What does the dawn of 2015 mean for 403(b) advisors? NTSA Net asked the 2014 NTSA Elite Advisors for their insights on what advisors and those who offer and administer 403(b)s may expect next year — and how they can be ready.
Be Prepared!
Boy Scouts learn right from the start to be prepared. It’s also good advice for an advisor.
Fiduciary duties have long been a special focus of government activity from a variety of vantage points. Expect more of the same, says Lincoln Investment’s Jonathan H. Wilt: “My thoughts are that the issue of fiduciary responsibility will remain front and center.”
What to do about that? Wilt suggests, “plan administrators/school administrators might want to limit plan servicing to accredited investment fiduciaries.”
David Wolfe, an advisor with Cambridge, Minn.-based EFS Advisors, thinks the Scout motto is especially apropos for 2015. He advocates being prepared in case a market correction occurs next year or in 2016, a notion he says he bases on 25 years in the field and past experience.
Wolfe argues that advisors “need to really talk to clients about managing expectations” rather than advocate that long-term investors move their assets to more conservative accounts. And if a correction does occur, he suggests that advisors should make sure they return every phone call in a timely matter. “Let your clients know what is going on,” he says.
Advisors also should take care of — and trust — themselves, according to Wolfe. “I have heard many tales of anxiety and heart palpitations caused from 2000-2002 and 2008.” Wolfe says, adding, “The advisor needs to know they are doing things in the best interest of the clients and not blame themselves for what is going on during the market cycle where the market has corrected. This is a hard period. Anyone who cares about their clients will hit a rough patch and start to question themselves. This is not necessarily a bad thing but the advisor needs to not do what his clients tend to do which is jump in and out of the market. Manage expectations and educate.”
Physician, Heal Thyself
Wolfe is not alone in suggesting that advisors follow their own advice. Bill Haigh, a financial advisor with EFS Advisors in Fairmount, Minn., suggests that as advisors look toward 2015, “they should make sure that they are taking full advantage of their own retirement plans and maximize their contributions to both tax-deferred and Roth accounts.”
“Too often, advisors are so busy helping their clients that they do not take the time to look at their own financial picture,” Haigh says. He adds that, “advisors should carve out some time to review their family finances.”
Be Careful with TPAs
Several NTSA Elite Advisors offered a different take on the same general theme of advisors protecting themselves in the process of serving their clients: Be careful about third party administrators.
Jill Snyder of National Insurance Services of WI, Inc., a registered representative of GWN Securities, Inc., says that it has been her experience over the last six years that school districts that chose to work with TPAs are still doing so, and that those whose TPA went out of business chose to find another. “They saw the value of hiring a TPA for compliance and oversight,” she remarked.
Still, Snyder notes that TPAs are not a panacea: “School districts that chose TPAs that were connected with a product provider, have discovered that there is no free lunch. That ‘free’ service could only continue so long before the product provider realized that their requirement to be added as a payroll slot was not enough to offset the amount of time and effort required for administrative services.”
Charles “Sonny” Detillier, the founder and owner of the Sonny Detillier Agency in Lutcher, La., suggests that advisors will better serve their clients and themselves if they think long and hard before they recommend a particular TPA to a client.
Detillier bases this on bitter experience. “When our office got involved in plan administration of 403 (b) plans and recommended a specific TPA, it backfired on us when the TPA did not do a good job. We now make it a practice to try and stay out of making TPA recommendations.”
But if an advisor insists on recommending one, Detillier stresses the importance of recommending that a client choose a “truly independent TPA that won’t have any conflicts of interest.” That, he says, is “the only thing we highly recommend” to the school districts they serve regarding TPAs.
Self-administration
So about employers that eschew TPAs and choose to run their plans themselves? Snyder points out that when doing so there can be a strong temptation to simplify the plan in order to make it easier to administer, but she warns that can be a siren song.
Why? First of all, because it can ill-serve participants. Said Snyder, “Never mind that valued employees lost the ability to request loans or hardships and now were restricted to one or two vendors instead of a bevy of choices previously available.”
Second, it could elicit IRS attention. Snyder noted, “As IRS audit activity increases in 2015 and beyond, self-administrators may have the most to lose. Small oversights such as universal availability notices and exclusion of certain employees from the plan may be big red flags for the IRS.”
But there is a way to avoid that potential pitfall. Snyder observed that “Revenue Procedure 2013-22 will allow the plan sponsor to be able to adopt a prototype or model plan document that has been reviewed and approved by the IRS, providing the employer assurance that its plan meets the IRS’ document requirements.”
Not only that, using the prototype could save a plan money, according to Snyder: “This pre-approval process could facilitate increased efficiencies, thereby reducing plan document costs.”
Consider Adding a 457
The Elite Advisors’ suggestions are heavy on caution, but are not isolated to applying the brakes. Snyder also thinks that the time is right for advisors to discuss with school district clients the advantages of adding a 457(b) plan to their retirement plan offerings. Snyder cited the following reasons:
1. they complement a 403(b) plan;
2. they offer withdrawal provisions to avoid a 10% tax penalty at separation of service; and
3. they can allow enthusiastic savers to maximize two $18,000 contribution limits ($24,000 if age 50 or older).
“Make some New Year’s resolutions to circle back with your local school districts to uncover new opportunities in the compliance arena as well as suggestions to make their retirement plan offerings more robust by adding a 457(b) plan,” Snyder added.
Be Prepared!
Boy Scouts learn right from the start to be prepared. It’s also good advice for an advisor.
Fiduciary duties have long been a special focus of government activity from a variety of vantage points. Expect more of the same, says Lincoln Investment’s Jonathan H. Wilt: “My thoughts are that the issue of fiduciary responsibility will remain front and center.”
What to do about that? Wilt suggests, “plan administrators/school administrators might want to limit plan servicing to accredited investment fiduciaries.”
David Wolfe, an advisor with Cambridge, Minn.-based EFS Advisors, thinks the Scout motto is especially apropos for 2015. He advocates being prepared in case a market correction occurs next year or in 2016, a notion he says he bases on 25 years in the field and past experience.
Wolfe argues that advisors “need to really talk to clients about managing expectations” rather than advocate that long-term investors move their assets to more conservative accounts. And if a correction does occur, he suggests that advisors should make sure they return every phone call in a timely matter. “Let your clients know what is going on,” he says.
Advisors also should take care of — and trust — themselves, according to Wolfe. “I have heard many tales of anxiety and heart palpitations caused from 2000-2002 and 2008.” Wolfe says, adding, “The advisor needs to know they are doing things in the best interest of the clients and not blame themselves for what is going on during the market cycle where the market has corrected. This is a hard period. Anyone who cares about their clients will hit a rough patch and start to question themselves. This is not necessarily a bad thing but the advisor needs to not do what his clients tend to do which is jump in and out of the market. Manage expectations and educate.”
Physician, Heal Thyself
Wolfe is not alone in suggesting that advisors follow their own advice. Bill Haigh, a financial advisor with EFS Advisors in Fairmount, Minn., suggests that as advisors look toward 2015, “they should make sure that they are taking full advantage of their own retirement plans and maximize their contributions to both tax-deferred and Roth accounts.”
“Too often, advisors are so busy helping their clients that they do not take the time to look at their own financial picture,” Haigh says. He adds that, “advisors should carve out some time to review their family finances.”
Be Careful with TPAs
Several NTSA Elite Advisors offered a different take on the same general theme of advisors protecting themselves in the process of serving their clients: Be careful about third party administrators.
Jill Snyder of National Insurance Services of WI, Inc., a registered representative of GWN Securities, Inc., says that it has been her experience over the last six years that school districts that chose to work with TPAs are still doing so, and that those whose TPA went out of business chose to find another. “They saw the value of hiring a TPA for compliance and oversight,” she remarked.
Still, Snyder notes that TPAs are not a panacea: “School districts that chose TPAs that were connected with a product provider, have discovered that there is no free lunch. That ‘free’ service could only continue so long before the product provider realized that their requirement to be added as a payroll slot was not enough to offset the amount of time and effort required for administrative services.”
Charles “Sonny” Detillier, the founder and owner of the Sonny Detillier Agency in Lutcher, La., suggests that advisors will better serve their clients and themselves if they think long and hard before they recommend a particular TPA to a client.
Detillier bases this on bitter experience. “When our office got involved in plan administration of 403 (b) plans and recommended a specific TPA, it backfired on us when the TPA did not do a good job. We now make it a practice to try and stay out of making TPA recommendations.”
But if an advisor insists on recommending one, Detillier stresses the importance of recommending that a client choose a “truly independent TPA that won’t have any conflicts of interest.” That, he says, is “the only thing we highly recommend” to the school districts they serve regarding TPAs.
Self-administration
So about employers that eschew TPAs and choose to run their plans themselves? Snyder points out that when doing so there can be a strong temptation to simplify the plan in order to make it easier to administer, but she warns that can be a siren song.
Why? First of all, because it can ill-serve participants. Said Snyder, “Never mind that valued employees lost the ability to request loans or hardships and now were restricted to one or two vendors instead of a bevy of choices previously available.”
Second, it could elicit IRS attention. Snyder noted, “As IRS audit activity increases in 2015 and beyond, self-administrators may have the most to lose. Small oversights such as universal availability notices and exclusion of certain employees from the plan may be big red flags for the IRS.”
But there is a way to avoid that potential pitfall. Snyder observed that “Revenue Procedure 2013-22 will allow the plan sponsor to be able to adopt a prototype or model plan document that has been reviewed and approved by the IRS, providing the employer assurance that its plan meets the IRS’ document requirements.”
Not only that, using the prototype could save a plan money, according to Snyder: “This pre-approval process could facilitate increased efficiencies, thereby reducing plan document costs.”
Consider Adding a 457
The Elite Advisors’ suggestions are heavy on caution, but are not isolated to applying the brakes. Snyder also thinks that the time is right for advisors to discuss with school district clients the advantages of adding a 457(b) plan to their retirement plan offerings. Snyder cited the following reasons:
1. they complement a 403(b) plan;
2. they offer withdrawal provisions to avoid a 10% tax penalty at separation of service; and
3. they can allow enthusiastic savers to maximize two $18,000 contribution limits ($24,000 if age 50 or older).
“Make some New Year’s resolutions to circle back with your local school districts to uncover new opportunities in the compliance arena as well as suggestions to make their retirement plan offerings more robust by adding a 457(b) plan,” Snyder added.
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