Draft Your Own Declaration of Financial Independence
250 years ago, a group of colonists declared their freedom from British rule. They didn’t have the money, manpower, or infrastructure to back it up, but what they did have was a plan. This is the mindset that created our nation, and if we take a little bit of that inspiration and apply it to our personal finances, we can each achieve something great!
Define your Declaration
Now, Financial Freedom varies slightly from the template our forefathers set up. Your financial goals likely don’t include overthrowing a tyrannical ruler in the name of equality.
Financial Freedom to someone who’s recently retired may consist of not having to work and having the investments, savings, and passive income to cover cost of living and expenses. Financial Freedom to someone who has just started a family may be having a job that pays enough to cover daily expenses and provides a surplus for future savings. And for others still, it’s about selling everything you own, buying an RV, and visiting all the national parks. To most of us, Financial Freedom is about not having our lives ruled by financial constraints.
Take a few moments and think about what Financial Freedom would mean to you.
If money was not a factor, what would you want your life to look like?
How would these goals evolve as you get older?
This should be your very own ‘city upon a hill’. When you’re making choices that involve your finances, you can ask yourself, “Is this going to help me reach my goals?” Like the Declaration of Independence, having a framework for what you eventually want to achieve is the first step in achieving Financial Freedom.
The Four Pillars of Financial Freedom
Budget
The first step is knowing where you are currently, and understanding your budget is the best way to do that. A basic budgeting framework is 50/30/20. 50% of your pay should go to needs (rent, car payments, grocery), 30% should go to wants (dining out, travel, hobbies) and 20% should go to debt repayment. You should change these percentages to match your current situation, but with a consistent budget in place, you’re able to predict your expenses with greater accuracy, which helps you plan your future. When you have a good grasp on your inflows and outflows, you’ll know where you can allocate more or less money, and if you have any shortcomings that you’ll need to overcome.
Emergency Fund
With a budget in place, it’s important to start building an emergency fund. Nothing can ruin your finances faster than a large, unexpected expense. Having an emergency fund can turn a potentially ruinous expense into a manageable one. A good guideline for an emergency fund is to have enough money to cover 3-6 months of your expenses saved in an easily accessible account. Like all aspects of Financial Freedom, this will take some time, but your emergency fund is the bedrock of your financial security, so make this a priority.
Debt Elimination
All men are created equal… but not all debt. As we said earlier, financial freedom looks different to everyone, and you can certainly be financially free with a car payment and a mortgage, but certain debts like credit card bills and high-interest student loan payments can put a serious dampener on your pursuit of happiness. Focusing on eliminating your highest-interest debt first can really help relieve some financial pressure. If you want a more in-depth discussion on these topics, watch our Budgeting and Debt Elimination webinar or our Student Loan webinar.
Retirement Savings
With your budget, emergency savings and debt under control, we can now look forward to the future. For most of us, the biggest financial goal we’ll undertake in our lives is saving towards retirement, but saving towards some distant goal can sometimes be hard to conceptualize. So, let’s try to make it real by using real numbers. A very quick method of determining how much savings you’ll need for retirement is to multiply your expenses by 25. That number is now your retirement independence number.
This comes from a concept called the 4% rule. The idea is that a retiree who withdraws 4% of their portfolio in the first year, and adjusts that amount for inflation each year after, has a good chance of not running out of money over a 30-year retirement. Twenty-five times your annual expenses is just the flip side of 4%. For example, if your annual expenses are $50,000 you’ll need to save about $1.25 million. Keep in mind, this is just a starting point, and your Shepherd advisor can help give you a more accurate model of your situation.
Your retirement number may seem like a lofty goal, but when you have a target, retirement stops being an abstract worry and starts being a quick calculation. Instead of asking, “Am I saving enough?”, you could say, “At my current savings rate, when do I hit the number?” Every one dollar of consistent spending results in having to save twenty-five dollars for retirement; so, when you’re thinking about upsizing your house, car, etc. think about if you’re overextending yourself and impacting your financial freedom.
The Pursuit of Happiness
Financial freedom isn’t a finish line; it’s the life you’re building toward. Whether that means retiring early, owning a home, traveling, or simply living without financial anxiety, the goal is yours to define! The four pillars we’ve covered – budgeting, emergency fund, managing debt, and saving for retirement — aren’t restrictions. They’re the framework that makes your version of freedom possible.
You don’t have to figure it out alone. Your advisors at Shepherd Financial are here to help you draft your declaration of financial independence — whether that’s creating a budget, building a retirement plan, or just having a conversation about your goals. Give us a call at 844.975.4015 or email us at ShepFinTeam@Shepherdfin.com.
Here’s to 250 years of freedom, and to the work of building your own!
How to Level Up Your Credit Score
Your credit score is a number that creditors use to help determine your behavior, including how likely you are to make payments on a loan. The higher the score, the easier it will be for you to get a loan, rent an apartment, or get a better insurance rate. People with higher credit scores are also more likely to get lower interest rates on mortgages and car loans, and to get approved for higher credit limits. In general, having a high credit score lowers financial hurdles, so making sure it’s as high as possible is advantageous!
Getting a high-score on your credit is achievable with just a few good habits, but let’s look at the breakdown of what actually goes into the calculation of your credit score.
The FICO model is based on “score ingredients”, which comprise of five primary categories. Some models calculate these slightly differently, but in broad terms, the ingredients that make up your credit score is the same. Listed below are those factors, and some dos and don’ts:
Payment History (35%)
✓ Paying your debts in a timely manner
X Letting your debts build up
Amount of Debt (30%)
✓ Using less than 30% of your available credit
X Maxing out your lines of credit
Length of Credit History (15%)
✓ Having a long credit history
X Having a short credit history
Amount of New Credit (10%)
✓ Sparingly opening up new lines of credit
X Frequently opening up new lines of credit
Credit Mix (10%)
✓ Having a variety of different types of credit accounts
X Using less types of credit
As we can see, two-thirds of your credit score is determined by how much debt you have, and how efficiently you pay it off. To keep your payment history positive, you need to pay off more than just the minimum balance. Your payment history is calculated by how frequently you pay off the statement balance, not the minimum. So, having a rolling credit card balance from month to month is a behavior that should be avoided as it can negatively affect your credit score.
The ‘amount of debt’ metric is based off your credit utilization ratio. Your credit utilization ratio is calculated by taking the statement balance for a card and dividing that by your credit limit. For example, having a $1,000 statement balance on a card with a $10,000 limit would result in a credit utilization ratio of 10%. A lower credit utilization ratio will help boost your credit score, with a sub 10% credit utilization ratio being the best, but anything under 30% is generally fine. Occasionally using your full line won’t tank your credit score, but your score will start to drop if this happens frequently.
The other three categories make up only a third of your credit score, and they’re relatively self-explanatory. The longer you have credit for, the better your credit score will be. Similarly, having a greater variety of credit types (like having a credit card, a car loan, and a mortgage simultaneously) will increase your score as it shows that you’re capable of juggling multiple different lines of credit at the same time. It’s good to have multiple lines of credit, but keep in mind if you’re constantly opening up new lines, it can lower your credit score. This shouldn’t deter you from getting a loan for your car, but if you’re opening up your third credit card in a year, you’ll start to notice a dip in your score.
If you’re wondering how to check your credit score, you can make a free inquiry annually through sites like Experian. Your credit card or bank may also provide you with your credit score, so check there too.
If you have questions about credit score, budgeting or finances, give one of our advisors a call! Email us at ShepFinTeam@Shepherdfin.com or call us at 844.975.4015. We look forward to hearing from you!
What the Kentucky Derby can teach us about picking mutual funds
(and why performance chasing is one of the most expensive habits in investing)
The 150,000-person stadium falls silent. Twenty of the world’s fastest horses snort and stomp in anticipation. The starting shot is fired, the gates swing open, and the horses explode out of their stalls at nearly 35 miles an hour. As the horses sprint around the track, millions fill out brackets, consulting past-performance charts, and placed bets on the horse that looks most likely to win. And almost every year, a disproportionate share of that betting volume goes to one horse in particular: whichever one won the most recent big race.
It feels rational. Past winners should keep winning, right?
Investors do almost the same thing with their retirement savings. They look at a list of fund options, find whichever one delivered the highest return last year, and move their money there. It feels smart. It is, unfortunately, a habit that quietly costs investors real money.
The past doesn’t always predict the future.
Just because a fund had a 30% rate of return last year does not mean that you’ll see a similar result this year. In fact, of all the actively managed U.S. equity funds that finished in the top quartile of their category in a given year, fewer than 25% finished in the top quartile the next year. If you extrapolate this out to just 5 years, the chance that the high-performing fund is even in the top quartile anymore is near zero. So just because a fund did well last year doesn’t mean it will do as well in the upcoming years.
Why don’t the winners keep winning?
As anyone who’s been watching their investments can attest, the markets have been very volatile these last few years, and this volatility rewards different types of companies at different times. And by the time an investor has noticed a valuable asset, it may have already peaked. Think of all of the COVID-era investments that surged in 2021 but have now crashed, like Peloton or Zoom. It’s not that these aren’t good companies; it’s that the markets decided to reward different types of investments. As the landscape of the market changes, so does the landscape of investments that thrive within it.
How to “Win” the Retirement Derby
If choosing last year’s champion is a losing strategy, what are some winning ones?
Rebalance – This allows you to trim from the assets that have done well and add to the assets that may do well soon. If your plan offers automatic rebalancing, select it!
Stay Invested – Missing the ten best days in the market over the past 20 years would have cut your returns in half. And those ten best days overwhelmingly happen near the ten worst days, when investors are most tempted to flee.
Diversify – If you don’t know which category of the market will lead this year, own a little of each. This is what target-date funds and balanced portfolios are designed to do automatically.
The Kentucky Derby is two minutes of chaos and luck. Your retirement plan is 30 or 40 years of patience and discipline. You don’t need to pick the fastest horse, you just need to stay in the race. If you’d like help building a portfolio that’s built for the long run, our team is always here. We’re much better at retirement planning than picking ponies.
With the price of oil surging and one of the world’s key oil chokepoints under duress, many investors may have doubts about their investment approach in this volatile environment. Fears of an upcoming recession may cause unease, or a desire to pull out of the market before a supposed upcoming crash. But before an investor makes any changes, it’s important to consider what the evidence says about pulling out of the market during a downturn.
Predicting exactly when a recession will start is difficult, and preemptively pulling out of the market at the wrong time can lead to poor results. For example, many investors braced for a recession in 2022 when the Fed raised rates to combat high inflation. However, the economy proved resilient, and after a difficult 2022, markets went on to post strong double-digit returns over the following three years. For the investors that waited for a clear signal that the markets would stabilize, it was already too late. And even though they can feel longer, Bear Markets are generally much shorter than Bull markets. The average Bear Market lasts 12 months, whereas the average Bull Market lasts 67 months1. But even though market downturns are shorter, 48% of the best days for S&P500 returns in the last 30 years happened during a bear market.
Being wrong about timing might cause you to miss most of the market recovery.
As an example, if you were invested in the S&P 500 over the last 30 years and you missed the 10 best days, your portfolio would be 56% smaller than one that stayed invested the entire time2.. If these upturn days were predictable, that would be great, but they’re nearly impossible to anticipate. Market recoveries do not come with advance notice, and by the time you’re reading headlines about them, most of the gains are already in the rear-view mirror.
Markets have powered through previous oil crises before
As history suggests, markets they tend to come out stronger on the other side of oil crises. In 1973, OPEC’s oil embargo sent shockwaves through the global economy, yet markets recovered and rewarded those who stayed the course. Similar stories played out during the 1979 Iranian Revolution oil shock and the 1990 Kuwait invasion, when prices nearly doubled overnight. In each case, the initial panic gave way to stabilization and eventual growth. This doesn’t guarantee the same outcome today, but it does suggest that reacting to short-term volatility with portfolio changes has rarely been the right call.
When the markets get volatile, it’s natural that investors want to do something to respond to the turbulence around them. Often though, selling off positions just locks in the loses and lack of exposure to the market blunts any gains that would be recovered. Investors who weather the crises and hold on to positions consistently come out ahead of those who don’t. It’s hard to tell when things will stabilize, and an investor who has pulled out of the market may be left in the wrong place at the wrong time.
Staying invested through volatility is a sound strategy for many investors — but it isn’t a silver bullet. Your own personal risk tolerance, time horizon, and financial goals all play a role in determining the right course of action for you. If today’s market environment has you questioning your strategy, that’s a sign you should reach out to one of our advisors. We’ll help make sure your portfolio is still aligned with your long-term plan. Whether that means holding steady, rebalancing, or making a thoughtful adjustment, our advisors are here to help you make the right move for your situation.
Student Loans Are Changing (Again.) Here’s What You Need to Know.
Heads up: big changes are coming to the federal student loan system.
Starting July 1st, there’s a new income-based option called the Repayment Assistance Plan (RAP). The goal is to simplify the menu of repayment plans, but for most borrowers, especially ones with moderate or lower income, this plan will not be as advantageous as the previous SAVE plan or other IDR plans. If you are currently in an IDR plan (especially SAVE), you’ll need to research the best option for you and act quickly.
What’s Changing Under RAP
- • Payment is based off of Adjusted Gross Income: RAP will use AGI (instead of discretionary income), which can result in higher payments
- • Longer loan forgiveness timeframe: Remaining balances can be forgiven after 30 years, which is 5-10 years longer than other plans
- • Fewer Income Driven Repayment (IDR) choices over time: Several IDR plans will be phased out over the next few years as RAP becomes the main choice
- • Lower limits for Parent Plus Loans: The annual and total limits for Parent Plus Loans are decreasing
The names and availability of some federal plans are changing, but the core decision points below are still the foundation.
The Basics
There’s nothing like the feeling of graduating college. You’ve got a degree, a diploma, and… tens of thousands of dollars of debt. Unfortunately, student loan repayment isn’t a Gen-Ed, so let’s go through some tips that can help get your student debt under control.
The first thing to understand is the type of loan you have:
- • Federal Loans: Check them at StudentAid.gov.
- • Private Loans: Log in to your loan servicer’s website (you’ll find it on your statements).
This distinction matters because federal loans come with built-in protections and program pathways, and while the list of specific repayment plans is changing, the core decision points stay the same.
Repayment Options: What Actually Matters
Standard Repayment
The simplest plan. It often results in the least total interest, but payments can be steep if your cash flow is tight.
Income-Driven Repayment (IDR)
If you need flexibility, an IDR plan may help. Your payment adjusts based on your income, giving you breathing room when needed.
The tradeoff? A longer repayment timeline and potentially more total interest.
Public Service Loan Forgiveness (PSLF)
If you work for a qualifying employer, PSLF can erase your remaining balance after you complete the right number of qualifying payments.
But it has hurdles—wrong loan type, wrong repayment plan, missed payments, and missing employer certification can all derail progress. It’s a good idea to check on your PSLF status every six months.
Consolidation vs. Refinancing
Now that you have idea about the types of loans you have and the repayment options available, we can consider consolidation and refinancing. Federal loans can be consolidated into one loan, and this can help you qualify for different repayment options (like IDR). What consolidating doesn’t do is lower your actual interest rate, since it just combines them with a weighted average. Refinancing a federal loan means replacing it with a private loan. This can be a big trade-off. You may get a lower rate in the private market, but you lose out on federal protections and repayment options like IDR and PSLF. If you have private loans, refinancing is usually a simple decision – just lower your rate and lower your cost. What you choose to do depends on your overall strategy. Are you trying to lower your rate, simplify your structure, or preserve flexibility? Once you know what you’d like to accomplish, the reasoning behind the options becomes clearer.
Should You Pay Off Loans Faster or Invest?
Speaking of strategy, one of the biggest and most consistent questions is going to be the balance between paying off your loans and debts vs investing. There’s no silver-bullet answer here, but there are a few things to consider. First, if you’re getting an employer match through your retirement plan, try to max that out, as it’s immediate return on your money. After that, the decision often comes down to how high the interest rate is, how stable your cash flow feels, and how close you are to major life goals. An important thing to remember is that compound interest goes both ways. Just as your loan amount increases each year, the balance of your investments will do the same, so it’s important to have a blended plan. Make sure you have steady retirement contributions and also focused payments on the highest-rate loans.
Need Help?
If you’d like, we can help you turn this into a simple, personalized budget. A quick conversation is usually enough to confirm what you have, what options actually apply, and what a realistic next step looks like. If budgeting for student loans is on your mind this year, give us a call—this is exactly the kind of thing we help participants sort out.
If you need additional assistance navigating the tumultuous world of student loans, we would suggest that you check out Thrive Student Loan Advisors, or another relevant expert. Thrive Student Loan Advisors has monthly webinars you can join that are exclusively about student loans, they offer a free one-time meeting with a student loan advisor, and can even help you manage your student loans ongoing. https://sladvisors.thrivematching.com/
5 Things to Know About HSAs
1. Think of an HSA as an “IRA for healthcare”
Health Savings Accounts (HSAs) were created in the U.S. in 2003 as a way to set money aside for medical expenses. The big idea: save for healthcare the way you save for retirement—except HSAs come with some seriously good tax perks.
2. You only get an HSA if you’re in a High-Deductible Health Plan (HDHP)
HSAs are tied exclusively to HDHPs. HDHPs usually mean lower monthly premiums… but higher deductibles. That’s the tradeoff. The HSA is the “plan” for when you actually have to pay that deductible.
3. HSA’s are Triple Tax Advantaged
- Contributions are tax-friendly (often pre-tax through payroll; if you contribute after-tax, you can generally deduct it).
- Growth is tax-free if you can invest the balance (depends on your HSA provider).
- Withdrawals are tax-free when used for qualified medical expenses.
4. HSAs don’t disappear
Unlike FSAs, HSA balances don’t evaporate at year-end. They roll over year after year, and they’re portable; if change jobs or health plans and the HSA can follow you. Convenient!
5. Use it smart: cash for the deductible, invest the rest
A good rule of thumb is keeping enough in cash to cover your deductible, then considering investing anything beyond that for longer-term use. And HSAs can pay for way more than people expect—things that diagnose, cure, mitigate, treat, or prevent a condition. That can include prescriptions, OTC meds, sunscreen, birth control, first aid supplies, glasses/contacts, massage guns, and more
And with a Letter of Medical Necessity, the list can expand to things like gym memberships, fitness trackers, bikes, and even service dogs! Who saved who (the most in taxes)?
An HSA won’t be the best fit if you…
- Don’t have access to an HDHP
- Expect consistent, high medical costs (an HDHP may not be your best option)
- Don’t have extra room in your budget to save right now
- Actually enjoy paying taxes
If you ever want help thinking through HSAs or your broader financial picture, give one of us at Shepherd Financial a call, we’re always happy to help.
2026 Contribution Limits Released – What Employers Should Know
The IRS has released the 2026 retirement plan contribution limits, along with several important updates that may impact plan design and payroll coordination for the coming year.
KEY HIGHLIGHTS FOR 2026:
- The age 50+ catch-up limit increased by $500
- The special age 60–63 catch-up remains $11,250
- The Roth catch-up threshold was retroactively changed from $145,000 to $150,000 in FICA wages for 2025 which is used to determine Highly Paid Participants (HPPs) for 2026.
We’ve summarized all 2026 contribution limits for your reference, and you can download the full table by clicking below.
Supporting Financial Literacy in Young Professionals
Young professionals just entering the workforce must learn to balance immediate financial demands with long-term goals. Building financial literacy is a critical foundation for long-term success. You have the opportunity to help your employees build strong habits for a healthy journey toward retirement. Here are five ways you can help guide younger employees toward a firm financial foundation.
Begin with a Budget
About a quarter of millennial and Gen Z workers don’t know how much they need to save to retire comfortably. Establishing a realistic budget is a great first step in working toward long-term savings goals. As an employer, you can offer resources to help employees build a straightforward spending plan that includes saving for retirement and health care expenses.
Emphasize Saving Early
Young professionals have the advantage of a long savings horizon. Help them understand the importance of establishing savings habits early to capture the power of compound interest over time. Aside from the company retirement plan, though, there are other vehicles to support financial goals – like health savings accounts (HSAs).
Educate on Health Savings Accounts
A successful savings approach considers possible medical expenses. HSAs offer trip tax savings and can be used to pay for current eligible health care expenses. But unused funds roll over annually to cover future medical expenses, offering employees a dedicated pool of savings to help them prioritize wellness right into retirement. Despite their clear benefits, there’s still tremendous opportunity to help young professionals engage with their HSAs more fully – nearly one-third of employees under 30 are not contributing anything. Employer contributions can help encourage young professionals to contribute as well. Encourage employees to monitor their accounts and make incremental changes until they are maximizing their HSA contributions.
Promote Building an Emergency Fund
While saving for retirement is crucial, it is equally important to have liquid savings for immediate, unexpected expenses. Encouraging younger employees to establish an emergency fund ensures they have a financial cushion for unforeseen circumstances like a medical emergency or job loss. Challenge them to save three to six months’ worth of living expenses in an accessible account. This reduces the risk of dipping into long-term savings and provides financial security.
Make Wellness Part of Workplace Culture
Gen Z has the least positive life outlook and may be less proactive overall in seeking care. Encourage your younger employees to make routine care a priority and help them understand their role in paying medical expenses. Help them establish wise habits to build their financial literacy and take control of their personal goals.
What is a health savings account?
A health savings account (HSA) is a tax-advantaged way to save for qualified medical expenses. Because it offers potential tax advantages and money within the account can be invested, an HSA can be used to pay for both near-term medical expenses and expenses in retirement. HSAs are portable, meaning they move with you when you change employers. An HSA has triple tax advantages:
• Your pre-tax contributions reduce your taxable income (if you choose to fund your account with after-tax contributions, you may be able to take a deduction when you file your taxes)
• The money isn’t taxed while it’s in the account, even if it earns interest or investment returns
• As long as the funds are used for qualified expenses, you won’t owe taxes when you take money out of the account
PRO TIP – After reaching age 65, you can withdraw money from your account for any reason at all without paying a penalty; this will be considered taxable income, though, so you’ll pay taxes on these types of withdrawals.
How does it work?
An HSA must be paired with an HSA-eligible health plan. Once you’re enrolled in this type of health plan, you can make pre-tax contributions to the HSA, creating a cash cushion to help offset the higher deductibles HSA-eligible health plans usually have.
If you don’t need the money right away, you can save it until you do. Many HSAs allow you to invest the money after reaching a certain threshold. (These features set HSAs apart from another popular account, the flexible spending account (FSA). FSA money typically has to be used by the end of the plan year, can’t be invested, and can’t be taken with you to another employer.)
Your employer may make matching contributions to your HSA, so be sure to ask – you won’t get a tax deduction on what your employer contributes, but this extra money has the potential to grow over time if invested.
What’s a qualified medical expense?
Generally, qualified expenses include things big and small, from ongoing costs to unexpected ones, including doctor visits, medications, X-rays, medical equipment, dental care, vision care, and much more. IRS Publication 502 explains the expenses in detail.
What are the contribution limits?
Contributing to your HSA early and investing those savings can help you better afford medical care in the future. Pay attention to the annual contribution limits:
• In 2024: $4,150 (individual coverage) / $8,300 (family coverage)
• In 2025: $4,300 (individual coverage) / $8,550 (family coverage)
Keep in mind: if you are at least 55 years old, you can contribute an additional $1,000 annually.
These limits include employer contributions, so make sure you know how much is being contributed in total.
Do you still have questions?
When planning for your future healthcare expenses, it’s important to understand how your HSA might pair with what you’re saving in your company’s retirement plan. To dig into the details of your personal situation, call the Shepherd Financial team at 844.975.4015.
Understanding Forfeiture Accounts
People are generally most familiar with the plan’s investment options that are part of the plan’s core lineup. However, other plan assets for which plan sponsors have a fiduciary responsibility include the revenue credit account and forfeiture account. The names of these accounts may vary across different recordkeeping platforms.
Forfeiture Basics
Employee contributions are always 100% vested, meaning they belong to the employee when they leave. However, employer contributions may be subject to a specified vesting schedule, which determines when an employee gains ownership of any employer contributions. The forfeiture account is where these employer contributions are held when an employee leaves the company before becoming fully vested in those contributions.
Employers have the choice of how they want to use these funds. It is important to make sure the plan document, as well as any other plan documentation, specifies how the funds can be used. It is also critically important to ensure any plan documents align with what is actually happening. Common uses of the forfeiture funds include:
• Plan Expenses: Covering administrative costs associated with managing the plan.
• Employer Contributions: Reducing future employer contributions that the company needs to make to the plan.
• Reallocation to Participants: In some cases, the forfeited amounts can be reallocated among the remaining plan participants in a nondiscriminatory manner.
Proposed Regulation and Timing
As a practical matter, most plans try to spend the revenue credit account and forfeiture account within the plan year in which the funds were generated or, at the latest, by the end of the following plan year. This was formalized in 2023, when the Internal Revenue Service (IRS) proposed a regulation for defined contribution plans to require that forfeitures must be used no later than 12 months after the close of the plan year in which the forfeiture is incurred. While this remains a proposed rule, the timing guidelines should be followed.
Action Items for Plan Sponsors
• Understand where all the plan assets are even if those funds are not in the core investment lineup; this extends to holding accounts including the revenue credit account and forfeiture account.
• Determine how the forfeiture account can be spent as identified in the plan document or other governing documents and policies for the plan.
• Ensure the plan’s operation aligns with the plan documentation, including as it relates to how to spend forfeiture dollars.
• Determine a procedure to ensure forfeiture dollars are spent within the plan year in which the funds were generated or, at the latest, by the end of the following plan year.