Tuesday, April 30, 2013
See the article linked here.
Nice work Ary!
Friday, April 26, 2013
• Read the Fiduciary Fact Sheet
• Read the EBSA Newsletter
Added to original Post - Great synopsis on the one-hour show written by Nevin Adams. Linked below.
Tuesday, April 16, 2013
Flash forward 6 months and Obama's new budget proposal does come with a bunch of cuts directly impacting the Retirement Plan System. The biggest one is the lifetime cap of $3m. That seems like a lot of money to the average Joe. Here are some thoughts:
1.) The number is actually determined as an annual living benefit of $205k/year. They use that to back into this arbitrary $3m number. That calculation is levered by prevailing interest rates which are at an all time low. Therefore, when (not if) interest rates go up, that $3m number will go down and will go down sharply!
2.) The impact on this cap will predominantly be felt by the people in charge of companies. Those who decide on whether or not to have a plan to begin with. If they hit the cap, a huge incentive for them goes away and voila, the plan goes away too. That is felt by every day people, not just the wealthy!
3.) The rule does NOT impact Deferred Compensation plans, aka Executive Bonus Plans. Why not? Interesting question. The big CEO's, President's of Industry, the President of the U.S. ALL have accounts greater than $3m that aren't impacted by the rule.....it is very curious.
Brian Graff, President of ASPPA does a really good job of pointing this out on CNBC. Link to the video here. Enjoy!
Friday, April 5, 2013
• line items that are left blank when the instructions require an answer
• inconsistencies in the data disclosed on the Form 5500 schedules
• a large drop in the number of participants from one year to the next
• a large dollar amount in the “Other” asset line on the Schedule H
*Other red flags include hard-to-value investments, non-marketable investments, and consistent late deposits of deferrals. Included in this category would be Self Directed Brokerage Accounts and Employer Stock.
The reason that this post struck me as interesting has to do with a topic that we discuss often on this blog and when we're out consulting with clients. Specifically, Risk Mitigation. Regular readers of this blog know that my firm is a Discretionary Corporate Trustee and that one of the primary reasons we are hired, although not the exclusive one, is to provide relief from exposure to fiduciary liability risk.
One area that I've been focusing on when meeting with clients is in risk categorization. Generally, I view employer (plan sponsor) risk falling into three main areas of concern:
a. High Risk/Low Probability – This is the risk of law suit. It is unlikely to occur, but if it does, it will be unpleasant, expensive financially to defend and will have a reputation cost as well.
b. Low Risk/High Probability – We've found that in 85% of the plans we take over, we catch some kind of administrative, fiduciary or document breach up front and correct them. These types of issues are likely to pop up from time to time and are a quite common problem. They are relatively inexpensive to correct but do cause aggravation to clients.
c. Medium Risk/Medium Probability – This is the audit risk. In my opinion, I believe that this is ought to be the biggest area of concern for an employer. The risk of audit is becoming greater and greater and in the political environment of today, with extreme governmental debt and tax reform coming, this is one area that the government can easily generate revenues in the form of excise taxes, penalties and fines. It is this risk that is supported by NAPA's posting.
The lesson here for employers is to make sure that 5500's are completed with the same kind of care and attention to detail that a person would use when filling out their IRS 1040.
The lesson for advisors is two-fold.
1.) Providing a 5500 review to help clients avoid potential audit trigger's could/should be among your services.
2.) Try coaching clients to eliminate some of those difficult to value assets like employer stock or Self Directed Accounts because those plans are the low hanging fruit from an auditor's perspective.
Finally, some a little self serving here, it would be a good idea for employers to hire a professional fiduciary services provider, like a Discretionary Corporate Trustee.