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Year-End 401(k) Matching – A Good Thing?

March 5, 2017 by 16 Comments
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Tim Armstrong

I was reminded of the issue of year-end 401(k) matching by employers when I learned that the employer of a close relative was changing their match to the end of the year.

A few years ago, AOL announced that they were moving to a year-end once per year match on their 401(k) plan. AOL subsequently rescinded this change due to the public relations disaster caused by the firm’s Chairman tying this change to both Obama Care and specifically to two high-risk million dollar births covered by the company’s health insurance in 2012. Many major companies, including IBM, have gone this route in recent years. What are the implications of a year-end annual 401(k) match for employees and employers?

Implications for employees 

Ron Lieber wrote an excellent piece in the New York Times entitled Beware the End-of-Year 401(k) Match about this topic.  According to Lieber:

“AOL’s chief executive, Tim Armstrong, drew plenty of attention earlier this month when he seemed to attribute a change in the company’s 401(k) plan in part to a couple of employees whose infants required expensive care. But what was mostly lost in the discussion was just how much it would cost employees if every employer tried to do what AOL did. 

The answer? Close to $50,000 in today’s dollars by the time they retired, according to calculations that the 401(k) and mutual fund giant Vanguard made this week. That buys a lot of trips to see the grandchildren — or scores of nights in a nursing home.” 

The Vanguard study assumes an employee earns $40,000 per year and contributes 10% of their salary for 40 years, the investments earn 4% after inflation and the employee receives a 1% salary increase per year. The worker would have a balance that was 8.7% lower with annual matching than with a per pay period match. Of note, the Vanguard analysis assumes that this hypothetical worker missed 7 years’ worth of annual matches due to job changes over the course of his/her career.

Lieber also discussed the case of IBM’s move to year-end matching that also proved controversial. IBM, however, offers all employees free financial planning help and has a generous percentage match.

Additional implications of an annual match from the employee’s viewpoint:

  • One of the benefits of regular contributions to a 401(k) plan is the ability to dollar cost average. The participants lose this benefit for the employer match.
  • Generally, employees must be employed by the company as of a certain date in order to receive their annual match.  Employees who are looking to change employers will be impacted as will employees who are being laid off by the company.
  • If the annual match is perceived as less generous it might discourage some lower compensated workers from participating in the plan. This could lead to the plan not passing its annual non-discrimination testing, which could lead to restrictions on the amounts that some employees are allowed to contribute to the plan. 

Note employers are not obligated to provide a matching contribution. The above does not refer to the annual discretionary profit sharing contribution that some companies make based on the company’s profitability or other metrics. Lastly to be clear, companies going this route are not breaking any laws or rules.

Implications for employers 

I once asked a VP of Human Resources why they chose a particular 401(k) provider. His response was that this provider’s well-known and respected name was a tool in attracting and retaining the type of employees this company was seeking.

While not all employers offer a retirement plan, many that do cite their 401(k) plan as a tool to attract and retain good employees.

There are, however, some valid reasons why a plan sponsor might want to go the annual matching route:

  • Lower administration costs (conceivably) from only having to account for and allocate one annual matching contribution vs. having to do this every pay period. In many plans the cost of administration is born by the employees and comes out of plan assets, in other plans the employer might pay some or all of this cost in hard dollars from company assets.
  • Cost savings realized by not having to match the contributions of employees who have left the company prior to year-end or the date of required employment in order to receive the match.
  • Let’s face it the cost of providing employee benefits continues to increase. Companies are in business to make money. At some point something may have to give. While I’m not a fan of these annual matches, going this route is better for employees than eliminating the match altogether.

Reasons a company wouldn’t want to go this route:

  • In many industries, and in certain types of positions across various industries, skilled workers are scarce.  Annual matching can be perceived as a cut in benefits and likely won’t help companies attract and retain the types of employees they are seeking.
  • Companies want to help their employees to retire at some point because they feel this is the right thing to do. Additionally, if too many older employees don’t feel they can retire this creates issues surrounding younger employees the company wants to develop and advance for the future. 

Overall I’m not a fan of these annual matches simply because it is tough enough for employees to save enough for their retirement under the defined contribution environment that has emerged over the past 25 years or so. The year-end or annual match makes it just that much tougher on employees, which is not a good thing.

NEW SERVICE – Financial Coaching. Check out this new service to see if its right for you.

Approaching retirement and want another opinion on where you stand? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for more detailed advice about your situation.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out the Hire Me tab to learn more about my freelance financial writing and financial consulting services. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

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401(k) Fee Disclosure and the American Funds

May 4, 2016 by 41 Comments
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With the release of the Department of Labor’s fiduciary rules for financial advisors dealing with client retirement accounts, much of the focus has been on the impact on advisors who provide advice to clients on their IRA accounts. Long before these new rules were unveiled, financial advisors serving 401(k) plan sponsors have had a fiduciary responsibility to act in the best interests of the plan’s participants under the DOL’s ERISA rules.

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Starting in 2012, retirement plan sponsors have been required to disclose the costs associated with the investment options offered in 401(k) plans annually.

As an illustration, here’s how the various share classes offered by the American Funds for retirement plans stack up under the portion of the required disclosures that deal with the costs and performance of the plan’s investment options.

American Funds EuroPacific Growth

The one American Funds option that I’ve used over the years in 401(k) plans is the EuroPacific Growth fund.  This fund is a core large cap foreign stock fund.  It generally has some emerging markets holdings, but most of the fund is comprised of foreign equities from developed countries.  The R6 share class is the least expensive of the retirement plan share classes.  Let’s look at how the various share classes stack up in the disclosure format:

Share Class Ticker Expense Ratio Expenses per $1,000 invested Trailing 1 year return Trailing 3 year return Trailing 5 year return
R1 RERAX 1.59% $15.90 -10.54% 1.77% 0.89%
R2 RERBX 1.57% $15.70 -10.55% 1.79% 0.90%
R3 RERCX 1.13% $11.30 -10.13% 2.24% 1.37%
R4 REREX 0.84% $8.40 -9.89% 2.55% 1.66%
R5 RERFX 0.53% $5.30 -9.60% 2.86% 1.97%
R6 RERGX 0.50% $5.00 -9.56% 2.90% 2.01%

3 and 5 year returns are annualized.  Source:  Morningstar   Data as of 4/30/2016

While the chart above pertains only to the EuroPacific Growth fund, looking at the six retirement plan share classes for any of the American Funds products would offer similar relative results.   

The underlying portfolios and the management team are identical for each share class.  The difference lies in the expense ratio of each share class.  This is driven by the 12b-1 fees associated with the different share classes.  This fee is part of the expense ratio and is generally used all or in part to compensate the advisor on the plan.  In this case these would generally be registered reps, brokers, and insurance agents.  The 12b-1 fee can also revert to the plan to lower expenses. The 12b-1 fees by share class are:

R1                   1.00%

R2                   0.74%

R3                   0.50%

R4                   0.25%

R5 and R6 have no 12b-1 fees.

Share classes matter

The R1 and R2 shares have traditionally been used in plans where the 12b-1 fees are used to compensate a financial sales person.  This is fine as long as that sales person is providing a real service for their compensation and is not just being paid to place the business.

With all of the publicity generated by the new DOL fiduciary rules one has to wonder if the expensive R1 and R2 share classes might go by the wayside at some point

If you are a plan participant and you notice that your plan has one or more American Funds choices in the R1 or R2 share classes in my opinion you probably have a lousy plan and you are overpaying for funds that are often mediocre to poor performers.  It is incumbent upon you to ask your employer if the plan can move to lower cost shares or even a different provider. The R3 shares are a bit of an improvement but still pricey for a retirement plan in my opinion. That evaluation has to be made in the context of the plan’s size and other factors.

Approaching retirement and want another opinion on where you stand? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for more detailed advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if its right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

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Is a $100,000 Per Year Retirement Doable?

April 20, 2016 by 17 Comments
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Is a $100,000 a Year Retirement Doable?

A 2013 New York Times article discussed that a $1 million retirement nest egg isn’t what it used to be.  While this is more than 90% of U.S. retirees have amassed, $1 million doesn’t go as far as you might think.  That said I wanted to take a look at what it takes to provide $100,000 income annually during retirement.

The 4% rule 

The 4% rule says that a retiree can safely withdraw 4% of their nest egg during retirement and assume that their money will last 30 years.  This very useful rule of thumb was developed by fee-only financial planning superstar Bill Bengen.

Like any rule of thumb it is just that, an estimating tool.  At you own peril do not depend on this rule, do a real financial plan for your retirement.

Using the 4% rule as a quick “back of the napkin” estimating tool let’s see how someone with a $1 million combined in their 401(k)s and some IRAs can hit $100,000 (gross before any taxes are paid). Note this is not to say that everyone needs to spend $100,000 or any particular amount during their retirement, but rather this example is simply meant to illustrate the math involved.

Doing the math 

The $1 million in the 401(k)s and IRAs will yield $40,000 per year using the 4% rule.  This leaves a shortfall of $60,000 per year.

A husband and wife who both worked might have Social Security payments due them starting at say a combined $40,000 per year.

The shortfall is now down to $20,000

Source of funds

Annual income

Retirement account withdrawals

$40,000

Social Security

$40,000

Need

$100,000

Shortfall

$20,000

 

A retirement nest egg of $1 million will yield $40,000 per year using the 4% rule.

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Closing the income gap 

In our hypothetical situation the couple has a $20,000 per year gap between what their retirement accounts and Social Security can be expected to provide.  Here are some ways this gap can be closed:

  • If they have significant assets outside of their retirement accounts, these funds can be tapped.
  • Perhaps they have one or more pensions in which they have a vested benefit.
  • They may have stock options or restricted stock units that can be converted to cash from their employers.
  • This might be a good time to look at downsizing their home and applying any excess cash from the transaction to their retirement.
  • If they were business owners, they might realize some value from the sale of the business as they retire.
  • If realistic perhaps retirement can be delayed for several years.  This allows the couple to not only accumulate a bit more for retirement but it also delays the need to tap into their retirement accounts and builds up their Social Security benefit a bit longer.
  • It might be feasible to work full or part-time during the early years of retirement.  Depending upon one’s expertise there may be consulting opportunities related to your former employment field or perhaps you can start a business based upon an interest or a hobby.

Things to beware of in trying to boost your nest egg 

The scenario outlined above is hypothetical but very common.  As far as retirement goes I think financial journalist and author Jon Chevreau has the right idea:  Forget Retirement Seek Financial Independence.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if its right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

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5 Reasons 401(k) Lawsuits Matter to You

November 20, 2015 by 9 Comments
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Several 401(k) lawsuits against major employers have been in the news this year. These suits are about high fees, conflicts of interest and plan sponsors failing to live up to their fiduciary obligations.

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Ameriprise Financial settled a suit that alleged that the firm offered a number of its own proprietary mutual funds in the company’s 401(k) plan and collected revenue sharing payments on these funds from an Ameriprise subsidiary.

The U.S. Supreme Court ruled in Tibble vs. Edison International that the large utility company had a duty to monitor the investments offered in the plan no matter how long along they were initially added to the plan. One of the issues here surrounds the fact that lower cost share classes of these funds became available but the plan stayed with the higher cost retail share class.

Most recently Boeing settled a lawsuit that was first filed in 2006 for $57 million. The suit alleged that the company had breached its fiduciary duty to its employees by using high cost and risky investment options in the plan and by allowing the plan’s record keeper to charge employees and retirees excessive fees.

While all of this may be interesting, you may be asking what does any of this have to do with me? Here are 5 reasons 401(k) lawsuits matter to you.

Plan Sponsors have a fiduciary obligation 

These and a growing number of 401(k) related lawsuits have reaffirmed that retirement plan sponsors have a fiduciary obligation to act in the best interests of the plan participants. This includes:

  • The selection and monitoring of the mutual funds (or other investment vehicles) offered in the plan.
  • The selection and monitoring of the service providers selected for the plan.
  • All costs and fees associated with the plan.

Moreover plan sponsors should have a process in place to manage all aspects of the plan.

401(k) plan sponsors have a fiduciary obligation to their employees.

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Mutual Fund share classes 

Several of the lawsuits centered on plan sponsors offering expensive retail share classes of funds when lower cost share classes were available. These higher cost share classes might throw off more revenue sharing and other fees to the plan but they are more expensive for the plan participants. It behooves plan sponsors more now than ever to offer the lowest cost share classes of a given fund available to them.

Numerous studies have shown the connection between lower investment costs and investment return. Well-run 401(k) plans strive to keep investment costs down and one way to do this is to ensure that the plan offers the lowest mutual fund share classes available.

There is a direct relationship between low investment costs and return.

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Duty to monitor 

As shown in the Tibble versus Edison ruling the Supreme Court said plan sponsors have a duty to continue to monitor the investments offered in the plan long after they may have been initially offered. This dovetails into an ongoing duty of plan sponsors to monitor the investments offered to you to ensure the costs are reasonable and that they meet a set of criteria.

Typically a 401(k) that is well-monitored and managed via a consistent investment process will tend to offer a better investment line-up to their participants.

Manage plan expenses 

Boeing recently settled the second largest 401(k) suit in history at $57 million. In part the allegations included that Boeing allowed its outside record keeper to charge employees and retirees excessive fees.

This and other suits underscore the responsibility of plan sponsors to manage 401(k) plan costs and the activities of plan providers such as an outside record keeper. To the extent that administrative expenses are paid out of plan assets plan sponsors who strive to keep these expenses low are doing the right thing for their employees.

Plan Sponsors are getting it 

While this is not a blanket statement as there are still plenty of lousy 401(k) plans out there, there is evidence that plan sponsors are getting the message that they have a responsibility to the plan’s participants.

As an example mutual fund expenses in 401(k) plans have been declining for the past 15 years. Fewer companies are mandating the use of company stock in their 401(k) plans and a 2014 Supreme Court ruling will certainly help keep this trend going.

The Bottom Line 

Retirement plan sponsors have a fiduciary obligation to act in the best interests of the plan’s participants. A number of 401(k) lawsuits in recent years have served to reinforce this duty and this is a good thing for those participating in 401(k) plans. As a plan participant become knowledgeable about the investments offered in your plan and how much the plan is costing you. If you have concerns raise them in a constructive fashion to your employer.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out the Hire Me tab to learn more about my freelance financial writing and financial consulting services. 

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Open Enrollment Exploring Your Employee Benefits

October 22, 2015 by 1 Comment
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This post was written by Katie Brewer, CFP®.  Young, smart financial planners like Katie bode well for the future of the financial planning profession. Her bio and contact information are provided at the end of the post. This post is timely for those of you who are in the midst of open enrollment via your employers and Katie offers some solid tips to consider.

Is that email from HR about open enrollment buried in your inbox? If you wait until the last minute and then race through your choices, you’re not the only one. Almost half of all employees spend 30 minutes or less choosing their benefits every year. And 90% of employees choose the same benefits every year, even though your family and your benefits are constantly changing.

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Employee benefits are a large part of your compensation, and it pays to make the right choices for your family. Forty-two percent of employees believe they waste up to $750 a year due to open enrollment mistakes. We’ll explore a few common employee benefits so you can feel confident that you’re making the right choice for you and your family during open enrollment.

Save for Your Future with Your Employer Retirement Plan

Many employers offer a retirement plan to help you save for a comfortable life in your later years. The name of the plan will depend on your employer. Do you have a 401(k), Thrift Savings Plan (TSP), 403(b), or SIMPLE IRA? All of these plans allow employees to contribute to a retirement account on a tax-deferred basis.

You’ll also want to look into the details to see if your employer offers a Roth option. With these plans, you pay tax now, but you’ll be able to take your contributions — and all your earnings — out tax free. It’s nice to have options about how to take money out in your retirement.

Some employers also provide a generous match to employee contributions. If your employer provides a match, you’ll want to take advantage of it. If you get a 50% match on your contributions, that’s a huge return on your money that’s tough to get anywhere else.

Protect Your Income with Disability Insurance

If you review your benefits package, you’ll probably also see some mention of long-term disability insurance coverage. This group coverage is an inexpensive way to make sure you are protecting your income. If you rely on your salary to pay your bills and save for your future, you need insurance to protect against a loss in income. Understanding the finer details will help you make the best choice for your policy.

First, what’s the elimination period (or waiting period)? You’ll want to have enough cash in your emergency fund to bridge the waiting period if you need to file a claim.

Second, is there a way to easily increase coverage? It’s a good idea to cover at least 50% of your income.

Third, do you have the option to pay tax on the premium? If so, that’s usually a good choice. It’s very inexpensive, and it means you’d receive your disability payments tax-free when you need the money the most.

Some employers offer short term disability coverage as well. You should have an emergency fund that will help you ride out any short periods away from work. But if you’re still building up your emergency fund, it can make sense to pay for a short term disability policy.

Think of disability insurance as life style insurance.

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Look After Your Loved Ones with Life Insurance

Another common employer benefit is to provide some amount of life insurance for employees. It’s usually on the order of 1 to 2 times your annual salary. For most families, this is not enough.

Your employer might offer the option to buy additional life insurance without needing a medical exam at a reasonable cost. If you have medical conditions that make it difficult to get life insurance, this is a great way to increase your coverage.

Now that you know how much life insurance you have, you can also purchase your remaining life insurance on the open market. This is usually a better option as you can take it with you if you leave your job.

Cushion Your Budget with Health Insurance

Health insurance is an important part of your benefit package. You might have several options to choose from, and what plan is the right one for you will change as your family changes.

A low deductible and small co-pay plan with a wide range of specialists is important if you or your spouse are facing health problems.

If you are in good health and have the financial means, a high-deductible health plan might be the right choice. This plan has a high out of pocket deductible, but you’ll pay less in premiums, and you can take advantage of a health savings account.

Health savings accounts (HSA) are a fantastic way to build wealth. With a HSA, you contribute pre-tax money into the account to be invested. The money rolls over from year to year so you can build a balance. You can withdraw the money, including any earnings, tax-free on qualified medical expenses. Very few things are completely income tax-free! This is different than a Flexible Spending Account (FSA) or Health Reimbursement Account (HRA), so make sure you know exactly what type of plan you have.

Your HSA can be another retirement plan for you.

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You might also have the option to participate in a health care Flexible Spending Account (FSA). With a FSA, you put away pre-tax money to cover healthcare costs like co-pays, deductibles, and medications. These plans are “use it or lose it,” so be careful about how much you put in the account. While there’s usually a grace period for spending your funds, you can’t rollover much (if any) to the next year. If you’re at the end of your FSA year, check your balance so you aren’t wasting money.

Be On the Lookout for Other Benefits

Many employers also offer a dependent or daycare flexible spending account (FSA). This lets you put away pre-tax money to pay for expenses related to caring for dependents like kids or an elderly parent. Many parents use a dependent FSA to get a tax break on day care. If you decide to skip the FSA, you might be able to claim a credit on your taxes instead.

Some employers also offer the option of pre-paid legal services. If your family needs estate planning documents or other legal services, this can be an inexpensive way to get these papers in place. Other employers offer free or reduced tuition to college or training programs. Benefits like these can add up to a significant sum.

There’s such a wide variety in employee benefits that it’s difficult to name all the possible benefits you might receive. Read the fine print of your package to make sure you’re taking advantage of every benefit you can.

Make this year the year that you take the time to understand your employee benefits. Employee benefits are an important part of your compensation. Be sure to get what you deserve by making the most of open enrollment.

Katie Brewer, CFP® is a financial coach to professionals of Gen X & Gen Y and the President of Your Richest Life. She has accumulated over 10 years of experience working with clients and their money. Katie has been quoted in articles in Money, The New York Times, Forbes, and Real Simple. Katie resides in the Dallas, Texas area, but works virtually with clients across the country. You can find Katie on Twitter at @KatieYRL and email her at info@yrlplanning.com. 

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.  

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Six Reasons Small Businesses Should Offer a 401(k) Plan

September 30, 2015 by 2 Comments
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The statistics on the number of American workers not covered by a workplace retirement plan like a 401(k) are sobering. According to a 2011 survey just over half of all American workers had access to a workplace retirement plan.

Sadly all too often the reason that smaller companies don’t offer a 401(k) plan are that they can be expensive and there are a vast number of government rules and regulations that must be followed. Small business owners have all that they can handle in running and growing their companies.

Here are six reasons that a small business should consider offering a 401(k) plan for their employees.

The owner’s retirement needs

 Small business owners work hard to manage and grow their companies. Unlike with a larger organization there generally are not armies of employees to handle administrative tasks like human resources or accounting. The owner is often the face of the business and intimately involved in sales and various business processes. It is not uncommon for small business owners to put in many long hours and take very little time off.

Too often the hope is that the value of the business will serve as their retirement plan. Maybe this will happen; they will find a willing buyer who will pay a premium price for the company. Or maybe it won’t happen at least not quite that way.

A 401(k) plan allows the business owner to contribute up to $18,000 or $24,000 (if 50 or over) of their compensation for 2015. In addition they can make a profit sharing contribution as well. This can bring the total combined employee deferral and employer contribution for the owner to a maximum of $53,000 or $59,000 if they are 50 or over. This can go a long way towards helping the business owner fund a comfortable retirement for themselves.

Business contributions and tax dedications

Any employer matching contributions will be tax-deductible as will any costs incurred by the employer in connection with offering the plan.

In order to alleviate any restrictions on the amount the business owner and top executives can contribute for themselves the company may decide on a safe harbor plan that entails a minimum matching level or a minimum level of contributions to the accounts of all employees whether they contribute to the plan or not. The safe harbor contributions are immediately vested for the employees. In exchange the owner will not be limited as to the amount of their contributions based on the results of the required non-discrimination testing. Certainly not all small businesses will be able to afford the safe harbor contributions but for those that can this is a great solution for the owners and the employees.

Doing the right thing for employees

There many articles written and studies done that point to a retirement savings crises in this country. Part of the problem as mentioned above is the lack of availability of a workplace retirement plan for a number of U.S. workers.

Offering your employees a low cost 401(k) plan is a great way to help them save for their retirement and frankly it’s the right thing to do for employees. They work hard and contribute to the success of the business, they should have the opportunity to save for their own retirement and build a measure of financial security for themselves and their families.

Attract and retain top talent

With the economy having largely recovered from the financial crises unemployment is low and many companies are having a hard time finding the workers they need in some cases. Top talent expects to be well-compensated and a quality 401(k) plan is a part of a top-notch compensation package. While likely not the main driver of determining whether a top prospective employee accepts your job offer, a really lousy 401(k) plan (or no plan) might be the “tie-breaker.”

Likewise if a valued employee is being courted by a competitor and that competitor has a robust benefits package that includes a much better 401(k) plan that might be the difference between retaining that key employee and losing them. 

Financial wellness can help the bottom line

Employees who are worried about retirement or other financial issues may be less productive at work. Stressed out employees might also drive up the company’s healthcare costs.

According to a survey by benefits consultant AON Hewitt about 90% of the country’s 250 largest employers also recognize the impact of financial stress on their workforce and will be looking to expand or start financial wellness programs.

Small businesses may not have the resources of these large companies but offering a solid, low cost 401(k) plan is a positive step for their employees on the road towards financial wellness. 

Technology has expanded plan options

Just a few years ago smaller plans and start-ups had very few alternatives and most of those alternatives were high cost plans with questionable investment choices. Insurance company group annuities were also a common option in this market, again generally an expensive, unattractive option.

There are a number of low-cost 401(k) options for small businesses today that thanks in large part to technological advances can offer a complete package including administration, education and low-cost investing options at a reasonable price. Some of these providers serve as plan fiduciaries taking that responsibility off of the shoulders of the business owner.

Frankly cost and the rules connected with running a plan can make it a hassle where these issues and the costs outweigh the good of offering the plan in the minds of many small business owners. The new generation of user-friendly low cost options for small businesses remove this hurdle.

The Bottom Line 

Traditionally the 401(k) options for small businesses have been limited to high cost options with less than desirable investment options. Today with the advances in technology there are a number of low cost, low-hassle options for small companies to consider. Offering a 401(k) plan is a win-win for small businesses in that the owners win and so do their employees.

This post was sponsored (meaning that I was compensated) by San Francisco based ForUsAll an innovative provider of low cost turnkey 401(k) solutions for small businesses. They had no editorial input on anything above. 

I discovered ForUsAll in a finance blogging group that I am part of and was very impressed with what they can offer a small business looking for a turn-key 401(k) solution. They take all of the administrative and compliance burdens off the shoulders of the plan sponsor through their status as a 3(16) fiduciary. Via their menu of low-cost Vanguard funds and their technology they offer a complete 401(k) solution that includes guidance for employees.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner

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Financial Planning Steps for the rest of 2015

September 7, 2015 by 1 Comment
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Labor Day is here and the college football season started with our local Big 10 team Northwestern scoring an upset win over a ranked Stanford team. Next weekend is the first full weekend of NFL football with my Green Bay Packers visiting Soldier Field where they should continue their winning streak over the hapless Bears.

With a bit less than a third of 2015 left there are a number of financial planning steps you should be taking between now and the end of the year. Frankly I wrote a similar piece at this time last year Eight Financial To Do Items for the Rest of 2014 and I would encourage you to check this piece out as these eight items are just as applicable in 2015. The eight items (for those who prefer the Cliff Notes version) are:

While all eight of these items are critical financial planning steps to be tended to or at least reviewed this year or in any year, the environment in the financial markets has changed from this time a year ago.

August and so far early September has proven to be a rough patch for the stock market with much volatility and pronounced drops from highs reached earlier in 2015. The financial press is filled with stories about what to do and this has become a major event for the cable financial news stations.

In this context here are a few thoughts regarding some financial planning steps for the rest of 2015.

Get a financial plan in place or update your current one 

To me a comprehensive financial plan is the basis of an investment strategy and frankly all else in your financial life. If you have a plan in place, revisit it. If you don’t this is a great time to find a qualified fee-only financial planner and have one done.

Where are you in terms of financial goals like retirement and saving for your children’s college education? Do you have an estate plan in place?

With the markets taking a breather this is a good time to see where you are and what it will take to get you where you want to be financially. An investment strategy is an outgrowth of your financial plan and this plan is something to fall back on in times of market turmoil like the present.

Review your investments and your strategy 

How has the recent market decline impacted your asset allocation? Does your portfolio need to be rebalanced? Is your asset allocation consistent with your goals, risk tolerance and time horizon as outlined in your financial plan?

While I don’t advocate making wholesale changes to your portfolio based on some temporary stock market volatility it is always appropriate to do a periodic review of your overall portfolio, your asset allocation and the individual holdings in your accounts. These include mutual funds, ETFs, individual stocks and bonds and so forth.

The recent weakness in the markets may have created some opportunities for year-end tax loss harvesting in your taxable accounts. This refers to selling shares that show a loss to realize taxable losses. If you want to do this but also want to continue to own these or similar investments be sure to consult with a financial or tax advisor who understands the wash-sale rules.

More likely you have many investments that have appreciated nicely and these represent and excellent vehicle to make charitable contributions. Not only do you receive a tax deduction for the value of the gift, but you eliminate the tax liability for any capital gains on the holdings. 

Review your 401(k) 

The current situation in the stock market is a good time to check your account and rebalance your holdings if needed. Better yet if your plan offers it sign up for automatic rebalancing so you don’t have to worry about this.

Fall open enrollment is often the time when companies roll out any changes to the plan in terms of the investments offered, the company match or other aspects of the plan. Additionally most plans were required to issue annual disclosures by the end of August so be sure to review yours to see where the investments offered are compared to their benchmark indexes and how much they are costing you.

Lastly check to see how much you are contributing to your plan. If you are not tracking toward the maximum salary deferrals of $18,000 or $24,000 (for those who will be 50 or over at any point in 2015), try to increase your contributions for the rest of 2015.

Summary 

Labor Day is here and summer is unofficially over. Use the remainder of 2015 to tackle these issues and to get your financial situation where it needs to be.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

Check out Carl Richards’ (The Behavior Gap) excellent book The One Page Financial Plan. Carl is a financial advisor and NY Times contributor. This is an easy read and offers some good ideas in approaching the financial planning process. 

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