Every group has its own lingo. When football coaches speak about designing receiver slants, hitting the A-gap, or running stunts, players quickly understand their roles. Likewise, as theater buffs converse about moving stage left, blocking, and striking, no one bats an eye. But if you’re not part of either group, it might just sound like gibberish.
The retirement industry has this problem, too. Advisors and plan sponsors use technically-correct language to describe company plans, features, and savings strategies, but the jargon is causing a disconnect. Research has revealed participants find their retirement plans to be confusing; their desire for clearer language should be a loud call for our attention. If they don’t understand their options, participants may be less likely to make appropriate decisions about their retirement plan account.
As mentioned in previous posts, different generations desire different benefits options, but they also have unique communication needs. This is true for not only how we communicate but what we communicate. A baby boomer may be looking for financial advice, while a millennial might prefer a financial coach or financial counseling.
Plan enrollment is a critical time to help employees see the big picture. Defined contribution is a somewhat clunky term – employees can be encouraged to participate in their workplace savings plan. And instead of talking about a deferral rate, employees might better understand phrases like the amount you contribute or the percentage of your paycheck that you put in the plan.
The employer match is also a point of confusion, but clarification is critical for increasing participants’ savings rates. Telling participants about free money and the ability to significantly increase their total amount of retirement savings resonates with their goals.1 After defining the company match, it’s important to explain how that money is vested – but very few employees have any idea what a vesting schedule is. They might, however, be very interested to hear about the rate of ownership for that free money.
Finally, it’s easy to quickly get in the weeds when it comes to investment terminology. Target date funds are the victims of plenty of industry jargon. A helpful explanation about their intent may include language about a customized strategy that is managed for you and designed to help achieve your goals.1 Talking about a glide path may illicit blank stares, while a risk-reduction path1 over the course of working years is easier to understand.
Ultimately, no language choice will be the perfect fit for all employees, but it remains essential for advisors to prioritize speaking in more understandable and relatable terms.
Did the recent 35-day partial government shutdown affect you or someone you know? It’s quite possible, considering it forced 800,000 federal workers to miss paychecks and hurt many small businesses. And since the three-week spending bill expires soon, there could be even more financial repercussions.
These recent circumstances certainly give reason to pause and wonder: are you prepared for a financial shutdown in your life? If that question feels too broad, what about this one: if you were in a serious accident and had to miss work, how long would your current financial situation carry you? 35 days? 6 months?
This is about more than just creating an emergency fund – though you should, since it’s widely touted 40% of Americans can’t cover a $400 emergency. And it’s not just about having proper insurance coverage, though that’s certainly important, too. The bigger issue is thoughtfully creating a financial plan and knowing where to turn if the bottom falls out.
As a plan sponsor, you might feel the pieces in your plan are well-aligned. That’s positive news! But can the same be said for your employees? If they can’t currently address a $400 bill, how would they handle a total shutdown if it occurred? You can help prepare your team by proactively providing education and wellness opportunities, offering useful resources that speak to real situations, and taking the fear out of financial conversations.
Employees don’t get off the hook that easily, though – everyone is ultimately responsible for themselves. Consider the last time you gave yourself a financial checkup. Start with a budget you’ll actually follow, build up your emergency fund, and pay off debt. Then push deeper – ask for help to balance college funding, utilize a health savings account, max out your retirement account options, and optimize tax strategies.
The Shepherd Financial team is always only a phone call away. Whether you’re currently in a financial crisis or want to create a plan to see you through one, we want to help.
Are you a procrastinator? Do you get a rush from delaying things until their final deadlines? You’re certainly not alone. Many people will sheepishly admit to sometimes pushing work to the last minute. But it could be a problem if you’re part of the 20% of the population known as chronic procrastinators, whose delays create havoc and undermine goals in multiple areas of their lives.
At the halfway point of 2018, we have to ask: where do you fall on the spectrum? And is your procrastination affecting others? As a plan sponsor, it’s your fiduciary duty to prioritize your company’s retirement plan and participants. So those financial wellness goals you set in January? Pretty important. The pending decisions about plan design? Critical and time sensitive.
First, remind yourself of the priority items for this year. If this was never a discussion with your advisor, schedule a review meeting right now. You need to have a clear picture of where you’re going to determine the steps you should be taking along the way. Analyze what adjustments might need to be made to those goals since a great deal of change can occur over the course of six months.
With regard to financial wellness, consider your employee population and anything you’ve learned about them. Do you know their communication preferences? It may be helpful to integrate those attributes and desires in your overall delivery strategy. Examine the type and frequency of participant meetings. Are your employees engaged? Do they have access to appropriate resources? If the answer to either question is no, consider the changes needed to help your employees retire well. You should also think about how you currently measure the success of your financial wellness program – what are your metrics? What results have you seen so far this year?
Perhaps you want to implement a safe harbor contribution provision in your plan design. Well, don’t delay – missing the deadline can be costly. To obtain the safe harbor exemption from ADP and ACP testing for the remainder of the year and ensure an active safe harbor plan by January 1st, the setup process should begin no later than September 15th. Since you must provide notices to your employees at least 30 days (but no more than 90 days) before the beginning of the plan year, notices should be delivered by December 1st.
So even if you’re infamous for your procrastinating ways, here’s your gentle reminder: your deadline is now. Do the things you’ve been delaying – at least when it comes to your company’s retirement plan.
Because we’re passionate about staying at the forefront of industry trends and regulations, Shepherd Financial recently sent a team to the National Association of Plan Advisors (NAPA) 401(k) Summit. This national conference allows industry experts to interact and share relevant, best-practice strategies for serving retirement plans. Our team highlighted the following topics as key difference makers in the retirement industry, plan administration, benefits collaboration, and plan participant financial wellness:
Industry News: Plan Litigation
The news continues to swirl with lawsuits against corporations, alleging their 401(k) plans have high fees harming employees. Such litigation has brought greater awareness to the fees being charged in plans, as well as a sense of urgency for retirement plan committees to take their fiduciary duties seriously. For example, the duty of exclusive benefit means fiduciaries must be aware of and fully understand all expenses paid from the plan – but it doesn’t end there. Expenses must also be deemed reasonable for the services provided. There is no obligation to choose providers or investments with the lowest costs; the best choice for a plan is unique to the plan’s objectives and characteristics. The most important elements for avoiding litigation over fees come in the form of a consistent process and thorough documentation.
Plan Administration: Committee Relationships
It can be beneficial to establish a committee to assist plan sponsors in the development of prudent processes for plan governance. It’s considered best practice to select a committee chair and establish a committee charter. Utilizing a committee charter to formally authorize the purpose and scope of the committee defines how committee members are selected or appointed, how often meetings occur, and the roles of any outside consultants. Understanding each party’s role, financial liability, fiduciary responsibility, and signing authority can help ease the administrative burden.
Benefits Collaboration: Health Savings Accounts
The buzz continues around health savings accounts (HSAs): they’re the link between health care and finance, but many employees still don’t understand their unique benefits. These savings vehicles provide triple tax-advantaged opportunities (tax-deductible contributions, tax-free earnings, and tax-free distributions), but few are taking advantage. Often confused with flexible savings accounts (FSAs) or health reimbursement accounts (HRAs) and their ‘use it or lose it’ rule, unused HSA funds from the current year roll over to the next year, so participants don’t have to worry about forfeiting their savings. Additionally, employees are often not saving enough to fully utilize the investing capabilities of the HSA – savings can be invested in mutual funds, stocks, or other investment vehicles to help achieve more growth in the account. Clearer education is needed to enable participants to fully engage in their whole suite of benefits.
Plan Participants: Watch Your Language!
The retirement plan experience can be extremely intimidating for participants, and language choices from both plan sponsors and advisors are important. Communication needs to be positive, reasonable, clear, and personal. Participants respond well to a process that is readily accessible, but they first need to hear why they’d want to participate. Using phrases like ‘a comfortable and enjoyable retirement’ and ‘an easy, cost-efficient, and satisfying path to retirement’ resonated well with employees. Each company has unique demographics, so plan sponsors should work closely with their advisor to determine the best language fit for their participants.
This list doesn’t need to be overwhelming – navigate each of these areas by working with your advisor to create a retirement plan strategy every year. Incorporate a formal process that includes regular plan cost benchmarking, a thoughtful examination of plan design, thorough documentation of committee policies and procedures, and honest conversations about how to better equip participants to retire well.
It’s easy to see why January is considered the start of new things – there’s a fresh calendar year and a plethora of resolutions get shouted from the rooftops. This feels like a chance to hit the reset button in many areas of life. At this point, you can see the race has a clearly-defined finish line – and it’s 12 months away. Of course, for some people, January is really right in the middle of the action. Maybe you’re gearing up for your second semester and looking at a somewhat shorter distance to the finish line.
No matter the length of your particular race, though, it’s helpful to have a good idea of what you’re getting into. As runners will tell you, there is a vast difference between sprinting 100 meters and grinding out a marathon. From race preparation and strategy to gauging your pace along the way, you will benefit from having a plan in place before your feet ever leave the starting line. At Shepherd Financial, we believe financial wellness is one important piece of whole-life wellness. So while we hope financial goals are part of your plan (and want to help you set and achieve those goals), don’t stop there. Pause and think for a moment about how financial well-being could positively impact the rest of your life. Do you want to pay off debt? Save more for retirement? Increase your charitable giving? Send your kids to college? Travel more? We can help you create a plan and work toward those goals.
It’s also important to realize not all runners are built the same. If you’re a sprinter, don’t force yourself into strapping on a hydration belt to run 26.2 miles. Set yourself up for success by running your race. You may find it useful to set smaller goals with shorter timelines. We believe each of our clients has a unique lens with which they see the world. Getting to know you, as well as your strengths and weaknesses, is part of our process – if we craft a financial plan that doesn’t fit your specific needs, it doesn’t make sense to pursue it.
Don’t forget your running buddies! When you head out to pound the pavement for a few hours, it’s nice to know you have a support system by your side. Think through what you want to accomplish, then find the teammates who will encourage you to get there. Because our focus is creating retirement-ready individuals, our team is constantly producing new tools and educational resources. We love finding customized solutions for retirement plan sponsors, participants, and individuals.
We work in an industry focused on finances and future planning – two areas that can cause great stress. Our team strives to minimize worry, provide resources, and help each client feel equipped to achieve success, but that can sometimes mean working in a state of hustle and bustle. As we enter November and turn our eyes toward Thanksgiving, we’d like to slow down and highlight a few of our many blessings here at Shepherd Financial.
We are thankful for one another. Knowing how much we need each person’s skills and gifts, we feel so fortunate to work together. Each team member cares deeply about our clients, each other, and producing consistent, high-quality work. In the three years that Shepherd Financial has existed, we have experienced tremendous growth, and it couldn’t happen without the whole team giving their all every single day. We continue to challenge and encourage one another as we take on new roles and responsibilities.
We are thankful for our growing pains. As our partners moved from solo practices into a true team practice, we experienced our share of struggles and setbacks. Each problem, though, has allowed us to learn more about one another, strengthen our team bond, and produce creative solutions – such as customized videos, extensive fiduciary training, and e-newsletters designed specifically for either plan sponsors, participants, or individual clients. Moving into our fourth year, we are seeing incredible fruit from our hard work together. Because we have been through these storms, our successes seem that much sweeter.
We are thankful for our role in the industry. Our work has been noticed and lauded by several elite industry magazines and organizations in the past few years, a testament to the many ways Shepherd Financial seeks to innovate, implement best practices, and lead the charge for retirement readiness and financial wellness. Our team depth has really allowed us to see particular needs and move quickly to meet them. We are also thankful for both our partners and competitors in the industry – we are seeing positive momentum in bringing awareness and resources to underserved participants.
And, of course, we are thankful for our clients. We simply would not exist without you. Because we have the opportunity to work with corporations and individuals across the nation, representing a wide variety of industries and demographics, we gain new knowledge every day to better serve each of you. Our team has adapted how we communicate with specific groups of participants, figured out how to navigate different challenges, and interacted with many amazing people. We are truly blessed to partner with you!
Here’s to a season and spirit of gratitude.
–The Shepherd Financial Team
Sir Francis Bacon is often attributed with saying, “Knowledge is power.” While agreeing with the general sentiment, we have learned firsthand that knowledge is often not enough when it comes to personal finances. April is National Financial Literacy Month, and our team believes this is a critical and timely subject. Financial literacy is more than just a general knowledge of money: it is both the education and understanding of how money is made, spent, and saved, as well as acquiring the ability to manage one’s financial resources effectively.
In our industry, it is clear to see how a lack of financial literacy impacts both individuals and the companies for whom they work. It has been well-documented that financial stress increases absenteeism, decreases productivity, and negatively affects retirement and health care costs. So while the issue is personal, it seems naïve to believe employers should have no say in the matter. Considering its impact on physical health, financial wellness needs to have a natural place in the overall benefits package.
When it comes to retirement plan design, adding features like auto-enrollment and auto-escalation are important steps to help employees save (and save more). But plan sponsors should also consider how loans and withdrawals may cause plan leakage – when faced with financial difficulties, if employees can easily pull money back out of the plan, they probably will. However, simply focusing on increasing savings in the company retirement plan as the only financial goal could also be part of a two-fold problem – first, employees may have a variety of more pressing financial needs; second, improving financial well-being must begin with driving actual behavioral change. This involves communication, education, guidance, and resources that are customized for your employees.
Using plan and participant data (ages, current deferral rates, loan balances, etc.) can help dictate relevant strategies for your company. These targeted strategies can have a significant impact on long-term financial security. But keep in mind that creating financial literacy is not a one-time event. Instead, it must be developed over time – for example, learning how to set and achieve personal goals can positively change attitudes toward saving and spending, which can in turn help build a better budget that will actually be followed. It’s also important to engage with employees in ways that matter to them, perhaps by utilizing technology, gamifying financial behaviors, offering rewards, and incorporating overall wellness into the company culture at large.
Here at Shepherd Financial, we don’t like to make guarantees. There is too much uncertainty in life, people, politics, and the economy to promise we can give you peace of mind. (On top of all that, our compliance department simply won’t allow it!)
Rather than adopt a gloomy attitude about the whole situation, though, we try to live by some general rules of thumb when it comes to our investment management strategy. One of the most important is this: diversification matters. You’re undoubtedly familiar with the idiom, ‘Don’t put all your eggs in one basket.’ Well, that’s diversification. It helps you reduce the volatility of your portfolio over time by spreading your investments around and limiting your exposure to any one type of asset. The goal is to maximize return by investing in non-correlated asset types that would each react differently to the same event.
Of course, you should take both your time horizon and risk tolerance into consideration when thinking about your own investment strategy. And don’t forget that your time horizon will change. A reallocation of assets may make sense for you upon passing certain mile markers in your life.
Now remember: neither asset allocation nor diversification guarantee a profit or protect against a loss. But they may help mitigate the risk and volatility you experience in your portfolio.
If you’re already a diversified investor, you may be wondering about this discrepancy: the market seems to be doing very well lately, but your portfolio doesn’t reflect the same high numbers. There are two reasons: how you are defining the market and the very function of diversification. If you only look at the Dow, S&P, and other domestic stock indices, numbers are up. But many other asset classes have lagged. So while it can feel frustrating to not capture those market highs, your diversified portfolio is actually doing its job. Because of its diversification, it will likely never outperform the highest returning market index.
An underlying thread in how we think at Shepherd is, ‘It’s part art and part science.’ Whether that informs the way we advise plan sponsors regarding the design of their corporate retirement plans or individuals with respect to their investments, we know each situation involves unique factors and considerations. We believe our strength lies in taking deliberate time with our clients to understand those factors. As true in the portfolios we monitor as in the clients we serve, we know diversification matters.