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Will Gas Hit $5 A Gallon?

May 12th, 2011 | Comments Off on Will Gas Hit $5 A Gallon? | Posted in Financial News

How high will pump prices go this summer? Many analysts think we will pay $5 a gallon for gas this summer – and some think gas will cost much more than that. On April 20, the AAA’s Daily Fuel Gauge Report had regular unleaded averaging more than $4 per gallon in six states – Hawaii, California, Alaska, Connecticut, Illinois and New York.1

Is collusion behind this, or simple economics? While the Justice Department has announced a task force to investigate fraud and manipulation in the oil industry, most economists see this as little more than a public relations move coming out of the Obama administration – the U.S. had no way to control global price pressures on oil in 1979 and it has no way to control the price of the commodity in 2011.

One of the biggest influences on oil and gas prices can be found in your wallet: the U.S. dollar.

Commodities are priced in U.S. dollars on the world market, and we have a weak dollar right now. A feeble dollar means we have to pay more to buy foreign oil. It also means foreign currencies are able to buy more of the commodity for the same amount of money.

If foreign nations take advantage of a weak dollar and buy more oil, you’ve got rising global demand. When demand rises, oil prices are poised to rise. Since oil prices are set in U.S. dollars, we feel the impact of price spikes in a way that nations using other currencies may not.

Global Hunter Securities economist Richard Hastings attributes about one-third of pump prices to the weak buck. He recently raised eyebrows by stating to that gas could hit $6.50 a gallon this summer given high demand and the potential impact of “one or two hurricanes”.2

Emerging markets exert another big influence on oil and gas prices. Tremendous economic growth in China, India and other developing nations means they have a sustained demand for oil and gasoline, and it is not declining. Oil and gasoline prices are also subsidized in some emerging-market nations. This artificially breeds high demand.

Factor in recent political unrest in some oil-exporting nations, and you have the core reasons for $4 gas down the street.

One analyst sees potential for a new recession. Craig Johnson, president of the retail forecast firm Customer Growth Partners, just noted to CNBC that consumers are currently spending more than 6% of their income on energy costs. He cites that percentage as a “tipping point”, noting that five of the six recessions since 1970 have happened when personal consumption expenditures (PCE) for energy costs surpassed 6%. While rising fuel prices by themselves may not seem like a recession trigger, Johnson also mentioned the simultaneous jump in food prices – they are up 6.5% since the end of 2010. He estimates that consumers now spend about 15% of their incomes on food and energy prices.3

What would bring gas prices down? Well, boycotting the gas stations in your region for a day is not likely to do the trick. Relief might appear as follows: high oil prices often encourage oil producers to increase supply, as they can make even more profit from sustained demand. But that can lead to a glut – too much supply at prices too high, a circumstance in which prices would be poised to pull back. In fact, Saudi Arabian Oil Minister Ali Naimi recently commented that the world oil market was oversupplied.4

Another factor is our own consumer demand. You are hearing stories about people only driving on weekdays, or foregoing trips or cycling or taking the bus to work. Affirming this phenomenon, March credit card data from MasterCard SpendingPulse showed U.S. retail gasoline expenditures down 2.1% year-over-year.5

Tom Kloza, who is chief analyst for the Oil Price Information Service, recently shared his belief on NPR that prices will “correct or ease back a little bit and we’ll [see] a driving season where we pay something between $3.25 and $3.75 for gasoline” with moderating demand and a slightly less heated commodities market. Let’s hope he’s right.5

1 – [4/20/11]
2 – [4/20/11]
3 – [4/21/11]
4 – [4/18/11]
5 – [4/21/11]
6 [4/24/11]

What To Do with an Old 401(k)

May 12th, 2011 | Comments Off on What To Do with an Old 401(k) | Posted in Financial News

According to Schwab, there are four basic things you can do with a 401(k) when you leave a job. These are:

   • Take the cash. You can cash out your 401(k) and
     pocket the money. This is basically Bad Plan Theater,
     though, unless you’re unemployed and otherwise
     destitute. Cashing out your 401(k) at any time before
     retirement is a permanent hit to your future wealth.
     You can regain the savings at a future job, of course,
     but you’ll never regain the time you lost earning
     interest on those savings. The dollars you put into
     your 401(k) when you’re 25 are worth much, much
     more to you than the dollars you put in when you’re
     40. You want to let your investments age as long as
     possible before you need to withdraw that money. In
     addition, you pay 28% in taxes and a 10% early withdrawal penalty for taking your money out
     of your 401(k). The fees and taxes make this an even worse idea — no matter how tempting it

   • Do nothing. If you do nothing with your 401K, it’ll just sit there accruing interest (or investment
     returns) on whatever money was in it when you stopped contributing. This keeps your money
     in the same investment plan it was already in, with the same terms and fees. This might be
     the best option for some people: if your new employer doesn’t have a retirement plan you like,
     or if you’re starting your own business and want to keep your 401(k) unchanged.

   • Rollover your 401(k) to your new employer’s retirement plan. This is the best option for
     most people. You can do it without penalty, unlike when you cash out the 401(k). Rolling over
     your 401(k) keeps things simple. All your investments are in one place, where you can easily
     keep track of how they’re doing. In addition, all your new retirement contributions will be
     adding to the pot you’ve rolled over from your previous job. You’ll be limited to your new
     employer’s investment plans and options, though, so be sure to read the fine print carefully
     and make sure you like their offerings as much as what you have at your old place.

   • Rollover your 401(k) into a personal IRA. This option gives you the most flexibility. You can
     put your investments anywhere you like, without being restricted to your employer’s plans. It
     might be the only choice for people becoming self-employed, other than leaving your 401(k)
     where it is. On the downside, moving your funds to an IRA may have less protection from
     creditors than a 401(k), and may carry an annual fee.

One more option: You may be able to roll your 401(k) over into a Roth IRA. A Roth IRA lets you deposit post-tax dollars and then withdraw money tax-free after retirement. In general, you’ll pay less tax on your retirement funds by funding a Roth IRA than a traditional IRA or 401(k). Making the switch to a Roth IRA from a 401(k) can be a little tricky, and the amount of funds you can do this with is limited. You may want to consult a financial professional if you’re planning to take this option.

More Audits for the Wealthy

May 12th, 2011 | Comments Off on More Audits for the Wealthy | Posted in Financial News

IRS audits are up nearly 8% for the wealthiest Americans. This spring, the Internal Revenue Service released the 2010 IRS Data Book. Journalists and tax professionals looked inside and noticed a couple of eyebrow-raising statistics:

   • The IRS audited 18.4% of 2010 tax returns filed by taxpayers with adjusted gross incomes
     above $10 million. That’s up from just 10.6% for 2009.1

   • Taxpayers with AGI between $5 million and $1 million were also targets. Audits increased by
     55% for this group in 2010 (the percentage of audited returns jumped from 7.5% to 11.6%).2

What’s going on here? The IRS has ramped up its efforts to investigate offshore bank accounts and tax shelters – and it appears to acting on its newfound knowledge. It inaugurated a Global High Wealth Industry Group in 2010 to “centralize and focus IRS compliance expertise involving high net worth individuals.”

As IRS Commissioner Doug Shulman stated at a meeting of the New York State Bar Association Taxation Section, “We’re looking for and finding points of leverage – what some call ‘nodes’ of activity – where multiple people not paying taxes can be detected. Financial institutions are one such potential node of activity. Promoters of evasion schemes are another.”3

Now the IRS has started an Offshore Voluntary Disclosure Initiative, providing information in eight different languages to reach taxpayers and preparers who are non-native English speakers. By coming forward about undisclosed offshore accounts, they stand a chance of avoiding criminal prosecution.4

Audit rates increased across the board last year. The overall IRS audit rate was 1.11% in 2010, up from 1.00% in 2009. The taxpayers least likely to face an audit were within the $75,000-$100,000 AGI range (just 0.64% of their returns were audited).2

Do your part to look good. Most audits are not purely attributable to bad luck. Why not do the little things that may help to decrease the odds? Some of the basics: document all expenses relatable to your business, report every bit of income, claim sensible but not outlandish deductions, avoid portraying a hobby as a business venture, sign your return, and work with a really good tax preparer.

1 – [3/15/11]
2 – [3/14/11]
3 –,,id=218705,00.html [1/26/10]
4 –,,id=237170,00.html [3/8/11]
5 – [5/8/11]

Top 10 Hidden Liability Pitfalls

May 12th, 2011 | Comments Off on Top 10 Hidden Liability Pitfalls | Posted in Financial News

Retirement Plan Fiduciaries Should Avoid
By Ary Rosenbaum, Esq.

Being a retirement plan fiduciary such as a plan sponsor or a plan trustee is like being a homeowner. Homeowners see their homes as a serious financial accomplishment and an important investment. Homeowners are unaware of the hidden liability pitfalls that homeownership entails, like lawsuits for those injured on their property or the liability to trespassers who are injured because of an attractive nuisance like a swimming pool. The same can be said of a plan sponsor or a plan trustee that is unaware of the hidden liability in their roles as plan fiduciaries.

Retirement plan fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include: acting solely in the interest of plan participants and with the exclusive purpose of providing benefits to them; carrying out their duties prudently; following the plan documents; diversifying plan investments; and paying only reasonable plan expenses. While these duties seem pretty straightforward, there are certain instances where a plan sponsor is unaware that their action or inaction puts them at risk to liability from either plan participants or governmental agencies such as the Department of Labor (DOL) and the Internal Revenue Service (IRS). For plan trustees, that liability may be personal liability. This article details pitfalls that plan fiduciaries are usually unaware of, that exposes them to potential fiduciary liability.

10. The ERISA bond does not protect plan fiduciaries from liability.

The DOL requires retirement plan fiduciaries to procure a bond equal to at least 10% of the amount of funds in the Plan, subject to a minimum bond of $1,000 and a maximum bond of $500,000 per plan ($1 million if the plan holds employer securities). An ERISA bond specifically insures a plan against losses due to fraud or dishonesty on the part of persons (including, but not limited to, plan fiduciaries) who handle plan funds. It does not protect plan fiduciaries from a breach of fiduciary liability. Fiduciary liability insurance can protect plan fiduciaries from such liability and should be purchased. I once represented a statewide union that had its $1 million in legal fees (albeit with a $100,000 deductible) paid by their fiduciary liability carrier after “winning” a class action lawsuit brought against them by plan participants. Without such a policy in place, my client would have had to cough up the extra $900,000 in legal fees from their own pocket.

9. The use of a corporate trustee does not protect the plan sponsor from liability.

Many plan sponsors use a corporate trustee for their retirement plan because the owners of the plan sponsor may not want to serve as trustees (exposing them to potential personal liability) or because the use of a corporate trustee allows a plan that is required to have an audit for their Form 5500 filing to have a limited scope audit (which is much less than a full scope audit). A corporate trustee does not assume the liability of the plan sponsor as plan fiduciary. A corporate trustee will pay out participants and file the required tax withholding forms. They do not hire retirement plan providers, monitor costs, review plan documents, and ensure proper plan administration. Therefore, plan sponsors are still on the hook.

8. If plan fiduciaries are not retirement plan experts, they should hire some.

The duty to act prudently is one of a plan fiduciary’s central responsibilities under ERISA. It actually requires the plan fiduciaries to have expertise in a variety of areas, such as investments. Lacking that expertise, the fiduciaries need to hire providers with that professional knowledge to carry out the investment and record keeping functions. I have seen too many plan fiduciaries operate their plans without a financial advisor, without someone with the financial background to pick plan investments and educate participants. All retirement plan providers need to have some retirement plan experience, so plan fiduciaries should make sure all their retirement plan providers are retirement plan experts.

7. The hiring of plan fiduciaries must be selected through a process.

When it comes to hiring a financial advisor or a TPA, the plan fiduciaries need to have a process. They need to document how and why they selected a plan provider because hiring a retirement plan provider is a fiduciary function. Simply having the plan fiduciaries pick a financial advisor because he is related to someone who owns the plan sponsor or works for the plan sponsor isn’t enough. Plan fiduciaries need to review the experience of the plan providers they are interested in hiring, as well as the quality of their services.

6. Plan fiduciaries need to keep good records.

While plan fiduciaries hire retirement plan providers to help their manage their fiduciary responsibility, plan fiduciaries need to keep all plan records as well as document all decisions they make on their own or in conjunction with one of their providers. Retirement plans are legal entities with legal documents that have legal consequences. So plan fiduciaries should always have copies of all plan documents, amendments, valuation reports, government filings, asset statements, trustee meeting minutes, and investment making decisions. TPAs, financial advisors, and ERISA attorneys may have some plan records, but a plan fiduciary is required to have all the plan’s records because it’s their responsibility.

5. Avoid the one stop shop; plan fiduciaries should hire at least one retirement plan
    provider who is independent.

Too many plan fiduciaries select a plan provider that serves all functions when it comes to a retirement plan. This provider is the TPA, financial advisor, and provides all the legal documents. Having one retirement plan provider to serve all those functions is a terrible idea because there is a lack of checks and balances if none of the plan providers are independent of each other. Having at least one retirement plan provider independent from another allows for each provider to check up on the other to make sure that the other is also doing their job. I have found too many plan fiduciaries who have suffered financial harm because they put all their “eggs” with one retirement plan provider because since the provider was wearing all the hats, there was no one to tell the plan fiduciaries that the provider wasn’t doing their job.

4. Plan fiduciaries need to know the cost of their plan’s administration.

Retirement plan fiduciaries need to know the cost of their plan’s administration. They need to know how much they are being charged by their retirement plan providers and this is often difficult when retirement plan administration has fees that are often hidden from plan sponsors. While retirement plan fee disclosure is soon to be implemented by the DOL where plan fiduciaries will be disclosed the fees being charged by their plan providers, fiduciaries need to know the fees they are being charged now because plan fiduciaries that are unaware of the fees being charged are often sued by plan participants. Excessive fee lawsuits have been a great boon to the business of ERISA litigators.

3. Plan fiduciaries need to annually review the cost and services of their plan providers, as
    well as their Plan.

Plan fiduciaries need to annually review their plan providers for their cost and the services they provide. It’s not enough for plan fiduciaries to know the costs being charged by their plan providers, they need to determine whether these costs are reasonable for the services provided. They can only do that by reviewing what competing service providers in the marketplace charge for the services they provide. In addition, plan fiduciaries should monitor their plan providers in the work they do. There are too many financial advisors who don’t do the bulk of their jobs, such as working with the plan fiduciaries on an investment policy statement or educate participants. If they cannot determine whether plan providers are doing their job, an independent retirement plan consultant or ERISA attorney could be hired for that task. Plan fiduciaries should also annually review their plan to see if the plan’s provisions still fit their needs.

2. Plan fiduciaries are responsible for the errors and malfeasance by the retirement plan
    providers they selected.

The buck stops with the retirement plan fiduciary. So plan fiduciaries are still legally responsible for the retirement plan providers they hire. So if a financial advisor that is hired is the second coming of Bernie Madoff or the TPA doesn’t make the required filings, plan fiduciaries are still liable for them. I represent an 80 year old woman being sued by the DOL because the TPA she hired didn’t provide her with valuation reports for 28 years and didn’t provide the necessary distribution forms for her so that the DOL thinks she stole money or improperly borrowed from the plan. Despite her pleas that this is not her fault, as a plan fiduciary she is at fault. Hiring a retirement plan provider in and of itself is a fiduciary function. Hiring a bad retirement plan provider is a breach of that function and duty.

1. Just because a plan is participant directed, plan fiduciaries may still be on the hook.

The biggest major misconception that plan fiduciaries may have is that if their plan offers participants the right to choose their investments, then they are exempt from liability under ERISA §404(c). Plans that do not have an investment policy statement or consistently monitor plan investments or offer investment education to plan participants have often found themselves as defendants in a lawsuit by plan participants for breach of fiduciary liability.

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What Happens if You Should Die Without a Will?

May 12th, 2011 | Comments Off on What Happens if You Should Die Without a Will? | Posted in Retirement News

By Keith A. Woerner, Esq., PRIMESolutions Advisors, LLC

There is a great deal of confusion concerning what occurs when someone dies without a Will. You will hear opinions ranging from the state keeping a decedent’s property to the idea that whoever is placed in charge of the estate decides how assets will be distributed.

The correct answer is that for those people who have not taken the time to prepare a Will, the state has already done it for you. This is referred to as “intestacy”, and each state has a standard format that determines who inherits property where there is no Will. While the rules vary from state to state, they are all set up based on who are the survivors.

For example, in Pennsylvania the state first looks at whether there is a surviving spouse. How much the surviving spouse would receive is then determined by whether there are any surviving children or parents. While an individual may think they will receive their spouses’ assets, they may end up having to share those assets with other family members.

The issue takes on more significance for families with minor children. When there is no Will stating who should be appointed to act as the guardian of a minor child the matter must be decided by a judge. This may or may not end in the same result as what the parents would have decided, but it undoubtedly will be a much more costly process.

The second issue that parents of minor children must address is when would they want their children to have unlimited access to any assets they may inherit. When life insurance death benefits, retirement accounts or perhaps proceeds from the sale of a house are included, the estate can add up to a substantial amount. Without a Will a child will have unlimited access to their inheritance when they turn 21 years old. Most 21 year old are ill-equipped to take on the responsibility for making those kinds of financial decisions. A parent may wish to designate someone to assist the children with these decisions for a period of time.

Of course a person needs to also consider the impact on how property is titled and how beneficiary designations are completed as part of this process.

In summary, unless you want the state to have the final say in who receives your estate, you should take the time to prepare a Will.

Reference to Medical Power of Attorney/Living Will and Durable Power of Attorney?

Coming next month. . . “What is a Living Will?”

Monthly Economic Update for May

May 12th, 2011 | Comments Off on Monthly Economic Update for May | Posted in Monthly Economic Update

Meeting Standard, Educating Clients

May 12th, 2011 | Comments Off on Meeting Standard, Educating Clients | Posted in Financial News, Videos

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