RPM_Q3 2017_Pulse Images_Blog Article 1

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 »

Pulse Image_Article 1 - Benchmarking - Q2 2017_Ready

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 »


Despite the most recent vote by its leaders to rein in spending, Greece really has little choice but to permanently restructure its debt. According to the major credit rating agencies, restructuring (or “reprofiling” as it has been euphemistically branded) will likely constitute a technical default. Compounding matters, the civil unrest resulting from continued spending cuts is gouging deeply into Greece’s number one source of income, tourism.

So how significant is the credit worthiness of one tiny, sun-soaked nation in Southern Europe?  In short… very. Admittedly, Greece is far from an economic Orion. Its 2010 GDP was just 2.9% of the European Union’s (EU) and a mere .44% of the world’s as a whole. However, its debt crisis stands as a monument to our ever-increasing global interconnectedness. Greece’s fate is now the fate of Western Europe and perhaps for many, more distant, economically-developed nations as well. Read the rest of this entry »

Retirement plans, like 401(k)s, 403(b)s, 457(b)s, etc., require the services of multiple providers to remain in good standing with the IRS and the Department of Labor (DOL). Chief among those services are administration, recordkeeping, investment advice, and custody. Each is provided in exchange for a fee, and it is the employer’s ongoing responsibility to ensure that these fees are reasonable.

On the surface, it sounds fairly easy.  Employers simply need to answer these three questions:

  1. What services are required for my plan?
  2. What am I paying for said services?
  3. Are those fees reasonable?

However, the vast majority of plan sponsors are hard-pressed to answer these three questions at all, let alone accurately. Read the rest of this entry »

As the news of Osama bin Laden’s death enveloped the world’s airwaves this past Sunday evening, many were wondering how the stock market might respond. The Japanese market, represented by the Nikkei 225, immediately popped 145 points (~1.5%) following the news, closing above 10,000 for the first time since the March 11th earthquake. However, after a week to digest the news, the US markets have not followed suit. Read the rest of this entry »

Fiduciaries of ERISA-governed retirement plans, e.g. 401(k), 403(b), etc., must undertake a host of regular activities to ensure that their company’s employees are being offered sound retirement options. One such responsibility is the selection, monitoring, and maintenance of plan investments. If this duty is not performed correctly, penalties can be levied on both the sponsoring company as well as on each of the company’s executives individually. Given the significant potential liability, as well as the expertise required to do the job properly, many plan sponsors look to offload, or at least share, some of their fiduciary responsibility. ERISA allows for delegation of investment functions, however, understanding the nuances of the various arrangements can be challenging. Read the rest of this entry »