Q4 2017

FOR EMPLOYERS

NEWS AND INFORMATION

John A. Smith

ABC Retirement Plan Advisory

Firm

614 Main St.

Anytown, MA 02215

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Phone:

Website: Process Design Capital Management, LLC. 1430 E Missouri Ave., Suite B220Phoenix, AZ 85014

Office: (480) 386-0491Fax: (480) 386-0494 Jim@processdesigncapital.comSean@processdesigncapital.comInfo@processdesigncapital.com www.processdesigncapital.com

Jim Garber, CFA, AIFCo-Chief Investment Officer Sean R. Balog, CMT, AIFCo-Chief Investment Officer

LIFT RETIREMENT Q4-20172

NO “ONE-SIZE-FITS-ALL” PLAN

Retirement plans come in all shapes

and sizes: DC Plans, DB Plans, Non-

Qual, 401(k), 403(b), 401(a), 457, SEP

IRA, Simple IRA, Roth IRA, Cash Balance,

HSA… and any other number letter

combinations that you can think of. The

simple truth is that there is no one-size-

its-all version of a retirement plan; and as a plan sponsor, you need to select

a beneit plan that is appropriate for your company and its participants. It is

important to understand the basics of

plan design, work with a knowledgeable

advisor, and evaluate your plan based

upon your speciic needs. While designing your company’s

401k plan, six major elements must

be deined: eligibility, compensation, contributions, vesting, distributions and

loans.

Eligibility | Who can enter

the plan and when?

Pretty simple and irst on the list is addressing which employees are able to

enter the plan and when they are able to

do so. Depending on the demographic

and culture of your workforce, you may

elect certain eligibility requirements such

1 Mitte, Ed. “CPE_Compensation.” IRS.gov. Summer 2013.2 Internal Revenue Service. “401(k) Plans: Deferrals and matching when compensation exceeds annual limit.“ 2017.

as age, tenure, or full-time employment

status. Plan sponsors may choose to

grant immediate eligibility or require a

waiting period before new employees

are allowed to participate in the plan.

Tip: Auto-Enrollment

Compensation | What

part of the paycheck?

Next, you must decide what types

of compensation will be used in the plan

and how they are taxed. Certain types

of compensation may be excluded for

plan purposes without issue; these may include: compensation earned prior

to plan entry and fringe beneits, even bonus and overtime (if special annual

testing is passed)1.

Contributions | Who is putting

money into the plan and how?

Your plan may permit both

employee and employer contributions.

Any employer contributions must

be allocated to participant accounts

pursuant to a formula in the plan

document.

Contributions can be broken into

4 major groups: elective deferrals,

employer matching, safe harbor

and nonelective (proit sharing) contributions. Each of these groups has

its own unique formulas and feature

options that can be applied to help

maximize savings. It is important to

remember that all money entering the

plan is subject to annual limits.2

Vesting | When do employer

contributions become

employee assets?

Participants are only entitled to the

vested portion of their account balance

upon exiting the plan; the remaining unvested portion must be forfeited

to the plan. Sponsors can choose to

reallocate these forfeitures to pay

plan expenses or reduce employer

contributions (e.g., the funds may be

used as matching contributions for other

employees).

Employee contributions and

most safe harbor contributions must

always be 100% immediately vested.

However, plan sponsors may elect a

vesting schedule appropriate to speciic company needs for matching and proit sharing contributions.

Broadly speaking, there are two

kinds of vesting schedules: graded

CUSTOMIZING PLAN DESIGN

LIFT RETIREMENT 3

vesting and clif vesting. Regardless of schedule, a participant must become

100% vested when they reach “normal

retirement age.”

Distributions | When can

money be withdrawn?

Distribution is a fancy word the IRS

and the inancial industry use to discuss withdrawing money from the plan.

Generally, employees are eligible to take

penalty-free distributions at age 59½,

but it is not until age 70½ that the IRS

requires employees to take distributions.

Often, plans will only permit a lump

sum distribution when a participant

separates from service and is entitled

to a distribution. Under the lump sum

option, a participant must take their

entire vested account balance in a single

distribution. Other distribution forms

available include installment payments

and partial payments.

You can permit a participant to take

a distribution while still employed. These

are called “in-service” distributions.

These distributions must be available

upon the attainment of a certain age

(59 ½ or greater) or a “hardship” event.

Eligible hardship events are deined by law.

A plan may permit the involuntary

cash-out of small account balances.

Balances under $1,000 may be

distributed in cash to the participant.

Balances under $5,000 may be

involuntarily rolled into an IRA for the

beneit of the participant.

Loans | Can employees

borrow from their savings?

Retirement loans are popular

among employees but often add

administrative complexity for plan

administrators. Employers may need to

sign of on loan requests and deduct loan payments from payrolls. Ofering retirement plan loans is not required: as

a plan sponsor you have the authority to

allow them or not.

Understanding these 6 key

elements can help you to customize a

plan unique to your company’s speciic needs. Beyond these basics you may

even consider implementing advanced

plan design options such as auto-

features, enhanced matching formulas,

or ofering a cash balance plan. [We will dive into those options in an upcoming

article. Be sure to connect with us

on LinkedIn or visit our blog to stay

informed.]

We pride ourselves in being

knowledgeable advisors and would be

happy to walk through a plan design

questionnaire to help develop a plan

that is right for you and your employees

because in the end, the whole point of

your company’s plan is getting everyone

successfully to retirement!

LIFT RETIREMENT Q4-20174

Evaluate What’s Established

If you have a company 401k

plan and you are on the retirement

committee, then you are a plan

iduciary. As such, you have many duties and responsibilities to uphold

to help support plan compliance to the

beneit of your company and the plan participants. This is a great opportunity.

However, is there more you can do to

help limit liability and create a track for

retirement readiness?

It’s more than likely you have a

process in place to monitor and manage

the company retirement plan; but with this process in place, have you

been able to:

Measure the success of your plan?

Evaluate provider relationships

and plan services and fees?

Limit liability?

If this doesn’t evoke a conident answer, let’s take a step back and

review how you can create a repeatable

process.

1 Department of Labor. “Meeting Your Fiduciary Responsibilities.” DOL.gov, Feb. 2012.

2 Green Spring Wealth. “8 Simple Steps to a Great Retirement Plan Committee.” Green Spring Wealth, 2013. Web. 8 Aug. 2017.

3 Powers, Tony. "Documenting Retirement Plan Committee Meetings." KerberRose Wealth Management, LLC, 11 July 2016. Web. 08 Aug. 2017.

Process, Process, Process

Creating a repeatable process can

help limit liability by demonstrating

that you have carried out your

responsibilities properly by documenting

the procedures used and the thought

process involved to fulill your iduciary duties.1 Additionally, a well put together

and efective retirement plan committee is the foundation of successful iduciary decision-making and organizational risk

management for plans of all sizes.2

CHOOSING THE RIGHT TEAM

First things irst, who is on your team? If you’ve assembled a committee

team, it may include a business owner,

CEO, CFO, President, Human Resources

Managers, and/or other professional

colleagues. Surprisingly, members of

your retirement plan committee don’t

need to be experts in retirement or

investing; however, they should be committed to the task and have a

reputation for making good decisions.2

DOCUMENTING

Within your team, you must

delegate roles and begin documenting

all plan actions and why they are

prudent. Proper documentation

serves as proof that the committee’s

responsibilities are being prudently

executed.3

Here are some of what the

retirement plan committee’s minutes

should include:3

List of all party’s present with

identiication of roles

Description of all issues

considered at the meeting

Documentation of all materials

reviewed during the meeting

Documentation of all decisions

made and the analysis and logic

supporting each

Identiication of any topics to be continued in subsequent meetings

EVALUATING AND CREATING A PRUDENT FIDUCIARY PROCESS

Believe it or not, an eicient retirement plan committee does not happen by chance. The “best practices” your committee upholds form the foundation

for a prudent process creating an opportunity for employees to pursue

their retirement goals. Companies of any size can beneit from a consistent process and should consider implementing a few of the tips below.

LIFT RETIREMENT 5

THE PRUDENT ON-GOING PROCESS

Once your committee is in motion,

it’s time to start the on-going process of

monitoring, reviewing, and evaluating

information. When you review your

company retirement plan, create a

checklist of the following:

Gather all plan related documents

Create folders

Read through and understand

the information

Ask team members to

assist if needed

Once the delegated committee

member has reviewed the plan, it’s

time to evaluate provider relationships

and plan services. Consider

evaluating retirement readiness, plan

administration, costs, investments, and

service providers.

As your committee monitors

the plan, ask yourself and the team

members one important question:

How could you make your company’s

retirement plan ofering better? Some suggestions could be iduciary advisor investment review, fee benchmarking,

auto enrollment, and auto escalation.

4 Green Spring Wealth. “8 Simple Steps to a Great Retirement Plan Committee.” Green Spring Wealth, 2013. Web. 8 Aug. 2017.

Maintenance within the

Retirement Committee

PROVIDING FIDUCIARY TRAINING

As mentioned, your committee

isn’t required to have retirement and

investment experts. That being said, it

is crucial to provide iduciary training so they can be educated and fully equipped

to serve on the retirement plan

committee. Key areas to cover should

include the deinition of a iduciary under ERISA, the basic duties and

responsibilities required, iduciary best practices, investment considerations

and prudent process, and an overview of

current legal and regulatory trends.4

HOW OFTEN SHOULD A COMMITTEE MEET PER YEAR?

Industry experts suggest meeting

2-4 times per year: formal meetings

should occur on a regular basis

and should not take more than 1-2

hours if well-organized.4 Scheduling

meeting at the beginning of the year

tends to be efective for all parties. One idea is to pre-schedule and

put the placeholder dates on their

calendars so you have the meetings

calendared and set for the year.

Looking Forward

Why should you evaluate your

iduciary process? As retirement plan committee members, you want your

employees to reach a successful

retirement, so always focus on the

outcomes. Additionally, having a

compliant plan can limit your liability as

a plan sponsor. Lastly, ERISA is about

process! The committee needs to keep

repeating, reining, and improving the company’s retirement plan; because at the end of the day, you want all of your

employees to win at retirement.

Average American Income1

Average Retirement account balance2

Working vs Retirement

ANNUALLY MONTHLY WEEKLY

$55,775 $4,647 $1,161

ANNUALLY MONTHLY WEEKLY

$5,320 $443 $110

$95,776$55,775

$5,320

Average years in retirement

WORKING RETIRED

$1,161 $110

$1,05118

LIFT RETIREMENT Q4-20176

WHAT DOES IT REALLY TAKE TO RETIRE?

As a plan sponsor, your employees rely heavily on your guidance; after all, you manage the plan that may ofer their best shot at a successful retirement. When the 401(k) plan was introduced in the mid-80s, it was not intended as a standalone solution. However, as time evolved, deined contribution (DC) plans became the primary savings vehicle for Americans, while originally, they were intended to be a part of

a three-pillar system including deined beneit (DB) and social security. Saving for retirement now rests predominately on your employees and they look to you for guidance.

Are you helping position

them for success?

It may not come as a surprise

that 81% of Americans say they don’t

know how much money they’ll need in

retirement.1 But let’s be honest, most

people’s minds begin to drift when

you start talking large numbers and

percentages. So, let’s break it down in a

way that may actually make an impact on

your employees!

How much do they really

need to retire?

The short answer: many industry

experts suggest putting away 10 percent

annually or more for a meaningful

retirement, but the average deferral

rate is only 4%.2 So where is the

disconnect? Often plan sponsors fear

push back from employees when it

comes to making plan adjustments

that may decrease their weekly

paychecks. However, surveys reveal that

participants look to their employers for

nudges to save.3

3 tips to encourage

more savings

A helpful way to encourage

more savings without adding a large

cost to the plan is through efective plan design. In a previous article, we

discussed six plan design basics to

help you build a custom plan. In this

article, we challenge you to explore a

few advanced plan design features. You

may consider stretching the company

match, implementing auto-escalation, or

ofering a cash balance plan.

1 Age Wave/Merrill Lynch, "Finances in Retirement: New Challenges, New Solutions,“ 2017

2 Aon Hewitt. “2015 Trends & Experience in Deined Contribution Plans.” 2015.3 American Century Investments. “Fourth Annual Plan Participant Study Results.” Aug. 2016.

4 Department of Numbers. “US Household Income.” Sept 2016.

5 Morrissey, Monique. “The State of American Retirement.” EPI.org. March 2016.

TRADITIONAL MATCH:

3% Employee

Contribution

3% Employer

Match

6% Annual

Savings Rate

STRETCH THE MATCH:

6% Employee

Contribution

3% Employer

Match

9% Annual Savings

Rate

LIFT RETIREMENT 7

Stretch the match

It’s been long accepted that you

should “contribute to the employer

match.” As an employer, why not act on

this popular belief? If your plan utilizes a

typical match formula of dollar for dollar

up to 3% of pay, you may consider a

stretch option. For example, you could

match ifty cents on the dollar up to 6% of pay. This simple scenario would

keep employer contributions at 3% of

pay; and with the stretched formula, employees would be incentivized

to save more.

5 Johnson, Angela. “76% of Americans are living paycheck-to-paycheck.” CNN Money. June 2013.

6 American Century Investments. “Fourth Annual Plan Participant Study Results.” Aug. 2016.

Auto-escalation

If you were to announce to your

employees that their next paycheck

would relect a 10% deferral into their 401k, you may have a small revolt on

your hands. And rightly so. 76% of

Americans live paycheck to paycheck

(including 30% of people who earn more

than $100,000 a year)3

5

You may consider a more subtle

approach that would enroll your

employees at 4% and automatically

increase each year by 1% until they

reach that a target rate of 10%. Your

employees may even thank you. Based

on a survey by American Century, seven

in ten participants showed interest

in a regular, incremental automatic

deferral increase.4

6

Cash Balance plan

A cash balance plan may induce a

bit of nostalgia from the yesteryears of

the traditional pension plan, but with

a 401(k)-style twist: they combine the

higher beneit limits of a DB plan with some of the lexibility and portability of a 401(k) or proit sharing plan. This unique plan design option may help

business owners with a signiicant tax deduction for employee contributions,

plus generous tax-deferred retirement

contributions for themselves.

Inspiring Savings

Inspiring your employees to save

may seem daunting at times, especially

if you fear push back on implementing

new strategies. But, a signiicant point of ofering a retirement plan is to help your employees get closer to their retirement

goals. Exploring options such as those

in this article may help you reach

organizational goals such as recruiting

and retaining valuable employees while

helping them to pursue their goal of a

successful retirement.

LIFT RETIREMENT Q4-20178

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This information was developed as a general guide to educate plan sponsors

and is not intended as authoritative guidance or tax/legal advice. Each plan has

unique requirements and you should consult your attorney or tax advisor for

guidance on your speciic situation. 2017 © 401k Marketing, LLC. All rights reserved. Proprietary and conidential.

Do not copy or distribute outside original intent.

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FOR EMPLOYERS

NEWS AND INFORMATION

Jim Garber, CFA, AIFCo-Chief Investment Officer Sean R. Balog, CMT, AIFCo-Chief Investment Officer Process Design Capital Management, LLC.1430 E Missouri Avenue, Suite B220Phoenix, AZ 85014 Office: (480) 386-0491Fax: (480) 386-0494 Jim@processdesigncapital.comSean@processdesigncapital.comInfo@processdesigncapital.com www.processdesigncapital.com