|
IN THIS ISSUE:
|
>Investment
Commentary: Check Emotion At The Door
>Legislative
Update: Required Minimum Distributions
>DOL Puts
Investment Advice Regs On Hold Again
>Have A
Retirement Committee But No Charter?
>Communication
Corner: Navigating Financial Fear In Economic Downturns
>Communication
Corner: Sample Memos Available
|
|
Investment
Commentary: Check Emotion At The Door
Markets
have rebounded, yet again, from their recent and record setting lows.
Through Thursday, March 26th, the S&P 500 was down only 7.8%
for the year, a much-welcomed improvement from the approximately negative
sub-20% witnessed only weeks ago. Recent government intervention and
improved housing statistics have both been positive indicators, certainly
helping the markets with their recent recovery. While all of this has been
good news of late, let us all be mindful that the economy is still working
out excesses and addressing troubled assets all while deleveraging at the
same time. Unfortunately, volatility levels remain high, which means that
for the near term, we will likely see big swings in the market, both up and
down, as new information comes to light.
While we do not like to focus too much on short-term movements, it
is important to note only to the degree that it shapes investor and
participant behavior. When emotions rule the day, rarely does the value of
any given investment reflect its fair value. As legendary investor Benjamin
Graham once said: “In the short-run, the stock market is a voting machine,
in the long-run, it is a weighting machine.” What this means is that in the
short-run, the stock market responds to people’s emotions. In the long run,
the market’s fair value will play out and eventually be reflected.
Amid the poor market returns, the good news is that
401(k) participants are largely staying calm and behaving normally
according to a 2008 Investment Company Institute survey (http://www.ici.org/401k/).
While their survey did point to a small decline in participants who stopped
contributing (3.7% over all of 2008) to their 401(k), 14.4% were involved
in changing their existing asset allocation, which shows that a great deal
more participants are taking actions other than to completely stop making
contributions. The evidence is positive, but can only get better by
fiduciaries continuing to do the right things. Certainly these are tough
times, however, these are the times when it is most important for
participants and plan sponsors not to let emotions rule the day.
|
|
Legislative Update:
Required Minimum Distributions
The Worker, Retiree, and Employer
Recovery Act of 2008 (WRERA) provides special relief due to the economic
crisis. One relief granted to defined contribution plans (and IRAs) is the
suspension of required minimum distributions (RMDs) specific only for the
2009 calendar year. Note: Distributions due for 2008 that were deferred to
2009 (up to April 1) are still
required to be taken. This 2009 RMD elimination does not apply to
defined benefit plans.
Generally, RMDs are not
eligible for rollover. However, participants who take a distribution that
would otherwise be applied to their 2009 RMD may roll this distribution
over to an IRA or another qualified plan. Normally, distributions eligible
for rollover are subject to 20% mandatory federal income tax withholding.
Under the new act, these distributions will be subject to elective tax
withholding instead of the mandatory withholding. This means affected
participants who take such distributions in 2009 have 60 days after receipt
to roll them over. To roll over their entire distribution, participants may
want to elect 0% tax withholding.
When a participant dies
prior to their required beginning date for the RMD, the death benefit
payable to a designated beneficiary must be paid out over the lifetime of
the beneficiary or by the end of the fifth year following the year of
death. (The plan document specifies
which rule applies.) The law
provides that 2009 is disregarded in determining RMD payments. This means
that under the five-year rule, the payout period extends to the end of the
sixth year following the year of death.
This RMD relief is only
temporary. Required distributions will again be due for calendar year 2010.
For more information please contact Everhart Financial Group, Inc. at (800)
337-3353 or email mail@everhartfinancial.com.
|
|
DOL Puts Investment Advice Regs On Hold Again
The Department of Labor (DOL) has pushed back the effective date on
investment advice regulations until May 22, 2009, so that President Obama’s
new DOL appointees can reevaluate the policy implications of the rules.
The regulations, which
were made public on January 21, 2009 and were to take effect on March 23,
would have allowed 401(k) participants and IRA holders to receive
investment advice by a computer model certified as unbiased and through a
fiduciary adviser compensated on a “level-fee” basis. Your consultant will
keep you apprised of new developments as they occur.
|
|
Have A Retirement Committee But No Charter?
As retirement
plan consultants we strongly encourage our clients to formally
establish a 401(k) Committee. The establishment of a Committee may be
formalized by adopting a 401(k) Committee Charter. This Committee
Charter helps to protect the Board of Directors by delegating
certain identified fiduciary responsibilities to the Committee. It protects
the Committee members by defining the specific duties for which they are
responsible. Furthermore, it protects the participants as it provides for
orderly and prudent governance of the plan designed for the exclusive
best interests of the participants and their beneficiaries, as stated
in ERISA Section 404(a).
Discuss this topic with
your consultant during your next meeting. He/she can assist the
process of adopting a Committee Charter by providing our sample
Committee Charter document and helping select the
appropriate provisions. Consider the following discussion points:
·
Determine the
purpose of the Committee (investment related, administrative issues, or
both).
·
Determine how
Committee members are selected (who should/should not be members).
·
Is there
an ideal number of Committee members?
·
What topics should
the Committee cover (e.g. review investments, review IPS, identify ongoing
participant needs/education, review plan design provisions, review
plan/participant demographics vs. objectives, consider trends and
legislation which may impact the plan, review and benchmark fees)?
Current stock market
turmoil combined with our litigious society is generating concern on
the part of many fiduciaries regarding their potential exposure.
Taking a casual approach to plan governance, without a formalized Committee
Charter, will not help insulate the company or the plan fiduciaries
from participants' complaints or lawsuits.
Your
consultant is fully prepared to assist you with any questions you may have.
For more information, please contact Everhart Financial Group, Inc. by
calling (800) 337-3353 or email mail@everhartfinancial.com.
|
|
Communication Corner: Navigating Financial Fear
In Economic Downturns
This month’s sample
participant communication memo reviews a few quick tips for employees to follow
in times of financial crisis.
Send an email to mail@everhartfinancial.com
or call (800) 337-3353x106 to request a copy that you can print and
distribute to employees.
|
Communication Corner: Sample Memos Available
Each month this section of
our newsletter features sample memos that plan sponsors can print and distribute
to employees. Topics from this year included Making the Most of your 401(k), The Case Against Loans, Dollar
Cost Averaging, and Tips for
Investing in Turbulent Times.
Send an email
to mail@everhartfinancial.com or call
(800) 337-3353x106 to request a copy that you can print and distribute to
employees.
|
To remove yourself from this list, or to
add a colleague, please email us at brianh@everhartfinancial.com
or call (800) 337-3353x106. Securities offered through Cambridge Investment
Research, Inc. Services offered through Everhart Financial Group, Inc. Cambridge Investment Research, Inc. is not
an affiliate of Everhart Financial Group, Inc. This material is intended for
informational purposes only and should not be construed as legal advice and
is not intended to replace the advice of a qualified attorney, tax adviser,
investment professional or insurance agent.
(c) 2009. 401(k) Advisors, Inc. All rights
reserved. 090107©
|
