Monthly Archives: December 2014

403(b) provider is no longer approved

Did you just receive a letter stating that your 403(b) provider is no longer approved? After that announcement, you may be wondering what to do. Unapproved 403(b) providers usually can’t receive further contributions or transfers from an employee.

You certainly want to keep saving for retirement, so now is the time to look at your options. Is it time to move your 403(b) funds from that dropped provider to one on the approved list? If so, which one should it be?

Contact me and I can share some ideas with you – ideas that may help you answer the questions in the preceding paragraph with confidence. I want to help you continue to contribute to a 403(b) retirement plan, and together we can determine what the appropriate course might be for your existing account balance and future contributions.

Call or email me today – you don’t want your retirement saving effort to be interrupted.




An option you can use to develop your retirement income plan while you work.


Can you withdraw money from your 401(k) while you are still employed? Not everyone should; not everyone can. However, if you can, it may mean that you can effectively implement part of your retirement income plan before you retire.
If your 401(k) plan permits it, you can take an in-service withdrawal and redirect some of your 401(k) funds into another investment vehicle that offers you income guarantees.

The reasons why. A non-hardship withdrawal can provide you with early access to a portion of your retirement assets, freeing you to manage them as you wish. If the mix of funds in your 401(k) have taken a big hit lately, you might be wondering how some of those assets would do in other kinds of investments, especially those with less risk exposure.

Today, you can find popular annuity investments that will allow you to take advantage of stock market gains while protecting your principal against stock market losses.
Many offer guaranteed lifelong income payments, as well as tax-deferred growth. You can pour as much money as you want into them – they don’t have annual contribution limits like a 401(k) or an IRA, and they don’t require you to take distributions at age 70½. They commonly let you allocate your assets across a mix of stocks, bonds and money market accounts for added diversification.1
With features like these, you may be interested in these investments if you are approaching retirement age.

The 72(t) strategy to avoid the early withdrawal penalty. If you are still working and pull money out of your 401(k) before age 59½, you will pay a 10% early withdrawal penalty plus income taxes on the money you take out.2 But you might be able to make early withdrawals with the help of IRS Rule 72(t).

Rule 72(t), based on life expectancy, lets you schedule fixed income withdrawals for five years or until you reach 59-1/2, whichever is longer.2 It lets you receive fixed, equal payments according to IRS calculations.

First things first: make sure you can do this. Talk with your employee benefits officer at work, and see that the Summary Plan Description (SPD) permits non-hardship withdrawals. Talk with your financial or tax advisor to make sure it is an appropriate move for you given your overall financial plan. If you know you’ll need more retirement income, there can be real merit to reinvesting early withdrawals from a 401(k) in vehicles that generate it.


1 [11/10/08]
2 [11/10/08]
3 [6/8/01]

What you’re really paying in 401(k) and IRA fees


What you’re really paying in 401(k) and IRA fees

A recent study by the Federal Reserve, the Survey of Consumer Finances, found that Americans’ retirement savings in IRA and 401(k) plans are not quite as solid as they should be. If you’re going to be successful with your retirement savings, it is critical that you understand the fees and expenses you are incurring.

AARP did a survey on 401(k) participants’ awareness of the features of their plans, and the results showed that there are a lot of employees who really don’t understand how their plans work. It’s not a surprise, because the fee structures of these plans can be very complicated, and the fee disclosures are often written in complex language and are not always easy to uncover.

The AARP survey found that 65% of participants thought that they paid no fees at all, and only 17% stated that they do pay fees; 18% said that they just didn’t know. Another 83% didn’t know how much they pay in fees, and 54% responded that they did not understand the impact that fees can have on long-term investment performance.

401(k) plan fees and expenses can be separated into three categories. First, there are plan administration fees. Plan administration fees cover the day-to-day expenses of operating a qualified retirement plan, paying for items like record-keeping, accounting and legal services, trustee services and third party-administration..

Second are individual service fees which are participant-driven and cover things like self-directed account costs, loans, withdrawals and QDROs, which are qualified domestic relations orders. Individual service fees are typically charged to the participant.

Third are the investment fees. They are very important to understand and are usually the largest component of plan fees and expenses. You need to check to see what mutual fund share class is being used in your plan. Some plans offer institutional shares while others have retail shares. Retail shares have different types of loads. “A” shares charge a front-end load. “B” shares charge a back-end load. “C” shares have a higher ongoing trail fee, generally an additional 1%. Index funds are typically low-cost and should be an option available to plan participants.

Another type of common investment fee is the 12b-1 fee. 12b-1 fees are ongoing fees paid out of the fund’s net asset value on a daily basis. They can be used to pay commissions to brokers or other salespeople, to pay for advertising and other costs of promoting the fund and to pay other service providers in a bundled-services arrangement, including record keeping and third party administration. No-load funds can have 12b-1 fees. Most load funds have 12b-1 fees in addition to the load or commission. These fees are disclosed in the fund prospectus, but very few participants understand their significance. Some plans offer exchange-traded funds (ETFs) which have been slow to catch on, but can provide participants with a lower-cost fee structure than retail mutual funds.

The 401(k) plan has been around since 1978 when Congress made it possible with the Revenue Act. In 2012, the Department of Labor issued new regulations to make qualified plan fees more transparent.

The impact of fees cannot be understated. According to the DOL, “Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7% and fees and expenses reduce your average returns by 0.5%, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5%, however, your account balance will grow to only $163,000. The 1 % difference in fees and expenses would reduce your account balance at retirement by 28%.”

Understand the fees you pay and consider the services and investment performance you get in return. Don’t make investment decisions based on fees alone.
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Graeme Cowan Sep 30, 2014

The greatest part of the fees are accounted for in the mutual fund returns that are reported. Yes it is typically 0.3-0.9% but it is excluded from the “advertised” return. If you the like the returns on the prospectus or via Morningstar or what is typically reported go for the fund. The fees charged are incorporated in the return. WHAT IS THE BIG DEAL.
H HSU Sep 29, 2014

Other revenue sharing fees were not discussed such as dealer concessions and administrative allowances on top of the management and 12b-1 fees.

On the quarterly participant statements, Department of Labor regulations require the plan administrator to provide an estimate of the fees each participant pays.

In a good plan practicing their fiduciary duty should benchmark their fees as way to show how they stand with plans of comparable size.


The Market Is Up & I Am Not … Why?

The Market Is Up & I Am Not … Why?

Remember that the major indices don’t represent the entirety of Wall Street.


The S&P 500 is up about 10% YTD, why aren’t I? If your investments are lagging the broad benchmark, you may be asking that very question. The short answer is that the S&P is not the overall market (and vice versa). Each year, there are money managers, day traders and retirement savers whose portfolios wind up underperforming it.1

Keep in mind that the S&P serves as a kind of “Wall Street shorthand.” The media watches it constantly because it does provide a good gauge of how things are going during a trading day, week or year. It is cap-weighted (larger firms account for a greater proportion of its value, smaller firms a smaller proportion) and includes companies from many sectors. Its 500-odd components represent roughly 70% of the aggregate value of the American stock markets.2

Still, the S&P is not the whole stock market – just a portion of it.

You can say the same thing about the Dow Jones Industrial Average, which includes only 30 companies and isn’t even cap-weighted like the S&P is. It stands for about 25% of U.S. stock market value, but it is devoted to the blue chips.2

How about the Nasdaq Composite or the Russell 2000? The same thing applies.

Yes, the Nasdaq is large (3,000+ members), and yes, it consists of insurance, industrial, transportation and financial firms as well as tech companies. It is still undeniably tech-heavy, however, and includes a whole bunch of speculative small-cap firms. So on many days, its performance may not correspond to that of the broad market.2,3

That also holds true for the Russell, which is a vast index but all about the small caps. (It is actually a portion of the Russell 3000, which also contains large-cap firms.)2

If you really want a broad view of the market, your search will lead you to the behemoth Wilshire 5000, which some investors call the “total market index.” You could argue that the Wilshire is the real barometer of the U.S. market, as it is several times the size of the S&P 500 (it includes about 3,700 firms at the moment, encompassing just about every publicly-traded company based in this country. In mid-December, the Wilshire was up about 9% for 2014.4,5

One benchmark doesn’t equal the entire market. There are all manner of indices out there, tracking everything from utility firms to Internet and biotech companies to emerging markets. As wonderful or dismal as their performance may be on a given day, week or year, they don’t give you the story of the overall market. Your YTD return may even vary greatly from the gains of the big benchmarks depending on how your invested assets are allocated.

During any year, you will see certain segments of the market perform remarkably well and others poorly. Because of that ongoing reality, you must stay diversified and adopt a long-term perspective as you invest.

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