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IN THIS ISSUE:
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>Q2’09 Market
Review: The Bull Forges On
>401(k) Plan
Fee Basics: Understanding Total Plan Cost
>Record
Retention: What Should I Keep and How Should I Organize It?
>Employee Education
Strategies for All Seasons
>Communication
Corner: Leaving the Company
>Communication
Corner: Archived Memos Available
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Q2’09 Market Review: The Bull Forges On
The 2nd
quarter ended with one of the largest percentage gains (for U.S. equity
markets) over the past 10 years (the previous largest percentage increase
was in 2003, early in the last bull market following the bursting of the
“dot-com” bubble). The U.S. equity market was up 16.8% (Russell 3000) for
the 2nd quarter, bringing year-to-date returns for 2009
positive, up 5% as of 6/30.
International equity markets continued on their upward tear, up
25.9% (MSCI EAFE) for developed markets and 34.8% (MSCI EmF) for emerging
markets. Government bonds, which had been the darlings of the market as of
late, were the only asset class to post negative returns as investors left
the safety of lower-yielding government backed debt for riskier, higher
yielding securities (stocks and bonds). Risk was back in vogue, as
investors drove up asset prices across the board. The rally, however, was
more of an indication that things “weren’t as bad as previously thought”,
and that the worst case scenario had been averted rather than a return to
growth. The Fed alluded to these points in their June meeting statement,
stating that “the pace of economic contraction is slowing (and that) conditions
in financial markets have generally improved in recent months.”
The recent market run-up brought market valuations back in-line and
closer to their historical averages at the end of the 2nd
quarter (many measures suggested that markets were undervalued by a good
margin at the end of the 1st quarter). Now that we are closer to historical norms, the question that
looms is: “How far will the markets continue to run?” The current rebound has been almost as
fast and strong as it was on the downside (just ending March 9th
of this year). The Fed’s low interest rate policy, coupled with the massive
buying of Treasuries has helped fuel the rally. This has not only benefited
the credit markets, but has also benefited other markets as well, as some
of this liquidity has worked its way into stocks, bonds and other assets
(bidding all their prices higher).
At some point, the Fed will remove this support to stem inflationary
fears. To move forward, improvement needs to be seen on the economic front
to further extend this new “bull” market (the market is now well over 20%
higher from its bear market lows). Housing, corporate earnings and consumer
spending will play a big part in getting the markets to move forward. Only
with renewed consumer spending, corporate earnings growth and a more stable
(and hopefully growing) housing market, will we see this new bull market
continue to be sustained.
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401(k) Plan Fee Basics: Understanding Total Plan Cost
When assessing fees
relevant to the 401(k) plan, there are three areas to consider: Administrative fees, Investment fees and Plan Consulting fees. Combined,
these represent Total Plan Cost.
Administrative fees include any fees paid for services to operate the
plan including recordkeeping, trustee, compliance, and communications.
These fees can be paid for by the plan sponsor or participant.
Investment fees include all costs associated with managing the
investments. These fees are always paid for by the plan participant. Another
component of the investment expense is the redemption fee, which is charged
to plan participants who sell fund shares if they haven’t satisfied a
minimum holding period – a common fund requirement designed to discourage
short-term trading.
Plan consulting fees include advisory fees paid to a registered
investment advisor or commission paid to a broker. Plan consulting fees can
be paid for by the plan sponsor or participant.
When benchmarking your retirement plan it
is critical to examine all types of plan expenses and how these equate to
total plan cost. For more information on this topic, please contact your relationship manager or email mail@everhartfinancial.com.
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Record
Retention: What Should I Keep and How Should I Organize It?
As
retirement plan consultants we hear time and time again, “what records
should I keep”, "how long should I keep them", and “how should I
organize my files?” Remember several rules of thumb when it comes to record retention (and whenever
possible, use your plan vendor to maintain these items):
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Plan Documents should never be discarded. This includes Basic
Plan Documents, Adoption Agreements, Amendments and Summary Plan
Descriptions.
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Annual Filing
Reports should be maintained for
at least six years. This includes 5500’s, supporting materials for
contributions, testing results, plan audits, Summary Annual Reports, and
distribution records.
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Participant Records should be retained during the participant’s
employment and at least six years after the participant’s termination. This
includes enrollment forms, beneficiary forms and distribution forms. Loan
records should be maintained at least six years after the loan is paid off.
As for organizing your Fiduciary File, we suggest a format
that includes the following sections:
1.
Documents Section - for all plan documents, amendments, tax
filings, etc.
2.
Administrative
Section - for all audit results, contribution records,
Plan Review Executive Summaries, participant complaints.
3.
Participant
Communication Section - copies of enrollment materials, communication
memos, meeting sign-in sheets.
4.
Investments Section -
listing of fund menu with expenses, Investment Review Executive Summaries.
The key is twofold: keep
the things you need, and store them so you can find it easily. If a participant,
auditor, or DOL agent requested plan information, could you find it
quickly? For questions, contact your relationship manger for assistance at
(800) 337-3353 or email mail@everhartfinancial.com.
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Employee Education
Strategies for All Seasons
According to findings in the recent 10th Annual
Retirement Survey conducted by the non-profit Transamerica Center for
Retirement Studies, education emerged as an important issue to be addressed.
A majority of workers (68%) indicated they do not know as much as they
should about retirement investing, and 17% are not sure how their
retirement savings are invested. More than half of the survey
respondents (56%) indicated they would like more information and advice
from their employers on how to reach their retirement goals.
Considering this study along with all the uncertainty
in the marketplace, there is likely no better time to provide education to
your participants then there is today! Education may consist of the
following vehicles: employee meetings, webinars, memos, flyers, payroll
stuffers, or mailers (just to name a few). We encourage you to utilize a
variety of these methods to keep the material fresh and exciting to
participants. We also encourage you to focus on more than one education
topic throughout the year. For example, one quarter, you may consider
mailing participants a piece on the benefits of automatic rebalancing. The
next quarter your education focus could elaborate about investing during
recessions. The following quarter could be a webinar to tour your service
provider’s website capabilities. We also encourage you to reach out to your
service provider to see what new information and materials they have
available for your participants and find out what assistance they may
provide. Creating a clear education plan is a great way to keep you on
track to meet your goals and objectives. As always, your dedicated plan relationship
manager is happy to provide assistance.
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Communication Corner: Leaving the Company
What happens to your 401(k)
when you leave your employer? This month’s sample participant communication
memo outlines the options available to participants.
Email
mail@everhartfinancial.com for a
copy you can print and distribute to employees.
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Communication Corner: Archived 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.
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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©
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