Summer is here and it’s a hot, hot, hot one! Take a few moments to enjoy your air-conditioned office and conduct a “check-up” on your personal retirement account using the retirement plan check-up guide on page 5. An employee-facing version of the retirement plan check-up is included as an attached PDF and we encourage you to share this with your office.
This issue of “Advice at a Higher Level” is all about retirement plan health and addressing common issues that arise related to former employee accounts and distributions. We provide best practices for helping prevent uncashed retirement distribution checks and outline the potential “Pros” and “Cons” to forcing out former participants.
Cable Hill Partners continues to grow, and we’re excited to introduce Mandy Peterson as our newest Client Service Associate. Check out page 6 to learn more about how Mandy and the rest of your Cable Hill Partners Retirement Team are beating the heat this summer.
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.
Past performance does not guarantee future results.
Please note that all investments are subject to market and other risk factors, which could result in loss of principal. Fixed income securities carry interest rate risk. As interest rates rise, bond prices usually fall, and vice versa.
Search efforts to locate a missing plan participant consume time and money and may fail to locate the participant. Likewise, going through the process of turning over dormant accounts to the state can also consume time and resources.
Decrease the burden of uncashed checks by:
Discussing with terminating employees during the exit interview the options for their retirement plan. Employees may forget they have a company-sponsored retirement plan, or don’t know how to manage it.
Reminding departing employees that they can roll over their retirement assets into their new employer’s plan. Your plan’s service provider or the new employer can answer questions the former employee may have about the rollover process.
Letting employees with an account balance of $1,000 or less know they should expect to receive a check in the mail after a certain amount of time.
Having the employee verify their current address to where the check can be sent.
Remember, fiduciary responsibility and liability extends to terminated employees with assets in the plan. This responsibility includes delivery of all required distributions and all fiduciary prudence responsibilities. Stay in touch with this important group.
Pretax and Roth retirement account contributions, along with HSAs, are three common ways that many employees can save for health care expenses in retirement. It’s important to consider the advantages of each.
The old mantra of offering a competitive benefits package to “recruit, retain, and reward” needs updating. With an emphasis on financial wellness and health care flexibility, the “three R’s” should now shift to “recruit, retain, and retire.”
Depending on your organization’s size, offering an HSA could be seen as a differentiator, or merely table stakes, versus your competition.
87% of jumbo employers,
72% of large employers, and
34% of small employers
…plan to offer HSAs by 2019.3
HSAs can support retention efforts for key employee demographics (e.g., healthy millennials who prefer the ability to save for their own health care expenses and executives who appreciate an HSA’s “triple-tax” advantage).
Comprehensive benefits all add up to providing employees with financial support that allows them to retire when they want to rather than when they have to.
64% of employees think health care costs will impact their retirement.5
HSAs may help you bring value to your employees. We suggest that you:
HSAs may make sense for certain employers, especially since the average cost of an HSA-eligible plan is 22% LESS than a traditional PPO.
Assuming consistency with the plan document, there is no expanded fiduciary liability in forcing former employees out of the plan, as this is an allowable plan provision. As to whether cashing participants out is preferable to keeping them in, that depends on benefit to the plan or benefit to the participants.
An example would be if the plan is of significant size to have competitive expenses and access to sufficiently diverse investments including appropriately selected TDFs, it should typically benefit most participants to remain in the plan from an investment perspective.
From the viewpoint of the plan, if participants leaving the plan leave it in a less competitive pricing structure, it would benefit the plan to keep them in. Since these are low account balances, this is unlikely to be the case.
There are potential positives and negatives for both plan and participant interests, therefore it is best determined on a case-specific basis, but most typically it benefits the plan to cash out low account balances. This is because if assets remain in the plan, the plan fiduciaries remain responsible for all prudence requirements including distributions to terminated participants. So, small account balances can be an inconvenience to the plan and fiduciaries.
It’s important for you and your participants to conduct regular check-ups on your retirement plan to make sure you are on track to reach your retirement goals. Below are a few questions to ask yourself, at least annually, to see if (and how) they affect your retirement planning.
Did you receive a raise or inheritance?
If yes, consider increasing your retirement contributions.
Did you get married or divorced?
If yes, you may need to update your retirement account beneficiaries.
Are you contributing the maximum allowed by the IRS?
In 2018 you can contribute up to $18,500, or $24,500 if you’re age 50 or older (401k plans).
Did you change jobs and still have retirement money with your previous employer?
You may be able to consolidate your assets with your current plan (contact retirement plan advising team member Shelby Gatewood with Cable Hill Partners for more details).
What do you want your retirement to look like? Do you want to travel? Will retirement be an opportunity to turn a hobby into a part-time business? Will you enjoy simple or extravagant entertainment?
Take time to map out your specific goals for retirement. Participants that set a retirement goal today, felt more confident about having a financially independent retirement down the road.
Understanding how comfortable you are with investment risk can help you determine what kind of allocation strategy makes the most sense for you. Remember, over time, and as your life changes, so will your risk tolerance.
Using asset allocation as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.
If you have questions about your retirement plan or are unsure of how to go about saving for retirement, ask for help. Your Cable Hill Partners Retirement Plan Advising Team can help you evaluate your progress with your retirement goals, determine how much you should be saving and help you decide which investment choices may be suitable for you.
"IT’S A SURE SIGN OF SUMMER IF THE CHAIR GETS UP WHEN YOU DO."
During these hot days, Shelby and her dogs stay cool by walking down to her neighborhood Sellwood Park and go for a quick swim in the Willamette river. Nothing better than an innertube, sandals and wet dogs!
Zach’s summer heat solutions center around finding an air-conditioning system. Before his current apartment (which has A/C), Zach and his spouse built a home-made air conditioning contraption using a Styrofoam cooler, scissors, a fan, and a block of ice.
On hot summer weekends Mandy heads to the mountains to experience the cool air and the summer breeze. After a hike to one of the spectacular mountain lakes, she wades in the crisp water to cool down before heading back down the trail.
The opinions expressed in this commentary are those of the author. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results. All investments involve varying levels and types of risks. These risks can be associated with the specific investment, or with the marketplace as a whole. Loss of principal is possible. Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The “Retirement Times” is published monthly by Retirement Plan Advisory Group’s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent.
© 2018. Retirement Plan Advisory Group.