Retirement Plan Blog

Is greed still good?

Thu, 19 Aug 2010 07:38:15 -0600

A little over a year ago, I postulated on the the psychology behind today's economy.

The old economy, I said, was personified in the classic “Greed is good” speech by Gordon Gekko as played by Michael Douglas in the 1987 Oliver Stone classic, Wall Street.

Gekko returns in Stone's sequel, Wall Street: Money Never Sleeps. It's different this time. Today's economy is made up of people that Jay Suhr calls “The Cautionary Generation”.

You'll have to wait until September 24 to see the movie, but you can read about it now in my blog post, The Return of Gordon Gekko, in the Small Business Advocacy Blog of which I am the Editor.

Small Business Advocacy Blog

Sun, 15 Aug 2010 19:38:16 -0600

Small Business Advocacy Council launches new blog

Sun, 15 Aug 2010 18:18:43 -0600

There's a new blog out there, and it's one uniquely focused on small business and business owners. It's sponsored by the Small Business Advocacy Council (SBAC). Here's our mission statement:

The Small Business Advocacy Council (SBAC) was established to give small business owners, their employees and those with whom they conduct business a voice in local, state and federal politics. The SBAC is a non-partisan 501 (c) (6) not-for-profit political organization, whose goal is to advance advance the causes important to small businesses.

Additionally, the group seeks to strongly support our members by providing networking, advertising and promotional opportunities that will sustain those that care enough to stand with small business and hard-working Americans.

I say "our" because I am a member and the Editor of the new blog which is appropriately called the Small Business Advocacy Blog.

If you're a business owner, consider joining us. Here's how.

The Isely Brothers and the IRS

Thu, 12 Aug 2010 17:27:33 -0600

Those are the great Isely Brothers pictured off to the left whose music I grew up with. Memories of which were brought back to me by an article written by a kindred pop culture soul.

And with no disrespect intended, in of all places, a big Washington, D.C. law firm. It's David Fuller, a Partner in Morgan Lewis’s Employee Benefits and Executive Compensation Practice, who edits their firm's Payroll & Perks Bulletin Board.

In their recent issue, David writes about the IRS attempt to collect post bankrupcy taxes and interest from the Isley Brothers. You really had to be there to get all the references. So here's David's post, Is It Worth It to Twist and Shout reposted with his permission in it's entirety with links supplied by me.

Three of the brothers composing the famous R&B group the Isley Brothers filed for bankruptcy. The bankruptcy trustee made payments of more than $3 million to the IRS and the Isleys thought they had once again found Smooth Sailing—until the IRS decided The Heat Is On and took action to collect post-petition taxes and interest.

The Isleys then tried to Fight the Power and challenged the allocations of the tax payments. The Third Circuit this month upheld the dismissal of the Isley Brothers’ complaint challenging the IRS’s allocation of payments.

Marvin Isley, who passed away on June 6, was not part of the dispute. What It Comes Down To as the Isleys would say, is that taxpayers must be well prepared and well represented when challenging the IRS.

Just because you think It’s Your Thing (and you can “Do what you wanna do”) doesn’t mean the IRS will agree.

There's really not much I can add to David's post except to take it on home with a video of the afore-mentioned Twist and Shout as recorded by the Isely Brothers in 1962. And for you young-uns out there, that thing on the spindle is a 45 rpm record.

The new retirement plan currency: interfacing the payroll system with 401(k) administration

Sat, 07 Aug 2010 17:35:55 -0600

Pardon the pun, but more employers are indeed achieving cost and operating efficiencies when the payroll system and 401(k) administration can directly talk to each other.

In the unconnected world, there are a multitude of steps that need to be done in order to get the employee's 401(k) contribution into the 401(k) recordkeeper's platform. With an integrated system, all of this takes place electronically, and the employer is removed as the middleman.

The result? Many employers have regained as much as 50 to 100 hours annually – time which could now be spent on strategic organizational matters.

You can read more about how employers are achieving these kinds of results in my Employee Benefit News column, Getting Plan, Payroll Into Alignment.

401(k) fees: not just the who and how much, but the what

Thu, 22 Jul 2010 06:10:15 -0600

Unlike the money belt pictured above, the dollars charged for 401(k) services will start to become more apparent under the recently published Department of Labor Interim Final Regulation on Improved Fee Disclosure.

Going forward, I'll be commenting on the new rules as they start to impact service providers, plan sponsors, and employees. That's I call the "who" and "how much" part of retirement plan fees.

But for now, don' forget that there is also the "what" part which is subject to one of the basic qualification requirements. That is, the plan must be established and maintained by the employer for the "exclusive benefit" of the employees and beneficiaries.

That means that the plan cannot pay for expenses that are considered to be the responsibility of the employer. These are called "settlor" expenses. On the other hand, expenses that relate to the fiduciary's administration of the plan can be paid out of plan assets. These are called "operational expenses".

You can find the details about what expenses can (and can't) be paid with 401(k) plan assets in my recent column in Employee Benefit News.

Reengineering Health Care (Book Review)

Thu, 01 Jul 2010 15:43:43 -0600

This is a blog about retirement plans. So why, you might ask, am I reviewing a book about health care? I’m certainly not an expert on this complicated topic. But I am an expert on paying for it as a business owner, as a health care consumer, and an expert on watching client business owners and their employees also deal with it. And as costs and premiums continue to escalate, seeing these same employers and employees shift dollars more into health care at the expense of retirement savings.

So what’s the solution? In the view of many experts, it’s not legislation that will fix health care system in the form of the recently passed Patient Protection and Affordable Care Act (PPACA). Indeed, one expert, Paul Kasriel who is Senior Vice President and Director of Economic Research at The Northern Trust, says the PPACA “primarily represents a redistribution of income from the young and healthy to the under-65 less healthy.”

Others more cynical point to the new 10 percent tax on all indoor tanning sessions starting July 1 as part of PPACA.

Jim Champy and Harry Greenspun, M.D. provide a different approach in their new book, REENGINEERING HEALTH CARE: A Manifesto for Radically Rethinking Health Care Delivery. You may remember Jim Champy as the co-author with Michael Hammer of the 1993 book, RENGINEERING THE CORPORATION: A Manifesto for Business Revolution.

The earlier book certainly lived up to its title as it went on to change the thinking on how companies should structure work. In the process, their book sold more than 3,000,000 copies world wide, spent more than a year on The New York Times Best Seller List, and was translated into 17 languages.

Champy and Greenspun apply the same pioneering reengineering methodology to show that the health care industry is rife with opportunity for radical redesign to enhance quality and lower costs dramatically. Reengineering can improve the system in ways that government can’t by focusing on three main areas:

How technology can create more seamless, accessible, valued, and sustainable health care systems and avoid technology’s pitfalls.
How processes focusing on prevention and wellness and less on chronic disease and hospitals can better meet needs of patients.
How the skills and behavior of the people who deliver health care can be tapped to replace outmoded ways with the talent, hopes, and ideas of a new generation.

From my vintage point as a business owner and health care consumer, my vote is for reengineering rather than "reform". Here is a link to the book at Amazon if you want to make up your own mind and a link to its predecessor.

401(k) plan sponsors asking "Can you hear me now?"

Fri, 25 Jun 2010 07:38:26 -0600

I could have gone with Verizon's "Can You Hear Me Now" Guy as my visual metaphor for this blog post.

But then I found out that there isn’t one “Can You Hear Me Now" Guy but many. Verizon has a thick rulebook which Gizmodo reports spells out the rules on how Guy should dress and comport himself during public appearances.

While I didn’t exactly feel betrayed by learning about multiple Guys, it did trigger a similar feeling back in the 60s when we booked the Drifters for a college party. The Drifters that did show up weren’t the Official and Sole Authentic Original Drifters, but another group using the same name.

So I decided to go in a different direction for today’s visual metaphor -old school - with the picture of Don Adams as Maxwell Smart, Agent 86, in the classic TV series, Get Smart. (Infinitely better than the recent movie and definitely not the first “Smart Phone” - sorry about that).

What I’m visualizing is the 401(k)helpcenter.com article about a recent study which reveals why plan sponsors select, stick with, and switch plan providers. What they are reporting on is The Briskin Consulting Study of Small-Retirement-Plan Sponsors Advice. The study’s conclusion is that “assistance, not investment performance, drive satisfaction and attrition among small-plan sponsors.”

No surprise here. The retirement plan industry is no different than any other service industry. Clients change service providers because of lack of service. In the small retirement plan market (however defined), I’ve seen service issues in situations in which providers have:

Exited the market
Outsourced poorly
Changed service models
Receiving compensation without providing commensurate services

The Briskin Study refers to the end result as attrition. I call it opportunity.

Revisiting communicating 401(k) and Marshall McLuhan

Mon, 14 Jun 2010 07:02:33 -0600

Our friend Roger Wohlner, a fee-only financial planner, who blogs at Chicago Financial Planner, sent me an email after reading the Marshall McLuhan reference in yesterday's post, Communicating 401(k): Is the Medium the Message?

Roger reminded me about McLuhan's cameo in Woody Allen's classic 1977 firm, Annie Hall. Thanks, Roger. The rest of you may enjoy it also.

Communicating 401(k): Is the medium the message?

Sun, 13 Jun 2010 12:24:35 -0600

If you’re not of my generation, then let me introduce you to Marshall McLuhan by way of this YouTube video.

McLuhan, one of the visionary thinkers in the momentous decade of the 1960s, coined the expression "the medium is the message" which he introduced in his most widely known book, Understanding Media: The Extensions of Man, published in 1964.

Simply stated, McLuhan was saying that the medium itself influences how the message is perceived. McLuhan who died in 1980 didn’t live to see how spot-on he was going to be.

So how does all of this figure in to communicating 401(k) plans? I mean really communicating 401(k) plans to participants in terms of saving money for retirement on a tax favored basis and making informed investment decisions with those dollars.

Fact of the matter is that employee education just hasn’t worked. It’s not for the lack of effort put forth by 401(k) providers which I discussed in my September 2009 column for Employee Benefit News, Lost in Translation.

And maybe it hasn’t worked because we are using the same communication methods to reach the four generations now in the workforce for the first time in our history. All of whom communicate and use technology differently.

Here’s what Larry Rosen, a professor of psychology at California State University, had to say about this in his recent article on CNNOpinion, Generation 'Text': FB me.

We are in the midst of four distinct generations of Americans: Baby Boomers (born 1946-64), Generation X (1965-79), Net Generation (1980-89) and the new iGeneration (born in the 1990s and beyond and given the "i" designation to represent media such as iPods and the Wii but also to reflect the "individualized" nature of their media).

Until recently, "communicate" meant to talk face-to-face or on the phone. But both the Net Generation and the iGeneration have turned the concept of communication upside down. The old ways are, well, old. It is now all about texting, IMing, Facebooking, Skype-ing -- pretty much anything but talking live or on the phone.

And in the case of communicating 401(k) plans, anything but reading employee booklets and attending 401(k) meetings. So maybe, just maybe, we should relate the “how” we are communicating to the “who” we communicating and realize that McLuhan was right.

The medium is the message, and let’s start using the new ways to communicate.

1,200 employers to receive IRS 401(k) Compliance Check Questionnaire

Sun, 23 May 2010 08:21:06 -0600

There’s an old expression among tax practitioners referring to taxpayers who know there is a potential tax problem, but are willing to take their chances. They’re “playing audit roulette”.

Not a good thing for plan sponsors to do with stepped compliance activities by the Internal Revenue Services and the Department of Labor who have oversight responsibility for the approximately 500,000 401(k) plans covering approximately 50 million employees.

And here’s the latest. Last week the IRS Employee Plans Compliance Unit (EPCU) announced that it will be sending a letter and instructions to 1,200 employers sponsoring 401(k) plans asking them to complete a 46-page 401(k) Compliance Check Questionnaire.

The EPCU will use a secure website to collect responses on the following topics:

Demographics
Participation
Employer and employee contributions
Top-heavy and nondiscrimination testing
Distributions and plan loans
Other plan operations
Automatic contribution arrangements
Designated Roth features
IRS voluntary compliance and correction programs
Plan administration

While the IRS indicates that this is not an audit or investigation, it does say that “failure to complete the Questionnaire will result in further enforcement action.”

While the odds of a 401(k) plan sponsor being selected are low, about 417 to 1, plan sponsors should view it as a reminder to periodically review plan operations and take corrective action if necessary. Far better to do so using available Internal Revenue Service and Department of Labor voluntary correction programs before getting caught up in an audit or investigation.

401(k) plans then and now

Sun, 09 May 2010 06:22:11 -0600

No, that’s not my high school graduation picture. It’s a Microsoft staff photo from December 7, 1978 from the StateMaster website.

Yes, that’s Bill Gates on the bottom row left, and co-founder Paul Allen on the bottom row right. The company was just three years old and still located in Albuquerque before it moved to its new home in Bellevue, Washington the next year.

A lot’s changed for Microsoft since then. The same 1978 “that was then, this is now” reference point can be used for 401(k) plans. 1978 was the year in which Congress amended the Internal Revenue Code by adding section 401(k).

The differences are many, e.g., economic, demographic, cultural, political. Whatever, and now may be an appropriate time for plan sponsors to consider the extent to which their 401(k) plans are doing what they are supposed to do.

It’s a topic I write about in my column, 401(k) Plans Must Adapt To New Economic Realities, in the May, 2010 online issue of Employee Benefit News.

Times change. Maybe retirement plans should too.

Investment returns of defined benefit plans and defined contribution plans: which type did better and does it matter?

Sat, 01 May 2010 13:39:07 -0600

Defined benefit plans and defined contribution plans - "apples and oranges" , right? Conceptually, yes. In a defined benefit plan, it's the employer who has to fund the promised benefit, but it's the employee who contributes and generally invests his or her account in a defined contribution plan, e.g., 401(k).

But in the real world in which most employees who are, in fact, covered by a retirement plan, it's 401(k) or nothing. And so the key result of a recent study, Defined Benefit vs. 401(k) Investment Returns: The 2006-2008 Update, by the consulting firm Towers Watson, has some serious implications.

The study indicates that defined benefit plans have outperformed defined contribution plans by approximately 1% a year which is consistent with their last analysis for the period 1995 and 2006.

Doesn’t sound like much, does it? But that 1% per year really matters. It can add up in terms of more lifetime retirement income. In my December 2007 blog post, What's 1% Worth, I cited research by the investment management firm AllianceBernstein that 1% translates into about $220,000 extra at retirement—and an extra 10 years of spending as shown below:

So why the difference in defined benefit and defined contribution investment returns?

Towers Watson cites possible reasons why defined benefit plans have had better investment returns. It could be because how investment results are reported, or because of different percentages of equity exposure, or it could be that

DB plan trustees have a fiduciary responsibility for investment performance. They or the professionals they hire usually have considerable financial education, experience and access to sophisticated investment vehicles — advantages 401(k) plan participants typically lack.

So in that context, then, shouldn't plan sponsors seriously consider a 401(k) managed account option?

"Watching the Detectives": The ERISA version

Tue, 13 Apr 2010 09:10:52 -0600

That’s Declan Patrick MacManus pictured above, but we know him by his stage name Elvis Costello, the English singer-songwriter of Irish heritage. The picture is actually the cover art for Watching the Detectives, the 1977 single by Elvis Costello and his backing band, the Attractions, which gave him his first UK hit single.

It’s my pop culture segue to our own ERISA version of “watching the detectives”. However, in our world, the “watcher” is the Department of Labor (“DOL”) and the “detectives” are the accounting firms charged by ERISA with performing an independent audit as part of the Form 5500 filings for qualified retirement plans with more than 100 participants.

And it’s not exactly front page news that the DOL doesn't exactly view CPAs as rock stars when it comes to ERISA audits. I wrote about the DOL’s concern about audit quality almost four years ago on this blog, Department of Labor seeks comments on guidelines for ERISA auditor independence.

Recently, our friends at Employee Benefit News carried an article, Legal Alert: Keeping A Watchful Eye On Retirement Plan Auditors, written by Frank Palmieri, a partner with the Law Firm of Palmieri & Eisenberg. Mr. Palmieri writes about an initiative by the DOL.concerning ERISA audits.

That initiative consists of the DOL issuing letters to accounting firms who perform ERISA audits requesting copies of work papers and management letters. The purpose of which is, quite simply, to detect errors in the administration of qualified retirement plans and for plan sponsors to correct those errors.

But here’s the rub. The law doesn’t permit the DOL to take direct enforcement action against the plan auditor for substandard work. They can, however, take indirect enforcement action against the Plan Sponsor, the Plan Administrator and the person who engages a plan auditor, by imposing civil penalties.

Why? Because the selection and monitoring of service providers, including plan auditors, is a fiduciary function. In that regard, you may find helpful the discussion of the "dos and don'ts for hiring an auditor" in my July 1, 2009 Employee Benefit News article, All You Need To Know About ERISA Audits.