Q: Our company is growing rapidly and so is our retirement plan. We are interested in hiring a plan advisor. When it comes to providing fiduciary support, what can we expect?
A: From a plan sponsor perspective, the act of hiring a fiduciary advisor is a fiduciary act, and one the sponsor should conduct thoughtfully. While fiduciary services vary by advisor firm, here are the types that plans commonly use:
An advisor acting as a 3(21) fiduciary provides investment guidance and recommendations to the plan sponsor, but the sponsor makes the ultimate decision as to whether to change the investment lineup. Because the sponsor has the final say, it also assumes the fiduciary responsibility for that decision (though it can document that the process included guidance from a professional advisor). An advisor who acts as an investment manager 3(38) fiduciary also provides guidance and recommendations but makes the final decision on investments. This typically costs more and reduces the plan sponsor’s involvement. Hiring a 3(38) advisor is a deeper level of fiduciary outsourcing and fiduciary protection; they have the discretionary authority to make, vet and implement investment recommendations.
Q: As part of our upcoming annual review, we want to spend some time evaluating the effect that inflation is having on our employees’ retirement planning efforts. Do you have any information to help guide our efforts?
A: A recent GOBankingRates survey found that nearly three-quarters (73.5%) of respondents say inflation is affecting their retirement planning in some way. Thirty percent say that they are trying to put more money away in retirement accounts to cope with inflation. This was particularly common among younger respondents, with 41% of those ages 18-24 and 33% of those ages 25-34 saying they are now trying to save more for retirement. To review more ways people are coping with inflation through their retirement planning, check out the survey at: https://tinyurl.com/5n6khuz8.
Q: As part of our efforts to attract and retain employees, our plan committee is working with our plan advisor to enhance our retirement plan. We are thinking of adding some lifetime income solutions. Our chief financial officer is big on data — do you have any research to help us justify the effort?
A: Workers are anxious about the effects of a potential recession on their retirement planning, which may be driving greater interest in retirement income options. The 2022 Protected Retirement Income and Planning Report says only 48% of workers believe their retirement savings and other sources of income will last throughout their lifetime, down from 55% in 2021. In addition, 70% said they will be able to fund basic needs in retirement, whereas only 23% hope to be able to fund the basics. When workers were asked if they would be able to fund “wants” in retirement, 35% said they will be able fund them, whereas 49% hope to and 11% said “no chance.” To help further your case for adding lifetime income solutions, you can view the report at: https://tinyurl.com/ya89uyvc.
GoBankingDates. (2022, September). Inflation 2022: 74% of Americans’ Retirement Planning Has Been Impacted, According to New Study. https://tinyurl.com/5n6khuz8
Cannex. (2022, September). ALI Protected Retirement Income and Planning (PRIP): Background and Objectives.https://tinyurl.com/ya89uyvc
Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com
©2023 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.
Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).
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