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
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
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
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!
The technology arms race for the financial attention of individuals and employees has never been greater. Not a day goes by that I do not see another press release or receive an email about how some financial services company is introducing a new website, or new tool, or new behavioral finance gobblegook that will revolutionize the way Americans “save and prepare for their retirement.”
To believe the hype is to believe that the average American is more engaged and prepared than ever before to save confidently on his journey to financial nirvana. Is that how it is?
According to some new research by the National Association of Retirement Plan Participants, an organization that makes “financial information transparent and universally accessible for the 145 million working Americans” we are still a wee bit away from nirvana.
Despite the plethora of new tools offered by financial institutions, it appears that only 11% of people have any generalized level of trust in them. Additionally, despite all these new tools, only 43% of employees are satisfied with the education services provided by their 401k provider and engagement is decreasing across all channels of website usage. Only 18% of employees feel comfortable planning for retirement, and only 33% of them have even tried to reduce debt or make a budget.
What the heck is going on here?! We are living in a golden age of new tools for people and across all mediums the tools are being used less and less resulting in greater financial stress and less confidence. The problem? Technology alone is not the solution.
Technology is part of the answer, but it can never be expected to be the total solution. When I see all these new tools, I concede they are great. But by themselves, they are only a starting point. Financial planning, indeed life, is too complicated to expect people to turn en mass to only electronic tools for answers.
A better solution? Pair these marvelous tools with a competent and skilled financial advisor if you really want to move the needle. The combination of advisor and technology can really deliver some powerful results. Want to learn how? Give me a call to discuss!
Are you like most Americans who dream of a comfortable retirement that will start sometime in your mid-60s? For most Americans, they can’t even imagine another scenario. However, new data suggests that the dream is becoming less a reality and more of a pipe dream.
According to a new report by United Income, the percentage of Americans who are over 65 and still working is at the highest level in 57 years! Over 20% of all Americans who are at or above retirement age, i.e. 65 or older, are still working. In 1985 it was 10%. Additionally, according to some research from the New School for Social Research, the median savings for a “middle class employee”, someone earning more than $40,000 but less than $115,000, is $60,000. $60,000! It’s no wonder that more and more employees are continuing to work beyond age 65...they have little other choice!
If you are an employer who finds this information interesting, but unconcerning, I would encourage you to think more broadly. These numbers are national numbers, but are they so much different for your employees? If you have employees who are working after 65 wouldn’t you rather they be doing so because they want to instead of have to work?
The answer to this problem lies in getting involved with your employees early to promote a culture of savings and financial wellness. Helping employees understand how to budget, save, and invest for an adequate nest egg is critical to not only a healthy retirement for the employee, but also for the health of the employer.
Give a shout to learn more about how we can help your firm.
For far too long, some might say from the very beginning, employers and employees have viewed their workplace benefits in silos. The company's Retirement Plan stood on one side and the Health Plan on the other. Separate and distinct with no overlap. Is that really how they should be viewed?
Probably not. When employees are financially secure, the positive benefits manifest in several areas. And it makes sense that they would. To presume that employees who are financially stressed outside on the job would leave all those stresses in the parking lot when they walk into work each day is simply naive. Moreover, those financial stresses can take on a physical toll.
Research from Prudential Retirement shows that financially stressed employees are
* 190% more likely to be depressed
* 88% more likely to be stressed overall
* 50% more likely to experience a disability claim
* 32% of Americans say that lack of money prevents them from living a healthy lifestyle.
What do these and other statistics like them mean for employers? Ignoring your employees Financial Security will harm you in other ways including increased health insurance costs as well as workers compensation costs. What's the answer? Pay people more money? Actually, no. The answer is to help employees gain control of their financial lives through better budgeting, planning, and other tools to put them in a better place.
Want to learn how? Give me a call!