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Marc Scudillo

Beware of the IRS and DOL: Four Red Flags They Seek on Form 5500

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Beware of the IRS and DOL: Four Red Flags They Seek on Form 5500

The Form 5500 is an ERISA requirement for retirement plans to report and disclose operating procedures. Financial professionals use this to confirm that plans are managed according to ERISA standards. The form also allows individuals access to information, protecting the rights and benefits of the plan participants and beneficiaries covered under the plan. Make sure you are compliant. Be aware of red flags that the IRS and DOL look for on Form 5500 filings:

1. Not making participant deferral remittances “as soon as administratively possible” is considered a fiduciary breach and can make the plan subject to penalties and potentially disqualification. Delinquent remittances are considered to be loans of plan assets to the sponsoring company.

2. An ERISA fidelity bond (not to be confused with fiduciary insurance) is a requirement. This bond protects participant assets from being mishandled, and every person who may handle plan assets or deferrals must be covered.

3. Loans in default for participants not continuing loan repayments, or loans that are 90 days in arrears, are a fiduciary breach that can make the plan subject to penalties and disqualification.

4. Corrective distributions, return of excess deferrals and excess contributions, along with any gains attributed must be distributed in a timely manner (typically two and a half months after the plan year ends). In some cases, these fiduciary breaches can be self-corrected if done within the same plan year in which they occurred and may be considered additional breaches if they extend beyond the current plan year.

This is a partial, not exhaustive list of common Form 5500 red flags. If you’re concerned about ERISA compliance, contact your financial professional sooner, rather than later.

For more background on Form 5500, visit the Society for Human Resource Management online. See “Regulatory 5500: What is Form 5500, and where are instructions for completing it?”

IRS Limits on Retirement Benefits and Compensation

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IRS Limits on Retirement Benefits and Compensation

Highlights of Changes for 2022

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased to $20,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans remains unchanged at $6,500. The limitation regarding SIMPLE retirement accounts for 2022 has increased to $14,000.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements
(IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2022.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

Here are the phase-out ranges for 2022:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $68,000 to $78,000, up from $66,000 to$76,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $109,000 to $129,000, up from $105,000 to $125,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $204,000 and $214,000, up from $198,000 and $208,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $68,000 or married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and
$34,000 for singles and married individuals filing separately, up from $33,000.

Key limit remains unchanged

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Details on these and other retirement-related cost-of-living adjustments for 2022 are in Notice 2021-216 (PDF)1, available on IRS.gov.
1 https://www.irs.gov/pub/irs-drop/n-21-61.pdf

RPAG is not in the business of providing legal advice with respect to ERISA or any other applicable law. The materials and information do not constitute, and should not be relied upon as, legal advice. The materials are general in nature and intended for informational purposes only.

Regret Aversion: Fighting the FOMO of the Financial World

By Resources

Regret Aversion: Fighting the FOMO of the Financial World

DOL Cybersecurity Tips

In this age of relying heavily on technology, it is vital to take the necessary cyber security precautions. You want to make sure that all sensitive information is highly protected. This document showcases some tips and trick for plan sponsors.

Topics include: Security Standards, Establishing a Formal Cybersecurity Program, Using Multi-Factor Authentication, Cybersecurity Insurance, and much more.

Per the DOL, plan sponsors should ask the service provider about the following:

  • Security Standards
  • Security Practices
  • Security Policies
  • Audit Results
  • Security Validation Process
  • Security Levels Implemented
  • Past Security Breaches
  • Cybersecurity Insurance
  • Cybersecurity Guarantee

Per the DOL, plan sponsors should consider the following actions:

  • Establish a formal Cyber Security Program
  • Conduct annual risk assessments
  • Hire third party to audit security controls
  • Define and assign information security roles
    and responsibilities
  • Establish strong access control procedures
  • If data stored in cloud or with third party conduct
    security reviews
  • Conduct cyber security awareness training
  • Implement secure system development life cycle
  • Create effective business resiliency program
  • Encrypt sensitive data
  • Respond to cyber security events

Per the DOL, plan participants should consider the following actions:

  • Register your account
  • Regularly monitor your account
  • Use strong and unique passwords
  • Use multi-factor authentication
  • Keep personal contact information current
  • Close or delete unused accounts
  • Do not use free Wi-Fi
  • Beware of Phishing attacks
  • Do not store login information in your email account
  • Use up to date anti-virus software
  • Report identify theft to your employer and the
    record-keeper

Regret Aversion: Fighting the FOMO of the Financial World

Regret aversion is a construct in behavioral finance theory that suggests investing decisions are, at least in part, driven by fear of later regretting a “wrong” choice. And this isn’t just some psychological mumbo jumbo. Functional MRI neuroimaging studies of the brain have demonstrated a biological correlate to this phenomenon in the form of increased activity within the medial orbitofrontal cortex and amygdala. The fear is real — and it can have serious consequences for participants.

Three Ways to Strengthen Your Retirement Plan Committee

Retirement plan committees aren’t required by ERISA, but they can be extremely beneficial nonetheless — especially for larger plans. And if they’re constructed and operated appropriately, they can even help in the event a sponsor is sued. Depending on the size of the plan, some organizations split up committee responsibilities into investment oversight, administration, and settlor functions. But no matter how you structure them, here are three ways to make retirement plan committees a more effective tool for your organization.

How Does Regret Aversion Impact Investors?

There’s no singular effect of regret aversion on investor decision making because the fear of regret may relate to either taking action or not taking action. And that fear may translate into greater risk-taking — or excessive attempts to minimize risk.

Carried on a wave of exuberance and fear of missing out (FOMO), investors may jump on a “hot stock,” even when the purchase is not rationally justified by its underlying fundamentals. Or they may avoid engaging in the market altogether after going through a painful downturn, missing out on typical recovery cycles. Regret aversion can also lead investors to hang on to a poorly performing investment too long, not wanting to lock in losses, even when that’s exactly the decision that’s called for to achieve a better long-term result.

While regret aversion can motivate us to take positive action, such as starting up a fitness routine to avoid regretting the health consequences of not taking care of ourselves years from now, it’s not a sensible approach to making most investment and retirement planning decisions.

So, What Can Be Done?

1. Teach participants about regret aversion. Educate employees about the principles of behavioral finance. Learning to identify and combat faulty thinking can help people make better personal finance and investment decisions. Use real-world examples to provide historical data about bubbles, market recoveries and long-term returns when participants stay invested through down markets.

2. Encourage a rules-based investment decision process. Fiduciaries are not mandated to produce positive outcomes for participants, only establish and maintain prudent processes regarding their retirement plans. Similarly, employees should focus on establishing and adhering to a sound investment decision-making approach rather than trying to see around every corner along the way.

3. Foster an attitude of acceptance. Explain to participants why an investment strategy wholly oriented around the goal of avoiding regret might not yield the results they desire. They should understand that taking on some degree of risk is inherent in pursuing higher returns. Encourage trust in the process and acceptance that logging some losses along the way is an expected part of it.

4. Leverage regret aversion to encourage beneficial investor behavior. Even with education, you simply can’t completely “deprogram” regret aversion from every participant’s brain. And if it’s going to exert some influence, make sure you use it to foster positive behavior. How will employees feel at retirement if they come up short after delaying plan enrollment, failing to escalate contributions or steering clear of all but the most conservative investments?

Bottom Line

We’ve all had situations in life when we did the “right” thing but didn’t get the result we wanted. Just because an investment decision didn’t pan out doesn’t necessarily mean that it was a “bad” one. No one has a crystal ball. And we shouldn’t abandon sound principles just because they can’t promise success 100% of the time.

Regret is natural. And it can even be helpful when it motivates us to make better future decisions. Regret in itself isn’t the problem — the excessive fear of regret is.

It may be useful to reframe the concept of a “mistake” for participants as succumbing to fear as opposed to trusting the sound strategy you’ve established together to achieve their retirement goals. In the end, the best way to help participants may be to teach them to regret fear — as opposed to fear regret — when it comes to making investment decisions.

Sources:

https://www.researchgate.net/publication/7645216_Regret_and_Its_Avoidance_A_Neuroimaging_Study_of_Choice_Behavior
https://thedecisionlab.com/biases/regret-aversion/

Self-Directed Brokerage Accounts

To Add to Your Plan or Not: That is the Question

Participants may be attracted to self-directed brokerage accounts (SDBAs) because of the seemingly infinite choice of investment options. While it’s tempting to please these often-vocal employees, much consideration should be given when contemplating an SDBA option for your qualified retirement plan. There are several fiduciary issues your committee should discuss, decide, and document.

Outside Advisors

The impetus for the interest may be that participants want to take advantage of the advice from an outside advisor with the intention of giving them access to the account to make trades. If so, the advisor may be said to perform as a discretionary investment manager. ERISA Section 3(38) requires the plan sponsor to enter into an agreement with the advisor, as well as monitor the advisor’s actions.

“Unsuitable” Investments

The plan sponsor could be exposing themselves to an ERISA lawsuit from beneficiaries unhappy their selected advisor was allowed to buy investments “unsuitable” for retirement plans such as illiquid investment options, life insurance, etc. Plan sponsors can attempt to mitigate this risk by limiting what can be purchased via the SDBA account to stocks, bonds, mutual funds, or ETFs.

Responsibility to Monitor Fees

The plan sponsor needs to understand the fees associated with the SDBA and determine their reasonableness. Just because the participant elects to utilize an SDBA account does not mean the plan sponsor has abdicated responsibility for ensuring costs are reasonable.

Plan Sponsor Relief

Remember, plan sponsors have safeharbor protection under ERISA Section 404(c) which states that the participant has assumed control over their account by electing to invest via the SDBA. However, 404(c) relief is lost if the investment options pose an imprudent risk of loss. In addition, there are over 50 subsections to 404(c) that must be met to achieve the safeharbor protection. Noncompliant fiduciaries are accepting liability for whatever investments decisions the participant makes within an SDBA account. And ERISA Section 404a-5 still applies to SDBA accounts. The plan sponsor must ensure the participant is receiving an annual disclosure of fees that is accurate. All too often this does not take place with SDBA accounts.

Participants Matter Most

An SDBA account can offer plan participants new opportunities to invest for retirement. It’s important though to understand and address the risks associated to avoid mistakes that could harm your employees’ long-term financial future.

Participants Corner


What is Roth and What Does it Mean for Me?

When you hear Roth 401(k), Roth IRA, or just Roth, this is generally referring to a specific type of tax benefit your savings may receive. You pay taxes on Roth contributions for the taxable year in which they are made. “Traditional” contributions typically means that your contributions were taken out of your paycheck on a pre-tax basis. In other words, you’re going to pay taxes on that money in a later year. Many plans offer an option to make Roth contributions. Also, most plans do not just offer one or the other, you typically have the option to make both, or either, type of contribution!

Here are some things to consider when choosing between making traditional or Roth contributions:

Growth

Traditional – When you withdraw the funds at retirement, you will be paying income taxes on the entire amount, the initial contribution, and the investment growth.

Roth – If you meet certain timing rules, no tax is owed on the growth upon distribution. You already paid taxes when you contributed the original amounts to the plan, and the investment growth will accumulate tax-free.

Tax Savings

Traditional – You receive a current tax benefit. By making these contributions pre-tax, your taxable income will be reduced, lowering the taxes you owe that year.

Roth – Does not provide current tax savings.

At Distribution

Traditional – When you have reached retirement age and start taking distributions, this will be treated as taxable income. This will be comprised of both your initial contribution and the growth.

Roth – Again, if you have met certain timing requirements, you will not owe any taxes on distribution.

Things to Consider

Individuals in current low tax brackets may benefit more by paying the taxes up front with a Roth contribution. Also, if you’re a young investor, the account has much more time to grow and avoiding taxes on this growth could prove to be very favorable.

If you are looking to save money on current income taxes, a traditional contribution accomplishes this goal by deferring taxation until distribution.

Your tax bracket may also be a factor to consider when making this decision. If you believe that you will be in a lower tax bracket at retirement, you may want to pay taxes then, and choose traditional.

Don’t forget that you may have the option to do both! You may want to split your contribution up between the two types of contributions, thereby accruing some tax assistance today while also lessening your tax hit upon distribution.

For more information regarding your retirement plan, please contact your financial professional at EisnerAmper Wealth Management & Corporate Benefits.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

When It Comes to Financial Wellness… the Time Is Now

By Resources

When It Comes to Financial Wellness… the Time Is Now

While one could say it’s always a good idea to focus on well-being of any type — whether that’s physical, mental, or financial wellness — there’s perhaps never been a more important time to help employees improve their financial literacy, behaviors, and resilience than right now.

More workers under greater financial strain. It would be difficult to overstate the overarching impact that the pandemic has had on the financial lives of American workers. Sadly, many are struggling under increased budgetary and inflationary pressures, which can put retirement readiness at risk — or out of reach altogether. And while lately it may feel like COVID-19 exerts an uncontrollable influence on daily life, personal finance is one area where plan sponsors can help foster a greater sense of agency for plan participants through robust financial wellness programming. Financial wellness education and services that respond to the evolving needs of a changing workforce can help increase participation rates, enhance retirement readiness, bolster emergency savings, and reduce 401(k) loans.

Increased emotional and physical strain. Fears for the health of themselves and loved ones, social isolation, changes in work and personal routines and even decreased access to preventive care due to fear or financial pressures can put workers’ emotional and physical health at risk. And just when a transition to post-pandemic life seemed around the corner, new concerns have emerged with worrisome variants. The connection between mental and physical health is well established, especially as mediated by the effects of stress on the body — and anything employers can do to reduce stress can only help their workers in this regard. Responsive financial wellness programs designed and implemented to meet the needs of all employees can help reduce stress and improve morale. And an added benefit to employers can be a reduction in health care costs and fewer missed days of work.

Tightening job market. When businesses shuttered or were restricted during the pandemic, the demand for labor understandably dropped. But now that companies are hiring once again, the labor force participation rate has remained stubbornly low over the last few months, remaining unchanged at 61.6% in June — and down from 63.3% before the pandemic. Rising wages suggest heightened competition for qualified workers. Companies are doing all they can to attract and retain top talent during the “Great Resignation” — and offering a robust retirement plan and comprehensive financial wellness programming can help organizations do just that.

WellCents can help both sponsors and retirement plan participants weather the storm that COVID-19 has brought, and which now appears to be lingering on our shores. There are few events in history with such widespread national impact as the pandemic. With a greater proportion of employees under stress and in need, a program like WellCents that boasts an average utilization rate of 35% to 75%, compared to rates in the 1% to 2% range of comparable programs, can make all the difference. There’s no better time than now to help your employees establish and maintain their financial health for today — and for whatever the future may hold.

Sources

https://www.nytimes.com/2021/07/02/business/economy/jobs-economy-covid.html

Three Ways to Strengthen Your Retirement Plan Committee

Retirement plan committees aren’t required by ERISA, but they can be extremely beneficial nonetheless — especially for larger plans. And if they’re constructed and operated appropriately, they can even help in the event a sponsor is sued. Depending on the size of the plan, some organizations split up committee responsibilities into investment oversight, administration, and settlor functions. But no matter how you structure them, here are three ways to make retirement plan committees a more effective tool for your organization.

1. Ongoing fiduciary training and education. Fiduciary committee members take on significant risk for their service. And even though there are no specific job titles or requirements to participate on a retirement plan committee per ERISA — such as being a financial or human resources officer, it’s vital that committee members be prudently appointed and that only individuals qualified for the role take on this responsibility. They should have an understanding of ERISA fundamentals and the workings of retirement plan structures and operations. But perhaps most importantly, members must have a commitment to working solely for the interests of plan participants and beneficiaries. The functioning of the committee can be further strengthened with ongoing continuing education on fiduciary responsibility and training to keep members abreast of any regulatory or other ERISA, DOL or IRS changes that could impact the retirement plan they oversee. Schedule regular training — perhaps quarterly — and consider fiduciary liability insurance to provide an added layer of protection for members, whose performance should be closely and regularly monitored.

2. Retirement plan committee charter and documentation. Documentation is a key for fiduciaries. Many advisors will take minutes that record agenda items for each meeting, which might include a review of areas such as investment performance, plan fees and documents such as the investment policy statement or form 5500. Additionally, any recommended changes or amendments to the plan — or its providers — should be documented along with the processes that led to such changes. The minutes should be reviewed and approved by the committee members and records retained. And while ERISA does not mandate a retirement plan committee charter, it’s considered a best practice to use one to document who possesses delegated fiduciary functions. The charter can also be used as part of a legal defense in the event of a lawsuit.

3. Committee member diversity. As with other leadership groups in your company, the retirement plan committee should reflect the diversity within your organization. Representation in terms of age, ethnicity, culture, socioeconomic background and gender can help ensure the committee understands the needs and concerns of all the participants and beneficiaries in whose interests they’re entrusted and obligated to act — and how best to serve, educate and communicate with them. Including first-line workers as opposed to only members of your C-suite can be particularly useful when it comes to appreciating the perspectives of employees with greater financial need or those who are not (or are under-) participating in the plan. And for individuals who don’t possess fiduciary education or experience, be sure to limit committee responsibilities to an advisory role that does not involve direct decision-making.

Assembling a qualified, representative and responsive retirement plan committee — well equipped with a comprehensive charter and ongoing fiduciary training — can be a highly effective tool to help plan sponsors discharge their fiduciary duties to plan participants and beneficiaries.

Sources:

https://401kbestpractices.com/best-practices-for-401k-committees/
https://sponsor.fidelity.com/pspublic/pca/psw/public/library/manageplans/establishing_fiduciary_committee.html
https://401ktv.com/retirement-plan-committee-charter-required-fulfill-fiduciary-duties/
https://www.plansponsor.com/in-depth/improving-retirement-plan-committee-diversity/
https://www.plansponsor.com/in-depth/establishing-retirement-plan-committee/

Beneficiary of Unintended Consequences

Upon becoming eligible to participate in your company’s 401(k) plan, participants are asked to select investments, contribution rate and to indicate a beneficiary designation. This is obvious and it is likely that an application would not be accepted unless this information was completed. What is often less obvious is the need to update beneficiary designation in event of significant life changes acknowledging that their 401(k) assets may not then coincide with the terms of a will addressing other assets.

Not changing the designation when appropriate may at the least subject your intended beneficiaries to the inconvenience and distress of the probate process and likely delay distribution of assets. Identifying and updating participants’ beneficiaries for 401(k) plan assets can ensure a smooth transition of 401(k) assets to the people who need them in their absence.

This issue is often manifest in the event participants become divorced and eventually remarry. They may know to update their will and contact their life insurance company to change their beneficiary so that the new spouse will be entitled to their assets upon their death, but often people neglect to update their 401(k) plan beneficiary. In this event, their 401(k) plan assets may go to their former spouse because they neglected to update their 401(k) beneficiary designation form.

In order to avoid these potential negative experiences, encourage participants to periodically review their 401(k) beneficiary designation forms, especially if they’ve had major family changes since they set up or last updated their beneficiary designation.

For more information regarding your retirement plan, please contact your financial professional at EisnerAmper Wealth Management & Corporate Benefits.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

Marc Scudillo Discusses Series I Bonds in Forbes Magazine

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Marc Scudillo Discusses Series I Bonds in Forbes Magazine

 

For those unfamiliar with Series I bonds, here are some quick facts about them:

  1. Series I bonds are a type of U.S. savings bond designed to protect the value of your cash from inflation; interest is calculated using a “composite rate” based on a formula containing a fixed interest rate and an inflation-adjusted rate.
  2. Today’s I bond yield far surpasses that of any other government-guaranteed interest rate available from any bank, brokerage or other insured source, according to a Forbes source.
  3. Series I bonds are exempt from state and local income taxes, but not federal taxes—unless they are used for higher education expenses. The owner is responsible for paying any tax due even if the bond was a gift.
  4. Investors can buy up to $10,000 worth of I bonds annually through the government’s TreasuryDirect website. You can purchase up to another $5,000 with your tax refund, upping the potential annual total purchase amount of Series I bonds to $15,000 per person. Minimum purchase amount is $25.
  5. I bonds earn interest monthly, though you don’t get that until you cash out the bond. You must own the bond for at least five years to receive all of the interest that is due, otherwise you forfeit the prior three months of interest.
  6. Electronic I bonds can be redeemed via the TreasuryDirect website. Paper bonds can be cashed in at a local bank.
  7. There is no secondary market for trading I bonds, meaning you cannot resell them; you must cash them out directly with the U.S. government.

Marc Scudillo, managing officer of EisnerAmper Wealth Management and Corporate Benefits LLC, likes I bonds for conservative investors. “Buying I bonds can be an attractive college savings strategy option as an alternative or in addition to 529 plans, which also grow tax free for qualifying higher education,” Scudillo says.

###

Series EE bonds are also sold by the U.S. government. Here are a few of their similarities and differences:

  1. EE bonds and I bonds are sold at face value, and they both earn interest monthly that is compounded semiannually for 30 years.
  2. Both I bonds and EE bonds may be redeemed or cashed after 12 months. If cashed during the first five years, you forfeit three months of interest payments.
  3. The interest rate on EE bonds is fixed for the life of the bond while I bonds offer rates that are adjusted to protect from inflation.
  4. EE bonds offer a guaranteed return that doubles your investment if held for 20 years. There is no guaranteed return with I bonds.

Scudillo suggests that investors should consider that series EE bonds are guaranteed to double over 20 years and I bonds offer no similar payout guarantee. If interest rates and inflation remain low, then EE bonds, with their guarantee to double in 20 years would perhaps be best. Given lower trending inflation rates over the last couple of decades it would take longer to double your money. However, should inflation increase substantially, then I bond holders would win out. Unfortunately, the only way to tell which bond earns more over time is in hindsight.

I bonds are an excellent choice for conservative investors seeking a guaranteed investment to protect their cash from inflation. Although illiquid for one year, after that period you can cash them at any time. The three-month interest rate penalty for bonds cashed within the first five years is minimal in light of the fact that they preserve your initial purchase amount and you would find similar penalties for early withdrawals from other safe investments.

I bonds are appropriate for the cash and fixed portion of most investment portfolios. Today, the I bond returns handily beat those of certificates of deposit (CDs). Parents might also consider accumulating I bonds to assist with future college payments.

 

Read the entire article here:

https://www.forbes.com/advisor/investing/what-are-i-bonds/

 

Marc Scudillo is the managing officer of EisnerAmper Wealth Management and Corporate Benefits LLC (www.eisneramperwmcb.com). He is a certified public accountant and a Certified Financial Planner™ and Certified Business Exit Consultant®.

Find Your Perfect Match Through Live-bid RFPs and Benchmarking

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Find Your Perfect Match Through Live-bid RFPs and Benchmarking

Finding the perfect provider match for your plan should be as easy as peanut butter and jelly. It’s also a fiduciary responsibility to ensure your retirement plan is charged reasonable fees by providers. As the prevalence of lawsuits against plan sponsors for allowing excessive fee charges continues to increase, the importance of conducting regular benchmarking studies is more important than ever.

 

Why Live-bid Benchmarking?

Live-bid RFP responses are based on your plan’s parameters, complexity, investment lineup, service requirements and other unique considerations. The process ensures:

  • Apple-to-apple comparisons are used throughout
  • Fee comparisons are based on current market prices rather than a database of historical fees
    • Negotiating leverage is maximized with a plan’s current provider

 

Provider Analysis

Our benchmarking report utilizes our proprietary database of 100+ recordkeepers and includes 400 data points covering recordkeeping, compliance, technology, communication, and investment services. The report features side-by-side comparisons of both costs and services to isolate differences in total plan costs, net recordkeeping costs, net investment management costs, investment quality rankings and service differentiators.

For more information regarding your retirement plan, please contact your financial professional at EisnerAmper Wealth Management & Corporate Benefits.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

Investment News Features Marc Scudillo

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Investment News Features Marc Scudillo

In a recent article in Investment News—”The Gates divorce: Lessons for financial advisers”—Marc Scudillo weighed in on the issue of how advisers should prepare for divorce between high-net worth couples.

From the article:

The Melinda and Bill Gates divorce will mark one of the largest division of assets by a couple at an estimated $146 billion, according to the Bloomberg Billionaires Index. The split of the Gateses’ assets falls just behind the approximate $157 billion breakup of Amazon.com Inc.’s Jeff Bezos and MacKenzie Scott.

While advisers’ married clients won’t be billionaires on the scale of the Gateses or Bezoses, there are common threads for all families going through a divorce: the need for privacy and the opportunity to heal and move forward personally and financially.

Advisers should note that no matter how stable a relationship may seem, contingencies should be baked into estate and financial plans in case of divorce, especially for wealthy clients, experts say.

One of those experts was Marc Scudillo.

“The big takeaway: Divorces are emotional events, and advisers need to manage those emotions and help clients to focus on the strategies and tasks that will yield the best results for achieving their goals and their best financial life,” said Marc Scudillo, managing officer of EisnerAmper Wealth Management and Corporate Benefits.

DIVISION OF ASSETS

“For many divorcing couples, the challenge is not so much the process of splitting the assets but determining how they are to be split between the two parties,” Scudillo said. “It can be especially difficult in a case like the Gateses, whose assets will include billions worth of Microsoft stock and hundreds of millions in real estate, in addition to collectibles like cars, books and artwork, and holding companies.”

“Updated valuations for each asset will be needed, followed by the paperwork and filings to appropriately split the assets in accordance with the final divorce decree,” he said. “There will also be significant time devoted to follow-up and providing information and guidance during the process to ensure that everything is done accurately.”

Read the entire article here:

https://www.investmentnews.com/the-gates-divorce-lessons-for-financial-advisers-206165

EisnerAmperWMCB On Yahoo News: When It Comes to Investing, Boring Is Better

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EisnerAmperWMCB On Yahoo News: When It Comes to Investing, Boring Is Better

 

Marc Scudillo was recently featured on Yahoo News, AOL.com and GoBankingRates.

“Many investors look for the thrill in the investment process,” said Marc Scudillo, managing officer of EisnerAmper Wealth Management and Corporate Benefits LLC. “However, the gambler mindset is not an appropriate mindset for accumulating wealth in the long term.”

Scudillo and other financial pros agree that when it comes to investing, “boring” may be better.

“Sticking with a consistent investment game plan will yield the best results, even though it may not appear a flashy strategy,” Scudillo said. “This is proven best in many retirement plans. Retirement plans have long track records and studies have shown that those participants that have utilized the asset allocation programs have fared much better than those ‘do-it-yourself’ retirement plan participants. Why? Because most of those who do it themselves follow the trends or the investment choice that had the best performing statistics. A pattern of continually chasing past performance trends will lead to lower performance and higher risk.”

 

Read the original articles here:

https://news.yahoo.com/why-boring-may-better-comes-180011842.html

https://www.aol.com/finance/why-boring-may-better-comes-180011316.html

https://www.gobankingrates.com/investing/strategy/why-boring-may-be-better-when-it-comes-to-investing/

 

Generational Influences and Behavioral Finance

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Generational Influences and Behavioral Finance

Understanding generational attitudes toward investing and the cognitive biases that can lead participants astray is key to helping employees of all ages improve their financial wellness and prepare for a secure and successful retirement.

Boomers

Baby Boomers may be inclined to drop cognitive anchors based on early information that cements their opinions. Unfortunately, when anchoring reference points are arbitrary or uninformed, Boomers may find themselves overconfident in financial decisions that fail to serve them over the long term. And if these decisions lead them to take on excessive risk, the results could be disastrous as
they approach retirement. Financial professionals can help Boomers avoid the anchoring bias and take a more objective approach to investing by using financial wellness assessment data to direct them toward individualized financial wellness resources to improve financial
decision-making.

Generation X

Independent and self-reliant, this cohort came into adulthood as the first generation with a world (wide web) of information at their fingertips. However, Gen Xers may allow current events or recent experiences to have an outsized influence on their financial decisions and reinforce established perceptions — this is known as the recency bias. They may, for example, be tempted to make impulsive investing decisions during or immediately following volatile markets, without fully considering whether current conditions are likely to be short-term. The recency bias can also lead some Gen X-ers to take on bigger risks in bull markets, believing that recent gains will likely persist indefinitely. In this instance, financial professionals can help such individuals step back and take a broader historical view of markets, examine economic fundamentals, reassess personal risk tolerance and review investment goals.

Millennials

FOMO — or fear of missing out — can be top of mind for some millennials. And this can translate into a herding bias when it comes to their investments and the risk of jumping off a financial cliff by following the herd chasing the latest speculative investment trend. Financial professionals can help millennials fight FOMO by encouraging them to focus on investing fundamentals and creating a financial decision-making process that promotes long-term strategic thinking and prudent investing behaviors.

Gen Z

Gen Z values the control that knowledge and information gives them, having literally grown up knowing how to search for it online. As a result, they may be less reliant on more conventional learning settings and modalities. They came of age during a period of economic turmoil and (somewhat surprisingly) often value the stability of a traditional job over freelancing. And these young adults already recognize the importance of regular saving and investing. Time will tell whether this pragmatic and analytical tendency will turn out to be an asset for their financial decision-making over the long term. In the meantime, financial professionals can help Gen Z-ers take advantage of the benefits of investing early — and hopefully they’ll be less susceptible to retirement challenges in the future.

Bottom Line

Even though there are generational components to behavioral finance, every employee is unique in their beliefs, attitudes and goals. An individualized assessment platform helps financial professionals tailor solutions to all employee needs, no matter their age or level of investment experience.

Sources

https://www.schwabassetmanagement.com/content/why-behavioral-finance-is-important-todays-market-environment
https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/true-gen-generation-z-and-its-implications-for-companies

Measuring Financial Wellness

Establishing financial wellness metrics has become increasingly important over the last year. The COVID-19 pandemic has created economic hardships for many American families, depleting emergency funds for some and forcing others to take on additional debt to cover necessary expenses. At work, the resulting stress can lead to increased absenteeism, decreased productivity and greater health care costs for plan sponsors.

Helping employees improve financial wellness is key to mitigating a number of these risks. A 2019 EBRI survey found top reasons organizations provide financial wellness programming include: enhanced satisfaction (46%), reduced financial stress (42%), increased retention (35%) and improved utilization of employer benefits (35%). But in order to tell if what they’re doing is making a meaningful impact, organizations need appropriate metrics to gauge the extent to which their financial wellness program is meeting both company and employee objectives.

Two Types of Financial Wellness Metrics

To assess the effectiveness of a financial wellness program, appropriate metrics tailored to program goals should be established for both individual participants and the organization as a whole.

Individual Measures. An assessment of financial wellness should not begin and end with a participant’s 401(k) contribution rate — and according to the Retirement Advisor Council, it should be done periodically. A Financial Health Assessment could look at a wide cross section of financial behaviors above and beyond retirement planning, including: emergency savings, budgeting, asset protection, estate planning and debt management. Employees are encouraged to take the assessment periodically to monitor progress.

Organizational Measures. These can include company-wide retirement plan participation rates as well as various program engagement measures such as web portal activity, webinar enrollment and registration for group and one-on-one consultations. Aggregate quantitative participant data allows plan sponsors to determine the efficacy of financial wellness programming on a broader scale. According to the Society for Human Resource Management, complementary qualitative data can also be readily obtained through informal surveys, employee focus groups and exit interviews.

Utilizing Financial Wellness Data

More important than merely collecting financial wellness data, however, is using it to benefit workers — and the organization. Upon

completion of a financial assessment, a participant’s overall score is broken down into four components based on employee reports of their needs and goals: retirement readiness, protection planning, personal finance behaviors and investment planning.

Armed with this information, financial professionals can develop a customized action plan based on identified priorities. Resources tailored to a participant’s financial wellness assessment might include group workshops, one-on-one meetings and online educational materials. Aggregate employee data can help sponsors more effectively evaluate their program’s efficacy, utilization and ROI.

As areas of concern are identified, additional resources should continually be developed and deployed to address them.

 

Sources

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/take-steps-to-measure-and-enhance-financial-wellness-success.aspx

https://www.ebri.org/docs/default-source/fast-facts/ff-338-fwrc2019-10oct19.pdf?sfvrsn=cbe03c2f_8

https://www.plansponsor.com/measuring-success-financial-wellness-programs/

https://www.retirementadvisor.us/pdf/Research_Rpt_Employee_Engagement_R5.pdf

ERISA requires employers to retain certain documents. These records are critical if your plan were ever to be challenged by the IRS, DOL or plan participants.

 

 

 

We recommend saving the following in some type of fiduciary briefcase:

  • Agendas
  • Fiduciary Investment Reviews
  • Meeting Minutes
  • Plan Governance Documents (such as):
    • Board Resolutions
    • Charters
    • Acceptance/Resignations
  • Plan Reviews
  • Educational Materials

 

In addition, we recommend that you include other important documents for future retrieval such as:

  • Plan Documents
  • Amendments
  • SPDs
  • SMMs
  • Plan Policies
  • Participant Educational Materials
  • Third Party Contracts

Develop a system to make it easy for you to review, update, preserve and properly dispose of documents. If you are ever challenged, an organized system can mean the difference between a quick minimal dispute or a lengthy, drawn-out costly battle.

For more information regarding your retirement plan, please contact your financial professional at EisnerAmper Wealth Management & Corporate Benefits.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827

ERISA 3(21) and 3(38) Fiduciary Services for Retirement Plans

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ERISA 3(21) and 3(38) Fiduciary Services for Retirement Plans

Business owners have a lot of responsibilities. One of the most nebulous may be their fiduciary responsibility for the selection of investment options within their company’s qualified retirement plan. While the Employee Retirement Income Security Act of 1974 (ERISA) guidelines identify two different types of investment fiduciaries in sections 3(21) and 3(38), it is often difficult for plan sponsors to determine which option is the best fit for their unique situation.

Many business owners find that it is in their best interests to partner with a retirement professional who can provide assistance with a variety of plan- and participant-related activities, including administration, education and general consultative services. Some plan sponsors feel confident enough to make fiduciary investment decisions without assistance. But it is not uncommon for a sponsor to feel uncomfortable with bearing these responsibilities alone, and to wish to transfer some or all of the related liability to a qualified investment professional. However, it is important to first understand the differences between the 3(21) and 3(38) fiduciary assistance that is available from financial professionals.

Below are three common fiduciary roles as they relate to investment selection. As listed, they progressively lower plan sponsor involvement and responsibility, while increasing the level of engagement of the financial professional.

  • No Assistance – In this scenario, the plan sponsor makes the selection of investment options to include in the plan without outside help. The plan sponsor acts as sole 3(21) investment fiduciary to the plan and takes on full liability for the investment options chosen.
  •  3(21) Co-fiduciary – A business owner may choose to hire a registered investment adviser (RIA) to provide plan investment advice (among other potential plan services). In this type of arrangement, the adviser shares fiduciary responsibility with the plan sponsor, and may provide investment analysis, assistance with the development of an investment policy statement or other means of selecting appropriate investment options. However, it is ultimately the plan sponsor’s decision as to which investment options to include in the plan. It is important to note that this type of arrangement does not remove a plan sponsor’s fiduciary responsibility or liability for the selection and monitoring of investment options.
  • 3(38) Investment Manager – The business owner may opt to hire an RIA to act as a 3(38)-investment manager. This gives the adviser the authority to select and replace investment options in the plan at their discretion, with or without consulting with or receiving the approval of the plan sponsor. With this type of agreement, the plan sponsor transfers responsibility and accountability for the selection of the plan investment options to the RIA, but the plan sponsor retains responsibility for selecting and monitoring the 3(38)-investment manager.

The role of the plan sponsor is critical to a retirement plan’s success. Selection of the investment options is very important, both in its relation to participants’ ultimate ability to properly prepare for their retirement, and because it helps employers manage their liability. It is paramount that business owners recognize the significant differences between the above roles. Your EisnerAmper Wealth Management & Corporate Benefits financial professional stands ready to discuss your situation, address your concerns and help you choose the right solution for your retirement plan needs

For more information regarding your retirement plan, please contact your financial professional at EisnerAmper Wealth Management & Corporate Benefits.

Michael Abate, AIF®, CRPS®
Corporate Retirement Plan Specialist
mabate@eawmcb.com
Direct: 908.595.6436
Cell: 917.613.5827