The 10 Biggest 401k Plan Misperceptions

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By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Your 401k plan participants really believe some of the things outlined below!

Having worked as a 401k plan consultant for more than 30 years with some of the most prestigious companies in the world (e.g.; Apple, AT&T, IBM, John Deere, Northern Trust, Northwestern Mutual), I am always surprised by the simple but significant 401k misperceptions many plan participants have. Following are the most common and noteworthy 401k misperceptions: [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…]

Impact Of Higher Interest Rates On Your 401k Plan

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By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

On Wednesday the Fed finally took the first step on the journey to normalizing interest rates by raising the discount rate by 1/4 percent (25 basis points). Thought long overdue by most economists, this interest rate increase, and the higher interest rates that will follow, are likely to have the following effects on your 401k plan and participants: [Read more…]

Help Your 401k Participants Manage Risk

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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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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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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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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…]

Four New And Surprising Facts About Retirement

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I hope you had a great weekend and for those of you who are dads, a wonderful Father’s Day!

LRPC’s Monday Morning Minute for this week, Four New And Surprising Facts About Retirement (presented below) comes to you courtesy of LifeHealthPro. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share the most relevant information with you each week. If you are short on time, make sure you take a look at each of the four facts in bold.

I think that all of us hope to retire someday. You may be surprised at the information shared below. Hopefully one of these facts can help you or your employees with the planning process.

Have a wonderful week!

_______________________________

Four New And Surprising Facts About Retirement

By Emily Holbrook, Editor in Chief, National Underwriter Life & Health

We’ve heard it all before, retirees and pre-retirees are financially ill-equipped to make their savings — if any — last throughout their golden years. With more and more businesses cutting pensions, and health care costs and longevity continuing to rise with no foreseeable end, truly having enough savings for retirement can seem out of reach for many.

As LIMRA’s Secure Retirement Institute recently noted in their “Informing the Debate: Facts About Retirement Security” report, the biggest risk to Americans’ retirement security is their lack of savings. Half of baby boomers have less than $100,000 saved for retirement and more than a third have less than $25,000. These numbers are a terrifying wake-up call.

The following are a few more surprising retirement security facts revealed in the aforementioned LIMRA report: [Read more…]

Using Neuroeconomics To Improve Employee 401k Decision-Making

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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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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…]