Category: Blog Posts

What’s the difference between a 401(k) and 403(b) plan? This is a question we hear often. Employees of for-profit firms are eligible for 401(k) plans while employees of certain tax-exempt or not-for-profit organizations are eligible for 403(b) retirement plans. 

Which Employers Can Establish 403(b) Plans? 

Churches, public schools, non-profit organizations and hospitals can establish 403(b) plans for retirement planning. Employees can contribute part of their earnings to the 403(b) plan and employers can also contribute. Here’s the complete list from the IRS: 

• Eligible employees of Code Section 501(c)(3) tax-exempt organizations;
• Eligible employees of public school systems. A public school system is defined in Code Section 170(b)(1)(A)(ii) as an education organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly conducted. Included in this category are employees of:
  1. Public schools
  2. State colleges
  3. Universities
• Eligible employees of churches;
• Employees of public school systems organized by Indian tribal governments;
• Ministers employed by Code Section 501(c)(3) organizations;
• Self-employed ministers, treated as employed by a tax-exempt organization that is a qualified employer; and
• Ministers (chaplains) who meet both of the following requirements:
  1. They are employed by organizations that are not Code Section 501(c)(3) tax-exempt organizations, and
  2. They function as ministers in their day-to-day professional responsibilities with their employers.

When Can Employees Access 403(b) Money? 

You can access money from your 403(b) when you: 

• Turn 59 ½
• Have a severance from employment
• Become disabled
• Die
• Have a financial hardship

Benefits of 403(b) Plans

You can always research the specific details of the 403(b) plan offered to see if it’s right for you. What should you look for? See if the 403(b) has low-cost investment options. Check to see if the plan has ERIS protection (Employee Retirement Income Security Act). Does your employer match contributions?  If your employer matches 403(b) contributions and you can afford to contribute, it’s a good way to contribute money toward your retirement. 

You can partner with RPC, explore the details of 403(b) plans and lean on our expert advice to point you in the right direction. Please contact us if you have additional questions about 403(b) plans or request a proposal. 

A financial advisor offers advice and expertise to clients based on their financial situation. It’s an important relationship because financial decisions impact your future. You might be wondering how to select the right financial advisor for you and which questions you should ask. This post will answer your questions! 

Financial Industry Compliances

The financial industry has two sets of compliances that advisers follow—suitability standard or fiduciary standard. With fiduciary standard, your financial advisor is legally bound to act in your best interest. Fiduciary advisors must put their clients’ interests before their own. They’re known as fee-only advisors because they can’t accept commissions on the investments they recommend. 

On the other hand, advisors who follow the suitability standard are legally required to make investments that are suitable for you. Financial advisors following the suitability standard work on commission.

Ask Around

Talk to your friends, family and colleagues to see if they have a financial advisor that they recommend. You want someone you can trust. It’s important to build a solid relationship with your financial advisor. Once you have some names to research, head to Google and see what information you can gather. 

Check Credentials

There are a couple sites you can look at to research potential financial advisors: brokercheck.com or adviserinfo.sec.gov. These sites allow you to research potential advisors’ background, experience and any disciplinary action. 

Talk to Potential Advisors

You’ll want to talk to each potential advisor and ask any questions that you may have. Ask about their relationships with their clients. How do they communicate with clients and how often? What type of clients do they have? How much access will you have to your advisor? If you have questions about their background and experience, this is a good time to ask.  

While you’re interviewing people, ask about their investment strategy. You want to make sure your philosophy and the advisor’s strategy mesh well together. For example, if you’re environmentally conscious, you might not want investments in the oil and gas industry. 

Want More? 

Hopefully you now have a better idea of how to evaluate and select a financial advisor. If you have additional questions, don’t hesitate to contact us. 

Profit sharing contributions are the most flexible type of employer contribution a company can make to their 401(k) plan.  These contributions are not only discretionary, but they can be made to any eligible plan participant – even if the participant fails to make 401(k) deferrals themselves.  They can also be allocated using dramatically different formulas – allowing employers to meet a broad range of 401(k) plan goals with them. 

Yet, despite their flexibility, profit sharing contributions are not a good choice for every 401(k) plan.  Matching contributions can be more effective in meeting certain 401(k) plan goals.  Further, not all employers will qualify for the most flexible types of profit sharing due to IRS nondiscrimination test limitations.  If you’re a 401(k) plan sponsor, you want to understand your company’s profit sharing contribution options.  To meet certain 401(k) goals, they can be tough to beat.

Profit sharing contribution basics

401(k) profit sharing contributions are a type of “nonelective” employer contribution.  That means employees do not need to make 401(k) deferrals themselves to receive them.  In contrast to safe harbor non-elective contributions, profit sharing contributions are discretionary – which means you don’t have to make them every year. 

Profit sharing contributions can also be made subject to a vesting schedule – up to 3-year cliff or 6-year graded.  This can be handy if you have short-tenured employees because they’ll be required to forfeit some or all of their profit sharing account upon a separation from service.

When to choose profit sharing contributions

Because profit sharing contributions are flexible, they can be a great choice if your company is a start-up, has erratic profitability, or acquires other companies frequently.  If your company is more stable, these contributions can help you meet several 401(k) plan goals, including:

• Increasing the contributions made to 401(k) participant accounts up to the legal limit ($57,000 for 2020, not including 401(k) catch-up deferrals).
• Giving low-earners a base retirement benefit.
• Attracting top employee talent with a generous retirement benefit.

However, not all 401(k) plan goals are best served by profit sharing contributions.  Employer matching contributions are generally the superior choice if a primary 401(k) plan goal is incentivizing your employees to save for retirement themselves. 

On May 21, 2020, The U.S. Department of Labor (DOL) announced final rules allowing required 401(k) plan disclosures to be posted online or delivered via email. This new safe harbor rule was much anticipated since prior to the rule required notices could only be delivered electronically if employees satisfied the definition of being “wired at work” (or affirmatively opted to receive notices electronically).

Plan participants are required to receive notices and disclosures about their 401(k) plan in a secure and timely manner. The new e-Disclosure Safe Harbor Rule provides some relief from certain administrative expenses in that it will allow new forms of electronic delivery to be the default delivery method, so long as the intended recipient can be reached electronically and receives the appropriate initial notification.

The New “Notice and Access” Rule

The new rule allows plan sponsors to deliver 401(k) disclosure notices electronically to all employees that are part of the plan, regardless of their employment status. As a safe harbor, this new rule includes several requirements:

• Initial Paper Notice – Before defaulting an individual into electronic delivery, a plan administrator must first notify the individual by paper: 1) that some or all plan documents will be furnished electronically; 2) that they have the right to request and receive paper copies of some or all of the covered documents (or to opt out of electronic delivery altogether); and 3) of the procedures for exercising such rights.
• Notice of Internet Availability – A plan administrator is required to send a notice of internet availability to the employee’s email address on file each time a 401(k) plan disclosure is posted to the website. Each notice of internet availability must remind the individual of his or her right to request and receive paper copies and to opt out of electronic delivery altogether, as well as the procedures to exercise such rights.
• Covered Disclosures and Documents – Documents must be posted online on a timely basis and written in a manner to be understood by an average employee. The 401(k) documents covered by the new rule are:
  • Summary Plan Description (SPD)
  • Summary of Material Modification (SMM)
  • Summary Annual Reports
  • QDIA Notice
  • Annual Notice (Safe Harbor & Automatic Enrollment)
  • Investment-related disclosures (identifying information, performance data, benchmarks, fee information, etc.)
• Website Standards – Documents posted under the new rule must be maintained on the website until replaced by an updated document. Posted documents must be searchable electronically and protect the confidentiality of personal information.
• Invalid Electronic Address – Email delivery systems must include invalid electronic address alerts. Once an invalid address has been identified (e.g., email is returned as undeliverable), the problem must be fixed by sending the notice to a secondary email address on file (work email vs. personal email). If this issue is not able to be resolved, the individual must be treated as if they had opted out of electronic delivery and be sent a paper version of the documents as soon as possible, until a new valid email address has been obtained.

What’s a Target Date Fund? 

Determining your retirement timeline helps direct the level of risk for your investment. Target date funds can be used to help build and maintain an age-appropriate retirement investment strategy. A target date fund (also called a lifecycle fund) provides long-term appreciation and capital preservation based on your age or target retirement date through a mix of asset classes. 

How do target date funds work? 

Set it and forget it…that’s one way people think about target date funds. Target date funds age with you by selecting a growth-oriented portfolio when you’re younger that gets more conservative as you near retirement. For example, a portfolio while you’re younger might feature more stocks and higher-risk investments rather than fixed-income investments, such as bonds. As you get older, your portfolio moves toward bonds and money market accounts because they have less risk. 

Pick your target date fund

First, you’ll select your ideal retirement year. This doesn’t have to be set in stone. Instead, it’s a general goal to help you pick which target date fund so you’ll have a timeline that aligns with your age. Usually funds are available in five-year increments (2035, 2040, 2045, etc.). For example, let’s say you’re 39 and plan to retire when you’re 70, which would be in year 2051. You’d select the target fund year closest to 2051, so you’d select a Target 2050 fund. 

Why do participants choose target date funds? 

People like the ready-made, simplicity of a target date fund. It’s not complicated and the assets are allocated without having to select each stock, bond, etc. Some investors get into trouble if they panic and pull funds instead of riding out market issues. With a target date fund, investors are in it for the long haul. 

Interested in learning more? Contact Retirement Plan Consultants for guidance! 

What is a Plan Sponsor

Retirement Plan Consultants assist a variety of people with retirement planning, including financial advisors, plan participants and plan sponsors. In this post, we’ll take a closer look at plan sponsors. A plan sponsor is essentially the company that offers a retirement plan to its employees. 

Plan Sponsor Responsibilities

If you’re the designated plan sponsor at your company, you might have varying responsibilities. Some plan sponsors make important decisions to determine the retirement’s plan design and employee eligibility. You also may also be responsible for regularly reviewing, updating and revising the plan. 

Some companies enroll the help of a third-party company, like Retirement Plan Consultants, to handle the company’s retirement plan. If that’s the case, we can provide resources to help guide you: 

• Enrollment assistance resources, such as guides to walk employees through completing common actions on participant and plan sponsor websites
• Web guides on how to select and adjust contributions
• Calculators to help employees plan for retirement
• Investment term glossary to help explain investment and retirement planning terminology
• Helpful FAQs 
• Easy to complete forms for the plan sponsor and employee participants
• Questionnaires about “how to invest” to help participants plan
• Informational quarterly newsletters
• Educational webinars

Feel free to contact us if you’re a plan sponsor and have additional questions. We’re passionate about what we do and enjoy helping with all of your investment questions! 

Investors like dimensional funds because they provide consistent income during your retirement. Dimensional’s investment strategies have delivered impressive investment performance. This is why many longterm investors choose Dimensional funds. Before we dive into how to get started with dimensional investing, learn more about dimensional funds in this blog post. 

You might be curious about how to start investing with dimensional funds. Dimensional funds aren’t available to the general public. Instead, investors work with dimensional-approved firms like Retirement Plan Consultants. 

Dimensional structures broadly-diversified portfolios that emphasize higher expected returns. Portfolio managers and traders aim to balance costs against expected returns and diversification. They work for the slightest expected gain because each incremental improvement can add up over time. This helps long-term investors who can ride the ups and downs of the market and depend on a steady stream of income in the future.

If you still have questions about how to get started, we’d be happy to answer any questions. Please reach out! 

Everyone has different retirement goals, and there are a variety of ways to reach them. In this post, we’ll review the benefits of Vanguard and Dimensional Funds. If you have additional questions, please let us know!  

Vanguard Benefits

Vanguard has plenty of notable benefits:  

• Large mutual fund selection—Vanguard offers a collection of more than 3,100 transaction-fee mutual funds for investing. 
• Commission-free stock, options and ETF trades—Vanguard offers commission-free online trades of ETFs.
• Leader in low-cost funds—Vanguard doesn’t offer promotions or bonuses, so it keeps costs low.
• Customer support—Vanguard’s customer support is available Monday-Friday, 8 a.m. – 9 p.m. (Eastern) and they’re available for email and website support.

Dimensional Fund Benefits

Like Vanguard, Dimensional Fund has its own set of unique benefits: 

• Innovative research—Investment strategies are based upon innovative financial market research by Nobel-prize winning economist Professor Eugene Fama of the University of Chicago, Professor Kenneth French of Dartmouth College, Nobel-prize winner Robert Merton of MIT as well as other academic researchers.
• Dimensional controls and limits access to its funds—Dimensional funds aren’t available to the general public. Instead, they’re only accessible through a Dimensional-approved firm. 
• Internal fund costs are low—Using a long-term investment strategy rather than switching for short-term market fluctuations keeps turnovers low. This way money doesn’t flow in and out of funds constantly. 
• Broad diversification—Dimensional assigns higher weights to funds (based on their size and value) that demonstrate higher expected returns.

If you’d like to learn more about Vanguard or Dimensional Fund Advisory, please reach out to us. 

Sources: 

https://www.nerdwallet.com/reviews/investing/brokers/vanguard