I continually write on fiduciary issues and am very amazed by the number of lawsuits still being initiated and settled. The trend is certainly not slowing down and fiduciaries, beware. Please note that even though the service provider’s name is often in the headlines, it is the plan fiduciaries that are being sued. Additionally, I notice that the size of the plans being sued are getting smaller, meaning no longer are just the mega-plans being targeted.
According to the Investment Company Institute (ICI), 401(k) plans held $5 .1 trillion in plan assets as of June 2017. With these dollars, it`s not difficult for plaintiff attorneys to be motivated to get creative with the types of suits being brought against fiduciaries. Many of the newer fiduciary breach suits against corporations, universities and plan providers involve poor decision-making for both the selection and monitoring of investment options and breaches in administrative decision-making. In addition, the suits go beyond just the use of expensive share classes and are now delving into investment strategy and sub-par performance. As a reminder, 401k) plan fiduciaries are subject to strict duties of prudence, loyalty and avoiding conflicts of interest and acts of self-dealing.
One recent case involves CenturyLink and their decision to utilize six different investment managers for their large cap fund (5 active and 1 passive). The fund was benchmarked to the Russell 1000 Stock Index and the suit alleges underperformance against the index for years. More on the case can be found here:
Another case involves Fujitsu and their decision-making regarding excessive recordkeeping expenses and their custom designed Target Date Funds. As a result of the suit filed on June 30th, 2016, Fujitsu decided to settle for $14 million citing the complexity and expense to litigate these types of cases. More on the case can be found here:
This suit is certainly not in style, as Gucci America Inc. is being charged for several fiduciary breaches. It is being alleged that their service provider, Transamerica Retirement Solutions, had included excessively expensive and proprietary investment options in Gucci`s $96 million 401(k) plan. The suit alleges that participants were assessed unreasonable administration expenses and that the plan retained high cost and poor performing investments. More on the suit can be found here:
Another important fact to the Gucci 401k) suit is that the plan assets are only $96 million, far less than the plans typically involved in these types of cases. This should serve as a warning to plan fiduciaries that regardless of your plan size, the fiduciary standards are uniform and applicable to ALL plan sponsors.
https://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.png00Jonathan Epsteinhttps://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.pngJonathan Epstein2017-12-20 13:47:162017-12-20 16:15:44What do Gucci, CenturyLink and Fujitsu have in common? Read On!
One of the first steps to building a solid financial plan is to accumulate a cash reserve. Popular financial planning rules of thumb suggest keeping 3-6 months of living expenses in cash. Homeowners and those in jobs subject to layoffs may prefer to keep a year or more in cash reserve. A cash reserve is a rainy-day fund that should not be invested in stocks or bonds. The purpose of a cash reserve is to pay for large, unexpected expenses such as; home repairs, car repairs, insurance deductibles, or paying bills during a period of unemployment.
If you’re planning to buy a home or car in the next few years, you might also be keeping large amounts in a savings account. Since cash savings is likely to be a larger percentage of total net worth for younger investors, it’s important to compare interest rates regularly. Now that interest rates are more than 0.00%(!), interest rate shopping is important.
First, make sure you’re getting the highest rate offered at your bank or credit union. Banks are constantly offering promotional rates for new accounts, meaning you may need to open a new account or transfer money to a different account to get the highest rate. Don’t let your savings sit in an account getting a lower rate. If you find a higher rate advertised elsewhere, there’s a chance your primary bank or credit union will match it. It might be worth a trip inside a bank branch to inquire about your options. Many banks are willing to work with you to maintain your deposits.
If the rates at your bank are less than satisfactory, look at the many online banks that offer higher rates. Each online bank has different requirements for minimum account size and number of monthly transactions. If you have a large amount of cash savings that you don’t need to access frequently, an online bank may be the best solution. When considering an online bank, be sure to select one that is truly a bank carrying FDIC insurance. A recent search of online bank rates produced the following results:
*Savings account rates found on Bankrate.com on December 12, 2017. This information is presented for informational purposes only and does not constitute a recommendation.
Keep in mind that short-term interest rates are slowly rising. The Federal Reserve is forecasting three rate hikes in 2018. That means the interest rate on your savings account is likely to change next year. Rather than constantly chasing the highest rate, set reminders to check your rates once or twice each year. Saving is hard, so make sure you’re earning a good rate on your cash reserves. You deserve it.
https://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.png00ThirtyNorth Investmentshttps://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.pngThirtyNorth Investments2017-12-14 09:45:562017-12-14 09:45:56Financial Wellness for Gen X and Millennials: Find the Highest Savings Rate
I’ve noticed a few recurring themes from financial plans this past year. They have nothing to do with investments, but they are in many ways, so much more important. It turns out, there are a few items in your financial life that require consistent maintenance. Dropping the ball could cost you quite a bit of money.
If you have any financial assets, you need full liability coverage car insurance. The state minimum amount will not be enough to cover you in an accident when you’re at fault, and the other party can sue you personally after the insurance maxes out. In Louisiana, the state minimum liability insurance is 15/30/25. That means $15,000 for bodily injury per person, $30,000 for bodily injury to more than one person in an accident, and $25,000 for damage to the other person’s vehicle. So, the next time you total someone’s $80,000 Tesla, you’re on the hook after the first $25,000. But the larger risk is the bodily injury limits. Have you ever seen a hospital bill, with an ambulance ride, for less than $15,000? If you carry minimum liability insurance, the injured person will be suing you for the remainder of their medical bills.
You need the maximum liability coverage of 100/300/100. That’s $100,000 bodily injury per person, $300,000 per accident, and $100,000 in property damage. In addition to full liability insurance, you might also want uninsured and under-insured coverage in case the other driver is at fault and doesn’t have enough insurance. To protect your assets further, you should consider purchasing an umbrella policy on your homeowner’s insurance that pays an amount above the maximum car insurance rates.
There are a few things you can do to lower your car insurance premiums. You might consider a higher deductible of $1,000 rather than $250 or $500. If you don’t owe anything on your car, and you have enough in savings to buy a replacement car, you might consider dropping collision coverage on your vehicle. If you run the numbers, self-insuring may be cheaper over the life of your vehicle.
Many car insurance companies are offering a discount to drivers who place a tracking device in their car for up to six months. This allows the insurance company to confirm the number of miles driven and analytical data such as speed and brake usage. Drivers deemed to be “safe” drivers are given a discount of up to 20% based on the data collected. This can backfire, however, if you’re a hot-rodder, so consider you’re driving style before taking this route.
Are you adding a teenage driver to your car insurance soon? Good luck! As parents before you know all too well, car insurance for teenage drivers is expensive. However, many insurance companies offer discounts for teens who have completed approved driver’s education classes and logged enough practice time behind the wheel with a parent. Teens can also get a discount for having good grades. Check with your insurance company to find out what information they need to apply for a teen driver discount.
I used to be the person who never changed car insurance, accepting the annual premium increase into infinity. It makes sense to shop your coverage every couple of years. Although the process is tedious, many people find significant savings by switching companies.
This is Part 1 of a series on financial wellness for Gen Xers and Millennials. Check back next week for a discussion on shopping your cash savings rate.
https://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.png00ThirtyNorth Investmentshttps://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.pngThirtyNorth Investments2017-11-16 16:24:292017-11-16 16:24:29Financial Wellness for Gen X and Millennials – It’s About More than Investments
As you may recall, we have written previously on the importance for retirement plan sponsors to better understand their responsibilities under ERISA to more effectively operate their plans. In my opinion, it is no longer prudent to default to actions being/not being taken by plan vendors not serving in a fiduciary role. ERISA specifically requires fiduciaries to adhere to a duty of loyalty, a duty of prudence, a duty to diversify plan investments and to not engage in any prohibited transaction, unless exempted.
Do you know which of your plan vendors are serving in a fiduciary capacity, and if so, to what extent?
A recent special report written by Lars Golumbic, of the Groom Law Group, discusses the types of lawsuits being brought against sponsors and offers some suggestions on reducing ERISA risks.
When interviewed by PR Newswire , Lars says “although ERISA class-action lawsuits have been around for years, we’ve recently seen an expansion in the number of plaintiffs’ law firms bringing these cases. More and more firms are jumping on the bandwagon as they see other firms’ investments in ERISA litigation paying off. What’s more, even the established firms have significantly expanded their fiduciary targets—and now no plan sponsor or fiduciary is immune from suit.” Read more
https://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.png00Jonathan Epsteinhttps://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.pngJonathan Epstein2017-10-24 18:43:012017-11-16 16:18:57A Special Report on 401(k) Best Practices
Stocks continued to climb higher during the third quarter, with international and emerging market stocks increasing their lead on U.S. markets. S&P 500 earnings rose to an all-time high of $30.51 per share for the second quarter. International and emerging markets continued to soar, assisted by a declining U.S. dollar, low valuations, and strong earnings. Large cap stocks performed better than small caps, and growth stocks outperformed value stocks. Technology was the highest performing sector in the S&P 500, and was up 27.4% for the year. On the flip side, energy and telecom stocks have posted negative returns this year. Bonds posted small positive returns as short-term interest rates ticked higher. International and emerging market bonds outperformed U.S. bonds.
*US Stocks represented by the S&P 500 Index, International Stocks represented by the MSCI EAFE Index, and Emerging Markets represented by the MSCI Emerging Markets Index
When meeting with clients to discuss saving for retirement, I often note that two of the most critical elements to building wealth for use in retirement are 1. starting early and 2. saving as much as possible. After all, the goal is to develop sources of income for use in retirement as a replacement for a paycheck. Understanding that fact is step one, in my opinion, to beginning to develop a plan. Sources of income in retirement can include Social Security, retirement accounts like 401(k) or IRA accounts, rental property, etc.
In the world of investing and, in particular, investing for retirement, you might easily become confused or frustrated by what seems a daunting task complicated by industry jargon. Frustration might arise because the goal of financial security seems unachievable. Concepts such as retirement readiness (an often used term for saving enough to retire) might create confusion. Further, assessing the potential types of retirement accounts to use could lead to indecision.
Lately, I have read that States are beginning to require that businesses provide access to some form of retirement savings account for their employees even if it is not a 401(k) Plan. Illinois, California, Oregon, Connecticut and Maryland, with Oregon leading the pack, have initiated legislation to do just such a thing. The interesting thing is that the current plans appear to be to mandate businesses to automatically sign up workers for Roth Individual Retirement Accounts (IRA). Workers can opt out, but must take a pro-active step to do so. Presumably, those that choose to contribute can select investments from a menu. Those that don’t opt out are automatically enrolled and if they do not select an investment option will, most likely, be invested into a default investment option, like a Target Retirement Date Fund. Read more
https://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.png00Fritz Gomilahttps://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.pngFritz Gomila2017-10-12 20:27:102017-11-16 16:19:33Retirement Savings 101: My Grandfather Taught Me This Lesson
What do Gucci, CenturyLink and Fujitsu have in common? Read On!
I continually write on fiduciary issues and am very amazed by the number of lawsuits still being initiated and settled. The trend is certainly not slowing down and fiduciaries, beware. Please note that even though the service provider’s name is often in the headlines, it is the plan fiduciaries that are being sued. Additionally, I notice that the size of the plans being sued are getting smaller, meaning no longer are just the mega-plans being targeted.
According to the Investment Company Institute (ICI), 401(k) plans held $5 .1 trillion in plan assets as of June 2017. With these dollars, it`s not difficult for plaintiff attorneys to be motivated to get creative with the types of suits being brought against fiduciaries. Many of the newer fiduciary breach suits against corporations, universities and plan providers involve poor decision-making for both the selection and monitoring of investment options and breaches in administrative decision-making. In addition, the suits go beyond just the use of expensive share classes and are now delving into investment strategy and sub-par performance. As a reminder, 401k) plan fiduciaries are subject to strict duties of prudence, loyalty and avoiding conflicts of interest and acts of self-dealing.
One recent case involves CenturyLink and their decision to utilize six different investment managers for their large cap fund (5 active and 1 passive). The fund was benchmarked to the Russell 1000 Stock Index and the suit alleges underperformance against the index for years. More on the case can be found here:
Birse v. CenturyLink, Inc et al
Another case involves Fujitsu and their decision-making regarding excessive recordkeeping expenses and their custom designed Target Date Funds. As a result of the suit filed on June 30th, 2016, Fujitsu decided to settle for $14 million citing the complexity and expense to litigate these types of cases. More on the case can be found here:
Johnson et al v. Fujitsu Technology and Business of America, Inc. et al
This suit is certainly not in style, as Gucci America Inc. is being charged for several fiduciary breaches. It is being alleged that their service provider, Transamerica Retirement Solutions, had included excessively expensive and proprietary investment options in Gucci`s $96 million 401(k) plan. The suit alleges that participants were assessed unreasonable administration expenses and that the plan retained high cost and poor performing investments. More on the suit can be found here:
Gucci Gulp? Another Excessive Fee Suit Filed
Another important fact to the Gucci 401k) suit is that the plan assets are only $96 million, far less than the plans typically involved in these types of cases. This should serve as a warning to plan fiduciaries that regardless of your plan size, the fiduciary standards are uniform and applicable to ALL plan sponsors.
Financial Wellness for Gen X and Millennials: Find the Highest Savings Rate
One of the first steps to building a solid financial plan is to accumulate a cash reserve. Popular financial planning rules of thumb suggest keeping 3-6 months of living expenses in cash. Homeowners and those in jobs subject to layoffs may prefer to keep a year or more in cash reserve. A cash reserve is a rainy-day fund that should not be invested in stocks or bonds. The purpose of a cash reserve is to pay for large, unexpected expenses such as; home repairs, car repairs, insurance deductibles, or paying bills during a period of unemployment.
If you’re planning to buy a home or car in the next few years, you might also be keeping large amounts in a savings account. Since cash savings is likely to be a larger percentage of total net worth for younger investors, it’s important to compare interest rates regularly. Now that interest rates are more than 0.00%(!), interest rate shopping is important.
First, make sure you’re getting the highest rate offered at your bank or credit union. Banks are constantly offering promotional rates for new accounts, meaning you may need to open a new account or transfer money to a different account to get the highest rate. Don’t let your savings sit in an account getting a lower rate. If you find a higher rate advertised elsewhere, there’s a chance your primary bank or credit union will match it. It might be worth a trip inside a bank branch to inquire about your options. Many banks are willing to work with you to maintain your deposits.
If the rates at your bank are less than satisfactory, look at the many online banks that offer higher rates. Each online bank has different requirements for minimum account size and number of monthly transactions. If you have a large amount of cash savings that you don’t need to access frequently, an online bank may be the best solution. When considering an online bank, be sure to select one that is truly a bank carrying FDIC insurance. A recent search of online bank rates produced the following results:
*Savings account rates found on Bankrate.com on December 12, 2017. This information is presented for informational purposes only and does not constitute a recommendation.
Keep in mind that short-term interest rates are slowly rising. The Federal Reserve is forecasting three rate hikes in 2018. That means the interest rate on your savings account is likely to change next year. Rather than constantly chasing the highest rate, set reminders to check your rates once or twice each year. Saving is hard, so make sure you’re earning a good rate on your cash reserves. You deserve it.
Financial Wellness for Gen X and Millennials – It’s About More than Investments
Part 1: Car Insurance
I’ve noticed a few recurring themes from financial plans this past year. They have nothing to do with investments, but they are in many ways, so much more important. It turns out, there are a few items in your financial life that require consistent maintenance. Dropping the ball could cost you quite a bit of money.
If you have any financial assets, you need full liability coverage car insurance. The state minimum amount will not be enough to cover you in an accident when you’re at fault, and the other party can sue you personally after the insurance maxes out. In Louisiana, the state minimum liability insurance is 15/30/25. That means $15,000 for bodily injury per person, $30,000 for bodily injury to more than one person in an accident, and $25,000 for damage to the other person’s vehicle. So, the next time you total someone’s $80,000 Tesla, you’re on the hook after the first $25,000. But the larger risk is the bodily injury limits. Have you ever seen a hospital bill, with an ambulance ride, for less than $15,000? If you carry minimum liability insurance, the injured person will be suing you for the remainder of their medical bills.
You need the maximum liability coverage of 100/300/100. That’s $100,000 bodily injury per person, $300,000 per accident, and $100,000 in property damage. In addition to full liability insurance, you might also want uninsured and under-insured coverage in case the other driver is at fault and doesn’t have enough insurance. To protect your assets further, you should consider purchasing an umbrella policy on your homeowner’s insurance that pays an amount above the maximum car insurance rates.
There are a few things you can do to lower your car insurance premiums. You might consider a higher deductible of $1,000 rather than $250 or $500. If you don’t owe anything on your car, and you have enough in savings to buy a replacement car, you might consider dropping collision coverage on your vehicle. If you run the numbers, self-insuring may be cheaper over the life of your vehicle.
Many car insurance companies are offering a discount to drivers who place a tracking device in their car for up to six months. This allows the insurance company to confirm the number of miles driven and analytical data such as speed and brake usage. Drivers deemed to be “safe” drivers are given a discount of up to 20% based on the data collected. This can backfire, however, if you’re a hot-rodder, so consider you’re driving style before taking this route.
Are you adding a teenage driver to your car insurance soon? Good luck! As parents before you know all too well, car insurance for teenage drivers is expensive. However, many insurance companies offer discounts for teens who have completed approved driver’s education classes and logged enough practice time behind the wheel with a parent. Teens can also get a discount for having good grades. Check with your insurance company to find out what information they need to apply for a teen driver discount.
I used to be the person who never changed car insurance, accepting the annual premium increase into infinity. It makes sense to shop your coverage every couple of years. Although the process is tedious, many people find significant savings by switching companies.
This is Part 1 of a series on financial wellness for Gen Xers and Millennials. Check back next week for a discussion on shopping your cash savings rate.
A Special Report on 401(k) Best Practices
As you may recall, we have written previously on the importance for retirement plan sponsors to better understand their responsibilities under ERISA to more effectively operate their plans. In my opinion, it is no longer prudent to default to actions being/not being taken by plan vendors not serving in a fiduciary role. ERISA specifically requires fiduciaries to adhere to a duty of loyalty, a duty of prudence, a duty to diversify plan investments and to not engage in any prohibited transaction, unless exempted.
Do you know which of your plan vendors are serving in a fiduciary capacity, and if so, to what extent?
A recent special report written by Lars Golumbic, of the Groom Law Group, discusses the types of lawsuits being brought against sponsors and offers some suggestions on reducing ERISA risks.
When interviewed by PR Newswire , Lars says “although ERISA class-action lawsuits have been around for years, we’ve recently seen an expansion in the number of plaintiffs’ law firms bringing these cases. More and more firms are jumping on the bandwagon as they see other firms’ investments in ERISA litigation paying off. What’s more, even the established firms have significantly expanded their fiduciary targets—and now no plan sponsor or fiduciary is immune from suit.” Read more
3rd Quarter 2017 Market Commentary
Stocks continued to climb higher during the third quarter, with international and emerging market stocks increasing their lead on U.S. markets. S&P 500 earnings rose to an all-time high of $30.51 per share for the second quarter. International and emerging markets continued to soar, assisted by a declining U.S. dollar, low valuations, and strong earnings. Large cap stocks performed better than small caps, and growth stocks outperformed value stocks. Technology was the highest performing sector in the S&P 500, and was up 27.4% for the year. On the flip side, energy and telecom stocks have posted negative returns this year. Bonds posted small positive returns as short-term interest rates ticked higher. International and emerging market bonds outperformed U.S. bonds.
*US Stocks represented by the S&P 500 Index, International Stocks represented by the MSCI EAFE Index, and Emerging Markets represented by the MSCI Emerging Markets Index
Where is Volatility? Read more
Retirement Savings 101: My Grandfather Taught Me This Lesson
When meeting with clients to discuss saving for retirement, I often note that two of the most critical elements to building wealth for use in retirement are 1. starting early and 2. saving as much as possible. After all, the goal is to develop sources of income for use in retirement as a replacement for a paycheck. Understanding that fact is step one, in my opinion, to beginning to develop a plan. Sources of income in retirement can include Social Security, retirement accounts like 401(k) or IRA accounts, rental property, etc.
In the world of investing and, in particular, investing for retirement, you might easily become confused or frustrated by what seems a daunting task complicated by industry jargon. Frustration might arise because the goal of financial security seems unachievable. Concepts such as retirement readiness (an often used term for saving enough to retire) might create confusion. Further, assessing the potential types of retirement accounts to use could lead to indecision.
Lately, I have read that States are beginning to require that businesses provide access to some form of retirement savings account for their employees even if it is not a 401(k) Plan. Illinois, California, Oregon, Connecticut and Maryland, with Oregon leading the pack, have initiated legislation to do just such a thing. The interesting thing is that the current plans appear to be to mandate businesses to automatically sign up workers for Roth Individual Retirement Accounts (IRA). Workers can opt out, but must take a pro-active step to do so. Presumably, those that choose to contribute can select investments from a menu. Those that don’t opt out are automatically enrolled and if they do not select an investment option will, most likely, be invested into a default investment option, like a Target Retirement Date Fund. Read more