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IN THIS ISSUE:
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>Happy New Year
from Your Retirement Plan Consultant!
>Global
Markets Pummeled, and Cash Becomes King
>Regulatory
Update: Proposed Fiduciary Disclosure Rules
>Allowable
Plan Expenses: Can the Plan Pay?
>Advantages of
Investing in Turbulent Markets
>Communication
Corner: Sample Memos Available
>Communication
Corner: “Dollar Cost Averaging”
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Happy New Year from Your Retirement Plan Consultant!
As
your dedicated plan consultant, it is my pleasure to extend you the
greetings of a blessed new year. In spite of the economic difficulties that
the country is facing, there is always hope as we come together with family
and friends to welcome a new beginning. As I look forward to a new year and
the hope it brings, I look back as well on our achievements in 2008, and
the degree to which we accomplished our primary goals—protecting you as a
fiduciary and helping your plan participants prepare for retirement.
Congratulations for all that you accomplished in 2008. We remain fiercely
proud of being your dedicated advocate.
This month’s Retirement Report highlights “excerpts” from issues published
in 2008. Please contact us with any questions or feedback; we look forward
to serving you in 2009!
~ Scott Everhart, President
Remember, your plan consultant is here to assist
you every step of the way; please don’t hesitate to call us at (800)
337-3353 or email mail@everhartfinancial.com.
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Global Markets
Pummeled, and Cash Becomes King [October 2008]
Immediately into the third
quarter, major market indices turned negative, whereby putting markets into
bear market territory after just scratching the surface at 6/30. While the
quarter saw many ups and downs amid increased volatility, it was the
international markets that experienced some of the worst performance. The
U.S. Equity market, represented by the Russell 3000, posted a negative loss
of 8.7%, while the International Equity markets, represented by the MSCI
EAFE index, posted a much larger loss of 20.5%. The day that perhaps will
be best remembered over the quarter happened on September 29, 2008, near
the end of the quarter, which was the Dow Jones Industrial Average’s
biggest point drop in history (to date), a date that will be now be etched
in history as one of the largest market drops ever.
While the Great Depression
may be too long ago for most to remember, it wasn’t long ago we experienced
September 11th and the dot-com bubble. Market declines, in fact,
have become quite common in our not so long ago history. The current events
should persuade the Plan Sponsor and participant to focus on what they
should have otherwise been doing all along, and on a regular basis. It is
crucial that we all be mindful of the situation, but diligent about the
process (and that we stick with that process through thick and thin). Plan
Sponsors and participants need to continue to act in their own best
interests while Wall Street recovers from yet another crisis.
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Regulatory Update: Proposed
Fiduciary Disclosure Rules [August 2008]
In July the Employee
Benefits Security Administration (EBSA) of the Department of Labor (DOL)
issued proposed regulations regarding required fiduciary disclosures. The goal
of the regulations is to ensure that participants and beneficiaries are
made aware of their rights and responsibilities with respect to managing
their individual plan accounts (i.e., a 401(k) plan). Included in the
disclosure items are fees and expenses, designated investment alternatives,
and additional information deemed necessary for a participant/beneficiary
to make an informed decision. Plan-related disclosure can be broken down
into the following three categories:
1.
General plan
information (investment instruction, voting/tender rights, etc.)
2.
Administrative
expenses of the plan (legal, accounting, recordkeeping, etc.)
3.
Individual expense
of the participant (loans, QDROs, etc.)
Investment-related
disclosures are also required. These disclosures must take a form that
allows participants and beneficiaries to view the designated investment
alternatives in a comparative format. Also, the Appendix of the proposed
regulations contains a model notice that may be used to meet fiduciary
requirements of the comparative format disclosure. These requirements are
set to become effective for plan years beginning on or after January 1,
2009. [Editor’s Note: As of the publication date of the January Retirement
Report, the regulations have yet to
be approved. We will keep you apprised of developments as they occur.]
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Allowable Plan Expenses: Can the
Plan Pay? [April 2008]
The payment of expenses by an ERISA plan (e.g.,
401(k), defined benefit plan, money purchase plan) out of plan assets is
subject to ERISA’s fiduciary rules. The “exclusive benefit rule” requires a
plan’s assets be used exclusively for providing benefits. ERISA also
imposes upon fiduciaries the duty to defray reasonable expenses of plan
administration. Certain expenses (recordkeeping, compliance work, etc.)
easily fall objectively within the parameters of this standard, but other
expenses may be more subjective in nature. General principles of allowable
expenses include the following:
·
The expenses must be
necessary for the administration of the plan.
·
The plan’s document
and trust agreement must permit use of plan assets for payment of expenses.
·
The expenses must be
reasonable in nature and must be incurred primarily for the benefit of
participants/beneficiaries.
·
The expense cannot
be the result of a transaction that is a prohibited transaction under
ERISA, or it must qualify under an exemption from the prohibited
transaction rules.
In
light of today’s plan fee environment, it is critical that fiduciaries
request full disclosure of fees and expenses, how they breakdown with
services provided, as well as a request for full explanation of who will be
the recipient of fees. Ultimately
the ability to pay expenses from a plan trust is a facts and circumstances
determination that needs to be made by plan fiduciaries. Because it is
possible that the DOL may challenge such determinations it is important
that fiduciaries consult ERISA counsel prior to paying questionable
expenses from a plan trust and document the decision and reasoning.
If you desire more information in regards to
plan expenses or help in determining how to identify proper plan expenses please contact EFG, Inc. by calling (800)
337-3353 or email mail@everhartfinancial.com.
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Advantages
of Investing in Turbulent Markets [June 2008]
Are
your participants contacting you about the drops in account value? Are
they asking to stop contributing to the plan altogether? We at
401(k) Advisors receive calls every week from worried participants
concerned about the declining value of their accounts. These
conversations revolve around the merits of investing in different types of
funds offered in their retirement plan. We also discuss the dynamics of
investing in these turbulent markets, in many cases introducing the concept
of Dollar Cost Averaging.
It is encouraging to invest in a 401(k) when
the economy is strong and funds are growing; there is often
a sense from participants they want to join the ride. On the other hand, it
is during the times when the markets drop that can really be of value to
participants building for a future retirement. When the markets are
down, so are the prices of many mutual funds. If participants continue
deferring the same amount into the 401(k) the money often purchases
more shares of a fund than it could have when the prices are climbing. This
goes back to the basic goal of investing, “buy low and sell high.”
Overtime, by spreading out purchases, and taking advantage of markets like
today, this allows you to purchase more shares when the prices
are lower and fewer when the prices are higher. In effect your
investment dollar goes further during these times.
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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.
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Communication Corner: Dollar
Cost Averaging
This month’s sample participant communication
memo introduces the concept of Dollar Cost Averaging. Now is a great time
to remind your participants to “stay the course” during down markets!
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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