Study 1 | Leveraging our knowledge of both personal and retirement plan consulting

The Challenge

The CEO and co-owner of a company engaged our services to seek advice on several levels: a financial plan that addressed his company assets, personal assets, and risks of as the premature death or disability of the firm’s partners.  The client owned several life insurance policies on his business partner's life that would generate tax free funds for him to use to buy the business from the wife of his co-owner, should he pre-decease him (often termed a buy-sell arrangement). However, we realized that the client could subject his heirs to unnecessary taxation due to the titling and beneficiary issues that existed within all of his policies.  Additionally, his significant personal portfolio did not take into account tax diversification, time horizon, and his appetite for risk with retirement still twenty years away.

Our Solution

We consulted with both owners and determined a buy-sell solution. All of the life insurance policy titles were restructured to avoid any potential tax issues.  Certain policies were replaced as they were old and uncompetitive in today’s environment. New policies were implemented as well to account for the significant growth in the value of the company over the last twenty years. And the buy-sell agreement was updated to reflect all the changes and present a cohesive plan in case of a premature death. Additionally, disability policies were reviewed and enhancements were made to increase overall coverage, in the case of a co-owners disability.

Throughout the process, we discovered that their Retirement Plan had not been reviewed in quite a long-time.  We educated the owners on the value of Financial Education and our Fiduciary360 process. They ended up implementing a new company-sponsored retirement plan, with our help, for all of their employees and engaged in regular Investment Committee meetings to discuss the plan’s progress. Overall Plan costs were reduced and employee participation rates increased as a result of the change.

And finally, we took over management of the CEO’s personal portfolio, adjusting his portfolio to align with his growth objective, further diversified his primarily large-cap equity holdings1, implemented a tax diversification strategy, and coordinated the overall allocation with his 401k. Additionally, the CEO started 529 college planning2 accounts for his children and we helped coach him while he updated his estate documents with his attorney to reflect all of the implemented changes.   

Study 2 | Review the current 401(k) plan and recommend a Fiduciary/Educational process

The Challenge

The CFO of a large, multinational engineering firm with 500+ employees invited us to meet the Executive Committee responsible for making decisions for their existing 401k plan. They were concerned about Fiduciary liability with regards to monitoring plan assets with the new 2017 Department of Labor regulations. They had no formal Employee Educational program in-place from their current recordkeeper and had not reviewed the plan in over five years.

Our Solution

We met with the Executive committee, discussed the firm culture and overall Plan goals, and reviewed their current plan investments, overall fee structure, Fiduciary processes and educational programs. We were informed that the Plan Sponsor was operating one, $30m 401(k) plan. The 401(k) had grown significantly with the acquisitions of three companies in the last 18 months. But the ownership structure of each acquired company was very different from the original ownership structure, under which the original 401(k) was established. We realized that these recent acquisitions may have created separate control groups and the Plan may be in violation of IRS rules. We informed the client that, given the different ownership structures, we would have to talk with the Plan’s Auditor whether this was allowed.

After conferring with the Auditor, we discovered that operating one, consolidated Plan under one control group violated IRS regulations and that the Plan had to be broken up into four separate and distinct plans. While administration and recordkeeping costs increased due to the Plan changes, it was determined that being in compliance with Department of Labor and IRS regulations was most important. Utilizing Request for Proposal (RFP) data from several industry leaders in the $5m-$10m 401k market, we completed an apples-to-apples analysis of the current plan versus the new RFPs. We discussed the advantages and disadvantages of each Plan manager, including the current one in-place.

After several more conversations, the Plan Sponsor decided to implement a Plan change from its current provider to one of the new providers, operating four, separate and distinct plans. We discussed and implemented enhancements to the current plans, including a Roth 401k option, an updated Investment Policy Statement, default investment options, Target Date fund options3, and lower cost fund options. An Investment Committee was established and an Annual Review meetings were scheduled to discuss any new potential Plan enhancements. FiRM, a third party software company, produced a quarterly investment report to ensure that funds were meeting their benchmarks. An Audit File documenting all the Plan’s accomplishments, progress, and review sessions was also created in case the Department of Labor wished to see a timeline of events. Finally, on-site educational programs were discussed.

After the new plan enrollment sessions, quarterly, lifestyle-based webinars and conference calls featuring third party speakers (talking about Social Security, nutrition, etc.) were scheduled and open to all employees. After the success of the meetings and webinars, the firms decided to continue with the Fiduciary and Educational program for the coming years at all of its US-based offices.

The Year 1 results were as follow: Participants increased salary deferrals by 15%, additionally, many one on one consultation on financial planning issues were completed with employees of the Plan Sponsor, further enhancing the Employers good will.

* These are case studies and are for illustrative purposes only. Actual performance and results will vary. These case studies do not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted.
1. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.
2.The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.
3. Investments in target date or target retirement funds are subject to the risks of their underlying holdings. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative investments based on its respective target date. The performance of an investment in a target date or target retirement fund is not guaranteed at any time, including on or after the target date, and investors may incur a loss. Target date and target retirement funds are based on an estimated retirement age of approximately 65. Investors who choose to retire earlier or later than the target date may wish to consider a fund with an asset allocation more appropriate to their time horizon and risk tolerance.


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