October 2015

Inside this issue:


With the recent market volatility, it’s understandable for retirement plan participants to be concerned about their investments. Our message to them is this:

Volatile markets can make you wonder if you’re on track to meet your retirement goals. Don’t be discouraged and most of all, don’t panic. Instead, be proactive! Consider the following steps you should be taking in both up AND down markets:

1. Review Your Portfolio.
Know your investment mix and be sure you are invested in the appropriate asset classes (based on your risk tolerance and time horizon to retirement). Times like these reinforce the need to diversify (While diversification does not guarantee against loss of principal, it can help spread your risk among different asset classes and market segments.)
3 tips
2. Check Your Contribution Rate.
How much you contribute each month can directly impact how much you will have at retirement. Have you done a retirement needs calculation? Do you know how much you should be contributing each month to reach your goal? Are you increasing that amount each year or more often based on your income and age?
3. Rebalance.
This will readjust your portfolio back to your original investment strategy, attempting to "sell high and buy low". Essentially, when you rebalance, you tend to sell some appreciated assets and purchase others with lower valuations. Regular rebalancing (as a rule of thumb, at least once a year) may increase the overall return of your portfolio over time.

Remember, staying invested in times of market turbulence will help you participate fully in potential market gains. While there is never any certainty in the market, it is worth noting that some of the sharpest market declines were followed by steep rebounds. History has taught us that volatility is to be expected. The implications surrounding the current turmoil should call on plan participants to focus on what they should otherwise be doing on a regular basis.


Over the last several years exchange traded funds (or ETFs) have become very popular among investors because of their lack of a minimum investment, their low cost of ownership and their ability to be intra-day traded. Most ETFs track an index such as the S&P 500, but unlike an index mutual fund, ETFs can be bought and sold just like a stock. That means that they can be bought or sold at any time during normal trading hours while mutual funds trade just once a day, at the end of a trading session.

While retail investors enjoy the trading flexibility of ETFs, retirement investors do not receive this same advantage. Participant trades within a retirement plan must be executed at the same time to avoid discrimination. As such, intra-day trading flexibility is lost within a retirement plan.

An attractive benefit of ETFs is their low cost. Most ETFs are passively managed and therefore, relative to actively managed mutual funds, they appear inexpensive. However, when compared to similar passively managed mutual funds, the cost difference between the two is negligible.

Another drawback of ETFs in a retirement plan is that they do not contain the ability to revenue share to help offset plan recordkeeping costs. In a mutual fund, recordkeeping costs can be built into the fund to help pay plan expenses. If a retirement plan was to offer ETFs, it would have to find an alternative method if there was a need to offset plan expenses.

ETFs have gained notoriety over the last several years for their low cost and ability to trade intra-day however they are far less common and less advantageous in retirement plans because the benefits are diluted in the defined contribution world.

Mutual funds are sold by prospectus only. Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of a mutual fund. The fund prospectus provides this and other important information. Please contact your representative or the Company to obtain a prospectus. Please read the prospectus carefully before investing or sending money. ACR#145370 06/15


Forfeiture dollars are to be allocated annually in accordance with your plan document’s direction. Typically forfeitures can be used to pay allowable and reasonable plan expenses and/or to offset employer contributions. If dollars remain they should be allocated back to participants in the year for which they are accrued (again, as directed in the plan document).

The issue with not allocating forfeitures for the year they are accrued (or shortly thereafter), is that they are considered to be the property of the participants existing in the year(s) of accrual. The remedy for carrying multi-year forfeitures is voluntary compliance with the IRS. An attorney should be able to help with the application and direction. Aside from any fees/penalties the IRS may levy, plus the cost of the Voluntary Correction Program (VCP), there will be the issue of identifying and finding participants in each year affected, so forfeitures can be properly distributed to those that are entitled to them.

The accounts of lost participants may be forfeited after a reasonable effort is made to locate the participant. This must be authorized by the plan document. Such amounts may be added to the plan’s forfeiture account and used in the same manner as other forfeitures. However, if the participant reappears the account must be restored.

What constitutes a reasonable effort to find missing participants depends on the facts and circumstances. Recent DOL guidance on tracking down participants where a plan is terminated indicates the following:

  • Notify participant by certified or electronic email (DOL has a model notice);
  • Review plan records;
  • Contact designated beneficiary;
  • Use free online search tools; and
  • Size of account may be considered in deciding how much effort is required.

Note that IRS and SSA letter forwarding programs are no longer available.



What is an estimate of how much retirees will need in order to cover their healthcare expenses during retirement?

A: Fidelity Benefits Consulting, which has calculated this figure since 2002, reports that a 65-year-old couple who retired in 2013 will need about $220,000 to pay for healthcare costs throughout their retirement. This figure excludes nursing-home care, and only applies to those with traditional Medicare coverage. This represents an 8% decrease from the 2012 projection of $240,000. Fidelity noted that the decline is due to a reduction in utilization of healthcare services in an uncertain economy, smaller payment increases to healthcare providers and demographic changes. It also anticipates smaller provider payment increases in the coming years.

Fidelity points out that many people under-estimate the savings they will need to cover healthcare in retirement. A recent survey of pre-retirees (those age 55 to 64) revealed that half of the respondents felt they would need only $50,000 for healthcare.

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.

For Plan Sponsor use only Not for use with Participants or the General Public.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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