J.P. Morgan Asset Management recently released their "Retirement Insights: 2010 Guide to Retirement," focusing on important issues and considerations for retirees. Retirement needs continue to show that couples require nest eggs that last for perhaps two decades or more. As a result, the number of people still working during their "retirement" years are increasing. The reasons, categorized as "needs," include the following:

• 57% (keep working) to keep insurance benefits
• 47% (keep working) to make "ends meet"
• 38% (keep working) to buy extras

Others, however, retired earlier than planned for reasons beyond their control, including:

• 42% (retired early) for health problems or disability
• 34% (retired early) for changes at company (downsizing/closure)
• 22% (retired early) for work related reasons
• 18% (retired early) to care for spouse or family member

Another important consideration for retirees is the potential costs of healthcare in retirement. For retirees, without employer medical coverage, the present value of costs for retirees in 2008 was:

• For Men, $156,000 to cover 50% of possible health outcomes, and $331,000 to cover 90%
• For Women, $217,000 to cover 50% of possible health outcomes, and $390,000 to cover 90%

The present value for costs for retirees in 2018 is estimated at:

• For Men, $261,000 to cover 50% of possible health outcomes, and $555,000 to cover 90%
• For Women, $364,000 to cover 50% of possible health outcomes, and $654,000 to cover 90%

Regardless of where healthcare goes in the U.S., future retirees must consider its costs along with their other needs in retirement. For a copy of the J.P. Morgan report, please email your plan consultant or email info@m-rpa.com

Company Match Makes a Comeback

Data from a recent Profit Sharing/401k Council of America's (PSCA) survey, titled "Response to Current Conditions" indicates that the economy just may be strengthening; companies that suspended or reduced contributions to 401(k) and profit sharing plans due to economic conditions are restoring or planning to restore them. "Companies continue to make their 401(k) plans a top priority," said David Wray, PSCA President. "Those that have suspended their matches are in the process of restoring them, and companies are aggressively restructuring their investment lineups."

More than 70 percent of companies made no changes to matching contributions and nearly 10 percent increased them in the last three years. Of the 14.8 percent of companies that suspended matching contributions in the last three years, 39.3 percent have restored them and 37.8 percent are planning to restore them within the next six months.

Employees are also continuing to contribute to their plans, with many increasing their contributions. While nearly 40 percent of companies reported no change to the number of employees making contributions, 31.6 percent indicated an increase. However, 78.1 percent of companies that suspended matching contributions (which remain suspended) reported a decrease in participation.

The survey was conducted in October 2010 and reflects the responses from 531 401(k) and profit sharing plan sponsors from across the country. PSCA conducted a similar survey of 403(b) plans. Both reports are available at www.psca.org.

Many Plan Sponsors May Not Comply with ERISA 404(c)

Compliance with section 404(c) of ERISA protects plan fiduciaries from liability for losses that result from the investment decisions made by participants. Conversely, failure to comply with 404(c) could result in liability for losses due to poor investment decisions made by plan participants.

According to ERISA, plans intending to comply with 404(c) must provide that participants: Have the opportunity to choose from a broad range of investment alternatives (which are adequately diversified); may direct the investment of their accounts with a frequency which is appropriate; and can obtain sufficient information to make informed investment decisions.

While these key three requirements are well known, the rules also have an employee notification requirement that rarely receives adequate support from retirement plan providers.  Most plan sponsors are unaware that they must provide periodic written notification to participants with their intent to comply with 404(c), and be able to provide the following:

• Information about investment instructions (including contact information of the fiduciary responsible for carrying out participant investment instructions);
• Notification of voting and tender rights;
• Information about each investment alternative; and
• A description of transaction fees and investment expenses.

To comply with some of the important requirements of 404(c), Montgomery Retirement Plan Advisors encourages our clients to review and execute a formal 404(c) Policy Statement and Employee Notice and send the Notice at least annually to all employees. To help with this effort, we will provide you with a boiler plate template you can use for your plan. Contact your MRPA plan consultant or email info@m-rpa.com for assistance.

Communication Corner: Extra Retirement Savings in 2011

What a great time to increase your deferral rate! This month’s sample participant communication memo addresses the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, reducing workers’ 2011 Social Security tax withholding rate from 6.2 to 4.2 percent of wages paid. Email info@m-rpa.com for copy that you can print and distribute to employees.

News from MRPA

• Montgomery Receives Award at 401kWire’s Thought Leadership “Influencers’ Summit”
  The Influencers’ Summit met in early March to provide an opportunity for retirement plan industry executives, asset managers and selected consulting firms to share ideas and chart best practices for the retirement plan field.  At the conference, Mike Montgomery was honored to once again receive an award as one of the Top 60 Advisors in the U.S., following on the heels of his 2010 award as #1 Advisor in his market segment.  To read the article, click on or paste the following link:
  http://m-rpa.com/pdf_files/MM_Top_Advisor_401kwire_Feb_2011.pdf

• Montgomery to Speak at Fiduciary Conference in May
  Mike Montgomery will be speaking at the fi360 Conference in San Antonio, Texas on May 5, 2011.  fi360 is associated with the Foundation for Fiduciary Studies, which advances standards and practices for investment fiduciaries, and also sponsors the AIF® (Accredited Investment Fiduciary) and AIFA® designations.  His panel will address the topic, “Multiple Employer Plans: An institutional-level fiduciary and administrative solution for the smaller end of the 401(k) market”.

This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.

Securities and investment advisory services offered through Financial Telesis Inc. Member FINRA / SIPC. Montgomery Retirement Plan Advisors and Financial Telesis Inc. are not affiliated.