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IN THIS ISSUE:
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>Scott
Everhart Interviewed on NBC4 News
>2009 Year-End
Reminders for Plan Sponsors
>Can Your
401(k) Investment Committee be More Effective?
>Are You On
the Right Glide Path?
>HEART ACT
Provides Benefits for Active Duty Military
>Communication
Corner: 401(k) Housekeeping
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Scott Everhart Interviewed on
NBC4 News
The economy appears to be strengthening, with the Dow
Jones Industrial Average up 50% since hitting a low on March 9, 2009. In lieu of the past year’s downturn,
many investors wonder if they are acting prudently with regards to their
investment vehicles and holdings. When NBC4 wanted to provide their
viewers with those answers they turned to Everhart Financial Group for an expert
opinion. Scott Everhart, company president, was featured in a recent segment
that ran on the 11 pm newscast. In case you missed it, you can see it
here:
<http://www.everhartfinancial.com/money-resources.htm>
Please see the “Communication
Corner” below, which provides additional information on this topic, or
contact Everhart Financial Group, Inc. at 800-337-3353 or email mail@everhartfinancial.com to receive a sample memo reminding participants
to reevaluate their retirement plan.
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2009 Year-End Reminders for Plan Sponsors
PPA Amendments
The PPA Amendment deadline
for calendar-year Plans is December 31, 2009. Amendments reflecting changes
made to qualified retirement plans to comply with elements of the Pension
Protection Act of 2006 (PPA) must be adopted no later than the last day of
the plan year commencing on or after January 1, 2009.
Notices
Safe Harbor; Automatic Enrollment; and
Qualified Default Investment Alternative (QDIA) Notices must be distributed in a timely manner
to all employees no later than December 2, 2009 (for calendar-year plans).
Be sure to work with your service provider to ensure these notices are
prepared and delivered accordingly.
To discuss these and other
plan design considerations for 2010 please contact your relationship
manager or email mail@everhartfinancial.com.
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Can Your 401(k) Investment Committee be More Effective?
Investment Committees should
pause periodically and evaluate their effectiveness. Your consultant
typically offers a framework for this discussion, which may consist of the
following ingredients:
Define Success
There are many approaches
to defining success for an investment committee. Some definitions may be
very specific and some may be more global, such as maximizing the
retirement experience for plan participants. Either approach can work
assuming reasonable efforts are made (and documented) toward the stated goal.
Statement of Investment
Beliefs
Key investment related
assumptions should be documented. This is typically done within an
investment policy statement which acts as the roadmap for investment
decision-making. Also incorporated within this technical document a
statement of investment philosophy may be appropriate. Here a committee
might comment on core beliefs concerning risk tolerance or any
characteristics specific to the needs of the plan participants as a whole.
Selecting Appropriate
Committee Members
ERISA suggests that if
expert decision-making credentials are not found among the committee
personnel, experts should be retained in areas needed. There is also the
suggestion that committee personnel be capable of making value added
contributions to the process.
Define Committee Member
Roles
This is usually best
accomplished through formal documentation establishing the committee, as in
a Committee Charter. This document would identify committee members
(typically by title) and delegate responsibilities of the committee. This
document can limit the liability of the ultimate decision maker (i.e.,
Board of Directors) and the committee members as well.
Set Procedural Standards
Identify frequency of committee
meetings. For example: “Our investment menu will be reviewed
quarterly/semiannually with respect to manager performance relative to
industry accepted benchmarks.”
The focus of the above is
specific to an investment committee, but the same principals can be
followed for an administrative committee or an all-inclusive 401(k)
“steering” committee as well. For additional assistance, please contact
your relationship manager or email mail@everhartfinancial.com.
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Are You On the Right Glide Path?
While
the term “glide path” may still be defined by Merriam-Webster as “the
proper path of descent for an aircraft preparing to land”, those of us in
the 401(k) world know it as the path that target date funds take to
gradually reduce their equity exposure at and throughout retirement
(remember that by definition, Target
Date refers to the approximate date when investors plan to start
withdrawing their money.) While aircraft may have a proper path of descent,
target date funds seem to be all over the board in terms of their glide
paths (some are very conservative while others can be pretty aggressive).
Target date fund glide paths vary due to the different assumptions
investment managers make with life expectancy, accumulated retirement
assets, contribution rates, and rates of return. Of course, as individuals,
we all have our own unique set of circumstances and objectives for
retirement (giving us our own unique glide path), which may or may not
match with the pre-packaged glide path available today in our own 401(k)
plan. So, while there may not be one right glide path for everybody, is
there one that is better than the rest?
Unfortunately,
one size does not fit all, meaning that there is neither a “best” nor a
“right” glide path. As stated above, we all have our own unique retirement
objectives and glide paths. This makes it challenging when selecting one
glide path (product) for a 401(k) plan. Plan Sponsors need to understand
the assumptions made for the glide path (product) in their plan to
determine if those assumptions are appropriate for their Plan participants
as a collective whole. As would be suspected, this decision requires a good
understanding of the Plan’s demographics. For example, some glide paths
glide to a lower equity exposure at
retirement (typically age 65) while others glide to a lower equity exposure
through retirement (typically age
85-90). A Plan containing participants with well funded participant
accounts and participants who typically leave the plan at retirement may be
better off with a glide path that glides to a lower equity exposure at retirement. So, while it is nice
to know that the glide path (to some extent) can be addressed at the Plan
level, how can we, as individuals, be sure that we are on the right “glide
path”? It is important to note that the principal value of the fund(s) is
not guaranteed at any time, including at the target date.
For
participants, the decision when selecting a target date fund from an
already pre-determined glide path or set of funds (like a “2030”, “2040”,
“2050”, etc.) may be just as complex as it is for Plan Sponsors selecting
the glide path (or, set of funds). While the selected glide path may be
appropriate for most plan participants, there may, and will, be cases where
the glide path’s assumptions don’t perfectly match up with the
participants’ assumptions. Understanding the assumptions behind the
investment strategy may ultimately help a participant decide whether to go
with a “2030” fund or the “2040” fund. While participants may not have much
input into the particular glide path for the fund options within the Plan,
with the proper education, they do have the opportunity to fine tune where
on the glide path they want to be. Just as a pilot needs to understand how
the aircraft works in order to achieve a safe landing, participants and
Plan Sponsors need to have a good understanding of how these funds (and
their glide paths) work, so that their glide path to retirement can be a
relatively smooth one.
For
questions, contact your relationship manger for assistance at (800)
337-3353 or email mail@everhartfinancial.com.
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HEART Act Provides Benefits for Active Duty Military
On June 17, 2008, the
Heroes Earnings Assistance and Relief Act of 2008 (HEART Act) was signed
into law. This law provides additional tax and pension benefits to
individuals who leave employment to perform uniformed military service
while on active or inactive duty. Some provisions are retroactive to
January 1, 2007, although plans must be amended by the last day of the plan
year beginning on or after January 1, 2010. The new law requires plan
sponsors to treat participants who die after 1/1/07, while performing
qualified military service, as being re-employed and dying with entitlement
to certain additional benefits under the plan such as 100% vesting and
other survivor benefits available only when a participant dies while an
active employee. The HEART Act also makes permanent the special tax
treatment for active duty military qualified distributions as provided in
The Pension Protection Act of 2006. For
additional information about the Act, contact your plan consultant or email
mail@everhartfinancial.com.
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Communication Corner: 401(k) Housekeeping
Now is a good time to remind
employees to reevaluate their retirement plan in lieu of the past year’s
economic downturn, whether it be to re-start deferrals or diversify from
cash.
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: 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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