Retirement Plan Blog

I'm pleased to announce that I am now a regular contributing author for BizBox by Slate, a special promotion by OPEN from American Express.  I'm one of 5 contributors whose focus is helping business owners manage and grow their businesses. Come visit us.

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Every year the Internal Revenue Service releases cost of living adjustments to applicable dollar limits for retirement plans. Here is a link to a chart (pdf) that summarizes the most frequently used limits.

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I was certainty premature yesterday in thinking the bailout bill was going to pass when I wrote the bailout bill is like a Christmas tree - something for everyone including retirement plans. And I wasn't alone. The stock market reacted with the largest one day drop in its history.

No one knows the road ahead, but Tim Chapmen, President of PMFM, the firm that provides managed individually managed accounts via its 401(k) Toolbox program had a perspective today about all of this that I want to share with you. (Full disclosure: 401(k) Toolbox is used by many of our clients). Yesterday Tim wrote:

Today we had the largest one day drop in the history of the stock market. The Dow was down 777 points (6.98%); the S&P 500 lost 106 points (8.79%) and the NASDAQ was down 199 points (9.14%).

Stocks were lower most of the day but the sell-off really accelerated when Congress voted down the $700 billion 'bail-out' package. It will be interesting to see where the market - and Congress - go from here, but the question I've been asked most often is, "How did we get in this mess in the first place?"

First, a little background. In 1977, Congress passed the Community Reinvestment Act (CRA) to require banks to make real estate loans in areas they might not otherwise consider. In 1995, some additional teeth were put into the CRA regulations and banks had to step up the effort or else run afoul of the banking regulators.

In 1999, to continue the effort to extend the possibility of home ownership for low and moderate income earners, the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") loosened their loan requirements, which gave birth to more adjustable rate mortgages, no documentation loans, lower down payments, etc. (Today we call those riskier loans 'sub-prime'.)

It is important to understand that banks and mortgage companies typically only 'originate' home loans to collect a fee and then sell them. With Freddie and Fannie's lower standards for buying the loans, the mortgage lenders could pay less attention to the borrower's qualifications, write new loans and collect more fees to their hearts content. Wall Street jumped on board and bundled these mortgages into 'packages' called Collateralized Mortgage Obligations and Collateralized Debt Obligations (CMOs and CDOs). They would split these packages into pieces, even get mortgage insurance on some of them to get an AAA rating, and sell them to other investors. This gave banks and mortgage companies another outlet, in addition to Fannie and Freddie, to sell the loans which means they could write even more.

More people were enjoying the American Dream, banks were booking nice fees that helped the bottom line, and Wall Street was making a fortune selling these 'derivatives' that represented a pool of loans. Everybody in the loop was happy as could be . . . while real estate prices were going up.

Warren Buffet once said "When the tide goes out you can see who's been swimming naked." When the real estate market started to soften a couple of years ago, there were definitely a lot of folks feeling pretty naked.

When the real estate bubble began to leak air the situation turned ugly quickly. Homeowners struggling to make their payments started to default in huge numbers, when it was apparent their homes weren't worth what they'd borrowed. That started a chain of events that resulted in the market for sub-prime paper drying up.

One factor that accelerated this problem was a change in the accounting rules that required firms to 'mark to market' their holdings on a regular basis. (Mark to market means 'tell me what it's worth today, not what you expect to get at maturity'.) It was a post-Enron legislative action to create transparency and 'protect' investors, but as these investment banks were forced to continually write down the value of their holdings, they were in turn required to put up more capital. When the appetite for sub-prime loans went away - there were no buyers to be found - companies without additional collateral to put up, like Bear Stearns and Lehman Brothers simply went out of business.

The problem from my perspective is what I call the Law of Unintended Consequences. The idea of home ownership is certainly a noble one that is tough to argue against; greater transparency for investors is a noble idea too. But these legislative initiatives set in motion a chain of events that have taken the past 9 years to completely unfold. There's plenty of other blame to go around here too. Mortgage lenders selling loans to folks who obviously couldn't afford them, home buyers buying homes beyond their means, and Wall Street pouring gasoline on the fire by providing the vehicles to really accelerate the opportunity. The resulting financial meltdown was no doubt unintended, but it is very real nonetheless.

So the question is this: Politicians got us into this mess, can politicians get us out of it? And my answer is, I simply don't know. I can understand the argument that something needs to be done to keep our markets liquid and operating efficiently. It's like a drunk driver in an auto accident - he's clearly at fault but that doesn't mean the paramedics ignore him.

My worry is just like it's taken a long time for the ramifications of the change in lending restrictions to come to fruition, it will likely be years before we know the effects of any current Congressional actions.

Picture taken by the author a short two weeks ago in Canmore, Alberta, Canada, gateway to the Canadian Rockies. 

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Just recently, I thought that it might be the dog days of summer as far as setting up a retirement plan is concerned.

But it may be the “retirement plan season” is here after all - at least in the minds of our fellow bloggers at Slate magazine’s BizBox blog. Their post today is What Retirement Plan Should You Offer? 

So let me take a stab at answering. One way to answer it is to start with the types of retirement plans that are available:

• Payroll Deduction IRA
• Simplified Employee Pension (SEP)
• SIMPLE IRA Plan
• 401(k) Plan
• SIMPLE 401(k) Plan
• 403(b) Plan 
• Profit-Sharing Plan
• Money Purchase Plan
• Defined Benefit Plan

The Internal Revenue Service provides excellent thumbnail sketches on their website, Choosing A Retirement Plan: Retirement Plan Options. But that’s really taking the horse before the cart. The starting point, we believe, should be the business owner answering two questions:

1. What is my objective? Is it to maximize my own contributions, or is it to attract, motivate, and retain the high performing employees I need to grow my business? Or, is it a combination of both?
2. Where am I in the life cycle of my business? Is my business in a start-up, fast growth, stable growth, or transition/exit stage?

Then, he or she will be able to decide upon the “best plan” or combination of plans that fits their circumstances at this time. A decision that should be periodically reviewed on a regular basis once a retirement plan is put in place. 

Which Way? quilt pictured above via Doodle's Quilts.
 

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Two recent 401(k) plan terminations in our little corner of the retirement plan world does not a trend make. But it's a sign that the economic slowdown is also affecting plan sponsors.

Two clients who had not made employer contributions for some time decided that because of the relatively few employees contributing, it simply was not worth the time, trouble, expense, and fiduciary responsibility to continue. Employee account balances will be distributed, and hopefully rolled over to IRAs.

So now what? Nick Curabba in his post, Ways and Means Committee to Discuss IRAs, on Baker & Daniels' Benefit Biz Blog discusses one public policy solution to the retirement savings issue.  Mark Iwry, a former Treasury Department official is advancing the new idea of requiring employers to default employees into an "automatic" payroll deduction IRA.

I blogged about Mark before in my post, 401(k) Automatic Enrollment or How to Overcome Employee Inertia. Mark is now involved with helping make automatic enrollment happen and "simpler". He is the Managing Director of the Retirement Security Project (RSP) and Nonresident Senior Fellow at the Brookings Institution.

While serving in the U.S. Treasury Department, overseeing the regulation of the nation’s private pension system, Mark led the government’s initiative to define, approve, and promote automatic 401(k)s beginning nearly a decade ago.

But ten years is too long a time period as an answer to "now what?".
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No, advisers themselves aren’t getting smaller, it's just that their numbers are. More of them are leaving the financial planning industry as reported by Plan Adviser citing a new report by Cerulli Associates, a research firm specializing in the financial service industry.  Cerulli's Edge Advisor Recruiting Edition says that the number of financial advisers in the U.S. declined from 256,569 in 2005 to 245,831 last year.

And those entering the industry are getting older – quickly. According to Cerulli more than 62% of advisers were under age 30 when they entered the industry in the 1980s. By 2007, only 3% of financial advisers were under the age of 30. The reason, Cerulli notes, is that the job of financial adviser is increasingly becoming a haven for second-career professionals.

So where are the new advisers coming from then? According to Investment News, from other investment firms who recruit for advisers from each other. In other words, it’s a zero-sum game. In practical terms, it means that the boomers have a declining universe of experienced financial advisers to help them manage their retirement assets. 

My friend, Dr. Susan Mangiero asked the question the other day on her blog,  Pension Risk Matters, Do You Have Your Own Fiduciary? If not, why not? Maybe part of the answer to Susan's question is that the good ones are just harder to find.

Picture credit: Grant Williams (August 18, 1930 - July 25, 1985) shown in his role of Scott Carey in the science fiction classic film The Incredible Shrinking Man. The film has become an existential cult classic. Released in 1957, and re-released in 1964, it was written by Richard Matheson. Here is a link to the trailer (ad preceeds) on videodetective.com.

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Lost in the mass media focus on the Baby Boomers retiring is Generation X, the generation that follows. Depending on how they are defined, it's the people born between 1965 and 1985 (age 23 to 43). I've written about them before, Not my generation that nobody seems to want. The "nobody" referred to are financial advisers who don't seem to want them as clients.

And like the Boomers, Gen Xers also worry about their retirement prospects. But a new survey suggests Generation X is even more pessimistic. According to the survey published by Scottrade and BetterInvesting, over two-thirds of Americans aged aged 27 to 42 don't think they will ever be able to stop working. This is in contrast to more than the 64% of respondents aged 55 to 64 who said they could retire and not worry, even though this group is much closer to retirement age.

Michael Rubin, a CPA and CFP, comments upon this survey on his blog, Beyond Paycheck to Paycheck, in his post, Retirement for Gen X: Black Hole or Perfect Storm?   The analogies are those of Chris X. Moloney, Scottrade’s chief marketing officer, who commented upon the study when he said

Gen X is in the middle of a 'retirement perfect storm' of very high expectations, low retirement savings and massive concern about the future of Social Security. It's a black hole to them.

Mr. Rubin is an optimist. He says

I like the black hole analogy. But I’m glad we know about it now, when we can still do something about it.

Rachel is another optimist. She describes herself as "27 and working towards extremely early retirement".  Writing on her blog, Working for Rachel, she discusses the differences in the workplace causing The Financial Generation Gap. She writes

I've painted a grim picture here, but I'm not complaining--I think I've accepted all of the facts above without resentment. I haven't ever known the world to be any other way. I'm still a cockeyed optimist. I believe that younger people still have a good chance of getting out of debt, buying real estate, retiring comfortably, and even retiring early. But for our generation, financial security requires total independence and total responsibility. We are the only ones we can count on when it comes to our financial futures.

Youth isn't wasted on the young.

Picture credit: Generation X, acrylic on linen, 30"x40" from Temple's TangleWave Art Gallery.







Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts , 403(b) Plans , Employee Stock Ownership Plans , Public Employee Plans
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Last week Steve Rosenberg on his insightful Boston ERISA Law Blog tells us that Legal Rights That Are Protected In Courts, May Well Be Lost In An Arbitration. Steve comments on a recent Supreme Court case that parties may not contract among themselves for judicial oversight of an arbitration award under the Federal Arbitration Act. He says that

Probably the biggest barrier to arbitration serving as a forum for complicated commercial disputes is that the Federal Arbitration Act effectively provides no substantive oversight of an arbitration ruling, making the arbitrator's ruling the final decision, and only allows judicial review for the purpose of addressing any serious procedural errors during the course of an arbitration.

But while arbitration is a choice for most parties to a commercial transaction, investors don’t have that option. Virtually all securities firms require investors dealing with them to resolve disputes by mandatory arbitration.

And since the 1987 Supreme Court case (Shearson/American Express v. McMahon) that held mandatory arbitration to be enforceable, the debate as to whether the investor gets a fair shake has raged on. And predictably, the industry says mandatory arbitration is fair while investor advocates claim the process is biased. A process that requires that one of the three arbitrators is affiliated with the securities industry, and the process itself is administered by the NASD rather an entity unaffiliated with the industry.

So how exactly has that worked out for investors? Not well according to a study, Mandatory Arbitration of Securities Disputes A Statistical Analysis of How Claimants Fare, released in June, 2007 by Edward S. O’Neal, Ph.D. and Daniel R. Solin. Their study was a statistical analysis of the results of the mandatory arbitration process during the 1995 - 2004 period.

They assessed almost 14,000 NASD and NYSE arbitration cases and found that claimant win rates and recovery amounts had declined significantly over time, and that claimants fared more poorly in large cases and in cases against larger brokerage firms. They estimated that that the expected recovery before legal fees and expenses in a large case against a top brokerage firm is only 12% of the amount claimed.

They concluded that

There may well be innocent explanations for fact that the chances of an investor recovering significant damages from a major brokerage firm are statistically small in mandatory arbitration. However, our data clearly indicates a decline in both the overall “win” rate and the expected recovery percentage against major brokerage firms, at a time when the misconduct of these firms reached its apex with the analyst fraud scandal.

The study was funded by the authors. Edward S. O’Neal, Ph.D, is a principal with Securities Litigation and Consulting Group, Inc. (SLCG) who completed the work while he was on the faculty at the Babcock Graduate School of Management at Wake Forest University. Daniel R. Solin is a securities arbitration attorney representing investors. He is also a Registered Investment Advisor and Senior Vice President of Index Funds Advisors, Inc..

You can download the complete report here (22 pages, PDF).

Hat tip to James J. Eccleston who publishes the FinancialCounsel blog. Jim heads heads the securities group at Shaheen, Novoselsky, Staat, Filipowski & Eccleston, P.C. (SNSFE), a Chicago-based business law firm.

Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts
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I've got that queasy feeling again in my stomach.

The recent collapse of Bear Stearns gave me flashbacks to the 1990s during which we struggled with insolvency issues affecting ERISA plans.

If you were around back then, you’ll remember the insurance companies that failed or were seized by insurance regulators as a result of failed investments in real estate or junk bonds. And it was not just these companies. The financial stability of the rest were called into question in 1991 by the four insurance company rating services that downgraded their ratings on the claims paying ability of virtually every life insurance company in the country.

And you may also remember the insolvencies of Mutual Benefit Life Insurance Company and the infamous Executive Life Insurance Company whose GICs and annuities had been used to fund retirement plans - and what was involved to get these issues resolved for plan participants.

But that was then and this is now. Or is it? The recent volatility in the credit markets reminds fiduciaries yet again of the need to be proactive in protecting the assets of plan participants. This time around potential insolvency issues involve plan assets held by brokers, custodial banks, and financial contracts such as repos, swaps, securities lending, etc.

James Stewart writing in the Wall Street Journal after the Bear Stearns collapse tells us no worries because Safety Nets Protect Brokerage Accounts.

But with all due respect to Mr. Stewart, if you’re a fiduciary out there, you need to have more than a "feel good moment" after reading his article. A good starting point is to read the K&L│Gates law firm's recent Financial Services Alert, "Key Insolvency Issues for Broker-Dealers, Custodial Banks and Counterparties to Repos, Swaps and Other Financial Contracts." Here is what they say about evaluating whether assets are sufficiently protected.

A key to evaluating whether your assets and financial contracts with a broker, custodial bank or counterparty are sufficiently protected is to know your contractual and statutory remedies. As shown above, these vary with:

• The type of broker: U.S. or offshore;
• The type of security-holding arrangement: “customer name” or street name;
• The amount of leverage on a securities account: fully paid or on margin;
• The existence of other contracts with a broker and its affiliates, which might be cross-collateralized by the same assets;
• The type of assets covered: securities or other types (commodities, currency, etc.);
• The type of contract: securities brokerage or other types (repos, swaps, etc.);
• Whether the broker carries “excess SIPC” insurance, and if so the coverage limits;
• Whether assets and cash at a bank are held in a trust or fiduciary capacity;
• Whether a financial contract is the type that qualifies for the “safe harbors” from the automatic stay in a bankruptcy or an FDIC receivership or conservatorship;
• Whether your institution is the type that qualifies for exercising termination remedies under the “safe harbors” from the bankruptcy stay.

This list illustrates that the degree of exposure for financial arrangements with brokers, custodial banks and counterparties can vary widely. Some assets and contracts will be entitled to greater protection, in terms of distribution priorities, account insurance and termination remedies. Others may be more vulnerable and risk a lower percentage recovery in the event of an insolvency. Each asset and contract must be evaluated separately to determine where it lies on that continuum.

Here is a link to the complete K&L│Gates Financial Services Alert.
Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts , 403(b) Plans , Employee Stock Ownership Plans , Public Employee Plans
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This is one of those Good News/Bad News stories. The Wall Street Journal on March 27 reported that “Household Wealth Rises as Retirees Age” citing a paper posted on the Federal Reserve’s website. The Journal quotes the authors as saying that adjusted for inflation,

The median’s household’s wealth declines more slowly than its remaining life expectancy, so that real annualized wealth actually tends to rise with age over retirement (emphasis mine).

Good news, right? Well, maybe not. The authors defined “annualized wealth” as stocks and homes, the value of Social Security, defined benefit pensions, and transfer payments like Food Stamps.

Ain't government economics grand?

Here is the link to the story in the Journal.
Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts , 403(b) Plans , Employee Stock Ownership Plans
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Add one more trend to Boomer demographics. Recent research has revealed that Boomers continue to push the limits regarding the prevalence of divorce. While just 33% of married adults from the two preceding generations has experienced a divorce, almost half (46%) of all married Boomers have already been divorced. They will be almost certain to become the first generation for which a majority has been divorced.

And a big part of the divorce, of course, is dealing with retirement assets acquired during a marriage which are considered marital property in most states. Consumer Reports/Money Adviser’s experts say that it is important to know the following:

• Find out who has what. figuring out what retirement assets an individual owns should be easy, but finding the spouse's might require some digging.
• Get documents in order.
• Consider tax ramifications.
• Protect survivor's benefits.
• Change beneficiaries.
• Monitor any distributions.

The complete report as covered by The Morning Call can be found here.

The ERISA part can be found in my post, Dividing retirement benefits on divorce, and what ERISA has to say about it.
Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts , 403(b) Plans , Employee Stock Ownership Plans
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One of those wonderful tax benefits that a qualified retirement plan and IRA provide is the tax deferral of contributions and earnings. But nothing lasts forever including the payment of benefits (and the taxes thereon).  So the tax laws require RBDs and RMDs. That’s tax talk for  “required beginning date” and “required minimum distribution” respectively.

The law requires that certain minimum benefits from a qualified retirement plan and IRA (the RMD)  must commence no later than the participant’s RBD which generally speaking means the April 1 of the calendar year following the calendar year in which he or she reaches age 70 ½. Got it? And except, of course, when it  isn't required.

Obviously, it’s a complicated set of rules, and taxpayers should always consult with a qualified tax adviser. Failure to meet the requirements can be expensive: an excess accumulation tax of 50%  of the required distribution that the participant didn’t take.

Here is a link to an excellent explanation of RBDs and RMDs by McKay Hochman.



Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts , 403(b) Plans , Employee Stock Ownership Plans
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“Decumulation”, in definitional terms, means the conversion of pension assets accumulated during an employee’s working life into pension income to be spent during retired life. But in practical terms, decumulation embodies a significant new risk for the record number of future retirees moving from the accumulation phase of their lives to the distribution phase. The actuaries call it “longevity risk”. But those of us in the financial service industry simply call it “running out of money”.

It will require a major change in thinking for them. Away from concepts which have been discussed as part of most 401(k) providers investment education programs: asset allocation, dollar cost averaging, and the cost of waiting. But rather requiring them to think about having to make a whole new set of decisions such as:

• Whether to continue to work
• When to apply for Social Security benefits
• What to do, if anything, about housing
• What choices to make about insurance and health care
• How financial assets should be invested
• What distribution options to take from employer retirement plans and IRAs

So you'll be hearing more about "decumulation" as it becomes a major focus of future research, public policy, and financial services.


Picture credit: Water Secrets Blog.


Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts , 403(b) Plans , Employee Stock Ownership Plans , Public Employee Plans
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I had never heard the term "orphaned 401(k) accounts" until I came across the survey, Competing in the Retirement-Dominated Future, which I referenced last month in my post, Banks Lag Far Behind in Race for Boomers' Retirement Dollars. The survey used the term in referring to those 401(k) accounts still held in plans of previous employers.

The numbers are huge. According to the survey research, more than a third of mass affluent households have at least one orphaned 401(k) account with an average balance of over $100,000. Total amount of assets in orphaned 401(k) accounts: in excess of $1 trillion.

Does this put LaRue into perspective?

Note: The survey, Competing in the Retirement-Dominated Future, was conducted by BIA Research, a professional organization focused on enhancing employee and organizational performance, and Mercatus LLC, a financial services with  strategy and investment firm. They surveyed 2,997 "mass affluent individuals"– those with investable assets between $50,000 and $2 million who are between 35 and 70 years old - to better understand how they prepare for retirement and to provide banks with insights to reestablish their footing in the retirement marketplace.


Posted In 401(k) Plans , Individual Retirement Accounts
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I've written about IRAs in the past. (See IRA is not a kid anymore and IRAs are becoming increasingly important, but rules can be confusing). But those discussions were in the context of tax planning for distributions. IRAs are, of course, also a tax-advantaged investment vehicle. And as retirement dollars start to increasingly become available, you''ll start hearing more about "self-directed" IRAs particularly as a way to invest in "alternative investments".

So before going any further, here is some background. Of course, all IRAs can be "self-directed". It simply means that the IRA account holder can choose his or her own investments. And that's what most investment firms and banks offer, but they're limited to so-called traditional investments. That is, stock, bonds, mutual funds, money market funds, etc. But many of the Boomers who are retiring want to diversify their retirement funds beyond these traditional investments.

And it's axiomatic that if there is a need for specialized financial services, there will be service providers available to meet investors' needs. There is now a small segment of the financial service industry that allows an IRA holder to invest in "alternative investments". Penso Trust Company, one of those service providers, estimates that that while the self-directed component of the IRA market is only 3%-4%, it's the fastest growing segment at 25% annual growth versus 8% growth for the total IRA market.

What's considered an "alternative investment" is usually framed as anything except what the IRS does not allow IRAs to invest in. The except is a short list and includes collectibles, life insurance contracts, or stock in an  "S" Corporation.

The longer list includes what the approximately 20 companies in the marketplace who provide special asset custodial services do permit. They are usually regulated trust companies who will act as custodians for such assets as real estate in many of its forms, e.g., raw land, rental properties, commercial properties, and even real estate-related entities such as limited liability companies (LLCs) that invest in real estate. Some of these custodians also allow private placements that are used to fund a startup company, e.g., IRAs that are rollovers from an employer plan to start a new business.

Self-directed IRAs for alternative investments are not for all investors, of course, and should be established only with the help of experienced professionals. This is really one of those "kids, don't try this at home" situations.


Posted In Individual Retirement Accounts
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That's the message provided by a recent study released by the Center for Retirement Research (CRR) at Boston College. According to the study, 44% of Baby Booomers (people born between 1946 and 1964) and Generation Xers (people born between 1965 and 1974) are "at risk" of being unable to maintain their standard of living in retirement. That's the good news if you don't consider health care costs. Add in rising health care costs, and the "at risk" number jumps to 61%. Alicia Munnell, the CRR's Director, has been quoted as saying, "The most effective step is to plan on working a few years longer" because that "cuts the percent at risk by about 10 percentage points.

Or, consider the answer to the question posed in my recent post,  What's 1% Worth? Using an example provided by Alliance Bernstein, the global asset management firm, a 1% increase in returns, compounded over a lifetime, makes an enormous difference. In their example, it translates into about $220,000 extra at retirement—and an extra 10 years of spending - and maybe not having to continue to work as long.

Here is a link to the CRR's study online.

Hat tip to Dave Baker and his BenefitsLink.
Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts
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The retirement market is in the trillions, but banks will have to play catch-up to acquire a significant share of those dollars. According to a recent survey, only 14% of “mass affluent consumers” cited their banks as primary providers of retirement services, compared to 53% for investment and brokerage firms. And in the past year, just 18% of 401(k) rollovers were captured by banks compared to 67% for investment and brokerage firms.

The survey was conducted by BIA Research, a professional organization focused on enhancing employee and organizational performance, and Mercatus LLC, a financial services with  strategy and investment firm. They surveyed 2,997 "mass affluent individuals"– those with investable assets between $50,000 and $2 million who are between 35 and 70 years old - to better understand how they prepare for retirement and to provide banks with insights to reestablish their footing in the retirement marketplace.

The study suggests that banks focus on three key opportunities:

1. Capture 401(k) rollovers
2. Capitalize on retirement asset consolidation
3. Establish a retirement dialogue with customers

But it's going to be a tremendous chanllenge. Banks have been focused on transactions instead of advisory services. Investment and brokerage firms have already figured out how to do that.


Here is a link to BAI's press release about their study. Posted In 401(k) Plans , Individual Retirement Accounts
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If you’re confused about the various types of designations in the financial service marketplace, you’re not alone. Even the financial service industry and the regulators are having a hard time making sense of the alphabet soup of designations. The American College, a non-profit institution that provides financial services education, has been tracking this matter.

According to the data they have compiled, there are 173 known designations covering banking, accounting and insurance, an increase of 37% since 2000. In addition to the 173 known designations, there are 90 where the date that the designation came into existence is unknown.

There are now so many that it’s tough to tell which are legitimate and have substance and which are not. Some of the new designations are offered by for-profit organizations over a weekend. And many of which – surprise, surprise – are directed towards seniors. So until now, it’s been tough for investors to know the difference, and tough for the industry to do their due diligence to determine which ones to support and allow on business cards.

The American College has recently created a toolkit to assist financial advisers and regulators decide which designations they should consider valid. It includes a tool for companies to use in evaluating the quality of professional designations, and a tool for advisers regarding how to use professional designations with the public.

It will help.

Illustration above by Debbie Ridpath Ohi, a freelance writer and illustrator based in Toronto, whose weblog is Inky Girl: Daily Diversions for Writers.




Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Pension Protection Act of 2006
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While most investors these days are focusing on risk in terms of the market and its effect on their account balances, Tim Burns in his blog, Fiduciary Investor, says that they should pay attention to a larger risk. It’s longevity risk, or the risk of a retiree outliving his or her assets. Mr. Burns, in his post, Longevity Securitization, says that

The adoption rate of retirement annuities will however, be influenced by; investor perception, pricing, insurance industry risk retention models and the state of the structured investment markets.

Of all the factors that Mr. Burns mentions, investor perception will be the most difficult one with which to deal for two reasons.

First, most investors don't even think there is a longevity risk. According to a recent Fidelity Research Institute study, Structuring Income for Retirement: Addressing America's Emerging Retirement Income "Gap", retirees and pre-retirees are signicantly underestimating how long they need to make their retirement savings last.

Second, there is the annuity puzzle, the term given by the financial service industry to investor aversion to annuities. Some in the industry believe people say "no" to annuities because of:

• A desire to leave a legacy
• The complexity of annuities
• A lack of financial literacy
• An aversion to perceived loss
• A desire to maintain control

The need for annuities is certainly there, but it remains to be seen how well the financial service industry will deal with both the logic and the emotion of the matter.

Posted In 401(k) Plans , Individual Retirement Accounts
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Wealth manager, Russ Bailyn, in his Financial Planning Blog asks employers to consider the benefits of a Roth 401(k). Russ looks at it from the standpoint of the employee. Ours is with the employer, and unfortunately, it's been slow  going with plan sponsors adding a Roth provision to their 401(k) plans available since 2006.

The big reason, we think, for employers to add Roth 401(k) is simply to allow employees to diversify. Just like allowing them to diversify their investments, a Roth 401(k) provides participants with an opportunity to diversify their future tax burden. Here is a link to our December 2006 Client Briefing, Roth 401(k): Giving Employees A Choice (PDF) that has FAQs on Roth.

And take a moment and check our Russ' recent book, Navigating the Financial Blogosphere: How to Benefit from Free Information on the Internet, available at a virtual bookstore near you. (Full disclosure: we're mentioned in the book but read the excellent reviews from others on Amazon).

Posted In 401(k) Plans , Individual Retirement Accounts
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Last year, I wrote that IRAs are becoming increasingly important, but rules can be confusing. And even more so when considering the rollover possibilities in moving benefits from one plan to another.  Portability of benefits between IRAs, SEPs, SIMPLE IRAs, Roth IRAs, 401(k) plans, profit sharing plans, defined benefit plans, 457 plans, and 403(b) plans can be wonderful thing - if you know the rules. So here's a link to a "scorecard" in the form of a Portability Chart as of 2008 prepared by McKay Hochman. But if there every was a situation of "kids, don't try this at home, this is it. Talk to a tax adviser first.

Scorecard icon design by Mike Rohde via Flicr.
Posted In Individual Retirement Accounts , Pension Protection Act of 2006
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The Iowa caucus voting results are in, and so is the American Dialect Society's 18th annual words of the year vote (PDF), and "subprime" won by a large margin. The vote, of course, reflects the  preoccupation of the press and public for the past year with a deepening mortgage crisis. The American Dialect Society (ADS) is an 118-year-old organization whose members include include linguists, lexicographers, etymologists, grammarians, historians, researchers, writers, authors, editors, professors, university students, and independent scholars.

According to the ADS, the vote is the longest-running such vote anywhere, the only one not tied to commercial interests, and the word-of-the-year event up to which all others lead. It is fully informed by the members' expertise in the study of words, but it is far from a solemn occasion. 

Benjamin Zimmer writing about the award in his blog, Language Log, says that "Subprime"

has already been used in an extended sense to refer to the "subprime crisis" in the housing sector, and it could very well spawn other extensions as the crisis worsens. (One recent article claims that it is being used as a fanciful verb, as in "I subprimed my algebra test," but I haven't come across any evidence of that in the wild.)

Well, Ben, I'll let you know if I hear any of our clients' younger employees say that "my 401(k) was subprimed". Hopefully, not.

Picture credit: Part of a series called BEST IN SHOW: The best and worst tradeshow displays at Calgary’s HomExpo 2007 by elboroom design via Flickr.
Posted In 401(k) Plans , Cash Balance Plans , Pension Plans , Individual Retirement Accounts
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According to a recent survey (PDF) by Country Insurance & Financial Services, more people resolved to lose weight and exercise more (24%) or to spend more time with friends and family (23%) than plan to focus on improving money matters in 2008 (17%). Respondents also said that they’ll make better financial choices next year, although their actions may not be in line with their goals. While 75% said they are likely to make needed changes to their  finances in the year ahead, 40% claim they either do not have a financial plan (10%) or have not reviewed the one they have in the past year (30%).

Photo credit: ~~wv~~ via Flickr.
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"Taxman"



The producer of this video, WildCard Productions, calls it "a tribute to the greatest band's greatest album". It is, of course, the Revolver album released in 1966, often cited as one of the greatest albums in rock music history, The song on the video, “Taxman”, was written and performed by George Harrison.

Harrison performs the song in the role of a taxman in a tongue-in-cheek manner. He was inspired to write "Taxman" when he discovered how much he was earning after accounting for taxes. As Harrison said,

"'Taxman" was when I first realised that even though we had started earning money, we were actually giving most of it away in taxes.

At the time, the top tax brackets in the U.K. and the U.S. were extremely high, 95% and 70% respectively. But that was then and this is now when tax rates are lower.

And it’s about the low tax rates in this country that Paul Ferraresi says, Hold Onto Your Wallets, in his blog, Financial Planning for Smart People. He reminds us that the 2001 and 2003 tax cuts are set to expire December 31, 2010. And regardless of Presidential politics, taxes will go up in the future. Taxpayers, he says, should meet with their advisers immediately to take action on strategies in 2007 with lower rates and do similar planning to take action in 2008.

But what about the estate tax which was also part of that tax reduction legislation? The 2001 tax bill  increased exemption amounts and reduced tax rates through 2009 with a complete repeal of the estate tax coming in 2010. But that repeal is only effective if a person dies in 2010. Unless there is a change in the law before then, the tax law completely reverts in 2011 to what it was prior to the enactment of the 2001 tax act: lesser exemptions and higher rates.

Is it possible, then, for a taxpayer to follow Mr. Ferraresi's advice about tax planning under these circumstances? Would a taxpayer actually die to avoid taxes? Marc Abraham discusses exactly that in his article, Dying To Beat the Taxman on his Improbable Research Blog. He writes about a study by Joel Slemrod and Wojciech Kopczuk  that looked at what happened when the estate tax rate substantially increased on eight occasions. That occurred twice in 1917, and once each in 1924, 1932, 1934, 1935, 1940 and 1941. They also looked at what happened when the estate tax was decreased on five other occasions: in 1919, 1926, 1942, 1983 and 1984.

Their study, Dying to Save Taxes: Evidence from Estate Tax Returns on the Death Elasticity, indicated, they said, that there is a small death elasticity. In other words, there is evidence that some people will themselves to survive a bit longer if their heirs will have a smaller estate tax liability. As to the obvious other reason for this evidence, they said "we cannot rule out that what we have uncovered is ex-post doctoring of the reported date of death".

So let me conclude this discussion where I began: with "Taxman". Here's George Harrison's last stanza:

Now my advice for those who die, (taxman)
Declare the pennies on your eyes. (taxman)
'Cause I’m the taxman,
Yeah, I’m the taxman.

And you're working for no one but me.

Taxman!

 

 

Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts
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See full size image.

It's that time of the year again. Yes, that time when tax advisers like Joe Kristen who writes the Tax Update Blog for Roth & Co., P.C., ask self-employed business people, Is A Qualified Plan a Good Move by Year End?.

So let’s assume that for personal financial and tax reasons the answer is yes. And further to keep it basic, let’s assume that only one individual is involved, and that person is “in business for himself or herself”. This means for retirement planning purposes, it’s someone who has self-employment income from a trade or business – so called “sweat of the brow” income rather than income received as dividends for example. And it can also include individuals with supplemental self-employment income such as:

• Independent members of corporate boards,
• University professors with consulting income,
• Writers or others with royalty or licensing income, or
• Anyone who otherwise receives any fees from sources other than his or her primary employment
  

For the self-employed, the tax laws have never been better to save money for retirement on a tax-deferred basis using a choice of retirement plans. And so again to keep it basic, let’s take a self-employed individual who has net earnings before the retirement plan deduction of $100,000. His or her options from a contribution standpoint could be these:

Profit Sharing	$18,587.05
401(k)	$15,500.00
401(k) Catch-Up	$5,000.00
Maximum Profit Sharing/401(k)	$39,087.05
SIMPLE IRA	$13,206.85
SIMPLE Catch-Up	$2,500.00
Maximum SIMPLE IRA	$15,706.85
Maximum SEP	$18,587.05

And this is even before a defined benefit plan with larger potential contributions can be factored into the equation. But as Joe tells us while the contribution doesn't have to be made until the due date of the income tax return including the extension, the plan must be in place by year end. And there's still time.

T-shirt version of the picture above is available through MindSpeaker.
Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts
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A new and unpopular Michigan 6% service tax on business died on Saturday less than 17 hours after it had taken effect. The tax officially became law at 12:01 a..m. Saturday, but later in the day the Michigan legislature approved a bill repealing and replacing the tax which Governor Jennifer Granholm later signed that same day.

Here’s the back story, and how it relates to the financial world. This past October the Michigan legislature added a new 6% sales tax to financial advisory services and other occupations considered “non-essential" which included astrology reading, escort services and ski lift ticketing. This new tax along with an increase in the income tax rate to 4.35% from 3.9% was an effort to meet a projected $1.75 billion budget deficit.

The new tax quickly spawned the Coalition to Ax the Tax, a group of more than 70 business and taxpayer groups including the Small Business Association of Michigan. Public pressure from the Coalition and its members played a lead role in getting the Legislature to consider the tax's repeal.

The service tax will be replaced by a 21.99% surcharge on the taxes businesses will already pay under the new Michigan Business Tax, which takes effect January 1, 2008. Yes, politics is the art of the compromise.

Photo credit: redgoldfly on Flickr.
Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts
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That's a question many business owners ask as part of the tax planning process. That is, business owners who are also employees of their corporations. And the answer as to what "reasonable compensation"  - as determined by the IRS on audit - is based on the facts and circumstance based on IRS guidelines.

And what's "reasonable" depends on whether that owner is an employee of a C-corporation or an S-corporation. If the individual s a C-corporation employee, and their compensation is not “reasonable”, then there’s a double whammy. No deduction to the corporation, and a taxable dividend to the employee/shareholder. Mitchell Port in his article, Is Your Compensation Reasonable Or A Disguised Dividend?, on his California Tax Attorney Blog nicely covers what happens if a C-corporation owner has too much compensation.

But the flip side is not enough compensation which is a tax issue about which S-corporation owner-employees need to be careful. Distributions from an S Corp are not subject to FICA and Medicare taxes which is a potential savings of approximately 15%. Thus, some owners don’t take much salary in order to minimize payroll taxes on wages. However, on audit the IRS would look to see if compensation is too low, or not “reasonable”. Why is owner compensation an audit priority? The IRS can collect payroll taxes on owner compensation, and the penalty for failing to pay payroll taxes is 100% of the taxes owed.

But the tradeoff to paying more employment taxes is that only compensation that appears on the owner's W-2 counts as compensation for purposes of determining a contribution to a qualified retirement plan. The larger the salary, the larger the potential retirement plan contribution.
Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts
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Many employers adopt SEPs and SIMPLE IRAs because they think they're easy to use. They can be, but they still have to be operated properly. The IRS is now auditing SEPs and SIMPLEs, and more than half - yes, more than 50% - of the plans examined have operational errors. The Fall 2007 issue of the IRS publication Retirement News for Employers cites a number of common operational errors, some of which are the same as those made with qualified retirement plans:

• Failure to amend the plan for recent legislation
• Violation of the plan's participation and eligibility requirements
• Contributions made over the allowable limits
  
• Late deposits of employee deferrals

Click here to download (PDF) the IRS publication which beginning on page 2 discusses their audit results and has links to IRS resources on SEP and SIMPLE IRAs and how to fix operational errors. Posted In Individual Retirement Accounts
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With much of the attention focused on the major provisions of the Pension Protection Act of 2006 (PPA), there is a tax benefit available to low to moderate-income taxpayers that shouldn't be overlooked. 

It's the Saver's Credit slated to expire after 2006 which the PPA made permanent., and it provides an added bonus to the increasing number of employees that are being automatically enrolled by their employers in employer sponsored retirement savings plans. It provides an income tax credit of up to $1,000, $2,000 for married couples for employee contributions to an employer plan or IRA contributions.

It's not too late for eligible employees to make retirement contributions and get the saver’s credit on their 2007 tax return. They have until April 15, 2008, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2007. However, elective deferrals must be made by the end of the year to a 401(k), 403(b), or 457 plan.   

 Here is a link to an IRS News Release that provides more detailed information.

Picture credit: Wikipedia.

Posted In 401(k) Plans , Individual Retirement Accounts , Pension Protection Act of 2006
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The table below indicates the newly released 2008 retirement plan limits for 2008.

                            



Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Employee Stock Ownership Plans , Public Employee Plans
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It was a big media event a few weeks ago when the "first" Baby Boomer, a retired school teacher from New Jersey, born one second after midnight on January 1, 1946, applied for Social Security benefits. But working beyond the traditional age 65 will be the reality even for affluent Baby Boomers according to a recent study by Spectrem Group, a consulting firm specializing in the affluent and retirement markets. Their study indicates that Baby Boomers expect to retire much later in life than their parents did. Nearly half (48%) of the Baby Boom generation expect to work until they reach at least 65, an age at which 76% of their parents had already retired.

Now what about the generation that follows?
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That's what Social Security Commissioner Michael Astrue is calling the expected avalanche of applications from the post-World War II generation. The "first" Baby Boomer, a retired school teacher from New Jersey, born one second after midnight on January 1, 1946 ,applied for Social Security benefits Monday, signaling the start of an expected avalanche of applications from the post World War II generation. An estimated 10,000 people a day will become eligible for Social Security benefits over the next two decades, Commissioner Astrue said. The Social Security trust fund, if left alone, is projected to go broke in 2041.

And now it's up to the politicians.

Here is a link to the story carried by Yahoo with a hat tip to Mario Cinardi, World Financial Group.
Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts
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CPA firms - we're aware - provide more than just traditional accounting and auditing services. And that includes providing investment and financial planning. So just how successful are they. In terms of money under management, pretty darn successful. You may be surprised to know that there are 11 firms that are have over $1 billion in assets under management and 41 more firms that have over $100 million in assets under management.

The October, 2007 issue of CPA Wealth Provider has its first ever ranking of CPA/financial firms by the amount of assets under their management. These are CPA firms that have financial planning practices and the financial planner in the office holds a CPA credential. Here those 11 members of The Billion Dollar Club:

1. Plante Moran Financial Advisors
2. Gilman Ciocia
3. RSM McGladrey
4. Wipfli Hewins Investment Advisors
5. Savant Capital Management
6. CBIZ/Mayer Hoffman McCann
7. Virchow, Krause & Company
8. HBK Sorce Financial
9. Moss Adams Wealth Advisors
10. Honkamp Krueger Financial Services
11. F&D Advisors

For the details, here is the link to the article that appears in the October issue of CPA Wealth Provider.

Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts
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Asset protection now isn't just about walling off assets from legal assaults. It's now about walling off sensitive data from technological assaults. I've written about this issue several times before.  

• Identity theft made simple. Just leave employee retirement plan data on a laptop.
• The big data security question: Have we met the enemy and is it us? 

But what about hackers? Someone who has had to deal with hackers is Ara Trembly, an insurance tech guru. Literally so in the form of his new blog, The Insurance Tech Guru. Ara knows. In his day job, he's Senior Editor, Technology, of the National Underwriter, an insurance industry news hub.

Ara raises the question, Security Breaches: When Do You Tell The Public?. It's an interesting one with legal, ethical, and public relations implications for a financial service company whose security is breached. He cites a recent article from Computerworld that on-line broker TD Ameritrade may have been warned about a security breach a year or more before it publicly acknowledged the problem and warned those customers who might be affected - as many as 6.2 million. And it's now the basis of a class action suit which was filed in May. The lawyers will sort it out, of course.

But if you appreciate irony, then click here. It will take you to TD Ameritrade's home page where you will be greeted by the company's spokesman, Sam Waterston. Yes, that same Sam Waterston who plays Jack McCoy, recently elevated to District Attorney, on NBC's long-running TV series, Law and Order after Fred Dalton Thompson, former Senator from Tennessee who played D.A. Arthur Branch resigned to run for the GOP nomination for President.

Thompson is up against, among others, Rudy Giuliani, former mayor of New York City and a former real prosecutor, the U.S.  Attorney for the Southern District of New York. Perception is reality or reality is perception. Take your pick.

Posted In 401(k) Plans , Individual Retirement Accounts
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I'm not talking about my generation, but rather Gen X; and the nobody who doesn't want them are financial advisers. According to a study commissioned by Edward D. Jones & Co., as reported by Investment News, advisers prefer older and wealthier clients. This despite the fact that younger workers are ahead of other generations when it comes to saving for retirement. Aside from the fact that the Gen X investor has fewer assets than the older, affluent investor that is the target client for most advisers, the advisers themselves have painted this generation with a broad brush. Some of the advisers:

• Feel that the younger investors have "attitude problems",
• Are more comfortable working with clients their own ages,
• Are are uncomfortable with the technology they feel that younger clients would demand, and
• Feel that younger investor don’t appreciate the value of good advice.

Hmm, the more things change, the more they stay the same.

And my generation? Represented by My Generation, the title song on the The Who's first album pictured above which was released in the U.S. in 1965.  The song was inducted into the Grammy Hall of Fame in 1999 and remains one of The Who's best known songs and, indeed, one of the most acclaimed songs in rock and roll history. They don't make 'em like that anymore. (Sorry, I just had to say it).

 

Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts
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TANSTAAFL is an acronym for the adage "There Ain't No Such Thing As A Free Lunch. It was popularized by the Nobel economist Milton Friedman, but the phrase, "free lunch", has its antecedents in American literature from about 1870 through 1920. The phrase refers to a tradition once common in saloons in many places in the United States. These establishments offered "free" lunches, varying from the basic to the quite extensive, but required the patron to buy at least one drink who usually went on to order more. In other words, free things often have hidden costs.

The SEC and other security regulators also think TANSTAAFL. They held a Seniors Summit yesterday at the Securities and Exchange Commission during which they released a joint report summarizing the results of their examinations of "free lunch" investment seminars.

A year-long examination was conducted by the SEC, the Financial Industry Regulatory Authority (FINRA) and state securities regulators (members of NASAA, the North American Securities Administrators Association). The regulators scrutinized 110 securities firms and branch offices that sponsor sales seminars and offer a free lunch to entice attendees. The report's key findings include:

• 100% of the "seminars" were instead sales presentations.
• 59% reflected weak supervisory practices by firms.
• 50% featured exaggerated or misleading advertising claims.
• 23% involved possibly unsuitable recommendations.
• 13% appeared to be fraudulent and have been referred to the most appropriate regulator for possible enforcement or disciplinary action.

The report recommends that financial services firms review their supervisory practices and take steps to supervise sales seminars more closely, and redouble their efforts to ensure that the investment recommendations they make to seniors are suitable in light of the particular customer's investment objectives. The report also includes a list of supervisory practices that appeared to be effective.

The report also recommends that ongoing investor education efforts for seniors should provide education with respect to "free lunch" sales seminars. Specifically, senior investors should understand that these are sales seminars that result in the sales of financial products, and they may be sponsored by an undisclosed company with a financial interest in product sales.

Here’s a link to the full Free Lunch Report (PDF).

Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts
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"What was the number of mortgage foreclosures in July?"

As reported,by Investment News citing Realty Trac, a marketplace for foreclosure properties. Foreclosure filing in the country increased by 9% between June and July and rose precipitously by 93% compared to the same period last year.

Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Public Employee Plans
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I’ve written about retirement plan data security – or lack thereof – in the past, but always in the context of employee data on laptops that had been stolen. But as I read about a recent study cited by AccountingWeb.com, Pogo’s famous words came to mind, “We have met the enemy, and he is us.”

Are we our own worst enemy when it comes to protecting employee and benefit plan data? Consider the results of the study which was carried out at last spring's Infosecurity Exhibition Europe as part of an annual survey into "Trust, Security and Passwords”. It revealed the extent to which Information Technology (IT) employees snoop at the confidential information of other employees. By using the special administrative passwords that give IT workers privileged and anonymous access to virtually any system:

• One-third admitted to snooping through company systems and peeking at confidential information such as private files, wage data, personal e-mails, and HR background.
• More than 1/3 admitted they could still access their company's network once they'd left their current job, with no one to stop them.

The big security risk is not just hackers, but companies mismanaging the storage and access to administrative passwords.

And IT folks are just like everyone else. Post-It Notes are the favorate way of storing passwords.

Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Employee Stock Ownership Plans , Public Employee Plans
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Rush Nigot on his Rush on Business Blog provides valuable information for franchisees. But how do you finance it? There are a small number of trust companies that can help facilitate that process if you use self-directed IRA assets to invest in private equity, e.g., a franchise. It's not just publicly traded securities that IRAs can invest in. There's also real estate, secured loans, unsecured loans, and private placements. But caveat emptor twice. Failure to follow the tax rules can result in adverse tax consequences, and the investment may not pan out. Remember, these are retirement funds so consult with your advisors first. This is another one of those "kids don't try this at home" situations. Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts
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I recently wrote about retirees moving to Tibet, a metaphor for retirees moving from the “land of accumulation” to the “land of accumulation” and the new financial culture with which they will have to master. The “tour guides”, the financial industry, will have to solve the “annuity puzzle”, the investment industry term for the disconnect between the economic arguments of annuitizing and the investor’s aversion to annuitizing. It’s a difficult puzzle to solve according to a July 2007 Fidelity Research Institute study which indicated  that retirees and pre-retirees are signicantly underestimating how long they need to make their retirement savings last.

Retirees believe they will need to make their retirement savings last until an average of age 85; for pre-retirees, the average estimate is even younger at age 83. These estimates highlight how many pre-retirees underestimate their life spans, and therefore risk outliving their assets, given the likelihood of living to at least 90 for men (24%) and women (35%) who have reached age 65.

While there are a myriad of barriers to adoption of annuities – some based on emotion and some on logic – the study found that each is potentially solvable by improved investor education. Here is the link to the the Fidelity study, Structuring Income for Retirement: Addressing America’s Guaranteed Income “Gap” (24 pages, PDF).
Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Employee Stock Ownership Plans , Public Employee Plans
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In volatile markets, investment managers go to cash. That's happening right now because of the prime mortgage meltdown. But not all money market funds are the same. Just as there are enhanced index funds, there are also enhanced money market funds.  "Enhanced" meaning the fund manager seeks higher returns by taking slightly more risk. And in the case of enhanced money market funds trying to get extra basis points, this may mean investing in asset-based securities like mortgage-linked bonds. According to HedgeWorld.com, some supposedly safe money market funds have shut down, while others are having problems meeting redemptions.

Do you know where your cash is?
Posted In 401(k) Plans , Pension Plans , Individual Retirement Accounts , Public Employee Plans
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