Who Are These People and What Do They Want?

Who-Are-These-People-and-What-Do-They-Want

For anyone who works in the field of hiring, training, mentoring, paying, or generally dealing with employees, you know it can be a real challenge figuring out how to motivate, train, and retain them for the long haul.  The benefit package that you offer to your people can go a long way in cementing a lasting relationship.  The catch is that the value of certain benefits can be weighted differently depending on the age, experience, and tenure of the employee.  The same benefit packages may not have equal appeal to a 27 year old single male that they have to a 40 year old mother of 3 or to a 64 year old that is on the verge of retirement.

To start, your company can simply analyze your employee demographics to determine which generation makes up the biggest segment of your workforce.  From there you may be able to use the data provided by your plan’s recordkeeper to determine which of the age bands is utilizing the plan to their greatest advantage. By looking at participation numbers and deferral percentages, your discussion may be centered on what to do with your new found knowledge.  There are generally two schools of thought surrounding impacting participant behavior: enforcing or encouraging.

Enforcing behavior typically involves making changes to the plan design to either entice or require your employees to participate in the plan.  Enticing could involve making the match richer or relaxing enrollment requirements.  Requiring usually means adding an automatic enrollment feature that either makes all newly hired employees enroll in the plan at their eligibility date or enrolls all nonparticipating employees into the plan as of a designated date.  It is also important to be mindful of what deferral percentage you select for the automatic enrollment; traditionally, 3% deferral has been used, but there is growing sentiment that 6% can be more appropriate and equally as well received.

If the enforcement route does not appeal to your company, then I would urge you to consider encouraging your people to use the plan through employee education.  I must warn you, however, that encouraging can take more work and is more time consuming than the enforcing methods described above; however, the results can be more meaningful.  The first step to developing a successful encouraging education program is to recognize the demographic make-up of your company and then to use that information to tailor your education plan.  We have found that a one-message-fits-all method of delivering financial education is ineffective because the message ends up being watered down for everyone.  Instead we recommend segmenting your employees into their life stage groups and presenting financial information that is meaningful to them.  For your employees who are nearing retirement, a discussion about Social Security and successfully transitioning into a retirement lifestyle is significant.  For the Gen X’ers, the focus might be on caring for aging parents and adult children all while continuing to prepare for retirement.  For Millennials, a discussion about financial freedom and work-life balance may resonate.

The key to either enforcing or encouraging is knowing your workforce and what will work best for them and you as the plan sponsor.  For help uncovering what makes sense for both, please contact me at jamie@grinkmeyerleonard.com

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

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SECURITIES AND ADVISORY SERVICES OFFERED THROUGH COMMONWEALTH FINANCIAL NETWORK, MEMBER WWW.FINRA.ORG/WWW.SIPC.ORG, A REGISTERED INVESTMENT ADVISER.  THIS COMMUNICATION STRICTLY INTENDED FOR INDIVIDUALS RESIDING IN THE STATES OF AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. NO OFFERS MAY BE MADE OR ACCEPTED FROM ANY RESIDENT OUTSIDE THESE STATES DUE TO VARIOUS STATE REGULATIONS AND REGISTRATION REQUIREMENTS REGARDING INVESTMENT PRODUCTS AND SERVICES.

Impact of Poor Financial Wellness onYour 401(k) Plan

Impact-of-Poor-Financial-Wellness-onYour-401(k)-PlanGoogle “financial stress and health” and about 10,100,000 results are returned in 0.33 seconds; there are articles that detail how to recognize it, how to cope with it, and how to avoid it altogether. Despite all of these helpful tips, there are still a large number of working Americans faced with the ill effects of financial stress.  In the 2016 PricewaterhouseCooper’s Employee Financial Wellness Survey, it is reported that 52% of employees are stressed about their finances and that the stress impacts their health, relationships at home, productivity and attendance at work. Additionally, this financial stress can be a factor in whether or not your workforce is actively deferring into the 401(k) plan. As we know, low deferrals and low participation can be 401(k) plan killers.

A Downward Spiral

401(k) plans are set up to benefit the general population of employees and annual compliance testing (ADP/ACP) is designed to capture whether or not the plan is doing just that.  In short, there is a set amount, captured in a percentage, that the highly compensated employee (HCE) group, defined as an owner or someone who made over $120,000 in 2015, can defer over and above what the non highly compensated employee (NHCE) group defers. As in any mathematical average calculation, a zero drags down the average.  Now that I have given you the background, let’s look at why this is important.  If you have a financially stressed workforce who is not deferring into the plan, then there is a good chance that your HCE group cannot fully take advantage of it.  What we have seen happen in this situation is that the C-level executives who typically make up the HCE plan become disillusioned and stop promoting it.  Then without managerial support for the plan, the NHCE group typically comprised of rank-and-file workforce loses interest too.  Under that scenario, deferral percentages and participation are dragged even lower.  Soon the plan finds itself in a nasty downward spiral of lower and lower participation and deferral percentages which then leads to more financial stress for your people preparing for retirement. You can see where I’m going with this.

Plug the Leak

Another troubling statistic that is being driven by poor financial wellness is plan leakage.  Plan leakage is money that comes out of the plan prior to retirement either through loans or hardship withdrawals.  The 2016 PricewaterhouseCoopers Employee Financial Wellness Survey pointed out that almost 25% of all employees have already taken money out of their retirement accounts and 43% think that they likely will need money from their retirement accounts to pay non-retirement related expenses in the next year. While 401(k) loans may seem attractive because “you are paying yourself back”, what many participants fail to realize is that the money they withdraw as a loan is out of their account and therefore out of the market.  This means the amount of money taken out for the loan will not benefit from the potential gains in the market while is it out of the account.  Additionally, there are fines and taxes associated with defaulting on a loan which can occur if the participant leaves your company before the loan is paid off in full.

What Can You Do?

There are many ways to tackle the problem of low deferrals and low participation; including changing your 401(k) plan design to include a richer match formula to incentivize employees to act, lowering eligibility requirements to allow people to enter the plan sooner, or adding an automatic enrollment feature. These solutions address the end result, not the cause of the problem.  In order to truly improve the financial wellness of your valued people, we believe you have to address the root causes – lack of budgeting, lack of confidence, and lack of urgency.  To address these broader financial topics, employee education needs to not only address the hows of participating in the 401(k) plan, but the whys as well.  For some great ideas on addressing employee education needs, check out Caleb Bagwell’s blog at: Motivated Monday

Although the idea of fostering financial wellness at your company level may seem daunting, this is a great opportunity for you to build more loyal and productive people by addressing their financial needs.  As reported in the 14th Annual U.S. Employee Benefit Trends Study conducted by MetLife, 71%of employees consider work to be the foundation of their financial safety net.  Additionally, 62% of employees agree that they are relying on workplace benefits to help them achieve financial security. Even more telling, 50% of employees strongly agree that their benefits at work help them worry less about unexpected health and financial issues.  As a plan sponsor, you have an amazing ability to positively impact the lives of the people who you value as employees.  Let us help you design an employee benefits plan that can help address financial stress and build a stronger relationship with your workforce.

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

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SECURITIES AND ADVISORY SERVICES OFFERED THROUGH COMMONWEALTH FINANCIAL NETWORK, MEMBER WWW.FINRA.ORG/WWW.SIPC.ORG, A REGISTERED INVESTMENT ADVISER.  THIS COMMUNICATION STRICTLY INTENDED FOR INDIVIDUALS RESIDING IN THE STATES OF AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. NO OFFERS MAY BE MADE OR ACCEPTED FROM ANY RESIDENT OUTSIDE THESE STATES DUE TO VARIOUS STATE REGULATIONS AND REGISTRATION REQUIREMENTS REGARDING INVESTMENT PRODUCTS AND SERVICES.

Why No One is Showing Up to the Retirement Party

GLF---hello

You’ve planned the perfect party; the invitations have been sent out with a cute poem announcing the guest of honor’s retirement and Pinterest party ideas have exploded in your living room. However, when the big day arrives, only 30% of the people you invited actually show up to celebrate. You have to wonder “Where did I go wrong?” Was the poem too confusing? Did the invitees not understand what or where the event was? Were the invitations too late? Was the theme not cute enough?

There is a lesson to be learned in terms of planning your company’s 401(k) and it is not too different from planning a party. A great deal of effort must be expended in the development, maintenance and advertising a 401(k) plan. Just as with party preparation, if few employees take advantage of the plan, the disappointment that you and the committee experience will feel very much the same. You must ponder, why are employees not using this great benefit that is offered to them? Is the plan designed too complicated? Did we not communicate the benefits? Do our employees just not like the idea of saving?

Preparation: Plan Design

Plan design is not one size fits all. If providers with whom you are working have offered you an off-the-shelf plan that was predesigned for you, it deserves a close examination. It may not necessarily be the best fit for the needs of your employees. If low participation plagues the plan, it may be time for your company to explore the appropriateness of automatic enrollment. This can either be offered to newly hired employees only or your company may decide to enroll all eligible employees who are not currently participating in the plan. Afraid your people will not like being “forced” into the plan? There are provisions within automatic enrollment that allow employees who do not want to participate to withdrawal their money, penalty free, within a defined period of time. Maybe refunds to your highly compensated employees due to failed compliance testing is an annual problem; if so Safe Harbor provisions could be a solution. Finally, even reviewing seemingly basic provisions like eligibility age, hours worked, and entry dates can have a positive impact on overall plan participation.

Invitation: Education

Just as you would not spend weeks preparing the perfect menu for the perfect party and then hope people will show up without being invited, you should not assume that people are going to participate in your 401(k) plan just because you make the offer. Simply handing out an enrollment form during your new hire packet is not going to be enough to truly engage your people and make them interested in using the plan. A targeted education program that incorporates informing your people on the facts and figures of how to enter the plan is a must. During this information sharing session, you can also address common objections such as “I can’t afford to participate” or “I’ll never retire”. In order for your 401(k) plan to be successful, it is essential to offer your employees the ability to meet one-on-one with your plan’s financial professional in order to address individual concerns that they may not voice in a group setting.

Thank You Note: Consistent Monitoring

For the guests that have attended a party or, in this case, employees who have chosen to participate in the 401(k) plan, there should be follow-up.  It is important for the committee to consistently monitor the plan provisions and the plan investments. Too often plan sponsors fall into the “it’s the way we’ve always done it” trap that can lead to missteps in the administration of the plan. As your plan assets grow and as participants are added, there is a good chance that the needs of the plan will change and the committee must adapt procedures to reflect those changes. The same can be said for the plan investments. As the plan assets grow, there may be opportunities for the plan to utilize investment options that they did not have access to when the plan was smaller. Many times the investments that become available are less expensive than the previous options. A recent legal case, Tibble v. Edison, clarified that plan sponsors have an ongoing duty to monitor plan investments and that the six year statute of limitations does not apply to investment monitoring .

Whenever you find a cause worthy enough to put your time into, whether its planning a retirement party or preparing the plan that your people will use to get to retirement, it is important to take the steps necessary to make it a success. Please let me know if you would like assistance with the latter.

 

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

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Securities and advisory services offered through Commonwealth Financial Network, Member www.FINRA.org/www.SIPC.org, a Registered Investment Adviser.  This communication strictly intended for individuals residing in the states of AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.

Just a different point of view; Left Brain, Right Brain


LeftBrainRightBrain-Jamie

Does the thought of reading your plan document make your skin crawl or excite you for all of the information it contains at your fingertips?  Would you rather look a diagram of how to build your daughter’s play kitchen or read the written instructions (in all 5 languages thank you)?  Questions like these are often used to help you identify if you are left brain dominant or right brain dominant.  Traditionally, is has been thought that if you identify with loving to read manuals, following the instructions, and diving into the details then you are left brain dominant; whereas if you respond strongly to art and images, want to be left alone to do your own thing, and value the big picture over the details then you are right brain.  Here are some questions that Caleb Bagwell and I answered that will further illustrate the differences in the dominate brains.  Can you guess what we are?

As a birthday present, your friend bought you one of the latest kitchen gadgets on the market – apparently, it can slice, dice, and make juice at the same time. The only problem is, you have no idea how the darn thing works. What do you do?

Jamie: This could go a couple of ways.  The first thing that I’d do is get online and look-up the instruction manual.  If the manual could not be located, it would promptly be returned or thrown out the window!

Caleb: This one is easy, just start pressing buttons! Seriously, the box told me all the stuff that it did and so trial and error will be all I need to figure out the correct combination of buttons or knobs to get things going!

If you could have 3 hours to yourself to go do whatever you liked, what would you do?

Jamie: Well, I have 2 young children, so I would like to think that I would lay out by the pool and read a good book, but since I have a hard time relaxing until the house is clean, I’d probably end up cleaning.

Caleb: Totally depends on the weather.  If it is sunny that I would be outside on a jog or grilling something tasty.  If it is rainy that it is definitely a movie/nap opportunity, with PIZZA.

How would you describe the neatness of your desk?

Jamie: Everything has its place and even though it may not be as neat as I would like, I know my system and how to find things.

Caleb: Perfect Chaos, but really it’s more like LIFO.  Things go in stacks and depending on when I was working on what project tells me how far down the stack to look for it.  Once a coworker cleaned me desk for me and I had anxiety attack! How was I supposed to find anything!

Would you rather draw someone a map or tell them how to get where they are going?

Jamie: Draw a map or rather give them the address so they can plug it into their GSP.

Caleb: Actually I’m pretty bad with direction and worse at drawing.  I would say use your GPS your holding one in your hand!

Before you take a stand on an issue, do you gather all of the facts or go with your gut right away?

Jamie: Definitely gather all of the facts; it is important to me to know why I am making the decision that I am making.

Caleb: Depends on the outcome resulting in my conviction.  If we are taking a stand on whether the crunch wrap supreme or beefy crunch burrito is better I am ready now, but if we are taking a stand that will affect others I would probably want someone who is an expert on the subject to help me with the details.

How quickly can you tell if you like someone?

Jamie: Not very.  I am usually pretty cautious when it comes to forging new relationships.

 Caleb: Seconds.  Seriously but that’s kind of an unfair questions because I tend to like everyone until they prove me wrong.

You may be asking yourself “why this is important in the context of 401(k) plans?”  What it comes down to is that traditionally retirement plan education has appealed to predominately the analytical, left brain by doling out a bunch of numbers and figures that tend to overwhelm, confuse, and, frankly, bore the people who you are trying to appeal to.  We are aiming to change the norm by not ignoring the details and the numbers, but rather by incorporating the emotional, creative right brain to help the left brain process the information.  In fact, recent research has shown that the brain performs better when both sides are involved, especially when completing tasks associated with mathematics (American Psychological Association, April 11, 2014) like determining how much to defer into a 401(k) plan.

That’s right Jamie, I have to remind myself sometimes that many people enjoy the details but the fact is people need to know “Why” they are making decision.  Helping them find the “Why” behind their retirement savings make the processing of the details possible.  They need to understand they are not saving for a number they are saving for trip to Disney with the grandkids!  Spouting out number at a group of your employees is not connecting with them, helping them channel their creativity and  use it to paint their retirement picture bridges that gap.

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

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That’s Never Gonna Happen to Us

Jamie less than 10m blog

“Family owned and operated since 1976”, “started with a single location in their home”, “there’s no I in our team” sound familiar?  How about “plaintiff in an ERISA fee lawsuit”?  On May 18, 2016, a suit was filed in Minnesota, Damberg v. LaMettry’s Collision, Inc.,  that it is arguably one of the first of its kind.  Previously, ERISA litigation cases had been a who’s who of large companies that are nationally known by name.  The common school of thought has always been that ERISA attorneys only focused on the mega or large plans with over $100 million in assets because that’s who have the deepest pockets and can pay the largest fees.   LaMettry Collision is what the financial world would consider a micro plan with assets under $10 million and only 114 participants in the plan.  The suit filed against the president and chief financial officer claims that LaMettry Collision failed to engage in a prudent process to evaluate service providers and to assess the reasonableness of fees.  The kicker is that according to the complaint, the employment records of the two individuals who filed the suit were 30 years and nearly 25 years; I think we would all agree these would be considered “loyal” employees be tenure standards.  For all of you reading this who thought ERISA litigation could never happen to them, it may be time to think again.

Fiduciaries in the Crosshairs

While many things about this case are alarming, one of the first items that stands out to me is that neither the service provider (Voya) nor the financial advisor are named in the suit; only the employer fiduciaries to the plan.  If you are fiduciary to your company’s 401(k) plan, then you should have a good understanding of how the parties that are servicing your plan are held responsible to perform functions for the plan.  In other words, is your plan financial advisor currently serving in a co-fiduciary role and if not, what role are they serving?  Please note that the recently passed fiduciary rule will have an impact on the fiduciary role of all advisors, but until the enforcement period commences, I would encourage you to make certain your advisor is sitting on the same side of the table as you are when it comes to fiduciary responsibility.  Concerning the service provider, Voya, it is not necessarily the responsibility of the service provider to monitor fees; however, in a group annuity arrangement, the contract for the annuity  may dictate the revenue collected from the investments and therefore have an impact on the fees of the plan.  Additionally, many service providers place restrictions of the menu of available investments that a plan can select from and the lowest share class option may not always be available.  Regardless, most service providers are not named fiduciaries. Finally, there are certain notices and plan design options that can offer plan sponsors and fiduciaries a safe harbor from litigation; if you are not aware of what these notices are, try to become familiar with them as soon as possible.

It Is All about the Process

Note the filing in this case does not say that “the best performing funds were not chosen” or “my employer intentionally did me harm”, it says “a prudent process was not followed.”  If you take nothing else away from reading this article, it should be that as a committee or a fiduciary to your retirement plan, you must document how and why you came to the decisions that you made pertaining to the 401(k) plan.  Everything from the selection of investments to the naming of committee members (or conversely why you choose to not have a committee) to how you selected your service providers needs to be clearly documented.  We tell the committees that we work with that you can argue until you’re blue in the face about the best investments, but as long as why can show how we came to the choices that we did, we believe the plan should be above reproach.  Also, if the committee does not keep written documentation of the decisions, it is like the process never happened.  Simply having good intentions or trying your best is not sufficient for running the 401(k) plan.

Create the Definition of Reasonable

Along with failing to follow a prudent process, the complaint also references the lack of understanding concerning the reasonableness of fees.  There are currently no specific parameters that state what is and is not reasonable concerning retirement plan fees, so it is up to the fiduciaries of the plan to document what is reasonable for their plan.  To do this, we recommend benchmarking your plan against plan’s of similar asset size and participant size at least every 3 years for not only fees, but also services provided.  By doing this exercise, the committee will now have a viable understanding of what other similar plans are paying and will then be able to determine if what your plan is paying is in line with industry averages.  A couple of notes on this process.  There is currently nothing that states your plan has to be the cheapest plan, but rather there must be a clear understanding of the fee arrangement.  I firmly believe that cost is only an issue in the absence of value; therefore, if the services you are receiving are superior, the cost may and can reflect that.  Also, take into consideration the internal expenses of the investments in your plan and how they impact what your service providers are being paid.  Upon reviewing the LaMettry 401(k) 5500 filing from 2014, you can see that the plan was using a share class of investments that is labeled R3; typically that share class may pay the financial advisor on the plan 50 basis points (0.50%) and the service provider 15 basis points (0.15%).  These fees that are included to in the investment’s total cost may play a large role in the overall expense of the plan.  Finally, be aware of the asset requirements to access lower expense share classes of the investments in your plans.  As your 401(k) plan grows in asset value, lower expense options may become available and it is the responsibility of the plan fiduciaries to monitor and document why the share class being used is being used.

While it is far too early to assume that the case against LaMettry will hold up in the courts or whether any monetary judgment will be levied, I think that we can all agree that the time, effort, and money that LaMettry Collision will have to put up in the legal process could be better spent growing their automotive business; not to mention that this is probably not the way that a family owned business in northern Minnesota wanted to become nationally known!  Hopefully, their case can be a learning experience for other plan sponsors and fiduciaries out there who sponsor small or micro plans that think this could never happen to them to sit down and reevaluate the 401(k) and how it is being operated.  If you are one of those plan fiduciaries who would like to review your processes and procedures, please contact me at 205-970-9088 or jamie@grinkmeyerleonard.com.

 

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

 

 

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