Answers in Retirement Plans

Many investors have a fear of risk, in fact, across the spectrum of investments, nothing is riskless when all factors are adding into the equation. If an investor starts a conversation with a question about the lowest risk bonds, my concern would automatically turn to principal preservation. Being in the lowest historical yield environment on record the conversation might turn to items covered by FDIC that might yield a percent or two less than perceived safe bonds but would have FDIC backing. I would probably even suggest they avoid brokered CDs for reasons such as seeing fluctuations in principal if/when interest rates rise since they are market valued. So if I were starting this chat with Flora, I'd do a little digging and see what truly is the most important part of the equation: a little yield with full safety or a little more yield with a likely potential of some fluctuation in value in the course of holding the bond or bond fund.

Here is a twist I didn't see fully discussed. Government bonds could be the most irrational place for a taxpayer to invest. First, you are lending money to an entity that has force control over you to pay yourself the interest back. Next you place that entity in a position to need to tax you more in order to pay you back. Finally, you pray that the entity doesn't decide to print money to pay you back because then the purchasing power of the repaid debt will be worth less.

Food for thought.

If your 401(k) plan allows loans, you can probably apply for one. Many plans do have a first year charge for taking a loan to cover the paperwork and other administrative work to put the loan into place. also there may be an annual charge whille the loan is outstanding. However, not all plans have any charges for taking a loan. You can find out if there are any charges by asking your plan sponsor/employer. If they do not know, call the company that administers your plan and ask them.

There is one cost that all loans do have. That is the cost of interest on the loan. All plan loans must charge you a reasonable rate of interest, so you should expect to be paying some interest if you do get a loan from your 401(k) plan.

With respect to a time limit regarding loans, one time limit is that most loans from a 401(k) plan must not be for more than five years and a participant borrower must at least make quarterly payments to payoff the full loan. One exception to the five year rule is that the loan may have a longer term than five years if the loan is made to purchase a dwelling that qualifies as a principal residence.

Herbie Glass

James, please forgive me, but if you expect to live on a cash flow any larger than what you get from the Social Security Administration and you have not saved up much for retirement prior to now, then you have either a nestegg that was given to you, or you have been completely remiss with respect to paying attention to your retiremet needs in the past. Frankly, unless you can start saving a substantial amount per year immediately, you should not expect to have a very good retirement. It sounds to me like you will be spending your golden years in the golden arches -- that is eating most meals at McDonalds.

It is unfortunate that you lost track of your retirement plan benefits after you left your former employer. Actually, they had an obligation to send you periodic information about the plan, but if you moved and did not keep them informed of your address, it would be understandable that they could not find you easily.

However, there are a number a things you can do now. First, if you want to know what kind of plan they had, you should start by going to a website with the web address:
http://FreeERISA.benefitpro.com

This website has a number of services (many are free) that may help you find some details that will help you determine what kind of rettirement plans they had for their employees. Once you have that information, you should do the following:

1. Contact your State's Escheat Department and review their list for your name to see if the company may have given your benefit monies (providing you were vested and earned a benefit) to the State because they could not find you.

2. If you think you may have been in a Pension Plan, you should go to a wesite with the Web address: http://www.pbgc.gov/docs/finding_a_lost_pension.pdf You will find a booklet that was put together by The Pension Action Center at the Gerontology Institute, University of Massachusetts Boston, and the Pension Benefit Guaranty Corporation. The booklet is called FINDING A LOST PENSION. This booklet has much information that will help you.

Good Luck with your search

Herbie Glass.

One way would be to try and find out who ran the retirement plans and where the assets were held. If a former coworker had funds in the 401k, you could ask them where they were held (Fidelity, Vanguard, other). If they happened to have an old statement with a phone number you could call there to find out what has happened with any plan. Most likely, you do not have a 401k if you do not remember ever receiving statements or contributing to it. You would have had to fill out enrollment forms. However, there could have been pension money or profit sharing of some type. Good luck!

The above answers are fantastic. Here are a few more things to ponder.

You are a fiducairy to the plan. This means that you can give advice to participants, but you are then liable for the advice. A way to protect yourself to a large degree and yet still help your participants is to engage the help of a full 3(38) ERISA Investment Fiduciary. That group would be on the hook for their advice. In order to properly vet a 3(38) you need to do the following:

• Make sure they actually acknowledge and accept the 3(38) status. • Check to make sure they have insurance that includes ERISA Fiduciary acts. • Make sure they have a Fidelity Bond for your plan. • Keep reviewed copies of their Form ADV. • Keep copies of any designations or background that is relevant to their 3(38) services. • Show record of price negotiation and comparison. • Review their systems and any outcomes they can provide proof of. • Makes sure they have no conflicts-of-interest. ERISA Fiduciaries aren't allowed to have any.

There are many more issues you should consider in hiring a 3(38). These are just a few.

Just to follow-up on a few posts I saw here. If you are the CFO, it would be very hard for you to claim no fiduciary responsibility. As mentioned, you could hire a 3(38) Investment Manager to alleviate much of your Investment Fiduciary responsibilities. If you elect to bring on a 3(38) ERISA Fiduciary, then you still have the responsibility to vet the 3(38) provider. • Make sure they actually acknowledge and accept the 3(38) status. • Check to make sure they have insurance that includes ERISA Fiduciary acts. • Make sure they have a Fidelity Bond for your plan. • Keep reviewed copies of their Form ADV. • Keep copies of any designations or background that is relevant to their 3(38) services. • Show record of price negotiation and comparison. • Review their systems and any outcomes they can provide proof of. • Makes sure they have no conflicts-of-interest. ERISA Fiduciaries aren't allowed to have any.

There are many more issues you should consider in hiring a 3(38). These are just a few.

The shortest answer to whether or not you should take out a 401(k) loan is as follows:

No. The 401(k) is not the Swiss Army Knife of financial planning. It is not meant to be your cash reserve or your new red truck account. It is meant to be a long-term saving and investing vehicle. The purpose of the retirement plan is to provide for retirement. The double taxation of interest payments, the opportunity cost of being out of the market and the possibility you will get fired or quit are the three main drawbacks mentioned previously. Add to that the idea that a 401(k) loan can also cause your behavior to not reflect a concern for long-term economic stability.

The deadline for 408(b)(2) is now passed. Most plans in the country have done almost nothing to actually comply with the regulation. According to the regulation, a plan sponsor is not only supposed to gather the pertinent fee, service and fiduciary disclosures from the plan providers. But the plan sponsor is also supposed to show that the fees are reasonable for the services provided. Very few plan sponsors have done anything to show reasonableness beyond taking the word of their service providers. In my opinion, and in opinion of the Department of Labor's own publication on the matter, a plan sponsor should engage in a request for proposal for plan services. This will give the plan sponsor the real market rate for their plan size and demographics. Simply comparing a plan to a national average does little to show what the market rate really is. That is the same as assuming a home valuation appraisal actually tells you what your house is worth. In order to really know, you have to put the house on the market.

The real horror for some regarding these new regs will come when 404(a)(5) kicks in. This is the rule that the plan sponsor has to disclose to the participants what they are actually paying for their plan. Most participants actually think the plan is cost free to them. They are going to be shocked. Unless the plan sponsor makes sure the fees are reasonable and then educates the participants, then the plan sponsor could be looking at disgruntled participants and possible complaints.

One of the biggest determining factors as to whether or not you should contribute with no matching is the quality of the investment menu and the cost of the plan to you as a participant. Often, Employer Retirement Plans are actually some of the most expensive investments in the market place. While this is not always the case; it is the case all too often. If your particular plan's total assets (not just your account, but everyone's in the plan) are over $1 million, then you should have access to an average cost of not more than about 1% to 1.25% per year for actively managed choices. If the costs are higher than that, chances are your 401(k) plan is being overcharged from the service providers. This fee disclosure information should be readily available from your plan provider and your employer.

James, I think you should sit down with an advisor somewhere. If you are 60 and wish to retire at 62 you need to already have almost all of the necessary assets to afford retirement, pension income, or other. If you sit down with the right advisor they will b able to walk you through this and give you some ideas on when retirement might be an option.

If you are able to retire at 62 then it could be a good idea just to save in a brokerage account outside of retirement. This will give you a base and some after tax funds to combine with taxable funds in retirement when you have to pull from 401k or IRA accounts.

Peggy,

If we assume that your 401(k) plan has "participant directed accounts," you, as well as all other participants, have the right to direct the investments allocated to your account(s) in the plan. On the other hand, if your 401k plan's investments are considered to have only "trustee directed" investing, then you do not have the right to direct your own vestments, because the trustee is the only one that has the right to choose investments for the plan and its participants.

To determine whether the plans investments may be directed by the participants or the trustee, the plan documents and summary plan description should be reviewed. Those documents should clearly state the answer as to who has the right to choose the investments. If the documents state that the participants have the right of self-direction, then it is a simple matter of you talking to the plan sponsor (your employer) or the trustee of the plan, and telling them that you want to take advantage of the documents' provision giving you, as a participant, the right to self direct your investments. If they refuse, you do not necessarily have to hire an attorney, however you may feel free to contact the Department of Labor and lodge a complaint that your employers's plan is not being operating according to the written provisions of the plan documents. You may find that the DOL may either call or visit your employer about your complaint and see that the plan operates properly.

Finally, you should know that some 401(k) plans have some of the participants' accounts using "self-directed" investing by the participants, while other participants' accounts investing is handled by the Trustee. This is perfectly legal as long as the plan documents state exactly how these 401(k) monies are to be invested and directed. So again, the documents have to be read carefully to understand your investments rights against those of the trustee. To get copies of the documents from your employer, you merely have to put your request in writing for them. They are allowed to charge you a fee for providing you with copies of the documents.

Hi Sven,

Distributions from your 401(k) plan will NOT affect the amount of your Social Security benefit. However, your 401(k) distributions MAY affect how much of your Social Security benefit is taxable. For that reason, we recommend that you evaluate the timing of your various income sources, especially Social Security and retirement plan distributions, such that you maximize your total after-tax income; or get help with that planning from a qualified advisor.