I recently read a great article at Workforce.com written by H. Douglas Hinson. Please see below.
A recent ERISA litigation conference that featured in-house counsel, ERISA litigators and federal judges yielded important insights on how employers can protect themselves in this technical—and potentially costly—area of employment law. Here are the top 10 insights from one of the conference’s organizers.
The American Conference Institute’s ERISA Litigation Conference was held over two days in October in New York and featured more than 25 in-house counsel, more than 20 federal judges from eight circuits and dozens of ERISA litigation practitioners from around the country. The in-house counsel and judges were the stars of the show, providing insights for employers who wish to prepare for ERISA litigation—or better yet, avoid it. Here are my top 10 insights from the conference, along with brief explanations of how they might be of help to your company and your plan’s fiduciaries. Following these practical suggestions will greatly improve your company’s chances of avoiding ERISA litigation, and winning any such litigation that is filed...
To read the rest of this article, please go to this Workforce link.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Wednesday, February 24, 2010
Tuesday, February 23, 2010
DB Plans Outperform DC Plans
I recently read a great article at ebn.Benefitnews.com written by Kathleen Koster. Please see below.
Defined benefit plans fared slightly better than defined contribution plans as the economy began its decline two years ago, underscoring the importance of rebalancing 401(k) accounts.
According to new analysis by Towers Watson, DB plans outperformed 401(k) plans by roughly 1 percentage point in 2008, even though both types of plans lost value. In addition, some DB plans actually reported small positive returns in 2008, though most DB plans incurred losses.
On the other side of the spectrum, all DC plans in the study had losses of at least 10%, and a few had severe losses greater than 40%, more than any DB plan in the study.
The 2008 results are based on a survey of 79 employers that sponsor one DB plan and one 401(k) plan.
Also noted in the study, DB plans had median investment returns of -25.27% in 2008, while DC plans had median returns of -26.20%. A broader analysis of more than 2,000 plan sponsors shows that DB plans had a median return average of 7.71% while DC plans had a median return of 6.78% in 2007.
To read the rest of the article, please go to this Employee Benefit News link.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source: Kathleen Koster & ebn.benefitnews.com
Defined benefit plans fared slightly better than defined contribution plans as the economy began its decline two years ago, underscoring the importance of rebalancing 401(k) accounts.
According to new analysis by Towers Watson, DB plans outperformed 401(k) plans by roughly 1 percentage point in 2008, even though both types of plans lost value. In addition, some DB plans actually reported small positive returns in 2008, though most DB plans incurred losses.
On the other side of the spectrum, all DC plans in the study had losses of at least 10%, and a few had severe losses greater than 40%, more than any DB plan in the study.
The 2008 results are based on a survey of 79 employers that sponsor one DB plan and one 401(k) plan.
Also noted in the study, DB plans had median investment returns of -25.27% in 2008, while DC plans had median returns of -26.20%. A broader analysis of more than 2,000 plan sponsors shows that DB plans had a median return average of 7.71% while DC plans had a median return of 6.78% in 2007.
To read the rest of the article, please go to this Employee Benefit News link.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source: Kathleen Koster & ebn.benefitnews.com
Monday, February 22, 2010
2010 Compliance Calendar
I recently read a great article at plansponsor.com written by PlanSponsor Staff. Please see below.
JAN 15 / Last required quarterly contribution for defined benefit (DB) plans for 2009, due 15 days after last plan year quarter.
FEB 1 / Many recordkeepers require participant data for average deferral percentage (ADP)/average contribution percentage (ACP), top heavy, and 402(g) compliance testing to be returned by this date.
FEB 1 / Deadline for sending Form 1099-R to participants who received distributions during previous year. Note: The deadline is usually January 31, which falls on a Sunday in 2010.)
FEB 1 / DB Notice of Benefit Restrictions must be provided to participants and beneficiaries of any benefit restrictions that apply due to the plan being less than 80% funded. Note: Usually due January 31, which falls on a Sunday in 2010, or 30 days after valuation date at which the restriction is determined.
FEB 16 / Quarterly Benefit/Disclosure Statement for Participant-Directed DC Plans: Good Faith Compliance due 45 days after the end of the quarter. Note: Usually due February 15, which is a holiday in 2010.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
To read the rest of the article, please go to this plansponsor.com link.
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
JAN 15 / Last required quarterly contribution for defined benefit (DB) plans for 2009, due 15 days after last plan year quarter.
FEB 1 / Many recordkeepers require participant data for average deferral percentage (ADP)/average contribution percentage (ACP), top heavy, and 402(g) compliance testing to be returned by this date.
FEB 1 / Deadline for sending Form 1099-R to participants who received distributions during previous year. Note: The deadline is usually January 31, which falls on a Sunday in 2010.)
FEB 1 / DB Notice of Benefit Restrictions must be provided to participants and beneficiaries of any benefit restrictions that apply due to the plan being less than 80% funded. Note: Usually due January 31, which falls on a Sunday in 2010, or 30 days after valuation date at which the restriction is determined.
FEB 16 / Quarterly Benefit/Disclosure Statement for Participant-Directed DC Plans: Good Faith Compliance due 45 days after the end of the quarter. Note: Usually due February 15, which is a holiday in 2010.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
To read the rest of the article, please go to this plansponsor.com link.
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Thursday, February 18, 2010
6 Ways Employers Will Change 401(k)s in 2010
Please read this great article written by Emily Brandon:
Employers plan to get more involved in their 401(k) plans in 2010. The trend of employers automatically signing their workers up for retirement accounts is expected to continue this year. Many companies will also attempt to steer their employees into more appropriate investments, according to a new survey by Hewitt Associates, a human resources consulting firm. “They are restoring their matching contributions and offering features and tools that push workers to save more throughout their working years,” says Pamela Hess, Hewitt’s director of retirement research.
Here are six ways companies plan to update their 401(k) plans in 2010:
Automatic enrollment. Interest in signing workers up for retirement accounts unless they opt out continues to grow. Some 59 percent of employers already automatically enroll their workers in retirement accounts, up from 51 percent in 2009, according to the survey of 162 mid and large companies with 5.7 million employees. More than a quarter (27 percent) of the companies with voluntary 401(k) participation plan to begin automatically enrolling workers in the coming year.
Automatic escalation and rebalancing. Simply enrolling workers in retirement accounts generally isn’t enough to ensure they will have a secure retirement. Only 18 percent of the companies surveyed say they are confident that their employees will have enough retirement income to last throughout their lifetime. To attempt to get employees to save more, 38 percent of the companies say they are planning to add a feature that will automatically increase employees contribution rates to 401(k) accounts over time. And almost half (46 percent) of the employers say they are likely to add an automatic rebalancing tool to their retirement accounts in 2010 that will regularly shift employee portfolios to target asset allocations.
More investment guidance. Employers plan to become more involved in helping workers choose appropriate investments. Half (51 percent) of firms currently provide online investment guidance to their workers and another 42 percent are likely to do so in 2010. Many companies (68 percent) also plan to better educate their employees about investment and fund fees in their 401(k) plans this year. For employees who don’t wish to choose their own investments, a quarter of companies indicate they plan to begin offering managed accounts in the coming 12 months in addition to the 28 percent who already do. The amount of employers offering target date funds in 2010 will remain the same as last year at 78 percent.
Add a Roth 401(k). Some 25 percent of companies are likely to add a Roth 401(k) option to their retirement plan in 2010 and 29 percent of companies already have both types of retirement accounts. Roth 401(k) contributions are made with after-tax dollars and withdrawals in retirement are tax free. Traditional 401(k) deposits consist of pre-tax dollars, but income tax is due when the account owner withdraws their savings.
Offer annuities. Only 14 percent of the employers surveyed currently offer the option to purchase an annuity upon retirement through their 401(k) plan, up from 8 percent in 2009. But interest in adding an annuity feature that provides a guaranteed stream of retirement income for life is growing. Over a quarter (28 percent) of companies say they are likely to add an annuity option to their retirement plan in 2010.
Resume the 401(k) match. Some companies temporarily suspended their 401(k) match in 2009. But most firms plan to bring matches out of retirement this year. About 80 percent of companies that slimmed their company contributions last year plan to restore them in 2010.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source: Emily Brandon & usnews.com
Employers plan to get more involved in their 401(k) plans in 2010. The trend of employers automatically signing their workers up for retirement accounts is expected to continue this year. Many companies will also attempt to steer their employees into more appropriate investments, according to a new survey by Hewitt Associates, a human resources consulting firm. “They are restoring their matching contributions and offering features and tools that push workers to save more throughout their working years,” says Pamela Hess, Hewitt’s director of retirement research.
Here are six ways companies plan to update their 401(k) plans in 2010:
Automatic enrollment. Interest in signing workers up for retirement accounts unless they opt out continues to grow. Some 59 percent of employers already automatically enroll their workers in retirement accounts, up from 51 percent in 2009, according to the survey of 162 mid and large companies with 5.7 million employees. More than a quarter (27 percent) of the companies with voluntary 401(k) participation plan to begin automatically enrolling workers in the coming year.
Automatic escalation and rebalancing. Simply enrolling workers in retirement accounts generally isn’t enough to ensure they will have a secure retirement. Only 18 percent of the companies surveyed say they are confident that their employees will have enough retirement income to last throughout their lifetime. To attempt to get employees to save more, 38 percent of the companies say they are planning to add a feature that will automatically increase employees contribution rates to 401(k) accounts over time. And almost half (46 percent) of the employers say they are likely to add an automatic rebalancing tool to their retirement accounts in 2010 that will regularly shift employee portfolios to target asset allocations.
More investment guidance. Employers plan to become more involved in helping workers choose appropriate investments. Half (51 percent) of firms currently provide online investment guidance to their workers and another 42 percent are likely to do so in 2010. Many companies (68 percent) also plan to better educate their employees about investment and fund fees in their 401(k) plans this year. For employees who don’t wish to choose their own investments, a quarter of companies indicate they plan to begin offering managed accounts in the coming 12 months in addition to the 28 percent who already do. The amount of employers offering target date funds in 2010 will remain the same as last year at 78 percent.
Add a Roth 401(k). Some 25 percent of companies are likely to add a Roth 401(k) option to their retirement plan in 2010 and 29 percent of companies already have both types of retirement accounts. Roth 401(k) contributions are made with after-tax dollars and withdrawals in retirement are tax free. Traditional 401(k) deposits consist of pre-tax dollars, but income tax is due when the account owner withdraws their savings.
Offer annuities. Only 14 percent of the employers surveyed currently offer the option to purchase an annuity upon retirement through their 401(k) plan, up from 8 percent in 2009. But interest in adding an annuity feature that provides a guaranteed stream of retirement income for life is growing. Over a quarter (28 percent) of companies say they are likely to add an annuity option to their retirement plan in 2010.
Resume the 401(k) match. Some companies temporarily suspended their 401(k) match in 2009. But most firms plan to bring matches out of retirement this year. About 80 percent of companies that slimmed their company contributions last year plan to restore them in 2010.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source: Emily Brandon & usnews.com
Wednesday, February 17, 2010
401(k)'s for Solo Businesses
Below is a great article written by Jane Hodges:
One-person companies can have the same type of retirement plan common at large corporate employers. And Roth 401(k)s are an option, too.
Talk about control. In addition to managing themselves, self-employed workers have their own options for retirement saving, too.
Two of the best options: solo 401(k)s and solo Roth 401(k)s.
Both have been around a few years but are more common now as accountants with entrepreneurial clients have become more fluent with them, says Rick Meigs, president of Portland, Ore.-based 401khelpcenter.com, a 401(k) research firm.
One-person companies can have the same type of retirement plan common at large corporate employers. And Roth 401(k)s are an option, too.
Talk about control. In addition to managing themselves, self-employed workers have their own options for retirement saving, too.
Two of the best options: solo 401(k)s and solo Roth 401(k)s.
Both have been around a few years but are more common now as accountants with entrepreneurial clients have become more fluent with them, says Rick Meigs, president of Portland, Ore.-based 401khelpcenter.com, a 401(k) research firm.
Their biggest benefit is they often allow for higher retirement-savings contributions than other plans. They also have less-complicated contribution rules than a Keogh, which offers high contribution potential but may require the expense of an actuary and extra paperwork.
Salt Away
Solo 401(k)s let you put away more than a Simple IRA, which allows a maximum contribution of $11,500 a year for those under 50 and $14,000 for those older, plus up to 3% of income (after adjusting for self-employment tax). More than Roth IRAs, too, which set a ceiling of $5,000 for those 49 and under, and $6,000 for those older. Unlike a Roth IRA, solo 401(k) plans also place no income limits on who can participate.
Regular solo and Roth solo 401(k)s also can allow for higher contributions than a Simplified Employee Pension (SEP) IRA at the same income level. In a SEP IRA for 2009 and 2010, entrepreneurs may contribute as much as 20% of their net business profit (up to a maximum of $49,000) if they are sole proprietors, or 25% of their salary if their company is a corporation. (Net business profit is defined as the income of the business after expenses, and minus half of the self-employment tax.)
Salt Away
Solo 401(k)s let you put away more than a Simple IRA, which allows a maximum contribution of $11,500 a year for those under 50 and $14,000 for those older, plus up to 3% of income (after adjusting for self-employment tax). More than Roth IRAs, too, which set a ceiling of $5,000 for those 49 and under, and $6,000 for those older. Unlike a Roth IRA, solo 401(k) plans also place no income limits on who can participate.
Regular solo and Roth solo 401(k)s also can allow for higher contributions than a Simplified Employee Pension (SEP) IRA at the same income level. In a SEP IRA for 2009 and 2010, entrepreneurs may contribute as much as 20% of their net business profit (up to a maximum of $49,000) if they are sole proprietors, or 25% of their salary if their company is a corporation. (Net business profit is defined as the income of the business after expenses, and minus half of the self-employment tax.)
But with a solo 401(k) or solo Roth 401(k), for 2009 and 2010 you can put into the plan 100% of your first $16,500 in income from the business (or $22,000, if 50 or older), plus 20% of net profit, until you max out contributions at $49,000 (or $54,500, if you are 50 or older).
How can an entrepreneur sock away more with a solo 401(k) than with a SEP IRA? Clint Gharib, director of managed products and insurance at J.P. Turner & Co. in Atlanta, uses the example of a 51-year-old sole proprietor whose business income was $100,000. If the proprietor used a SEP IRA, he or she could invest only 20% of $92,936 ($100,000 minus $7,064, half the self-employment tax), or about $18,600.
But the same proprietor could put $22,000 in a solo 401(k), plus 20% of $92,936, for a total of about $40,600. Under some accounting rules and business structures (if incorporated, for instance), this same entrepreneur might be able to put as much as 25% of his or her salary in a SEP IRA—but that amount would still be far less than a solo 401(k) allows.
Numerous mutual-fund, brokerage and discount-brokerage firms offer solo 401(k) plans. Among fund families that sell them through financial advisers: Invesco Aim, Pioneer Investments and OppenheimerFunds. Self-directed investors can open such plans at T. Rowe Price Group, Charles Schwab Corp., Fidelity Investments and Vanguard Group. The Roth versions are also available from fund companies and securities firms such as Invesco Aim, Pioneer, T. Rowe Price, Vanguard, ING Direct's ShareBuilder unit and E*Trade Financial Corp.
Fees vary, and can include a setup fee, annual administration fee, and routine mutual-fund fees—in addition to adviser fees. The highest fees are for those solo 401(k)s sold through insurance companies, Mr. Meigs says.
Among adviser-sold plans, Pioneer charges no setup fee but has a $25 annual fee that is waived on accounts over $25,000. Invesco Aim charges no setup fee and offers two administration options: a self-service option with a $10 annual fee or a full-service option, in which advisers choose a third-party administrator that aids with plan compliance. Fees for the latter vary but average less than $100 per year.
OppenheimerFunds
charges no setup fee and annual administration fees of $10 for accounts over $50,000, and $15 for accounts under $50,000.
ShareBuilder's solo 401(k) products cost $195 to set up, and are assessed a $15 monthly fee, waived on accounts over $250,000; start-up costs are $125 for Costco members.
Russell Lowry, a certified financial planner with Sagemark Consulting Private Wealth Services in Windsor, Conn., says he has opened plans for clients at Plan Administrators Inc., a third-party administrator in De Pere, Wis., which offers adviser-sold plans featuring funds from companies such as American Funds and OppenheimerFunds. At Plan Administrators, setup costs $50, and annual fees are $150 (for balances below $250,000) or $250 (for balances $250,000 and above). Mr. Lowry also charges a fee on the plans; he says it's about 1.5% of assets annually, or less as balances rise.
Solo 401(k)s do in some cases have higher administration fees than SEP IRAs or other plans. Investors need to weigh whether they save aggressively enough to justify those fees. Another detail: With solo 401(k) plans, once accounts hit $250,000, investors are required to file annual paperwork on them to the Internal Revenue Service.
Richard Reyes, a certified financial planner in Orlando, Fla., says to help his clients decide which plan is right for them, he asks them: "How much money are you going to put away yourself? If he/she tells me less than $10,000 to $15,000, then I will always lean toward the SEP and Simple arena. If the owner says a lot more, then one is almost automatically thrown into the solo 401(k) arena."
Mr. Reyes advises that when an investor can reliably contribute at least $15,000 a year, solo 401(k) plans often make more sense than SEP IRAs.
Other Considerations
Investing benefits aside, the ability to borrow is a plus, too. The decision also involves age considerations and guesswork about future tax rules. Investors or their advisers must figure whether it's wiser to contribute after-tax now—to a Roth IRA or Roth 401(k)—or reduce taxable income now and pay tax on retirement income later—with a SEP IRA or solo 401(k).
Mr. Lowry, the financial planner, says that for entrepreneurs under 40 who want to maximize their retirement investment, he generally recommends a solo Roth 401(k) because of likely future tax increases.
The bottom line? As more workers start businesses, work as contractors or opt for self-employment, higher earners should strongly consider a solo 401(k). Even among adviser-sold plans, it's possible to find reasonably priced options.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
How can an entrepreneur sock away more with a solo 401(k) than with a SEP IRA? Clint Gharib, director of managed products and insurance at J.P. Turner & Co. in Atlanta, uses the example of a 51-year-old sole proprietor whose business income was $100,000. If the proprietor used a SEP IRA, he or she could invest only 20% of $92,936 ($100,000 minus $7,064, half the self-employment tax), or about $18,600.
But the same proprietor could put $22,000 in a solo 401(k), plus 20% of $92,936, for a total of about $40,600. Under some accounting rules and business structures (if incorporated, for instance), this same entrepreneur might be able to put as much as 25% of his or her salary in a SEP IRA—but that amount would still be far less than a solo 401(k) allows.
Numerous mutual-fund, brokerage and discount-brokerage firms offer solo 401(k) plans. Among fund families that sell them through financial advisers: Invesco Aim, Pioneer Investments and OppenheimerFunds. Self-directed investors can open such plans at T. Rowe Price Group, Charles Schwab Corp., Fidelity Investments and Vanguard Group. The Roth versions are also available from fund companies and securities firms such as Invesco Aim, Pioneer, T. Rowe Price, Vanguard, ING Direct's ShareBuilder unit and E*Trade Financial Corp.
Fees vary, and can include a setup fee, annual administration fee, and routine mutual-fund fees—in addition to adviser fees. The highest fees are for those solo 401(k)s sold through insurance companies, Mr. Meigs says.
Among adviser-sold plans, Pioneer charges no setup fee but has a $25 annual fee that is waived on accounts over $25,000. Invesco Aim charges no setup fee and offers two administration options: a self-service option with a $10 annual fee or a full-service option, in which advisers choose a third-party administrator that aids with plan compliance. Fees for the latter vary but average less than $100 per year.
OppenheimerFunds
charges no setup fee and annual administration fees of $10 for accounts over $50,000, and $15 for accounts under $50,000.ShareBuilder's solo 401(k) products cost $195 to set up, and are assessed a $15 monthly fee, waived on accounts over $250,000; start-up costs are $125 for Costco members.
Russell Lowry, a certified financial planner with Sagemark Consulting Private Wealth Services in Windsor, Conn., says he has opened plans for clients at Plan Administrators Inc., a third-party administrator in De Pere, Wis., which offers adviser-sold plans featuring funds from companies such as American Funds and OppenheimerFunds. At Plan Administrators, setup costs $50, and annual fees are $150 (for balances below $250,000) or $250 (for balances $250,000 and above). Mr. Lowry also charges a fee on the plans; he says it's about 1.5% of assets annually, or less as balances rise.
Solo 401(k)s do in some cases have higher administration fees than SEP IRAs or other plans. Investors need to weigh whether they save aggressively enough to justify those fees. Another detail: With solo 401(k) plans, once accounts hit $250,000, investors are required to file annual paperwork on them to the Internal Revenue Service.
Richard Reyes, a certified financial planner in Orlando, Fla., says to help his clients decide which plan is right for them, he asks them: "How much money are you going to put away yourself? If he/she tells me less than $10,000 to $15,000, then I will always lean toward the SEP and Simple arena. If the owner says a lot more, then one is almost automatically thrown into the solo 401(k) arena."
Mr. Reyes advises that when an investor can reliably contribute at least $15,000 a year, solo 401(k) plans often make more sense than SEP IRAs.
Other Considerations
Investing benefits aside, the ability to borrow is a plus, too. The decision also involves age considerations and guesswork about future tax rules. Investors or their advisers must figure whether it's wiser to contribute after-tax now—to a Roth IRA or Roth 401(k)—or reduce taxable income now and pay tax on retirement income later—with a SEP IRA or solo 401(k).
Mr. Lowry, the financial planner, says that for entrepreneurs under 40 who want to maximize their retirement investment, he generally recommends a solo Roth 401(k) because of likely future tax increases.
The bottom line? As more workers start businesses, work as contractors or opt for self-employment, higher earners should strongly consider a solo 401(k). Even among adviser-sold plans, it's possible to find reasonably priced options.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source: Jane Hodges & online.wsj.com
Tuesday, February 16, 2010
Hardship Distributions: Lost Retirement Savings or Safety Valve for Employees?
Below is a great article written by Jerry Kalish:
Hardship distribution provisions in 401(k) plans used to be one of those matters on which plan sponsors didn't spend a whole lot of time. But because of the economy, that's not the case anymore. As a result, two points of view about hardship distributions have evolved.
One one hand, there is the view that hardship distributions act as "leakage" from 401(k) accounts, the result of which is lost retirement savings. It's a view that recently gained traction from the release of a report by the Government Accountability Office, "401(k) Plans: Policy Changes Could Reduce the Long-term Effects of Leakage on Workers' Retirement Savings."
The GAO report suggests that:
* Congress should consider changing the requirement for the six-month contribution suspension following a hardship withdrawal to help participants recover more fully from a hardship situation.
* The Secretary of Labor should consider promoting greater participant education on the importance of preserving retirement savings.
* The Secretary of the Treasury should consider clarifying and enhancing loan exhaustion provisions to ensure that participants do not initiate unnecessary leakage through hardship withdrawals.
Both the Labor Department and the Treasury Department agreed to take actions to follow the GAO's suggestions.
The other view is that hardship distributions act as a "safety valve." While hardship provisions, like loans, are allowed by law, employers are not required to provide for them in a 401(k) plan. Many do offer hardship distributions, however, because they provide a sense of security to participants as they balance their retirement savings and current financial needs. The hardship distribution acts as a safety valve in case they ever need the money.
Both views have currency (pardon the pun.) And until the economy improves, hardship distributions will continue to be a fact of life for many 401(k) plan sponsors. With that in mind, here's a brief rundown on the rules and how to avoid compliance problems:
* The hardship withdrawal must be for an "immediate and heavy financial need."
* The participant has no other way to meet the need.
* The withdrawal cannot exceed the amount needed.
* The participant must have first obtained all distribution or nontaxable loans available under the 401(k) plan.
* The participant cannot contribute to the 401(k) plan for six months following the withdrawal.
Under the provisions of the Pension Protection Act of 2006, an employee's needs may include the need of the employee's nonspouse, nondependent beneficiary. Hardship withdrawals are subject to income tax and the 10% withdrawal penalty if the participant is younger than 59-and-a-half years old.
The IRS, which regulates the tax aspects of retirement plans, was concerned enough about hardship distributions not being done properly that it discussed the matter in its summer 2009 edition of "Retirement News for Employers."
To properly handle hardship distributions, consider these basic, yet very practical, seven steps:
1. Review the terms of your plan.
2. Ensure that the employee complies with the plan's procedural requirements.
3. Verify that the employee's specific reason for hardship qualifies for a distribution using the plan's definition of what constitutes a hardship.
4. If the plan, or any of your other plans in which the employee is a participant, offers loans, document that the employee has exhausted them prior to receiving a hardship distribution.
5. Check that the amount of the hardship distribution does not exceed the amount necessary to satisfy the employee's financial need.
6. Make sure that the amount of the hardship distribution does not exceed any limits under the plan and is made only from the amounts eligible for a hardship distribution.
7. If the plan has a provision that the employee taking a hardship distribution is suspended from contributing to the plan for at least six months, make sure to enforce that provision.
Until the economy improves, don't expect the leakage to slow down.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source: 401khelpcenter.com & ebn.benefitnews.com
Hardship distribution provisions in 401(k) plans used to be one of those matters on which plan sponsors didn't spend a whole lot of time. But because of the economy, that's not the case anymore. As a result, two points of view about hardship distributions have evolved.
One one hand, there is the view that hardship distributions act as "leakage" from 401(k) accounts, the result of which is lost retirement savings. It's a view that recently gained traction from the release of a report by the Government Accountability Office, "401(k) Plans: Policy Changes Could Reduce the Long-term Effects of Leakage on Workers' Retirement Savings."
The GAO report suggests that:
* Congress should consider changing the requirement for the six-month contribution suspension following a hardship withdrawal to help participants recover more fully from a hardship situation.
* The Secretary of Labor should consider promoting greater participant education on the importance of preserving retirement savings.
* The Secretary of the Treasury should consider clarifying and enhancing loan exhaustion provisions to ensure that participants do not initiate unnecessary leakage through hardship withdrawals.
Both the Labor Department and the Treasury Department agreed to take actions to follow the GAO's suggestions.
The other view is that hardship distributions act as a "safety valve." While hardship provisions, like loans, are allowed by law, employers are not required to provide for them in a 401(k) plan. Many do offer hardship distributions, however, because they provide a sense of security to participants as they balance their retirement savings and current financial needs. The hardship distribution acts as a safety valve in case they ever need the money.
Both views have currency (pardon the pun.) And until the economy improves, hardship distributions will continue to be a fact of life for many 401(k) plan sponsors. With that in mind, here's a brief rundown on the rules and how to avoid compliance problems:
* The hardship withdrawal must be for an "immediate and heavy financial need."
* The participant has no other way to meet the need.
* The withdrawal cannot exceed the amount needed.
* The participant must have first obtained all distribution or nontaxable loans available under the 401(k) plan.
* The participant cannot contribute to the 401(k) plan for six months following the withdrawal.
Under the provisions of the Pension Protection Act of 2006, an employee's needs may include the need of the employee's nonspouse, nondependent beneficiary. Hardship withdrawals are subject to income tax and the 10% withdrawal penalty if the participant is younger than 59-and-a-half years old.
The IRS, which regulates the tax aspects of retirement plans, was concerned enough about hardship distributions not being done properly that it discussed the matter in its summer 2009 edition of "Retirement News for Employers."
To properly handle hardship distributions, consider these basic, yet very practical, seven steps:
1. Review the terms of your plan.
2. Ensure that the employee complies with the plan's procedural requirements.
3. Verify that the employee's specific reason for hardship qualifies for a distribution using the plan's definition of what constitutes a hardship.
4. If the plan, or any of your other plans in which the employee is a participant, offers loans, document that the employee has exhausted them prior to receiving a hardship distribution.
5. Check that the amount of the hardship distribution does not exceed the amount necessary to satisfy the employee's financial need.
6. Make sure that the amount of the hardship distribution does not exceed any limits under the plan and is made only from the amounts eligible for a hardship distribution.
7. If the plan has a provision that the employee taking a hardship distribution is suspended from contributing to the plan for at least six months, make sure to enforce that provision.
Until the economy improves, don't expect the leakage to slow down.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source: 401khelpcenter.com & ebn.benefitnews.com
Thursday, February 11, 2010
What Does W-2 Compensation Really Mean?
The most popular base definition of compensation for retirement plans is the “W-2" definition. However, we have been receiving a number of phone calls recently asking exactly what that definition covers, and which box of Form W-2 it reflects.
The short answer is that the W-2 definition reflects Box 1 of Form W-2, “Wages, tips, and other comp." This is the number a taxpayer uses to complete Form 1040. However, for 415 purposes (and for purposes of the various Code sections which are based on the 415 definition of compensation, such as the top-heavy rules), the plan must add back in elective deferrals.
Source:401khelpcenter.com & relius.net
The short answer is that the W-2 definition reflects Box 1 of Form W-2, “Wages, tips, and other comp." This is the number a taxpayer uses to complete Form 1040. However, for 415 purposes (and for purposes of the various Code sections which are based on the 415 definition of compensation, such as the top-heavy rules), the plan must add back in elective deferrals.
For this purpose, elective deferrals include deferrals to:
Qualified plans 403(b) plans 457(b) plans Salary reduction SEPs SIMPLE IRAs Cafeteria plans Qualified transportation fringe benefit arrangements
Complicating this calculation is the fact that Roth deferrals are already included in income under Box 1. So, when adding back qualified plan deferrals, one is actually adding back only traditional, pre-tax deferrals.
Rather than use Box 1 and add back the deferrals, some practitioners have used Box 5, “Medicare wages and tips." This is unfortunate because there are a number of differences between Box 1 and Box 5. A difference which is currently receiving attention relates to health insurance premiums for S Corporation 2% or more shareholder-employees. Those premiums are always included in Box 1, but may be subject to an exclusion under Box 5. But there are other possible differences as well. As a result, Box 5 is not an appropriate source of compensation for retirement plans and never has been.
There are two exceptions, besides elective deferrals, to the rule that Box 1 compensation equals W-2 compensation for plan purposes:
A plan must disregard any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed. So, even if a foreign subsidiary pays an individual for work outside the United States and is not required to give the individual Form W-2, a plan must count the compensation which would have been reportable on a W-2.
A plan has the option to exclude amounts the employer pays or reimburses for an employee’s moving expenses if, at the time of the payment, it is reasonable to believe that the employee can deduct these amounts under Code §217. Such an exclusion would need to appear in the plan document itself.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Complicating this calculation is the fact that Roth deferrals are already included in income under Box 1. So, when adding back qualified plan deferrals, one is actually adding back only traditional, pre-tax deferrals.
Rather than use Box 1 and add back the deferrals, some practitioners have used Box 5, “Medicare wages and tips." This is unfortunate because there are a number of differences between Box 1 and Box 5. A difference which is currently receiving attention relates to health insurance premiums for S Corporation 2% or more shareholder-employees. Those premiums are always included in Box 1, but may be subject to an exclusion under Box 5. But there are other possible differences as well. As a result, Box 5 is not an appropriate source of compensation for retirement plans and never has been.
There are two exceptions, besides elective deferrals, to the rule that Box 1 compensation equals W-2 compensation for plan purposes:
A plan must disregard any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed. So, even if a foreign subsidiary pays an individual for work outside the United States and is not required to give the individual Form W-2, a plan must count the compensation which would have been reportable on a W-2.
A plan has the option to exclude amounts the employer pays or reimburses for an employee’s moving expenses if, at the time of the payment, it is reasonable to believe that the employee can deduct these amounts under Code §217. Such an exclusion would need to appear in the plan document itself.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
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.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source:401khelpcenter.com & relius.net
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