The Partners Circle

The mission of the Partners is to empower all of us to go directly to each other with our expertise. FiduciaryFirst is considered an industry leader and our knowledge and informative blogs can help you gain an understanding about key topics within the industry.

Overcoming Myopic Investment Decision-Making: Where Advisor and Analyst Meet

Even when presented with timely and accurate financial information by fiduciary advisors, employees don’t always make the best decisions for themselves when it comes to saving for retirement. When advisors exclusively focus on financial education and fail to address underlying issues of behavioral economics, there’s a greater chance that poorer financial decision-making may occur. Helping employees overcome the cognitive biases that can lead to bad investment decisions increases their chance for success in becoming retirement ready. Short-Term Thinking Myopia, in the realm of financial planning, refers to the tendency to make shortsighted financial decisions at the expense of longer term gains. Studies show that when offered the choice of $100 now or $120 in a month, more people choose the immediate reward. However, if the offer changes to $100 in 12 months or $120 in 13 months, they more often elect the higher payout. One potential explanation for this inconsistency...
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Time’s Up: TDFs and Your Fiduciary Obligations

Target date funds (TDFs) — which rebalance investments to become more conservative as a fixed date approaches — are a convenient way for plan participants to diversify their portfolios and reduce volatility and risk as they approach retirement, making them an increasingly popular choice. However not all TDFs are created equal, and selecting and monitoring them can pose unique challenges for plan sponsors and fiduciary advisors.   TDFs were first introduced in 1994. Ten years ago, just 13% of 401(k) plan participants were invested in TDFs. Today, that number has risen to more than 50%, according to a new report from Vanguard, which also estimates that 77% of Vanguard participants will be invested in a single TDF by 2022.   However, the “automatic” rebalancing feature of TDFs doesn’t supplant the obligation to monitor funds and educate participants. The Department of Labor (DOL) provides guidance on TDFs in the form of...
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3(38) or 3(21): Which Fiduciary Service Is Right For You?

Want to reduce your fiduciary risk as a plan sponsor? A little outside help can yield big reductions in risk. Here’s a way to think through your options. You’re trying to provide the best for the people on your company’s payroll, and you feel good about your qualified retirement plan. But what’s good for the goose — in this case the plan participants — isn’t all sauce for the gander (the company). As the plan sponsor, the company takes on substantial legal and financial liabilities. If you’re listed as the plan administrator, some of those liabilities accrue to you as well. The law suggeststhat any plan sponsor who does not possess the technical knowledge and experience to manage investments consider hiring an advisor. Your choice of advisor can significantly lower your fiduciary risk. Why Hire a Fiduciary? Hiring an outside fiduciary can reduce some or most of that liability by...
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Financial Wellness and Productivity: Alarming Concerns for 401(k) Plan Sponsors

Financial Wellness and Productivity: Alarming Concerns for 401(k) Plan Sponsors
New insights show that if your employees are worried about personal finances — and they are — you’re losing productivity and risking higher turnover. Employees worried about their personal finances are less productive, more distracted and are easier targets for poachers. While none of that is a revelation, a recent nationwide survey showed just how pervasive financial insecurity is in the workforce and how large the losses and potential risks are for employers at every level. When asked what they feel stressed about, 46% of respondents said personal finances were their No. 1 concern. Other familiar stressors paled in comparison — “my job” at 17%, “relationships” at 15% and “health” at just 14%.  If you have a 401(k) plan advisor or retirement planning professionals who work with your employees, that’s a good start, but the study shows the problem — and effective solutions — go much deeper. Who’s at Risk?...
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How Retirement Program Advisors Can Help Close the Retirement Gender Gap

How Retirement Program Advisors Can Help Close the Retirement Gender Gap
Despite the fact that women tend to live longer, female workers typically have lower retirement account balances than their male counterparts. Many factors may contribute to this disparity, including: lower earnings, greater part-time work and time off for child and eldercare, lower levels of financial literacy, and lower risk/return investment choices. As a result, women can face significant hardships during their retirement years, which they may have to deal with on their own. But is there anything retirement program advisors can do to help reverse this troubling trend? One study attempted to answer this question. EMPOWERing Women Researchers examined the effect of a multimedia education program called Embracing and Promoting Options for Women to Enhance Retirement (EMPOWER) geared toward increasing female employees’ retirement savings by providing educational content and increasing motivation for contribution. Data was collected on 31,000 male and female Wisconsin public sector workers. Over a period of several...
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Happy 40th, 401(k): Changes Are Coming

Happy 40th, 401(k): Changes Are Coming
It’s hard to imagine a time before 401(k) plans, but employee fiduciary risk management once relied heavily on employer-backed pensions. Over the past four decades, 401(k)s have grown in popularity as businesses realized the benefits that come with them. While 401(k)s have seen incredible growth since their inauguration, their 40th anniversary is a great time to review the program, its process, and how it could improve. Here are a few things businesses can consider implementing regarding their own 401(k) offerings. Easier Onboarding Once new employees are hired, it becomes difficult to add them to a 401(k). Paperwork is already a standard part of their first day, so why not include paperwork for 401(k) enrollment? By incorporating 401(k) signups from the getgo and making opting in the default, businesses can increase participation and ensure as many employees as possible are enjoying retirement planning perks. Unfortunately, one major deterrent to 401(k) participation...
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Strategically Address Employee Education

Strategically Address Employee Education
An educated employee is an empowered employee, especially when it comes to retirement savings and financial wellness. To help employees better understand their fiduciary process the key features of your company’s 401(k) plan, and the importance of setting aside money for their future, it’s crucial to offer financial education. Correct Misconceptions Employees may misunderstand exactly what goes into your 401(k) plan. To dispel any misconceptions, companies should aim to communicate 401(k) information in simple, easy-to-understand terms. Bear in mind that employees are easily overwhelmed by a surplus of options! Make yourself available to help guide them toward choices that are best for them, and encourage them to approach you with questions. If they don’t ask you, there is a good chance they are taking matters into their own hands by searching for answers online or from other employees, which only increases the odds of miscommunication. Offer Multiple Education Formats In...
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Ongoing Evaluation of a (3)38 Fiduciary

Ongoing Evaluation of a (3)38 Fiduciary
As part of the Employee Retirement Income Security Act of 1974 (ERISA)[1], businesses now follow minimum standards as part of general fiduciary risk management[2]. Under the 38th definition of that act, plan sponsors and associated fiduciaries are absolved of responsibility for the decisions made by the investment manager. However, moderating their risk means evaluating that investment manager and documenting that evaluation on an ongoing basis. But what does this evaluation require? Here are a few things your business should include as you evaluate your own investment plan manager. Manager Background Regardless of regulations, you should take steps to vet your investment plan manager. If you’re entrusting an entire firm with the duty, you should check into the leaders’ credentials and backgrounds. Look for CEFEX certification[3] and make sure they haven’t received disciplinary action by regulatory authorities. Their past experience in delivering advice on investment plans is crucial as well since...
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