Thin(k) About Your 401(k) Plan: What A Great Benefit!

It’s unsurprising that American workers love their retirement plans and don’t want them to change. The Investment Company Institute’s (ICI) recent research report, “American Views on Defined Contribution Plan Saving, 2020 confirms this fact in no uncertain terms. ICI has conducted this study for 13 years. Here are two key takeaways from the report.

First, American workers, who have a 401(k) plan or an IRA, like them and believe the accounts are instrumental in helping incentivize saving.

  • More than 90% of these workers agree that the plans simplified the saving process, helping them focus on the long term and
  • 86% agreed that the tax treatment was a big reason they were saving.  Almost all of these workers agreed that they should be able to choose and control their investments in the accounts. And
  • 83% felt like retirement accounts could help them meet retirement goals.

Second, there’s a lot of talk in the political arena about altering retirement benefits to generate tax revenue, and workers are paying close attention to this. They strongly oppose changes to the tax advantages, contribution limits and removing control of investment decisions that come with 401(k) plans and IRAs:

  • 87% of those saving via a 401(k) plan or IRA disagreed with the concept of the government taking away the tax advantage.
  • 89% disagreed with the idea of reducing contribution limits. And
  • 89% disagreed with the thought of giving away their ability to decide how to invest their money.

These results should clearly indicate to plan sponsors that they offer a benefit highly valued by their workers and that the workers gain financial security by receiving the benefit. The American retirement plan system is functioning well and workers do not want the benefit to change, especially when it is to their disadvantage. As my father used to say, “if it ain’t broke, don’t fix it.”

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Thin(k) About Your 401(k) Plan: ESG Investing in Your 401(k) Account

It’s no surprise that with the change of presidential administrations that we would see regulations changing. Late in the Trump Administration there were two regulations that particularly affected ESG (environmental, social and governance) investing. Many were concerned about these policy shifts, but as you’ll see, it appears that these rule changes have been put on hold at least temporarily if not permanently.

In October of last year, the Department of Labor (DOL) issued a final rule for private-sector retirement plans regarding non-pecuniary factors like ESG ,which limited these factors, stating that, “retirement plan fiduciaries are focused on the financial interests of plan participants and beneficiaries, rather than on other, non-pecuniary goals or policy objectives.”

That was big news, and it didn’t stop there.  Another policy was to limit ESG considerations in fiduciary proxy votes.  Plan Sponsors serve as fiduciary to the plan and in the selection of investment options must, therefore, take into consideration how the funds they select vote proxies.  401k Specialist reported $7.9 trillion invested in all employer based defined contribution plans, of which $5.9 trillion were invested in 401k plans.*  That is a lot of money under the watch of the DOL covered under ERISA Law.

The big news didn’t last long. On President Biden’s first day in office, he issued an executive order directing federal agencies to review existing regulations issued or adopted during the Trump administration “that are or may be inconsistent with, or present obstacles to, the policies” the new president set forth “to promote and protect public health and the environment.”+

Not long after the order, the DOL seemed to back away from its final rule from just a few months back. Here’s what it had to say about non-pecuniary factor consideration and proxy voting by fiduciaries: “Until the publication of further guidance, the department will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules.”+

So much for final rules. The possibility of adding ESG investment options to ERISA governed retirement plans without potentially violating fiduciary responsibility is back on the table.  Stay tuned.


*401k Specialist, 401k Assets Totaled $5.6 Trillion in First Quarter 2020, by John Sullivan, Editor-in-Chief, June 17, 2020.

+ ThinkAdvisor, DOL Won’t Enforce New Rules on ESG in Retirement Plans, by Bernice Napach, March 10, 2021.

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Three Key Risks of Retirement

Ready for Retirement?

As Boomers get older, we can expect that the number of retirees will grow each year.  After all, the oldest member of this generation is now 74 while the youngest is 56.  If we look at the statistics of Pew Research Center starting in 2012, the annual increase in the retired Baby Boomer population has run between 1.5 million to 2.5 million a year… until 2020.  The increase in 2020 was markedly higher at 3.2 million, for a total number of 28.6 million retired Boomers.

Some Boomers made a lifestyle choice in 2020, accelerating their retirement plans for personal reasons.  Others may have been furloughed, or lost their positions, and decided to not get back into the game.  For whatever reason, this choice is best made with preparation – emotionally and financially.

Let’s begin with our financial readiness, including the consideration of the risks during retirement. The Society of Actuaries identifies 160 retirement risks, but protecting against all of these is not possible.  Many are completely out of our control and not probable. Here are three significant financial risks, however, for which we can make plans:

  1. Longevity risk. This risk of outliving our money is a sobering one, especially considering the extension of our life expectancy.  Recent statistics are that for a 65-year old couple in relatively good health, there is a 50% chance that one in the couple will live to age 92, and a 25% chance that one in the couple will live to age 97.  Planning for 30 years of retirement is becoming the norm, and we should prepare ourselves accordingly.
  2. Market fluctuations.  If your life savings are invested in the stock and bond markets, you can expect to confront the uncertainty of market fluctuations.  Historically, 20%+ downturns in the stock market have been less frequent than people realize, but they do happen (remember March?) and create anxiety.  This is when an investment plan which dovetails with our personal needs and risk tolerance is critically important.
  3. Unexpected spending needs. It would be nice to know what negative surprise might present itself, and when it might happen, but that is not the nature of unexpected needs. What we can do, though, is model various scenarios for unexpected expenses and plan for addressing them. Stress-testing our plans also provides confidence that even an uncertain future can be handled.

Downside risks are a reality, but we can create peace of mind by addressing them. When we do, we are truly bringing together our money with the meaning it serves in our retirement lives.

Retirement planning can be an exciting process, filled with dreams of being liberated from a more structured schedule and envisioning more time to enjoy life, friends and family. Whatever our dream, planning financially and emotionally will help us enjoy it.

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Thin(k) About Your 401(k) Plan: Reflections on 10 Years as An Advisor – Part 3

It’s probably not surprising that investment strategies are unique just like people. Each investment client is different in what motivates him or her to invest or how he or she feels about risk.  As a result, advisors use both science and art when working with each client to develop an investment strategy and construct a portfolio of diversified investments.

Based on my experience, I begin with two overarching goals for each client:

  1. Invest the client’s money in a globally diversified portfolio. The variety of different asset classes we consider include stock and stock like investments, bond and bond like investment, and real estate, among others.  Additionally, we consider growth and value stocks in companies of all sizes.  In the bond space, we look at bonds issued by governments, municipalities, corporations, and other issuers.
  2. Take the appropriate amount of risk for the client’s circumstances and goals. It is important for an advisor and client to have a full discussion to determine an appropriate risk level using both art and science in the process.

So how much risk is appropriate for each client?  First, there is a science to this decision that is driven primarily by the amount of time until the money will be needed.  For some this might be retirement while for another it might be to buy a house or pay for a wedding.  If there’s more time until the money is needed, the science side of investing says more risk may be appropriate.  Likewise we need to reduce the risk as we get closer to needing the money.

Stock investments generally are more volatile than bond investments.  So, we usually reduce the stock exposure as the date the money is needed approaches.

Second, there is also an art to determining the appropriate risk for a client to take.  This is the softer side of the decision.  How does the client feel about risk? Does he wake up at night worrying about the value of his account?  If so, we might recommend reducing the risk level.  Does she want to put the pedal to the metal and take as much risk as possible?  This could lead us to considering taking more risk than the science side would dictate.

As we craft a client’s investment strategy we continue to be mindful of bringing together money and meaning.  We can accomplish that when we know what each client’s ultimate goal is for his or her money.  That way, we can plot a course to reach that goal and help our clients create a globally diversified investment portfolio, take the appropriate amount of risk and adjust that risk lever as the need to use the money approaches. It’s about realizing that investment is both art and science.

Follow this link to see our core Investment Principles.

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Thin(k) About Your 401(k) Plan: SECURE Act – Treatment of Part-Time Employees

I know it seems a long time ago, but at the end of 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act.  The Act had a number of provisions, but I want to focus on the one aimed at part-time employees.  This change will require employers to permit employees who work 500 hours for three consecutive years to save using the company’s 401(k) Plan.  Employers are not required to match or make any contributions for these employees.  However, if an employer does match or contribute, relevant vesting schedules apply.

This requirement effectively begins in calendar year 2021.  Therefore 2024 would be the first year this group of employees would be allowed to contribute.  It also means that companies will have to track and monitor this employment status beginning in 2021, something heretofore likely not done.  As I type this in late October, I wonder how many companies are prepared to track this employee cohort starting in just a few months?

Let me know if I can help.

I found this article from Kiplinger very helpful: SECURE Act Basics: What Everyone Should Know

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Thin(k) About Your 401(k) Plan: Long-Term Investing – Election Year Volatility

I can hardly help allowing the uncertainty that comes during a Presidential election year from creeping into my investor mindset.  I know many factoids about the market performance every four years when we elect a President.  Volatility is a certainty.  Typically markets perform well during election years and worse the year after, but nothing like this is written in stone.  In the short-term, anything can happen in the stock and bond markets.

We also observe that partisan government favors the markets in general.  It stands to reason that a President’s ability to enact legislation depends upon whether or not the House, Senate and President share the same political party.  Further, a President’s ability to push through radical policy change has many hurdles based upon the makeup of Congress.

Myriads of research and articles are available on the topic of the markets during and after election years.  Here is a link to an article I recently found interesting.

Here’s How The Stock Market Has Performed Before, During, And After Presidential Elections

Yet, I still find it difficult to not let the worry of the future creep into my mind.  I found the table below to be a helpful reminder of the impact maintaining a long-term view during short-term volatility especially during Presidential election years.  I’d be interested to know if this is helpful to you.


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Thin(k) About Your 401(k): Plan Plan Fees: The Three Rs – They Are Real And Must Be Reviewed And Deemed Reasonable

I know something’s wrong when a business owner / plan sponsor tells me that they don’t pay any fees for their 401(k) plan.  I can’t think of a case where this could be true.  The plan sponsor might not be writing a check for services, but there’s no doubt a plan provider is collecting a fee.  Plus, plan sponsors have a fiduciary obligation to regularly review, understand and judge those fees to be reasonable, and document the review process.  So, if a plan sponsor thinks there are no fees? That could be a problem.

How do service providers collect fees?  There are various ways and many of these can be confusing for plan sponsors. Providers are often paid directly out of the employee’s accounts in the form of asset-based or per-account fees.

Record-keepers usually charge a fee in the form of an asset but could charge a flat fee per year.  Either way, that fee is most likely deducted from the participant’s account.

Third Party Administrator fees are sometimes bundled with the record-keeper’s fees but could also be billed directly in which case the plan sponsor would write a check.

Investment management fees charged by the investment funds or ETFs offered in the plan lineup are asset based and taken directly from the assets of the fund.  Sometimes, the investment management fee, the record-keeper/TPA fee and other fees are reported as one number appearing to be the cost of the investment choice.

Here’s the good news: plan fees are generally disclosed in an annual disclosure document by the record-keeper.  The plan sponsor must review this disclosure, understand what each service provider is being paid, deem the fees reasonable and document the review.  Yes, this is the plan sponsor’s fiduciary duty, but investment advisors can assist and help plan sponsors understand where fees are coming from and how they’re collected.

The bottom line is that no one I know in the financial services world works for free.  Some plan fees are reasonable, but upon review, others are not.  Because fees are deducted from the participant’s account, they effectively reduce the growth of the account.  That means it’s critical to ensure fees are reasonable for the success of the plan.


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Thin(k) About Your 403(b) Plan: Catch-Up Contributions – A 403(b) Plan’s Special Extra

We talk a lot about 401(k) plans, but many nonprofit organizations including churches, non-profit hospitals and public-school systems use the 403(b) as a qualified retirement plan for employees.  And, like the 401(k), you can “catch-up” in the 403(b), which has a very interesting additional catch-up provision.  As in a 401(k), employees who are 50 years of age and older in a 403(b) can make contributions beyond the maximum allowed.  These amounts are determined annually.  For 2020, employees can save $19,500 and those over 50 can make a catch-up contribution of an additional $6,500.

Here is where it gets interesting.  As long as the plan allows, employees with 15 years of service are eligible to make a catch-up contribution prior to reaching 50 year of age.  Of course, there is a limit to how much, which is determined by the lesser of:

  1. $3,000
  2. $15,000, reduced by the amount of additional elective deferrals made in prior years because of this rule
  3. $5,000 times the number of the employee’s years of service for the organization, minus the total elective deferrals made for earlier years.

You might wonder, what happens if an employee is eligible for both the 50-year-old and the 15 years of service catch-up provisions.  As long as the plan allows, the participant can use both.  However, the 15-year catch-up is subject to a lifetime limit of $15,000 as well as other tests; and savings in excess of the limit must be first applied to the 15-year catch-up.  Additionally, Click here for additional information on 403(b) contribution limits.  And, make sure you talk to your tax professional before taking advantage of this potentially great way to save more for retirement through your 403(b) plan.


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Thin(k) About Your 401(k) Plan: A Non-401(k) Plan Week – A Fascinating Resource of Reports From McKinsey

McKinsey has recently published a fascinating and useful collection of reports Charting The Path To The Next Normal: A daily chart that helps explain a changing world – during the pandemic and beyond.  The page is full of charts linking to studies about how our world is evolving.

I found this one to be particularly well worth the read: Prioritizing Health: A Prescription For Prosperity. As you see below, the world’s life expectancy more than doubled in the 20th century and the population more than tripled.

The article posits that, in 2040, the world could see GDP 8% higher than it otherwise would be resulting from better health conditions driven by fewer early deaths, fewer health conditions, expanded participation and an increase in productivity (see chart below).  The results could be very good for markets especially as McKinsey estimates that “for each $1 invested in improving health, an economic return of $2 to $4 is possible.”

Good news for the future (and it couldn’t have come at a better time)!

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Thin(k) About Your 401(k) Plan: Retirement Savings Tax Credit – Drive Employee Participation

Plan administrators often ask me about how to increase employee participation rates in their 401(k) plans.  How do I get my employees to save when they don’t feel that they can spare the money?  The Retirement Savings Tax Credit could be one answer to help those employees start saving.  This tax credit is $1,000 for single filers or individuals and $2,000 for married couples.  There are restrictions, so be aware.  Learn more about these available tax credits here.



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