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

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/

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

Visit us at: www.eisneramperwmcb.com AND LinkedIn

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

Visit us at: www.eisneramperwmcb.com AND LinkedIn

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

Visit us at: www.eisneramperwmcb.com AND LinkedIn

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

Visit us at: www.eisneramperwmcb.com AND LinkedIn

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

Visit us at: www.eisneramperwmcb.com AND LinkedIn

Plan sponsors and retirement plan committees are likely to encounter a myriad of industry-related naming devices and designations. It is important that they understand what each means in terms of definition, background, and practical impact/importance to the plan, the plan’s fiduciaries, and the plan’s participants.

ERISA Definitions

For instance, a number of ERISA sections are commonly used by plan service providers.  ERISA stands for the Employee Retirement Income Security Act of 1974 and provides not only the rules that govern, in part, retirement plans, but definitions as well.  The following definitions are commonly used by service providers within the industry:

ERISA Section 3(21) Fiduciary Advisor

A 3(21) investment fiduciary is a paid professional who provides investment recommendations to the plan sponsor/trustee or plan participant, alternate payee or beneficiary. The plan recipient of the recommendation retains ultimate decision-making authority for the investments and may accept or reject the recommendations. Both share the fiduciary responsibility and are held to the same standard of care under ERISA.

ERISA Section 3(38) Fiduciary Advisor (Investment Manager)

A 3(38) investment manager takes on the full responsibility of managing the investment lineup and has discretion to make necessary changes. In doing so, the 3(38) Investment Manager takes on the primary fiduciary responsibility for investment decisions. But the plan’s named fiduciary (or its delegate(s)) retain the fiduciary responsibility for the selection and ongoing monitoring of the 3(38) investment manager. ERISA identifies the 3(38) advisor as an investment manager.

ERISA Section 3 (16) Fiduciary

A 3(16) fiduciary, as used by service providers, is typically an organization that takes fiduciary responsibility for the administration of a retirement plan. A 3(16) fiduciary partner acts as a plan administrator for some, or all depending on the engagement, of the plan’s administration and expressly accepts certain fiduciary responsibilities for doing so. It is important to review the 3(16) contract to ensure they accept the fiduciary responsibilities you are interested in delegating. And the plan sponsor still retains the fiduciary responsibilities of prudently selecting and monitoring the 3(16) fiduciary.

Financial Industry Designations

In addition to the above ERISA-defined fiduciary roles it is common for individual representatives of retirement industry service providers to carry certain financial designations.  These designations represent a broad spectrum of time commitment and education in addition to having different focuses in terms of industry-related expertise. The following are some of the more broadly utilized designations in the retirement industry (in no particular order):

CFA® – Chartered Financial Analyst®

The Chartered Financial Analyst® or CFA® designation is an internationally recognized certification issued by the CFA Institute. It is earned by completing an arduous self-study program and three separate 6-hour exams increasing in difficulty over several years. These studies typically take about 700-950 hours to complete, and then a CFA® charterholder must complete four years of relevant work experience.

A CFA® charterholder is educated and tested on a wide array of topics including investments, statistics, and statistical analysis, along with economics, financial modeling, and corporate finance. A CFA® charterholder must also follow all prescribed ethical guidelines.

Someone with this designation often works in the corporate investing field and provides a high level of investment counsel, working with clients on investment and financial analysis.

CIMA® – Certified Investment Management Analyst

The Certified Investment Management Analyst or CIMA certification indicates an advisor with skills in evaluating investment managers and others who provide financial products and services. A CIMA professional can consult with clients by helping to determine what products and investments are in their best interest.

A CIMA designation indicates knowledge and interest surrounding investments, portfolio management, behavioral finance, and economics focusing on asset allocation and investment consulting. A CIMA professional typically advises high net worth companies or individuals, assessing risk and making decisions for the individual or entity it serves.

CFP – Certified Financial Planner

A Certified Financial Planner certification (CFP) indicates that the financial planner has significant expertise in personal financial planning, portfolio management, budgeting, estate planning, and taxes. Financial planners are typically work with individuals to build a financial plan. There is also an ethical component to the certification process, in that each CFP professional must meet ethical fitness standards and agree to always put the client’s needs first.

ChFC – Chartered Financial Consultant

The Chartered Financial Consultant (ChFC) certification is similar to the CFP but doesn’t require completing a board exam. The ChFC certification focuses on all aspects of financial planning like investments, tax, estate planning, and insurance.

A ChFC professional typically works on comprehensive financial planning and consulting like employee benefits planning, asset protection, and tax planning, estate tax, transfer tax, and gift tax.

A financial advisor’s certifications indicate their expertise, specialties, and interests. Be sure to inquire about their clientele in order to determine if they have experience and expertise dealing with plans like yours in terms of size, complexity, and breadth of services you require.  It’s also important to understand how an advisor is compensated.

WFH (Wellness From Home) Challenges Both Participants and Plan Sponsors

COVID-19 has posed a duel set of related challenges for plan sponsors and participants. For employees, the pandemic has pitted more immediate financial needs against prioritizing planned savings — and shifted the traditional focus of employee-sponsored financial wellness programs from the future to the present. And sponsors face the difficulty of effectively engaging remote workers showing increased demand for financial wellness programs. Prudential’s 2020 Plan Sponsor Pulse Survey data shows 72% of sponsors reporting greater utilization, with 28% indicating a significant increase.

With that in mind, plan sponsors can use several strategies to help weary workers engage with the organization’s financial wellness program — no matter where they are.

Bite-size is better. Gear your educational content toward shorter, more focused personal finance topics. Modular programming will help accommodate the many interruptions and divided attention that’s increasingly common among remote workers.

Make it fun. Presentations don’t have to be “Dancing With The Stars” production numbers, but take steps to keep the subject matter fresh and engaging to compete with 9 to 5+ computer time. Use gamification to counteract screen fatigue. If employees can earn points, digital badges, certificates or rewards, they may be more apt to tune in and participate.

Gentle reminders. You used to post notices about educational events on the company bulletin board that remote workers no longer see. Email reminders and text notifications can help keep those working from home in the loop — be sure, however, to ask employees about their contact preferences, and don’t blow up their inbox or cell phone.

Diversify. Diversify. Diversify. Useful for more than just investing, format diversification helps accommodate the different ways people like to learn. Some may digest written content better. For others, an infographic or video is more effective. Use analytics to track usage and see what’s preferred. Why not create a financial wellness podcast that employees can listen to during their treadmill workout?

Track down the tech averse. You may have a segment of your employee population who showed up reliably for one-on-one meetings and live events to receive information, but haven’t logged in for a single webinar. You don’t want these folks to fall through the cracks now. Consider phone calls and even snail mail reminders to make sure they don’t disconnect.

Rethink programming. You may want to shift content toward more immediate participant concerns such as debt management, emergency savings, budgeting or any other areas of interest identified. Track engagement with your wellness program and double down on the topics and tactics that perform best.

Remote work has challenged traditional financial wellness programming delivery methods, but it’s also an opportunity to reach an audience with a newfound interest in new ways. Take advantage of their attention while you have it.

Sources

https://news.prudential.com/content/1209/files/2020PSPulseSurveyCovid19.pdf

https://news.gallup.com/poll/321800/covid-remote-work-update.aspx

https://www.pewresearch.org/social-trends/2020/12/09/how-the-coronavirus-outbreak-has-and-hasnt-changed-the-way-americans-work/

Five Tactics to Increase Retirement Plan Participation

Employees fail to enroll in their retirement plan for a variety of reasons. They may be intimidated if it’s their first time around or they might not fully understand and appreciate the benefits (or the downside of not participating). Some could be concerned about “locking up” their money — and others might worry so much about making the “wrong” investment decision that they procrastinate making any decision at all.

As a plan sponsor, you know the advantages of offering a retirement plan for you, including: employee recruitment, increased retention, reduced worker stress, higher productivity and tax benefits. Higher participation and contribution rates can also reduce the chance the plan will fail discrimination testing and be subject to financial consequences if needed corrections aren’t made on time.

But the key to unlocking all the retirement plan benefits for both you and your employees is not simply having a plan, but making sure that enough workers actually use it. Here are 5 things you can do to grow your participant ranks.

1. Enroll everyone. A recent Vanguard survey of 8,900 small business retirement plans found a dramatic effect of automatic enrollment on employee participation rates: 83% with automatic enrollment versus 58% without. And if you need more convincing, Vanguard’s How America Saves 2019 Report found that contribution rates were also higher in automatic-enrollment plans versus voluntary plans: 7.1% to 6.7%.

2. Offer a Roth. For employees who want to enjoy tax-free income in retirement, providing a Roth option may motivate enrollment. And with no income cap, this move may also be appreciated by highly-compensated employees who earn too much to qualify for a Roth IRA. Additionally, you may tempt younger workers with a longer timeline to retirement who want to take advantage of the lower tax rate they’re paying now as opposed to what they believe they might face later on.

3. Go multimedia. Offer retirement plan information to participants across a variety of modalities. Some may prefer in-person meetings, while others would rather watch a YouTube-style video at their leisure. And still others might prefer scribbling notes in the margins of a pamphlet. Provide education about retirement plan benefits in a way that’s accessible for everyone, no matter their degree of financial sophistication. Answer questions in short- and long-form, at basic and more advanced levels — and in as many media formats as possible.

4. Simplify. Simplify. Simplify. It should be easy and straightforward for participants to sign up or make changes to their retirement plan elections or contributions. Changes should only take a few clicks, whether from a laptop, mobile phone or tablet. Optimize a seamless web experience for each platform.

5. Why wait? Shorter waiting periods allow new employees to start a saving habit straight out of the gate. It can also be an attractive feature when recruiting seasoned candidates who don’t want to interrupt their retirement savings. So, consider shortening — or even eliminating — waiting periods altogether. Want to take the notion of instant gratification one step further? Consider allowing immediate vesting, which can help make your organization more competitive to draw top talent and further encourage participation in the plan.

Sources

https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvComHASsmallBusinessInsights

https://pressroom.vanguard.com/nonindexed/Research-How-America-Saves-2019-Report.pdf

https://scholar.harvard.edu/files/laibson/files/plan_design_and_401k_savings_outcomes.pdf

https://hbr.org/2020/10/employers-need-to-reinvent-retirement-savings-match

https://www.psca.org/PR_2020_63rdReport

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

Visit us at: www.eisneramperwmcb.com AND LinkedIn

Your Investment Policy Statement is Important to Us

The template Investment Policy Statement (IPS) is crafted by a team of ERISA attorneys and investment professionals. Throughout the years, our organization receives myriad versions of the template IPS as edited by a vast number of clients’ in-house counsel as well as ERISA counsel. The ERISA team takes the best of the ideas and incorporates them into a revised IPS template. In essence the template IPS is the product of hundreds of ERISA attorneys whose input is all taken into consideration.
In regard to the language of the template IPS, it is drafted to be neither too constrictive nor overly vague. An overly vague IPS leaves the reader with no understanding as to what process fiduciaries follow. In that scenario, the IPS does not help protect the fiduciary by creating evidence of a roadmap of a prudent process. Conversely, an overly constrictive IPS can cause an unwary fiduciary to accidentally run afoul of its terms. The template IPS is crafted to avoid using words like “must” throughout its provisions to avoid such a scenario.
If you have specific questions regarding verbiage, our ERISA team is happy to address them. Forward your inquiries to your financial professional.

401(k) Plan Tax Credit Summary

Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan (like a 401(k) plan.) A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis.
If you qualify, you may claim the credit using Form 8881 PDF, Credit for Small Employer Pension Plan Startup Costs.

Eligible employers

You qualify to claim this credit if:

• You had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year;
• You had at least one plan participant who was a non-highly compensated employee (NHCE); and
• In the three tax years before the first year you’re eligible for the credit, your employees weren’t substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

Amount of the credit

The credit is 50% of your eligible startup costs, up to the greater of:

• $500; or
• The lesser of:
  • $250 multiplied by the number of NHCEs who are eligible to participate in the plan, or
  • $5,000.

Eligible startup costs

You may claim the credit for ordinary and necessary costs to:

• Set up and administer the plan, and
• Educate your employees about the plan.

Eligible tax years

You can claim the credit for each of the first three years of the plan and may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.

No deduction allowed

You can’t both deduct the startup costs and claim the credit for the same expenses. You aren’t required to claim the allowable credit.

Auto-enrollment Tax Credit
An eligible employer that adds an auto-enrollment feature to their plan can claim a tax credit of $500 per year for a three-year taxable period beginning with the first taxable year the employer includes the auto-enrollment feature.

Retirement Plan Committee Activities

A retirement plan committee consists of co-fiduciaries who are responsible for all plan management activities that have been delegated to them by their plan’s named fiduciary.
ERISA states that the committee must act exclusively in the best interests of plan participants, beneficiaries and alternate payees as they manage their plan’s administrative and management functions. Many committees meet regularly in order to have sufficient opportunity to deal with the myriad of fiduciary functions.
All fiduciary level decisions must employ ERISA’s procedural prudence which includes documented expertise on the topic being considered and periodic review to ensure the decision remains prudent. In terms of investment selection and monitoring, qualitative and quantitative considerations should be included in the decision making process. Quantitative issues involve performance metrics and price, while qualitative issues involve the management approach, process, personnel and more. Due to the importance to both participants and plan fiduciaries, the committee must ensure that the plan’s qualified default investment alternative reflects the needs and risk tolerance of the participant demographic.
As there are many other important activities for committees, it makes sense to establish an annual calendar of topics to consider at upcoming meetings. Agenda items may include: plan goal setting & review, fiduciary investment review, fiduciary
education/documentation, participant demographics/retirement readiness, fee reasonableness & structure, plan design analysis, TDF suitability, client advocacy, participant financial wellness, legal, regulatory & litigation activities, employee education, provider analysis, reporting and disclosure requirements. detailed minutes and documenting the processes for each of its decisions is also best practice for fiduciaries.
The Department of Labor [DOL] is now asking plan sponsors to provide documentation of a comprehensive and ongoing fiduciary training program for all plan fiduciaries.

Retirement is a whole new phase of life. You’ll experience many new things, and you’ll leave others behind – but what you won’t avoid is taxes. If you’ve followed the advice of retirement plan consultants, you’re probably saving in tax-advantaged retirement accounts. These types of accounts defer taxes until withdrawal, and you’ll probably withdraw funds in retirement. Also, you may have to pay taxes on other types of income – Social Security, pension payments, or salary from a part-time job. With that in mind, it makes sense for you to develop a retirement income strategy.
Consider when to start taking Social Security. The longer you wait to begin your benefits (up to age 70), the greater your benefits will be. Remember, though, that currently up to 85 percent of your Social Security income is considered taxable if
your income is over $34,000 each year.
Be cognizant of what tax bracket you fall into. You may be in a lower tax bracket in retirement, so you’ll want to monitor your income levels (Social Security, pensions, annuity payments) and any withdrawals to make sure you don’t take out so much that you get bumped into a higher bracket

Think about your withdrawal sequence. Generally speaking, you should take withdrawals in the following order:

• Start with your required minimum distributions (RMDs) from retirement accounts. You’re required to take these after all.
• Since you’re paying taxes on taxable accounts, make this the second fund you withdraw from.
• Withdraw from tax-deferred retirement accounts like IRAs, 401(k)s, or 403(b)s third. You’ll pay income tax on withdrawals, but do this before touching Roth accounts.
• Lastly, withdraw from tax-exempt retirement accounts like Roth IRAs or 401(k)s. Saving these accounts for last makes sense, as you can take withdrawals without tax penalties. These accounts can also be used for estate planning.

These factors are complex, and you may want to consult a tax professional to help you apply these tips to your own financial situation. You can test different strategies and see which ones can help you minimize the taxes you’ll pay on your savings and benefits.

For more information on retirement tax tips, contact your financial professional

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

Visit us at: www.eisneramperwmcb.com AND LinkedIn