Fiduciary Is Fun!
(a.k.a. I heart taxes)
(a.k.a. I heart taxes)
In the financial advisor world, we get numerous opportunities throughout the year to take a break, attend a conference, learn a few things, and recharge the batteries a bit. This week I had a chance to do just that, and was able to listen to a very impressive speaker discuss “Trust” – what is it, how do we earn it, and what’s it mean.
The speaker was Dr. Jeff Hancock, Professor of Communications at Stanford University and Director of Stanford’s Center for Computational Social Science. Suffice to say, he is a pretty bright guy, and what he does is study human psychology and the meaning of trust. I didn’t even know that was a thing until this week, but after listening to him, I am glad the we have someone like him.
Dr. Hancock’s work is even more important in a world where many of us are inundated regularly through digital information. A thousand years ago, “trust” was more or less limited to those in our small communities. Maybe we had to trust someone a town over, but that was it for most folks. Now we have to trust, or not trust, information from all over the world that is hitting us relentlessly all day. How do we deal with this?
In the most succinct way possible, Dr. Hancock distilled trust into this simple statement – “Trust is the confidence in one’s expectations.” Beautiful, right? If I have a high confidence in what I am hearing, seeing, reading, etc., then I trust it. He was discussing trust in general, but, of course, I couldn’t help relate this back to what I do – assist employers and employees with their retirement plan.
All this made me think about the trust employers and employees have in their own 401k plan, and can they “trust it.” The first step in such an analysis would naturally be what do they expect from it. Without expectations there can be no confidence, which means there can be no trust.
So I ask you, what are your expectations for your 401k plan? How much confidence do you have that those expectations will be met? If you are struggling at all with these two questions, then how can you trust your retirement plan? And if you are struggling with these questions, how much do your employees trust the company’s retirement plan?
I have a thought. A good place to begin building up trust in your plan is to sit down with a competent advisor to clearly understand what expectations you should have for your retirement plan. Once you begin building trust in your plan, you can help your employees build trust in the plan, which is really another way of saying you would help your employees build trust in their future. And isn’t that a good thing?
Need help beginning this journey? Give me a call, I would love to work with you…trust me!
Pete Welsh a/k/a 401kGuy
This is historically the time of year when employers begin to review their retirement plans on the off chance that changes should be made in anticipation of the new year. It’s a good time to do it, as there are multiple timelines that can work to limit an employer’s flexibility with respect to what can be changed as the year begins to expire. Modifying a Safe Harbor 401k plan is just one example.
It’s also the case that by this time of year an employer’s financial picture starts to come into clearer focus. Lots of unknowns in January and February, but by September and October a “good year” or a “bad year” is taking shape. Let’s talk about the Good Year.
Let’s suppose you are an employer who is expected to have a very good 2019 and you would like to give back to your employees for being a part of that success. You could do lots of things, of course. A cash bonus in January to everyone in the same amount is not unusual. However, let’s say you want to do something different, like make a profit sharing contribution to your retirement plan. The good news is that every 401k plan is also a profit sharing plan. Surprised? Well, it’s true.
The next question you might ask yourself if you do decide to make a profit sharing contribution is “how will it be allocated?” And that is a very good question! The answer as you might expect is that it depends. The most common way to do this is “pro rata based on compensation.” It’s pretty fair and the default for many plans. But let’s say that isn’t sitting well with you. Let’s say some employees contributed more to the year’s results than other. Let’s say you would like to reward those employees disproportionately because they deserve it. Can you do that? Well of course you can!
Profit sharing contributions can be very flexible. I counsel my clients all the time around the many different ways you can allocate a profit sharing contribution, but there are some things to know. First, however the allocation is made, it must be in writing, which means we need to amend the plan (probably) which means we need to do this before year end. And depending upon how the plan provides for the accrual of benefits, we might have even passed the date that changes can be made for this year.
How are you to know what your options are and if the plan can be modified to meet your business needs? You need to work with a plan design expert who can walk you through your options. You need to work with me! Please give me a call…before it’s too late!
Pete Welsh a/k/a 401kGuy
Are you worried about cyber-security breaches? You should be! It seems to be happening all around us all the time. There is almost no end to the number of bad guys that want our data, and when that data is attached to money, it is even more appealing.
And for every data breach, there are thousands of attempts that have been thwarted. The breaches are what make the headlines, but I can assure you that all financial services firms are getting hit hundreds, if not thousands of times A DAY by cyber crooks trying to break through. One common point of entry is stealing employee data and pretending the crook is the employee to gain access to the retirement account of the employee. 401k Recordkeepers deal with this on a daily basis.
I wanted to write today to bring to light a common practice in the administration of a 401k plan that might sneak up on many companies. It is often the case that companies are asked to approve distribution requests on behalf of terminated employees. These approval requests can come from either the recordkeeper or the TPA on the plan. Attached to these emails is generally a distribution form with the terminated employee’s information, including address, date of birth, and Social Security Number. Talk about a crook’s dream come true.
What is particularly sneaky about these requests is that even if the email goes to the employer encrypted, the employer doesn’t always send it back encrypted. This is a weakness and one of which employers should be aware.
Are you an employer who is approving distribution request from terminated employees? How about approving loans for existing employees? Hardship withdrawals? Doing all this over the email system with confidential employee data, are you? Don’t think the bad guys will ever find out?
There are several areas of potential security breaches when operating a retirement plan. If you are a company that would like to ensure you are doing what you can to protect your employees’ data, give me a call. I would love to walk you through a checklist to make sure you are being as careful as possible.
Pete Welsh a/k/a 401kGuy
Now few people are against making more money, so I am not going to suggest that making more is a bad thing. At almost any wage level, people generally lift their gaze to the next level up and begin to think what life would be like if only they were there. Fortunately, many people do move up the salary scale over the course of their careers and often hit peak earning years in their 50s.
However, one common misconception about earning more money is that money alone will result in less stress and financial worry. Some new research out from the Salary Finance suggests that this is just not the case. Salary Finance interviewed over 10,000 employees recently on a variety of Financial Fitness measures. The report is voluminous, and it isn’t possible to cover all the topics mentioned, but the idea that earning more relieves stress is so ingrained in our DNA, that I thought I would use some of the research here to debunk it.
We should start by saying that there is a level of earning below which extreme stress is omnipresent. If a person is earning below subsistence level, stress will be experienced. So let’s for argument sake not consider that low of a level of income. For Salary Finance, they interviewed people at all levels and found that 58% of individuals earning between $25-40k have financial worries. That probably doesn’t surprise any of us.
What was interesting is that 40% of the people earning between $160-200k also have financial worries. Wouldn’t you think the percentage should be much less for this higher income earning group? I bet if you asked someone making $30k if they would have financial stress if they were making $180k, for example, they would say Heck No! But yet, the stress is present to a surprising extent.
So if money alone does not reduce financial stress and worry, what does? It appears that the number one difference is that people with less stress are Planners, using the language of Salary Finance. What is a Planner? Well, it’s someone who lives within their means, has emergency savings on hand, and focuses on long-term financial goals. In short…a Planner!
If you are an employer who would like to help your employees move from Coping to Planning, and thereby maybe not think that you paying them more alone is going to solve their problems, give me a call. I would love to have a discussion about how we can improve the financial lives of your employees.
Pete Welsh a/k/a 401kGuy
I was meeting with a prospect last week and we were discussing his business and the current challenges of finding good talent. The business requires a number of technology savvy folks, although the actual business is not a “tech business” per se. Indianapolis has in recent years become a bit of tech hub as SalesForce has expanded here and is now one of the larger employers in the area. Suffice to say that if you are a young technology person, the idea of working for SalesForce or any one of the many start-up tech companies has a slightly greater appeal than working with my prospect.
We discussed ways in which we could address my prospect’s challenges, and one of the options that he has used in the past, and continues to use now, includes signing bonuses for the right talent. These bonuses are not six figure bonuses, of course, but they are generally several thousand dollars. He feels he needs to continue to strategically use these bonuses to compete against the more tech centric competition in town. However, one of the problems with these bonuses has been that employees that do come on board often don’t stay very long. Many move on after a year or two, which is obviously frustrating. Is there a better way, he asked? Well of course there is!
I mentioned to him that he could continue to keep signing bonuses part of his offering for key employees but instead of paying them out in cash, he could put them into the retirement plan and make them subject to a 5 or 6 year vesting schedule. He was surprised to hear that he could do that as he thought this might be discriminatory when in fact it is perfectly legit. Moreover, by putting these bonuses into the plan and making them subject to a vesting schedule, he and the employee avoid paying taxes on these contributions. He can even make the bonuses more generous because if the employees leave before fully vested, he can repurpose those forfeited dollars for other employees.
Was my prospect happy about this idea? Naturally he was. Is he a client yet? Not quite, but things are looking positive. If you are an employer looking to partner with an advisor who can think outside the box to help you with a business problem, give me a call. I would love to have a discussion!
Pete Welsh a/k/a 401kGuy
Here is what would seem like a simple question – What kind of college graduates do CPA firms hire? When I came out of college the answer was pretty simple – accounting graduates. Duh. Well, according to a new report (“Trends”) from the American Institute of Certified Public Accounts (“AICPA”), 31% of the new graduates in 2018 that public accounting firms hired were non-accounting majors. Almost 1 out of every 3 new hires was not an “accountant.” Does this surprise you?
These numbers are actually causing many in the CPA profession to reevaluate things, including the actual CPA exam itself – what it should look like, who can take it, etc. As a CPA, I have found these changes to our profession interesting. CPAs have always been on the leading edge of business changes as consultants and advisors to clients. However, as Barry Melancon, CPA President of the AICPA said of the Trends Report, “Increased demand for technology skills is shifting the accounting firm hiring model.” With more and more of the accounting profession becoming automated and technology focused, the old fashioned debit and credit skills are becoming less valuable on their own.
I suppose all of this makes sense when you think about it, but what has this shift required of accounting firms and their hiring practices? It’s caused them to think differently in many areas. The traditional career paths are changing. Incentive structures are changing. Work habits of these new non-accounting graduates are different. How is your business model changing and have you considered what these changes mean to your recruitment and staffing model?
All business models change. In fact, if the CPA profession can change as fast as it is doing, I am quite sure that almost every other business is changing as I type this. Are you a leader in your organization, and are you thinking about how your next new hire could be different from your last? Do you post positions simply to fill the same role of the prior person? Or are you thinking strategically about how your business is changing and adjusting accordingly?
I would suggest that a growing business needs to constantly be considering what it will look like and need 2 to 3 steps out. Part of that analysis should include your benefits program including your retirement plan(s). This could be both your qualified plan – 401k – and non-qualified plans. Just because you haven’t done something in the past is no reason not to consider it in the future.
If you want to have a discussion around the next generation of retirement plan and planning for your organization, please give me a call. I would love to talk to you about the unexpected.
Pete Welsh a/k/a 401kGuy
Employment/Unemployment is double edged, correct? Too much unemployment is bad for everyone; on that I presume we can all agree. But is too much employment bad as well? It’s not bad in the same way, of course, but I will put forth that it isn’t all good either.
I was with a client of mine last week and because of the nature of their business, they hire a meaningful number of seasonal workers at the end of summer and into the fall. The positions are relatively high paying for the work involved, and in the past they have never really had any issues filling the spots. This year they believe things will be different.
There is certainly a lot of data out there supporting my client’s concerns. The Unemployment Rate, according to the Department of Labor currently sits at 3.7%, and there were 7.3 million job openings on the last business day of June this year. That’s a lot of unfilled jobs! And all these opening can be distracting. CareerBuilder says that 32% of US employees plan to get a new job in 2019. According to the same research 29% of employees say they regularly search for new jobs and 78% say they are open to trying something new if the opportunity arises. I think it is fair to say that approximately 1/3rd of an employer’s work force is ready to jump ship on any particular day. What does this say about our work environments!
Moreover, what do all these surveys suggest to my client who needs some workers…and needs them now! Well, we spent some time talking about that. The recruitment conversations are usually focused on full-time employees. What type of packages can we put together for Full Time Employees? However, sometimes it is just as important to spend some time to think about what can be done for those part time employees. Clearly, we are not talking about 401k programs and health programs in the traditional sense, but can we do something to stand out from the crowd?
Well of course we can! There are any number of options available to part time employees outside the traditional employer sponsored benefits programs. Many of these incentives are in the form of cash in one way or another, but not all of them. One item that we discussed involved leveraging the health program to bring in a nurse practitioner and wellness coach to work with these seasonal workers. The conversation was very dynamic as we involved the health insurance broker into the conversation who had several ideas.
The point of this post? In a tight labor market we need to be thinking outside the box to attract and retain (for whatever length of time is needed) the right employees. Are you working with an advisor willing to help you? If not, give me a call. I would love to visit on your challenges.
Pete Welsh a/k/a 401kGuy
I saw some recent research from ValuePenguin that suggested 63% of Americans do not understand how a 401k plan works. This is as recent as May of 2019. Does this surprise you?
Last week I did a number of enrollment meetings for a client of mine. They are a Charter School here in Indianapolis and recently hired about 50 new teachers for the upcoming school year. They are technically a public school which allows them to sponsor a 403(b) plan. I started each meeting by asking for a show of hands of how many in the room understood what a 403(b) plan is. What do you think was the percentage of hands that went up? If only 37% of Americans understand a 401k plan, I can assure you that even less understand a 403(b) plan. In fact, most people in the room were surprised to learn that both types of plans get their name from the corresponding section of the Internal Revenue Code.
For my part, I do not find it surprising that the majority of employees do not fully understand how a corporate retirement plan works. After all, why should they? It’s not their job to understand how these work, it’s mine. And it’s my job to help them understand how to fully take advantage of these plans. A key challenge to doing this is a practical one – time. Most enrollment meetings are designed by the employer to last 20-30 minutes. It is enough time to cover the basics, but do you think that everyone walks out of the room with a full understanding?
What’s the best outcome that can come from an in-person enrollment meeting? For my part, the goal is not to provide a complete understanding of everything about the plan. My goal is to get the employees to take at least one step forward on their investing journey. Especially with younger folks, I encourage a modest percent of their income – 2 or 3 pennies on the dollar in the retirement plan. Once they get started, they can always increase. Certainly deferring to the match is optimal, but many employees starting out struggle with deferring 6% or so of pay. 2% or 3% is at least a start.
So after the meeting, what are the next steps? I encourage employees to contact me directly, and many do. I always find it interesting to visit with employees regarding their own situations. Exploring their own challenges allows for another learning opportunity to explain how the plan works and why they need to take advantage of it.
If you want an adviser for your employees that understands the financial future of your employees requires a long term journey and not just a 20-30 minute drive-by, give me a call!
Pete Welsh a/k/a 401kGuy
I was recently reading an article from the Pension Research Council of the Wharton School of Business and came across this little nugget from Olivia Mitchell from the School, “the baby who will live to be 200 has already been born.” Does anyone think this is a good thing?
Regardless of whether or not Ms. Mitchell is correct, the key point she is making is that people are living longer than they once did. On the whole, this is probably a good thing, right? However, it also raises some obvious issues. The first one, and one that has been noted many times in the financial press, is how are individuals going to plan for what could be a prolonged period of retirement? 100 years ago, retirement was a relatively short period of time. If Ms. Mitchell is correct, retirement in the future could last 100 years?!
The truth is probably somewhere in between, of course, but what will be the consequence for those who have not saved enough for a prolonged retirement, whether that be 20, 30, or even 40 years? Many people say they want to continue or will continue to work into the years that would otherwise be defined as their “golden years.” This is great, if they are able and allowed to do so. Let’s explore that last point
According to a study by ProPublica and the Urban Institute, between 1992 and 2016, 56% of older workers reported either being laid off or pushed out of a job at least once in their older years. Once reemployed, only 1 in 10 reported earning at or above the rate they were making. Rehiring older workers has always been a challenge, and remains so today, even though there are more and more older workers desiring to work!
What’s it going to take for employers to get more comfortable hiring older workers? Obviously there will be a large pool of such older workers available who need and want to work in the future. If we continue to harbor a bias against older workers, how are these individuals going to support themselves in their older age? This situation is going to get uncomfortable for all parties in the not too distant future
We can’t change society in a blog post, but we can at least take accountability for ourselves. If the thought of a prolonged retirement has you concerned and working into retirement is not your first option for several reasons, it is probably time to put together a plan. After all, no one wants to be 150 and standing in line for a job
Give me a call.
Pete Welsh a/k/a 401kGuy
Every employer wants satisfied employees. After all, the opposite doesn’t sound very appealing, does it? How an employer works to create satisfied employees can take numerous avenues. Some of the obvious Management 101 principles include having a boss that cares about their employees’ growth and development, providing an appropriate work/life balance, properly recognizing a job well done, and providing a healthy work culture. These are just a few means of valuing employees on which an employer should focus if the goal is to create satisfied employees.
Nevertheless, even when an employer tries to do everything possible to support employees, not all are satisfied. Some new research from the LIMRA Secure Retirement Institute sheds some interesting light on how you can tell if your employees are Satisfied, Settled, Resigned, or Restless (this last one is not good, by the way).
What I found interesting about this research is that it didn’t just simply ask employees how satisfied they are with their employers, but rather looked at specific things employees do and value after they have been identified as Satisfied, Settled, Resigned, or Restless. Satisfied employees are defined as Enthusiastic, Passionate, Positive, and Proud. Just the kind of employee we all want! What is particularly useful about this employee classification is that employers are able to look at the behaviors and values of their employees and get a sense of how successfully the employer is creating Satisfied employees. So, what were some of these behaviors and values that Satisfied employees have that less-enthusiastic employees don’t?
Well, 99% of Satisfied employees feel that workplace benefits are critical to their financial security. And, not surprisingly, Satisfied employees are twice as likely to be participating in the company’s retirement plan. The first takeaway here – if you have many employees not participating in your retirement plan, they might be Restless. Restless employees are unengaged in the employer’s mission and have one foot out the door.
If you find yourself with several employees not involved in your retirement plan, working to improve their satisfaction with your company is a good place to start. Getting them involved with the retirement plan is also a positive sign. Restless employees are more financially stressed than Satisfied employees and tend to be less secure about their future. Helping these Restless employees become more financially secure and involved in the retirement plan is one step an employer can take to move Restless employees toward Satisfied employees.
Want to learn more about how to build a staff of Satisfied employees? Give me a call!