RPM Q1 2018_Pulse Image_Blog Article 1_What is Benchmarking and Why Should You Do It

WHAT IS 401(K) BENCHMARKING AND WHY SHOULD YOU DO IT?

Simply stated, benchmarking is the process of reviewing and evaluating your company retirement plan. It involves taking a look at what you are offering your employees today and deciding if it’s appropriate or needs some updating.

There are four main areas to focus on when assessing your retirement plan:

  1. Plan Design
  2. Service Providers
  3. Funds
  4. Fees

Each aspect of your plan requires a slightly different set of questions. In order to be able to go into the appropriate level of detail about each section, we will break this into a two-part series, beginning with Plan Design and Service Providers; but don’t worry, we will discuss Funds and Fees in a separate article. Below we are going to share some best practice questions to help you get started on your benchmarking analysis. Read the rest of this entry »

Pulse Image_RPM Q4 2017_Blog Article 3_What Does it Really Take to Retire

What does it really take to retire?

As a plan sponsor, your employees rely heavily on your guidance. After all, you manage the plan that may offer their best chance for a successful retirement.

When the 401(k) plan was introduced in the mid-80s, it was not intended as a stand-alone solution; it was intended to be a part of a three-pillar system along with defined benefit (DB) plans and social security. However, as time passed, 401(k)s and other defined contribution (DC) plans became the primary savings vehicle for Americans.

Saving for retirement now rests predominately on your employees and they look to you for guidance. Read the rest of this entry »

If you’ve been considering adding Auto Features, like auto-enrollment and auto-escalation, to your retirement plan, you’re not alone.

Per recent studies by Deloitte and others, over 65% of all new plans are being installed with auto-enrollment. Of these plans, more than 60% are also deploying auto-escalation, i.e. annual increases to the initial auto-enrollment amount. And, as noted below, participants are overwhelmingly in favor of these “do it for me” features.

It is important for plan sponsors to note that Auto Features often engender some additional administrative attention. Further, retirement plan committees are finding that, in order to have a meaningful impact, the starting percentage for auto-enrollment needs to be higher than the historical default of 3% of salary.

However, when it comes to ensuring your participants are ready to retire, Auto Features can play an extremely significant role.

Auto-Escalation GraphII

 

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Financial wellness is more than just a buzzword or a “feel-good” benefit: when effectively implemented, it can be a powerful tool to help employees take control of their financial lives and help your company reach organizational goals.

This article will share insights on program partners and workplace benefits, as well as benchmarking tips and strategies that seek to improve financial wellness and increase employee engagement. Read the rest of this entry »

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Money Back is Good, Right?

Refunds can be great if you are referring to tax returns, or money back from an unfulfilling purchase. However, when it comes to your company’s retirement plan, refunds or corrective distributions are red flags indicating a deeper problem. They can be an administrative nightmare for plan sponsors and cause undue stress to highly-compensated employees who may be forced to refile their taxes.

What are Corrective Distributions?

Employees within your workforce are divided into two groups: highly-compensated employees (HCE) and non-highly compensated employees (NHCE).

HCE Table

Both groups have a desire to retire and contribute what they can to the company’s defined contribution plan, however their difference in pay will affect the amount which they can put away annually.

As a check on plan design equality, the IRS requires that both HCEs and NHCEs contribute to their 401(k) plans at similar percentages. If owners and managers contribute at far higher rates than their workers over the course of the year, the amount these executives have “over paid” will be refunded, which poses a problem for all parties involved. Read the rest of this entry »

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As people age, it becomes increasingly important that we all go to the doctor for regular checkups; checkups can lead to valuable changes in our lives… everything from the addition of a daily multivitamin to identifying the early stages of cancer. No one can make us go to the doctor, but it’s critical to prioritize monitoring and checking up on our health.

In the 401(k) industry, it is becoming more apparent that plans need to be reviewed regularly (at least annually) and more thoroughly in order to adequately address fiduciary responsibility and duties. However, many companies haven’t made benchmarking a priority even with recent 401(k) lawsuits.

If you have not yet made benchmarking your retirement plan a priority, here are four reasons why you should: Read the rest of this entry »

In a recent ruling by the Missouri Federal District Court, ABB, Inc. (manufacturer of energy-harnessing and automotive plant technologies) and the members of its Pension Committee were found joint and severally liable for breach of their fiduciary duty as retirement plan sponsors.  The court opined that the company’s 401k, provided by Fidelity, was largely populated with mutual fund choices that were selected more for the opacity of their fee structure than for the underlying merits of the investments themselves.

In turn the court levied the following judgments in favor of the plan participants:

  • Failure to monitor recordkeeping fees and to negotiate rebates:    $13.4MM
  • Failure to prudently select and retain investment options:             $21.8MM
  • Improper use of “free float” interest on plan assets (Fidelity):        $  1.7MM

In all, the fines represent about 3% of the plan’s roughly $1.4B in assets.

Despite the landmark nature of this case (i.e. a judgment was issued, as compared to the preponderance of cases that end in settlements) plan sponsors in the small- and mid-sized markets, collectively $0-$100MM in plan assets, are likely to view these results as a concern limited to firms in the Fortune 1000.

However, even the sponsor of a $5MM plan should take note, as a proportional judgment against its plan ($150K) would likely be meaningful to that company’s bottom line. Read the rest of this entry »

An old French riddle, “The 29th Day,” has become a very popular allegory for the potential perils of excessive population growth. It reads as follows:

Lily pads double once every day. There is a pond that, on the first day, has one lily pad floating in it. Assuming the pond will be completely covered by the 30th day, when is the pond half full with lily pads?

Although the knee-jerk reaction might be to blurt out the 15th day, the answer, as the name of the riddle implies, is the 29th day. The moral of the story is that exponential, or non-linear, growth is sneaky. One minute things appear manageable, even benign, when in fact we may be a mere “day” away from total saturation.

And with the world’s population toping 7 billion this year, it only seems fitting to future-cast a little, with a specific eye towards the effects that this global population explosion will likely have on investors’ portfolios. Read the rest of this entry »

From time to time, industry notables publish pieces on the effect of missing a certain number of the best trading days over a particular time period. Most commonly, the 10 best trading days are subtracted from performance, but over the years there have been many derivations in which the 20, 30, 50, and even 100 best trading days were omitted.

The graph below (courtesy of www.mymoneyblog.com) is no different.  It tracks the since inception performance of the S&P 500-mimicking SPDR ETF (Symbol: SPY) from State Street Global Advisors. Read the rest of this entry »

With several weeks in the rearview mirror since Standard & Poor’s historic downgrade of the United States’ credit rating, it is worth a look back to process everything that has transpired.

Beginning with the obvious, the downgrade caused the global markets to go berserk, producing a multitude of indisputably outsized numbers:

  • The Dow Jones Industrial Average experienced an unprecedented 4 consecutive trading days during which the index moved by 400 points or more, in  either direction.
  • Volatility exploded, with August futures on the VIX (the market’s volatility index) trading at a record 100,000+ contracts/day for 3 days in a row
  • Gold hit a nominal high of greater than $1,800/troy oz., and is only a karat or two away from its inflation-adjusted high of ~$2,250/troy oz., established in 1980

S&P’s US downgrade was an unmistakable watershed event, causing everyone from the President to the proletariat to take a long, hard look at the lackluster numbers that have typified the US economy for months. Perhaps equally noteworthy during the tumult, however, was the sheer quantity of contradictions, ironies, and paradoxes that arose throughout the downgrade process. They sprung from all sides, ranging from the subtle to the downright staggering, and yielded a portrait of a country desperate for direction. What follows is a chronicle of these incongruities. Read the rest of this entry »