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

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