6% in employee contributions. Many studies have indicated that participants need to average at least 15% in contributions each year. To dispel this misperception, and motivate participants to contribute something closer to what they should, plan sponsors should consider stretching their matching contribution.

2. It’s OK to take a participant loan

I have had many participants tell me, “If this were a bad thing why would the company let me do it?” Account leakage via defaulted loans is one of the reasons why some participants never save enough for retirement. In addition, taking a participant loan is a horribleinvestment strategy. Plan participants should first explore taking a home equity loan, where the interest is tax deductible. Plan sponsors should consider curtailing or eliminating their loan provisions.

3. Rolling a 401(k) account into an IRA is a good idea

There are many investment advisers working hard to convince participants this is a good thing to do. However, higher fees, lack of free investment advice, use of higher-cost investment options, lack of availability of stable value and guaranteed fund investment options and many other factors make this a bad idea for most participants.

4. My 401(k) account is a good way to save for college, a first home, etc.

When 401(k) plans were first rolled out to employees decades ago, human resources staff helped persuade skeptical employees to contribute by saying the plans could be used for saving for many different things. They shouldn’t be. It is a bad idea to use a 401(k) plan to save for an initial down payment on a home or to finance a home. Similarly, a 401(k) plan is not the best place to save for a child’s education — 529 plans work much better. Try to eliminate the language in your communication materials that promotes your 401(k) plan as a place to do anything other than save for retirement.

5. I should stop making 401(k) contributions when the stock market crashes

This is a more prevalent feeling among plan participants than you might think. I have had many participants say to me, “Bob, why should I invest my money in the stock market when it is going down. I'm just going to lose money!” These are the same individuals who will be rushing into the stock market at market tops. This logic is important to unravel with participants and something plan sponsors should emphasize in their employee education sessions.

6. Actively trading my 401(k) account will help me maximize my account balance

Trying to time the market, or following newsletters or a trader's advice, is rarely a winning strategy. Consistently adhering to an asset allocation strategy that is appropriate to a participant's age and ability to bear risk is the best approach for most plan participants.

7. Indexing is always superior to active management

Although index investing ensures a low-cost portfolio, it doesn't guarantee superior performance or proper diversification. Access to commodity, real estate and international funds is often sacrificed by many pure indexing strategies. A blend of active and passive investments often proves to be the best investment strategy for plan participants.

8. Target date funds are not good investments

Most experts who say that target date funds are not good investments are not comparing them to a participant's allocations prior to investing in target date funds. Target date funds offer proper age-based diversification. Many participants, before investing in target date funds, may have invested in only one fund or a few funds that were inappropriate risk-wise for their age.

9. Money market funds are good investments

These funds have been guaranteed money losers for a number of years because they have not kept pace with inflation. Unless a participant is five years or less away from retirement or has difficulty taking on even a small amount of risk, these funds are below-average investments. As a result of the new money market fund rules, plan sponsors should offer guaranteed or stable value investment options instead.

10. I can contribute less because I will make my investments will work harder

Many participants have said to me, “Bob, I don’t have to contribute as much as others because I am going to make my investments do more of the work.” Most participants feel that the majority of their final account balance will come from earnings in their 401(k) account. However, studies have shown that the major determinant of how much participants end up with at retirement is the amount of contributions they make, not the amount of earnings. This is another misconception that plan sponsors should work hard to unwind in their employee education sessions.

Make sure you address all of these misconceptions in your next employee education sessions.

See the original article Here.

Source:

Lawton R. (2017 April 4). The 10 biggest 401(k) plan misconceptions[Web blog post]. Retrieved from address https://www.benefitnews.com/opinion/the-10-biggest-401-k-plan-misperceptions?brief=00000152-14a5-d1cc-a5fa-7cff48fe0001


10 tips to boost retirement savings

Do you need help boosting your savings for your retirement? Check out these great tips from Benefits Pro on how to increasing your retirement savings by Marlene Y. Satter

Americans are struggling to save enough money for retirement.

Now that pensions are going the way of the dodo and workers are relying primarily on Social Security and 401(k) plans—the latter if they’re lucky—it’s a struggle to find extra money to set aside against the day they leave the workplace.

In fact, many workers never plan to retire.

Considering how many workers don’t even have access to a retirement plan at work, trying to stretch dollars even a little bit further to set aside money for retirement can be a real challenge.

That’s pretty clear from the zero-to-minimum savings held by many Americans.

In fact, with 40 million working-age households lacking any retirement savings at all, and the average balance of retirement accounts a pitiful $2,500 across all households, it’s obvious that something needs to be done. But how much can people do on low incomes, fighting against the gender wage gap and shrinking benefits packages?

Perhaps it’s only baby steps they can take, but even those baby steps can pay off over the span of a career. So here are some suggestions that workers could definitely benefit from on how they might be able to squeeze just a little more out of that paycheck.

Depending on a worker’s age, some of these strategies will be more helpful for some than for others—but all can make a difference in the end result: stashing away enough money to pay for retirement.

Courtesy of a range of sources, including Schwab Retirement Plan Services, Forbes, Fidelity and others, here are 10 strategies to help workers boost their retirement savings.

10. Take advantage of the employer match.

If you’re lucky enough to work at a company that provides a 401(k) plan, Schwab suggests that you make sure your contribution level is high enough to take full advantage of the employer matching contribution.

Not saving enough to get the full employer match is leaving free money on the table. Look for economies elsewhere (fewer trips to the barista, brown-bag lunches) to increase your contribution till you get the full benefit of whatever your employer is willing to give.

9. No matter what you’re saving, keep increasing it.

Some people up their retirement contributions every time they get a raise; others do it when they hit some other significant milestone, such as an anniversary with the company.

Schwab, again, suggests that whether it’s a performance review, a birthday or some other occasion, you keep raising your retirement contribution even if it’s only by one percent at a time. It will all add up by the time you’re ready to retire.

8. Automate retirement plan increases.

While you’re busy increasing those contributions, automate them.

Set up an automatic increase that will add to your savings at regular intervals, even if you forget.

That way, whether you’re the type that actually remembers those special occasions on which you plan to boost contributions or you forget them, you can set it and forget it—and your retirement plan will do the rest.

7. Don’t forget the catch-up contribution.

If you’re 50 years old or older, remember that you’re allowed to put an extra $6,000 into your retirement account to catch up to where you ought to be.

That can help a lot as you approach retirement, particularly if you haven’t saved the maximum allowable in years past.

6. Check the fees on your investments.

This one doesn’t actually require you to find additional money to save. What it does require is that you review the investments in your retirement accounts and see how much the fees add up to.

If there are cheaper investments available in your plan—exchange-traded funds, for example, or target-date funds that offer lower fees—make sure they’re suitable for your particular needs and risk tolerance and then, if they’re appropriate, make the switch. Cutting down on the fees you pay will keep your balance growing.

5. Put yourself on a budget.

Particularly if you haven’t saved all that much for retirement and the Big Day is drawing near, see if you can adjust to a budget that reflects lower spending levels—something you might have to do in retirement anyway, if money is tight.

Whether or not you can sustain living on that budget, while you’re experimenting, take any money that you save from your usual outlay and put it into your retirement account. Better yet, open a Roth if you’re eligible. You’ll have already paid taxes on the money, if it’s coming out of your regular pay, and when you take it out of a Roth however much it’s grown to will be tax free. That will save you money both now and then.

 

4. Look into your health savings account.

If your benefits plan at work includes an HSA, check it out as a potential investment vehicle. While most people just put money in it to pay approved medical expenses, many don’t know that they can actually invest the money in an HSA and just let it grow; it’s not a use-it-or-lose-it account.

If it grows into retirement, you can then use the money to pay approved medical expenses tax free, which will stretch your other retirement savings further. (You can also use it for nonapproved expenses, but you’ll have to pay tax on the money upon withdrawal if you do that.)

3. Make sure you’re using the right kind of account.

Don’t just stick your money into a savings account and wait for retirement. Check out the potential of and differences among different types of accounts—savings, HSAs, Roths, traditional IRAs, 401(k)s—and put your money where you’ll get the most bang for the buck.

Contribute the maximum to your 401(k) to get full matching funds at work, and then look into opening a traditional or a Roth IRA. As previously mentioned, if you’ve already paid taxes on money contributed to a Roth, when you withdraw it in retirement it will be tax free (so it will go further).

 

2. Don’t forget about the Saver’s Credit.

Your income and income tax filing status determine whether you’re eligible for this one, aimed at low- to moderate-income households, but it’s a goodie—and if you’re married and filing jointly, both of you might be able to claim it.

The program, the official name of which is the Retirement Savings Contributions Credit, can give you $1,000 for contributing to a qualifying retirement account. Whether your retirement plan is an IRA, a 401(k), 403(b), 457(b) or even a SEP or SIMPLE IRA, you contribute the allowable amount, assuming your income level makes you eligible, and the government credits you 10 percent, 20 percent, or 50 percent of the first $2,000 you contribute to retirement savings for the year.

1. Remember that payroll contributions to a retirement plan can lower your taxes.

Yes, by following the instructions in earlier steps and boosting your retirement contribution at work, you could lower your tax bracket—and that could have you losing less of your take-home pay to increase that contribution than you thought.

Depending on your withholding rate, an increased retirement contribution might hurt less than you think—and that can encourage you to do even more. You can check with human resources or the payroll department to find out just how much the hit will save you. And who knows? It might lower your adjusted gross income enough to let you qualify for the Saver’s Credit—a real win-win situation.

See the original article Here.

Source:

Satter M. (2017 March 07). 10 tips to boost retirement savings [Web blog post]. Retrieved from address http://www.benefitspro.com/2017/03/07/10-tips-to-boost-retirement-savings?ref=mostpopular&page_all=1