What Is a Beneficiary?

In the most simple form, a beneficiary receives money, estate, and other benefits from someone else, called the benefactor. In other words, you, the benefactor, would designate a beneficiary — or beneficiaries — to take over your 401(k) in the event of your death.

Consider whom to choose as your beneficiary or beneficiaries carefully and update it regularly — more on that below. Many people choose to name their surviving spouse or child as their beneficiary. Younger people might choose their parents.

Steps to Ensure Your Money Gets in the Right Hands

If you’re ready to choose your beneficiaries, follow these steps to ensure your 401(k) is handled the way you want.

1. Assign a Primary Beneficiary

Assigning a primary beneficiary to your 401(k) allows them to take ownership of these funds without your will, which can take more time to access. If you assign more than one primary beneficiary, you can choose to distribute your assets equally or specify what percentage you would like each beneficiary to receive.

2. Select Contingent Beneficiaries

Contingent or secondary beneficiaries inherit your assets if the primary beneficiary is no longer living. Like primary beneficiaries, you can assign one or many people as your contingent beneficiary. Be sure to specify how much of the assets go to each person.

3. Update Beneficiaries After Major Life Events

As your life evolves, you may get married, get divorced, or have kids. As you reach these milestones in your life, take the time to update your list of beneficiaries. If you die and your beneficiary is an ex-spouse or someone who has already passed away, your wishes may be disregarded. The beneficiaries you list on your 401(k) override even your will.

Also, remember to update all 401(k) accounts you might have from previous employers. You can choose to consolidate them or roll them into an IRA, too.

4. Tell Your Beneficiaries About Your Accounts

It is essential to inform all beneficiaries of any information they need to know to access your retirement account. For example, your beneficiaries should know the financial institution where your account is and whom they need to contact.

Let Fort Pitt Capital Help

If you have concerns about naming beneficiaries and managing your 401(k) account, Fort Pitt Capital can assist you. Learn more about our services online or by contacting us at 1-800-471-5827.

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As the committee is getting ready for each meeting, they can look at the last meetings’ minutes and recall what was discussed. The retirement plan is not part of the day-to-day responsibilities for most committee members, so having records of previous meetings recaps what occurred.

The plan committee can designate a “secretary” to take notes at the meeting and type up minutes. It’s advised that before each subsequent meeting, each member reviews the minutes and approves them. At the following meeting, the approval of the previous meeting should be noted in current minutes, indicating that everyone agrees on the accuracy as part of the official record.

If a plan sponsor is ever accused of breach of fiduciary duty, and there’s no written proof of the process or rationale behind a decision, they have no way of defending the decisions made and could potentially face fines.

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An understanding of how service providers, record keepers and/or custodians are compensated in the form of fees is crucial. As a plan grows in size, the relative cost to administer the plan should go down. It’s incumbent upon the plan sponsor, or if relying on an advisor for the plan, to negotiate lower fees on behalf of the plan and participants.

It’s a plan sponsor’s responsibility to know how an advisor is being compensated. If it’s upon the investments they recommend, are they being paid a commission? If there’s an inherent conflict of interest in their recommendation, then you need to recognize and resolve that issue.

There are also investment expenses, the cost associated with the internal operating expense of each of the investments. Are you using the lowest possible share class within each fund?

A reasonable amount of fees is a range or zone not necessarily a target number. That meaning, it’s all relative to the plan. It’s not about absolute cost, advisors and investors should consider the fees for services in light of what’s available in the marketplace.

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Many business owners fail to understand the value of a 401(k) plan for their company, they often believe it is too expensive, it will take too much of their time and there is an added administrational burden. In addition, perhaps no one has fully explained to them the benefits of a 401(k) plan for their company.

Understanding the benefits of a retirement plan is key in preparing business owners and their employees for retirement. Working with a competent advisor can help employers work though administrative issues they may be worried about. The truth is, the benefits of a 401(k) plan far outweigh the monetary commitment and time burden that would be incurred. Offering an additional benefit above and beyond employee wages, is a great recruitment and retention tool. It helps to acquire the best and brightest employees, and keep them around.

If employers do offer a retirement plan, but employees don’t participate, there are a few things employers can do to help. Workers may think they can’t afford to contribute to a retirement plan, but if they ever want to retire, they can’t afford not to. It’s likely no one has properly explained the benefits of the plan to employees such as a matching component or the benefits of making pre-tax contributions. Typically, people lack an understanding of how their plan works, what to do, and what the benefits are—if it’s not explained to them properly they aren’t going to participate.

Once a retirement plan is offered, the best way to engage employees is to lead by example. Encourage employees to participate and provide educational seminars to inform employees of plan benefits.

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With a new year, it’s vital to reassess your plan offerings, and understand what’s new in this space for 2016 and beyond. In this monthly blog series, we will expand upon each of the questions below in an individual blog post:

1. Does your company offer a 401(k) plan?
2. Is your advisor serving as Fiduciary and have they acknowledged such in writing?
3. Do you have Fiduciary insurance coverage for your plan?
4. Do you understand all the fees that your company and employees are paying?
5. Do you have a written investment policy statement?
6. Do you know who your plan fiduciaries are?
7. Do you have written record of the plan minutes and documents?
8. Are employees receiving advice specific to their situation?
9. Have the plan documents been read and understood by the plan fiduciaries?
10. Is your plan a 404(c) plan?

Check back next month when we dive into our first plan sponsor question!

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The reason that many may suggest paying off a student loan first is the “opportunity cost” of paying that specific debt and no longer being tied down to the interest rate that is attached to the loan. It’s true that you get a guaranteed return if you pay off the loan (typically around 6.9 percent with today’s lending standards), but if you invest your 401(k) assets in an all-equity portfolio (since younger investors can afford to participate in “more aggressive” allocations) the return is likely to be greater than 6.9 percent over time. The S&P 500 has had a return of 7.65 percent over the past 10 years (as of 12/5/13), which includes one of the worst bear markets (2008) we’ve seen since the early 70s.

Aside from investment returns, the benefits of contributing to, and focusing on a 401(k), far outweigh plans to first pay off student debt. Our argument is to focus on retirement contributions first and foremost, and follow that by paying down/off student loan debt. Consider the following advantages:

1. Establishing a strong savings mindset early on. Transitioning from school into the workforce can be overwhelming for younger adults, especially as they begin to receive their first full-time paychecks and suddenly have the cash flow that they didn’t necessarily have throughout college. By contributing to a 401(k) early on, millennials force themselves to get into the habit of saving money for retirement.

2. Compounding over the decades. By aggressively contributing to a 401(k) early on in your 20s, the investments have the chance to compound over what will likely be the next 40 years. By focusing on paying off debt first, and focusing on a 401(k) second, millennials miss their chance to start this fund and will have to contribute a higher deferral percentage later down the road, with a lessened guarantee of benefitting from extra years of compounding.

3. Tax benefits. Especially with certain retirement vehicles, such as a Roth IRA, the tax benefits over time work in a millennials’ favor.

Getting a jump start on 401(k) contributions as early as possible is vital to securing the foundation of your retirement later in life. For millennials, it may be difficult to think about retirement in the “here and now,” since it is four or more decades away, but by contributing the maximum amount as soon as possible, it will set this generation up for success when they near the golden years of their life.

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