401(k) Webcast for Lorman Education Services on October 10

By Jerry Kalish on Posted in Events, Seminars and Speaking Engagements

Here is the information on the webcast I will be presenting for Lorman Educational Services, a leading provider of continuing educational programs in the United States and Canada.

Managing Your 401(k) Plan: Current Considerations and New Challenges
Date: Tuesday, October 10, 2006
Time: 1:00 pm ET (12:00 pm CT, 11:00 am MT, 10:00 am PT)
Length: 1 hour 30 minutes
Agenda:

  • Current fiduciary issues
  • Current operational issues
  • Current regulatory concerns
  • Year End Planning
  • Overview of the recently passed Pension Protection Act of 2006

Continuing Education Credits are available.
Click here for additional information and the registration form.

Retirement Plan Workshop for New England Financial on September 8

By Jerry Kalish on Posted in Events, Seminars and Speaking Engagements

I will conducting a workshop for the Associates of New England Financial on Friday, September 8, 2006. The Associates of the Northbrook, IL firm specialize in personal and business financial programs, with emphasis on estate growth, wealth accumulation strategies, minimizing taxes, employee benefits, and maintenance of business interests.

My topic will be Targeting The Retirement Plan Market focusing on how Associates can help business owners accomplish their retirement plan objectives and in the process:

  • Add value to client relationships
  • Prospect, qualify and close retirement plan business
  • Use retirement plans to grow individual clients

The workshop will include an overview of how the new Pension Protection Act of 2006 can be an important planning tool for their client retirement plans. The meeting runs from 10:00 a.m. to 12:00 p.m. in their offices in Northbrook, IL.

Target maturity funds coming to your 401(k) plan soon

By Jerry Kalish on Posted in 401(k) Plans

They may already have arrived.

Lost in the investment advice to 401(k) plan participant discussion has been the rapid growth of target maturity funds to 401(k) plan investment menus. According to Lipper Inc. approximately 55 fund families offer these types of funds with assets in excess of $50 billion.

Don’t confuse target maturity funds with asset allocation funds. While both provide the convenience of diversified investing in a single mutual fund, asset allocation funds, also called lifestyle funds, are based on risk tolerance, e.g., conservative, moderate, or aggressive. Target maturity funds, on the other hand, are constructed to offer 401(k) participants a fund that matches their retirement date. These funds target the year of retirement and the asset allocations change over the years toward conservative as retirement nears.

But how do you make sense of them? Al Otto, Vice President of White Horse Advisors, writing in the August 2006 issue of The McHenry Group’s The Inside Edition suggests a process which includes:

  • How to choose them from the perspective of the plan sponsor and the participant
  • Evaluating their performance
  • Understanding their risk
  • Understanding asset allocation within the funds themselves
  • Analyzing their cost
  • Evaluating the fund family that is offering target funds

Here is the link to Mr. Otto’s article.

It’s morning again in Pensionland

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans, Pension Protection Act of 2006

The sun will not be setting after all on the favorable retirement plan tax provisions that were part of the Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA).

For budget scoring purposes, the more than three dozen rules which included increases to contribution and benefit limits for IRAs and qualified retirement plans had “sunset” provisions which were set to expire on December 31, 2010. (Budget scoring is the process of calculating the budgetary effects of pending and enacted legislation and assessing their impact on the targets or limits in the budget resolution).

The new Pension Protection Act of 2006 (PPA) now makes permanent the EGTRRA rules. One result of which is to allow participants in defined contribution plans to make larger contributions in the future. Such as:

  • 401(k) limit now $15,000 in 2006 would have been reduced to $13,500 in 2011.
  • 401(k) catch-up (age 50+) now $5,000 in 2006 would have been totally eliminated in 2011.
  • IRA limit now $4,000 in 2006 would have been reduced to $2,000 in 2011.
  • IRA catch-up (age 50+) now $1,000 in 2006 would have been totally eliminated in 2011.
  • SIMPLE IRA limit now $10,000 in 2006 would have been $8,000 in 2011.
  • SIMPLE IRA catch-up (age 50+) now $2,500 in 2006 would have been totally eliminated in 2011.

In other words, if the EGTRRA rules had been allowed to expire, the contribution limits would have reverted to pre-EGTRRA (2001) levels, adjusted for inflation.

Are 401(k) accounts piggy banks?

By Jerry Kalish on Posted in 401(k) Plans


In a earlier post, I asked the question whether 401(k) loans were easy money and discussed both sides of the questions.  Yesterday, Walter Updegrave, MONEY Magazine senior editor, in his Ask the Expert column responds to a reader who asks whether it’s a good idea to borrow money from your 401(k) account.

Mr. Updegrave says that treating your 401(k) account like a piggy bank is dangerous for the following reasons:

  • Easy access to the funds can cause some people to overspend.
  • It’s not risk free because it usually has to be repaid when a participant terminates employment, and if not, it becomes a taxable distribution with perhaps a 10% penalty.
  • It’s really not a great deal paying the interest to yourself, and you are probably better off taking a home equity loan.

Cllck here to read Mr. Updegrave’s column, and click here to read his earlier column on why a home equity loan maybe a better deal.

Today’s kids, tomorrow’s 401(k) participants

By Jerry Kalish on Posted in 401(k) Plans

Interesting post today in the Picking up Nickels blog about American kids lacking basic money management skills. Should we be surprised then that these same kids becoming like  the college students at Wharton and Harvard about whom I recently wrote who can’t pick the lowest cost index fund. These same kids who grow up to be participants in 401(k) plans who don’t save enough and can’t manage their accounts well.

The education system is starting to pay more attention to teaching the necessary life skill of personal finance. In the meantime I guess we’ll have to be satisfied with the three prong emphasis on savings and investing in the new Pension Protection Act  of 2006 which:

  • Boosts enrollment through automatic 401(k) enrollment
  • Allows default investment choices beyond money market and stable value funds that plan sponsors can use for employees who don’t make investment elections
  • Encourages plan sponsor to make investment  advice available to 401(k participants

Are we returning to the old paternalistic ways of providing benefits?

Will investment advice for 401(k) participants really make a difference?

By Jerry Kalish on Posted in 401(k) Plans

I was feeling pretty good about that part of the Pension Protection Act of 2006 that will make investment advice more available to 401(k) plan participants. Even about that part that will allow 401(k) providers to offer advice since the Department of Labor will be providing regulations to avoid self-dealing.

Feeling good that is until my FeedDemon led me to a post that Barry Barnitz had on his blog, Financial page. He posted a study, The Adequacy of Investment Choices Offered By 401K Plans, by Edwin J. Elton of New York University’s Department of Finance, Martin J. Gruber, also of New York University’s Department of Finance, and Christopher R. Blake of Fordham University’s Graduate School of Business Administration.

These researchers examined the adequacy and characteristics of the investment choices offered to 401(k) plan participants in over 400 plans. Claiming to be the first such study, they reported that:

  • 62% of the plans surveyed have inadequate fund choices, and that over a 20-year period this makes a difference in terminal wealth of over 300%.
  • The funds included in the plans are riskier than the general population of funds in the same categories.
  • Index funds chosen by 401(k) plan administrators are on average inferior to the S&P 500 index funds selected by the aggregate of investors.
  • There was weak evidence that the use of consultants or sophisticated strategies leads to better results.

Now I’m not feeling so good.

Baby boomers start to turn 60 and have new retirement plan distribution options

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans, Pension Protection Act of 2006

Former President Bill Clinton, whose birthday was yesterday, was heard last week lamenting the fact that he was about to turn age 60. Don’t feel bad, Mr. President, there are another 3 million who will join you this year – part of the first entrants of the baby boom generation. While few of them have retired, they are certainly considering it.

While the financial industry is getting ready to capture those retirement dollars, the new Pension Protection Act of 2006 liberalized distribution and payment options. Some of which are:

  • Direct Rollover to Roth IRA. Distributions from a qualified retirement plan generally can not be rolled over to a Roth IRA. The rollover had to be a 2-step process. First, from the qualified retirement plan to a traditional IRA and then to the Roth IRA. Beginning in 2008 a distribution from a qualified retirement plan can be rolled over directly to a Roth IRA provided the current Roth conversion rules are met.
  • IRA Distribution to Charity. Amounts distributed from IRAs are generally taxed as ordinary income with charitable contributions deductible under special rules. For 2006 and 2007, a tax free distribution of up to $100,000 per year can be made from an IRA directly to charity if three conditions are met: 1) the donor is over age 70 ½ , 2) the distribution would otherwise have been taxable, and 3) the donation cannot be used to increase the allowable deduction for charitable contributions on an individual’s tax return.
  • Hardship Rules. Hardship distributions from qualified retirement plans can only be made on account of a financial hardship of the participant. Under the new law hardship distributions from qualified retirement plans can be also be made on account of hardship of the participant’s spouse or dependent. The new law directs the Treasury Department to effectuate this change 180 days after the enactment of the law.
  • In-Service Distribution. Pension plans cannot generally make distributions unless the participant terminates employment or reaches the plan’s normal retirement age which is usually age 65. Beginning in 2007, in-service distributions can be made to a participant who attains age 62 and continues to work.
  • Rollover by Non-Spouse Beneficiary. Prior law did not permit a non-spouse beneficiary to rollover the participant’s benefit into an IRA. Beginning January 1, 2007, a non-spouse beneficiary can transfer inherited qualified retirement plan benefits into an inherited IRA and adopt tax treatment of the inherited IRA.

And many of the sunset provisions of the Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA) that otherwise would expired in 2010 have been made permanent. So for the foreseeable feature, there should be no uncertainty about the distribution rules. More about the provisions that are here to stay at a later date.

IRS rolls up red carpet on celebs receiving Oscar goody bags

By Jerry Kalish on Posted in Defined Benefit Pension Plans

 

The Internal Revenue Service announced an agreement yesterday with the Academy of Motion Picture Arts & Sciences resolving outstanding tax responsibilities with respect to Academy Awards gift baskets.

The agreement marks the beginning of an IRS effort to reach out to the entertainment industry with reminders that award show gifts and promotional giveaways are considered taxable income. The practice of thanking presenter and performers has escalated to the point that the gift basket for the 2006 Oscar awards has been estimated at $100,000.

Now you may ask what does this have to do with retirement plans? Actually, nothing. But it is a good example of the Two Part Theory of Political Economics ascribed to Nobel winning economist Milton Friedman. Part one of which is “Them what has gets”.

The Tax Prof Blog has a post that links to releases issued by both the IRS and the Academy and press coverage.

The Second Part of the Theory? “Ain’t no free lunch”.

LexBlog