Category Archives: General Posts



It took about six years of annual asset reviews with my financial planner, Joe Mackey, to confront a big question. After I spent my entire adult life trying to save enough to quit working by 65, Mr. Mackey wanted to know what my rush was.

“Do you even think you’ll want to retire?” I’m a 42-year-old writer with a job offering travel, intellectual grist and social connection. With few hobbies and an allergy for sitting still, it’s fair to assume my view of a comfortable retirement includes more work than quit. Maybe I’ll deliver the mail, write books or teach.

People spend a lot of time wondering if they’ll have the means to retire, often ignoring the equally important calculation: Do they have the will to retire? A job, historically seen as simply a way to make money, is increasingly the source of the types of friendship and stimulation that are hard to find in bingo halls, on beaches or riding a golf cart.

“When my friends and I talk about our futures none of us says, ‘When I’m 65 I’m going to retire and live on a farm and do nothing,’ ” says Kevin Frazier, a former legal assistant at Google who is now pursuing joint law and public-policy degrees at Harvard and the University of California, Berkeley. Mr. Frazier, age 26, watched his dad work a 30-year career at AT&T, but the one-employer tenure is no longer status quo.

Mr. Frazier is representative of the way many entering the workforce today think. Routinely told they won’t have the cash to retire and can expect to live longer and healthier lives than their parents, Gen-Z workers have plenty of motivation to pursue employment even after they become eligible for Social Security.

“When people leave school it’s not going to be for 25- or 30-year careers, it’s going to be for a 50-year career,” says economist Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School of Business. Dr. Mitchell says actuaries (the people trying to figure out how long beneficiaries will live), are now projecting people entering the workforce could live 125 years. And that’s just a starting point.

“Some demographers say the baby who will live to 200 years old is already born,” Dr. Mitchell says. Average life expectancy in the U.S. is 78, according to the World Bank. “People in their 60s today look very much like people in their 40s not long ago,” she says.

This view of aging is shaping our career aspirations. Mr. Frazier, for instance, expects to dice up his working years into 20-year increments devoted to potentially different areas of interest. He reckons he’ll take a sabbatical. Others I talk to say they will work part time or even go back to school later in life.

A 2018 Transamerica Center for Retirement Studies survey found half of 6,372 workers polled don’t expect to retire at 65, and 13% plan never to retire. The number of people who plan to retire after 65 has increased threefold since 1995, according to Gallup. America’s average retirement age has increased in the past 25 years to 66 or older.

Much of this sentiment is due to the barrage of headlines about rising health-care costs and Social Security shortfalls. Boston College professor and economist Alicia Munnell says it’s smart to encourage today’s workers to stay employed until at least 70 years old in order to accumulate more savings.

But there are other reasons to stay employed. In her book “Working Longer,” Dr. Munnell says the physical demands of work have declined and it has become “much more personally and socially rewarding.”

With U.S. birthrates falling and membership in religious institutions at all-time lows, work is addressing a void once filled by children, churches or community organizations.

Overall, people are working more—a half-hour longer every weekday versus 12 years ago—and spending less time socializing, attending community events or participating in sports and exercise, according to the Bureau of Labor Statistics.

Careers are already getting longer. Today, the only age group with a growing labor participation rate is those 55 and older.

If the modern concept of retirement seems outdated, Dr. Mitchell says, it’s because it was forged around the Great Depression when Social Security was established as an insurance plan for the elderly finding themselves unemployed. Back then, the majority of Americans who made it to adulthood could expect to live only to 65, according to the Social Security Administration. That’s when potential benefits kicked in.

Richard Johnson, a senior fellow with the Urban Institute, a nonpartisan policy research group, says it’s deteriorating health and poor job satisfaction—not money—that most often inspires someone to leave the workforce. People who can and want to stay in the workforce also live longer lives and face a lower risk of dementia, depression and obesity, according to research by Matthew Rutledge, an economics professor at Boston College.

For those wanting to keep working it is easier than in the past to remain sharp and productive, says Pam Jeffords, an employment expert advising on future workforce issues for PricewaterhouseCoopers. Now largely confined to speakers and smartphones, voice assistants could one day be ubiquitous, making digital work easier. Developments in semiautonomous vehicle technology will make commuting safer; automated processes can reduce physical or mental demands; and an abundance of retraining efforts give more opportunities to revive or learn new skills.

Dr. Mitchell, the Wharton professor, says the rise of the so-called gig economy (think Uber drivers and Airbnb owners) offers a view into what future opportunities could await some people who step out of a full-time job and seek fewer hours or more flexible arrangements. Some experts call these bridge jobs or “unretirement jobs,” John Laitner, a University of Michigan retirement expert, says.

Patagonia, the outdoor clothing maker, is among an army of companies analyzing how it will deal with a rising tide of older employees. Dean Carter, the California company’s human-resources chief, says the company is intent on providing a “glide path” for people nearing retirement who don’t want to simply fall off a “cliff.”

Mr. Carter and others at Patagonia started to tackle this more intently about 18 months ago when longtime employees signaled they were thinking of hanging it up. The company realized it would be a mistake to see its “elders” walk out the door because there wasn’t a way for them to work less formal schedules, and began to implement changes.

The company’s longtime editor, for instance, has left her day-to-day role editing company materials, but she is teaching younger charges how to write in the “Patagonia voice,” Mr. Carter says. Other elders are spending time in the lunchroom at the Ventura, Calif., headquarters passing down stories; traveling the world lecturing on the company’s culture; or conducting sessions on the environment.

Meanwhile, my financial planner and I revisited the question of retirement. I’ve agreed to fund my 401(k) at a pace where I can quit in about 25 years—not so I can stop working but so that I have options.

This fits the future, according to law student Mr. Frazier, even in the early days of what he expects to be a long career. “I feel zero pressure to retire on time—whatever that even means.”


January 10, 2020


The Huge Money Mistake Too Many Millennials Make

A recent survey of millennial’s found that nearly 4 in 10 adults between the age of 22 and 35 believe that there is no big rush to start saving for retirement, and that they can focus on other goals such as building an emergency fund or saving for a home down payment.
Just one-third of the young adults surveyed is saving for retirement. I was so sad to see that just 60 percent of people with a workplace retirement plan that offers a matching contribution, are enrolled in the plan. That means that 40 percent of young adults surveyed are literally turning down an annual bonus. That’s what a matching contribution is: a bonus given to you if you agree to contribute to your retirement plan.

If you are a millennial, or happen to love one to pieces, please listen to me:

The single best move any millennial can make is to save for retirement right now. Not next year. Or in five years. Right now.

The Magic of Compounding

One of the most overlooked “tricks” of investing is that time is on your side. The earlier you start saving, the more time your money has to grow. That is what is called compound growth.

This is one financial concept you are going to love. And it’s easy to understand. Lett’s say you have $100. And it earns 7% this year. That means at the end of the year you have $107.

At the end of year 3 if your money has grown at the same 7% a year, what will your account be worth?

A. $121
B. $122.50

The answer is B. The higher amount is because of compounding. In year 2 you started with $107 and that compounded by 7%. At the end of year 2 you had $114.50 and that sum then grew by 7%.

Okay, I know what you’re thinking: ‘Really Suze, you want me to get excited about a few extra bucks?’

Nope. I want you to get excited about the hundreds of thousands of extra bucks you can have if you take advantage of compound growth.

Let’s walk through another example:

Save $250 a month starting at age 22 and you will have nearly $1.2 million saved by the time you are 70, assuming a 7 percent annualized return. Over the 48 years you contributed $144,000, and compound growth did the rest of the work.

If you instead wait until age 42 to start saving, you will end up with around $260,000 by age 70. That’s the cost of 20 years less of contributions, and most importantly, 20 less years of compounding working for you.

Okay, let’s assume that at age 42 your goal is to play catch up: you will save enough each month to end up with the same age-70 pot of around $1.2 million. To do that you would need to save more than $1,100 a month from age 42 to age 70. That adds up to saving more than $370,000 of your own money over the 28 years to end up with nearly $1.2 million.

Let’s review: start at age 22 and you will need to contribute $144,000 of your own money to end up with nearly $1.2 million at age 70 assuming a 7% annualized return. Start at age 42 and you will need to contribute more than $370,000 of your own money.

That’s a huge price to pay for waiting to save for retirement.

I get that it can be hard to juggle saving for retirement with all your other financial goals, from building an emergency savings fund to paying your student loans.

All I ask is that you try your very best to start saving for retirement today, so you can take advantage of compound growth. Something is always better than nothing. Take the time to carefully go through your budget; I bet you can find $50 or more a week you can trim from spending, that can then go toward your retirement savings.

And if you do have a retirement plan at work that offers you a matching contribution, please, please, please make sure you are contributing enough to the plan to qualify for the maximum matching contribution. There is no better deal than receiving a bonus that can then compound for decades.


Private Pension Product, Sold by Felon, Wipes Investors Out

Investors accuse Future Income Payments of taking them for more than $100 million


Scott Kohn, a 64-year-old felon, ran a company from a Nevada strip-mall mailbox that investors claim took them for more than $100 million in losses.


Mr. Kohn’s company, Future Income Payments, appears shut, according to court filings. His investors are likely to be wiped out, according to lawyers representing them, who plan to sue scores of firms that sold Future Income products as soon as this week. At least 25 states have taken enforcement actions or are investigating the company, it said in April.


The blow-up shines a light on the boom in opaque private markets, to which investors have flocked in the hope of doing better than they can in traditional stock and bond markets.

Private-market products, including the ones offered by Future Income, are frequently sold by financial advisers. Sales targets are often retirees looking to beat the anemic returns on bonds and other savings products.


Future Income essentially sold investors other people’s pensions. Mr. Kohn’s firm would find workers entitled to pension payments and temporarily buy the rights to those payments—effectively lending the beneficiaries money against their future pension income in what is called a “pension advance.” Then, Future Income would sell the rights to investors for a lump sum. An investor might put up $100,000 in exchange for an income of 7% for five years, for example.

But Future Income’s apparent collapse has left investors stranded. The company is no longer collecting the pension money that funds its own payments to investors, according to court documents. Mr. Kohn couldn’t be reached for comment. It isn’t clear if he has a lawyer.


JC and Mary Barb of Hemet, Calif., say their financial adviser Kevin Kraemer persuaded them to invest some $78,000 with Future Income last year. “He came to us and said, ‘Hey we can make some more money on your money,’ [and] sold us this new deal,” said Mrs. Barb, a 66-year-old retired postal worker. Her husband, a 63-year-old retired teacher, said the money “was to be a big help to us in our retirement and now it’s not there, it’s gone.” Mr. Kraemer declined to comment.


Unlike publicly traded investments, there are few rules on how pension advances can be sold or by whom. “They illustrate the problems with the financial services industry selling opaque, high-commission private investments,” says Joe Peiffer, a New Orleans-based plaintiffs’ lawyer representing some purchasers of Future Income’s products. “We have clients who were advised to cash in their pensions and refinance their homes to buy these things.”


In a letter sent to investors in April, Mr. Kohn said his company was suffering from “intense regulatory pressure and legal expense,” and investors had been told there were “no guarantees [they] would receive all payments.” Future Income didn’t respond to emails, and its phones appear to be down. Christopher Jones, a lawyer representing the company over a civil investigation by the Consumer Financial Protection Bureau, didn’t respond to requests for comment. The CFPB declined to comment.

Future Income called itself “America’s largest pension cash-flow originator,” boasting of a “global footprint of over 200 employees.” Its mailing address is a mailbox at a United Parcel Service Inc. store in a strip mall outside Las Vegas. The same address has been used by Mr. Kohn for dozens of other companies, most of them now defunct, state records show.


Mr. Kohn formed Future Income in 2011, company records show. In 2016, he set up a separate company, FIP LLC, controlled via a Philippines-based corporation of which he is the sole owner, according to a complaint filed last year by Minnesota regulators. He pleaded guilty to trafficking in counterfeit goods in 2006 and served 15 months in federal prison.


State regulators took action against Future Income as early as 2014 over the terms on which it was buying pension benefits, saying the firm was lending illegally. Some states said the company was breaching state laws limiting the interest that can be charged on loans. A disabled Gulf War veteran who borrowed $2,700 was required to send $450 a month from his benefits for five years—a total of $27,000, or an annual percentage rate of 200%, according to one example cited in the Minnesota lawsuit. Mr. Kohn in his April letter said the company was in the process of agreeing, or had agreed to, settlements with the states that limited the amounts it could collect.


“Future Income Payments’ illegal loans were outrageously expensive,” said Lisa Madigan, the Illinois attorney general, who filed a suit against the firm on the same grounds this year.

The string of regulatory actions didn’t stop advisory firms and others selling the commission-rich products, many as part of a retirement-savings strategy. A Future Income marketing presentation urged retirees to “give your savings the opportunity to grow,” with “competitive fixed rates,” according to a copy reviewed by The Wall Street Journal.


The sellers included Live Abundant, a firm based in Salt Lake City that promises on its website to “empower you to live a more abundant life by replacing your old, outdated retirement philosophy.” It has sold products from both Future Income Payments and Woodbridge Group of Cos. LLC, another private-market investment that collapsed, according to lawyers representing investors who said they intend to sue Live Abundant.


Loren Washburn, an attorney for Live Abundant, said the firm plans to review what it “could have done better” in vetting the deals. “This outcome where we’re having to explore options to collect [the money due to investors] is obviously not optimal.”


The sellers also included independent advisers registered with the Securities and Exchange Commission, such as Gus Marwieh of Austin, Texas. Mr. Marwieh “used his strong religious beliefs to engender trust from investors,” said Mr. Peiffer, who is representing some of them. Mr. Marwieh confirmed he sold Future Income products but declined to comment further.

An SEC spokesman declined to comment.


Investors are now scrambling to try to recover money. Mr. Peiffer said he is “highly confident that the losses suffered by investors are well over $100 million.”

Faw Casson & Co., an escrow company in Dover, Del., that held funds on behalf of investors, sued Future Income Payments in May. Faw Casson, whose lawyer declined to comment, said in a court filing it has received calls from several investors including a “retired secret service agent [who] said that if we do not return his phone call, he is coming to the office and trust me that is not what we want.”




 (Re)Solving the Retirement ‘Crisis’

By Nevin Adams

A recent group conversation on retirement and the future of prosperity that included academics, think tanks, advocacy groups and the Hill touched on a wide range of topics.

Several weeks back, I was invited to participate in a group conversation on retirement and the future of prosperity.

The group of 15 (they’re listed at the end of the document that summarized the conclusions) that Politico pulled together was diverse, both in background and philosophies, and included academics, think tanks, advocacy groups, and the Hill. it was conducted under Chatham House rules, which means that while our comments might be shared, they wouldn’t be specifically attributed. That latter point was helpful to the openness of the discussion, where several individuals had opinions that they acknowledged wouldn’t be supported by the groups they represent.

The conversation touched on a wide range of topics, everything from the key challenges to the current system, the private sector’s role in addressing these problems, the individual’s role (and responsibility) for securing their own retirement, government’s role and the potential for current congressional proposals to have an impact.

In view of the diversity of the group – the complexity of the topics – and the 90-minute window of time we had to thrash things about, you might well expect that we didn’t get very fur. And, at least in terms of new ideas, you’d be hard­pressed to say that we discussed anything that hadn’t come up somewhere, sometime, previously. But then, this was a group that – individually, anyway- has spent a lot of time thinking about the issues. And there were some new and interesting perspectives.

The Challenges

It seems that you can never have a discussion about the future of retirement without spending time bemoaning the past, specifically the move away from defined benefit plans, and this group was no exception. There remains in many circles a pervasive sense that the defined contribution system is inferior to the defined benefit approach – a sense that seems driven not by what the latter actually produced in terms of benefits, but in terms of what it promised. Even now, it seems that you have to remind folks that the “less than half’ covered by a workplace retirement plan was true even in the “good old days” before the 401 (k), at least within the private sector. And while you can wrest an acknowledgement from those familiar with the data, almost no one talks about how few of even those covered by those DB plans put in the time to get their full pension.

There was a clear and consistent understanding in the group that health care costs and concerns were a big impediment to retirement savings, both on the part of employers and workers alike. People still make job decisions based on health care – on retirement plan designs, not so much. And when it comes to deciding whether to fund health care or retirement – well, health care wins hands down.

College debt was another impediment discussed. Oh, individuals have long graduated from college owing money- but never so many, and likely never so much (though you might be surprised what an inflation-adjusted figure from 20 years ago looks like). It is, for many, an enormous draw on current income – and one that has a due date that falls well before when retirement’s bill is presented for payment.

Women have a unique set of challenges. For many, the pay gap while they are working is exacerbated by the time out of the workplace raising children. They live longer, invest more conservatively, and ultimately bear higher health care costs – and increasingly find themselves in the role of caregiver, rather than bringing home a paycheck.

For many in the group, financial literacy still holds sway as a great hope to turn things around. There are plenty of individual examples of its impact, though the current research casts doubt on its widespread efficacy. Surely a basic understanding of key financial concepts couldn’t hurt (though don’t even get me started on the criteria that purports to establish “literacy”) – but it’s a solution that is surely at least a generation removed from the ability to have a widespread impact.

On a related note, the group was generally optimistic about the impact that the growing emphasis on financial wellness could have, both in terms of encouraging better behaviors, and a heightened awareness of key financial concepts. The involvement of employers, and employment-based programs seems likely to enhance the impact beyond financial literacy alone.

Resolving Recommendations

Ultimately, the group coalesced around four key recommendations:

The significance of Social Security in underpinning America’s retirement future – and the critical need to shore up the finances of that system sooner rather than later. The solution(s) here are simple; cut benefits (push back eligibility or means-testing) or raise FICA taxes. The mix, of course, is anything but simple politically- but time isn’t in our favor on a solution.

The formation of a national commission to study and recommend solutions. I’ll put myself in the ”what harm could it do?” camp, particularly in that, to my recollection, nothing like this has been attempted since the Carter administration. We routinely chastise Americans for not taking the time to formulate a financial plan – perhaps it’s time we undertook that discipline for the system as a whole.

Requirements matter- but don’t call it a mandate. Since it’s been established that workers are much more likely to save for retirement if they have access to a plan at work (12 times as likely), but you’re concerned that not enough workers have access to a retirement savings plan at work, there was little doubt that a government mandate could make a big difference. There was even less doubt that a mandate would be a massive lift politically. And not much stomach in the group for going down that path at the present.

Expanded access to retirement accounts. While the group was hardly of one mind in terms of what kind of retirement account(s) this should be, there was a clear and energetic majority that agreed with the premise that expanding access is an, and perhaps the – integral component to “securing retirement” for future generations.

And maybe this one.





Employer-Based Retirement Plans: Pros and Cons

By John Jekel

A recent column examines the centrality of employers’ role in providing retirement benefits – and the areas where there are shortcomings.

Employer-based retirement plans are the keystone of retirement preparedness. A recent Forbes column examines the centrality of employers’ role – and the areas where there are shortcomings.

In “Should We Continue to Count on EnJP-lOY.ers for Retirement Provision?” Forbes contributor Elizabeth Bauer, FSA (a.k.a. blogger “Jane the Actuary,”) discusses the advantages of a system that relies heavily on employer-based plans, and also suggests that it poses some challenges. ”Yes, this is a question,” she writes, going on to say, ”We take the so-called ‘three-legged stool’ a bit for granted, don’t we?”

Bauer suggests that when DB plans were the norm, employers relied on pensions to encourage employees to retire at a ”traditional” or early age and considered employees who stayed for their whole careers to be highly valuable. She adds that at that time, pensions ”were a relatively affordable and low-risk means of achieving their business objectives” due to the state of funding requirements and longevity at that time, as well as attitudes toward investment and risk.

Bauer notes that despite the widespread shift to DC plans, “it’s still taken as a given … that employers, second only to the government, should be the chief providers of retirement accruals to workers.” Listing the positive aspects of this prevailing practice, she notes that employers can:

provide enrollment forms and ongoing communications about the plan;

use automatic features to increase participation in 401 (k) plans, and “in ways that a financial advisor setting up shop and handing out business cards just can’t do,” says Bauer, noting that this includes auto-enrollment and auto­escalation, and that both require employees to take active steps in order to not participate, as opposed to requiring them to actively participate and increase their contributions;

default employees into funds that are invested in ways that are appropriate for their age, with younger employees’ funds invested in ways that entail higher risk (and also higher expected return);

make available through an employer-provided retirement plan forms of saving that may not otherwise be available for employees with lower incomes;

if they are sufficiently large, exercise bargaining power that will allow them to: (I) elect low-fee fund options for their employees; (2) work with consulting firms to identify the best ways to help employees save for retirement; and (3) provide online modelers and other sorts of advice; and

offer matching contributions that can encourage employees to save for retirement.

But Bauer also argues that there are “some real disadvantages to our employer-centered retirement saving system” Prominent among those, she says, is that such a system ”misses those without conventional employment” – part-time employees, freelancers, contractors and employees and owners of small businesses. Bauer acknowledges that this group comprises a small percentage of the workforce, and further notes that it has shrink from 11 % to 10% of workers since 2005.

Bauer also notes that there is a “considerable number of workers” in traditional employer/employee arrangements who lack access to an employer-provided retirement plan. And she warns that some of the advantages to the employer­-based system can also entail challenges; for instance, she says, some employees may regard an employer match as a ceiling for their own contribution to their retirement accounts.



Fixing Financial Education

By John Jekel

A recent paper provides an overview of research on the shortcomings of financial education, why it can fail and what is successful in helping employees to improve their financial behavior and outcomes.

Student loans, credit debt, mortgages, inflation, and somehow also trying to sock money away for retirement in the process – is it any wonder workforces are rife with financial stress? Providing financial education at the workplace – where so many spend most of their waking hours – seems ideal for better equipping them to handle financial stress and lessen its effects on employers and the bottom line. But a recent paper argues that the way financial education is provided leaves something to be desired, and makes suggestions as to how it could be improved.

In “So many. Courses, so Little Progress: Why. Financial Education Doesn’t Work- and What Does,” a paper Martha Brown Menard wrote for Questis, she provides an overview of research on the shortcomings of financial education, why it can fail, and what is successful in helping employees to improve their financial behavior and outcomes.

”Executives are waking up to the fact that financially stressed employees bring these concerns and issues to the workplace, resulting in lost productivity,” says Menard, and are acting to address the situation.” Increasing financial literacy through employee education seems like an obvious solution,” she says, but ”upon closer inspection it’s clear that financial education alone hasn’t worked – and perhaps it never can. The way our brains are wired to process information typically works against us when it comes to making sound financial decisions, and changing behavior takes more than a single class.”

It “certainly doesn’t” look like financial education is effective, says Menard, when one considers the findings of academic studies. She cites a 2014 analysis of 90 studies that found that financial confidence, willingness to take risks and familiarity with numerical concepts had more to do with improved financial behaviors than financial education programs.

Menard says that the researchers who conducted that study argue that most research on the effectiveness of financial education assumes too great a degree of preexisting financial literacy and exaggerates the degree to which those programs succeed in making employees more knowledgeable.

Rather, she says, financial education explained 0.001 % of the financial behaviors the 90 studies examined. In addition, the Consumer Financial Protection Board (CFPB) found that ‘There’s no clear link between taking personal finance classes and saving more, paying off debts or raising your credit score.”

But why? Menard cites several reasons:

  1. Just because one knows one should do something doesn’t necessarily translate to action.
  2. The material presented in financial education programs can become obsolete in a relatively short amount of time.
  3. Maxims such as the wisdom of saving I 0% of one’s salary for retirement “are no longer sufficient in a changing economic environment where pensions are rare and defined contnbution plans are the new norm.”
  4. Financial education “appears to suffer from a ‘use it or lose it’ problem”: the researchers in the 90-study aggregation found that within 20 months almost everyone who took a financial literacy class did not retain most of what they learned.



Victims of Hurricane Harvey, Irma, and Maria get Relief from Congress

Victims of Hurricane Harvey, Irma, and Maria get Relief from Congress.

They can take casualty losses from the storms even if they don’t itemize.  They’re able to deduct uninsured personal losses in excess of a $500 threshold without regard to the 10% of AGI offset that generally applies to the deduction.

2016 income can be used to figure the 2017 earned income tax credit.  Ditto for the child tax credit.  This will prevent a cut in these tax breaks for lower-incomers whose jobs have been suspended or lost due to the hurricanes.

The 10% penalty on pre-age 59 1/2 payouts from retirement accounts is waived, as long as the IRA or retirement plan withdrawals are not greater than $100,000.  The income tax due on such distributions can be spread over a three-year period.  Amounts recontributed to the plan or IRA during that span will be treated as rollovers, and tax paid on those amounts can be recovered by filing an amended Form 1040.

Victims can borrow more from company retirement plans such as 401(k)s, up to the lesser of $100,000 or 10% of the accounts.  Loan repayments can be deferred.

The 50% of AGI limitation on charitable contributions is suspended for any cash donations to qualified charities that aid victims of Harvey, Irma, and Maria.  Corporations can fully deduct cash donations for hurricane relief.  The usual 10% of taxable income limit does not apply to such contributions.

There’s a special break for hurricane-affected firms that keep paying workers even though business operations have been suspended in the wake of the storms.  They get a 40% tax credit for up to $6,000 of wages paid to each idle employee.

Source: The Kiplinger Tax Letter, October 6, 2017

5 Things People Get Wrong About ERISA Fidelity Bonds

By Nevin Adams

Here are five things you (or your client) may not know about ERISA fidelity bonding — and that, as a result, they may be getting wrong.

One of the most important — and, in my experience, least understood — aspects of plan administration is the requirement that those who handle plan funds and other property be covered by a fidelity bond.

While ERISA requires the bond to protect the plan from losses resulting from acts of fraud or dishonesty, fiduciaries often confuse that coverage with insurance that is designed to protect them from liability.

Here are five things you (or your client) may not know about ERISA fidelity bonding — and that, as a result, they may be getting wrong.

An ERISA fidelity bond is not the same thing as fiduciary liability insurance.

The fidelity bond required under ERISA specifically insures a plan against losses due to fraud or dishonesty (e.g., theft) by persons who handle plan funds or property. Fiduciary liability insurance, on the other hand, insures fiduciaries, and in some cases the plan, against losses caused by breaches of fiduciary responsibilities.

Although many plan fiduciaries may be covered by fiduciary liability insurance, it is not required and does not satisfy the fidelity bonding required by ERISA.

You can’t get an ERISA bond from just anybody.

For a list of approved sureties see the DOL’s Department Circular 570. Under certain conditions, bonds may also be obtained from underwriters at Lloyds of London. Neither the plan nor any interested party may have any control or significant financial interest, either directly or indirectly, in the surety or reinsurer, or in an agent or broker, through which the bond is obtained.

Not every fiduciary needs to be bonded.

Most fiduciaries have roles and responsibilities that involve handling plan funds or other property, and generally will need to be covered by a fidelity bond (unless they satisfy one of the exemptions in ERISA or the DOL’s regulations.

However, technically an ERISA fidelity bond would not be required for a fiduciary who does not handle funds or other property of an employee benefit plan.

The plan can pay for the bond out of plan assets.

The purpose of ERISA’s bonding requirements is to protect the plan, and those bonds do not protect the person handling plan funds or other property or relieve them from their obligations to the plan, so the plan’s purchase of the bond is allowed.

You can purchase a fidelity bond for more than the legally required amount.

However, note that whether a plan should spend plan assets to purchase a bond in an amount greater than that required by ERISA is a fiduciary decision.




Protect Your Employee Benefit Plan With An ERISA Fidelity Bond

The Employee Retirement Income Security Act (ERISA) sets rules and standards of conduct for private sector employee benefit plans and those that invest and manage their assets. The provisions of ERISA, which are administered by the U.S. Department of Labor, were enacted to address public concern that funds of private pension and other employee benefit plans were being mismanaged and abused. One of ERISA’s requirements is that people who handle plan funds and other property must be covered by a fidelity bond to protect the plan from losses due to fraud or dishonesty.

This publication highlights key elements that employers and other plan sponsors should know about ERISA’s fidelity bonding requirements. These questions and answers provide general information to help you understand the law and the fidelity bonding requirements. It is not a legal interpretation and does not address all of the issues related to ERISA’s fidelity bonding requirement.

What is an ERISA Fidelity Bond?

An ERISA fidelity bond is a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty. Fraud or dishonesty includes, but is not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts. Deductibles or other similar features are prohibited for coverage of losses within the maximum amount for which the person causing the loss is required to be bonded. In addition, it is important to make sure that the plan is named (or otherwise specifically identified) as an insured party on the bond so that the plan can recover losses covered by the bond.

Is an ERISA Fidelity Bond the same thing as fiduciary liability insurance?

No. The fidelity bond required under ERISA specifically insures a plan against losses due to fraud or dishonesty (e.g., theft) by persons who handle plan funds or property. Fiduciary liability insurance, on the other hand, insures fiduciaries, and in some cases the plan, against losses caused by breaches of fiduciary responsibilities. Although many plan fiduciaries may be covered by fiduciary liability insurance, it is not required and does not satisfy the fidelity bonding required by ERISA.

Can I get an ERISA bond from any bonding or insurance company?

 No. Bonds must be obtained from a surety or reinsurer that is named on the Department of the Treasury’s Listing of Approved Sureties, Department Circular 570 (available at Under certain conditions, bonds may also be obtained from Underwriters at Lloyds of London. Neither the plan nor any interested party may have any control or significant financial interest, either directly or indirectly, in the surety or reinsurer, or in an agent or broker, through which the bond is obtained.

Who must be bonded?

Every person who “handles funds or other property” of an employee benefit plan is required to be bonded unless covered under an exemption under ERISA. ERISA makes it an unlawful act for any person to “receive, handle, disburse, or otherwise exercise custody or control of plan funds or property” without being properly bonded.

Fidelity bonding is usually necessary for the plan administrator and those officers and employees of the plan or plan sponsor (employer, joint board, or employee organization) who handle plan funds by virtue of their duties relating to the receipt, safekeeping and disbursement of funds. The bonding requirement is not limited to just plan trustees, employees of the plan and employees of the plan sponsor. Bonding coverage may also be required for other persons, such as service providers to the plan, whose duties involve access to plan funds or decision-making authority that can give rise to a risk of loss through fraud or dishonesty. Where a plan administrator, service provider, or other person who must be bonded is an entity, such as a corporation or association, ERISA’s bonding requirements apply to the natural persons or person who “handles” the funds.

The term “funds or other property” generally refers to all funds or property that the plan uses or may use to pay benefits to plan participants or beneficiaries. Plan “funds or other property” includes all plan investments including land and buildings, mortgages, and securities in closely-held corporations. It also includes contributions from any source, such as employers, employees, and employee organizations that are received by the plan, and cash, checks and other property held for the purpose of making distributions to plan participants or beneficiaries.

A person is deemed to be “handling” funds or other property of a plan whenever his or her duties or activities could cause a loss of plan funds or property due to fraud or dishonesty, whether acting alone or in collusion with others. The general criteria for determining “handling” include:

  • Physical contact with cash, checks or similar property;
  • Power to transfer funds from the plan to oneself or to a third party;
  • Power to negotiate plan property (e.g., mortgages, title to land and buildings or securities);
  • Disbursement authority or authority to direct disbursement;
  • Authority to sign checks or other negotiable instruments; or
  • Supervisory or decision-making responsibility over activities that require bonding.

Who are the parties to an ERISA Fidelity Bond?

In a typical bond, the plan is the named insured and a surety company (insurer) is the party that provides the bond. The persons covered by the bond are the persons who handle funds or other property of the plan. As the insured party, the plan can make a claim on the bond if a plan official causes a covered loss to the plan due to fraud or dishonesty.

Do ERISA’s bonding requirements apply to all employee benefit plans?

No. Although the bonding requirements generally apply to most ERISA retirement plans and many funded welfare benefit plans, the ERISA bonding requirements do not apply to employee benefit plans that are completely unfunded (i.e., the benefits are paid directly out of an employer’s or union’s general assets), or to plans that are not subject to Title I of ERISA (for example, church plans, governmental plans.)

Are there any other exemptions from ERISA’s bonding requirements?

Yes. The law and the Department’s regulations provide exemptions for some regulated financial institutions, including certain banks, insurance companies, and registered brokers and dealers. If the financial institution meets the conditions in the exemption, the institution and its employees do not need to be covered by an ERISA fidelity bond even if their activities include handling your plan’s funds or property.

Must all fiduciaries be bonded?

No. Most fiduciaries have roles and responsibilities that involve handling plan funds or other property, and generally will need to be covered by a fidelity bond, unless they satisfy one of the exemptions in ERISA or the Department’s regulations. However, an ERISA fidelity bond would not be required for a fiduciary who does not handle funds or other property of an employee benefit plan.

Must service providers to the plan be bonded?

It depends. A service provider, such as a third-party administrator or investment advisor, must be bonded if the service provider or its employees handle funds or other property of your employee benefit plan.

How much coverage must the bond provide?

Generally, each person must be bonded in an amount equal to at least 10% of the amount of funds he or she handled in the preceding year. The bond amount cannot, however, be less than $1,000, and the Department cannot require a plan official to be bonded for more than $500,000, or $1,000,000 for plans that hold employer securities. These amounts apply for each plan named on a bond.

For example, assume your company’s plan has funds totaling $1,000,000. The plan trustee, named fiduciary and administrator are three different company employees that each have access to the full $1 million, and each has the power to transfer plan funds, approve distributions, and sign checks. Under ERISA, each person must be bonded for at least 10% of the $1 million or $100,000.

(Note: Bonds covering more than one plan may be required to be over $500,000 to meet the ERISA requirement because persons covered by a bond may handle funds or other property for more than one plan.)

If the plan purchases a bond to meet ERISA’s requirements, may the plan pay for the bond out of plan assets?

Yes. The plan can pay for the bond using the plan’s assets. The purpose of ERISA’s bonding requirements is to protect the plan. Such bonds do not protect the person handling plan funds or other property or relieve them from their obligations to the plan, so the plan’s purchase of the bond is allowed.

Can a plan purchase a bond for a larger amount?

Yes. The plan can purchase a bond for a higher amount in appropriate cases. Whether a plan should spend plan assets to purchase a bond in an amount greater than that required by ERISA is a fiduciary decision.

Who is responsible for making sure that the plan has proper bonded coverage?

The responsibility for ensuring that the plan has proper bonding coverage may fall upon a number of individuals simultaneously. All persons who handle plan funds or other property are responsible for complying with the bonding requirements themselves. In addition, any other person who has authority to authorize another person to perform handling functions is also responsible for ensuring that those persons are properly bonded. For example, if a fiduciary hires a trustee for a plan, the fiduciary must ensure that the trustee is properly bonded or covered by an exemption.

If a service provider is required to be bonded, must the plan purchase the bond?

No. A service provider can purchase its own separate bond insuring the plan. The plan may agree with the service provider that the service provider will pay for the bond. Plan fiduciaries can also decide to add a service provider to the plan’s existing fidelity bond.

For a more detailed discussion of ERISA’s fidelity bonding requirements, visit the Employee Benefits Security Administration’s Website at to view the Department’s Field Assistance Bulletin 2008-04.


9 Myths about Section 125 Plans

The structure and operation of Section 125 plans — which allow employers to offer certain benefits on a pre-tax basis — is one of the hardest things for employers to master.

So, I thought it might be helpful to explore the top nine misconceptions about Section 125 benefits.

1. Employers do not need a Section 125 plan document in place in order for employees to pay for qualified benefits (for example, health, dental, vision premiums) pretax.

Truth: A written plan document is mandatory and should be amended or restated from time to time, to remain current.

2. Most group health insurers and health plan third-party administrators are experts on Section 125 plan rules and regulations.

Truth: Most are relatively unfamiliar with Section 125, and do not keep track of which employer clients are operating under a Section 125 plan and which are not. For example, most do not keep a copy of the employer’s Section 125 plan document on file.

3. Everyone who is eligible under the health plan may participate in the Section 125 plan.

Truth: Only employees are eligible to participate in the Section 125 plan. Certain individuals, such as partners in a partnership and over 2% shareholders in an S-corporation, are ineligible to participate. While spouses and dependents cannot participate, they can receive tax-favored benefits as beneficiaries. Meanwhile, nontax dependents, such as certain domestic partners, cannot. Check with your tax adviser. Double-check the eligibility section in your document.

4. If a certain midyear election change is not permissible under the Section 125 plan document but is allowed by a component plan (for example, the health plan), it’s OK to allow the change.

Truth: The terms of the Section 125 plan document must be followed. The salary reduction election must remain in place unless the Section 125 plan permits the change. Similarly, the health insurer or administrator is not bound by eligibility terms in the Section 125 plan that differ from those in the health plan documents. If hours and waiting-period requirements, for example, are included in your Section 125 plan document, double-check that those terms are in sync with your health plan documents.

5. Section 125 plan documents must include all permissible status changes (aka, qualifying events), as defined by the United States Treasury.

Truth: Employers are not required to include all permissible events in the plan document. Now is a good time to double-check if your plan excludes any of these and if there continues to be a solid rationale for doing so. For example, two new status changes that many employers have not adopted are related to Affordable Care Act marketplace enrollment opportunities.

6. Employee pretax health savings account contributions don’t flow through a Section 125 plan, and shouldn’t be listed as an available benefit in the Section 125 plan document.

Truth: The only way to allow pretax contributions to an HSA is through a Section 125 plan. Consult with your benefits adviser and double-check that pretax HSA contributions are allowed in your Section 125 plan.

7. Health reimbursement arrangement dollars may flow through a Section 125 plan.

Truth: HRA contributions may only be made by employers and are not a permissible benefit under Section 125. This rule, for example, doesn’t permit HRA dollars to be available to employees within a traditional cafeteria plan offering.

8. It’s a good idea to allow employees to pay for supplemental medical products (e.g., accident, cancer, hospital indemnity) pretax through a Section 125 plan.

Truth: This allowance can quickly open up a compliance Pandora’s box for employers and should generally be avoided. Check with your tax adviser and attorney. Resist the temptation to take guidance on this matter from the vendor selling these products.

9. Fully insured health plans are exempt from Section 125 nondiscrimination testing.

Truth: Section 125 nondiscrimination testing (not to be confused with the delayed ACA nondiscrimination rules) applies even if the plan is insured. It also applies if the plan is self-funded.