Fiduciary Is Fun!
(a.k.a. I heart taxes)
(a.k.a. I heart taxes)
I am knee deep in scheduling and conducting 2nd quarter plan reviews with my 401k clients. And what a 2nd quarter is was! The end of the first quarter we were just hitting the bottom of the market, hope was in the air that COVID-19 would soon be behind us, and Congress was getting busy with stimulus and relief packages, particularly the CARES Act. How did all this play out?
There will certainly be much written and researched about our current times in the years to come, but we are already able to see some interesting outcomes. The Secure Retirement Institute just completed some research that showed American workers who lost their jobs or experienced a drop in income due to COVID-19 were at least twice as likely to take money from their retirement accounts as those who were not impacted. It's a fact that you can’t choose whether or not you will be hit by a pandemic, but you can choose how you react.
However, not everyone who was affected tapped into their retirement savings in the 2nd quarter. In fact, one group in the survey left their retirement accounts virtually untapped. Who were these people? The ones who had emergency savings set aside, particularly those who had set aside a year’s worth of expenses. I would term these people “super savers’ to be able to have an entire year’s worth of expenses set aside, but beyond these folks, there is certainly room for improvement by others.
26% of workers acknowledged that they had less than 1 month’s worth of savings to cover expenses, and 48% report having only enough emergency savings to cover 3 months or less. We need to help employees do better! Tapping retirement savings to “get through today” has devastating effects on long term retirement preparedness.
What would be the easiest way to help employees prepare an Emergency Savings reserve? The same way we help employees save for their retirement – through workplace deduction. Having money deposited into an account that would serve employees in an emergency is the simplest and easiest way to help employees prepare for their next financial challenge.
If you are an employer who would like to learn more about how to help your employees set up and manage Emergency Accounts to better prepare them, please give me a call at your convenience. I would love to show you how easy this can be.
Pete Welsh a/k/a 401kGuy
It’s that time of year where 401k plans need to be audited if they have more than 100 participants/employees. If you are such a company, you probably have someone in HR or Finance working with your plan’s recordkeeper or custodian to assist the auditor in performance of its duties. Maybe you even think that because your plan is audited that everything with the plan, including expenses, must be ok. After all, it’s being audited.
Well, you are probably incorrect. As a CPA, I wanted to write to clarify a few items around the annual Retirement Plan Audit as many people believe it does things it doesn’t do. This whole topic is top of mind at the moment because I am working with a prospect who has its plan audited. When we discussed the fees, the CFO actually referenced the audit indicating that the auditor documented $610 in fees for the plan. It was right there on the audit report. This is for a plan with over 130 employees. Sound too good to be true? It is.
Upon further digging, we found the advisor was being paid over $20,000. The recordkeeper, an insurance company, was receiving over $35,000, and yet the auditor signed off on the fees as being $610. How in the world can there be this much of a disconnect?
It’s important to understand what the audit is intended to do. According to the American Institute of Certified Public Accountants (“AICPA”) the purpose of the audit is to gain assurance that the financial statements as a whole are free from material misrepresentations. Moreover, in a Limited Scope Audit, which is almost all audits, the auditor does not audit certified investment information from an insurance company, bank, or trust company. It is in this area where the disconnect exists.
In my example above, the insurance company certified that only $610 were actual administrative expenses charged to the plan despite the fact that the plan had paid over $55,000 in additional fees! However, because the insurance company certified $610, the auditor put down $610 on the audit report and my CFO thought those were the expenses. Apparently, the auditor did not consider the extra $55,000 material to the financial statements and/or simply relied on the insurance company’s representation that $610 is all they needed to be concerned about.
Regardless of what the auditor was thinking, the above result is not good! $55,000 in fees IS MATERIAL. It may not be material to the financial statements themselves, but it is material to the employees in the plan who are saving for retirement. I’m not going to say if such a fee is prima facia excessive, that all depends upon what the employer is getting for those fees. What I am saying is that everyone should at least know what those fees are for so the right questions can be asked.
If you are an employer subject to a 401k plan audit, you may have a great auditor. However, a good auditor alone is not sufficient to provide assurance that your fees are reasonable and that you are getting appropriate services. For those answers, you need to speak with a retirement plan expert, like me.
Please give me a call. I would love to visit with you.
Pete Welsh a/k/a 401Guy