Policy changes for small employer retirement plans

Broad adoption of workplace savings plans for small employers may require policy changes that encourage small businesses to give their employees the opportunity to save for their future.

What can we do to solve this problem? Here are five ideas that Empower Retirement believes can help with this important goal:

1.       Develop a simplified starter 401(k). Small businesses operate very differently from their mid- and large-market counterparts. They don’t have the same resources to manage a workplace savings plan, but they should have access to a simpler solution that removes administrative burdens. This starts with eliminating expensive and time-consuming testing and limiting in-service withdrawals, which reduce the amount of savings available at retirement. This could ease plan administration and keep the plan healthy by minimizing asset reduction.

2.       Expand underutilized startup tax credits and make the credits refundable. Small businesses take time to get off the ground. Profitability, which may be minimal during the early years, eliminates the value of a nonrefundable credit. Additionally, the uptake rate of the current credits is low — approximately a half-million dollars annually.3 We have to increase these tax credits to improve uptake.

3.       Increase availability of multiple-employer plans. Small businesses have limited access to the multiple-employer plan (MEP) system. This is due to the Department of Labor’s stance that there must be some commonality among MEP sponsors. Under current IRS rules, a disqualifying event by a single sponsor can disqualify the entire MEP.  This further discourages adoption.

4.       Establish designated plan providers to oversee administration of MEPs. A designated plan provider (DPP) could assume many of the fiduciary responsibilities to eliminate concerns and fears small businesses have related to this role. The creation of DPPs would also encourage Retirement Fund service providers to fully engage in this market.

5.       Create a regulatory environment that encourages plan adoption and maintenance. Small businesses need a simple, limited-liability correction process that doesn’t result in overly punitive penalties or unwarranted windfalls to participants. Policy makers need to remove the administrative burden associated with termination and asset distribution of abandoned plans. Providers should be able to streamline, consolidate and deliver required notices in a manner that leverages evolving technologies.

Retirement service providers and policymakers should work in partnership to ensure that all working Americans have access to an employer-sponsored savings plan. Any one of the proposed ideas could help more employers provide a retirement plan for their workers. These ideas can also help us bridge the retirement access gap.

Source: http://blog.empower-retirement.com/five-policy-fixes-to-help-small-employer-retirement-plans/  

Let your retirement be a new start to your new life

Venkatesh, a resident of Bangalore, was shocked when he enquired the price of flowers during the festive season, a few weeks ago. He was asked to pay Rs 50 for a small quantity! What surprised Venkatesh was the fact he could afford to buy same flowers for a cost of Rs 0.50 (yes, you read it right) less than a decade ago. For a man preparing for a retired life 10-15 years from now, this was worrying news.

In fact, retirement as a concept should get its due share of respect and time has come for all of us to put our mind on the subject. Not only because the price of goods and services we buy will keep increasing but also because we have to pay for them even when we don’t have the luxury of salary income. With life expectancy steadily increasing over the years, many of us may end up having a post-retirement life which could be equal to our working years!

While the above scenario may look scary, the good news is that we also have products which help us to tide over the challenging phase. The perfect example is pension plan which ensures steady flow of regular income as long as the investor is alive.

How does a pension plan work?

As the name indicates, the objective of the product is to provide pension income to the investor during his life for which he makes contributions during his income (earning) years. As a result, one should start looking at the pension plan at the earliest as longer the tenure, larger would be the corpus. At the end of the premium paying term, the customer has the option of withdrawing 1/3 of the corpus amount and choose to receive annuity or receive pension for the rest of his life.

Needless to say, an investor who thinks about Retirement Pension Plan at the age of 25 can afford to invest as little as Rs 20,000 per annum as he has the luxury of contributing for a period of 25-30 years. On the other hand, an investor who thinks about retirement at the age of 45 does not have the same luxury as he may not be able to work for 25 years due to various reasons. Hence, he may have to shell out a minimum of Rs 2 lakh per annum to manage his post-retirement life.

In fact, financial goal is an important aspect of retirement planning as the amount saved during working life should take care of the needs of the investor when he does not save. So, the best way to go about is to arrive at the cost of living at current level. Then factor in inflation over the long term which will be equivalent to the current expenditure. As you observed earlier in the case of flowers, the cost does not remain the same. Through pension plan, the problem of inflation will be tackled as the money saved during working life grows over a period of time.

One of the arguments against pension plans is that why go for a pension scheme when an investor can invest in various other products like equity schemes or fixed deposits and manage on his own. The answer is simple. Pension scheme is the only product which ensures regular income without the hassles of money management. In the case of pension plan, an investor needs to only invest during his income years. After the end of the term or when he requires pension, the company takes up the responsibility of paying pension as long as the investor is alive. No other product ensures such facility. This should prompt all of us to sign up for the pension plan.

Key factors of a pension plan

·         Start investing in a pension plan at the earliest. Every delay means less pension income in the long term.

·         Pension contribution is a long term commitment and hence avoid discontinuance

·         Sign up for a pension plan in line with your long term needs. It should ideally be part of your overall financial planning.

·         Check if your pension plan allows flexibility in terms of top-up facility, annuity options, etc

·         Contributions to a pension plan come under Section 80C. It can be part of your overall tax planning.  

Source: http://www.exidelife.in/knowledge-centre/blogs-and-articles/retire-on-your-own  

Why Should I Buy Insurance Before 25?

Yeah, young age does that to us. Gives us wings, a hope that time lasts forever and it will be a long time before the end comes and that becomes our biggest nemesis! Not only that, when we are young we tend to forget how the body behaves, since it has always been healthy and growing and showing signs of immortality. It’s only after we start to age in our late 30’s or early 40’s when we realise that we are not that active or healthy anymore like we were in the prime of our youth! By then it becomes late as far as our planning for a health coverage plan or life insurance is concerned.

The best time to start thinking about old age and sickness is when you still can, in a rational and stable state of mind. That time is when you’re pretty young, and logically speaking, there is a lot of practical benefit to it as well. The reason you should take a call for the insurance investments before you turn 25 has a lot to do with commercial benefits that you can’t avail at a later age.

An important aspect while buying insurance should be to consider lifelong renewal. This way you can stay covered and enjoy the insurance benefits throughout your life without paying hefty premiums or worrying too much about the costs of treatments.

It is only one life and it is mandatory to plan it in a way that not only it benefits you, but also your family members. Not only should it make things easier for you, it also takes away the stress from you, of thinking about the medical costs in case something unforeseen happens.

Do make such decision when you’re really young, so that even if insurance money is not utilized for medial or after-death benefits, after maturity of the policy, the money can be used for retirement purposes. 

Retirement Plan Company  investing early would mean the companies can offer you a wide variety of coverage plans, which are not available for older people. This would mean more options for you to think about that can take care of not only your life insurance needs, but also health insurance plans that cover diseases associated with age.

Keep your retirement income goals in mind

The purpose of a retirement plan is to replace income in retirement. If you’re still thinking about your retirement plan in terms of accumulated assets you might be more likely to have a negative reaction to market declines. It would be understandably frightening to see, for example, a 5 or 10% drop in your balance. You might even be tempted to take action and assume that by doing so you’ll reduce losses.

However, if you’re thinking about your retirement plan in terms of the monthly income you’ll receive in retirement, then market corrections are going to seem less impactful. The effect of even a large market move on your monthly paycheck in retirement is going to seem insignificant if you’re planning for the long term. If one develops that monthly retirement income mentality it’s a great way to diminish any fears and will help prevent making emotional investing decisions.

Develop a plan to help guide you through turbulent markets

Hopefully, you’ve got an advisor with whom you’ve developed a retirement plan that’s aligned with your goals. If you don’t, research from the Lifetime Income Score V4 shows that the value of advice is significant. It’s critical that in times of market volatility you stick with that plan and don’t let unexpected market turns force you off the path unnecessarily.

With a high degree of certainty, I can say that you and your advisor did not develop a plan that required you to panic when the markets become volatile. Your plan does not instruct you to react with emotion when markets decline. Stick to your guns and stay the course. Your advisor knows how to build a retirement plan and you ought to have confidence in it.

Market timing does not pay

Part of the reason you should be in an advisor relationship is to help keep you in the market at the right time and in the right investment vehicles to help keep your savings working for you. It’s certainly tempting to think that by exiting the market you’ll avoid losses and be able to re-enter the market at the right time. There is a lot of research5 that’s been done to show that attempts to time the market are very difficult to successfully execute.

Check in with your advisor

If you have concerns, now is a good time to talk to your advisor. See what he or she is thinking about the current market environment, ask questions and discuss whatever concerns you may have. The conversation alone may provide with Retirement Plan Company assurances you need. If the current market environment is exposing flaws in your strategy or revealing that you may not have the risk tolerance you originally thought you had then, by all means, work with your advisor to make a change. But more often than not, your next step is to do nothing, stay the course and keep on saving toward your goals.

Insurance Plans Provide Guaranteed Income For Post Retirement Life

Indian people have an instant requirement for a financial product which gives long-term stability and can provide them an guaranteed income source during post-retirement years. Most people are not secured with any type of pension plans. Therefore, they are dependent on their own income or need a help from their working children. They do not accumulate enough money to use it as a support for themselves at the stage of retirement. So, they face some serious slipping possibility into poverty once they are retired.

The overall situation does look like a scary dream, but you can overcome very easily if you begin early planning for retirement as well as start investing for long periods to benefit from the power of compounding returns to make a rough retirement corpus.

Working people needs to focus on an income needed to continue their current standard of lifestyle and offer support for expensive medical costs in post-retirement years. Then, buyers would reach at a monthly allocation which requires to be prepare from their current earnings to get an ideal retirement corpus and benefit from an uninterrupted flow of income during post retirement years to continue the current lifestyle.

Many insurance companies provide a wide range of best pension plans that can go long way in targeting the post-retirement issues of current working population. All these schemes have a long-term orientation when it comes to investing the premiums with a goal to make a flow of annual income through a good combination of non-guaranteed and guaranteed cash payments.

Insurance cover gives a  strength to handle the risk of a sudden death of the insured person with brave heart and a choice to customize the insurance by selecting from a bundle of riders for additional security to minimize the financial impact of various major threats to the livelihood of the policyholder because of serious illness.

These schemes plan lifetime security along with guaranteed lifetime annual income. Plus, these products are one of the best ways for generating an annual income till death, it works really well when customers buy the same for their child. Once buyer pays premiums for a certain period, his child enjoys a guaranteed income every year along with insurance cover for whole life.

These pension schemes offers a neatly-structured schemes for post-retirement years and offer a discipline to regularly invest in the best retirement plans. These products would empower a policyholder to hold a charge of funding their golden years and enjoy financial independence once they retire.

Along with good health, a sustainable income on retirement is also important for a secure retired life.

Is Life Insurance a Retirement Investment?

Sometimes it seems the insurance industry believes that buying a life insurance policy in one form or another is a cure for any financial ill. To be clear, life insurance is a part of many properly constructed financial plans. Many of us need to provide this protection for our families in the event of an untimely death. Parents, and anyone who provides support for someone else, might consider life insurance protection.

Life insurance can also be used for estate planning purposes or as a vehicle to ensure that a business can continue to operate in the event of the death of an owner or key employee.

My beef, however, is with life insurance marketed as an investment, most often as a retirement investment vehicle. To say the life insurance folks are inventive and creative marketers is an understatement.

A typical scenario

Life insurance is often marketed to high-earning professionals and business owners as a means to put away additional funds for retirement over and above any type of retirement plan they might already have, such as a 401(k).

The pitch is this: buy a policy with underlying investment vehicles that will build cash value over time. The client funds the policy for certain number of years and the growth in the cash value will eventually negate the need for additional premiums. At retirement the client can withdraw cash as a tax-free loan for retirement. The loans never need to be repaid and the only consequence is a reduced death benefit.

Consider alternatives

If you are pitched a plan to use life insurance as a Retirement Insurance Policy make sure that you have reviewed and exhausted all other alternatives first, including:

Fully funding a qualified retirement plan including a 401(k) or SEP-IRA.

Starting a pension plan for yourself. This includes a cash balance plan.

Funding a low-cost, no-load variable annuity.

Even if you find that this life insurance strategy is the best course of action make sure that you shop policies and companies. You will want to look at the quality of the underlying investment and understand all underlying fees and expenses.

If you buy a policy, make sure that you continue to monitor it. Set aside money to fund it, watch the performance of its underlying investments, and be sure withdrawals won’t a trigger a tax penalty?

Life insurance can help provide financial security for your family. However, if you buy it for any reason other than the death benefit, make sure that the policy fills the alternative role in the best possible fashion before writing your first premium check.

Five policy fixes to help small employers with retirement plans

Policy changes for small employer retirement plans

Broad adoption of workplace savings plans for small employers may require policy changes that encourage small businesses to give their employees the opportunity to save for their future.

What can we do to solve this problem? Here are five ideas that Empower Retirement believes can help with this important goal:

Develop a simplified starter 401(k). Small businesses operate very differently from their mid- and large-market counterparts. They don’t have the same resources to manage a workplace savings plan, but they should have access to a simpler solution that removes administrative burdens. This starts with eliminating expensive and time-consuming testing and limiting in-service withdrawals, which reduce the amount of savings available at retirement. This could ease plan administration and keep the plan healthy by minimizing asset reduction.

Expand underutilized startup tax credits and make the credits refundable. Small businesses take time to get off the ground. Profitability, which may be minimal during the early years, eliminates the value of a nonrefundable credit. Additionally, the uptake rate of the current credits is low — approximately a half-million dollars annually.3 we have to increase these tax credits to improve uptake.

Increase availability of multiple-employer plans. Small businesses have limited access to the multiple-employer plan (MEP) system. This is due to the Department of Labor’s stance that there must be some commonality among MEP sponsors. Under current IRS rules, a disqualifying event by a single sponsor can disqualify the entire MEP.  This further discourages adoption.

Establish designated plan providers to oversee administration of MEPs. A designated plan provider (DPP) could assume many of the fiduciary responsibilities to eliminate concerns and fears small businesses have related to this role. The creation of DPPs would also encourage retirement service providers to fully engage in this market.

Create a regulatory environment that encourages plan adoption and maintenance. Small businesses need a simple, limited-liability correction process that doesn’t result in overly punitive penalties or unwarranted windfalls to participants. Policy makers need to remove the administrative burden associated with termination and asset distribution of abandoned plans. Providers should be able to streamline, consolidate and deliver required notices in a manner that leverages evolving technologies.

Retirement Insurance Company service providers and policymakers should work in partnership to ensure that all working Americans have access to an employer-sponsored savings plan. Any one of the proposed ideas could help more employers provide a retirement plan for their workers.

Source: http://retirementplansinindia.tumblr.com/post/145001841845/five-policy-fixes-to-help-small-employers-with