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.



For disclosures, please click here.

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Fellow Women – Bring Together Money and its Meaning in Your Life

Five months into a quieter isolated life, many of us have taken to online yoga classes, healthier home cooking, and meditation as ways to deal with the disruption. But as you strive to bring peace into your life, are you at peace with your financial future?

Numerous studies report that women are inadequately prepared for retirement. This may be the perfect time to reflect on using your investments to improve your confidence level in your own preparedness.

Here are three steps to get you started:

1. Think about overall financial strategy.

Developing a solid strategy is a process, beginning with understanding your current financial condition. Also identify your goals, understand your risk tolerance, and determine how your current investments work together (or not) to prepare you for the future.

All too often, people invest incrementally without considering how their investments are comprehensively allocated. This is particularly true when you have multiple accounts, including retirement plan balances with former employers, or rollover IRAs, as well as taxable accounts. It is important to take a broad view of the bigger picture, because the interaction among savings and various investments can determine success. You may find that changes are needed, especially if you haven’t focused on this recently.

2. Take full advantage of retirement plans.

Vanguard’s How America Saves 2020 estimates that a typical participant should target a total contribution rate of 12-15%, including both employee and employer match contributions, in order to achieve retirement readiness. In 2019, the average woman and her employer contributed 10.1% (1) Check on your total contribution rates and increase your employee portion if you are not already at the maximum annual amount ($19,500 for 2020). Don’t forget about the additional “catch up” contribution ($6,500 for 2020) if you’re 50 or older.

For married women who have decided to discontinue employment, check into the qualifications and benefits of a Spousal IRA so that you can advance your retirement plan savings.

3. Get more engaged in your financial future.

If you feel a need to be more engaged with your finances, especially your investments, then you are on the right track. Career opportunities for women have increased dramatically over recent years, but we remain challenged in retirement preparation. It may not be your area of expertise, so every chance to increase your learning about savings and investments improves the likelihood of reaching your goals. Working with a professional? Make certain you trust them and that they take the time to discuss with you the underlying principles of investing.

Life is unpredictable. The time we spend today in preparing for our tomorrows will be well worth it, and will enable us to bring together our money and its meaning into our lives.

Stay well, and stay tuned…


Thin(k) About Your 401(k) Plan: Target Date Funds – 401(k) Plan’s Investment Choice

Targeted Date Funds (TDFs) are clearly here to stay with more and more 401 (k) Plan Participants using them as a primary investment option.  Vanguard’s recently release report, How America Saves 2020 shows that 80% percent of participants use TDFs when offered them, and that’s up from 70% in 2015.

TDFs can also work as a Qualified Default Investment Alternative (QDIA). A QDIA is where a participant’s money is invested if he fails to designate an investment election.  ERISA provides certain fiduciary relief to Sponsors if defined conditions are met when choosing a QDIA.  In general, TDFs satisfy those conditions.  To learn more about QDIAs, the Employee Benefits Security Administration offers a good explanation here.

Vanguard’s report offers further evidence for TDFs’ increased popularity. For instance, of the 62% of participants using a single fund option, 88% chose a TDF.  That means 54% of all participants use only a TDF.


Source: How America Saves 2020

It is obvious that Sponsors and Participants have embraced TDFs.  As a result, participant retirement outcomes have much riding on the success of the TDFs.

When is the last time you reviewed the performance of those funds?

For disclosures, please click here.


Thin(k) About Your 401(k) Plan: Paying Plan Expenses With Plan Assets…Not So Fast!

Lagniappe, which the Society of Louisiana Certified Public Accountants publishes nine times a year, asked our Fritz Gomila about using 401(k) plan assets to pay for plan expenses.  Below is Fritz’ article.

Click here for link to Lagniappe.

Paying Plan Expenses with Plan Assets…Not So Fast!

By: Fritz Gomila, Principal, ThirtyNorth Investments, LLC

During this period defined by closed businesses and stay at home mandates, many businesses are looking for ways to manage expenses including their approach to employee benefits.  Today, I want to focus on a matter that may be top of mind during the COVID-19 Pandemic – Plan Expenses.  As an Investment Advisor who works closely with retirement plans in a consultative manner, I urge you to learn more about this subject and to consider consulting an ERISA Attorney regarding expenses currently paid by or that you are considering paying with plan assets.  It is important to remember that Plan assets can only be used for two purposes:

  1. To pay benefits
  2. To pay reasonable administrative expenses of the plan

Using Plan assets to pay benefits is fairly straightforward, according to Michael Williams, a Partner at Phelps Dunbar LLP located in New Orleans.  However, when using Plan assets to pay reasonable administrative expenses, caution should be used.  According to Mr. Williams,

“Using Plan assets to pay administrative expenses is a fiduciary act governed by ERISA. First, Plan Sponsors and Plan Administrators should use the utmost care to make sure the administrative expenses are reasonable and necessary.  Secondly, Plan Sponsors and Plan Administrator must make sure the administrative expenses are fiduciary in nature and not settlor in nature.”

Fiduciary obligations can be complicated and are governed by law.  However, if you put your retirement plan clients’ interests first, you are definitely on the right track to thinking like a fiduciary.  As Michael said, the determination of whether or not an expense can be paid with plan assets often revolves around whether or not the decision or activity driving the expense is fiduciary or settlor in nature.  If the expense is fiduciary in nature, plan sponsors can pay with plan assets.  If settlor in nature, the opposite is true.

The Department of Labor (the government entity responsible for regulatory oversight in this space) offers guidance on settlor versus allowable plan expenses on its website (https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/guidance-on-settlor-v-plan-expenses):

“The department has taken the position that there is a class of activities which relates to the formation, rather than the management, of plans. These activities, generally referred to as settlor functions, include decisions relating to the formation, design and termination of plans and, except in the context of multi-employer plans, generally are not activities subject to Title I of ERISA.”

For example, expenses incurred when incorporating a mandatory plan amendment into the plan document are fiduciary in nature because the change is being made to maintain the plan’s qualified status.  However, a discretionary amendment to the plan document might be considered settlor in nature.  Some of the expenses generated when making a discretionary  plan amendment may not be allowed, but others may be ok.  The determination, again, depends upon whether or not the driver of the expense is fiduciary or settlor in nature.

The Department of Labor, has issued some guidance over the years on this topic.  Mr. Williams,

“While the guidance has not been as comprehensive as we would like, I think you can glean some basic principles.  Most ERISA lawyers feel fairly comfortable that basic administrative expenses can largely be paid from employee benefit plan assets, including those for plan recordkeeping and accounting, safekeeping of plan assets (i.e., custodial services), compliance auditing, legally required reporting (i.e., Form 5500), participant communications, and third party administrator (TPA) expenses (including start-up and ongoing fees).”

Another area that deserves attention is “but for” employee expenses.  A “but for” employee performs work for the plan that would not otherwise be required if a plan were not in place.  That employee does not have to be entirely dedicated to plan administration.  However, only the expenses that the employer incurs because of the employee providing services to the plan can be expensed to the plan.  For example, if an employee spends 20% of her time working on the plan, it would likely be disallowed to expense 100% of her salary.  Overhead expenses may not be expensed to the plan.  Plan sponsors must have thorough documentation to support paying for “but for” employee expenses with plan assets.  Mr. Williams cautions,

“The ‘but for’ test is more complicated than most employers realize.  There are strict rules in the DOL regulations governing this.  The DOL will look at these payments closely for two reasons.  One, there is an inherent conflict of interest as the employer is picking itself to provide the service over some other third party.  And two, proving that the employer would not have paid the employee ‘but for’ the services that employee provided to the Plan.  In small or medium sized enterprises where employees wear many hats, this might be a difficult standard to meet.”

When considering using plan assets to pay for plan expenses, plan sponsors should have a process in place to evaluate and document each decision.  Three key areas, among others, should be addressed and we recommend consulting with an ERISA attorney to help in the determination:

  1. Is payment of the expense allowed by the plan document (or at least does not prohibit it)?
  2. Is the expense related to a fiduciary activity rather than a settlor activity?
  3. Is paying the expense prudent and is the amount reasonable?

Determining whether or not the plan document allows or prohibits payment of an expenditure seems simple.  However, if a plan document simply does not prohibit the payment, plan sponsors may want to amend the language to specifically allow for the payment.  The difference between a fiduciary and a settlor activity can be tricky.  And, finally, documenting how you determine the reasonableness of the amount of the expense incurred is imperative when taking a fiduciary view on spending plan assets on expenses related to administering the plan.


  • All expressions of opinion reflect the judgment of the author on the date of publication and are subject to change. It should not be regarded as a complete analysis of the subjects discussed. ERISA information is general in nature and should not be viewed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
  • ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability. The firm is not engaged in the practice of law or accounting.

For disclosures, please click here.


Thin(k) About Your 401(k) Plan To Opt-Out or To Opt-In – 401(k) Plan Autopilot Design

Plan Sponsors are increasingly adopting automatic enrollment features for employees that flip the decision process and the results are impressive!  Vanguard’s recently release report, How America Saves 2020 indicates that as of 2019, 50% percent of the firm’s 401(k) and 403(b) Plans that allow employees to save their own money have adopted some feature of automatic enrollment, and many of these plans are going all the way to an auto pilot plan design.

The study also noted that, “Eligible employees hired under an automatic enrollment feature save more.  They have an average total contribution rate of 10.3%, which is more than 50% higher than the rate of 6.6% for employees hired under voluntary enrollment.”

Source: How America Saves 2020

Plans that provide for automatic enrollment require the employee to opt-out of saving for retirement rather than opting-in.  In other words, all eligible employees are automatically enrolled at a pre-determined savings rate unless they indicate otherwise.  Further, Vanguard pointed out that, “Among plans automatically enrolling employees, two-thirds were using all three features of an autopilot design.”

Here are the features:

  1. Employees are automatically enrolled,
  2. Saving rates are automatically increased each year and
  3. The employee’s assets are invested in a balanced fund, often a Target Date Fund.

One problem for adopting an autopilot plan design is that it only impacts newly eligible employees.  However, some plans are implementing automatic enrollment for all eligible nonparticipating workers.  This allows the employer to apply the opt-out decision to all employees.

Feelings about auto enrollment differ amongst employers.  Some feel the plan design overreaches, while others feel it makes things easier for employees, especially if the investments are in balanced funds designed for long-term management.  Regardless, adopting some version of auto enrollment is trending upwards.

For disclosures, please click here.


Thin(k) About Your 401(k) Plan: Don’t Leave Money On The Table – 401(k) Plan Matches

Many 401(k) plans sponsors offer participants a matching contribution based upon the participant’s savings.  This is a real benefit that your employer is providing to you.  But, have you taken the time to actually calculate the implication of this enhanced benefit?

A 401(k) match has two key components.  First, how is the match calculated?  Matches vary from plan to plan, but typically are calculated using a percentage of the employee’s savings.  For example, an employer might match half of the percentage an employee saves up to 6%.  So, if the employee saved 6% the employer would contribute 3%.  However, if the employee’s savings rate was only 4% the match would be 2%.  For someone earning $75,000 a year, the difference between saving 6% versus 4% would be an extra $750 in match dollars per year.

Just to be clear, in this example, the maximum match is 3% based upon a 6% savings rate, but that does not mean you should not consider saving a higher percentage if your circumstances allow.

The second key component to a match is when does it vest to you.  The vesting period is the length of time you must work for your employer before you are eligible to receive all of the match money.  Some vesting schedules are referred to as cliffs.  For example, take a three-year cliff vesting schedule.  Once you reach three years of service, all of the match money vests to you.  However, if you leave before three years, none of the match money vests to you.

Other vesting schedules are graded over a number of years.  A common example of a graded vesting schedule would be to award 20% per year of service after eligibility.  After five years of saving, you would be fully vested, and all of the match money would be yours.  However, if you left after three years, only 60% of the match money would belong to you.  If the plan offers a Safe Harbor match, the match money is yours without a vesting schedule.

One final note, your employer’s match dollars do not count against personal annual savings limit as determined by the IRS.  In 2020, you are allowed to save $19,500 of your pretax income in a 401(k) plan plus an additional $6,500 in catch-up contribution if you are over the age of 50.  The match allows you to save above these limits with a maximum amount including employer contributions of $57,000 plus the $6,500 catch-up if you are 50 or older.

For disclosures, please click here.


Thin(k) About Your 401(k) Plan: Dig A Little Deeper – 401(k) Plan Loans


Many 401(k) plans offer participant’s the ability to take a loan against their vested account balance.  But, do participants fully understand the implications of borrowing from themselves through their retirement account?  Like most financial decisions, there are pros and cons to taking a loan from your 401(k) account that depend upon your individual situation.

Here are a few:

  1. When a participant borrows from her 401(k) plan account, she must pay back the loan amortized over a certain period of time, generally limited to 5 years (with certain exceptions, such as purchasing a primary residence).
  2. Because the participant has borrowed from herself, she pays herself interest generally at a rate of Prime plus 1%-2%. This generates growth on the uninvested / borrowed dollars, but tax implications have an impact too because the participant is repaying the loan with after tax dollars.
  3. The amount of the loan available is limited to the lesser of 50% of her vested account balance or $50,000.
  4. Here is a tricky one. If the participant terminates employment prior to repaying the loan in full, some plan sponsors may require repayment in full at the time of termination.  If the participant is unable to repay the loan, the outstanding balance may be treated as a distribution subject to income tax consequences potentially including a 10% early distribution tax (penalty).  Because this is a complex condition, prior to borrowing from your plan, you should make sure you fully understand how termination will affect your loan as dictated by your plan’s rules.

Participants generally view having access to borrow from their 401(k) accounts as a positive benefit.  However, you owe it to yourself to fully understand the terms and ramifications of the loan prior to borrowing the money.  For guidance from the IRS on Plan Loans, please follow the link below.



For disclosures, please click here.

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Thoughts in Charts: Retirement as a Third Act


Retirement is a beginning, not an end.  In 1935, when Social Security established a retirement age of 65, the average American man was not expected to live past 58 years old. Now, age 65 marks the beginning of an expected 20-year life stage for 90% of American households.

Increasingly, our “retirement” conversations with clients are focused on investment goals that allow clients an increased freedom to dictate their own terms of life’s “Third Act”.

For disclosures, please click here.

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Thin(k) About Your 401(k) Plan: To Roth Or Not To Roth

This recently released XpertHR’s 2020 Employee Benefits Survey caught my eye. The survey indicates that while two-thirds of respondents offer traditional 401(k) plans allowing participants to save pre-tax, only approximately 38% of these same employers offer the Roth feature allowing participants to save after tax.

Makes me wonder if Plan Sponsors who are not offering the Roth option understand they are potentially leaving some value on the table when it comes to their employee benefit?

See the full survey results here. 

For disclosures, please click here.

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Thin(k) About Your 401(k) Plan: Work Your Core – Five Core Investment Principals

During the middle of the market downturn towards the end of 2018, I found a truly incredible opportunity in an asset backed by the US Government and in about 45 days it generated an annualized approximate return of 117%.  What incredible, riskless investment offering such astounding returns did I find? It was the Forever Stamp!  And guess what?  The US Government told me, well in advance, that the value of this commodity was going to increase from $0.50 to $0.55 on January 27, 2019.

Okay, there are numerous logical flaws to the above story, but while we watch the volatile markets during the time of the COVID-19 Pandemic, it offers a good reminder of the five core principles for investment.  Let’s examine how each negatively or positively impacted my decision whether to go long on Forever Stamps.

  1. Discipline is Everything. It’s tough to apply this principle to my stamp example because it would tell us not to chase recent performance and stick with a well-researched strategy.  However, why wouldn’t I invest in something I know is going to increase in value by 10% on a given date?  Here’s why:  you would have to forego or sell investments from your long-term approach in order to make the investment.  Further, once you owned the stamps, you would have a commodity that holds only a small value per individual unit that would have to be sold to someone else.  Maybe you could sell them alongside your children at their lemonade stand, but you would likely need to go at it for a long time to realize a substantial dollar measured profit.  Sure, the percentage gain per unit sold is incredible, but ultimately it is dollar gains that move the needle in a portfolio.
  1. Investing is both Art and Science. This principle seems a bit simpler to apply.  First the science side of investment analysis would tell us the opportunity to make money buying Forever Stamps is as close to a sure thing as we will ever see.  But when we move back to the art view of things, I would ask myself how many letters will I send in a given year.  If I were a voracious writer who doesn’t use email, then perhaps the purchase makes sense.  However, in this scenario we have shifted the conversation from investing to consumption.  While Forever Stamps may increase in value forever, the benefit of the investment lies in either its usefulness down the road – consumption – or one’s ability to liquidate at the appropriate moment – investing.  And, here we are again, back at the crossroads of how do I get rid of these things in enough quantity to make it worthwhile.
  1. Time Matters. Time is a trickier component in this example because a long-term view of the Forever Stamp could easily lead one to conclude that it is an asset to own forever.  After all, the value is guaranteed by the US Government and simple research would show the price of a stamp has only gone up.  Unfortunately, that analysis ignores the question of why has the price of a stamp only increased.  Who is to say where the US Mail system will ultimately land or when, but clearly the cost of delivering a letter is going up and therefore the cost of a stamp is as well.  However, there are many new and efficient communication options such as email and social media competing with the US Mail.  Down the road, the price of stamps could go up forever, but my guess is that at some point the elasticity of demand is reached and the price will have to either stabilize or even come down.
  1. Depth of Research forms Decisions. This principle offers us a bit of a repeat.  By not deeply researching the various aspects of the investment in Forever Stamps, you might make the deal because of the return alone.  However, this action fails to answer crucial questions like: how do I monetize the return; what will the dollars earned per unit translate into when measured against the effort required; or how long will the price hold up even though guaranteed by the US Government.
  1. Risk Must be Considered. While the risk of the price of a Forever Stamp falling might seem next to impossible on the surface, nothing is truly guaranteed.  The US Postal System is competing with other forms of communication and therefore subject to pricing risk over the long-term.  I have left a key consideration to the end.  The Forever Stamp has a guarantee for sure.  That guarantee is that it will always be able to be used to mail a letter in the US.  But it does not guarantee the value of the investment.

In summary, every investment must hold up to the five principles above and that is not an easy feat.  The Forever Stamp with a certain increase in price generating a measurable return at a given point in time was not able to meet even one of the principles.  When I was studying for my MBA, an accounting professor taught me an important lesson that remains with me today and will forever – “There is no such thing as a free lunch.”

Here’s more about ThirtyNorth’s five core principles.

For disclosures, please click here.