Employee Education and Participation

It may come as no surprise to you that your employees are anxious about financial issues such as spiraling healthcare costs, the rising price of energy, high-interest credit cards, and the current mortgage and credit crisis. You have good reason to be concerned.

Consider these stunning statistics: 74% of American workers have difficulty affording gasoline, 65% are experiencing problems affording heat and electricity, 50% are unsuccessfully grappling with increased grocery bills, 32% have no retirement plan other than Social Security, and finally 62% of the self-described “working class” portray their incomes as falling behind the cost of living. Pew Research Center 2007 and 2008.

Remember the unsettling 1968 horror movie, “Night of the Living Dead”? Despite the grainy black and white low-budget production, the film was then and continues to be, desolately disturbing because it taps into the uncertainty and anxiety that we all feel when faced with unaccountable terrors. Recent research confirms that today’s workers are experiencing plenty of terrors, not those of George Romero’s classic film perhaps, but the ghouls of financial stress which keep them awake at night and distracted during the day.

What’s the impact on you - the Plan Sponsor, and what can you do about it?

If many of your workers are struggling to concentrate on the job at hand and functioning at less than optimum capacity, the damage to personal lives and business productivity is a serious one. But you as Plan Sponsor are in the unique position of being able to address these issues for your employees. Consider offering a series of Financial Literacy workshops in which employees are given the tools to budget and plan in a more disciplined manner, figure out their credit scores, understand the principle of compounding and how interest rates work.

Financial Literacy means being educated in matters of money, and American workers are proving to be seriously financially illiterate. Workers are not taught how to budget by their families or their high schools or colleges, leaving most (with the exception of those few with the resources and determination to teach themselves) absolutely ‘at sea’ when it comes to even the most basic economic concepts. And these concepts have the power to shape and determine the quality of the rest of their lives. Moreover, studies show that financial illiteracy is tied to economic behavior; in other words, individuals who do not have a handle on money matters will be less inclined to participate in their company’s 401(K) or 403(b) plan. Lusardi, Annamarie and Olivia Mitchell (2008) “How Much Do People Know About Economics and Finance?”.

Financial Literacy

Here are ten components which comprise a Financial Literacy series of workshops:

1. How to Create a Budget/Strategies of Saving
2. Debt Consolidation
3. How to Read, Monitor, and Improve Your Credit Report
4. Understanding Your Company’s Retirement Plan
5. College Planning
6. The Role of Insurance in Financial Planning
7. Types of Mortgages/How to Qualify
8. Tax Issues – Homeowners, Retirement Savings, Estate Planning
9. Financial Issues of Divorce
10. Pre-Retirement Issues/When Can I Afford to Retire?

Think these are only Boomer issues? Think again. According to Thrivent Financial Survey, 66% of Generation-Xers (those born between 1960 and 1984) admit to thinking about their finances on a daily basis and nearly half, 46%, also worry about the finances of their parents and siblings. All employees, regardless of age, can benefit from one or more of these topics.

Face-to-face education

Seminars offered by professional educators have been proven most effective as long as the educator is well-versed in the details and able to de-mystify and simplify the topic. Employees deserve the opportunity to ask questions, receive answers in “English”, and engage in hands-on exercises, quizzes, tips, and step by step guides that give them the tools to planning their financial lives more effectively.

What’s the benefit to you?

Happier employees, greater company loyalty, increased productivity, perhaps even an increase in revenues. As the Plan Sponsor, you also have the opportunity to assist your employees in defeating their personal financial terrors and in doing so, contributing real lasting value to the quality of their lives.

Please visit our website at http://www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation in Bellevue analyze and evaluate your company's 401k plan.

Sources: 401khelpcenter.com and lovejoyassociates.com

Implementing an Automatic Enrollment Arrangement

Implementing a 401(k) Automatic Enrollment Arrangement

Under most 401(k) plans, an eligible employee who does not make an affirmative election to defer salary under the plan has no contributions deducted from his or her paycheck - i.e., the employee is deemed to have elected to make no contributions to the plan. ERISA permits another option, whereby an employee who does not make an affirmative election either to contribute or opt out is deemed to have elected to make a positive contribution of X % of compensation, with the default percentage established under the terms of the plan.

Recent changes in the law under the Pension Protection Act of 2006 and regulations issued thereunder have made this type of "automatic enrollment arrangement" easier to implement and more palatable to both employers and employees. Most importantly, the law and regulations provide safe harbor investment vehicles in which the plan can deposit automatic contributions with reduced risk of a fiduciary breach lawsuit under ERISA. The law and regulations also give employees the right to a minimum 30-day decision period during which an employee can opt-out of automatic contributions before they begin; plus, in most cases, a 90-day "second-chance" opt-out opportunity whereby an employee can cancel participation and get an immediate refund of any automatic contributions made through the effective date of the cancellation.

The primary decision points for adoption and implementation of such an arrangement are the following:

1. Which employees will be subject to automatic enrollment: Any employee who does not have an affirmative election on file, or only new employees hired after the arrangement is first adopted?
2. What is the appropriate default contribution rate(s)?
3. Where should default contributions be invested until the employee exercises investment control?
4. What are the initial set-up and ongoing administrative costs?

Which Employees to Cover

An employer can specify in the plan document which employees are subject to automatic enrollment. For example, the plan could cover all eligible employees or limit automatic enrollment to non-union employees, employees in particular divisions, or employees hired after a specified date, to give a few examples.

While the regulations provide this flexibility, in our experience the decision typically boils down to a choice between the following three coverage alternatives:

Option 1: Include any employee who has not yet made an affirmative election to contribute a positive amount or zero.

* This option is feasible only if the plan can distinguish between employees who never submitted a deferral election (and thus have a zero contribution rate by default) and employees who affirmatively elected zero.
* The option has the benefit of not forcing non-contributing employees, who already signaled their decision not to contribute by submitting a deferral election of zero, to affirmatively opt out of the automatic enrollment program.
* A potential down side is that in the first year, current employees whose failure to submit a deferral election may reflect a conscious decision not to make contributions will be forced to affirmatively opt-out of automatic enrollment if they do not wish to participate.
* Another down side is that leaving current zero-electing employees out of the program will limit initial participation in automatic enrollment.

Option 2: In the first year following adoption of automatic enrollment, include all eligible employees who are not making positive contributions; thereafter, include only new hires and employees who as of each January 1 have not yet made an affirmative election either to contribute or opt-out.

* This option has the benefit that it initially extends eligibility for the automatic contribution arrangement to all employees who have not made an affirmative election to contribute a positive amount, even employees who previously elected to contribute zero. (Any employee can still opt-out.)
* Then in future years, only employees who do not have an affirmative election on file (either to contribute a positive amount or zero) are bothered with the notice and opt-out requirements. Employees who have previously expressed their wishes are left alone - just as under option 1.
* The down side of this alternative is that in the first year, current employees who may have made a conscious decision not to make contributions - either by not making a deferral election or affirmatively electing zero - will be forced to affirmatively opt-out of automatic enrollment if they do not wish to participate.


Option 3: Include only employees hired after adoption of the automatic enrollment option. Extend eligibility for automatic contributions upon hire and in each subsequent year in which the employee has not yet made an affirmative election to contribute a positive amount or zero.

* This option has the benefit of not forcing non-contributing current employees to affirmatively opt out of the automatic enrollment program.
* The down side is that leaving current employees out of the program will severely limit initial participation in automatic enrollment.

Notice and Other Requirements

The regulations require that employees covered by an automatic contribution arrangement generally be given notice at least 30 days (and no more than 90 days) before the arrangement is first implemented, and then again at least 30 days before the beginning of each plan year. For new employees, the notice must be provided as soon as practicable (which can be after the employee has commenced employment, but before any automatic paycheck withholding would go into effect).

The notice need only be provided to employees who will be deemed to have made a contribution election if they do not make an affirmative election to participate or opt-out. After the first year, this generally would include any new employees and employees who did not have an affirmative deferral election on file with the plan.

Once notice is provided, an employee must be given a reasonable amount of time to make an affirmative election to select his or her preferred deferral rate or to opt out. Automatic paycheck withholding (for employees who fail to make an affirmative election) generally should not begin until about 30 days have passed from the notice date.

Default Contribution Rate

The default contribution rate for employees who do not opt-out generally must be a uniform percentage of pay for all employees subject to automatic enrollment - e.g., 3% of pay for all covered employees. However, plans are permitted to have different default rates for union vs. non-union employees, for different unions, and for different "qualified separate lines of business."

It is also permissible to have graduated rates - e.g., 1% in the first year, 2% in the second year, 3% in the third year, etc., maxing out at 10% in the tenth year. Other variations are permitted as well, though certain "uniformity" standards apply.

Default Investment

An employee who neglects to affirmatively elect to make 401(k) contributions or opt out will likely not provide instructions as to how his automatic contributions will be invested within a plan. Accordingly, plans need to designate a default investment or investments. The regulations provide three "safe harbors" which, if utilized, generally shield plan fiduciaries from claims of fiduciary breach related to the performance of the investments.

Two of the safe harbors are not available under most plans and may be costly and/or controversial to implement. Safe harbor one is a so-called "life-cycle" or "target-date" fund. Another safe harbor is to offer professional management of each employee's account, the manager aiming for an optimal allocation for each participant's investments among the plan's various investment offerings based on factors such as age or target retirement.

The remaining safe harbor is a "balanced" fund. Many plans have a fund that may qualify for this safe harbor, though it requires close examination to be sure. One of the requirements for a safe harbor balanced fund is that the selected fund reflect "a target level of risk appropriate for participants of the plan as a whole," taking into account the demographics of the participant population, at a minimum. A plan's existing balanced fund offering would have to be analyzed to determine if it satisfies this standard.

Following the recent stock market collapse, some investment advisors and policy-makers have been critical of the three regulatory safe harbors. As a result, some plans have been considering default investment options that do not meet one of the safe harbors, such as money market or stable value funds. Although these options do not automatically shield plan fiduciaries from fiduciary risk, the potential exposure is likely quite low. A compromise position might be to use the plan's money market fund for the first 120 days of a participant's initial contribution under the automatic contribution arrangement, with assets shifting to the balanced fund thereafter. Indeed, the regulations provide a safe harbor for this structure.

Optional Design Features

More complex designs are permitted under the regulations, and some come with "rewards" in the form of relief from specific rules with which a 401(k) plan must comply. For example, if the default contribution rates meet the standards for a "qualified" automatic contribution arrangement, the plan is excused from annual ADP/ACP nondiscrimination testing (comparing average deferral rates for highly-paid and non-highly-paid employees). To qualify for this testing exclusion, the minimum automatic deferral percentage is 3% for the first full plan year and increases by 1% for each of the three succeeding plan years, up to 6%. Furthermore, the employer would be required to provide either matching or nondiscretionary contributions to all non-highly compensated employees. The minimum match is 100% of the first 1% deferred and 50% of the next 5% deferred, for a total contribution of 3.5% for participants who defer at least 6%. The minimum employer contribution (the alternative to the matching contributions described above) is 3%, regardless of the deferral amount. Matching or company contributions must be 100% vested after two years of service. This structure is more generous than currently provided under many plans.

Another available design option is to apply the automatic contribution feature to each employee every year - so that employees would have to either make a new affirmative deferral election each year or be subject to the applicable default contribution rate. The regulations would reward this design by giving the plan an extra 3 ½ months to refund any discriminatory deferrals made by highly-compensated employees during the year. Unless the plan frequently fails the ADP/ACP test, requiring refunds or other correction strategies, this hardly seems worth the inconvenience of requiring every employee to renew his or her contribution election each year or be defaulted into the plan at the automatic contribution rate.

Plan Amendment and Qualification

Ideally, an automatic contribution arrangement should be implemented as of the first day of a plan year - e.g., January 1, 2010. To encourage employers to adopt automatic contributions in 2010, the Treasury Department on September 5, 2009 released sample amendments to streamline the adoption and implementation process. If an employer uses the sample amendments, modified to the extent necessary to reflect plan-specific design choices, the amendment will be deemed to have received IRS approval even in the absence of a determination letter specifically addressing the amendment. See IRS Notice 2009-65.

If it is not feasible to implement automatic contributions by January 1, 2010, the regulations provide a roadmap for a mid-year implementation. The Treasury sample amendment can be used for mid-year implementations to the same extent as January 1 adoptions.

Administrative Costs

Initial set-up and ongoing administrative costs can be determined in consultation with the plan's administrators. Many 401(k) third-party administrators have already programmed their systems to accommodate automatic enrollment, which should reduce implementation costs significantly.

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Please visit our website at http://www.ifclegacy.com/ to have an independent fiduciary 401k advisor at Integrity Financial Corporation in Bellevue analyze and evaluate your company's 401k plan.

Source: 401khelpcenter.com/www.ipbtax.com

The Tax Benefits of Equity-Indexed Universal Life Insurance

The Tax Benefits of Equity-Indexed Universal Life Insurance

The main emphasis of having life insurance for individuals and their families is to help replace income that is lost, provide death benefits, and an overall protection of family members from the losses possibly resulting from the death of the insured individual. Equity-indexed life insurance offers many additional benefits by way of tax advantages, unique to that of life insurance.

When it comes to speaking about life insurance, there are two typical categories to be discussed. The first is term insurance. Term insurance provides what is known as "pure" insurance protection. This type pays beneficiaries a death benefit if the insured individual is to die during the policies term. On the contrary, if the insured individual lives, the policy will expire without any value at the end of the given term. In many cases, the individual can choose to renew the policy for an addition term. Usually, this decision will carry a higher premium.

The second category and type of life insurance policy is typically known as "permanent" or "cash value" life insurance. Included in these policies are whole life and universal life as well as others. A policy such as this is typically designed to provide the insured with long-term life insurance coverage, usually for the insured's entire life.

This option also features a flexible premium as well as the opportunity to accumulate cash value. This is available to the owner of the policy through policy loans and alternative options. These options reduce the death benefit.

The Advantages

Among financial products, life insurance holds a unique status. The tax benefits of life insurance are:

• No current income tax on interest or other earnings credited to cash value. While the cash value accumulates, it is not subject to current taxation.


• No income tax penalty if you choose to borrow cash value from the policy through loans. Typically, loans are seen and treated as debts, not as taxable distributions. With this option, it can give you practically unlimited access to cash value on the basis of tax advantage. In addition, the loans do not need to be rapid. Over time, after a sizable amount of cash value has accumulated, it can systematically be borrowed against to help supplement retirement income. In many cases, you may never pay even one cent of income tax on the gain.


• *There are several cautions regarding policy loans: First, loans are charged interest and policy loans can reduce the overall value of the policy. Second, the cash value can be potentially subject to income taxes if/when there is a withdrawal from or surrender of the policy. The same situations applies if a certain ratio of death benefit to cash value is not maintained. Third, if the policy is a modified endowment contract, the loan may be taxable.


• The policy holder's heirs pay no income tax on the proceeds. Beneficiaries will receive death benefits completely free of income taxation.


• You can avoid potential estate taxes and probate costs on policy proceeds, as long as the beneficiary designations and policy ownership are arranged in accordance with current law. For instance, if you own your policy at the time of your death or make your estate the beneficiary, the policy proceeds will generally be included in your estate at death. This can increase the value of your estate, triggering estate taxes. This situation may be avoided, however, by placing ownership and naming beneficiaries outside your estate. If the policy is structured properly, proceeds will not be included in your estate. However, to avoid estate inclusion for existing policies, the policy must be transferred more than three years before your death. Consult your tax and legal advisors regarding your particular circumstances.

Equity-indexed universal life insurance is unique among typical financial products. It provides protection of death benefits as well as potential for attractive tax advantages. For more information these benefits listed as well as other benefits of cash value life insurance and details about the best way to arrange your policy beneficiary and ownership designations, consult your attorney and your advisor at Integrity Financial Corporation.

Please visit our website at http://www.ifclegacy.com/ to have an independent fiduciary 401k advisor at Integrity Financial Corporation in Bellevue analyze and evaluate your company's 401k plan.

Why You Should Consider Making Changes to Your Company's Qualified Retirement Plan for 2010

With the holidays approaching and the New Year around the corner, now is an ideal time to consider making necessary changes to your company’s qualified retirement plan for 2010. As a boutique 401(k) advisory firm, we are quite familiar with the different strategies small business owners might implement at this time. There was some sweeping legislation and pension reforms passed in 2006 that impacts qualified plans, and would necessitate a more in-depth review if that has not happened in the last couple of years.

When you couple the current monetary and fiscal policy decisions with the volatility of the stock market in the last two years, only a fraction of the retirement plans that I come in contact with are maximizing the tax benefits that are available under the Internal Revenue Code, and have sound investment strategies that include hedges against a weakening dollar.

Here are a few thoughts from my desk to yours:

1. Make sure that your current retirement plan has investment options that include inflation hedges (like TIPS or Commodities) and a wide array of USD hedges (like global funds).

2. Take advantage of after-tax investments (as a tax hedge) such as Roth 401k, as it is fairly predictable that future taxes will likely be higher than they are now.

3. If you have a SIMPLE IRA consider adopting a 401k plan on January 1. You cannot change in the middle of the plan year, so if you don’t make the change now, it will be another year before you can. A SIMPLE IRA or a SEP IRA do not have a Roth component.

4. If you need access to your retirement account money for a short-term fix, set-up a 401k and roll your IRAs into the plan and take a loan from your account with no penalties or tax (just remember that you will need to pay the loan back in at least 5 years).

5. If you have an IRA, consider converting part of it next year to a Roth IRA, as the income limitations are removed for 2010…particularly if we see a downward slide in the markets between now and then.

The national debt just crossed $12,000,000,000,000, and our deficit spending is looking to nearly double that over the coming decade. The unfunded obligations of Social Security, Medicare, and Medicaid are staggering. There is more to comment on here, but I would say that today’s small business owner must use prudence in their tax, investment, and legal planning to ensure a legacy for their families and friends. Integrity Financial Corporation helps business owners evaluate and make smart financial planning decisions on behalf of their business. Visit our website at www.ifclegacy.com.

Source: 401khelpcenter.com

Business Financial Planning | Strategies: 401(k)

Ensuring the profitability of your business requires substantial time and hard work. Integrity Financial Corporation helps business owners and executives evaluate and make smart financial planning decisions on behalf of their business. Our firm specializes in 401k plans for small to mid-size companies. Our flagship 401k client is the Association of Washington Business (AWB) in Olympia.


The IFC Retirement Plan Solution
Integrity Financial provides a unique and comprehensive 6-Step retirement plan solution for your company:

• Step 1: The Retirement Plan Evaluator: Our easy-to-use tool provides you with an evaluation of your company’s retirement plan objectives and concerns and an analysis of other plan solutions. We’ll also discuss and review funding strategies for fee administration.
• Step 2: The Retirement Plan Optimizer: We conduct a feasibility study to help maximize the tax benefits of your retirement program for both your company and your employees.
• Step 3: The Fiduciary Shield: Meeting your fiduciary responsibilities can be a complex process. We help control risk by developing a formal investment policy statement and establishing clear criteria for selecting and monitoring investment managers.
• Step 4: The RFP Manager: We’re on your team. We’ll sit on your side of the negotiating table to walk you through the RFP (request-for-proposal) process, manage the flow of information, analyze and review proposal and guide you in making an informed and knowledgeable decision.
• Step 5: The Educational Experience: We manage every step of the transition form your current retirement program to your new program. We enroll your employees and educate them on the benefits of their new program. We’ll ensure their satisfaction through quarterly, semi-annual and annual education and financial planning seminars.
• Step 6: The Wealthcare Monitor: We’ll manage the health and welfare of your retirement program over its lifetime, advising you on regulatory changes, program enhancements and investment due diligence on a quarterly or semi-annual basis.


The IFC Retirement Plan Solution Value
Engaging an independent 401(k) advisor to help you navigate through the complexities of the qualified retirement plan landscape has proven invaluable to our clients. Our value is best articulated as follows:

• Boutique Firm that provides Objective and Unbiased 401(k) Consulting
• On-site Financial Planning and Advice for Participants
• Fiduciary Best Practice Solutions
• Proficient Selection of Investments to include in your Plan
• Customized and Sophisticated Plan Design
• Personalized Support for HR Manager
• 56 Point Annual Plan Inspection
• Retirement Plan Benchmarking related to your Industry
• On-site Enrollment and Educational Services
• Partnership in Creating an Investment Policy Statement

Our state-of-the-art processes will provide greater employee satisfaction and participation, while reducing plan anxiety by the sponsors. As a boutique consulting practice, we distinguish ourselves by tailoring solutions to the unique needs of our clients. Integrity Financial Corporation welcomes the opportunity to serve you, and we look forward to a long and rewarding relationship with you.

Retirement Security: Importance of an Independent Investment Adviser

Comments to the U.S. House of Representatives
Committee on Education and Labor
Subcommittee on Health, Employment, Labor and Pensions

Retirement Security: The Importance of an Independent Investment Adviser

Now more than ever, American need access to independent and professional investment advice as they manage their 401(k) plans. As demonstrated during the past year, the consequences of concentrated investments, made without regard to risk tolerance or investment horizeon, can be dire for participants and beneficiaries who often lack access to professional, prudent investment guidance.

Department of Labor Investment Advice Regulations

ERISA and the Internal Revenue Code generally prohibit plan fiduciaries from rendering any investment advice to plan participants and beneficiaries that would result in the payment of additional fees to the fiduciaries or their affiliates. The Pension Protection Act of 2006 (PPA) provided a statutory prohibited transaction exemption to the rule (codified at ERISA 408(b)(14) and 408(g) and IRA 4975(d)(17) and 4975(f)(8)] for certain transactions that may occur in connection with the provision of "eligible investment advice" by a "fiduciary adviser," subject to specific requirements. In particular, the final PPA investment advice provision allowed two speific permissible investment advice exceptions: (1) certain "fee-leveling" arrangements; or (2) certified computer model arrangements.

Independent Investment Advice Legislation

With the growth of participant-directed individual account plans, the importance of investment advice to participants and beneficiaries of retirement plans has become increasingly clear. The majority of Americans are not experts on how to appropriately invest their retirement savings. However, due to the shift from defined benefit to defined contribution plans, many Americans are required to do just that.

ASPPA, CIKR and NAIRPA believe that working Americans should not have their retirement assets exposed to conflicted investment advice where the adviser has a financial interest in what investment choices to recommend. Instead, American workers should have access to independent investment advice provided by qualified advisers.

We comment Chairman Andrews for his past leadership in support of independent investment advice for plan sponsors and participants. Legislation providing a safe harbor for plan sponsors with respect to independent investment advice provided to plan participants would be a significant step towards encouraging plan sponsors to make available independent advice.

One of the challenges is encouraging independent advice is to define what constitutes an independent advisor. NAIRPA has developed a criteria for membership that we believe could serve as a model for providing independent advice. Specifically, a member firm:

Does not receive compensation for retirement plan advisory services that varies with the investments selected by the plan sponsor or participants

Agrees in its engagement letters to serve as a plan fiduciary with respect to all plans for which it serves as a retirement plan advisor;

Agrees to clearly disclose all fees expected to be received in connection with retirement plan advisory services in advance of any engagement and all such fees actually received at least annually thereafter;

Is either a federally or state regulated registered investment advisor; and

Is not directly or indirectly part of a controlled group that includes a financial services firm (i.e., an investment manufacturer).

Encouraging plan sponsors to base plan investment offerings on independent advice, and making independent advice available to plan participants, would be a major step forward in securing America's retirement.

Summary
During these difficult economic times, Americans need access more than ever to independent and professional investment advice. ASPPA, CIKR and NAIRPA comment the Chairman for holding this timely hearing. Furthermore, to ensure adequate protection to participants and beneficiaries, ASPPA, CIKR and NAIRPA recommend that the DOL withdraw the Class Exemption portion of the final, DOL investment advice regulation. We also encourage Congress to consider legislation that encourages the provision of independent investment advice to retirement plans and participants.

Source: edlabor.house.gov

The Roth 401(k) plan

The Roth 401(k) combines some of the most advantageous aspects of both the 401(k) and the Roth IRA. Under the Roth 401(k), employees can decide to contribute funds on a post-tax elective deferral basis, in addition to, or instead of, pre-tax elective deferrals under their traditional 401(k) plans. An employee's combined elective deferrals-- whether to a traditional 401(k), a Roth 401(k), or to both-- cannot exceed $16,500 for tax year 2009 if a participant is under 50; if they are over 50, they may contribute an additional $5,500. Employer's matching funds are not included in the $16,500 elective deferral cap, but are considered for the maximum section 415 limit, which is $49,000 for 2009. Employers are permitted to match contributions to a designated Roth account, but the matching funds must be made on a pre-tax basis, not be made into the designated Roth account, and cannot receive the Roth tax treatment. (Pub 4530)

In general, the difference between a Roth 401(k) and a traditional 401(k) is that the Roth version is funded with after-tax dollars while the traditional 401(k) is funded with pre-tax dollars. After-tax dollars represent money for which taxes are paid in the current year, and pre tax dollars are those which do not represent federal taxable income in the current year. Typically, the earnings on Roth contributions will be tax free as long as the distribution is made at least 5 years after the first Roth contribution and the attainment of age 59 and one half, unless an exception applies.

A Roth 401(k) plan will probably be most advantageous to those who might otherwise choose a Roth IRA, for example, younger workers who are currently taxed in a lower tax bracket, but expect to be taxed in a higher bracket upon reaching retirement age. The Roth 401(k) offers the advantage of tax free distribution, but is not constrained by the same income limitations. For example, normal Roth IRA contributions are limited to $5,000 ($6000 if age 50 or order); whereas, up to $16,500 could be contributed to a Roth 401(k) account, provided no other elective deferrals were taken for the tax year (no traditional 401(k) deferrals taken).

Please visit our website at http://www.ifclegacy.com/ to have an independent fiduciary 401k advisor at Integrity Financial Corporation in Bellevue analyze and evaluate your company's 401k plan.

Best social network?

What social network have you found to work best? Take our poll here - http://tinyurl.com/ml99nm

Integrity Financial Corporation helps business owners evaluate and make smart financial planning decisions on behalf of their business. Please visit our website at www.ifclegacy.com and take advantage of a free intial 401k consultation.

2009 is the Year of the Advisor - a recent article by Fred Barstein

2009 is the Year of the Advisor
by Fred Barstein

With the popularity of Target Date funds and the Auto Plan as a result of the 2006 Pension Protection Act (PPA), some observers had opined that advisors would become less important in helping companies with their corporate retirement plans. If participants were automatically enrolled and fund selection is controlled by the target date providers, what would be the advisors’ role? So why are more and more plan sponsors abandoning the direct sold model and hiring advisors at an incredibly growing rate?

As shown in the chart below based on almost 20,000 surveys in 2009 and close to 3,500 in May, over 80% of DC plans with less than $100 million in plan assets indicated that they were using an independent financial advisor. Compared to last May, there’s a stunning increase trending even higher. Retirement advisors roles have changed over the years from:

Selecting the right products and vendors, to
Creating the right process with a focus on fiduciary concerns, to
Managing to the right outcome for participants and sponsors

More plan sponsors than ever realize that not only do they need an advisor to protect them from liability (process), manage costs and limit work for diminishing HR and finance staffs, participants need someone to speak to or be available to answer thorny questions, especially after the recent market meltdown, like, “What happened to my account balance?” or, “How will I ever be able to retire?”

Many of the most popular target date providers have failed their 2010 clients either out of greed, ignorance or neglect. Fewer plan sponsors are instituting automatic enrollment because they have to match up to 2.5% to qualify for the PPA’s safe harbor provisions. Bob Reynolds, CEO at Putnam Investments and architect of Fidelity’s DC business, wisely suggested at the recent 401kWire Thought Leader’s Summit in DC that all participants should be automatically enrolled and sponsors that match should be rewarded with a tax credit. But until then and perhaps even after, the notion that sponsors and participants can be guided from above without expert, human advice is ridiculous. There will always be some challenge facing sponsors and participants that only an experienced retirement advisor can answer. Clearly, more sponsors are coming to that realization and, of those selecting an advisor, more are becoming discerning buyers. Fewer sponsors are hiring family members, college roommates, golfing buddies or personal financial consultants who do not have the necessary experience realizing that these kinds of “favors” can result in disaster, especially for participants in need of answers to very difficult questions.

Integrity Financial Corporation helps business owners evaluate and make smart financial planning decisions on behalf of their business. Please visit our website at www.ifclegacy.com and take advantage of a free intial 401k consultation.

BrightScope 401k Ratings

Some colleagues recently directed me to a new website that independently analyzes 401k plans from public data sources. It is most useful for plans that are above the audit point. An interesting discovery is to analyze the results for companies like: Nordstrom (52), Microsoft (80), Costco (62), Boeing (79), and Paccar (76). According to BrightScope, Nordstrom and Costco could use some improvement. The website has gained some prominence among independent fiduciary 401k advisors accross the country. www.brightscope.com How does your company's 401k plan rate?


About BrightScope
BrightScopeTM, Inc. is an independent provider of 401k ratings and financial intelligence to plan sponsors, advisors, and participants in all 50 states. Our mission is to increase the retirement security of America's workforce by bringing transparency and efficiency to the 401k plan market. We maintain a comprehensive database of information on the 401k plan market and add additional value and insight by quantitatively rating each 401k plan across critical metrics. BrightScopeTM empowers plan sponsors to quickly and accurately determine the optimal structure for their 401k plan and choose the providers that provide the most value for the fees they charge. BrightScope is the only 401k analytics firm that is truly independent and does not accept compensation in the form of revenue sharing from mutual fund companies or plan providers. BrightScope is aligned with plan sponsors and seeks to avoid conflicts that will jeopardize its ability to give its clients unbiased advice. BrightScope is not a fiduciary under ERISA.

The BrightScope Rating
The BrightScope RatingTM is an industry standard quantitative 401k plan rating developed by BrightScopeTM, Inc. with the help of leading academics and independent 401k fiduciaries. The BrightScope rating algorithm calculates a single numerical score for each 401k plan in the country after considering over 200+ individual data points in broad categories such as total plan cost, company generosity and investment menu quality. The BrightScope RatingTM is designed to assist industry participants in determining the relative quality of a company's 401k plan when compared to a unique peer group with similar demographic characteristics. We believe that industry adoption of the BrightScope RatingTM will ultimately lead to more cost-effective plans, increased participation rates, higher employee satisfaction, and better outcomes for employees who depend on their 401k plan for retirement.

The BrightScope Database
BrightScopeTM obtains some of its data from public sources such as the Department of Labor, the Securities and Exchange Commission, the U.S. Census Bureau, the Equal Employment Opportunity Commission, and the Bureau of Labor Statistics. Mutual fund and investment data are obtained from mutual fund prospectuses, statements of additional information, Form NSAR and the Center for Research on Securities Prices (CRSP). Data on 401k fees comes directly from plan sponsors who work with us to improve their plan. While all company-specific data is protected and confidential, we aggregate fee data across comparable companies to construct relevant benchmarks on fees. BrightScopeTM believes it possesses the most comprehensive private database of 401k information in the country. The company will leverage this database to provide our clients with accurate and high quality data that places them on a level playing field with their providers.


Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation in Bellevue analyze and evaluate your company's 401k plan.

ASPPA's Recent Comments regarding 401k Advisors

Comments to the U.S. House of Representatives
Committee on Education and Labor
Subcommittee on Health, Employment,
Labor and Pensions

Retirement Security: The Importance of an
Independent Investment Adviser
March 24, 2009


Independent Investment Advice Legislation With the growth of participant-directed individual account plans, the importance of investment advice to participants and beneficiaries of retirement plans has become increasingly clear. The majority of Americans are not experts on how to appropriately invest their retirement savings. However, due to the shift from defined benefit to defined contribution plans, many Americans are required to do just that. ASPPA, CIKR and NAIRPA believe that working Americans should not have their retirement assets exposed to conflicted investment advice where the adviser has a financial interest in what investment choices to recommend. Instead, American workers should have access to independent investment advice provided by qualified advisers. We commend Chairman Andrews for his past leadership in support of independent investment advice for plan sponsors and participants. Legislation providing a safe harbor for plan sponsors with respect to independent investment advice provided to plan participants would be a significant step toward encouraging plan sponsors to make available independent advice. One of the challenges in encouraging independent advice is to define what constitutes an independent advisor. NAIRPA has developed criteria for membership that we believe could serve as a model for providing independent advice. Specifically, a member firm:

Does not receive compensation for retirement plan advisory services that varies with the investments selected by the plan sponsor or participants.

Agrees in its engagement letters to serve as a plan fiduciary with respect to all plans for which it serves as a retirement plan advisor;

Agrees to clearly disclose all fees expected to be received in connection with retirement plan advisory services in advance of any engagement and all such fees actually received at least annually thereafter;

Is either a federally or state regulated registered investment advisor;

Is not directly or indirectly part of a controlled group that includes a financial services firm (i.e., an investment manufacturer).

Encouraging plan sponsors to base plan investment offerings on independent advice, and making independent advice available to plan participants, would be a major step forward in securing America's retirement.

Summary
During these difficult economic times, Americans need access more than ever to independent and professional investment advice. ASPPA, CIKR and NAIRPA commend the Chairman for holding this timely hearing. Furthermore, to ensure adequate protection to participants and beneficiaries, ASPPA, CIKR and NAIRPA recommend that the DOL withdraw the Class Exemption portion of the final, DOL investment advice regulation. We also encourage Congress to consider legislation that encourages the provision of independent investment advice to retirement plans and participants.