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December 2013

Inside this issue:


Participants Increasing Use of Professionally Managed Accounts

According to Vanguard’s How America Saves 2013, there is a clear trend of participants selecting professionally managed allocations in their portfolios. At the end of 2012, 36% of the 3 million participants studied were investing only in a single-target date fund, a balanced fund, or a managed account advisory service. This figure was only 17% in 2007. At year-end 2012, 27% of participants were invested in one target-date fund, 6% were invested in a balanced fund and 3% used a managed account option.

Among those enrolling in their defined contribution plan in 2012, 73% were invested only in a professionally managed allocation choice. The growing popularity of target-date funds led the study authors to estimate that 55% of all participants and 80% of new enrollees will be in a professionally managed allocation option in five years.

Equity investing remained strong
Equities continued to be the largest asset class receiving plan funds. In 2012, 66% of assets were in equities, and 70% of participants’ contributions went to equity investments. With respect to requesting exchanges, only 12% of participants traded in their accounts in 2012. This represents a small decline from recent years.

Other results are consistent with the past
Among other activities included in the review, there was little change from previous years.

Key results:

  • The average participation rate was 76% in 2012
  • The average deferral rate was 7%
  • 32% of plans had implemented automatic enrollment, and 70% of those plans had automatic-contribution rate increases
  • 49% of plans permitted Roth contributions, and 11% of participants
    took advantage of that feature
  • 18% of participants had an outstanding loan; the average balance
    was $9,000
  • 82% of those who could have received a lump-sum distribution of their account balance due to separation from service remained in their former employer’s plan or rolled over their accounts to an IRA or a new employer’s plan

Details are available at http://tinyurl.com/HowAmericaSaves2013.


Do You Need An Independent ERISA Audit?

If your plan has 100 or more participants (as of January 1st for calendar year plans), you must complete an audit and submit the results with your Form 5500. In this situation, the DOL defines a plan participant as any person with an account balance in the plan, as well as any employee who is eligible for the plan as of the first of the plan year, even if they are not actively making elective deferrals. An exception applies if your plan has between 80 and 120 participants and filed as a small plan for the previous year. However, in all cases where a plan has more than 120 participants on the first day of the plan year, an audit is required. Please contact us for more information or for an audit referral.


Cultivating Good Money Habits in Your Kids

Most young people will not enter the work force in a traditional job with a pension.  That is why it’s critically important for them to form good money habits for saving, giving, spending and investing. Before your kids start working or head off to college, put them on the road to financial literacy.   

Do your teenagers know how to manage their money?   Here are six ways to instill good money skills in your kids.

  1. Start early: By elementary school, establish an allowance for doing certain chores around the house.  Set up a savings account for them when they are in the first grade to help them begin learning the value of saving and compound interest.  Although the small amount of interest they earn may not be impressive, they will be establishing the habit of regularly depositing a portion of their earnings and birthday money.  
  2. Get them involved in household finances: Most kids are unaware of the cost to keep the lights on, pay for internet or take a vacation.  Invite them to join you at the end of the month and view your checkbook entries for items that benefit them directly and for long-term obligations such as retirement contributions and mortgage payments.
  3. Encourage financial responsibility: Budgeting lessons are important.  Give them a back-to-school allowance and let them buy their school supplies and clothes on their own.  Even if they wind up buying a pair of trendy sneakers rather than enough socks or notebooks, the stakes are pretty low.
  4. Limit their use of credit: Managing credit card debt is a serious problem for many consumers, but young cardholders may find it especially challenging.  Studies have shown that our brains react differently when paying with cash versus a card.  Many cases even show increase pain signals when using cash instead of plastic.  Get your children in the habit of paying with cash rather than debit or credit cards to help them make wiser purchases.  
  5. Allow them to learn money lessons by car shopping and buying: Before you buy a car for your teen's 16th birthday, have him or her do the research to compare prices, mileage, safety and projected repair costs.  You might also assign them the responsibility to search the internet for various insurance agents to see what coverage will cost.
  6. Consider a teen retirement account: Having time on your kids’ side to save and invest is a distinct advantage for young people.  Once they get their first job, suggest setting aside a portion of earnings (12% or 15%) in a Roth IRA.  To make saving more compelling, offer to match a portion of their contributions.  You can use this account to teach your kids about the stock market, risk and importance of having a long time horizon to recover from periodic market setbacks.

David M. Montgomery, AIF®, CRPS


Seeds of Investing

For a copy of this month’s Seeds of Investing newsletter, formatted for distribution to retirement plan participants, contact David Montgomery at DMontgomery@m-rpa.com or 813-868-1930.


Happy Holidays from Montgomery Retirement Plan Advisors

On behalf of Montgomery Retirement Plan Advisors, I would like to extend to you the greetings of this special season. To our clients, I would like to express our gratitude to you for the privilege of serving as your retirement plan consulting team. To our partners and peers within the retirement plan industry, I sincerely appreciate your support and the confidence you have shown in our firm.

As I look forward to a new year and the hope it brings, I reflect on the degree to which we accomplished our primary goals -- supporting our clients as a fiduciary and helping plan participants prepare for a meaningful retirement. I am very proud of our commitment to excellence, but I also begin work each day convinced there is always a way to improve every single service we offer.

Toward that goal of continuous improvement, 2014 should be an exciting year! Early in the year, we plan to add at least one more senior retirement plan consultant to our team. We also will overhaul our website to provide less volume and more functionality. We also will integrate several useful new tools into our investment fiduciary oversight and client services.

Finally, we are pleased to announce the upcoming rollout of a sister company, Fidelis Fiduciary Management, designed to partner with financial advisors to offer independent fiduciary services to their retirement plan clients. Many advisors either cannot or choose not to serve as an ERISA investment fiduciary to their clients. Fidelis Fiduciary Management fills this gap by offering ERISA 3(38) investment management, including investment selection and monitoring, that is customized to the needs of each plan sponsor and which respects the relationship with their financial advisor. The new company’s grand opening is just a few weeks from now, January 6, 2014.

Please contact us with any questions or feedback; we look forward to serving you in 2014!

Warmest Regards,
- Mike Montgomery

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. Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.


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