February 2014

Inside this issue:


Top Three Errors in Retirement Plan Audits

— Paul Horowitz, CPA, Foelgner Ronz & Straw, PA

Although we have seen incredible advances in technology and automation, retirement plan mistakes seem as frequent today as they were years ago. As auditors, our purpose is to ensure that retirement plans are run properly, in accordance with the plan document. Here are the top three errors we find when conducting our audits:

  1. What counts as compensation? – Most plans define compensation as W-2 wages, but what happens when the payroll system is not set up to calculate contributions that follow that same definition? We notice errors most often in companies that have several types of compensation (for example, commissions, fringe benefits, bonuses). More than anything, errors occur when companies make changes to their payroll system, such as adding new compensation codes, without thoroughly considering the impact on the retirement plan.
  2. Who is eligible to contribute? – Many plans require employees to work 1,000 hours before they become eligible to participate in the retirement plan. But what date should that measurement period begin and end? And what about part-time and seasonal employees who fall in and out of eligibility? The answers will depend on how the retirement plan defines these key terms.
  3. Late remittances – Contributions withheld from employee paychecks must be deposited in the plan as soon as “reasonably practicable” to do so, but in no event later than the 15th business day of the following month. This is a perennial hot-button of the DOL. We see this deadline missed most often when a key HR or accounting staff goes on vacation or when staff responsibilities are changed around within the company.

Paul Horowitz, CPA is a retirement plan auditor based in Tampa, Florida. He may be reached at Horowitz@FRSCPA.com.


Montgomery Launches Fidelis Fiduciary Management to Support Non-Fiduciary Advisors

Michael Montgomery recently announced the launch of an independent fiduciary program – Fidelis Fiduciary Management -- designed to meet the needs of 401(k) advisors who either cannot or choose not to serve as fiduciaries to their 401(k) clients.

Montgomery founded Fidelis to meet two gaps he believes exist in the fiduciary services marketplace – insufficient flexibility and lack of interaction with advisors. In response, the company provides customized investment line-ups and monitoring to plan sponsors, utilizing the investments available from virtually any platform. Throughout this process, Fidelis works closely with the plan’s financial advisor. They offer their services either as an ERISA 3(38) Investment Manager, accepting responsibility for managing a plan’s investment menu, or as an ERISA 3(21) advisor, making recommendations for final approval by the plan sponsor.

“Because the big brand fiduciary services are often paired with their client’s recordkeeper, 401(k) advisors who want outside fiduciary support currently don’t have much of a voice”, says Montgomery. “If they deal with multiple recordkeepers, they may be juggling several investment fiduciary services, which in turn may change if their client moves to a new recordkeeper. This piecemeal approach can be confusing and difficult to manage. Fidelis Fiduciary Management offers advisors the opportunity to retain a single fiduciary service that can be used for all their clients and for virtually any of the investment products offered by major recordkeepers. We think advisors want more for their clients than a cookie-cutter list of approved investments, so Fidelis provides the opportunity to interact with the actual investment fiduciaries.”

Please click here to read the January 9th article on Fidelis Fiduciary Management in PlanAdviser


Retirement Readiness

Employee retirement readiness is a top priority among more than three-fourths of employers participating in Deloitte Consulting’s Annual 401(k) Benchmarking Survey, 2012 Edition. Only 12% of plan sponsors said that most employees are or will be “financially prepared for retirement.” Employers are attempting to address this situation by implementing retirement readiness assessments; nearly two-thirds reported conducting such assessments in 2012.

Automatic enrollment is among steps taken
Other steps taken by sponsors include offering automatic enrollment. About 86% of those whose plans have this feature see a positive effect on employee participation rates. More than 50% of plans offer a Roth 401(k) option to enhance participation. And almost two-thirds are offering individual financial counseling and advice, demonstrating the focus that plan sponsors are placing on participant education.

Planning tools are not being used
Unfortunately, the survey results also revealed that participants aren’t using education tools and other planning resources to the fullest. This has led to employers encouraging providers and recordkeepers to develop innovative approaches like podcasts and webcasts, where participants can get education on demand, and more extensive social media and mobile applications.

Visit http://tinyurl.com/Deloitte2012AnnualBenchmarking for more Deloitte survey results.


The Right Mindset for Saving

— David M. Montgomery, AIF®, CRPS

Positive thinking is important to visualizing your financial future.

As much as we recognize the need to save for retirement, many small obstacles tend to get in the way of taking action. It turns out the decisions we make about financial matters, including putting off saving and investing for retirement, are deeply rooted in psychology, according to studies of investor behavior.

Here are four positive changes you can make to your psyche that could help you put yourself in the right frame of mind for saving:

1. There’s no time like the present.
Many people procrastinate when it comes to making financial commitments. But whether you have 10, 30 or 40 years to save, the time will pass more quickly than you think. By seizing the moment and starting or adding to your savings account today, you have the benefit of time to potentially grow a larger nest egg, and to ride out rough market periods

2. Delayed gratification can boost happiness.
If you remember being a kid and saving your allowance money to buy a special toy, then you will understand intuitively that immediate gratification doesn’t always buy happiness. Saving for retirement is a marathon, not a sprint. It takes decades for your investments and your asset allocation to perform the way they are intended. The payoff for patience? A smart retirement plan, in which you can meet your retirement income needs.

3. Think small investments, make them regularly.
Ever see articles with titles beginning with “Can You Afford...?” or “What’s Your Retirement Number?” and think the only way to accumulate enough money to retire is by investing big sums or playing the lottery? Sometimes that perception can lead to inaction. Fact is, even setting aside a small amount per week has the potential to grow to a sizeable sum, given enough time. The key is to start early, and to keep contributing regularly to your plan.

4. Set realistic expectations.
When investing, there are very few if any guarantees. For example, though investing in ultra-conservative investments has the potential to provide a positive if modest rate of return, this strategy may not protect you from rising prices at the gas pump or the grocery store. That’s why investors diversify their portfolios with a mix of stocks, bonds and cash investments*. It’s also important that you think about dialing back your exposure to riskier investments as your retirement date approaches.

*There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against risk.


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.

No strategy assures a profit or protect against loss.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. 

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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