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A Woman’s Financial Reality

June 21st, 2011 | No Comments | Posted in Financial News

Will this be your future? Did you know that Social Security income represents two-thirds of income for women 65 and older? Did you know that without Social Security, an estimated 58% of widows aged 65 and older would live in poverty? 1

These findings are from a 2010 U.S. Congress Joint Economic Committee report. As Rep. Carolyn Maloney (D-NY) put it, “Social Security is literally a lifeline for most elderly women.”

That lifeline is barely adequate. With inflation and other economic pressures, a mature woman relying on SSI may eventually have to choose between food or medicine, or rent or car repair, or contend with other stressful money dilemmas.

When these women were younger, did they envision such a meager future ahead of them? Probably not. More than a few probably wish they had understood money matters better or actively invested for retirement.

How much do you know about personal finance? The more knowledge you have, the more action you can take to define and pursue your financial goals and build retirement savings. You can also respond to a few financial realities common to women’s lives.

The average woman spends 12 years out of the working world. So finds WISER, the non-profit formally called Women’s Institute for a Secure Retirement. Typically some of this absence is for parenting, some of it for caregiving. This means the average woman has 12 fewer years to pour steady money into that 401(k), 403(b) or IRA.2

Women live longer. According to the latest estimates from the Centers for Disease Control and Prevention, female life expectancy is at roughly 80.5 years versus about 75.5 years for males. The reality unnoticed in these numbers is that many women will live on their own for a decade or more after being divorced or widowed.3

Women face an earnings gap. On the whole, women do not earn as much as men. In 2009, the Government Accountability Office noted that women earn $0.78 for every $1 that men earn. Some people question this statistic, arguing that it reflects gender inequality in career paths rather than distinct salary discrimination. Regardless, the gap exists – and it is even more pronounced for women of color.4

At work, many women are worth more than the salaries they receive. Some women are reluctant to negotiate a better salary for themselves. Will it upset the equilibrium at the office? Will it be seen as too aggressive? The answers here are probably “no” and “no”. It takes confidence (and it may take a little research) to affirm your professional worth in front of your boss – and it should be done.

A rich spouse does not equal a retirement plan. It is nice to have a spouse whose wealth allows you freedom from financial worries. Yet even if you are blessed with a rich and attractive mate, there is no telling where that mate (and that money) might end up someday but for fate.

How do you plan to arrange a comfortable future for yourself? If you don’t want to end up dependent on Social Security, then see that you have the financial education that will let you make major money decisions with confidence. Study fundamentals of investing and read up on the basics of retirement and estate planning. Follow up by meeting with a financial consultant who can help you put a strategy into action.

Citations.
1 – thehill.com/blogs/on-the-money/801-economy/126543-changes-to-social-security-could-negatively-affect-women [10/29/10]
2 – mainstreet.com/article/retirement/women-still-far-behind-retirement-plans [4/25/11]
3 – nytimes.com/2011/03/17/health/17brfs-ART-AMERICANLIFE_BRF.html [3/17/11]
4 – civilrights.org/archives/2009/04/291-equal-pay-day.html [4/29/09]
5 – montoyaregistry.com/Financial-Market.aspx?financial-market=money-and-happiness&category=29 [6/5/11]

Women & Money by Suze Orman

June 21st, 2011 | No Comments | Posted in Videos

What is a Living Will?

June 21st, 2011 | No Comments | Posted in Lifestyle

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

Perhaps the first step in understanding what a Living Will is requires distinguishing it from other legal documents. A Living Will is not the same as a Living Trust, which is used for the management and disposition of assets.

A Living Will is also different from a Health Care Power of Attorney, sometimes known as a Health Care Proxy, although the two are often combined. The Health Care Power of Attorney allows a person to name an individual or individuals who will be responsible for making “normal” health care decisions on behalf of that person in the event they are unable to make that decision on their own. An example where a Health Care Power of Attorney might be used is where a person is unconscious in a hospital and doctors are looking to someone to approve a medical procedure.

A Living Will, sometimes known as an Advance Medical Directive, is a document where a person expresses what their intent is as far as what medical procedures are to be used or withheld in those situations where the medical professionals have certified that there is no hope of recovery.

While there may be disagreements in the medical profession as when there is no hope of recovery, this document allows a person to provide a specific statement of their intent and concerns about quality of life. Often the most important aspect of this document is to reduce the burden on remaining family members at a time of great stress.

Whether your intent is to not have anything done or to have everything absolutely possible done, preparation of a Living Will should be part of your estate planning documents. This document should be reviewed with your personal physician to discuss the implications behind the various options and should be included as part of your permanent medical record.

New Rules for Retirement Plan Fiduciaries

June 21st, 2011 | No Comments | Posted in Financial News

The Department of Labor has promised to update the retirement plan landscape. Three major rule changes are scheduled for the near future. All retirement plan fiduciaries and administrators should be aware of them.

#1: “Covered service providers” must fully describe their services & fees. This rule was supposed to take effect in July, but the date has been pushed back to January 1, 2012. It requires “covered service providers” (financial advisors, financial consultants or third-party administrators who expect to receive $1,000 or more in direct or indirect compensation for their services) to detail their compensation and/or fee structure to fiduciaries. (CSPs also include financial advisors or TPAs who act as fiduciaries or Registered Investment Advisors for plan sponsors.) If applicable, the CSP must detail any fees that may be charged for recordkeeping along with recordkeeping methods.1,2

#2: Fiduciaries must detail plan & fee information for plan participants. If such information isn’t provided to plan participants after November 1, 2011, then a plan participant or beneficiary may claim a violation of fiduciary duty on the part of the plan sponsor. The new regulations require fiduciaries to disclose (and update)

   • Rules related to the dissemination of investment instructions for the plan

   • Plan fees and expenses paid from participant accounts (along with a breakdown of these
     fees, i.e., investment management fees, administration fees, cost of advice fees)

   • Any other specific fees or charges that may be drawn from a plan participant’s account.3

#3: The DOL wants to expand the definition of an ERISA fiduciary. Under this planned rule change, anyone who advises a retirement plan would be considered one. A group of nearly 30 Congressional Democrats have protested this expanded definition in a letter to Labor Secretary Hilda Solis, contending that it would backfire and eventually reduce access to investment education and information for plan participants. The concern is that the definition of “fiduciary” will become so vague that even the most basic education and advice could fall under ERISA status.4

The goal? The DOL wants to make these plans more transparent. This is an occasion for plan advisors to reconnect with plan sponsors, fiduciaries and participants.

Citations.
1 – cutimes.com/2011/05/04/retirement-plan-providers-prep-for-new-fee-disclos [5/4/11]
2 – prudential.com/media/managed/PruPA-DOLServiceProviderFeeDisclosure.pdf [9/10]
3 – corporatefinancialweeklydigest.com/2010/10/articles/executive-compensation-and-eri/dol-issues-401k-plan-participant-fee-disclosure-rules/ [10/29/10]
4 – accountingtoday.com/news/Congressional-Democrats-Want-Agencies-Revise-Fiduciary-Rule-58352-1.html [5/12/11]

Does Pending Appeal Decision Doom 401k Plan Sponsors?

June 21st, 2011 | No Comments | Posted in Financial News

By Christopher Carosa, CTFA | June 14, 2011

Like a Damocles Sword, the decision of the U.S. Ninth Circuit Court of Appeals looms precariously over 401k plan sponsors. It could be what the DOL, promoters of the fiduciary standard and far sighted industry experts have long failed to accomplish – get 401k plan sponsors to recognize, and even fear, their increasing fiduciary liability. Here’s a case, if the Appeals Court agrees with the ruling already handed down by a lower court, that could force HR, C-Level executives and any other ERISA fiduciary to reconsider whether they want to remain in their positions.

Yet, for some strange reason, it’s not getting a lot of attention. Ironically, nearly a half million dollars of damages were awarded because plan fiduciaries failed to pay attention to “fee creep”.

Last summer in a case called Tibble v. Edison, a federal district court judge slapped a $371K judgment against Edison International, (the parent company of Southern Edison Electric), its various investment and oversight committees as well as certain named fiduciaries of the Edison 401k Savings Plan. Their crime: they invested plan assets in a class of a mutual fund when lower fee classes where available in the same fund. This is the equivalent to paying full retail price at the store when you have a 20% discount coupon sitting in your pocket collecting dust.

If you fail to pay the cheapest price at the store, the worst that could happen is your spouse might get on your case. If you fail to pay the cheapest price as a fiduciary to a 401k plan, the worst that could happen is your employees might have a viable case. And let’s not forget the DOL, too. “The DOL recently submitted a brief in support of the lower court decision,” said Bob Lowe, an ERISA attorney at Mitchell Silberberg & Knupp LLP in Los Angeles. In May, Lowe was nominated as a “Top ERISA attorney” by readers of Fiduciary News.

What is “fee creep” and how does it occur? When a plan is small (or, in the case of Edison, old), it is often limited to buying only higher fee classes of mutual funds. Over time, fund companies have introduced more classes with different fee arrangements. Sometimes, those fee arrangements might be considerably lower than the fee arrangement of the original or retail class. The trouble is, to qualify for these lower fee arrangements; the investor must be an institution with a minimum number of assets. It’s important to remember, we aren’t comparing apples-to-oranges here, as usually happens when the discussion turns to mutual fund fees. This is a true apples-to-apples comparison since the different classes represent the same portfolio in a single mutual fund.

As a plan grows, its assets grow and it can often then qualify for lower fee share classes… but only if somebody asks. This is where the fiduciaries in charge of the Edison 401k Plan made their mistake. By not paying attention, the plan paid more in fees then it needed to. What’s critical in this case is the plaintiff – and the court agreed – did not fault Edison for its initial decision to purchase what ultimately became a high cost class of shares. In the specific case of Edison, the plan sponsor failed to keep abreast of changes in the mutual fund industry in general and, specifically, in the range of classes offered for the particular mutual funds the plan invested in. The fee creep occurred because as the plan grew and the fiduciaries did not take advantage of lower cost share classes, the fees grew much faster than necessary. This is the fiduciary liability the court ruled on its 82-page opinion.

Since “this issue affects all plans, large and small, that offer mutual fund investment options,” Lowe recommends plan sponsors consider the matter even before the Appeals Court takes action. “One of the issues I am currently working with clients on is making sure they are aware of the different share classes offered by many mutual funds,” he says.  “Many plans are in more expensive share classes than they need to be which can result in fiduciary claims.  Often as plan assets grow, plans become eligible for lower cost share classes but plan fiduciaries are not aware of it because they haven’t asked about it.”

The sword swings ever closer. Will 401k plan sponsors heed the warnings before it’s too late?

For more information on this case, please call our office at 877-366-4015 and speak to Keith Warmbein.

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Directing the Management Process

June 21st, 2011 | No Comments | Posted in Financial News, Videos

Monthly Economic Update for June

June 21st, 2011 | No Comments | Posted in Monthly Economic Update

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