Eric Lazzari

Fiduciary Governance for CFO’s

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Fiduciary governance plays a crucial role in ensuring that 401k plans comply with the Employee Retirement Income Security Act (ERISA) regulations. By establishing strong fiduciary governance, CFOs can mitigate the risk of potential liabilities and safeguard the interests of their employees.

ERISA requires that plan fiduciaries, including CFOs, act solely in the best interests of plan participants and beneficiaries. Failure to fulfill this obligation can result in serious consequences, including potential lawsuits, regulatory penalties, and reputational damage. Therefore, it is essential for CFOs to understand how fiduciary governance can help them fulfill their fiduciary duties and avoid potential liability under ERISA.

Fiduciary governance involves establishing and implementing a set of procedures and processes that enable plan fiduciaries to manage their responsibilities effectively. This includes defining the roles and responsibilities of plan fiduciaries, establishing investment policies and procedures, monitoring plan performance, and conducting regular fiduciary training and education. By implementing a robust fiduciary governance framework, CFOs can ensure that they are fulfilling their fiduciary obligations and reducing their liability under ERISA.

  1. Minimizing Conflicts of Interest: A strong fiduciary governance framework includes policies and procedures that help minimize conflicts of interest. This includes establishing clear guidelines for selecting and monitoring plan investments and service providers. By doing so, CFOs can reduce the risk of potential conflicts of interest and ensure that their decisions are made solely in the best interests of plan participants and beneficiaries.
  2. Ensuring Investment Diversification: ERISA requires that plan fiduciaries ensure that plan investments are diversified to minimize the risk of large losses. Fiduciary governance can help ensure that the plan’s investment portfolio is well-diversified and aligned with the plan’s investment objectives. This can help protect plan participants and beneficiaries from undue investment risk, reducing the risk of potential liability for plan fiduciaries.
  3. Conducting Regular Plan Reviews: Fiduciary governance requires that plan fiduciaries conduct regular reviews of plan investments, fees, and service providers. By conducting regular reviews, CFOs can identify and address potential issues before they become major problems, reducing the risk of potential liability for plan fiduciaries.
  4. Documenting Fiduciary Decisions: A robust fiduciary governance framework includes documenting all fiduciary decisions made by plan fiduciaries. This documentation serves as evidence that the plan fiduciaries acted prudently and in the best interests of plan participants and beneficiaries. In the event of a lawsuit or regulatory audit, this documentation can help reduce the risk of potential liability for plan fiduciaries.

In conclusion, fiduciary governance is a key aspect of managing a 401k plan, and it can significantly reduce liability under ERISA for CFOs. As a CFO, it is your responsibility to ensure that your 401k plan is managed with the highest standards of fiduciary governance. By implementing a robust fiduciary governance framework, you can fulfill your fiduciary obligations, protect the interests of plan participants and beneficiaries, and mitigate the risk of potential liability. So, take action today and establish a strong fiduciary governance framework for your 401k plan to safeguard your company’s reputation and protect your employees’ financial futures.

Social Security Webinar Recap

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Recap: Navigating Social Security Webinar 2/15/2023

Are you approaching retirement age or looking to learn more about Social Security? Understanding how this government program works is crucial for securing a stable financial future. In a recent talk, Eric Lazzari and Kelly Hahn provided valuable insights into Social Security and its benefits.

Kelly Hahn provided an overview of the basics of Social Security, including how benefits are calculated, the strategy of when to claim, and the future of Social Security. She discussed how Social Security is taxed and the different claiming decisions for own, spousal, and survivor benefits. The government is more flexible in terms of what to claim and when for survivor benefits, and it pays off to claim later for higher earners.

Hahn also highlighted that there is an earnings test that applies if you are claiming Social Security benefits before full retirement age and you are working. Therefore, it’s essential to consider the expected rate of return on your portfolio and expected longevity to determine when it pays off to claim Social Security.

The future of Social Security is also a topic of concern for many people. Hahn explained that Social Security payments are funded by taxes, and the trust fund is expected to be depleted by 2035. However, she reassured the audience that Congress is unlikely to cut benefits for current retirees.

In conclusion, understanding Social Security is critical to your financial future. As you approach retirement, it’s essential to consider your options for claiming benefits and to understand how Social Security fits into your overall financial plan. Keep in mind that the rules for Social Security are complex, and it’s worth seeking professional advice to ensure you make the most of your benefits.

SECURE Act 2.0 Webinar recap

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Recap: SECURE Act 2.0 Webinar

Greetings fellow business owners, have you heard the news about the Secure Act 2.0? This newly enacted law is a game-changer when it comes to retirement plans, and it has some exciting provisions that could benefit you and your employees.

Secure Act 2.0 includes provisions to expand plan coverage, increase retirement savings, preserve retirement income, and simplify retirement plan rules for plan sponsors. This means that it’s now easier than ever for your employees to save for their future, and it’s simpler for you to offer retirement plans to your workforce. Plus, there are new tax credits for small businesses that make it even more enticing to provide retirement plans to your employees.

One of the most significant changes is the ability to allow employer matching or non-elective contributions to be treated as Roth contributions. This is a fantastic way to help your employees save more money for their future, while also providing tax benefits for your business. Additionally, the IRS is changing the penalty for failure to take a Required Minimum Distribution (RMD) from 50% to 25%, which can be a significant relief for those who may have overlooked this requirement in the past.

Furthermore, new 401(k) plans must include an auto-enrollment feature after the 2022 plan year, making it easier for your employees to start saving for their future. And for those who like to keep things interesting, Secure Act 2.0 also allows Simple IRAs to include Roth contributions, 401(k) plans to upgrade to a 401(k) plan during the year, and 529 plans to rollover to Roth IRAs.

However, it’s important to note that implementing these changes isn’t as simple as flipping a switch. Plan sponsors must decide which provisions to add to their plans and coordinate with payroll departments and plan providers to implement the changes. Also, plans must provide a paper benefit statement at least once a year for defined contribution plans and once every three years for DB plans.

In conclusion, Secure Act 2.0 is a fantastic opportunity to enhance your retirement plans and help your employees save more money for their future. If you’re interested in taking advantage of the new changes, make sure to talk to your plan provider or financial advisor about how to implement these provisions in a way that benefits both your employees and your business.

Retirement Impact named to NAPA Top DC Advisor Team 2021

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Retirement Impact named Top DC Advisor Team - 2021

The National Association of Plan Advisors recently announced their “Top DC Advisor Teams” for 2021 and named Retirement Impact, LLC a Top Advisor in the small team category.  

We are extremely proud to be included in this exclusive list alongside some of the biggest and best retirement plan focused groups in the business. This validation in our first year in business shows us that we are on the right path and will continue to innovate and push for better retirement outcomes for our participants and fiduciaries in the future.  

From the announcement:

The NAPA Top DC Advisor Team list highlights the nation’s leading retirement plan advisor firms. Sure, we know it’s not just about the numbers – but the reality is that NAPA members are having a huge impact every single day, not just on the quality of retirement plan advice, but also in building a more financially secure retirement for millions of Americans. Unlike other lists, this focuses on teams, broadly defined as being in a single physical location, and having at least $100 million in DC assets under advisement. It is based on self-reported assets under advisement as of December 31, 2021, unless otherwise noted. We appreciate the commitment and hard work of the teams acknowledged – and are proud to have the opportunity to share it here.

Click here to read the full announcement

Awards Disclosures

  • Established in 2017, nominees had to be individual advisor team/offices with a defined contribution book of business. To be considered, firms had to submit responses to an application form, including information about their practices, notably their defined contribution (DC) assets under advisement. The list is created and conducted by the National Association of Plan Advisors, an affiliate organization of the American Retirement Association, a non-profit association. No fee is charged to participate. The rating is not indicative of the nominee’s future performance.
  • In 2021 Approximately 340 submissions were received and 332 were selected.
  • In 2022, 438 applications were submitted and 430 were on the final list. 
  • In 2023, 452 applications were submitted and 452 were on the final list. 
  • Awards earned while at Baystate Fiduciary Advisors
  • Criteria on which the rating was based:
    • NAPA Top DC Advisor Firms, ranked by DC assets under advisement.
  • How was the category was calculated/determined:
    • Survey respondents had to have in excess of $100 million in AUA at end of 2016
    • 293 teams that completed the survey met the above criteria
  • Number of advisors surveyed:
    • 293 surveys were received
  • Percentage of advisors that received the rating:
    • 100%
  • Disclosure:
    • This recognition is not indicative of investment adviser’s future performance
  • Who created/conducted the survey:
    • NAPA (National Associated of Plan Advisors)
  • Was any fee paid to participate in the survey:
    • No
  • Awards earned while at Baystate Fiduciary Advisors
  • Criteria on which the rating was based:
    • The “PLANADVISER Top 100 Retirement Plan Advisers” list is compiled from responses to the PLANADVISER Retirement Plan Adviser Survey. The list is drawn solely from a set of quantitative variables and information in the survey supplied by the advisers themselves. For an adviser to be eligible for recognition in this year’s Top 100, he had to submit a completed entry to our 2015 Retirement Plan Adviser Survey, which was fielded this past September. A sub-segment of the questions was used to determine eligibility for the Top 100.
    • Individuals needed to have more than 100 plans or more than $1 billion in retirement plan AUA; small teams had to advise more than $2 billion in retirement plan assets or more than 100 plans; large teams needed more than $3 billion in retirement plan AUA or more than 170 plans; and mega teams had to oversee more than $5 billion in retirement plan AUA or more than 250 plan clients.
  • How was the category was calculated/determined:
    • Advisers were segmented into four groups based on the number of advisers and number of total employees including support staff. Those figures assigned advisers into the following categories: individual adviser – meaning one adviser with support staff; small team – a group of 10 or fewer, comprising two or more advisers and support staff; large team – a group of 11 to 25 advisers and support staff; and mega teams – 26 or more team members.
  • Number of advisors surveyed:
    • In 2016, 27 teams qualified under the small team with < $2B in AUA
    • In 2019, 33 teams qualified under the small team with < $2B in AUA
  • Percentage of advisors that received the rating:
    • N/A
  • Disclosure:
    • This recognition is not indicative of investment adviser’s future performance
  • Who created/conducted the survey:
    • PlanAdviser Magazine
  • Was any fee paid to participate in the survey:
    • No

Established in 2015, nominations from the list were provided by NAPA Broker-Dealer/RIA Firm Partners. Nominees had to be women, had to be retirement plan advisors with their own book of business. Nominees were required to submit responses to an application comprised of a series of quantitative and qualitative questions about their experience, size and composition of their practice, awards and recognitions, and industry contributions, which were then reviewed by a panel of senior advisor industry experts, who, based on those criteria, and following a broker-check review, selected the top women advisors.

Within the group of top women advisors, those who were principals, owners or team captains of their organizations were designated as “Captains”, while those with less than 5 years of experience as a retirement plan advisor, “Rising Stars”.

In 2022 (2023 Award), we received nearly 515 nominations, 258 applications, from which 50 Captains, 50 All-Stars and 27 Rising Stars were chosen.

In 2021, we received nearly 500 nominations, 273 applications, from which 50 Captains, 50 All-Stars and 33 Rising Stars were chosen.

In 2020, we received 550 nominations, and considered 270. There were 50 Captains, 50 All-Stars, and 25 Rising Stars on the final list.

In 2019, we received 502 nominations, and considered 209. There were 50 Captains, 50 All-Stars, and 19 Rising Stars on the final list.

In 2018, we received just over 600 nominations, and considered 225. There were 50 Captains, 50 All-Stars, and 15 Rising Stars on the final list

In 2017, we received nearly 587 nominations, and considered 201. There were 50 Captains, 50 All-Stars, and 10 Rising Stars on the final list.

In 2016 we received 395 nominations, and considered 191. There were 50 Captains, 50 All-Stars, and 10 Rising stars

The list is created and conducted by the National Association of Plan Advisors, an affiliate organization of the American Retirement Association, a non-profit association. No fee is charged to participate. Th award is not indicative of the advisors’ performance.

401k Trends for 2022

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As we head into the fall and prepare for the 2022 plan year, here is a list of our 4 top retirement plan trends that we are implementing with our clients.

1. Inflation

Over the past several months, we have seen an increase in inflation in many sectors of the economy. While the Federal Reserve has said that the inflation we are experiencing now is temporary, there is no hiding the fact that we are near a 40 year low in interest rates.

Bonds are typically held in a portfolio with the goal to reduce volatility and provide a baseline income level in a proper asset allocation strategy. However, bond prices move in an adverse relationship to their yield. As a result, bond prices go down as yields rise, resulting in potential losses in an investor’s portfolio.

Not all Bonds have the same sensitivity to rising rates

There are many reasons why bond yields may rise, but not all bond prices will react the same to a rise in interest rates. Some bonds, such as inflation-indexed bonds, will increase their coupon rate as inflation rises, reducing pressure on the bond’s price to go down. Traditional bonds typically used in retirement plans tend to be more sensitive to rising rates, such as intermediate corporate bonds.

What you can do to help your participants

We have been adding in additional exposure to our lineups that include less traditional bond funds for some time. Funds such as inflation-protected and multi-sector bond funds may offer your participants flexibility to adapt to rising rates.

2. Taking Control of Plan Data

This year there have been several high-profile data breaches in the news. As more and more of your plan data gets placed online, Plan sponsors need to be aware of their exposure to potential data breach liability through internal systems and vendors.

In February of this year, the Government Accountability Office (GAO) recommended that the DOL formally state whether it is a fiduciary’s responsibility to mitigate cybersecurity risks in DC plans and establish minimum expectations for addressing cybersecurity risks in DC plans.

For its part, the DOL Addressed the second part of the request by releasing three pieces of guidance relating to best practices concerning: Hiring a Service Provider, Cybersecurity, and Online Security tips.

Plan Sponsors in their role as fiduciaries should begin to adopt cybersecurity best practices in anticipation of the DOL guidance that may make a failure to secure participant data a fiduciary breach.

Participant data may be a liability even if it is not "stolen"

We have seen a rising number of court filings and lawsuits alleging that service providers that utilize plan and participant data to sell other products are doing so in breach of fiduciary duty. In most cases, including the high-profile NYU case, the plaintiffs typically claim that recordkeepers were using their access to participant demographic data to sell lucrative financial instruments without compensating the plan for that use. To date, we have not seen any of these allegations be successful. However, not all the lawsuits in question have worked their way through the appeals process.

Plan Sponsors would be wise to take heed and start asking better questions of their service providers and their use of participant data to sell ancillary products to their participants.

3. Personalized Education and Advice

When used correctly by the plan, Participant data can be a valuable tool to identify and communicate with plan participants actions and advice independent of the services available from their recordkeeper.

Plans of all sizes utilize participant data to identify underperforming demographic cohorts to customize advice at scale in their retirement plans. Some of the programs we are seeing plan data participant data include:

  • Financial Wellness Programs
  • Financial Coaching
  • Managed Accounts/Personalized recommendations
  • Plan Health Reports

As discussed earlier, it is vital to have a formal plan whenever sharing participant data and ensuring that the data is used in the best interest of plan participants. However, as software and third-party services become more sophisticated and available, it may make sense to use participant data beyond the off-the-shelf services provided by some recordkeepers.

4. Missing and Low Balance Participants

Missing participants continues to be a topic of emphasis for IRS, DOL, and EBSA regulators. The primary duty of any fiduciary is to provide benefits to plan participants when due. Integral to that responsibility is for plan sponsors to know whom they owe benefits to and how to reach them for communicating vital Plan information.

Before 2014 the IRS had a program that you could use to forward mail to missing participants. However, since that program has terminated, there is no easy solution to finding missing participants. The DOL has issued guidance in January providing best practices for Plan Fiduciaries, including:

  • Maintaining accurate census information for the plan’s participant population
  • Implementing effective communication strategies
  • Missing participant searches
  • Documenting procedures and actions

Examples of participant searches include:

  • Checking related Plan and employer records
  • Checking with designated Plan beneficiaries
  • Using free online searches
  • Using a commercial locator service
  • USPS certified mail features
  • Death and social security searches
  • Reaching out to colleagues who worked with the person in the past.

Use force-out provision to remove low balance participants annually

One way to reduce your burden on locating missing participants is to regularly force out terminated participants with low balances while you are still in contact with them. Most plan documents have a provision that allows them to force out low-balance participants through a systematic process if their balance is below $5,000.

Most recordkeepers can automatically force out low-balance participants regularly through an automatic IRA provider and are more than happy to do that. However, we have found that few plans that come to us are taking advantage of this service. If your provider does offer this service, sign up or consider using one of the third-party providers who can provide that service free of charge.

If your provider doesn’t have a solid process for finding missing participants or forcing out low-balance participants, there are several third-party providers that we have worked with who can do a great job.

Remember to keep good documentation when forcing low-balance participants out of the plan. Often, the participant can easily miss the required notices alerting them to the forced-out distribution. As a result, the participant may be unaware that the plan transferred their account. Your responsibility is to keep a copy of any communications sent in their employee file or other safe location that can easily be referenced years into the future.

Conclusion

If you’d like to talk about any of these trends for your plan, please call us today.

 

This information is not intended as authoritative guidance or tax or legal advice.  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, plan sponsor will be in compliance with ERISA regulations. 

Could Financial Coaching Work for Your Workforce?

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It’s 9 a.m. and Janine (your employee) turns on her workstation computer to start her workday, yet the first phone call she takes is from a debt collector, and the first site she logs onto is her bank to see if she has overdrawn her checking account.

While this example is only an illustration, “Janine” has many real-world counterparts who devote work hours to money-related stressors.

Workers of all levels of education and income have financial problems.

Financial stress impacts workers’ lives personally and professionally. About 80 percent of employees who report significant financial stress say that they’re distracted by stress at work.[1]

Financially stressed employees can stress your company’s bottom line. According to a John Hancock Financial Stress Survey, employees stressed over finances cost their employers about $2k per employee.

If you are the CEO, HR manager, or a decision-maker in your company, a quick way to solve this would be to increase employees’ earnings and make their paychecks go further.

Unfortunately, with the current economic environment, very few businesses can afford to increase payroll.

A better option may be to offer financial coaching as a voluntary benefit, assisting employees to get more out of their paychecks and, effectively, giving them raises without increasing payroll by a cent.

Financial coaching could be the missing piece to your financial wellness programs. Access to financial wellness and education programs is steadily increasing, with over two-thirds of small to mega plans offering some form of program to help their employees manage their day-to-day finances[2]. However, research shows us that there is still more work to do.

What Is Financial Coaching?

Financial coaching focuses on a combination of intuitive technology and advisor led coaching with employees towards incrementally improving the financial position of your employees.  Offered as a voluntary benefit, financial coaching sends employees a valuable message. It lets them know their employer cares about them and is prepared to extend a helping hand to those in need.

‍Employees often need support and encouragement to adhere to positive financial behaviors. By covering areas like debt reduction, credit building and budget counseling, employees may be able to:

  • Save more and spend less
  • Build an emergency fund
  • Pay off consumer debts and student loans
  • Prepare for vacations and holidays
  • Contribute to an investment plan

For financial coaching to be successful, it needs to do more than just provide education. Coaching should result in your employees taking appropriate actions that lead to financial success.

Why Offer Financial Coaching?

Financial coaching for your employees isn’t just the right thing to do; it makes good business sense.

You may benefit from a more focused, engaged, and productive workforce when employees aren’t distracted by financial worries.

According to the 2019  Employer Guide to Financial Wellness by SalaryFinance.com, financially stable employees can complete daily tasks 6 times faster than financially stressed employees.

Improving your employees’ financial wellness can lead to lower turnover rates and reduced absenteeism while increasing employee satisfaction and improving your brand.

Covid-19

Americans are dealing with high levels of financial stress, and Covid is partly to blame.

Covid has turned the lives of many people upside down. Employers have started recognizing the value of adding financial coaching to their employee benefits packages.

They not only do this to attract and retain the best talent but also to support their employees in attaining their personal goals, in effect, turning them into loyal, long-term staff members.

Financial Lives are More Complex

35 percent of Americans report losing sleep to financial stress. One-quarter of the 35 percent of Americans losing sleep experience symptoms such as broken sleep, insomnia and fatigue on waking. [3]

There are a lot of health factors that can affect employee workforce productivity, which is why implementing financial coaching into your HR strategy can help.

Financial coaching can help employees find balance and control over their finances, now and in the future. But financial education alone is not going to change financial behaviors.

You need a solution that goes beyond static education. You must change your behavior in order to improve your financial health.

 

Americans have a financial literacy problem

It’s no secret that Americans struggle with their personal finances. But there’s a solution to every problem, and in this case, it may be financial coaching.

According to a study by Enrich, employees who participate in their financial wellness programs show positive financial behaviour changes.

  • 10 percent contributed enough to the 401(k) to get the employer match
  • 15 percent contributed to their retirement plan
  • 27 percent created an emergency fund with 3-6 months of saving
  • 28 percent pay off their credit card balance each month
  • 32 percent feel they’re on track with their financial goals

As you see, financial coaching will empower your employees with insight and accountability towards permanently improving their financial health and mindset.

Meeting Your Employees Where They Are

To keep up with today’s interconnected world and better serve their clients, more and more financial coaches are leveraging technology.

Technology has significantly impacted financial coaching. It’s an easy way for financial coaches to meet the evolving needs of their clients and develop deeper relationships with them. It’s now possible to move employees along at their pace and then be available for consultation as needed.

An integrated platform creates a clearer path for goals-based planning and allows for more collaboration with plan participants.

Maximizing ROI

  • Financial coaching is an inexpensive benefit

As an employer, you are already investing in your employees.  Incremental costs associated with a robust technology platform coupled with one-on-one coaching consultations could cost less than $100 per employee annually[4], which makes coaching one of the least expensive benefits you could offer your employees.

  • Trackable and reportable at the employer level

To help you recognize what troubles your employees are facing and the progress they are making, a financial coach will provide aggregated reports.

These insights serve as means that strives to keep your employees focused on work by minimizing their stress and the basis for future conversations about maximizing involvement in your company’s benefits.

  • Getting employees to retire on time reduces health care costs over time

Many surveys show that finances are the leading cause of stress for working Americans.

While increased heart rates and sweaty palms might be symptoms of situational stress, the effects of chronic stress range from increased fatigue to heightened irritability and inability to concentrate.

A financial coach can help your workforce work towards getting their finances in order and retire early. The sooner your employees retire, the more time they’ll have to check items off their retirement bucket list.  

 

Choosing the Right Provider

There are a lot of providers in the marketplace and more are entering every day. This means that you have a lot of choices in who you partner with for your coaching needs. 

Some providers of financial coaching are offering technology programs and access free of charge.  However, we have found that those platforms are mostly offered by financial services companies that want to sell potentially high cost loans and investment products that may or may not be in your employee’s best interests. 

A true partner should be transparent with how they are paid and independent in their delivery.   An independent advisor may have higher upfront costs but may be better for your employees in the long run. 

Schedule a Call

At Retirement Impact, we’re in the business of changing financial lives.

Our approach to financial coaching focuses on engaging employees with a focus on guiding them towards action.

The goal is to help employees attain their objectives for every stage of their financial lives, whether it’s eliminating debt, saving for a car, buying a home or creating a safer retirement. Schedule a call today to see if coaching can be a complement to your financial wellness program.

[1] Source: Financial Health Network: https://finhealthnetwork.org/research/workplace-financial-health//  Accessed August 2, 2021

[2] Source: Morningstar.com https://www.morningstar.com/news/business-wire/20210623005172/cogent-syndicated-plan-sponsors-use-of-financial-wellness-offerings-reaches-historical-high . accessed July 6, 2021

[3] Source: American Psychological Association, “Stress in America, 2020”, https://www.apa.org/news/press/releases/stress/2020/report-october, Accessed August 2, 2021

[4] Source: https://www.financialeducatorscouncil.org/financial-wellness-providers/, National Financial Educators Council, accessed on 7/21/2021.

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