Estimating Retirement Benefits Gets Easier

The Social Security Administration issued a news release earlier in the week: "Estimate Your Social Security Retirement Benefits Online Now at www.socialsecurity.gov/estimator."

Michael J. Astrue, Commissioner of Social Security, today unveiled a new online calculator at www.socialsecurity.gov/estimator that will provide immediate and personalized benefit estimates to help people plan for their retirement. The Retirement Estimator is tied to a person’s actual Social Security earnings record and eliminates the need to manually key in years of earnings information.

“Deciding when to retire is one of the most important and difficult decisions many people face,” Commissioner Astrue said. “The Retirement Estimator greatly improves the information available when trying to decide the right time to retire. It is simple, easy-to-use and will provide highly accurate benefit estimates for those nearing retirement age. For younger workers, it will provide valuable information to help them plan and save for their retirement.”

The Retirement Estimator is interactive allowing the user to compare different retirement options. For example, a person can change retirement dates or expected future earnings. Individuals also can print out up to three different scenarios at one time, in addition to information about their benefits at age 62 (current age if older), full retirement age and age 70.

Best of all, the Retirement Estimator is secure. The only thing it provides online is retirement benefit estimates. It does not show the earnings record information on which the final benefit estimate was calculated, nor does it reveal other personal information.

“The Retirement Estimator is just one of many things we are doing to make more information and services people need available over the Internet,” Commissioner Astrue stated. “We recently unveiled a new home page at www.socialsecurity.gov that reduces visual clutter and is easier to navigate. Since its release, we have received many positive comments. In the fall, we will introduce the public to our next initiative: a total overhaul of our online retirement application that will reduce the average filing time from 45 minutes to about 15 minutes. These initiatives will help us better handle the baby boomer wave and make it easier for the public to do business with us online.”

Breaking News - DOL Proposes New Fee Disclosure Regulations

The U.S Department of Labor issued a press release today regarding proposed regulations on improving fee disclosure to participants from plan sponsors. The proposed regulations are slated to be published in tomorrow's (7/23/2008) Federal Register and would be effective for plan years beginning January 1, 2009 onwards.

Secretary Elaine Chao is quoted in the release as stating, "Our proposal is consistent with public consensus that workers need clear and concise information, not dozens of pages of 'legalese,' about the investment options available under their plans, and that they would benefit greatly from having that information in a comparative format."

According to the press release:

The centerpiece of the proposed regulation is a requirement to provide investment-related information in a comparative chart or similar format. As part of the proposal, the department has developed a model chart for complying with this requirement, while giving plan fiduciaries the flexibility to design their own charts or comparative formats. The proposal would also require plan fiduciaries to disclose basic information about the plan and its investment options, such as what options are available under the plan, how to give investment instructions, investment returns and fees and expenses, and how to obtain more detailed information. This information would be given to participants on a regular and periodic basis.

In addition, the department is proposing conforming changes to its regulation under section 404(c) of the Employee Retirement Income Security Act.

More transparency is always a welcome trend in our industry. This is good news for 401(k) participants, however, it may be not so good news for asset gatherers. Fund companies with low expense ratios clearly stand to gain here, because more disclosure is likely to expose their purportedly better value proposition to plan sponsors, while the companies that deal in group-annuity or wrap based products might be reeling under the requirements of the proposed regulations. Both sides has ample opportunity to present their viewpoints when the rulemaking body asked the industryy's input and the comment period/RFI collection began. There is a wealth of public information available here.

In the worst case, with a healthy dose of skepticism, I expect a bloody battle from industry lobbyists via the Congress in possibly trying to derail or circumvent the DOL's regulations through some creative or competitive lawmaking on this issue that might preserve the stalemate on fee disclosures. However, this time the regulations seem to have staying power.

More to follow on this once the proposed regulations are released tomorrow.

WSJ on 401(k) Debit Cards

So as not to be left behind in the debate over 401(k) debit card loans after the New York Times report I wrote about last week, the Wall Street Journal's Jonathan Burton reports [subscription required]: "Critics Detail the Ills Of 401(k) Debit Cards." In this report, Mr. Burton quotes several adverse reactions from the who's who in the retirement and financial planning world. Some choice comments:

"We absolutely hate it," said Jean Setzfand, director of financial security at AARP, the organization for people 50 and older. "A 401(k) loan is a last resort."

"A horrible idea," said Linda Lubitz Boone, president of investment advisory firm Lubitz Financial Group in Miami. "It's hard enough to save to begin with."

Even official watchdogs are on alert. The Financial Industry Regulatory Authority issued a stern warning about 401(k) debit cards, calling them "a tempting convenience that can have significant repercussions" on your retirement security.

The cards also have become Public Enemy No. 1 for some Washington lawmakers; Sens. Charles Schumer (D., N.Y.) and Herb Kohl (D., Wis.) blasted them this month as an apparent abuse of 401(k) plans and proposed legislation to outlaw them.

The heightened controversy about 401(k) debit cards comes with the times. There is an increasing concern that with things so tough, people living paycheck to paycheck will increasingly turn to retirement savings as a source of cash. Mortgaging your future, unless it is for an emergency or to enhance your education or career, is almost always a poor decision. You will have less money to support yourself after you retire or you will have to work more years before calling it quits.

The report does list some advantages of such loans over regular 401(k) loans:

For starters, the ReservePlus card is flexible; it can be used multiple times, for any purpose. As with a typical loan, employers set a borrowing limit based on how much you have saved for retirement. By law, the upper limit is generally $50,000 or 50% of your account balance, whichever is less. The approved amount is set aside in a money-market fund and earns tax-deferred interest until you use the card.

With every transaction, you have five years to pay back the money, and the interest rate -- now about 8% -- may be better than certain people can get elsewhere.
One advantage of a debit card is that if you are laid off or leave the company, there may be no pressure to reconcile the debt immediately. With a typical 401(k) loan, the outstanding amount must be repaid in full, usually within 90 days. Otherwise the loan amount is considered a taxable distribution.

I am sure of one thing: we have not heard the last word on this controversy yet.

401(k) Death Match (Sorry! - Death of 401(k) Match)

The Financial Advisor Magazine reported last week, quoting a PlanSponsor.com study: "Bye-Bye To Employer 401(k) Matches?" This is a potentially ground-breaking study, which implies, and I quote:

"Some researchers are suggesting that employers can put in place automatic enrollment plans and eliminate their 401(k) matches without any adverse effect on participation or contribution rates. In fact, researchers are suggesting that an employer might be better off using the matching-contribution money to minimize 401(k) plan fees, reduce health care costs or pay for other employee benefits. The money might also be better spent getting employees who are not saving for retirement to save rather than helping those who are already saving. In short, this tradition of employer matching employee contributions is being questioned and may someday disappear from plans, especially in light of current economic conditions and a new pension law. That, in essence, is the gist of an upcoming article in PlanSponsor magazine."

Whoa! What will they think of next? I hadn't seen this one coming...

Weekend DOL Blotter - 7/20/2008

After a short respite last week, the DOL released information on several new cases that were resolved or are in the process of being pursued in courts. First we turn our attention to: "U.S. Labor Department protects 401(k) plan assets of former American Systems Consulting Inc. employees in Dublin, Ohio."

A federal district court in Columbus has granted the U.S. Department of Labor a consent judgment to distribute more than $600,000 in 401(k) assets owed to former workers of American Systems Consulting Inc. of Dublin.

Under the judgment, Larry Lefoldt was appointed as an independent fiduciary to terminate the plan after distributing plan assets to eligible participants and beneficiaries. The judgment resolves the department’s lawsuit against the company, Cliff Gallatin and Loree Gallatin to recover 401(k) plan assets that were improperly used for the benefit of the company. The Gallatins, former plan trustees and officers of the company, have paid $100,860 in delinquent employee contributions and lost opportunity costs owed to the plan.

Our next case comes from Salina, KS: "U.S. Labor Department seeks to restore employee contributions owed to Salina, Kansas 401(k) and health plans."

The U.S. Department of Labor has sued the trustees of the 401(k) and health plans of defunct B&W Electrical Contractors Inc. (formerly of Salina) for failure to forward $22,670.22 in employee contributions to the 401(k) plan and $7,584.82 in health care premiums to the health plan.

The lawsuit alleges that trustees Warren Merrill and Jeffrey Merrill violated the Employee Retirement Income Security Act (ERISA) by failing to forward employee contributions to the plans from May through August 2005. The suit asks the court to require that the Merrills restore all losses to the plans and participants.
Warren Merrill was the president and owner and Jeffrey Merrill was the vice president of B&W Electrical Contractors, an electrical contracting business before ceasing operations in 2005.

Going back to Toledo, OH: "U.S. Labor Department recovers funds owed to Toledo-based Tana Corp. retirement savings plan."

The U.S. Department of Labor has obtained a consent judgment restoring more than $25,000 owed to the retirement savings plan of Tana Corp. in Toledo as resolution of its lawsuit against the company and plan fiduciary Sharon Scherkoske.
The suit alleged the defendants improperly used funds intended for an employee retirement savings plan for the benefit of the company in violation of the Employee Retirement Income Security Act (ERISA).

“The department will not hesitate to act when plan fiduciaries fail to carry out their duty to protect the retirement plan assets held on behalf of participants,” said Joseph Menez, director of the Cincinnati Regional Office of the department’s Employee Benefits Security Administration (EBSA). “Protecting workers’ benefits is a top priority for this administration.”

The department’s suit alleged that plan fiduciary Scherkoske failed to segregate, remit and timely forward employee contributions and loan repayments to the retirement savings plan and used the funds for the company’s benefit beginning in January 2002. As of December 31, 2006, the plan had 18 participants, the latest data available.

A Google search showed that Sharon Scherkoske was prosecuted by the Ohio Attorney General's office in 2005 for failure to pay worker's compensation premiums. Hopefully justice will be served this time.