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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.
Thursday, June 18, 2009
Friday, June 12, 2009
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.
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.
Saturday, June 6, 2009
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.
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.
Friday, May 15, 2009
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.
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.
Thursday, February 7, 2008
Cash Balance Pension Plans
Cash Balance just might be the most exciting plan design to ever come along. It has been around for a few years but was made feasible for a small business by the Pension Protection Act of 2006. The PPA legislation actually describes it as a "Hybrid" plan. Cash balance earns this description because it has both defined benefit and defined contribution features.
Defined Benefit Characteristics:
The exciting features of a cash balance plan include the fact that the defined benefit contribution limit can be used for the owner rather than the $46,000 defined contribution limit and the fact that contributions can be skewed in favor of the owner by creating classes of employees as we have become familiar with in new comparability plans. This allows us to create an "efficient" plan design by providing the maximum contribution for the owner while making lower contributions for the other employees. From a contribution standpoint, a cash balance plan can be looked at as a new comparability profit sharing plan without the $46,000 contribution limit for the owner class.
Another unique feature of a cash balance design is that a business is allowed to make the exact same contribution amount for all of the members of the "owner" class of employees. This means if we have different age owners they can still receive the same contribution amount. That is often not possible in most other plan designs, but is most often what the small business owner is looking for.
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
Defined Benefit Characteristics:
- Benefits must be definitely determinable and stated in the plan document
- Contributions are required annually at the stated level
- The plan sponsor assumes the investment risk (no participant direction)
- Defined Benefit 415 limits apply
Defined Contribution Characteristics:
- Participants have an account balance
- Contributions and interest are added to the account annually
- Contributions can be skewed by class to favor owners and key employees
The exciting features of a cash balance plan include the fact that the defined benefit contribution limit can be used for the owner rather than the $46,000 defined contribution limit and the fact that contributions can be skewed in favor of the owner by creating classes of employees as we have become familiar with in new comparability plans. This allows us to create an "efficient" plan design by providing the maximum contribution for the owner while making lower contributions for the other employees. From a contribution standpoint, a cash balance plan can be looked at as a new comparability profit sharing plan without the $46,000 contribution limit for the owner class.
Another unique feature of a cash balance design is that a business is allowed to make the exact same contribution amount for all of the members of the "owner" class of employees. This means if we have different age owners they can still receive the same contribution amount. That is often not possible in most other plan designs, but is most often what the small business owner is looking for.
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
2008 IRS Limits on Benefits and Compensation
This is a summary of the various limitation adjustments that affect
qualified plans for Plan Year 2008:
Qualified Plan Compensation Limit $230,000
401(k) Plan
Maximum elective deferral limit $15,500
Catch-up limit (age 50 and over) $5,000
Defined Contribution
Section 415 annual addition limit $46,000
Defined Benefit
Section 415 annual benefit limit $185,000
Section 415 monthly benefit limit $15,417
Highly Compensated Definition
Compensation test $105,000
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
qualified plans for Plan Year 2008:
Qualified Plan Compensation Limit $230,000
401(k) Plan
Maximum elective deferral limit $15,500
Catch-up limit (age 50 and over) $5,000
Defined Contribution
Section 415 annual addition limit $46,000
Defined Benefit
Section 415 annual benefit limit $185,000
Section 415 monthly benefit limit $15,417
Highly Compensated Definition
Compensation test $105,000
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
Monday, January 28, 2008
What is a Defined Benefit Plan?
A defined benefit plan is a pension plan. It is a "promise" of future benefits. The plan sets a specific benefit at retirement. For example, the plan may establish a benefit of "50% of salary at age 65". The salary defined may be the average of the final five years of salary before retirement. Thus, the plan is specifically targeting a set benefit and promises to supply this benefit for the life of the participant. The type of annuity benefit is also defined in the plan. It may be defined as a joint and survivor annuity with 100% of the benefit being paid to both spouses as long as they both live. It may be a "10 years certain" annuity with the benefits payable to the participant for life with 10 years of payments guaranteed even if the participant would die within the first 10 years. Various options are available including a cash payment at age 65 in lieu of an annuity payout.
The main consideration is the plan must make sure it has enough funds at any point in time to pay the benefits of all participants. To verify the plan is properly funded, an actuary must calculate the funding necessary to assure the plan benefits can be paid. The maximum benefit limit that may be promised is 100% of salary at the normal retirement age. Whatever funding is necessary to assure this benefit is allowed as a deduction for that year. There is no limit on the contribution, only a limit on the benefit funded. For the year 2006, the maximum benefit limit is 100% of salary to a dollar maximum of $175,000 annually.
A business providing a defined benefit plan must feel secure in its ability to continue funding the plan at the proper levels to assure the benefit payments to all participants. Regardless of financial circumstances, the business must fund the plan. Each year, the plan actuary verifies the plan is properly funded and this is communicated to the government in required annual reports.
A 412(i) fully insured defined benefit plan is a variation of the defined benefit plan. This type of defined benefit plan is subject to different funding requirements, which may mean a higher required contribution, level for the same benefit as a traditional defined benefit plan. The plan funding is required to be in insurance company life and annuity products that ultimately guarantee the plan benefit.
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
The main consideration is the plan must make sure it has enough funds at any point in time to pay the benefits of all participants. To verify the plan is properly funded, an actuary must calculate the funding necessary to assure the plan benefits can be paid. The maximum benefit limit that may be promised is 100% of salary at the normal retirement age. Whatever funding is necessary to assure this benefit is allowed as a deduction for that year. There is no limit on the contribution, only a limit on the benefit funded. For the year 2006, the maximum benefit limit is 100% of salary to a dollar maximum of $175,000 annually.
A business providing a defined benefit plan must feel secure in its ability to continue funding the plan at the proper levels to assure the benefit payments to all participants. Regardless of financial circumstances, the business must fund the plan. Each year, the plan actuary verifies the plan is properly funded and this is communicated to the government in required annual reports.
A 412(i) fully insured defined benefit plan is a variation of the defined benefit plan. This type of defined benefit plan is subject to different funding requirements, which may mean a higher required contribution, level for the same benefit as a traditional defined benefit plan. The plan funding is required to be in insurance company life and annuity products that ultimately guarantee the plan benefit.
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
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