Archive for the ‘Retirement Plan’ Category

You Can’t Know Enough: The Importance of Knowing Your Fiduciary Responsibility

Friday, July 25th, 2014

You may find that the spotlight isn’t for you. But as the fiduciary of your company’s retirement plan, the spotlight is all on you. The Department of Labor (DOL) has placed a major emphasis on fiduciary responsibility in the past few years and continues to push the matter in its initiatives. So it’s important that you understand what you’re responsible for.

To meet your fiduciary responsibilities as a retirement plan sponsor, you need to understand the fiduciary standards of conduct as adopted by the Employee Retirement Income Security Act (ERISA). With these fiduciary responsibilities, there is also potential liability. Fiduciaries that don’t follow the basic standards of conduct may be personally liable to restore any losses to the plan. Pretty serious, right? To help ease your mind, here’s what you need to know.

Identifying Your Plan Fiduciaries

A plan’s fiduciaries will ordinarily include the named trustee in the document, investment advisors and all individuals exercising discretion in the administration of the plan. Under ERISA regulations, fiduciaries are responsible for:

  • Loyalty to the plan participants – acting in their exclusive best interest
  • Prudence – documenting expertise and a decision-making process
  • Following the plan documents
  • Diversifying plan assets
  • Paying only reasonable expenses for necessary services

Mitigating Your Risk As A Fiduciary

As a fiduciary of your business’s retirement plan, you should consider these items and answer these questions to ensure that you comply with ERISA regulations:

  • If participants in your plan make their own investment decisions, have you provided sufficient information for them to exercise control in making those decisions? Regulations under ERISA list the information and process required to be provided to participants in order to legally shift the responsibility for making investment decisions to the participants. Are you making the required participant fee and fund performance disclosures required annually by ERISA of all plans permitting participant investment direction?
  • How frequently do you deposit participants’ contributions in the plan, and have you made sure it complies with the law? Participant contributions, including loan repayments, are required to be remitted on a timely, consistent basis. Not remitting these funds in a timely manner is considered a misuse of plan assets, which is a prohibited transaction. Not meeting this requirement creates penalties for the plan sponsor.
  • If you’re hiring third-party service providers, including investment advisors, have you looked at several providers, given each potential provider the same information, and considered whether the fees are reasonable for the services provided? It’s required that you receive fee and service disclosures from all plan service providers, and you should also receive written acknowledgements from service providers serving in a fiduciary capacity. Here are some other items to consider relating to third-party service providers:

1. Have you documented your service provider hiring process?
2. Are you prepared to monitor your plan’s service providers, including investment fund performance?
3. Do you have a process in place to determine that the fees paid to service providers remain reasonable for the services provided?

  • Have you reviewed your plan document in light of current plan operations and made necessary updates? Have you provided participants with an updated summary plan description (SPD) or summary of material modifications (SMM)? Plans are required to operate according to the provisions stated in the plan document and these provisions must be communicated to participants. Changes are generally permitted, but again are required to be communicated to participants. If the plan is not operating in accordance with the written plan document, the plan could be disqualified, which would result in negative tax implications for you, the plan sponsor, and the participants.
  • Are individuals handling plan assets covered by a fidelity bond as required by ERISA?  Have you considered purchasing fiduciary insurance to mitigate the personal risk of loss to those employees you identified that are serving as plan fiduciaries? While a fidelity bond and fiduciary insurance are slightly different, both are a form of coverage to provide protection in regards to plans. The bond insures the assets of the plan in the event of employee misconduct and the fiduciary insurance provides personal protection to fiduciaries in the event of any claims for alleged errors, omissions, or breach of fiduciary duties.

Being a plan fiduciary comes with enormous responsibility. Don’t take your fiduciary responsibilities lightly. If you’re interested in learning more about what you’re responsible for as a retirement plan fiduciary, consider registering for a FREE seminar all about knowing your fiduciary responsibility. Rea & Associates has partnered with the Human Resources Association of Central Ohio (HRACO) to provide an all-day seminar dedicated to helping fiduciaries understand their responsibilities. The seminar will feature speakers from the Internal Revenue Service (IRS) and the DOL. It will be held on Tuesday, August 26 from 8:30 a.m. to 4:30 p.m. at BMI Federal Credit Union Event Center in Dublin, Ohio. More details, including a schedule, can be found here. Click here to register for this free event.

Fiduciary Responsibility Help

If you need assistance navigating the responsibilities of being a fiduciary, contact Rea & Associates or speak with one of our financial advisors.

Author: Paul McEwan, CPA, MT, AIFA (New Philadelphia office)

 

Looking for more articles about fiduciary responsibility? Check out these articles!

What Are The Responsibilities of a Fiduciary?

How Can I Make My Benefit Plan Audit A Smoother Process?

Will You Be Ready For Retirement?

 

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What You Should Know Before Dipping Into Your 401(k)

Friday, May 16th, 2014

Got a 401(k) plan? Have you ever withdrawn money from your 401(k) account? If so, you’re part of the growing number of Americans using their 401(k) accounts to fund other areas of their lives. A recent Bloomberg article explains that more and more Americans are turning to their 401(k) accounts rather than to other means, such as a loan, to help cover any unexpected financial needs that come up.

Historically, Americans have used their homes as a source of additional money. According to the article, when home values rose, homeowners refinanced or took out second mortgages. But due to the housing collapse back in 2008, many homeowners don’t have these options anymore – so they turned to their 401(k) accounts. What many people don’t realize is that depending on their 401(k) plan, they could be penalized for either taking an early withdrawal and/or not putting that money back into their account in the appropriate amount of time.

Shocking 401(k) Withdrawal Statistics

The Bloomberg article cites an IRS report that states the agency collected $5.7 billion in withdrawal penalties in 2011. In other words, Americans withdrew nearly $57 billion from their retirement accounts. That’s $5.7 billion that the IRS would otherwise not have banked on receiving. And what’s the federal government doing with this “extra” income? Funding federal agencies and projects.

Think Before You Dip

Before you turn to your retirement plan for help, you should be aware of some things. It may seem like an easy option, but the IRS actually has some rules that you have to meet before taking money from your 401(k). One of the following conditions must occur before you can take money out without being penalized:

  • You lose your job
  • You claim disability
  • You or your spouse dies
  • You turn 59 ½ years old

401(k) Withdrawal Based on Financial Hardship

If you don’t meet the criteria listed above, but are facing a financial hardship, you may also be able to take an early withdrawal from your retirement account. The IRS’ hardship rules require you have one of the following needs to qualify for a hardship withdrawal:

  • Medical expenses for you or your immediate family
  • Financial assistance in the purchase of your primary residence (this excludes mortgage payments)
  • Tuition or other educational fees (maximum of 12 months) for you or your immediate family
  • Prevent the eviction of you from your primary place of residence
  • Burial or funeral expenses for deceased parent, spouse or other immediate family member
  • Expenses for the repair of damage to your principal residence

The amount of money you take can’t be more than the amount you actually need to cover your hardship. It’s important to note that your early withdrawal due to a financial hardship is subject to state and federal taxes, and is also subject to a 10 percent early withdrawal penalty if you are under age 59 ½. So keep all of these considerations in mind when deciding whether to dip into your retirement account.

401(k) Withdrawal Help

If you’re not sure if a retirement withdrawal is the best route to go, contact Rea & Associates. Our team of Ohio retirement plan services professionals can help you determine if you’re eligible and what you need to do to minimize your tax liability from a withdrawal.

Author: Steve Renner, QKA (New Philadelphia office)

 

Looking for more information related to 401(k) or retirement plan withdrawals? Check out these blog posts:

Will I Be Penalized for a Hardship 401(k) Withdrawal?

Raiding Your 401(k)? It’ll Cost You

What Are The Rules For Taking A Distribution from My 401(k) Plan?

 

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DOMA’s Effect On Retirement Plans And Beneficiary Forms

Monday, May 12th, 2014

Last June, the U.S. Supreme Court, in United States v. Windsor, ruled that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional. As you may recall, DOMA Section 3 states, “In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.”

By holding Section 3 of DOMA unconstitutional, qualified retirement plans must now treat the relationship of same‐gender married couples as a marriage in order to maintain the plans’ tax‐qualified status. The term “spouse” includes an individual married to a person of the same-gender if the individuals are lawfully married under state or foreign law.

The IRS recognizes a valid same-gender marriage even if the married couple is living in a state that does not recognize same-gender marriages. The term “spouse” doesn’t include individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not defined as marriage.

Important DOMA Information for Plan Sponsors

  • Participants (and their spouses) who are in same-gender marriages generally must be treated as married for all purposes under a retirement plan. This was effective as of June 26, 2013.
  • As of September 16, 2013, your plan must recognize same-gender marriages that were lawfully performed under the laws of the 50 states, D.C., U.S. territory or a foreign jurisdiction.
  • States that currently recognize same-gender marriages include: California, Connecticut, Delaware, Hawaii, Illinois (law will take effect on June 1, 2014), Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode Island, Vermont and Washington.
  • Depending on whose retirement plan provider plan document you use, you may want to contact the provider to ensure that your retirement plan complies with these new rules. In general, amendments to such plans are due by the end of the plan’s remedial amendment period, or December 31, 2014.
  • As a plan sponsor, you have no obligation to notify current or former participants of the new rules.
  • All qualified plans must recognize same-gender marriages for all plan purposes. This would include provisions applicable to beneficiary designation, death benefits, applicable spousal consent requirements regarding distributions and loans, rollovers, etc.

Retirement Plan Help

Now is the perfect time to update beneficiary forms for all participants in your plan. It’s important you keep a current copy of each participant’s beneficiary form in his or her personnel file. If you need assistance with this, contact Rea & Associates. Our Ohio benefit plan services team can help you determine what you need to do to keep in compliance with IRS and DOL regulations.

Author: Andrea McLane, QKA (Dublin office)

 

Looking for more posts about retirement plan best practices? Check these out:

What Are The Rules For Taking A Distribution from My 401(k) Plan?

What Should Plan Sponsors Ask Their Investment Advisors?

What Are The Responsibilities of a Fiduciary?

 

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How Can I Make The Most of My Retirement?

Wednesday, April 23rd, 2014

During my 30 years of financial planning experience, I have come to find that there are four phases of a person’s life. If you’re a Baby Boomer, each phase is approximately 22 years in length. Phase 1 is our formal education and/or training. During Phase 2, we try to figure out what we are going to do for a living, and then focus on becoming as proficient at it as we can be. In Phase 3, we strive to be on top of our game and begin to accumulate wealth. It’s Phase 4 that should prove to be, as long as we enjoy good health, the most gratifying phase of our lives. For in Phase 4, we should be able to step back and enjoy our journey at a more relaxed pace. It is during this phase that we are oftentimes best positioned to positively impact the people and causes that are important to us, while hopefully leaving this world a little better than we found it.

Financial and Emotional Threats to Retirement

Certainly, there are financial challenges that you may face that you should address in order to live the lifestyle necessary to accomplish your mission. These financial challenges exist for many of us due to longer life spans, the decrease of defined benefit retirement plans, and the uncertainty surrounding programs such as Social Security and Medicare. Because of our longer life expectancies and the disappearance of guaranteed pensions, many Baby Boomers are choosing to cut back the hours that they work rather than retire. For some it becomes a phase-out period of their career, while others choose to commence an entirely new career.

I have had the privilege to work with financially successful people whose fourth phase of life is not threatened by financial insecurity. However, they may have confronted emotional challenges that surface due to their loss of identity. It’s common for a person in a management position of a large company to discover that many of the people they considered friends prove to have been what I refer to as “positional acquaintances.”

Once that person retires and no longer holds a position on the company’s organization chart, the remaining people on the chart begin to interact with the new leader and no longer interact with the retiree.

So regardless of whether the threat to your enjoyment of Phase 4 is financial and/or emotional, below is a list of potential remedies that should be helpful tools as you attempt to position yourself for an enjoyable victory lap of your life’s journey.

7 Remedies To Help You Enjoy Your Retirement

  1. Develop hobbies or participate in community service activities that will provide you with an outlet to use your time and talent.
  2. Diversify your group of friends to include individuals who are not from work.
  3. Be a disciplined contributor to your retirement plan. During Phase 2, always contribute at a minimum the amount that your employer will match. During Phase 3, consider contributing the maximum amount permitted.
  4. Consider phasing out of your career and/or commencing on a new career that is aligned with your time, talents and passions. Continuing to earn an income can afford you the option of delaying access to your retirement funds and Social Security benefits.
  5. Become familiar with your Social Security options. Waiting to access your monthly benefits until you’re 70 years of age can generate a 75 percent increase of your monthly benefit at age 62. With today’s life expectancies, doing so could provide significantly more retirement benefits to you or your spouse during your lifetimes.
  6. Examine your current lifestyle and determine what is important to you. Where possible, trim unnecessary activities and related expenses and begin shaping your desired retirement lifestyle.
  7. Leverage tax law to subsidize the cost of your chosen lifestyle. The American Taxpayer Relief Tax Act of 2012 added a complexity of additional tax brackets and disappearing tax deductions that are tied to income levels. As a result, tax bracket management, where you accelerate or defer income into low tax bracket year and deductible expenses into high tax bracket year has become more important. Proactive tax bracket management, coupled with disciplined investment of realized tax savings, can significantly enhance the cash flow available to you during your victory lap.

By applying the strategies above, the increased amount of cash you could realize during retirement could be the difference between enjoying your retirement or not enjoying it. Consider taking some of these steps today in order to enhance your chances of living your dream in the future.

Retirement Planning Help

If you’re unsure of what your future retirement holds, contact Rea & Associates. Our team of Ohio personal tax professionals can help you evaluate where you’re at currently and can help you map out where you want to go on your retirement journey.

Author: Frank Festi, CPA, CFP (Medina office)

 

Want to gain more tips for retirement planning? Check these blog posts out:

Retirement Is Knocking … Are You Ready To Answer The Door?

Will You Be Ready for Retirement?

What Are The Rules For Taking A Distribution from My 401(k) Plan?

 

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Retirement Is Knocking … Are You Ready To Answer The Door?

Wednesday, April 2nd, 2014

Traveling to exotic places. Spending hours on the links. Enjoying time with the grandkids. Supporting philanthropic efforts. While these all might be things you hope to do during retirement, do you have any idea the likelihood that you’ll actually get to do them? Sadly, more and more individuals are finding that they’re not adequately prepared for retirement. According to the Employee Benefit Research Institute’s (EBRI’s) March 2013 Retirement Confidence Survey, 49 percent of individuals surveyed are “not very confident” or “not at all confident” that they’ll have enough income when they hit retirement. That’s an astounding, yet insightful number. How would you answer the question, “How confident are you that you’re prepared for retirement?” If you find yourself in either of the categories mentioned above, all hope is not lost.

For many of you, retirement probably seems light years away. But there may be some of you who are fast approaching retirement age. Wherever you’re at on the retirement spectrum there are practices you can put in place now to move you toward your retirement goals.

Five Practical Tips for Retirement Readiness       

  1. Look at your ability to save and cut corners where you can to save money. Even if your savings goal seems beyond reach or too distant in the future to be of concern now, re-evaluate where you can save and strive for it. Some individuals won’t begin to save if they see the goal as unattainable and set themselves up for failure before they even begin. Just as a tiny grain of sand can form into a pearl within an oyster over time, small steps in saving for retirement can lead you to your goals. Take responsibility to make it happen, and get financial advice if you need some help.
  2. Determine what you expect your retirement lifestyle to look like. If you dream or envision traveling to those exotic places I mentioned earlier, or perhaps you want to buy a motor home and travel the United States, it’s critical that you have the funds to do it. In theory it sounds like a great idea, but what many people realize upon retirement is that they don’t have enough funds to support these kinds of adventurous or carefree lifestyles. The EBRI survey cited above also showed that seven out of 10 individuals haven’t talked with a financial advisor about their financial situation nor have they put together a plan for retirement. If you want to have a retirement that’s close to what you dream of, put a realistic plan together for what you expect retirement to look like and go after it to make it happen.
  3. Evaluate your debt. Have you purchased a new car? Is your mortgage paid off? Are you (or are you planning on) paying for your kids’ college education? As you prepare for retirement, it’s important you evaluate your debt situation. Ideally, you don’t want to go into retirement with any debt. Work hard now to pay off debt you may have. It’ll pay off (literally and figuratively) later on down the road!
  4. Consider what monetary resources you have to pull from. There’s a whole slew of ways you can fund your retirement. Make certain you are taking advantage of any retirement plan your employer offers. Not only does this give you the ability to save for retirement, but many employers will also contribute money for you – do your best to take full advantage of the contribution your employer will make for you. Personal savings and other avenues, such as an Individual Retirement Account (IRA) or investment in property, could be considered. Social security benefits can also be factored in as part of your retirement benefits, but should not be viewed as the only or primary source of retirement income.
  5. Anticipate medical costs and needs. You may feel fit as a fiddle. But unfortunately for many of us, that feeling won’t last our entire lives. As we get older, our bodies age, and it’s important for us to prepare financially for any potential medical costs or needs we could encounter. Medical costs are one of the more commonly overlooked items when planning for retirement. Knowing your family’s medical history could be helpful when anticipating your future medical costs. 

Retirement Planning Help

While these five tips won’t completely solve all of your retirement woes, they’ll help you get in better shape for retirement. Don’t wait until it’s too late. To celebrate National Employee Benefits Day, which is today, start preparing for the retirement of your dreams today. If you need guidance or additional insight on how to best plan for your retirement, contact Rea & Associates. Our team of Ohio tax professionals can help you put together a plan to ensure you’re on a good path to retirement.

Author: Darlene Finzer, CPA, QKA, CSA (New Philadelphia office) 

 

Looking for more advice on retirement planning? Check out these posts:

What Are Ways You Can Ensure You’re Ready for Retirement?

Will You Be Ready for Retirement?

What Are The Rules For Taking A Distribution from My 401(k) Plan?

 

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