As a participant in the company’s retirement plan, you are already serious about saving for your future. Whether you are retiring in a few weeks or a few decades, you may need to protect your investment. A healthy way to do this is to rebalance your portfolio.

What is Rebalancing?

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Rebalancing is simply readjusting your portfolio back to the original asset allocation that took into account your risk tolerance and time horizon. Put another way, rebalancing forces you to adhere to your investment strategy. You rebalance by selling assets that make up too much of your portfolio and use the proceeds to buy back those that now make up too little of your portfolio. The net effect is to “sell high and buy low.” Ultimately, regular rebalancing can increase the overall return of your portfolio over time. (An automatic rebalancing feature may be available through your current retirement plan provider. Visit your provider’s website for more information.)

Keeping In Check

Financial planners recommend you rebalance at least once a year and no more than four times a year. Consider this a good opportunity to evaluate if your investment strategy is still in line with your original goals. If you have questions, or require further assistance, please contact our investment consultant at shiggins@rosestreetadvisors.com  or 269.552.3200.

Rebalancing assets can have tax consequences. If you sell assets in a taxable account you may have to pay tax on any gain resulting from the sale. Please consult your tax advisor. This material is not intended to replace the advice of a qualified attorney, tax advisor, investment professional or insurance agent.

Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Adviser, Member FINRA/SIPC. Rose Street Advisors is independently owned and operated ACR#224719 12/16 File # 4860831.1

Scott Higgins

AIF®, CFP®, CPFA® | Financial Advisor

Since 2012 at Rose Street, Scott has been responsible for helping the firm’s individual wealth management clients with income strategies for retirement and consulting with employers with their employee retirement plans. In free time, he enjoys golf, biking, skiing, cooking, and traveling. Fun fact, Scott has a hobby of filling growlers with coins!

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If you are a plan sponsor of a retirement plan, I’m sure you have heard of the term “fiduciary”. If you are thinking about starting a retirement plan for your company, this is a term you should be aware of, become familiar with, and understand what it means.

What is a Fiduciary?

Let’s start off with explaining what a fiduciary is. Fred Reish published an article called What Is a 401(k) Fiduciary And Why Does It Matter? that explains what a 401(k) fiduciary does, as “A fiduciary is responsible for running the plan. The person, or group of people, who make decisions about plans and their investments are fiduciaries. They must act prudently and in the best interest of the employees. Prudence means that they have to make decisions carefully and thoughtfully.”

Fiduciary Responsibilities

It is important to designate the right person within an organization to take on the fiduciary title, but to also understand the responsibility and liability that comes along with it. The IRS explains Retirement Plan Fiduciary Responsibilities  include:       • “acting solely in the interest of the participants and their beneficiaries;       • acting for the exclusive purpose of providing benefits to workers participating in the plan          and their beneficiaries, and defraying reasonable expenses of the plan;       • carrying out duties with the care, skill, prudence and diligence of a prudent person familiar with the matters;       • following the plan documents; and       • diversifying plan investments.” All in all, a fiduciary must do what is in the best interest of the organization’s plan participants. This may seem overwhelming if you are reading these responsibilities and thinking to yourself - What are reasonable expenses for a 401(k) plan? How do I understand what the plan document means and how do I follow it? I’m not an expert on investing – how do I diversify plan investments?

Outsourcing Fiduciary Liability

This is where fiduciary advisors/providers come into play. There are ways to minimize fiduciary liability by outsourcing certain fiduciary responsibilities. As an HR professional or owner of a company, there are specialties/expertise that you have in your role. You are not expected to be an expert on the fiduciary duties of managing a 401(k) plan but to educate yourself and reduce liability where needed. There are people and/or companies out there that specialize in specific areas of fiduciary duties. Through my Accredited Investment Fiduciary (AIF®) Training through Fi360 A Broadridge Company, they shared an illustration of what we call the Fiduciary Continuum. The Fiduciary Continuum shows different types of advisors that can provide education only, provide recommendations, make investment selections on your behalf, and certain providers will even manage day-to-day administration for clients. When implementing a new 401(k) plan for an organization, you will likely need an advisor to consult on how to set up the plan and give recommendations on multiple aspects such as plan design, investment selection, understanding legal plan documents, etc.

Types of Fiduciary Advisors/Providers

Depending on the Financial Advisor that you work with, a non-fiduciary advisor can legally only provide education to clients. This type of Financial Advisor is not a fiduciary and is not held to the same standard as a Fiduciary Advisor.  In this scenario, the advisor is not required to avoid or disclose potential conflicts of interest. Often, this relationship pays the advisor a commission based on transactions, or they can get paid by the products that they sell. A 3(21) Fiduciary Advisor is an investment advisor that provides investment recommendations and is a co-fiduciary on the plan. This means that they can assist in creating the investment lineup for the plan, monitor the performance of the investments, and make recommendations. Hiring a 3(21) Fiduciary Advisor would make sense if you are knowledgeable about investments and have the time to monitor the plans investments. In addition to that, you would prefer to actively manage the plans investments and be open to recommendations from the advisor, but also understand that you are liable for monitoring investment fees and performance of the plan. A 3(38) Fiduciary Advisor is a little different in that they, manage the investments in the plan. This means that they make the decisions of creating the plan lineup, implementing the plan lineup, monitoring the investments, and making changes as necessary. Hiring a 3(38) advisor would be suitable if you are too busy for the extra responsibility of making investment decisions on the plan, are not knowledgeable about investment management, or want to put more of your efforts into running your business rather than the plan. You can delegate the investment management to an experienced advisor and reduce your fiduciary liability. The last piece in the Fiduciary Continuum, is a 3(16) provider which is usually a Recordkeeper that would provide this service. You may also hear this referred to as a 3(16) Plan Administrator. This type of Fiduciary Provider essentially takes over plan administration duties from the plan sponsor. This reduces liability even further by taking on a laundry list of responsibilities regarding the administration of a 401(k) plan. A few examples of these responsibilities include, reviewing and signing the Form 5500, approving and rejecting withdrawals and loans in accordance with the plan document, fixing compliance errors, and tracking and communicating participant eligibility. This would delegate administrative duties and minimize your fiduciary liability even further. This can be used in addition to the 3(21) Fiduciary Advisor or 3(38) Fiduciary Advisor as well to take a significant amount of liability off of the plan sponsor.

Selecting a Fiduciary Advisor

It’s important to ask certain questions when selecting an advisor to ensure that they have the fiduciary knowledge and tools needed to provide services in the best interest of their clients. Below are some questions you can ask, that your advisor should be able to clearly answer and are able to disclose the information to you in writing: 1. Will you act as a fiduciary in all situations when managing plan assets and/or participant portfolios? 2. What fiduciary training have you received? 3. Do you hold any designations focused on fiduciary best practices? 4. What services do you provide to help your clients meet their fiduciary obligations? 5. Do you offer any fiduciary services that can reduce my fiduciary liability? 6. Are there any potential conflicts of interest? 7. How will you be paid for the proposed services? Once you have clear answers and disclosures of these different aspects, you will be in a better position to evaluate if the advisor and/or provider is a good fit. Ask more questions to determine which fiduciary responsibilities you will take on as the plan sponsor and which you will outsource. Speaking with a trained fiduciary advisor should feel like a partnership or an extension of your team, that you can lean on when you have questions or concerns. They will be able to advise on other ways to minimize your fiduciary liability and help make sure your plan is managed effectively and in line with laws and regulations. Ask the questions and remember to make decisions carefully and thoughtfully.

JULIA MUNSON

AIF® | Retirement Relationship Manager

Meet Julia, a people-focused life-long learner with several years of experience in the retirement plan industry. Throughout her career, Julia has been committed to maintaining strong client relationships by providing incredible customer service. She is passionate about helping clients define and plan for their retirement goals. Julia’s daily role at the firm energizes and reinforces her commitment to client-focused work.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact your Rose Street Financial Professional. Information obtained from third-party sources are believed to be reliable but not guaranteed.

Investments in securities involve risks, including the possible loss of principal. When redeemed, shares may be worth more or less than their original value.

By accessing any links above, you will be connected to third party web sites. Please note that Rose Street Advisors, LLC, is not responsible for the information, content or product(s) found on third party web sites. 

Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer and Investment Adviser, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. File #: 5450988.1

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As we reflect on 2022, there were several market and economic hurdles that led to a stressful year for many of us. Some things are just out of our control. As we go into 2023, let’s focus on what we can control. When it comes to employer sponsored retirement plans, we often get questions from plan sponsors such as “How do we get our employees to participate? How can we provide a more competitive retirement plan that will allow employees to save more? What can we do to stress to our employees how important it is to begin saving for retirement now?” As a 401(k) participant myself as well as a retirement plan relationship manager, I want to help you take control of helping your employees by providing 5 tips of how to guide participants to save for retirement. Since I have started working in the retirement plan industry, I have noticed that a lot of younger employees don’t ask many questions about saving for retirement. On the other end of the spectrum, I have seen individuals reach retirement age, that have saved appropriately as well as those that have not and what a difference it can make in one’s life in retirement. Years ago, I had an elderly client come in and ask how she could get more money to be able to pay medical bills, when her retirement funds were diminishing. There wasn’t much that could be done, and it was heartbreaking to see the defeat and sadness in her eyes. She did not want to burden her family by asking for help, but social security just wouldn’t cover what was needed and her retirement funds were running out. This has always stuck with me and have since made it my mission to help people at any age understand the importance of retirement savings and how to prepare so that one day, they will be able to retire. The main goal for saving for retirement is to save a sustainable amount of money to replace/maintain income for your lifestyle. If you expect to travel, golf, dine out, buy a vacation home, etc. in retirement, you will likely need to save more money to prepare for that. The sooner a person starts saving for retirement, the more potential for long-term earnings growth in the account. How can YOU as the EMPLOYER help your employees understand how much to save? And what can YOU as the EMPLOYER do, to encourage your employees to maximize their retirement savings? In the following paragraphs, there are 5 tips that can help YOU as the EMPLOYER, guide participants to save for retirement.

1. Employer Matching Contributions

Providing employer matching contributions for employees will help encourage employees to save some of their own money for retirement by giving them the incentive to save at least enough to get the “free money” from their employer. Once employees are receiving the employer match, they are less likely to decrease their contributions so not to miss out on that “free money”. This is providing the opportunity for employees to save more for retirement.

2. Automatic Enrollment

An automatic enrollment provision can help employees get off to the right start by “making it easy” so they don’t have to lift a finger. Human nature is to take the easy way out and just not act on it, if we don’t fully understand it. By providing an automatic enrollment provision, the employee is defaulted into a pre-determined deferral percentage (e.g., 5%) unless the employee would want to opt out. In T. Rowe Prices’ white paper called Automatic Enrollment, Reenrollment, and Retirement Outcomes, Joshua Dietch wrote “T. Rowe Price analysis of participants who were automatically enrolled in employers’ plans in 2021 reveals that less than 6% opted out”.  Understanding human nature and designing a plan to complement it may set up employees for better retirement savings from the beginning than if they never signed up.

3. Automatic Escalation/Increase

Typically, with the automatic enrollment provision, the automatic escalation provision is also added to encourage retirement savings. This provision allows for an automatic increase of 1% each year following participant enrollment. Employees will likely not notice a big difference in the amount they are saving for retirement if it’s only a 1% increase. My colleague and I were recently out at a plan sponsors office meeting with employees to review their accounts. Almost every conversation we had with employees involved the question of “what is 1% more?”. We asked employees what their gross pay is on their regular paycheck and calculated what different contribution rates were, in dollars. Speaking dollars rather than percentage contributions resonates more with employees. A common response when hearing the dollar amounts was in fact, “oh, that’s not as much as I thought” and “I can do that”. During the review of accounts, the majority of employees increased their contribution rates and signed up for the automatic increase feature that the recordkeeper offered on their website. If the plan provisions do not include automatic escalation, most recordkeepers have an automatic increase feature employees can sign up for, themselves.  With annual raises, a 1% increase may not make much of a difference for employee paychecks but the additional savings for the participants will benefit them in the long run.

4. Employee Education

Employee education is a key component to prepare employees to save for retirement. As part of the retirement benefit, it’s important that employees learn what it is about and why it’s important. This can be accomplished through employee education meetings, employee newsletters, videos, and other resources. Amanda Umpierrez wrote an article in 401k Specialist Magazine, named Participants Admit Auto-Enrollment Kickstarts the Retirement Savings Journey, that provided statistics from a Principal study stating ”Despite the lack of knowledge, respondents indicated being open to working with financial institutions and experts. Seventy percent said they trust the financial institutions they work with, and 65% trust that their retirement plan service provider is helping them reach their retirement goals. Fifty percent believe their employer is doing all they can to help them save for retirement.” Seeing these numbers and that employees have trust in their employers and financial professionals, it’s important to lean on the experts to provide a better financial path forward for employees. This will prove to them that you do have their best interest in mind and begin that trust in the leadership of the company. The more awareness employees have of retirement savings, the better off they will be to start thinking more strategically about their financial future.

5. Financial Wellness Resources

There are more and more opportunities available since the world has become more virtual, allowing for online financial wellness resources and programs. Many recordkeepers embed financial wellness training and educational resources on the recordkeeper website. There are alternative companies such as Enrich, LifeCents, Financial Finesse, etc., that will partner with financial advisors to bring plan sponsors, access to more artificially intelligent programs that can target your employees’ specific needs. Through these programs, there is potential to incentivize employees to complete certain tasks while putting themselves in a better position long-term. I hope these tips help you to create a strategic plan for your company retirement plan and evaluate your current plan needs and wants. While we can’t control the market or the economy, we can control the retirement benefits we provide to employees. Take control in 2023.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact your Rose Street Financial Professional. Information obtained from third-party sources are believed to be reliable but not guaranteed.

Investments in securities involve risks, including the possible loss of principal. When redeemed, shares may be worth more or less than their original value.

By accessing any links above, you will be connected to third party web sites. Please note that Rose Street Advisors, LLC, is not responsible for the information, content or product(s) found on third party web sites. 

Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer and Investment Adviser, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. File #: 5395125.1

JULIA MUNSON

AIF® | Retirement Relationship Manager

Meet Julia, a people-focused life-long learner with several years of experience in the retirement plan industry. Throughout her career, Julia has been committed to maintaining strong client relationships by providing incredible customer service. She is passionate about helping clients define and plan for their retirement goals. Julia’s daily role at the firm energizes and reinforces her commitment to client-focused work.

Interested in more?

Let's Talk