Author: SRP

Student Loans or Credit Card Debt—Which Do I Pay Off First?

Pete the Planner puts together a motivating and realistic blog and website for financial planning. Here he answers a question that so many have been faced with; how to prioritize your debts. In this post, he gives a simple equation on his reasoning, in a light-hearted tone.

Pete ranks it as the following:
1. Pay off all student loans. Those are usually at an extremely high rate and many people don’t know the interest is still being charged even though payments aren’t due until after graduation.
2. Make arrangements to create an emergency fund.
3. Work on paying off your credit card debt completely.

Click here to read the full post.

SALT State and Local Taxes: How Nonqualified Plans Can Help Protect Retirement Income

Fulcrum Partners shares, the tax overhaul signed into law in December 2017 (Tax Cuts and Jobs Act) set a $10,000 cap on state and local tax (SALT) deductions that can be taken from US federal income taxes. High-income earners who live in areas where state and local taxes are steep, such as California, New Jersey, New York and many other venues, are getting an eye-opening wakeup call as they face the impact of their first tax season under the new laws.

Some residents in high SALT states have chosen to relocate to more tax-friendly parts of the country. Others have tried to relocate on paper without actually doing so—a workaround that doesn’t always bode well for the taxpayer.

High-Earners Cutting Back on SALT: State and Local Taxes
Given that many high-earning executives spend a great deal of time traveling and that they may own or lease multiple homes, accurately identifying which city and state is their official state of residence can get into interesting gray areas.

Consider this example where a dog proved he’s truly man’s best friend.


A New York executive accepted a high-profile CEO position with one of his company’s subsidiaries based in Dallas. After a period of commuting between the Big Apple and the Big D, the executive decided he like Dallas enough to rent an apartment there, lease a car in Texas and join a local gym. He filed state and federal taxes as a resident of Texas.

Two years later, the executive was promoted again, and returned to New York. The State of New York then attempted to collect two years of state taxes, nearly a half million dollars plus interest and penalties, claiming that the executive had never truly relocated to Dallas at all.

A judge however, ruled in favor of the executive based on the fact that he ultimately had relocated his elderly dog to Texas, which in the eyes of the judge made it an official move.

Rarely is the issue of where an executive spends most of his or her work time or whether the executive owns or rents residential property in the new city sufficient for determining the authenticity of the move. Many details, and not always a lot of logic, can come into play in determining whether a person has sufficiently demonstrated a change of lifestyle, such that it constitutes a true relocation. Even relocation plus retirement may not always, protect your earnings from the long arms of a state where you previously lived as a taxpayer.

Source Tax Law – Nonqualified Plans Can Help Protect Retirement Income from Taxation by Former States of Residence
Typically, an individual is subject to income taxation by the state in which he or she lives when the income is received. Some states, however, attempt to tax nonresidents on this income on the basis that it was earned, or had its source, in the first state.

Retirement income has always been a key target of this type of state taxation. Under the federal “Source Tax Law,” however, retirement income meeting certain conditions will be taxable only by the recipient’s state of residence at the time of payment, regardless of its “source”.

The Source Tax Law generally protects current nonresidents from being taxed on retirement income by states where they previously lived while employed. It covers retirement income paid from tax-favored vehicles such as tax-qualified retirement plans and IRAs. It also protects income from nonqualified deferred compensation arrangements if the income either is paid from a certain type of plan or in substantially equal periodic payments over life or life expectancy or a period of at least ten years. Thus, properly structuring deferred compensation payouts (including compliance with Internal Revenue Code § 409A may provide significant state tax savings, depending on the states involved.

To learn more about the impact of state and local taxes on retirement earnings, contact the team of executive benefits professionals at Fulcrum Partners.

Reposted with permission from Fulcrum Partners. View their article here.

SRP’s Own Jim Robison Highlighted in 401(k) Specialist Magazine

Jim Robison, Managing Director Great Lakes, was recently interviewed by Ross Marino with 401k Specialist Magazine. Take a look into what has shaped him into an elite 401k advisor with over 25 years of experience. “What worked best was taking the time to learn from others in the retirement plan consulting arena and to gather observations and learn wisdom form them that is usually easily transferable to my own situation”, he explains. Get to know some of Jim’s professional and personal routines, from skills that are essential for advisors, to how he refreshes himself by working on the family farm.
Click here to read the full interview with Jim Robison.

Department of Labor Issues Relief Guidance for Victims of California Wildfires

The U.S. Department of Labor (DOL) recently issued benefit plan guidance and relief for plans and participants affected by the 2018 California Wildfires. The DOL recognizes that plan sponsors and participants may be affected in their ability to achieve compliance with various regulatory requirements. The guidance generally applies to all parties involved in employee benefit plans located in areas identified by FEMA as disaster areas, listed here: www.fema.gov/disasters.

The guidance provides relief from procedures related to plan loans and loan repayment, distributions, contributions and blackout notices. In general, the DOL will not take enforcement actions if plans follow the guiding principle to act reasonably, prudently and in the best interests of workers and families who rely on the plans for their economic well-being.
Specific guidance is offered in certain areas:
• Loans and Distributions: Plan sponsors must make a good faith effort to follow procedural requirements under the plan, but the DOL will not assist with requirements and if unable, make a reasonable attempt to assemble any missing documentation as soon as practicable.
• Participant Contributions and Loan Repayments: The DOL recognizes that some employers in these disaster areas may not be able to forward amounts withheld from employee wages within prescribed timeframes. Employers are required to act reasonably, prudently and in the interest of employees and comply with the regulations as soon as practicable. The DOL will not take enforcement action if timelines were not met solely due to the 2018 California Wildfires, in the FEMA-identified areas.
• Blackout Notices: Generally, 30 days’ advance notice is required when a participant’s rights under a plan will be temporarily suspended, limited or restricted due to a blackout period. The DOL regulations provide an exception to this requirement when the inability to provide notice within the required timeframe is due to events beyond the plan sponsor’s or fiduciary’s control.

The full DOL fact sheet can be found here. Your advisor is available to answer any questions you may have or help you determine practical approaches to meeting fiduciary duties and requirements.

Nonqualified Plans: Understanding the Fundamentals

Since the passage of The Employee Retirement Income Security Act of 1974 (ERISA), companies have found it difficult to provide their top executives with a retirement accumulation program that matches the level of benefits the average employee will receive.

The Gap is Real

This information is from the Principal Financial Group® Replacement Ratio Calculator with source information from the Annual Statistical Supplements to the Social Security Bulletin (www.ssa.gov). It is intended to demonstrate the potential impact of Social Security and 401(k) plan benefits at various income levels. For more information on your individual circumstances, please speak with your financial or tax professional.

Nonqualified deferred compensation plans can serve an important function in helping to fill the significant gap between the combined amount of a worker’s social security retirement benefits plus his/her qualified retirement benefits and the amount of retirement savings he or she will need in order to replace current income.

Regulatory Limits on Qualified Plans Drive the Need for Nonqualified Plans
• 401(k) limits executive contributions to $19,000 (2019)
• The maximum compensation eligible for qualified 401(k) or pension plan benefits is $280,000 (2019)

As a result, many employers have established nonqualified plans to supplement their broad-based plans and, therefore, provide competitive retirement accumulation for executives.

Nonqualified Plans Function as an Employer/Employee Agreement
• A nonqualified plan is, fundamentally, a contractual agreement (plan document) between an employer and one or more key personnel
• The company makes an unsecured promise to pay benefits subject to all the terms of the “agreement”
• A participating employee can never be more than a general, unsecured creditor of the employer as to the benefits (if current taxation of that benefit is to be avoided)

The Need for Executive Benefits
Employees deserve retirement security—to be allowed to perform their jobs creatively and enthusiastically, without the burden of retirement security hanging over their heads.
Employers need to be able to attract and retain quality management talent; to create management incentives; and to restore retirement income shortfalls for key executives, balancing risk with reward for directors.

This article is shared with permission from Fulcrum Partners. Click here for more information.

Hardship Withdrawals – IRS Issues Proposed Regulation Reflecting Statutory Changes

This past November, the IRS issued proposed regulations to effectuate changes made for hardship withdrawals in the Bipartisan Budget Act of 2018. Comments were due by Jan. 14, 2019. Although the statutory changes are effective beginning in 2019, the proposed regulations do not require any changes in how hardships are administered until 2020. Plan documents must be amended to reflect changes to the safe harbor rules. Most recordkeepers updated their systems so participants are no longer suspended from making contributions following a hardship distribution, but they have not set a time frame for when plan sponsors can expect to receive the necessary amendments. The deadline for amendments will be the end of the second calendar year beginning after the hardship changes appear on the IRS’ Required Amendments List. The proposed regulations include some changes that go beyond what is required to conform to the statutory changes. While the changes generally make hardship distributions more accessible, the IRS makes it clear that plan sponsors are free to add their own restrictions, such as limiting the sources eligible for hardship distributions.

Current Law
Prior to age 59½, in-service distribution of elective deferrals is limited to certain events including hardship. A distribution qualifies as a hardship only if made on account of an “immediate and heavy financial need.” The amount distributed cannot exceed the amount necessary to satisfy this need. The determination of whether the participant has “an immediate and heavy financial need” must be based on “all relevant facts and circumstances.” A distribution is considered necessary to meet “an immediate and heavy financial need” only if other resources are not available to the participant. Plan sponsors may accept a participant’s representation that he/she has no alternative resources, unless the sponsor has actual knowledge to the contrary. Certain sources are not eligible for hardship distributions – post 1988 earnings, safe harbor contributions, QNECs and QMACs.

Existing Safe Harbor Rules

Although not a legal requirement, the majority of plan sponsors follow the safe harbors. If a plan sponsor follows the safe harbor rules, the IRS will not challenge hardships on audit. These rules are included in virtually all prototype and volume submitter documents. There are two aspects to the safe harbor rules:

  • First, six events are deemed to qualify as “an immediate and heavy financial need:” (1) deductible medical expenses; (2) costs associated with purchase of a principal residence: (3) tuition and other expenses associated with post-secondary education; (4) payments to prevent eviction; (5) funeral expenses and (6) deductible expenses associated with repairing damage to a participant’s principal residence if deductible as a casualty loss.
  • Second, a distribution is deemed necessary to satisfy the immediate and heavy financial need if the participant has taken all other available plan distributions, including loans, and the participant is suspended from contributing for six months.

What Has Changed

  • The six month suspension of contributions is eliminated (optional for 2019).
  • The requirement to take a loan first is now optional.
  • Except for 403(b) plans, all account sources are now eligible for hardships, but sponsors may elect to limit the sources eligible.
  • Earnings remain ineligible for all 403(b) plans, along with QNECs and QMACs in custodial accounts.
  • Casualty losses related to home repairs are now deductible only if the taxpayer resides in an area declared to be a federal disaster. The proposed regulation clarifies that a participant is eligible for a hardship distribution for such losses whether or not a federal disaster is declared.
  • All expenses related to an event declared by FEMA to be a federal disaster qualify for hardship if the participant resides in or works in the disaster area.
  • Expenses incurred by the primary beneficiary that are qualifying medical, education or funeral expenses are eligible for a hardship distribution. Under prior law, this was limited to the participant, spouses and dependents.
  • The “all relevant facts and circumstances” evidentiary standard no longer applies. The participant must first take any available distributions under all plans of the sponsor. This includes non-qualified plans. And, beginning in 2020, the participant must represent in writing (or by electronic medium) that he/she has no other available resources to satisfy the need. The sponsor may accept this representation unless it has actual knowledge to the contrary.

Strategic Retirement Partners Embraces Fiduciary Excellence

Our firm was founded on the principles of integrity, professionalism and exceptional client service. We are also deeply committed to continuous improvement. Our dedication to doing what is best for you, our clients, prompted us to engage CEFEX, the Centre for Fiduciary Excellence, LLC to audit our processes.

We contacted the CEFEX organization and requested an independent analyst provide us with a comprehensive independent review. The process was rigorous and their assessment took months to complete. Now, after going through the audit and carefully evaluating our procedures, we are proud to share with you that Strategic Retirement Partners is a CEFEX certified Investment Advisor.

This certification signifies our commitment to uphold the highest level of fiduciary care and that has a direct impact on you, your plan and your employees. As a plan sponsor, the Department of Labor (DOL) identifies the following as your fiduciary responsibilities:

  • Act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  • Act prudently in the faithful performance of all duties;
  • Follow the plan documents (unless inconsistent with ERISA);
  • Diversify plan investments; and
  • Pay only reasonable plan expenses.

By working with Strategic Retirement Partners, you can rest assured that our actions align with these responsibilities; our prudent process aims to help you limit liability and build a retirement plan that strives to improve retirement outcomes.

CEFEX is an independent global assessment and certification organization. They work closely with industry experts to provide comprehensive assessment programs designed to improve the fiduciary practices of investment advisors, stewards (retirement plans, foundations and endowments, etc.), investment managers, and other financial service providers. CEFEX confers a formal certification for those firms that are willing to undergo an independent audit and able to demonstrate that they fully conform to high standards which are substantiated in case law and fiduciary best practices.

At Strategic Retirement Partners, we follow well-defined processes, grounded in best practices, so that we can make sound, objective, and consistent decisions in service to our clients. CEFEX certification offers testament to the fact that we understand the importance of paying close attention to everything from high level strategies and policies all the way down to the details of our business practices. The CEFEX Mark seeks to make our clients confident that we are worthy of their trust.

We wanted to share news of the important recognition of our commitment to fiduciary excellence and continuous improvement. CEFEX certification is yet another way we tangibly demonstrate that serving our clients’ best interests is our highest priority.

 

 

1 Department of Labor. “Meeting Your Fiduciary Responsibilities.” DOL.gov. Sept. 2017

CEFEX and Strategic Retirement Partners are separate, unaffiliated entities.

SRP Earns Fiduciary Excellence Certification

Strategic Retirement Partners is honored to announce our certification from the Centre for Fiduciary Excellence, LLC (CEFEX). This certification is only granted by CEFEX to firms that demonstrate adherence to fiduciary best practices. It is a hallmark accomplishment for Strategic Retirement Partners as it signifies conformity to a recognized global standard of fiduciary excellence.

Strategic Retirement Partners was subject to a rigorous, multi-month audit and certification process guided by the “Prudent Practices® for Investment Advisors”, an industry-recognized handbook that is grounded in law, regulation and professional best practices.

“CEFEX is pleased to add Strategic Retirement Partners to an elite group of investment advisors who have demonstrated adherence to professional practices that define a standard of fiduciary excellence,” said CEFEX Managing Director Carlos Panksep. “They have earned the right to use the CEFEX Mark which indicates the firm’s established practices are aligned with investors’ interests and worthy of trust and confidence.”

Jeffrey Cullen, Managing Partner and Managing Director, Great Lakes of Strategic Retirement Partners said, “Strategic Retirement Partners applied for CEFEX to verify our practice is trustworthy and transparent. Receiving the CEFEX certification, we uphold the global fiduciary standard. We embrace an orderly and efficient process, so we are positioned to help our clients make better business and financial decisions.”

Strategic Retirement Partners is certified for Investment Advisor Certification, which is registered and can be viewed at www.cefex.org.

CEFEX certification standards are substantiated by legislation, case law and regulatory opinion letters from the Employee Retirement Income Security Act (ERISA), the Investment Advisers Act of 1940, the Uniform Prudent Investor Act (UPIA), the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and the Uniform Management of Public Employee Retirement Systems Act (UMPERSA) in the U.S. A full copy of the standard can be downloaded from CEFEX at www.cefex.org and a summary can be viewed by clicking on Strategic Retirement Partners online CEFEX certificate.