401(k) and 403(b) Plans Proposed to Show “Stream of Income Payments” to Employees

Posted by & filed under Retirement Plans.

The Department of Labor has Published an Advance Notice of Proposed Rulemaking. This Rulemaking Focuses on “Lifetime Income Illustrations in Periodic Pension Benefit Statements of Defined Contribution Pension Plans, Such as 401(k) and 403(b) plans”.

The Department of Labor Through the Employee Benefits Security Administration is Proposing to Show Account Balances of Defined Benefit Plans as an Estimated Stream of Payments in Addition to Being Presented as an Account Balance.

“A participant’s pension benefit statement would show his or her current account balance and an estimated lifetime income stream of payments based on such balance. The lifetime income illustration would assume the participant had reached normal retirement age as of the date of the benefit statement, even if he or she is much younger.”

For a participant who has not yet reached normal retirement age, his or her pension benefit statement also would show a projected account balance and the estimated lifetime income stream based on such balance. A participant’s current account balance would be projected to normal retirement age based on assumed future contributions and investment returns. The projected account balance would be converted to an estimated lifetime income stream of payments, assuming that the person retires at normal retirement age. This account balance and the related lifetime income payment would be expressed in current dollars.

Both lifetime income streams (i.e., the one based on the current account balance and the one based on the projected account balance) would be presented as estimated monthly payments based on the expected mortality of the participant. In addition, if the participant has a spouse, the lifetime income streams would be based on the joint lives of the participant and spouse.

Pension benefit statements would contain an understandable explanation of the assumptions behind the lifetime income stream illustrations. Pension benefit statements also would contain a statement that projections and lifetime income stream illustrations are estimates and not guarantees.”

You can see the full fact sheet at https://www.dol.gov/ebsa/newsroom/fsanprm.html

The Investment Advisor-Helping Companies in Pennsylvania

Retirement Plan Reform in Pennsylvania

Posted by & filed under On the Pennsylvania Economy.

On May 7th Governor Corbett Released His Public Pension Reform Plan. This Plan and Newly Introduced Bills in the Pennsylvania House and Senate Proposes to Convert Pennsylvania’s Defined Benefit Plan to a 401k Style Retirement Plan. The Bills are Being Introduced in an Attempt to Reduce and/or Eliminate the Funding Shortfall or Unfunded Liability of more than $41 Billion in the Public School Employees Retirement System and the State Employees Retirement System.

The Reform Plan Leaves the Benefits of Current Retirees and Those Benefits Accrued by Pennsylvania’s Employees in the Defined Benefit Plans Alone. It Reduces Future Pension Benefits for Current State and School Employees Starting in 2015.

In a Defined Benefit Plan the Employer (in this case the State of Pennsylvania) Shoulders the Risk of Underperformance of the Investments in the Plan. Plan Sponsors of Defined Benefit Plans Have the Responsibility to Manage the Funding of Such Plans so the Plan is Fully Funded. Defined Benefit Plans Can become Underfunded (as is the case in Pennsylvania ‘s Defined Benefit Plans) When the Plan Sponsor Does Not Make Large Enough Payments to the Plan, Does not Grow the Investments in the Plan at a Rate of Return Great Enough to Pay Future Liabilities or Retirement Benefits, or Shows a Loss of Principal Value. Defined Benefit Plans are Managed to Create Equilibrium Between the Amount of Assets That have Been Accrued and the Amount of Benefits to be Paid Out Both in the Present and the Future. Such Plans are Typically Regulated by the Pension Protection Act of 2006, the Employee Income Retirement Security Act (ERISA) and other Applicable Laws and Regulations. Pennsylvania Has Had Concerns With These Plans Ranging from Issues of Investment Performance Stemming from the Financial Crises, Funding Levels, the Health of Cities and Municipalities In Pennsylvania, Lower Tax Receipts Resulting From Lower Economic Activity and Unemployment and a Myriad of Other Concerns.

Under the Governor’s Reform Plan New State, Teacher and School Employees Would Save for Their Retirement Like any Private Sector Worker in a 401k Style Plan and Would Not Receive a Retirement Benefit Paid by the State of Pennsylvania.

You Can Read Further Details at https://www.pennlive.com/midstate/index.ssf/2013/05/corbetts_pension_reform_plan_n.html

The Investment Advisor – Helping Plan Sponsors and their Employees in Pennsylvania

The Business Cycle, Why It’s Important

Posted by & filed under The Economy.

The Business Cycle. It has four stages. They Include:

  1. Recession
  2. Trough
  3. Expansion
  4. Peak

The four stages of the business cycle helps companies, organizations, government and investors determine how to allocate capital. This is because the stage of the Business Cycle helps determine which Industries, companies and investments may outperform others. This is useful not only from an individual perspective but also from an organizational management perspective. The stage the Business Cycle is in helps Investors determine what types of investments to make.

Recession: This is when imbalances that build up in the economy over a period of time during an expansion cause economic activity to fall. For Example: the bubble in housing dramatically inflated the value of residential real estate. When the value or prices of homes could no longer be justified the prices of those homes fell. This created an imbalance between the price the buyer paid for the home, the amount the buyer borrowed to buy the home and the market value of the home. Homes became worth less than the value of the loans homeowners had borrowed to buy them. The imbalance created a situation where homeowners owed more on their mortgages than their homes were worth. When the price of the home dropped this caused the value of homes in the surrounding neighborhood to fall. The financial system froze when homeowners could not make their mortgage payments and the financial institutions that had made the mortgage loans could not absorb the losses. The problem was magnified by the fact that the mortgage loans were turned into securities that could be bought and sold backed by the promise homeowners would make their payments. So those companies and organizations that had bought the securitized mortgages loans also lost money.  Because this happened on such a large scale the normal means of making money available for use stopped functioning.

A recession can occur from less dramatic imbalances. The less dramatic the imbalance the less severe the recession. More severe recessions can become a depression.

Trough: This is the stage where the fall in economic activity that occurs during a recession bottoms or is at it’s most severe.  In the case of the Financial Crises the financial markets seized like a motor without oil when credit became unavailable to both companies and consumers. The value of the stock market fell dramatically and jobs were lost.

Expansion: After the economy bottoms economic activity usually picks up. This happens because those with money to invest see an opportunity to achieve a good return since the assets they want to invest in are low in price. So as the investment occurs economic activity increases.  Inflation and Gross Domestic Product start to rise during this period as the demand for goods and services rise.

In 2009 when real estate, the markets and job losses had gone into a free fall the government stepped in to make the investment required to break the recession. The government made loans to banks, financial institutions and other important companies such GM and Chrysler through the Troubled Asset Relief Program known as TARP.

Usually companies and private investors make this type of capital available. The Federal Reserve lowers Interest Rates to incent Private Investment. In the most recent case the Government stepped in as a Last Resort because Private Capital was not available. Banks usually provide this capital in the form of credit. But since the Banks had lost so much of their value they were both unable and unwilling to loan money to fuel investment.

We are currently in the Expansion Phase. However, Because of the Severity of the Damage done to the Economy created by Falling Asset Prices such Real Estate and Securities the degree to which the Economy has been recovering has been Much Slower than in Previous Expansions.

Peak: During the Top or Apex of an Expansion Economic Activity is at its most robust.  Unemployment is usually low and the Federal Reserve may have to raise Interest Rates to prevent to much activity from creating to much Inflation. Gross Domestic Product the sum of all Goods and Services Bought and Sold is also at its highest. Ultimately, the excesses which occur during the Peak create New Imbalances. This leads to a new Recession and the Business Cycle begins again.

The Investment Advisor – Helping Individuals, Families, Companies and Non-Profit Organizations in Pennsylvania

Government Releases Guidance on Employee Notification About the Implementation of Health Insurance Marketplace in 2014

Posted by & filed under Legislation and Regulation Affecting Investments.

The Department of Labor and the Employee Benefit Security Administration (EBSA) Have Released Guidance on the Required Employee Notification About the Creation of a Health Insurance Marketplace. These Notifications Carry the Requirement to Notify Employees of:

The Existence of the Marketplace Also Known as the Exchange

A Description of the Services Provided by the Marketplace

How Employees May Contact the Marketplace to Request Assistance

Minimum Value of Coverage Requirements

The Provision of Premium Credits for the Purchase of Health Insurance From the Exchange

That the Purchase of Health Care Coverage Through the Exchange May Involve the Loss of Employer Paid Premiums and the Associated Tax Benefit Employer Contributions Offer

“The Affordable Care Act creates a new Fair Labor Standards Act (FLSA) section 18B requiring a notice to employees of coverage options available through the Marketplace. “

“The FLSA section 18B requirement to provide a notice to employees of coverage options applies to employers to which the FLSA applies. In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies. The FLSA also specifically covers the following entities: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state and local government agencies.”

Delivery of the Notice is Required by October 1, 2013

The Guidance also Provides an Updated Model Election Notice Under COBRA.

You can read the full details of this release at https://www.dol.gov/ebsa/newsroom/tr13-02.html


Additionally, A Model Notice has Been Created for Employers to Deliver to Their Employees. This Model Notice Informs Employees that if the Cost of Their Employer’s Plan Exceeds 9.5% of Household Income for the Year or Certain Coverage Requirements are Not Met that the Employee May be Eligible for a Tax Credit That Lowers their Monthly Premium.

The Government has Also Prescribed Penalties for Companies Whose Employees Opt Out of Their Employer’s Health Insurance and Purchase Health Insurance from the Marketplace Because of Minimum Value of Coverage Requirements.

You Can Read the Model Notice at https://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf

Is Your Retirement Plan on Track?

Posted by & filed under Retirement Planning.

Are You On Track to be Able to Retire? The Investment Advisor in Association with My New Financial Advisor and Free Retirement Report.com is Pleased to Offer Pennsylvanians a Free Retirement Report. Go to https://www.theinvestmentadvisor.net/free-retirement-planning-report.html and Click the Can You Retire? Find Out Now Banner and Order your Free Retirement Report. Remember to Contact the Investment Advisor for a No Cost Consultation Once You Have Your Report.

The Investment Advisor – Helping Individuals and Families Plan Their Retirement

It’s Not Your Father’s Retirement Plan Anymore

Posted by & filed under Retirement Plans.

Retirement Plans. They are not as easy to manage as they once were. Laws, regulations, features and benefits have made managing or creating your company retirement plan a complex endeavor. From the Pension Protection Act to rule 408b(2) and ERISA new standards of documentation and due diligence are necessary to comply with new important directives set forth by the Department of Labor and The Employee Benefit Security Administration. Overiding principles involved in managing your company retirement plan include:

1. Maintain and Monitor your Retirement Plan for the Benefit of your Employees and their Beneficiaries.

2. Make sure the Fees You and Your Employees Pay Represent the Best Value.

As a Plan Sponsor you can accomplish this by:

  • Understanding How to Operate Your Retirement Plan in the Best Interest of Your Employees and Their Beneficiaries.
  • Complying with Regulations Governing Your Retirement Plan.
  • Understanding How to Help Your Employees Invest in Your Retirement Plan.

You Must also:

  • Provide and Communicate Information to Your Employees About Your Retirement Plan to Provide a Clear, Concise and Thorough Understanding of the Way Your Retirement Plan Operates.
  • Document Your Selection of the Parties Necessary to Providing and Administering Your Retirement Plan.
  • Support Your Evaluation of The Fees and Expenses You and Your Employees Pay for Your Plan.
  • Create a Process to Communicate This Information to Your Employees.
  • Put in Place a Process Which Documents the Due Diligence Necessary to Protect You, Your Employees and their Beneficiaries.

You, as a Plan Sponsor may have a Fiduciary Responsibility to operate and maintain your Retirement Plan in the Best Interest of your Employees as Participants in your Retirement Plan. Consequently,  as a Plan Sponsor you should comply with regulations governing your Retirement Plan as set forth by such agencies as: The Department of Labor, the Employee Benefit Security Administration, the Securities and Exchange Commission and the Pennsylvania Department of Banking and Securities.

The practices outlined by these agencies, with their basis founded in ERISA, the Pension Protection Act, Dodd-Frank and other laws are not limited solely to Fee Disclosure. These practices and a myriad of additional concerns involving the process around which you make decisions regarding your Retirement Plan may require you to consider matters such as:

  • Determining if Your Retirement Plan Should be Participant Directed or Not.
  • Vetting Your Retirement Plan Vendors.
  • The Creation of Your Retirement Plan Investment Policy Statement.
  • Selecting Investments for Your Retirement Plan.
  • Determining When to Replace Underperforming Investments.
  • Providing Matching Contributions.
  • Offering Plan Loans.
  • Understanding What Constitutes a Plan Asset.
  • Defining Vesting Schedules.
  • Evaluating if Your Retirement Plan Should Include Auto Enrollment.
  • Educating Your Employees About How to Successfully Invest in Your Retirement Plan.

Therefore, The Investment Advisor believes it is a best practice that you Fully Evaluate these and other concerns with respect to your existing Retirement Plan or as preparation for creating your new Retirement Plan. Regardless, if your Retirement Plan is considered to be a Covered Plan such as a 401k or a Non-Covered plan such as a Simplified Employer Plan (SEP) The Investment Advisor recommends you Evaluate the Complete Picture and Consider Your Process Prior to Implementation.

In situations where your choice of your Retirement Plan is designed as a less complicated Plan certain items need not be considered because they are not a concern in your case. An example of this might be where the type of Retirement Plan chosen or recommended requires immediate vesting such as in a SEP Plan. Therefore, vesting schedules need not be considered.

Retirement Plan Evaluations Should Include:

  • Consultations about the Form and Organization of Your Retirement Plan.
  • Reviewing the Design of Your Retirement Plan.
  • Investigating and Identifying Retirement Plan Providers, Custodians and Administrators Who May Become Vendors to Your Retirement Plan.
  • Assessing Direct Costs of Your Retirement Plan.
  • Determining Indirect Fees and Expenses Associated with Your Retirement Plan.
  • Identifying and Evaluating Revenue Sharing Arrangements Within Your Retirement Plan.
  • Considering the Reasonableness and Competitiveness of all Fees and Expenses Associated with Your Retirement Plan.
  • Creating an Investment Policy for Your Retirement Plan.
  • Reviewing the Investment Options in Your Retirement Plan.
  • Determining the Fees Associated with the Investments in Your Retirement Plan such as:

1. Mutual Funds

  • Annual Operating Expense Ratio (Mutual Fund Management Fee)
  • Sales Charges
  • Redemption Fees
  • Sales and Marketing Charges (12b1 Fees)
  • Wrap Fees (Where Applicable)
  • Analysis of Fees Contained Within Different Share Classes of Mutual Funds

2. Exchange Traded and Index Funds

  • Annual Operating Expense Ratio (Management Fee)
  • Transaction Fees
  • Commissions

3. Money Markets

  • Annual Operating Expense Ratio (Management Fee)
  • Adminstrative Fees
  • Account Fees
  • Maintenance Fees

4. Guaranteed Investment Contracts and Stable Value Funds

  • Asset Based Fees
  • Administrative Fees
  • Investment Management Fees
  • Wrap Fees
  • Early Withdrawal Fees
  • Surrender Charges
  • Sales and Marketing Fees

5. Investment Fees and Expenses Charged within Brokerage Windows as Self Directed Brokerage Accounts Within your Retirement Plan (Where Applicable) for Such Investments as:

Money Markets, CDs’, Stocks, Bonds, Mutual Funds, Index and Exchange Traded Funds, International Investments, Master Limited Partnerships, Real Estate Investment Trusts, Commodities, Listed Options

Including Such Fees and Expenses as:

  • Commissions (Brokerage Agency  Transactions)
  • Markups (Fees Contained Within Brokerage Principal Transactions)
  • Asset Based Fees
  • Wrap Fees
  • Transaction Fees
  • Account Fees
  • Other Custodial Fees and Expenses

6.  Separately Managed Accounts

  • Annual Expense Ratio (Asset Based Management Fees)
  • Administrative Expenses
  • Wrap Fees
  • Advisory Fees
  • Brokerage and Custody Fees

7. Annuities

  • Expense and Mortality Fees
  • Administrative Fees
  • Sales Charges
  • Surrender Fees
  • Fees Contained Within Loan Provisions
  • Annual Operating Expenses of Investments Contained Within Such Products and Services
  • 12b1 Fees
  • Fees Contained Within Different Share Classes of Investments.
  • Fees and Expenses Associated with Riders.
    • Making Recommendations about the Investments Included in Your Retirement Plan.
    • Making recommendations regarding Replacement Investments for Your Retirement Plan.
    • Helping You Document the Due Diligence, Policies and Processes Necessary to Help Your Retirement Plan Conform to Regulatory Requirements.
    • Determine the Process of How to Communicate Information and Disclosures Involving Plan Information, Plan Changes, Fees and Expenses to Your Employees About Your Retirement Plan.
    • Determine How Investment Advice and Education will be Provided to Your Employees as Participants in Your Retirement   Plan.

Implementing Your Retirement Plan Should Include:

  • Selecting the Type of Retirement Plan You Wish to Offer.
  • Selecting Your Retirement Plan Provider, Administrator and Custodian.
  • Choosing Your necessary Retirement Plan Documents for Your Retirement Plan.
  • Implementing Your Investment Policy for Your Retirement Plan
  • Selecting Investments for Your Retirement Plan.
  • Determining which Employees in Your firm are Designated with the Responsibilities to Maintain Your Retirement Plan.
  • Monitoring the Performance of Your Investments within Your Retirement Plan.
  • Putting in Place Your Processes and Triggers to make Investment Changes for Your Retirement Plan.
  • Implementing Your Advice and Education Model for Your Employees as Participants in Your Retirement Plan.
  • Putting in place a Your Process to Communicate Information and Disclosures Involving Plan Information, Plan Changes, Fees and Expenses to Your Employees about Your Retirement Plan.
  • Providing Informational and Operational Access for Your Employees to Invest in Your Retirement Plan.
  • Guidance and Quarterbacking involving all relevant parties to The Administration and Operation of Your Retirement Plan.

Tax Deferred Compounding

Posted by & filed under Retirement Plans.

Take Advantage of Tax Deferred Compounding to Save for Your Retirement. You Have Until Your Tax Filing Deadline to Contribute to and Fund Your Individual Retirement Account.  If You Need Help with Your IRA, 401k or 401k Rollover Request a Complimentary Consultation on the Website of The Investment Advisor at https://www.theinvestmentadvisor.net/request-consultation.html The Investment Advisor- Exclusively Serving Individuals, Families, Business and Non-Profits in Pennsylvania.