Innovative employers abandoning outdated management structure
Originally posted April 8, 2014 on www.ebn.benefitnews.com by Michael Giardina.
The ability for staff to incorporate innovative new ideas that bring changes to dilapidated processes can only be fostered in a workplace that allows for an open communicative culture across organizational lines.
This core theme was offered by leaders of both retail home mortgage lender Quicken Loans, Inc. and W.L. Gore & Associates, a technology-driven company at last week’s annual Great Place to Work conference.
“The fluidity of communication, the openness of the communication, the transparency of the communication is absolutely critical.” says Quicken Loans CEO Bill Emerson. “…We win when our team members feel connected to the company.”
Quicken Loans, based in downtown Detroit, has more than 10,000 “team members.” In its family of companies, this comprises more than 112 businesses that envelope everything from consumer services and biotechnology to financial services and even the National Basketball Association’s Cleveland Cavaliers franchise. Dan Gilbert, Quicken Loans chairman and founder, previously became the majority owner in March 2005.
“You really need everyone to participate,” Emerson explains, while noting that every company should “make sure everyone understands their passion and ability to affect that outcome.”
On a monthly basis, Emerson has a face-to-face meeting with 20 team members. The content of these talks are usually open to whatever that employee feels can add value to the organization.
“It’s so important to be close to the business, and understand what’s going on so you can hear what’s affecting people on a day-to-day basis,” Emerson explains. “Email is the bane of American business,” he adds.
Emerson states that most businesses are currently plagued by the “spreadsheet mentality,” but offers that “innovation, creativity are all things that are going to drive the top line of your business.”
Creativity is something that is fostered at W.L. Gore & Associates. The company first introduced GORE-TEX in 1978, a waterproof but breathable fabric that probably makes up your jacket or boots. It was first founded in the late 1950s by Bill and Vieve Gore in Newark, Del. One of its first round of employees were paid, in part, in portions of Gore stock.
The longstanding sense of employer empowerment and connection to the company still resonates today, says current president and CEO Terri Kelly. She explains that she spends about 40% of her time to make sure the organization and employees are “nurturing that environment that will allow us to be successful.”
“If we get that right, that’s what engages our associates, that in turn allows them to do great things, and innovate all these wonderful products that we have,” she says.
When first joining the organization, which currently has more than 10,000 employees in 45 plants around the world, Kelly remembers the Gore family inviting its new crop of engineers to their home for a pool party. She contends that this mentality – one that is conducive to openness and family culture – is still driving the company today.
“This is not a new phenomenon for Gore, it’s something we have been shaping for over 55 years,” she explains. “We are very much relationship-based organization; trust is really important, teamwork is incredibly important and so again, the philosophy here is how do we create a network environment that is not based on hierarchy but the associates go to the folks that they need.”
It even holds the same values and trepidation that its founder held regarding rigid employee guidelines, which is similar the same core concepts at fashion retailer Nordstrom.
“Bill Gore also did not like policy manuals – I think he despised policy manuals,” Kelly explains. “I think he had for good reason because he really understood that you could never write down every circumstance or situation for an associate to make a decision.”
The elimination of bureaucratic lines and management reporting is something that sets apart the company that harbors a team-based, flat organizational culture. Adding to this open approach is employee compensation.
“Every associate is evaluated by their peers, and the question we ask is, ‘who is making the greatest impact to the enterprise success?’” she says. “We think this is very powerful, and it’s a lot of work to accomplish. The message it sends is that it’s based on performance, not on title, or positions or seniority … it’s based on your impact to the organization.
“Those that are making the greatest contribution are also making the greatest compensation,” Gore adds.
Target Date Fund Investors More Confident About Reaching Retirement Goals
Originally posted April 15, 2014 on www.ifebp.org
Individuals investing in a target date fund within their workplace defined contribution (DC) retirement plan feel more confident about investing and meeting their retirement goals than those that don't use target date funds, according to recently updated survey results from Voya Financial's Investment Management business.
The survey was conducted by ING U.S. Investment Management, which plans to rebrand as Voya Investment Management in May 2014. ING U.S. Investment Management is part of Voya Financial, Inc., which recently rebranded from ING U.S., Inc.
In the survey, "Participant Preferences in Target Date Funds: An Update," more than half (56%) of target date fund (TDF) investors felt confident they would meet their retirement goals. In comparison, just over four-in-ten (41%) of non-TDF investors felt confident about their retirement savings. Further reinforcing this confidence among TDF investors is the survey's finding that nearly two-thirds (64%) felt they could turn their plan savings into an income stream at retirement, compared with just 43% of non-TDF investors. These findings compare similarly to results of a similar study conducted in 2011.
Overall, more than two-thirds (68%) of plan participants using TDFs reported that the investments alleviated the stress of retirement planning, increased their confidence that they were making good investment decisions, and helped them feel more assured they could meet their retirement income goals.
Target Date Fund Investors Contribute More
The survey also found that TDF investors contribute more to their retirement plans. Forty-two percent of TDF investors contribute more than 11% of their income to their workplace plan. In comparison, just 23% of those who do not invest in TDFs were contributing more than 11% of their income.
"These findings about how target date funds are influencing plan participants' feelings and savings habits provide some powerful insights that both consultants and plan sponsors can act upon," said Bas NieuweWeme, managing director and head of institutional distribution. "Considering the significant increase in the equity markets in 2013, it is noteworthy that the confidence of those that don't invest in target date funds is no stronger than it was in 2011. On the contrary, those that invest in target date funds continue to be more confident than non-target date fund investors, or demonstrating greater levels of retirement readiness."
Plan Participants Seek Glide Paths Offering Protection and Diversification
In addition to higher confidence and savings levels among TDF investors, the survey found that the vast majority of both TDF investors and non-TDF investors have a strong preference for protection against loss in the years leading up to retirement (92%) and broad diversification among both investments (92%) and investment providers (85%).
"Participants clearly want their investment providers to exhibit great care in the all-important years leading up to retirement," said Paul Zemsky, chief investment officer of multi-asset strategies and solutions. "This knowledge can help consultants and plan sponsors factor in the investment preferences of their participants when customizing glide paths for their plan demographics. Our focus and objective as investment managers is to ensure we apply those risk-return preferences in a thoughtful and disciplined way."
In addition to the updated research on plan participants use of TDFs, ING U.S. Investment Management has published"Rethinking Glide Path Design - A Holistic Approach,"a detailed analysis of how to align investment portfolio risk with the retirement objectives of participants at every stage in the plan life cycle. Understanding participant demographics and knowing their preferences allows us to create custom glide paths which are designed specifically for individual plans.
"A glide path design needs to take into account the risks of the investment portfolio relative to the overall retirement goals of plan participants over the course of a full life cycle," says Frank Van Etten, deputy chief investment officer, multi-asset strategies and solutions. "This helps maximize the probability of successful retirement - namely, allowing participants to maintain their lifestyles in retirement while not outliving their assets. To accomplish this, the investment decision at every stage of the life cycle must incorporate a holistic perspective in which in-retirement objectives are driving the process."
Survey Methodology
ING U.S. Investment Management, in collaboration with the ING Retirement Research Institute, conducted an online survey of 1,017 employer-sponsored retirement plan participants between September 16, 2013 and September 20, 2013. At 90% confidence, the margin of error in the study was +/- 3.5%. Of the respondents, 500 invested in a TDF within their plan, while 517 did not. All respondents to the survey were currently contributing to an employer-sponsored defined contribution plan, were age 25 or older, and were the primary/joint financial decision maker for their account. The survey included plans of all employer sizes. The data was weighted by household income, age and gender, among other variables, to more closely represent the demographics of the general retirement plan population. To prevent bias, ING U.S. Investment Management was not identified as the sponsor of the research.
There is no guarantee that any investment option will achieve its stated objective. Principal value fluctuates and there is no guarantee of value at any time, including the target date. The "target date" is the approximate date when you plan to start withdrawing your money. When your target date is reached, you may have more or less than the original amount invested. For each target date Portfolio, until the day prior to its Target Date, the Portfolio will seek to provide total returns consistent with an asset allocation targeted for an investor who is retiring in approximately each Portfolio's designation Target Year. Prior to choosing a Target Date Portfolio, investors are strongly encouraged to review and understand the Portfolio's objectives and its composition of stocks and bonds, and how the asset allocation will change over time as the target date nears. No two investors are alike and one should not assume that just because they intend to retire in the year corresponding to the Target Date that that specific Portfolio is appropriate and suitable to their risk tolerance. It is recommended that an investor consider carefully the possibility of capital loss in each of the target date Portfolios, the likelihood and magnitude of which will be dependent upon the Portfolio's asset allocation.
Stocks are more volatile than bonds, and portfolios with a higher concentration of stocks are more likely to experience greater fluctuations in value than portfolios with a higher concentration in bonds. Foreign stocks and small and mid-cap stocks may be more volatile than large-cap stocks. Investing in bonds also entails credit risk and interest rate risk. Generally, investors with longer timeframes can consider assuming more risk in their investment portfolio.
The fast-fading days of retiree health coverage
Employers are trying out all kinds of approaches to better manage retiree health costs, though the day will eventually come when just a handful will offer such benefits to the over-65 set.
That’s the conclusion the Kaiser Family Foundation reached in what is essentially a status report titled “Retiree Health Benefits at the Crossroads.”
Companies once offered retiree benefits as a way of retaining workers but have been chipping away at them for years. One of the more recent companies to make the move was Northrop Grumman, which earlier this month told employees it would use a broker to help them choose from a variety of Medicare supplemental options. That's just one of a number of avenues employers are taking.
As Kaiser noted, “several major trends stand out in particular, namely, growing interest in shifting to a defined contribution approach and in facilitating access to non-group coverage for Medicare-eligible retirees, and consideration by employers of using new federal/state marketplaces as a possible pathway to non-group coverage for their pre-65 retiree population.”
The report noted that the number of companies offering coverage of any type to retirees has dwindled, from 66 percent in 1988 to 28 percent last year.
It said even employers that plan to continue providing coverage of retirees are exploring ways to reduce the corporate dollars dedicated to the task.
Though fewer in number, retiree health benefit plans remain an important source of supplemental coverage for roughly 15 million Medicare beneficiaries and a primary source of coverage for more than two million pre-65 retirees in the public and private sectors, Kaiser noted.
The landmark changes brought to health care by the Patient Protection and Affordable Care Act, and the constant revisions of the law, have left employers off balance when it comes to cost-containment measures, Kaiser said. But there are other factors at play that further complicate planning.
For instance, Kaiser says, a consistent push to boost the Medicare eligibility age to 67 could result in companies having to cover their older workers for another two years. That can add up for those with large and experienced workforces.
“In an earlier study, Kaiser Family Foundation and Actuarial Research Corporation modeled the effects of raising the Medicare eligibility in a single year (2014), finding that employer retiree plan costs were estimated to increase by $4.5 billion in 2014 if the Medicare eligibility age is raised to 67. In addition, public and private employers offering retiree health benefits would be required to account for the higher costs in their financial statements as soon as the change is enacted,” Kaiser said in its report.
Options identified by Kaiser for reducing the cost of pre-65 retiree health coverage include “strategies to avoid or minimize the impact of the excise tax (a.k.a. the Cadillac tax) on high-cost plans included in the ACA. Although the tax applies to plans for active employees, as well as pre-65 and Medicare-eligible retirees, there is a focus on pre-65 coverage because of its relatively higher cost. And even though the tax takes effect under the PPACA in 2018, employers must begin to account for any material impact the tax may have on their retiree health programs in today’s financial statements.”
Kaiser also said shifting pre-65 retirees to private and public exchanges, moving to a defined contribution plan, and changing plan design to shift costs to employees are all receiving more attention.
Also, employers are increasingly choosing to trim the cost of drug programs away from plans that provide coverage to Medicare-eligible retirees.
Kaiser concludes that company-sponsored health coverage for retirees will inevitably recede from the benefits landscape.
“Over the next few decades, these trends suggest that employer-sponsored supplemental coverage is likely to be structured differently and play a smaller macro role in retirement security than it has in the past and than it does today. Relatively fewer workers will have such coverage available in the future, to be sure.”
Originally posted April 14, 2014 by Dan Cook on www.benefitspro.com.
3 Tips for Practicing Mindfulness in a Multitasking Workplace
Originally posted by Sandy Smith on https://ehstoday.com
Employers such as Google, eBay, Intel and General Mills offer classes on it. So do Harvard Business School, Ross School of Business and Claremont Graduate University, among other campuses. Mindfulness is not just a social media buzzword or a corporate trend, but a proven method for success, according to neurologist Dr. Romie Mushtaq.
Mindfulness – being focused and fully present in the here and now – is good for individuals and good for a business’s bottom line, according to her.
How can people practice it in a workplace where multitasking is the norm, and concerns for future profits can add to workplace stress? (More than 80 percent of employees report being stressed at work.)
“Even if a company doesn’t make it part of the culture, employees and managers can substitute their multitasking habits with mindfulness in order to reduce stress and increase productivity,” says Mushtaq. “The result that you and your colleagues will notice is that you’re sharper, more efficient and more creative.”
Mushtaq, who is a mind-body medicine physician and neurologist at the Center for Natural and Integrative Medicine in Orlando, Fla., did her medical education and training at the Medical University of South Carolina, University of Pittsburgh Medical Center and University of Michigan, where she won numerous teaching and research awards. She says the physiological benefits of clearing away distractions and living in the moment have been documented in many scientific and medical studies.
“Practicing mindfulness, whether it’s simply taking deep breaths, or actually meditating or doing yoga, has been shown to alter the structure and function of the brain, which is what allows us to learn, acquire new abilities, and improve memory,” she says. “Advances in neuroimaging techniques have taught us how these mindfulness-based techniques affect neuroplasticity.”
Multitasking, on the other hand, depresses the brain’s memory and analytical functions, says Mushtaq, and it reduces blood flow to the part of the right temporal lobe, which contributes to creative thinking. In today’s marketplace, she adds, creativity is key for innovation, sustainability and leadership.
Mushtaq offers these tips for practicing mindfulness in a multitasking business:
Focus on a single task for an allotted amount of time. You might say, “For 15 minutes, I’m going to read through my emails, and then for one hour, I’m going to make my phone calls,” suggests Mushtaq.
If your job comes with constant interruptions that demand your attention, take several deep breaths and then prioritize them. Resist the urge to answer the phone every time it rings (unless it’s your boss). If someone asks you to drop what you’re doing to help with a problem, it’s OK to tell them, “I’ll be finished with what I’m doing in 10 minutes, then I’m all yours.”
When you get “stuck” in a task, change your physical environment to stimulate your senses. Sometimes we bounce from one task to another because we just don’t have the words to begin writing that strategic plan, or we’re staring at a problem and have no ideas for solutions.
“That’s the time to get up, take a walk outside and look at the flowers and the birds – change what you’re seeing,” Mushtaq says. “Or turn on some relaxing music that makes you feel happy.”
Offering your senses pleasant and different stimulation rewires your brain for relaxation, and reduces the effects of stress hormones, which helps to unfreeze your creativity center.
Delegate! We often have little control over the external stresses in our lives, particularly on the job. How can you not multitask when five people want five different things from you at the same time?
“Have compassion for yourself, and reach out for help,” advises Mushtaq. “If you can assign a task to somebody else who’s capable of handling it, do so. If you need to ask a colleague to help you out, ask!”
This will not only allow you to focus on the tasks that most need your attention, it will reduce your stress, she says. “And who knows? The colleague you’re asking for help may want to feel appreciated and part of your team!"
While it is possible to practice mindfulness in a hectic workplace, Mushtaq says she encourages business leaders to make it part of the company culture. Stress-related illnesses are the No. 1 cause of missed employee workdays.
“Offering mindfulness training and yoga classes or giving people time and a place to meditate is an excellent investment,” she says. “Your company’s performance will improve, you’ll see a reduction in stress-related illnesses and you’ll be a more successful businessperson.”
Bill bumping ACA to 40-hour work week passes House
Originally posted April 4, 2014 by Melissa A. Winn on https://eba.benefitnews.com
The U.S. House of Representatives on Thursday passed legislation that would modify the Affordable Care Act’s definition of a full-time employee from one who works 30-hours a week to one who works 40-hours a week.
The 248 to 179 vote was largely along party lines, with 18 Democrats joining a unanimous block of 230 Republicans to support the bill, H.R. 2575, also known as the Save American Workers Act of 2013.
The Big “I” applauded the bill’s passage, calling it a “common-sense fix.”
“Independent agencies serve many clients who have struggled with the prospect of complying with the employer mandate, and in particular the 30 hour per week definition of a full-time employee,” says Robert Rusbuldt, president and CEO of the Big “I.”
The law’s opponents argue the ACA’s current definition encourages employers to limit employees’ work hours to less than 30 a week to avoid the employer mandate requiring employers with 50 or more full-time workers to provide affordable health care coverage to their employees.
“Implementation of the employer mandate has caused many businesses to undergo the prospect of great financial strain or to contemplate dropping their health care plan altogether,” says Charles Symington, Big “I” senior vice president for external and governmental affairs.
The Big “I” believes this new legislation “would provide much-needed relief for job creators,” he says.
The White House on Tuesday threatened to veto the bill, citing a Congressional Budget Office analysis released in Feb. that found the legislation would increase the deficit by $74 billion and reduce the number of people receiving employment-based health coverage by about one million people. The vote is largely symbolic as it is not expected to make headway in the Democratic-controlled Senate.
DOL cracks down on employer 401(k) issues
Originally posted March 31, 2014 by Scott Wooldridge on www.benefitspro.com
The press release headlines are sobering: “U.S. Labor Department files suit to remove trustees,” “Department of Labor files suit to recover unpaid contributions to 401(k) plan,” and “Judge orders trustees to restore losses.”
The Department of Labor website is overflowing with cases of regulators taking action against employers accused of mishandling employee benefit plans.
Among the most common cases: errors in administering 401(k) plans. Although Labor Department officials and experts in the ERISA field say the majority of cases are errors in reporting and do not result in civil lawsuits, the numbers of benefit plan cases investigated (of all kinds) are still impressive: the DOL closed 3,677 investigations in 2013, with nearly 73 percent of those resulting in monetary fines or other corrective action. Lawsuits were filed in 111 of those cases.
The department says it is working to educate employers about how to avoid errors, including conducting seminars and providing information on the DOL website.
In a March 21 blog post, Phyllis Borzi, assistant secretary of Labor for employee benefits security, noted that employers could find it challenging to administer benefits such as 401(K) plans.
“Most fiduciaries — people who have key responsibilities and obligations to an employee benefit plan — and employers want to do the right thing,” she said in the piece. “However, inadvertent mistakes can create significant problems for fiduciaries and participants.”
The problems can lead to substantial monetary fines and settlements.
In January, for example, the DOL announced that a Chicago-area manufacturing firm, Hico Flex Brass, would pay $79,000 to settle a case in which the company failed to properly distribute 401(k) earnings to employees.
A Jan. 10 complaint by the DOL asked the courts to rule that a machine shop in Santa Maria, Calif., should restore $58,000 in 401(k) contributions that the company improperly mixed with other business accounts.
For large companies, the costs are even higher.
A lawsuit brought by employees of International Paper resulted in a $30 million settlement in January, although that case was litigated by a law firm and not the DOL.
Even when the dollar figures aren’t as high, cases involving 401(k) administrative errors can hit small and medium-sized employers hard.
Lawyers who work on employee benefits cases say many employers don’t pay close enough attention to the complexities of administering retirement plans.
“It’s just difficult at times for employers to keep up and attend to all the details,” said John Nichols, an employment benefits lawyer with Minneapolis-based Gray Plant Mooty. “The rules are complex, and the administration of the plans is correspondingly complex.”
Plenty of room for error
“The reality is that running a benefit plan such as a 401(k) plan has a lot of room for error built into it,” said Stephen Rosenberg, an ERISA attorney with The McCormack Firm, based in Boston. “Many of these small and medium-sized companies are focused on running their business. They need to provide a 401(k) as an employee benefit but they don’t really have the internal resources to do this.”
Rosenberg said even large businesses often stumble with retirement plan administration. “Retirement plans, including 401(k) plans, are probably more regulated than anything in American economic life short of nuclear power plants,” he said. “It’s very difficult for any company not large enough to have a dedicated legal staff to hit every hurdle correctly.”
Nichols said that the DOL tends to investigate certain areas of plan administration pretty consistently. “You see a lot of similarity” of the cases, he noted. “One exercise (employers can consider) is to go down the list of typical cases and say, ‘How are we doing in each of these areas?’”
Common pitfalls
So what are the areas the DOL tends to investigate? The experts interviewed for this story agreed that there are several areas where problems may trigger a DOL investigation of employers.
One is failing to make a timely remittance to the 401(k) plan. Under federal rules, funds from an employee’s paycheck have to be submitted to their retirement account no more than 15 days after the money is withheld from the paycheck.
A second common issue is making sure employees get their statements in a timely manner. Proper disclosure of fees owed to the plan’s fiduciaries (the company in charge of administering the funds for the plan) is another area that DOL looks at closely. And some companies have been found noncompliant for failing to maintain fidelity bonds for their plans, a safeguard against misuse of funds.
“I do see companies who are loose about when they make deposits; they just treat it like the rest of the cash flow in the company,” said Rosenberg.
Avoiding costly mistakes
Rosenberg and Nichols said there are several steps employers can take to avoid trouble with DOL regulators.
They both said companies need to take their fiduciary responsibilities seriously, and not expect that a retirement plan will run itself. An important first step is keeping good records.
“If you have a committee that is responsible for the administration of the plan or its investments, make sure that they meet regularly and that you keep a good record of committee actions, what’s discussed, and how decisions are made,” Nichols said.
Getting help
Rosenberg said companies need to be realistic about whether they have the time, resources, and knowledge to administer and monitor retirement plans themselves.
“The key in many ways for smaller and midsized companies is really to find a very good outside consultant — and I don’t mean your vendor,” he said. “If you have a huge company you have a department to do this. If you’re not, bring in a consultant and outsource that role.”
Nichols agreed that the vendor — the financial services company that provides the investment plan — has a limited role. “Vendors are pretty good at allocating accounts and providing access to account information,” he said. “That doesn’t mean that the whole job is done. You didn’t get a totally turnkey product. There are things you need to do as well.”
Failing to watch, of course, could mean triggering a DOL action.
“There’s always a monitoring responsibility,” a DOL spokesperson said. “The criteria we use is, ‘You should have known. You might not have known, but you should have known.’”
Biggest boomer retirement regrets
Originally posted by Lisa Barron on https://www.benefitspro.com
The last of the baby boomer generation will be turning 50 this year, and it's time for them to get a fix on how they are going to prepare for retirement.
Fortunately, there are valuable lessons, financial and otherwise, to be learned from those who have already reached their later years.
On the financial front, there is of course room for many regrets. "Generally, the failure to have a plan is number one," Pete Lang, president of Lang Capital in Hilton Head and Charlotte, N.C., told BenefitsPro.
"I find people five years into retirement with no plan whatsoever."
Lang said that includes a tax plan, an income plan and an investment plan. Otherwise, he cautioned, "All your money is slipping through your fingers."
He left out an estate plan, Lang said, because while it may be needed for a financial blueprint it is not needed to retire, as are the other three.
On taxes, according to Lang, the biggest regret is the failure to use a tax-forward plan, such as deferring Social Security. "If you don't take it at 65 or 66, you can defer it and that will minimize taxes."
Other tax regrets include withdrawing money from tax-deferred IRAs too early, and not spreading Roth IRA conversions over a period of time.
As for income, Lang goes back to Social Security deferrals. "Everybody thinks the government will go out of business. That's not the case. The checks will always continue," he said.
"If the government gets into trouble with inflation, that's another issue. But the checks will be there, and deferral is a great way to guarantee enhanced income stream."
Finally, turning to investment, Lang said the big regret is the failure to hedge against inflation. "The inflation rate over the last 15 years has averaged 2.5 percent. And when you look at portfolios, they are also taxable. You have to use a tax co-efficient. I use 3.4 percent. So, if you're not growing at that rate you are not hedging money against inflation. If that's the case, you're losing buying power," he explained.
Given the risk inherent in equities and the current low yields on Treasuries, Lang said, "Use the standard rule to diversify a portfolio to create an income stream from safer allocations short term and in the long term from a more aggressive plan."
Clarence Kehoe, executive partner in accounting firm Anchin, Block & Anchin, told BenefitsPro he sees regrets over some very basic mistakes made during the peak earning years.
"From my experience, a lot of people when they get to retirement age look back and say 'why didn't I' or 'I wish I had,'" he said.
The two biggest killers are a lack of savings and a lack of understanding of how much will be needed in retirement, according to Kehoe.
"If you look at it realistically, many see a rise in income as they mature in their career, and when they see salaries go up, instead of saying now I have a chance to save, they are spending it. A lot of people don't pay attention, and don't say I have excess cash and I should save it," he said.
Going hand in hand with this is the problem of excessive borrowing. "Consumer debt has gone but the affluent person who wants a bigger house will have taken a mortgage or taken a second mortgage to take a vacation. Excess leveraging can squash the ability to save for retirement," Kehoe said.
Among other regrets sees is retiring too early. "There are people who have taken themselves out of the work force, some even in their mid- 50s, but they are robbing themselves of extra years of savings."
"A lot of people don't realize life expectancy is longer than they think, which means they need more money," he added.
Finally, Kehoe stresses the need to plan for age-related expenses. "People look at themselves unrealistically. They are not thinking about some of the extremes in older age. But even if you keep yourself in great shape your body wears down," he said.
That means more regular doctor visits, not all of which will be covered by the government or insurance, Kehoe warned.
Not all of the retirement-related regrets pertain strictly to finances, notes Daniel Kraus, an advisor and branch manager with Raymond James & Associates in Boca Raton, Fla.
One of the biggest one he sees among clients is the lack of a plan for what to do with their time. "A recent client commented, 'I'm bored. I don't know what to do with myself,'" Kraus told Benefitspro.
"After working for 50 years, he retired at 73 and said he wasn't prepared for the lack of activity. So there's a psychological impact of going into retirement that is dreadfully overlooked," he said.
Another area that can be overlooked has to do with way of life. "We do experience clients unwilling to change their lifestyle or unable to make that change," he said.
"I've got a client who's 84 and is burning down her money because she won't change her lifestyle. So that's an investment and psychology issue."
Another client can't make the tough decisions she needs to. "In her case, she knows she has to sell her real estate but she can't bring herself to price it at a price where it will sell," he explained.
"Retirement is all about making choices and compromise."
The person who isn't willing to change their lifestyle and runs out of money has regrets, said Kraus, as does the person who retired too early and finds the market is down and the person who pulled all of their money out of the market in 2008 and 2009 and put it in the bank.
His final cautionary tale: Regret is having long-term care expenses and not having planned for it.
Pointing to statistics showing that two-thirds of those over age 65 will incur long-term care costs, Kraus said, "There's nothing certain in life but death, taxes and long-term care."
Why it's critical to monitor life insurance policy performance
Originally posted on April 11, 2014 by Henry Montag, E. Randolph Whitelaw on www.lifehealthpro.com
Have you ever discovered a bank entry error in your checking account register, resulting in $100 or $1,000 less than what it should be? Imagine how much worse it would be if your client’s $1,000,000 life insurance policy’s death benefit was suddenly unavailable to a spouse or child due to a technicality. Unfortunately, as a result of sustained low interest rates over the last twenty years, as well as policy owner and trustee inattention to performance monitoring, approximately 35 percent of existing non-guaranteed life insurance contracts are expected to expire prior to an insured’s normal life expectancy.
Very few lay people and professionals are aware that their life insurance contracts can expire prior to their lifetime. Clients and trustees often incorrectly assume that either the agent or the insurance company is monitoring their contracts to make sure they will always remain in force, but that’s not true. As a matter of fact, it would be in the insurance company’s best financial interest if, after all those years of paying the premium, it became exorbitantly expensive to maintain the contract and the death benefit had to be reduced or the policy surrendered. According to Donald Walters, General Counsel for the Insurance Marketplace Standards Association, (IMSA), “While insurers have not publicized the issue, there is a growing concern in the industry about lapsing universal life policies.” Carriers and agents have no obligation to monitor policy performance relative to original performance expectations. Carriers are merely required to send a scheduled premium billing and an annual policy value statement. It is solely the responsibility of the policy owner to review the policy value statement and determine the needed premium adjustment to achieve originally illustrated policy values.
In August 2012, the Office of the Comptroller of the Currency (OCC) issued revised guidelines, which directs financial institutions serving as trustee of an insurance trust to treat life insurance as they would any other asset. This means life insurance, just like stocks, bonds and real estate, needs to be actively managed. Providing a policy performance evaluation and then monitoring it every 1-3 years, depending upon product type, is the only way to determine whether a life insurance contract issued in the 1980s is in danger of expiring prematurely. These universal life or variable universal life insurance contracts, unlike their more expensive whole life counterparts that have lifetime guarantees, are not guaranteed for a lifetime. This is because their performance was tied to an anticipated annual interest crediting rate, or an anticipated stock index performance, neither of which was guaranteed, and neither of which were achieved.
In the mid-1980s, when prevailing interest rates were as high as 18 percent and life insurance companies were crediting guaranteed policies much lower rates, thousands of astute policyholders switched the accumulated cash value in their whole life contracts into higher yielding bank deposit instruments.
In order to stop these outflows, the life insurance industry created a new product called universal life insurance.” These policies paid an interest rate based on prevailing market interest rates instead of a fixed rate, as had been the case in their traditional whole life contracts. If interest rates increased, then the scheduled premium could be decreased or remain unchanged for policy coverage to remain in force. What was not clearly understood, however, was that, if interest rates decreased, then the length of time the coverage would remain in force would consequently be reduced, or a greater annual premium deposit would be required in order to prevent an early expiration of coverage.
When universal life was first offered, agents and brokers would ask their clients how long they wished the coverage to remain in force. Clients would typically respond that they wanted the coverage to last until age 90–95. Next an interest rate assumption was made for the time period between the insured’s current age and this age 90–95 target in order to generate a computer illustration calculating the anticipated annual premium needed to keep the policy in force. However, this scheduled premium amount was not guaranteed.
While the introduction of this interest-sensitive product solved the outflow problem for the insurance industry, it has created other problems for policy owners in the last ten years due to policy owner misunderstandings and inattention. Few policy owners or “amateur” trustees understood that they carried performance risk. Moreover, they did not know which risks to monitor or have the tools to do so. As interest rates declined, they simply paid the scheduled premium, unaware that the policy would lapse much earlier than insured age 90-95 unless the scheduled premium amount was increased. This fact has created a crisis of lapsing policies that requires corrective action.
To avoid lapse risk, a policy performance evaluation of a universal life, variable universal life or indexed universal life contract should be independently conducted to determine, at a minimum, (1) the probability the current premium will sustain the policy to the insured’s life expectancy, (2) the insured’s age at policy lapse, (3) the competitiveness of the policy charge, and (4) the needed correcting premium to sustain the policy to the insured’s life expectancy. Inforce carrier illustrations disclaim predictive value. Hence, an actuarially certified evaluation should be obtained. Also, for older insureds, a life expectancy report should be considered so that the premium payment period is based upon the insured’s medical history and current medical condition.
The more advance notice an insured or trustee has about a potential premium shortfall, the less additional monies are needed to adjust the coverage back to its originally projected level. Since cost of insurance charges increase annually, annual performance monitoring and periodic premium adjustment avoids a lapse notice ‘surprise’ that requires a significantly higher premium to maintain the policy inforce.
Whether there was transparency and full disclosure in the initial marketing and ongoing annual policy statements for these products can be debated but performance risk rests with the policy owner. The combination of low interest rates and the fact that the octogenarian demographic is the fastest growing segment of the population has created a ticking time bomb for lapse. Corrective action is needed, and it can only be taken by the policy owner.
If the policy is owned in an irrevocable life insurance trust (ILIT), the trustee has the sole duty and responsibility to manage the trust asset. Inattention poses reputation and litigation risk for corporate trustees, and reputation risk for legal and tax advisors to amateur trustees, especially family members serving as an accommodation and relying solely upon these advisors for all trust administration functions. It is estimated that 90 percent of inforce Trust-Owned Life Insurance (TOLI) policies are administered by unskilled amateur trustees, meaning that credible professional assistance is needed to create a prudent and reasoned process that maximizes the probability of a favorable outcome to the trust estate.
In regard to corporate trustee duties, the OCC offers excellent prudent process guidance. For example, policy performance evaluation should examine the financial health of the issuing insurance company, and consider whether the policy is performing as illustrated. If the policy is underperforming, or if the policy can be improved upon, the fiduciary should consider replacement or remediation. If a trustee lacks the expertise to evaluate the premium adequacy risk or the contract’s appropriateness to fulfill the beneficiary’s objectives, the trustee has a duty to delegate and engage the necessary experts to make these determinations and assist in the suggested remediation steps.
In addition to regularly evaluating and monitoring a life insurance contract, individual policyholders should also consider the availability of newer products that were not available when the contracts were initially purchased. For example, a chronic care rider, which first became available at the end of 2011, allows an individual to withdraw up to $116,000 tax free in 2013 (adjusted annually for inflation), from the death benefit of a life insurance contract to pay for qualifying long-term care expenses. There is no reason not to have this benefit available in any life insurance contract.
Finally, the need for inforce TOLI policy attention usually triggers uncertainties as to how to get started in implementing a prudent process. Establishment of an Investment Policy Statement (IPS) is just as important for life insurance as it is for fixed income and equity investments. An IPS should:
- Update death benefit requirements
- Summarize ILIT parties and their responsibilities
- Identify trustee risk management criteria
- Identify policy and product evaluation duties and how they will be provided
- Affirm beneficiary communication requirements
An Investment Policy Statement and credible inforce policy evaluation can help ensure the longer-term planning objectives of a policy owner as well as provide safeguards for the trustee. The tools for prudent and reasoned life insurance policy performance monitoring are readily available — they just need to be used.
The 3 Essential Factors for Growing Your Business
Originally posted April 9, 2014 by Mike Michalowicz on www.americanexpress.com.
Hoping to scale your business this year? You can do it--if you have these 3 elements in place.
Congratulations! You’ve achieved a measure of success with your business. You’ve created a great product, and you’re getting the word out. Your income is increasing, and you’re ready to take the next step.
If you’re looking for the formula that will help you build your business exponentially, I’m about to give it to you. Now, don’t make the mistake of thinking there’s a worry-free, easy road to success. If that were true, businesses would never fail.
What I will share with you, though, is a reliable formula for scaling your business up—a tested and proven method of making it work harder for you. It’s not an effortless path, but you will arrive at your destination.
And here’s the key before we get started: You can’t just pick one of the following three elements and expect exponential growth. The magic solution is the intersection of all three of these elements, working together, to create a successful, profitable business.
Uniqueness
Better isn’t better; different is better. You must find the point of difference that you offer—that thing your company does that no one business can provide. Therein lies your opportunity.
Think about Starbucks for a moment. There are other coffee companies, but none are so ubiquitous or successful. Here’s why: It’s hard to differentiate yourself sufficiently. Some coffee shops may offer a slightly better product, some of them might even do it for a slightly better price, but unless a company can find a way to be significantly different, then Starbucks remains the default for many latte addicts.
Different is better. If you’re going to defeat a category leader like Starbucks, you must give prospective customers a compelling reason to choose your product.
Recurring Business From Top Clients
Start by taking a look at your industry, and determine who the top spenders are. Then create a strategy for how to get access to them. Next, look at your own business, and find a way to clone your best clients—either by converting middling clients to better ones or by finding ways to connect with more big spenders.
Don’t underestimate the importance of your community as a source for new clients, even if your business is a one-time use sort of outfit. Think about funeral homes: I can’t think of a more single-use type of business, but in providing excellent service, a funeral home can pick up additional business from the families and friends who see and value the excellent work the business is providing. Find a way to cultivate good, repeat business.
Systems, Systems, Systems
Here’s a simple, incontrovertible truth: You can’t scale your business exponentially if you insist on handling everything yourself. There’s just not enough of you to go around.
The solution is to systematize everything that makes sense. Look—and look hard—at every aspect of your business for ways you can streamline, automate and delegate your way to maximum efficiency. If your business can run an entire cycle—from landing a client through billing a client—while you’re asleep, then you have limitless potential to scale your business. Systems are more efficient and infinitely reproducible.
Putting It All Together
So when does the magic start? It’s when you get all three elements working together. It's when your coffee shop brings in loyal, repeat clients for large catering gigs because they’ve spent countless pleasurable hours at your shop, which is run by a reliable manager, offers fresh local food and has a gift shop stocked with the work of local artists. It’s when your accounting firm—staffed by mobile accountants who travel to businesses to meet with busy entrepreneurs—is invited to speak at a chamber of commerce meeting and sign up your community’s business leaders for your unique service, while explaining the system you’ve created that automates your billing and receivables process and makes you super efficient.
Being good in your field isn’t enough if you want to scale your business up. Landing clients isn’t enough, and systematizing isn’t enough. Think that challenge is too great? Here’s the encouraging part: Achieve in these three areas, and you’re virtually guaranteed success.
Focusing your attention where it really matters—on uniqueness, recurring business from good clients, and systematization—is a delicious recipe for success.
3 ingredients for a successful employee weight loss program
Originally posted April 10, 2014 by Kelly Carpenter, PhD on www.ebn.benefitnews.com
Everyone who has pursued a traditional employee weight loss program knows that results can be unpredictable. Usually, enough employees succeed in losing weight to give the program value. The problem is they often gain it back. While programs are going in the right direction, clearly there is room for improvement.
Today’s advanced weight-loss programs deliver that improvement, providing more uniform and sustained results by leveraging behavioral change science. The most successful of these programs include the following three key behavior-change ingredients as a foundation for maximum weight-loss impact.
#1: Focus on long-term motivators rather than short-term
The near-term events that often spur people to think about losing weight – a wedding, a cruise, a high school reunion or a financial incentive – all quickly come and go. As the event passes, so does the motivation, and a return of old behaviors almost always means a return to previous weight.
In contrast, long-term motivators endure, enabling the individual to sustain weight loss without needing an incentive, because they discover the personal value a healthier lifestyle brings to life. For instance, when an employee is motivated to lose weight to enjoy a more active life with a spouse, children or grandchildren, that employee is on a more sustainable path to successful weight loss.
#2: Address underlying cognitive, emotional and biological barriers to sustained weight loss
The underlying reasons why some employees just can’t seem to lose weight vary from individual to individual. One employee may have a habit of sneaking a donut in the break room and then thinking “I’ve blown it for today and may as well have one more.” Another employee may have periods of work-related stress that trigger the urge for comfort food. There are dozens of additional behavioral patterns as well as personal weight loss history and biological factors that make losing weight extremely difficult, if not impossible, if not addressed.
Programs that include individualized coaching can provide the specific interventions needed to support behavior change. Health coaches can help an employee overcome the discouragement involved in sneaking a donut by guiding the employee to take a positive action, such as reducing the corresponding calories from the rest of the day’s consumption. Or they can encourage the stressed employee to counter anxiety with a healthy response, such as taking a walk or calling a friend. So it goes for additional behaviors that run counter to weight loss. The key is personalized assistance to help every individual succeed.
#3: Position a more intensive weight loss program as an option within a larger wellness program
Wellness programs − though important to guide employees to better lifestyle habits and establish healthy workplace cultures − do not address the complexities of obesity. That’s why it is important for wellness programs to include an evidence-based weight loss program as an option for people with serious weight issues. Once employees do lose weight, the wellness program can equip them to sustain weight loss by focusing on overall wellbeing as an alternative to a lifetime of on-and-off dieting. Giving employees the best practices and skills needed to achieve and maintain lifelong health can work wonders toward helping formerly obese employees become more fit for life.
As the U.S. obesity epidemic has grown, studies have consistently documented the positive financial outcomes realized when employers respond with solid weight loss programs. By reducing the risks of both diabetes and heart disease, obesity reduction delivers health care savings that contribute significantly to the bottom line. Add employee health and well-being benefits that promote sustained weight loss, and it’s a win-win for everyone involved. That’s why it is imperative to offer a weight loss program, and to make sure it includes the three key ingredients that can optimize the results.