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What Happened to Employee Retirement Plan Education?

As an employer, you are the universal platform for your employees’ benefits and retirement knowledge. Every day, you must communicate and educate your employees on the benefits you offer. Whether that is through verbal communication, an office chatroom, or a simple email, you should act as a bridge between the gap that is, “What do I get for working here? How am I protected? How can I contribute to my savings?”

There is no doubt how much pressure this puts on your shoulders. When it comes to educating your employees about their 401(k) Plan, it is inevitable that you may feel lost. You don’t have anyone to advise you on the topic (except Google, of course); you have no proper guide for navigating the benefits and retirement landscape. How can you provide the best resources and tools to your employees, if you don’t have access to them to begin with?

In this month’s installment of CenterStage, we spoke with Todd Yawit, Director of Employer-Sponsored Retirement Plans at Saxon Financial Services, hoping to scope helpful advice for employers struggling with benefits and retirement education. The conversation led to a prime focus on the power of 401(k) Plans, and employees’ extreme lack of knowledge about them, and ended with this simple fact:

Providing access to A to Z retirement services for your employees is not something you should skip on; and could lead to lower health insurance premiums in the long-run.

“Too many Americans are getting to their retirement age with no funds or no ability to provide the extra income they’re going to need over and above Social Security,” Todd said. “There needs to be a mechanism or tool available for people to save money, preferably tax-favored treatment of that money.”

That tool is a 401(k) Plan. Providing 401(k) Plan education in the workplace is an easy way for employers to show they care about their employees’ futures. It gives employees opportunities to save for their retirement, ultimately bettering themselves and their loved ones in the long run.

Getting Familiar With 401(k)s

People by nature tend to stick to the rule, “Out of sight, out of mind,” and 401(k) Plans are the epitome of that rule. However, this is the wrong path to take. 401(k) Plans can be a great tool for employers to leverage.

“At Saxon, we highly suggest employers look at advanced plan designs, instead of just a basic 401(k) Plan,” said Todd. These plan designs can lead to better retirement-readiness of plan participants, which will better prepare them for retirement, and can potentially lower health insurance premiums for the business in the long-run. Todd continued, “Advanced plan designs may also increase business tax deductions; provide better benefits for business owners and key employees; and eliminate most discrimination tests.

Automatic Enrollment

Once an employee becomes eligible for a 401(k) Plan, they are automatically enrolled in one. This tool helps increase enrollment in the Plan, because studies have shown few employees “opt-out” once they are automatically enrolled.

There has been a push for employers to add Automatic Enrollment to their 401(k) Plans. Participation has been at an all-time low, meaning more and more employees are getting to retirement with nothing to rely on except their Social Security. Automatic enrollment, and employee education can be great tools to help employees reach their retirement-readiness.

Automatic Increases in 401(k) Contributions

When employees do get involved with their 401(k) Plans, it’s usually with the initial set up, then it’s often forgotten about. Knowing how crucial those savings are for employees’ future livelihoods, there has been a push for automatic increases in annual 401(k) contributions.

“Ongoing education will help employees understand how small increases in their retirement savings, especially when they get a raise, will have a big impact on their ability to retire at a reasonable age”, Todd explained.

Saxon Financial Advisors

Saxon Financial Services offers A to Z retirement plan services for Simple IRAs, Safe Harbor 401(k) Plans, 401(k) Plans, 403(b) Plans, and Cash Balance Pension Plans. Saxon can act as a 3(38) Investment Manager, which can reduce the employer’s fiduciary liability with respect to investment selection, monitoring, and replacement. We can create and manage custom asset allocation models for participants in this role as well. “This allows employees to focus on what really matters, saving for retirement and not worrying about picking and managing their investments”, Todd concluded.

If you currently struggle with the education and support of your 401(k) Plan, then call 513.573.0129 or email Todd at tyawit@gosaxon.com.


Sidecar accounts can help plug 401(k) leakage — to an extent

Many 401(k) participants often dip into their retirement savings to help fund emergency expenses. In fact, the number 1 financial concern for Millennials and Generation X members is not having enough emergency savings for unexpected expenses. Read on to learn more.


Not having enough emergency savings for unexpected expenses is the No. 1 financial concern for millennials and members of Generation X, and the No. 2 financial concern among baby boomers, after retirement security. These findings from a PwC Employee Financial Wellness Survey released last year shouldn’t surprise members of the retirement services industry, since too many defined contribution plan participants dip into their 401(k) savings —through loans, hardship withdrawals or cash-outs upon changing jobs — to fund emergency expenses.

While 48% of households faced at least one expense related to an unexpected emergency over the past year, according to CIT Bank, a recent GoBankingRates survey has found that a staggering 62% of Americans have less than $1,000 in a savings account. The frequency of unexpected emergency expenses, and the lack of savings to fund them, work in tandem to create a situation where many Americans are forced to withdraw hard-earned retirement savings from 401(k) accounts in defined contribution plans, where they are safely incubated in the U.S. retirement system for future enjoyment. In fact, according to a Boston Research Technologies survey of 5,000 401(k) plan participants, slightly more than one-third of all 401(k) cash-outs upon job change are for emergencies, while the rest end up being used for discretionary spending.

The development of “sidecar” accounts, also known as “rainy day” funds, is a positive trend because these instruments can help plan participants avoid tapping into their retirement savings to pay emergency expenses. Sidecar accounts are set up alongside 401(k) savings accounts in defined contribution plans, and if an employee chooses to set one up, they can allocate after-tax contributions to the fund in order to reach a targeted amount of savings. When a sidecar fund reaches the desired amount, future contributions can be directed to the plan participant’s pre-tax retirement savings. If a participant dips into a sidecar fund, the targeted balance can be automatically replenished over time with future after-tax contributions.

Sidecar accounts can serve as a valuable tool for preserving retirement savings, and fortunately, our elected officials are attempting to make it easier for plan sponsors to offer them for participants. The Strengthening Financial Security Through Short-Term Savings Accounts Act of 2018, a bipartisan Senate bill sponsored by Senators Cory Booker (D-N.J.), Tom Cotton (R-Ark.), Heidi Heitkamp (D-N.D.), and Todd Young (R-Ind.), would allow sponsors to automatically enroll participants in sidecar or standalone accounts for emergency expenses. The bill would also enable the U.S. Department of the Treasury to create a pilot program giving employers incentives to set up these accounts. The bill hasn’t yet become law, but the fact that it’s been proposed is positive for the U.S. retirement system as a whole.

Vast majority of leakage is from cash-outs

Although a sidecar account could be a useful tool in the ongoing struggle to curtail leakage of savings from defined contribution plans, they won’t plug the biggest hole in the retirement system’s proverbial bucket. According to the U.S. Government Accountability Office, 89% of leakage is the result of premature cash-outs of 401(k) accounts. Loans, hardship withdrawals and other factors contribute to the remaining 11%. As mentioned above, with an estimated one-third of cash-outs taken to cover emergencies, two-thirds of cash-outs are for non-emergency expenses.

Unfortunately, the lack of widespread, seamless plan-to-plan portability causes too many participants to cash out, or simply leave their savings behind in a former employer’s plan, because doing so is easier than consolidating their 401(k) accounts in their current-employer plans.

Thankfully, there is a solution to address the 89% of leakage caused by cash-outs — auto-portability, which has been live for more than a year. Auto-portability is the routine, standardized and automated movement of a retirement plan participant’s 401(k) savings from their former employer’s plan to an active account in their current employer’s plan, and is specifically designed for accounts with less than $5,000. Key components of the auto-portability solution are the paired “locate” and “match” technologies for tracking down and identifying participants who have stranded 401(k) accounts in former-employer plans, which in turn enable the process of consolidating a participant’s savings in their current-employer plans.

Plugging the biggest hole in the U.S. retirement system bucket would help millions of Americans improve their retirement outcomes. The Employee Benefit Research Institute forecasts that, if auto-portability were implemented across the country, up to $1.5 trillion, measured in today’s dollars, would be preserved in the retirement system.

Fortunately for plan participants and sponsors alike, the White House and government agencies also realize the benefits of widespread auto-portability. The U.S. Department of Labor recently issued guidance on auto-portability through an advisory opinion as well as a prohibited transaction exemption clarifying fiduciary liability for sponsors who adopt auto-portability as a new feature of their automatic rollover service.

This crucial DOL guidance helps to clear the way for the nationwide implementation of auto-portability — helping all Americans, and especially women and minorities, save more for retirement. In his remarks at the White House in December (during the signing ceremony for the executive order establishing the White House Opportunity and Revitalization Council), Robert L. Johnson noted that 60% of African-Americans and Hispanic-Americans cash out their 401(k) accounts — and the nationwide adoption of auto portability “will put close to $800 billion back in the retirement pockets of minority Americans.”

Now that an innovative solution has been created to address the root cause of the majority of leakage (cash-outs), it’s good to see that a creative tool like the sidecar account has also been developed to help participants avoid making choices (i.e. dipping into their retirement savings to pay emergency expenses) that cause the remaining asset leakage.

SOURCE: Williams, S. (23 January 2019) "Sidecar accounts can help plug 401(k) leakage — to an extent" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/sidecar-accounts-can-help-plug-401k-retirement-leakage?brief=00000152-14a7-d1cc-a5fa-7cffccf00000


10 Retirement Lessons for 2019

There are lessons to be learned from recent decisions and settlements about the best ways to protect yourself in 2019. Here are some important takeaways from recent litigation activity.

1. Your Process Matters.

New York University recently got a lawsuit dismissed by a district court because it provided evidence that it followed a prudent process when selecting investments. If a case goes to trial, you will also need to demonstrate that you made prudent decisions in order to prevail.

2. Put It in Writing.

It’s hard to prove that you followed a prudent process if you don’t write down what you did. People change jobs, die or simply forget the details of what was done if there are not minutes explaining the reasons for decisions. Have clear written policies showing what you will consider when selecting or replacing investments and reviewing fees, and make sure to follow those policies.

3. Know and Review Your Options.

Complaints have alleged that fiduciaries failed to consider alternatives to common investments, such as collective trusts as an alternative to mutual funds and stable value funds as alternatives to money market funds. Employees of investment giants such as Fidelity have sued because they claimed that these companies filled their plans with their own in-house investments even though better performing alternatives with lower fees were available. Even if you don’t select these options, you should investigate them and record the reasons for your decisions. Be especially careful about choosing your vendor’s proprietary funds without investigation.

4. Understand Target Date Funds.

They have different risk profiles, performance history, fees and glide paths. Don’t take the easy way out and automatically choose your vendor’s funds. In fact, you need to have a prudent process to select these.

5. Benchmark Plan Fees.

Be able to demonstrate that your fees are reasonable for plans of your size. But don’t compare apples to oranges. Select an appropriate peer group. Remember, though, that it is not a violation of ERISA to pay higher fees for better service, so long as the fees are reasonable.

6. Retain an Expert to Help You.

Don’t be penny wise and pound foolish. If you don’t have internal investment expertise, hire an outside fiduciary to assist you. Insist on written reports of recommendations if the fiduciary is a co-adviser, and that the fiduciary attend committee meetings to answer questions and explain the recommendations.

7. Consult Outside Counsel When Necessary.

See No. 6. Don’t try to guess what the law requires, and listen to counsel’s recommendations about best practices. While both advisers and ERISA counsel are available to provide fiduciary education, your ERISA counsel can give you a better handle on your legal responsibilities as ERISA fiduciaries.

8. Hold Regular Committee Meetings.

The days when committees met once a year are over. Many committees now meet quarterly. These should be formal meetings where committee members sit down together with the plan adviser and, where appropriate, with ERISA counsel.

A secretary should take formal minutes. Plan fiduciaries shouldn’t be meeting over the water cooler or making decisions by exchanging emails without face-to-face discussion in a misguided effort to save time.

9. Review Your Providers.

At least once a year, review whether your vendors are performing in accordance with their proposals and their services agreements, and survey your committee members to determine whether they are happy with the provider’s performance. Follow up to request changes or start an RFP to find a new vendor if necessary.

10. Schedule Regular RFPs.

Even if you are happy with your current providers, new RFPs will give you the opportunity to renegotiate your services agreements and fees and will also let you know whether additional services are available in the marketplace.

content resource: https://401kspecialistmag.com


IRS bumps up 401(k) contribution limit for 2019

Do you offer a retirement plan to your employees? The IRS recently raised the annual contribution cap for 401(k) and other retirement plans. Continue reading to find out what the new contribution caps are.


Participants in 401(k) and other defined contribution retirement accounts will see their annual contribution cap raised from $18,500 to $19,000 in 2019, according to the Internal Revenue Service.

The catch-up contribution limit on defined contribution plans remains unchanged at $6,000.

Savers with IRAs will see the annual contribution cap raised from $5,500 to $6,000 — the first time the cap on IRA deferrals has been raised since 2013. The annual catch-up contribution for savers age 50 and over will remain at $1,000.

Cost-of-Living Adjustment (COLA) increases will also be applied to the deduction phase-out scale for IRA owners who are also covered by a workplace retirement plan:

  • for single filers the scale will be $64,000 to $74,000, up $1,000
  • for joint filers where the spouse contributing to an IRA is also covered by a workplace plan, the phase-out slot increase to $103,000 to $123,000
  • for an IRA contributor whose spouse is covered by a plan, the income phase-out is $193,000 to $2003,000

Single contributors to Roth IRAs will see the income phase-out range increase to $122,000 to $137,000, up $2,000 from last year. For married couples filing jointly the range will increase to $193,000 to $203,000, up $4,000 from last year.

More low and moderate-income families may be able to claim the Saver’s Credit on their tax returns for contributions to retirement savings plans. The threshold increases $1,000 for married couples, to $64,000; $48,000 for head of households, up $750; and $32,000 for singles and single filers, up $500 from last year.

The deferred compensation limit in defined contribution plans for pre-tax and after-tax dollars will increase $1,000, to $56,000. And the maximum defined benefit annual pension will increase $5,000, to $225,000.

SOURCE: Thornton, N. (1 November 2018) "IRS bumps up 401(k) contribution limit for 2019" (Web Blog Post). Retrieved from https://www.benefitspro.com/2018/11/01/irs-bumps-401k-contribution-limit-for-2019/


Addressing Long-Term Care Concerns

When insurance plan conversations lead to discussions about after retirement, there are certain hot-button issues that will swing employee conversations out of your control. When helping older employees with retirement and beyond, two topics will change the atmosphere in the room. One is the long-term viability of Social Security, which frequently comes up as a question. The second is on the conversation of long-term care, which has the possibility to make or break a retirement plan. In this installment of CenterStage, Donald McClurg, one of our financial advisors, breaks down what matters and offers answers to many of the questions concerning long-term health.

What Exactly is Long-Term Care? What’s Gobbling up Your Retirement?

You place insurance on the things that are valuable to you, such as your car, your home and possibly your pet. What about your life? Is your family of importance to you, and beyond that, what about your legacy (i.e. any funds left over from your lifetime given into your living family members)? Currently, there’s about a 50% chance a 65-year-old will require care such as an in-home nurse or a medical/assisted living facility that can deliver optimal, specialized care. For employees near retirement or the 65 years-old mark, there is a trove of questions surrounding long-term care, including:

  • Should I consider a hybrid long-term care plan?
  • Is the insurance worth it for me, given how insurers have been increasing the price of premiums?
  • How do I avoid a government facility should I need care?
  • How much money should be saved and when should saving begin?
  • Can I afford this/Will I make it?
  • What are my blind spots?

Unfortunately, the “right” answer to these vexing questions regarding long-term healthcare is exclusively individual-specific. Factors in the determination are dependent upon the individual’s wealth, age, desire to leave a bequest and a need for peace of mind, amongst all other factors. Donald believes, “The biggest risk to a financial plan is not running out of money, it is incurring a financial catastrophe later in life and not having protection. Right now, that catastrophe has the highest probability of showing up in the form of long-term care.”

Commonly viewed as less superior to other insurance options already being taken out of a paycheck, the fact of the matter is this is not another out-of-pocket expense placed on you, such as renters or car insurance. Rather, long-term care should be seen as a valuable choice; an investment in your future and for your family. As a “numbers guy”, Donald brings up the importance of three variables in particular: 70, 90, and 5, which mean:

  • Singles 65 and older stand a 70% chance of needing long-term coverage
  • Couples 65 and older stand a 90% chance of needing long-term care
  • Only 5% of Americans have long-term coverage plans

The Driving Factor for Long-Term Care

Individuals display an adversity to paying for long-term coverage, as they are worried about the chance of paying for it and not needing it or having to leave their homes and live out their lives in a facility. If that’s you, you may consider a hybrid plan. Most hybrids solve the two main deterrents of long-term care insurance by:

  • Allowing for in-home care (that’s right, they don’t force you into a facility)
  • Return of unused premiums. (i.e. whatever portion you don’t use is returned to your beneficiary)

According to the U.S. Department of Health and Human Services, the average cost for a semi-private room in a nursing home is $6,844 per month, with the average stay being around 2.5 years. As previously listed, 52.3% is the expected percentage of people turning 65 who will have to have a long-term care need during their lives. That is over half the population of individuals turning 65 years of age who will need the assistance offered through long-term care.

The most misleading stat is that 63% of people spend $0 on long-term care. This is because roughly half of Americans have exactly $0 in savings or will have $0 when/if they need long-term care. Those individuals typically find themselves at facilities who accept Medicaid, meaning they are more than likely falling short of the care they need. Here’s the most under reported and most impactful fact of long-term care: the burden is falling on your employees. In total, an estimated $3 trillion in lifetime wages is lost due to unpaid care-giving responsibilities.

How Can Employers Offer Better Long-Term Care Solutions?

It has been said that happy employees are productive employees, and as an employer, you naturally want to increase both the productivity and well-being of employees. Of the many things your employees stress about (home, kids, work, etc.), money is always at the top of the list. In fact, a study investigating employee productivity and well-being found that employees spend 3-4 hours per week, 4-5 times per hour worried about finances. At Saxon, we are happy to help employers implement useful financial tools for their employees to leverage.

For the majority of the working world, healthcare derives from employers, thus, the head of the organization is the one responsible for properly educating employees on their coverage. As the saying goes, “proper planning prevents poor procedure.” With Saxon, employers can schedule a brief, in-house seminar with one of our stellar financial advisors and a long-term care specialist. Through these seminars, clients and employees will discover clear solutions to anything that may still have them on the fence about investing in long-term health. Employees will come to learn the real value in long-term care, such as the reason behind asset location mattering more than asset allocation.

Ready to explore your options and become one of the 0.5% of businesses currently offering long-term care insurance to their employees? If so, don’t hesitate; pick up the phone and call Donald with Saxon Financial today at (513) 609-4404 or toll-free at (800) 847-1733 to discover how you can avoid the single largest threat to your employees’ retirement.

Why Saxon Is the Right Choice for You

At Saxon, we care about you – your family, your company, your finances, and your future. We cultivate our years of practice and experience to deliver exceptional service to you every time. We empower you by placing the tools and knowledge necessary into your hands to deliver remarkable returns on investment. An engagement with Saxon is unique. This is because we have invested in developing a culture where business is personal. Our clients are the central heart of our organization; meaning that without you we have no purpose.

To Saxon, experience matters. We know that outcome is crucial, but to us, it matters how we get there. By taking intentional action in an authentic manner, we are a catalyst for your success that is positively refreshing. We invite you to explore the Saxon way.


Stop making 401(k) contributions. Fill up your HSA first

Open enrollment season is nearing, and soon, employees will be able to decide how much they want to contribute to their health savings accounts (HSA) next year. Read this blog post to learn why employees should contribute to their HSA before their 401(k).


With healthcare open enrollment season approaching, employees electing a high-deductible health plan will soon have an opportunity to decide how much to contribute to their health savings account for next year.

My advice?

Contribute as much as you possibly can. And prioritize your HSA contributions ahead of your 401(k) contributions. I believe that employees eligible to contribute to an HSA should max out their HSA contributions each year. Here’s why.

See also: What’s the best combination of spending/saving with an HSA?

HSAs are triple tax-free. HSA payroll contributions are made pre-tax. When balances are used to pay qualified healthcare expenses, the money comes out of HSA accounts tax-free. Earnings on HSA balances also accumulate tax-free. There are no other employee benefits that work this way.

HSA payroll contributions are truly tax-free. Unlike pre-tax 401(k) contributions, HSA contributions made from payroll deductions are truly pre-tax in that Medicare and Social Security taxes are not withheld. Both 401(k) pre-tax payroll contributions and HSA payroll contributions are made without deductions for state and federal taxes.

No use it or lose it. You may confuse HSAs with flexible spending accounts, where balances not used during a particular year are forfeited. With HSAs, unused balances carry over to the next year. And so on, forever. Well at least until you pass away. HSA balances are never forfeited due to lack of use.

Paying retiree healthcare expenses. Anyone fortunate enough to accumulate an HSA balance that is carried over into retirement may use it to pay for many routine and non-routine healthcare expenses.

See also: 3 things you should be telling employees about HSAs

HSA balances can be used to pay for Medicare premiums, long-term care insurance premiums, COBRA premiums, prescription drugs, dental expenses and, of course, any co-pays, deductibles or co-insurance amounts for you or your spouse. HSA accounts are a tax-efficient way of paying for healthcare expenses in retirement, especially if the alternative is taking a taxable 401(k) or IRA distribution.

No age 70 1/2 minimum distribution requirements. There are no requirements to take minimum distributions at age 70.5 from HSA accounts as there are on 401(k) and IRA accounts. Any unused balance at your death can be passed on to your spouse (make sure you have completed a beneficiary designation so the account avoids probate). After your death, your spouse can enjoy the same tax-free use of your account. (Non-spouse beneficiaries lose all tax-free benefits of HSAs).

Contribution limits. Maximum annual HSA contribution limits (employer plus employee) for 2019 are modest — $3,500 per individual and $7,000 for a family. An additional $1,000 in catch-up contributions is permitted for those age 55 and older. Legislation has been proposed to increase the amount of allowable contributions and make usage more flexible. Hopefully, it will pass.

HSAs and retirement planning. Most individuals will likely benefit from the following contribution strategy incorporating HSA and 401(k) accounts:

  1. Determine and make the maximum contributions to your HSA account via payroll deduction. The maximum annual contributions are outlined above.
  2. Calculate the percentage that allows you to receive the maximum company match in your 401(k) plan. Make sure you contribute at least that percentage each year. There is no better investment anyone can make than receiving free money. You may be surprised that I am prioritizing HSA contributions ahead of employee 401(k) contributions that generate a match. There are good reasons. Besides being triple tax-free and not being subject to age 70 1/2 required minimum distributions, these account balances will likely be used every year. Unfortunately, you may die before using any of your retirement savings. However, someone in your family is likely to have healthcare expenses each year.
  3. If the ability to contribute still exists, then calculate what it would take to max out your contributions to your 401(k) plan by making either the maximum percentage contribution or reaching the annual limit.
  4. Finally, if you are still able to contribute and are eligible, consider contributing to a Roth IRA. Roth IRAs have no age 70 1/2 minimum distribution requirements (unlike pre-tax IRAs and 401(k) accounts). In addition, account balances may be withdrawn tax-free if certain conditions are met.

The contributions outlined above do not have to be made sequentially. In fact, it would be easiest and best to make all contributions on a continuous, simultaneous, regular basis throughout the year. Calculate each contribution percentage separately and then determine what you can commit to for the year.

See also: Change to 2018 HSA Family Contribution Limit

Investing in HSA contributions is important. The keys to building an HSA balance that carries over into retirement include maxing out HSA contributions each year and investing unused contributions so account balances can grow. If your HSAs don’t offer investment funds, talk to your human resources department about adding them.

HSAs will continue to become a more important source of funds for retirees to pay healthcare expenses as the use of HDHPs becomes more prevalent. Make sure you maximize your use of these accounts every year.

SOURCE: Lawton, R. (19 September 2018) "Stop making 401(k) contributions. Fill up your HSA first" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/viewsstop-making-401k-contributions-fill-up-your-hsa-first


5 critical conversations to have before retiring

According to the Society of Actuaries' Retirement Section and Committee on Post Retirement Needs and Risks, about 70 percent of Americans are on course to maintain their standard of living in retirement. Are your employees ready for retirement? Continue reading to learn more.


Reports of Americans’ lack of retirement preparedness roll on. Not all the news is grim, however. A recent study from the Society of Actuaries’ Retirement Section and Committee on Post Retirement Needs and Risks reports that roughly 70% of Americans are on course to maintain their pre-retirement standard of living.

What we know from those who report being comfortable in retirement is that they took the steps necessary to properly prepare.

It’s not just what employees and clients have earned and saved that contributes to their quality of life in retirement, it’s also how they approach their assets, expenses, and income. To this end, individuals must speak frankly with those in their lives — partner or spouse, employer, children — who are pivotal to key aspects of retirement living.

Here are the five critical conversations individuals should have well in advance of retirement:

With your spouse or partner

1. Are we on the same page about the lifestyle we expect to have in retirement?

Before you retire, you and your partner need to get on the same page about what this means in day-to-day terms. For example, did you know that your living expenses in retirement will likely be about 80% of your pre-retirement living expenses? This means that your monthly budget will change and it’s important to make the changes thoughtfully. Examine your priorities and assumptions together to avoid misunderstandings that lead to financial missteps.

Do yourselves a favor and take a gradual approach to downsizing your spending well before retirement. This will let you significantly cut your monthly expenses without feeling the shock of adjustment. Take a close look at your monthly expenses together and identify items you can do without. Then, start eliminating a few at a time.

2. Are there parts of our life we should “downsize” before we retire?

Downsizing your home can be a real savings opportunity in retirement. Relocating to a city with a lower cost of living can also cut your monthly expenses considerably. You can even downsize your car, or go car-free altogether. These are big changes, however, that you and your partner need to consider very carefully together. You’ll want to weigh the possible savings against other important but not necessarily financial factors, such as proximity to friends and family and access to good recreational and medical facilities. Take your time weighing the pros and cons. If you can agree on which tradeoffs you are both willing to make, the impact on your security and comfort in retirement can be huge.

3. Are we really ready to retire? If not, what do we need to do to get there?

Compare your “retirement number” to your anticipated monthly expenses. Identify discrepancies so you can make adjustments and plans as needed.

Do we need to delay retirement by a few years? Even one or two extra years of work, during your peak earning years, may have a significant effect on your quality of life in retirement. Consider this question carefully as you plan when to leave work.

What other sources of income will be available to us in retirement? There are many paths to a comfortable retirement and many different ways to patch together the right assets and investments to provide for your retirement. Even if your investment portfolio is not large enough to support your retirement needs, for example, you may find that you have other assets (a business, or real estate) that can contribute. Or one or both of you may choose to work part time — the “sharing economy” is a good place to start. Or, you may decide to sell off assets you no longer need.

With your employer

4. Should I transition to a freelance/consulting relationship?
Even if you’re looking forward to stepping away from your professional career, the smart move may be to maintain a freelance or consulting relationship with your current employer. Chances are, you have experience and skills that will continue to be valuable to your employer, even when you are no longer on staff full-time. A dependable source of extra income will help you cover unexpected expenses in retirement. Or, you can use the extra income to pay for more of the things you always dreamed of doing in retirement, like hobbies and travel.

Before you have the conversation with your boss, research what a fair fee rate is for someone at your experience level, in your industry. This will allow you to negotiate your future contract from a position of strength. Your track record as a reliable employee and the cost savings to your employer of no longer having you as full time staff should also boost the argument in your favor.

With your adult children

5. How will our lifestyle changes in retirement affect the rest of the family?

Changes in your lifestyle in retirement may affect your extended family in various ways. Setting realistic expectations up front may help ease any necessary adjustments.

For example, are your adult children accustomed to receiving financial assistance from you? Let them know that this may no longer be possible after you retire and have less disposable income.

Downsizing your house? If you have been the default host for family holiday celebrations, downsizing to a smaller home may require the family to rethink future holiday arrangements. Don’t wait until the holidays are upon you to spring the change on them: discussing it ahead of time will ensure that everyone’s best ideas are considered and good alternate plans made.

Planning to relocate, or travel frequently after you retire? You will likely no longer be available for babysitting or many other family activities. Giving your kids and grandkids plenty of notice will help them plan ahead.

These conversations may be awkward and possibly painful, but they need to take place. After saving for years, a clear eye will help with your post-work years.

SOURCE: Dearing, C (12 September 2018) "5 critical conversations to have before retiring" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/opinion/critical-conversations-to-have-before-retiring


Retirement ABCs: How employers can help baby boomers prepare

More than half of baby boomers are working past traditional retirement age for a variety of different reasons. Continue reading to learn how employers can help employees prepare for retirement.


Seventy-four million: That’s the estimated number of baby boomers, according to the U.S. Census Bureau. And 66% of baby boomers are working past traditional retirement ages for a variety of reasons. Some feel they can’t afford to retire, particularly with the looming high costs of healthcare; others may choose to work longer to keep their brains active or because they fear the adjustment to a less structured lifestyle.

Older workers approaching full retirement age (which varies, depending on when they were born) where they can begin receiving 100% of Social Security, face some daunting decisions about Medicare, Social Security and retirement plans such as health savings accounts and 401(k)s — unchartered territory until this point in their lives. There are specific rules about contributions and withdrawals in retirement, and employers should help with the education process. Here are three ways to do so.

Break down the HSA rules from a retiree perspective. If you offer HSAs to your employees, it’s important they understand how HSAs work with Medicare: The IRS dictates that a person can’t contribute to an HSA if they’re enrolled in part of Medicare (Part A, Part D, etc.) However, they can draw on funds already in the account to pay for qualified medical expenses and premiums for Medicare Parts B, C and D (but generally not Medicare supplement plans or Medigap insurance premiums).

Importantly, your employees may be penalized for delaying Medicare, depending on the number of employees you have and whether you have group health insurance. These requirements may not be well known by your employees and should be communicated clearly.

Of course, because Medicare, Social Security and any retirement plans involve several layers of government rules and financial regulations, there are some tricky issues your employees need to know about. One is retirement “back pay.”

When employees sign up for Social Security at least six months beyond the full retirement age, they’ll receive six months of retirement benefit back pay. This is problematic if your employees contributed to their HSAs over the previous six months — they are liable for tax penalties on HSAs. Create an education strategy that includes this information for employees looking to retire, so that they can stop contributing to their HSA six months before retirement and avoid costly mistakes.

Help employees understand how all their benefits work together. Your employees have contributed their knowledge and skills to you; it’s important to help them understand their options as they work toward retirement. For those just a few years out from retirement, your education plan may include helping employees understand eligibility requirements for both Social Security and Medicare, as well as any penalties that might arise from applying late to Medicare.

As your employees age, they are also eligible to contribute “catch-up” funds to HSAs, IRAs and 401(k)s in preparation for retirement. Your 401(k) partners and financial wellness resources can help employees assess their financial situations and prepare for retirement. For example, it’s a good idea to encourage employees who may have multiple 401(k) plans to consolidate them into one — this will make it easier to manage when they retire. They may ultimately roll these into an IRA to access additional investment options.

Maintain a focus on wellness. If you have a wellness program in place, take measures to boost participation and steer employees, especially older participants, toward healthy habits to help them live well and be productive leading up to retirement.

Wellness may extend outside of physical, emotional and mental wellness to professional development. Help them improve their retirement outlook by keeping job skills up to date so they are better prepared if they need to take on other employment to supplement their retirement.

For anyone nearing retirement age it’s a good idea to become acquainted with “Medicare and You,” the government’s official Medicare handbook. While each employee’s situation will differ, there’s no doubt that planning and education are key to a successful retirement strategy and, as an employer, you can support these efforts.

SOURCE: Metzger, L (14 August 2018) "Retirement ABCs: How employers can help baby boomers prepare" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/how-to-best-educate-baby-boomer-workers-on-retirement


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How to motivate millennials to participate in retirement savings

Why aren't millennials participating in retirement plans? In this article, Zito explains why and how you can motivate your millennial employees to participate.


Millennials comprise one-third of the U.S. labor force, making them the single-largest generation at work today, according to Pew Research Center. But they don’t appear to be functioning as full-fledged members of the workforce just yet — at least when it comes to participating in benefit plans.

The National Institute on Retirement Security found that two-thirds of millennials work for employers that offer retirement plans, but only about half of that group participates. That means just one-third of working millennials are saving for retirement through employer-sponsored plans.

The culprit for such low participation originates primarily with eligibility requirements. Millennials are more prone to disqualifying factors like minimum hours worked or time with the company — products of being relative newcomers to the workplace and spending the early parts of the careers in a deeply challenging labor market. The passage of time will hopefully help relax these eligibility limitations.

But there are other headwinds bearing down on millennials that could be holding them back from plan participation, and which present an opportunity for plan sponsors to demonstrate value to the largest working generation. For one thing, millennials have earned the most college degrees as a share of their generation, according to the Center for Retirement Research at Boston College, all while tuition costs have continued to outpace inflation. The resulting financial burden is compounded by the fact that millennials are earning less so far in their careers, despite their education gains, than older generations were earning at their age.

It’s important for sponsors to figure out how to enroll more millennials, and not just because it will generate goodwill. Boomers will continue to roll assets out of their plan accounts as they retire. The flight of their outsized share of plan assets will leave a smaller pool to share plan costs. Increased millennial engagement can offset this drawdown.

Plan design that gives due consideration to the rise of millennials should consider how to help with their financial needs and play to their strengths.

Harness millennial tech savvy

Growing up immersed in an electronic and interconnected environment reduces the learning curve that millennials might face in using planning tools. Simple offerings like a loan payment calculator or retirement savings projection interface can make a profound difference on the path to financial preparation.

The flipside to millennials’ willingness to tinker is that they tend to over-scrutinize their investment mix. TIAA found that millennials are three times as likely as boomers to change their investment allocation amid a market downturn — typically a decision that ends in regret. The compulsion to de-risk tends to strike after the worst of the damage is done, leaving investors ill-prepared for the ensuing recovery.

Solutions like target-date funds can remove the need to think about allocations altogether, so millennials can focus on more effective factors like retirement savings or loan repayment rates and stretching for their full matching contributions.

Provide an education benefit umbrella

Compound interest — the accelerant that makes saving and investing for retirement over several decades so effective — works in a similar way against borrowers that are slow to repay their loans. This is an acute problem for millennials, but it doesn’t stop with them. Almost three-fifths of 22 to 44-year-olds have student debt, and they’re joined by more than one-fifth of those over 45-years-old.

Employer-sponsored student loan repayment assistance can take a variety of forms. It can be as simple as directing participants to enroll for dedicated loan payments, and can extend all the way to helping them refinance at a better rate or consolidate multiple loans.

The education benefit umbrella can also cover tuition reimbursement programs for employees that want to continue their education but are hesitant to spend the money. These programs can also serve employee retention goals as they’re typically offered with a payback period if workers leave shortly after being reimbursed.

Any program that lowers employee financial stress will likely help improve productivity. From a practical standpoint, workers have more disposable income — and feel wealthier — once they’ve vanquished their loans.

Being an advocate in helping employees accomplish that goal has obvious benefits for organizations that are seeking to retain members of the country’s largest working generation.

SOURCE: Zito, A (9 August 2018) "How to motivate millennials to participate in retirement savings" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/motivating-millennials-to-participate-in-retirement-savings


Five steps to becoming a trusted retirement plan adviser

Discover creative ways to deliver the best retirement plan to your employees with these five steps in retirement plan advising.


Many trends within the employee benefits industry challenge advisers to think creatively on behalf of their clients. For instance, millennials are more likely to pay off student loans and less likely to contribute to their company’s 401(k) plan. They lose the benefit of compound interest over all those years to retirement, which over decades, can amount to up to 80% of a millennial’s nest egg.

When companies experience low participation rates with new hires, the overall health of the plan will suffer and many of the more highly compensated and key employees may not be able to defer as much as they would like into the plan. Advisers must develop relationships with business owners to establish customized retirement plans that work best for their and their employees’ needs.

When advisers overcome these challenges they expand their client base and move toward success. The following five steps will help retirement plan advisers bring their career to the next level:

Understand the fiduciary requirements and minimize the risk of the employer

Strive to impart knowledge on the employer and the participants to make them confident in their retirement plans. Company owners will feel more comfortable if an adviser helps to reduce the fiduciary risk associated with the creation and ongoing operation of a plan. Advisers can share and even take over most of the fiduciary responsibility with the employer to lessen the pressure. With the right information, a business owner can understand the requirements of the plan and is motivated to establish a 401(k) or other type of plan for the benefit of their employees and overall business objectives.

Know the best plan options for the companies you’re serving

Not every company should have a 401(k) plan. While 401(k) plans may be optimal for large and even small companies, small companies may benefit from other types of plans. Small businesses often operate at a loss or minimal profit for many years before they generate significant profit. As a result, business owners may seek a plan — such as a defined benefit plan — that allows them to contribute more toward their retirement. In some cases, this may more than triple the amount of yearly contributions an employer can make compared to a 401(k) plan. Employers can contribute to a defined benefit plan and take a tax deduction equivalent to the contributions made to the plan.

Understand the tax advantages of retirement plans

Successful plan advisers should understand the tax advantages associated with the chosen retirement plan for both the owners and the participants. Traditional 401(k) plans tend to provide the most benefits to employees with tax-deferred contributions. On the other hand, small company owners can benefit from the tax advantages of properly designed cash balance or defined benefit plans. These frequently overlooked plans enable employers to deduct the cost of the company’s plan from their taxable income to secure tax savings.

Employee benefit advisers must have this foundational understanding of the tax advantages to successfully serve their clients. Partner with a retirement company record-keeper and a third-party administrator to learn the details for each option.

Discover profitable prospects among small companies too

Many employee benefit advisers in search of success avoid talking to small companies. However, these small companies have significant potential and are vital to success in an otherwise crowded market. Small companies, even with only three to five employees, are great to work with, especially if you help them establish a defined benefit plan, and if it’s the best plan for them. Through these plans, retirement plan advisers can receive the fees needed to provide the service because the company is making larger contributions than to a profit sharing or 401(k) plan.

Target underserved, yet vibrant markets

According to a recent study from the Pew Charitable Trusts, only 53% of small to midsize companies have retirement plans in place. Owners may think they are too small to be able to afford and monitor a program. These businesses are important prospects to pursue. Make yourself known to these companies and show the employer that there is a retirement plan that will work for their employees and company, no matter the size. Explain what program the company can implement and easily administer with your guidance.

Small companies provide great opportunities for advisers to become successful and differentiate themselves from other industry professionals. Keep in mind that these small companies are also more dependent on advisers because of the costs and risk associated with retirement plans. They will require more frequent contact for advice and personalized service. If you do not have the right expertise in the beginning, partner with someone in your office or a TPA until you have the credentials and knowledge to advise small companies on your own.

SOURCE:
Weintraub, M (19 June 2018) "Five steps to becoming a trusted retirement plan adviser" [Web Blog Post]. Retrieved from https://www.employeebenefitadviser.com/opinion/five-steps-to-becoming-a-trusted-retirement-plan-adviser?brief=00000152-146e-d1cc-a5fa-7cff8fee0000