June 2014

Inside this issue:


Locating Missing Participants

At one time or another all plan sponsors will likely be in the position of having to locate missing participants. This may be related to delivery of required communications, distributions, or communicating investment changes to active and/or terminated participants. If the delivery of necessary communications is encumbered because a participant cannot be located there exists a fiduciary requirement to perform a “reasonable search” for this “missing” participant. There are various search methods that would be considered as reasonable good faith efforts, including:

  • Certified Mail (with a return receipt) to the last known address;
  • Checking records of other benefit plans (i.e., employer provided health plan); and
  • Using a commercial participant-locating or letter forwarding service (such as www.unclaimedretirementbenefits.com) (historically the Department of Labor required use of either the IRS or SSA letter forwarding programs, but both of those programs have been discontinued within the past year – it is a reasonable assumption that DOL will want to see use of a commercially reasonable equivalent in the absence of those programs).

In the event that your plan allows cash-out distributions on terminated participants with account balances under $1,000, or rollover to IRA for balances between $1,000 and $5,000, be sure to check the provisions described in the plan document. Typically a rollover to an IRA on behalf of these participants can be implemented for participants deemed to be missing. For more information on this topic, please contact your plan consultant.


Establishing Your Retirement Plan Committee Charter

As retirement plan consultants we strongly encourage our clients to formally establish a Retirement Plan Committee. The establishment of a Committee may be formalized by adopting a Retirement Plan Committee Charter. Though not required by law, this Committee Charter helps the named fiduciary manage risk, typically the Board of Directors, by delegating certain identified fiduciary responsibilities to the Committee. The Committee members manage this risk by defining the specific duties for which they are responsible. Furthermore, the charter is a risk management tool for the participants, as it provides for orderly and prudent governance of the plan designed for the exclusive best interests of the participants and their beneficiaries, as required by ERISA Section 404(a).

Discuss this topic with your plan consultant during your next meeting. Your consultant can assist the process of adopting a Committee Charter and provide a sample Committee Charter document. Consider the following discussion points:

  • Determine the purpose of the Committee (investment related, administrative issues, or both).
  • Determine how Committee members are selected (who should be members).
  • Is there an ideal number of Committee members?
  • What topics should the Committee cover?

The recent volatility in the stock market combined with our litigious society is generating concern on the part of many fiduciaries regarding their potential exposure. Taking a casual approach to plan governance, without a formalized Committee Charter, will not help insulate the company or the plan fiduciaries from participants' complaints or lawsuits.


Frequently Asked Question: Required Minimum Distributions

If an employee is still working at age
70 ½, must he or she take a Required Minimum Distribution?

In most cases, the answer is no.

The standard rule is this: Any participant who has terminated employment and attained age 70 ½ is required to begin taking distributions, known as Required Minimum Distributions (RMDs). Failure to begin taking these minimum distributions when required triggers an excise tax of 50% of the amount of the RMD.

However, there is an exception to this rule. If the individual is still working (and is not a more-than-5 percent owner of the business), he or she can delay the beginning date for the required minimum distributions (RMD) to April 1 following the calendar year in which the participant attains 70 ½.

This exception doesn’t apply if the employee is working for another employer. If a participant retires but later goes back to work for another employer, he or she would still be required to take an RMD from the plan sponsored by the previous employer.

The exception also does not apply to more-than-5 percent owners. Once these owners have attained age 70 ½ they are required to begin taking minimum distributions even if they are still employed.


Four Classic Excuses for Putting Off Your Retirement Plan

- David M. Montgomery, AIF®, CRPS

There are many reasons why we defer saving for retirement. Here are four top psychological barriers and how to overcome them.

  1. “I can’t afford it.”
    Sure, you have a lot of competing uses for your money. Some spending is locked in every month, like paying your mortgage, and some of your dollars go to nice-to-haves, such as eating out or taking a weekend trip. It may seem that nothing is left over. However, someday you will have to get by without a paycheck. While Social Security can provide some monthly income, it is not likely to replace your working-years salary. Unless you are independently wealthy or can count on family members to care for you, you can’t afford to not save for retirement.
  2. “I have years before I need to think about retiring.”
    As we move through our 20s, 30s and 40s it’s very easy to put off retirement planning. But the most powerful aid to retirement is math and time. The longer you have until retirement, the more you can build up your savings through compounding and the less you’ll need to invest each month. The earlier you start, the better, and you can boost your savings by committing to increase your savings amount each year.
  3. “I don’t know how to get started.”
    This is simple: Go to the next enrollment meeting held by your company’s retirement plan or call the company where your retirement plan is held to walk you through getting started.
  4. “Stocks and bonds are risky.”
    There is no avoiding risk in investing. Even stashing cash in your mattress doesn’t relieve you of the risk of inflation, which nibbles away at your purchasing power. Mutual funds that invest in stocks can be one of the best ways to beat inflation over the long haul. The risk of investing in stocks, while never zero, goes down the longer your time horizon for investing in them. Bond investments also carry risks but nevertheless deserve a place in every retirement portfolio. Especially for those nearing or entering retirement, bonds can offer a steady flow of income and often produce an attractive rate of return.1

For additional guidance on this subject, contact David Montgomery at dmontgomery@m-rpa.com.

1 The bond market is volatile, and fixed income securities carry interest rate risk, inflation risk and credit and default risks for both issuers and counterparties. Additional risks apply to international bonds, emerging markets bonds and high yield bonds. Risk information for fixed income products may be found in the prospectus or other product materials, if available.


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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