Using HSAs In Retirement Planning

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PSI Newsletter and Website Header 10.2.15By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

If you offer a High-Deductible Health Plan (HDHP) to your employees, they probably have the ability to contribute to Health Savings Accounts (HSAs). I believe that nearly everyone eligible to contribute to an HSA should max out their HSA contributions before making any 401k retirement plan contributions. Here’s why. [Read more…]

Bad Idea: Rolling A 401k Into An IRA, Part III

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PSI Newsletter and Website Header 10.2.15By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

I believe that most of the time it does not make sense for your 401k plan participants to elect a 401k rollover into an IRA when they leave your employment. The reasons are many, as I have outlined previously here and here. Suzanne Woolley, in a recent Bloomberg Business piece, shared some new research and a number of additional reasons why a 401k rollover is a bad idea. Her thoughts and my comments follow. [Read more…]

Top Ten 401k Plan Trends

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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

What will those progressive plan sponsors who wish to maintain leading edge 401k plans be doing in 2016? Read on below to learn the top ten 401k trends for 2016. [Read more…]

Help Your 401k Participants Manage Risk

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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Ameriprise recently conducted a survey of investors aged 25 to 70 with regard to their views on risk. The survey sample can be considered a good representation of almost any group of investors, including those in your 401k plan. Using the survey results, Ameriprise classified investors into four categories. Outlined below are the categories along with my thoughts on what you can do as a plan sponsor to help these 401k plan participants become better investors in your 401k plan. First, it might help to better understand risk. [Read more…]

What To Tell 401k Participants To Keep Them From Panicking

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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Aon Hewitt, a recordkeeping firm that works with mainly large employers, recently reported that 401k plan participant trading on Friday, August 21 was twice the normal level. Aon Hewitt also said that on Monday, August 24 participant trading was 7 times normal. The firm noted that virtually all trading movement on those days was out of equities and into fixed income. In the event you don’t recall, the Dow Jones Industrial Average (DJIA) closed down 531 points on Friday, August 21 and down 588 points on Monday, August 24. At one point on Monday, August 24 the DJIA was down 1,000 points.

Your 401k plan’s trading activity for those days probably mirrored Aon Hewitt’s book of business. In other words, many of your participants were probably selling out of their equity funds and moving into fixed income funds at precisely the wrong time. All who practiced this strategy likely locked in large losses when they sold out of their equity positions at the worst possible time — when the equity markets were down sharply.

If your 401k plan investment advisor is like me, he/she works very hard to make sure that this does not happen. That your participants do not panic. That they understand that equity markets are volatile and will go up and down sharply without warning. I feel the best service we advisors provide for your plan participants is educating them about market volatility and being ready to take their phone calls when they are scared and about to make a bad decision. I spend a lot of time talking with my client’s participants about these very subjects.

To help those participants who recently exited equities, and to reassure those who maintained their equity allocations, please consider communicating the following: [Read more…]

Helping Your 401k Participants Cope With Volatile Markets

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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Volatile markets have returned with a vengeance. The Dow Jones Industrial Average has fluctuated by a thousand or more points on recent trading days. During these times your 401k plan participants can become very nervous. Plan sponsors and their investment advisors should help participants remain calm during these volatile markets by sharing the following: [Read more…]

How 401k Participants Can Avoid Sabotaging Their Returns

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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Recently Dalbar reported that the average equity mutual fund investor experienced returns of 5.5% in 2014 compared to the S&P 500 Index return of 13.69% — more than 8% less. Dalbar also reported that the average fixed income mutual fund investor received a return of 1.16% in 2014 while the Barclay’s U.S. Aggregate Bond Index returned 5.97%. In terms of magnitude, this is even worse as fixed income mutual fund investors received more than 5 times less in returns than the index.

Is this an example of active management underperforming passive, or is there something else at work? The folks at Dalbar conclude that the performance differences, because they are so large, are attributable to bad investor decision-making. Unfortunately, Dalbar’s studies show that 2014’s mutual fund investor performance is not a one-time event. The average mutual fund investor typically underperforms the indexes each year by a wide margin. What can 401k plan participants (who comprise the majority of mutual fund investors) do to keep from sabotaging their 401k returns? Plan participants should: [Read more…]

Using Neuroeconomics To Improve Employee 401k Decision-Making

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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

A recent white paper titled “The Silent Value: Advice for the 21st Century” describes the challenges most of us face when attempting to make good financial decisions. Using the science of neuroeconomics (a combination of economics, neuroscience and psychology) the authors state that many of us hamstring ourselves by maintaining various bias’ and emotional connections which end up resulting in bad investment decision-making.

The white-paper shared the tendencies outlined below, explained via neuroeconomics, that lead to poor individual financial decisions. I have added suggestions on how to overcome these bias’ with your 401k participants.

1. Emotional decision-making

All of us get scared when the market is plummeting and become overconfident when the market is soaring. Often, at these market troughs and peaks, we make the wrong buy/sell decisions in our 401k plan accounts.

How to address: Understanding market cycles can often allay feelings of fear and greed when participants think about making investment decisions. Ask your advisor, in your employee education sessions, to emphasize a long-term view toward investing and sticking with a plan, especially during periods of high market volatility.

2. Loss aversion [Read more…]

Wider Use Of Online 401k Employee Education Expected

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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Many experts believe that 401k employee education, in its current form, does not work. I believe that it is just a matter of time until all employee education migrates to the Internet and online 401k employee education becomes the norm, for the following reasons: [Read more…]

Adding A Leg To The Three Legged Stool

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PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

You probably have heard about the three legged stool approach to retirement planning. Historically financial planners had advised that retirees could expect to derive their retirement income from three sources: Social Security, corporate retirement plans and personal savings.

It was generally understood that each source of funds was responsible for providing 1/3 of the total living expenses required in retirement. Hence the three legged stool concept. Over the years the three legged stool approach was modified a bit as a result of: [Read more…]