Data and Research September 22, 2015

Advisers Shore Up Confidence in Retirement

They also prompt people to save for retirement.
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Americans who work with a financial adviser are much likelier to be saving for retirement (93% versus 54%), according to Franklin Templeton’s 2015 Retirement Income Strategies and Expectations survey. In addition, nearly one-quarter of pre-retirees who have never worked with an adviser never expect to retire.

Those who work with an adviser are confident that their retirement plan (77%) and personal investments (89%) will provide expected income in retirement. Among those who have not worked with an adviser, only 58% believe their retirement plan and personal savings will provide adequate income. Also, for those who aren’t working with an adviser, 32% say their number one concern in retirement is running out of money. For those working with an adviser, the top concern is health and medical issues.

Furthermore, those who work with an adviser have a better tolerance for short-term volatility; 67% of these people say they would not worry if their retirement investments declined by 5%, compared with 53% of those who have not worked with an adviser.

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“People should absolutely take an active approach when it comes to retirement planning, and financial advisers can help,” says Michael Doshier, vice president of retirement marketing for Franklin Templeton Investments. “Our survey results clearly demonstrate the critical role financial advisers play in empowering their clients to become active participants in both financial and emotional retirement preparation. Advisers can provide the necessary tools and support their clients need to be smart, engaged investors, which ultimately leads to their greater sense of security in the time leading up to and during retirement.”

ORC International conducted the survey among 2,002 adults in January for Franklin Templeton.

Ask the Experts September 22, 2015

(b)lines Ask the Experts – Must a Frozen 401(a) Plan Be Terminated?

“We are a large 501(c)(3) health care organization that froze its Employee Retirement Income Security Act (ERISA) 401(a) defined contribution plan several years ago, essentially replacing the plan with employer contributions to our 403(b) plan.
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However, we have not terminated the plan; the plan has remained frozen since the initial amendment to freeze. Can the plan remain frozen indefinitely, or must we terminate the plan at some point?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:      

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There is nothing in the Internal Revenue Code or ERISA that REQUIRES termination of a frozen retirement plan, so, indeed the plan can remain frozen for an indefinite period. However, as a practical matter, if there are no plans to resume contributions to the 401(a) in the future, you may wish to consider termination of the plan, for the following reasons:

1)      Virtually all of the requirements for active retirement plans apply to frozen plans, including reporting (Form 5500) and disclosure (summary plan descriptions (SPDs), summary annual reports (SARs), etc.);

2)      The plan document will be required to be updated to reflect changes in the law on an ongoing basis (and, in the Experts experience, such amendments are often overlooked, creating compliance concerns); and

3)      Frozen plans can be “forgotten” over time by both participants and plan sponsors, making the process of termination more difficult the longer it is delayed.

The primary disadvantage of terminating a defined contribution retirement plan is that distributions would be available for active employees who would otherwise not be entitled to such a benefit. However, if the plan has been frozen for several years as you state, the population of participants in the plan who are active employees is likely to be low relative to the total participant population.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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