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Showing posts from February, 2017

Is the Prudent Man Standard Good Enough?

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It’s often said that ERISA’s prudent man rule is the highest duty known to law. But is that enough? Don’t get me wrong – any law that holds human beings to the standards of an expert in any field is a pretty high standard, and one that can be difficult to meet even with the ablest of expert assistance. I started thinking about this recently when a friend was asking my advice on what he should do regarding the options in his new 401(k) plan. I did what I often do, outlining the pros and cons of various alternatives, helping him to make what I considered to be a well informed – or at least better informed – decision. I had stepped through all the options and considerations with his plan, a pretty standard combination of automatic enrollment provisions. But then, after asking questions throughout, when I was finished, he didn’t ask what I thought he should do. Instead, he asked what I had done with my own retirement savings. The process of stepping through my decisions with my fri

6 Assumptions That Can Wreck a Retirement

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The future is an uncertain thing, and planning for uncertainty inevitably involves making some assumptions. Here are six that, done improperly, can wreck your retirement. How Long You’ll Live The good news we are living longer – but that means that retirements can last longer, and medical costs can run higher. But while we’re living longer, studies indicate that we tend to underestimate how much longer we will live. The Social Security Administration notes that a man reaching age 65 today can expect to live, on average, until age 84.3, a woman turning age 65 today can expect to live, on average, until age 86.6. But those are just averages. About one out of every four 65-year-olds today will live past age 90, and 1 out of 10 will live past age 95. How Long You’ll Work Perhaps the most important assumption is when you plan to quit working; today most Americans are doing so at 62, though 65 seems to be the most common assumption – and while using 70 (or later) will surely bo

3 Ways to Get Your Automatic Enrollment Plan Out of its Rut

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Inertia is a powerful force in nature, and in human behavior. Even the most proactive and engaged plan designs (and plan designers) can, over time, slide from being in a groove to being in a rut. Here are three ways to reinvigorate automatic plan designs. 1. Auto-enroll all Eligible Participants Over the past decade a growing number of plans have embraced automatic enrollment, in the process not only simplifying and streamlining the process, but also expanding the number of individuals who are saving for retirement. These days, new hires, regardless of their age, are routinely defaulted not only into the plan itself, but also into some type of qualified default investment alternative, whether it be a managed account, target-date fund, or balanced fund. However, those who have been employed for some time are often not accorded that convenience. Instead, perhaps because they are presumed to have previously made a decision not to participate, it is assumed that if they were to hav

What Does the Super Bowl Portend for Your Portfolio?

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Will your portfolio fly with the Falcons, or might it be pummeled by the Patriots? That’s what adherents of the so-called Super Bowl Theory would likely conclude. The Super Bowl Theory holds that when a team from the old National Football League wins the Super Bowl, the S&P 500 will rise, and when a team from the old American Football League prevails, stock prices will fall. It’s a “theory” that has been found to be correct nearly 80% of the time — for 40 of the 50 Super Bowls, in fact. Granted, for most of 2016 it might have looked as though it would be right again, following the AFC’s (and original AFL) Broncos 24-10 victory over the Carolina Panthers, who represented the NFC. It was an usual break in the streak that was sustained in 2015 following Super Bowl XLIX, when the New England Patriots (yes, those same Patriots) bested the Seattle Seahawks 28-24 to earn their fourth Super Bowl title. It also “worked” in 2014, when the Seahawks bumped off the Denver Broncos, a le

Why You Shouldn’t Hire Your Brother-in-Law as Your Plan’s Advisor

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Last week an advisor reached out to me looking for an article on a topic that comes up with remarkable frequency. Specifically, this advisor was dealing with a situation where a client was considering hiring their brother-in-law as the plan advisor, and wondered if we had ever written an article dealing with that situation. It’s not the first time I have been asked that, though sometimes it’s a cousin, a friend, a friend’s cousin, or a cousin’s friend. When that situation comes up – and come up it will – this is what I would tell them: If you’re a plan sponsor, you’re an ERISA fiduciary. If you have discretion in administering and managing the plan, or if you control the plan’s assets (such as choosing the investment options or choosing the firm that chooses those options), you are a fiduciary to the extent of that discretion or control. Ditto if you are able to hire individuals to control those assets – including your brother-in-law. Plan decisions you make as an ERISA fid