Western Benefits Conference

This year's Western Benefits Conference was held in Seattle, WA, and as always there were some interesting topics and speakers. One of the highlights for me personally was attending the ASPPA PAC reception, and meeting Sal Trapodi, among others.

ASPPA (a co-sponsor of the event) had a large presence. All of our employees are required to pass at least the first two ASPPA exams, and Administrators are encouraged to obtain various ASPPA designations. While discussing this with ASPPA's educational representative, I was informed about one of their latest initiatives: Certifications for Investment Professionals, being slated as the "CFP for retirement plans". More information will be posted on this shortly.

A hot topic over the course of the conference was the DOL's focus on 2 things: 1. PPA Implementation; and 2. Fee Transparency. For the DOL's summary on these topics go to www.dol.gov/ebsa, however future postings to this site will focus on these issues.

Other issues discussed (which, again, will be covered in future postings) include: updated 402(f) notices to terminated participants, the HEART Act, 401(k) Safe Harbor Deposit Timing, Cash Balance Plans, and various proposed bills.

Seattle is a beautiful, and CLEAN, city...if you ever get the chance, take a few days to walk around the city and check out Pike Street Market and, of course, the Space Needle. On another note, I rounded out the week by attending day 1 of the inaugural Mile High Music Festival in Denver, CO. Though there were many great acts there that night (Tom Petty & The Heartbreakers, Mike Gordon, Moe. and more), I have to say that once again Steve Winwood blew me away. He sounds as great today as he did 40 years ago!

Economy Going Down, Participant Loans Going Up

For those of us in the Retirement field, the latest survey released by the Transamerica Center for Retirement Studies came as no surprise. What the survey found was that 'the number of workers with loans outstanding on retirement accounts...rose to 18 percent in 2007 from 11 percent a year earlier.'

As retirement plan administrators, we can predict fairly accurately when the upswing in participant loan requests will occur: the start of the school year when tuition bills arrive and just before and just after the Christmas holiday shopping time. But with the recent trends in the market, the rising costs of living, and the current mortgage 'crisis', we have certainly witnessed a significant, and steady rise, in loan requests in the past months.

As a rule of thumb, we encourage plan sponsors to hold off adding loan provisions to a plan as long as possible, because we often see that once the floodgates have opened, participants see the loan option as a quick fix to their current situations. In reality participants are damaging their retirement savings, while (in many cases) just delaying the inevitable.

Many participants look at plan loans as a viable option because they pay THEMSELVES back the interest instead of a bank or lending institution. But what they fail to realize, especially in a downward trending market, is that when the assets are liquidated, and the loan check cut from their account, they have most likely just committed the cardinal sin of investing: they bought when the market was high, and sold when the market was low. Worse still, if the market turns around while the loan payments are still ongoing, they will then be buying back in at a higher value.

What is more troubling, in real world applications of loans, is that there are a number of participants that terminate employment with outstanding loan balances. If these loans are not paid in full immediately (or if an arrangement is not made for ongoing loan payments), the loan balance is deemed in default, and will be a taxable event to the participant. This can certainly further the financial strain on those already feeling the crunch.

Take time to educate participants about the pros and cons of taking a loan from a retirement plan, and when possible, have them look for other alternatives. They may not realize it now, but come retirement they'll be glad...