Institutional Services

How Are Workers Preparing for Retirement?

By:  Tina Schackman, CFA®, Senior Retirement Plan Consultant

According to a 2021 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), U.S. workers preparing for retirement vary by age but there are signs that savings habits are starting to take place earlier than previously reported. In fact, 48% of respondents between the ages of 25 and 34 reported having savings of $100,000 or more.

Starting to save early is one of the easiest ways to accumulate savings for retirement.

Of the 31% of respondents that stated they made changes to their retirement plan since January 1, 2020, more than half increased the amount they contribute.  A workplace retirement plan, such as a 401(k) or 403(b) plan, can help build retirement savings through tax-deferred savings and the potential for your company to match your contributions to the plan.  Check out our recent Summer Webinar Series “Retirement Accounts: Traditional vs. Roth” for typical ways to save for retirement.

What’s getting in the way of reaching savings goals?  Debt is the #1 reason, and it weighs heavier on workers who experienced loss of income or a job.  In fact, 70% feel debt is negatively impacting their ability to save for emergencies. Establishing and sticking to a budget can be a great way to get your finances under control and find more ways to save.  We recommend you watch the replay of “Connecting the Dots to Your Financial Future (Part 1)” to learn some budgeting tips and debt payment strategies.

Confidence is key! The majority of U.S. workers remain confident in their ability to live comfortably in retirement. 

Source: EBRI 2021 Retirement Confidence Survey (*1993 first year asked)

We wanted to provide a few tips to start creating healthy savings habits:

  1. Pay yourself first and start early.
  2. Don’t take on more debt than you can afford.
  3. Pay down credit cards as soon as you can.
  4. Understand your employer’s retirement plan.
  5. Create a budget and track expenses.
  6. Set financial goals and have a plan (start with a small goal that can be easily attained)

Contact BFSG if you’d like to learn more about developing your personal financial plan at

Prepared by Broadridge Advisor Solutions. Copyright 2021. Edited by BFSG, LLC.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

A Beginner’s Guide to Deferred Compensation

By:  Paul Horn, CFP®, CPWA®, Senior Financial Planner | Wealth Manager

Understanding the Basics

A Non-Qualified Deferred Compensation (NQDC) plan allows individuals to defer a portion of their income now and then withdrawal the money typically in retirement when their income is lower. Most of the time the amount of money deferred can be invested in stocks or bonds so the money can grow over time.

Deferred Compensation plans are called non-qualified because they do not have to comply with Employee Retirement Income Security Act (ERISA) like a 401(k) or 403(b) and can be offered to a certain group of employees like executives. These plans will have a written agreement between the employer and employee that outlines all the rules like how much can be deferred when the payout can occur and what investment options are available.

You will make annual elections on how much income you would like to defer and when you would like to receive that money back in the future. Most commonly you can choose a lump sum option or receive payments over a set amount of time like five or ten years. For example, if you defer $50,000 in 2021 you could choose to receive that $50,000 at retirement or as a $10,000 a year payment over five years.

Rules You Need To Know

Deferred Compensation plans do not follow ERISA guidelines, so it is very important to fully understand the rules for your plan.  For example, some plans will have many investment and distribution options while others may only offer limited (or no investment) options.

The deferred compensation stays on the company’s financial statements, so it is not fully protected if the company has financial issues down the road like filing for bankruptcy. When choosing to use a deferred compensation plan it is important to have strong faith in the company’s long-term viability.

Choose Your Distribution Option Wisely

Once your distribution elections are made it can be difficult to make changes. Most plans limit the number of changes you can make and require you to work at least another 12 months before you retire. Another common rule is that any changes made will delay the distribution by five years. For example, an individual that is 59 and plans to retire at age 60 makes some changes to her elections for the distribution. As a result, the new changes typically will be paid out at age 65 at the earliest based on the five-year rule.

Let’s take a look at an example and why you typically want to spread the payments out over time. An individual retires in 2022 with deferred compensation of $600,000 and chooses to receive everything as a lump sum. Assuming no other income sources the $600,000 would be taxed at a Federal income tax rate of 35% for a couple filing jointly (based on current Federal income tax rates and not factoring in deductions). However, if they choose to spread the payments over five years, they would receive $120,000 per year for five years. Assuming no other income sources they would be taxed at a Federal income tax rate of 22% each of those five years. By delaying the payments, the individual greatly reduces the tax burden and creates an income stream for the first five years of retirement. 

How We Can Help

We can look at your plan documents and provide guidance on how much you should save each year and provide recommendations on the best distribution options. If you have a plan in place already, we are happy to review it and see if any changes should be made to how you will receive distributions from the plan. These decisions vary for each individual based on their income needs and tax situation.


Deferred compensation plans offer a wonderful way for people to delay income which can potentially be taxed at a lower tax bracket in retirement and create a cash flow stream for a part of retirement. When these plans are structured effectively, they can allow you to retire early and have a stream of income in your early and middle years of retirement.

The challenge though lies in the options people choose for when to receive the money in the future. It is very important to work with your BFSG adviser so we can help you navigate how to receive the money in retirement. These plans can be complex, and it is important to understand how to most effectively use this great employer benefit!

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

What Retirement Plan Fiduciaries Need to Know About The Safe Harbor Relief for Lifetime Income Products Provided in the SECURE Act of 2019

By:  Tina Schackman, CFA®, Senior Retirement Plan Consultant

The SECURE Act of 2019 provided some much needed legislation to help improve coverage in retirement plans, incentives for small businesses, and additional safe harbors for retirement plan fiduciaries. One area that deserves a closer look is the newly created Section 404(e) of ERISA which provides safe harbor relief for the selection of lifetime income providers. The safe harbor provision under the SECURE Act of 2019 (the “Act”) for defined contribution plans states a fiduciary must undergo an “objective, thorough, and analytical search” to identify a provider for a lifetime income product, but it does not release fiduciaries from all of the risks associated with choosing an income product for their plan. The safe harbor provides relief for the selection of the provider, not the product.

Retirement plan providers offering these products typically only have their own proprietary product on their platform, so what is the likelihood the lifetime income provider or product selected is always going to be with the plan’s current provider? Until retirement plan providers are willing to offer non-proprietary lifetime income products on their platforms, retirement plan fiduciaries are going to be held to a standard of ensuring the product available with their current provider is suitable for their participants, but possibly not the most appropriate product.   

In order for retirement plan fiduciaries to fulfill the requirements under the safe harbor relief, there are two requirements that must be met when selecting a lifetime income provider:

1) Verify the Provider Can Meet Their Financial Obligations:  A thorough review of the financial capability of the provider must be completed to verify the provider is financially capable of satisfying its obligations under the retirement income contract.  This review must be done at the time of selection, and reviewed periodically (e.g., annually). Under the safe harbor, as long as the plan fiduciaries receive written representations from the provider verifying proper licensing, ability to meet state requirements, and undergo routine financial examinations, they can be assured they’ve met this requirement.

2) Reasonableness of Costs Analysis:  Fiduciaries must determine the costs (including fees and commissions) are reasonable for the guaranteed retirement income contract offered by the provider in relation to the benefit and product features (referred to as the “income guarantee fee”).   The Act goes on to state there is NO requirement for a fiduciary to select the least expensive option.    When conducting this type of analysis, it is important to note the income guarantee fee, withdrawal rates, and risk/volatility of the underlying portfolio are all interconnected.  For example, the income guarantee fee is partially based on the cost of hedging the risk of the underlying portfolio, such as a balanced fund.  But if your provider’s income solution only offers a very conservative portfolio option, then the income guarantee fee could be expected to be lower than other products with more aggressive portfolios.  Alternatively, if the withdrawal rates are lower than other products, it could be argued the income guarantee fee shouldn’t be as high as alternative products.   All three of these factors should be considered when reviewing the reasonableness of costs (See Illustration A). 

Illustration A

What about portability?

Portability of these products at the plan level and for participants has been an area of concern for fiduciaries because it could have an impact on terminating employees and how the assets would be administered in the event of a termination of a service provider.  The Act helps resolve the issue of plan level portability by creating a new “distributable event” that applies to lifetime income products when they are no longer allowed as an investment option within a plan.  In such situations, participants will be allowed to distribute their income product in-kind to an IRA rollover product beginning 90 days prior to the elimination of the product as an investment option.  If a plan sponsor wants to change retirement plan providers and is not able to transfer the lifetime income product to the new provider, all of the lifetime income assets will be rolled into the previous provider’s IRA rollover product. However, this may make the existing plan less desirable to the new provider, and the income product may be more expensive to maintain for those participants wanting to keep the lifetime income benefit.

As retirement plan fiduciaries continue to explore lifetime income products, many questions may arise around how the distribution phase works, how account balances can continue to grow, how participants can take all their money out of these products, etc.   From our experience, the real concerns behind lifetime income products surface when participants begin to execute on the guarantee and draw down the income benefit.   Reasonableness of fees and the ability of the provider to fulfill their financial obligations are critical elements of the due diligence process, but it should also be noted there are other areas of potential fiduciary liability that shouldn’t be overlooked and do not have protection under the Act. 

BFSG has the expertise to conduct a thorough analysis of lifetime income products, so please contact us if you are interested in a lifetime income product for your retirement plan or you have an existing product and are interested in learning how to obtain safe harbor relief. 

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

BFSG’s Retirement Planning Summer Webinar Series

Back by popular demand….BFSG’s Summer Webinar Series! BFSG is bringing together our CERTIFIED FINANCIAL PLANNERS™ and other subject matter experts in a series of thought-provoking retirement webinars to give you the tools to help you boost your financial literacy and help you make smarter financial decisions. Register today and feel free to share this unique opportunity with friends and family.

July 8, 2021: Retirement Q&A – Ask the Experts

July 15, 2021: Retirement Accounts – Traditional vs. Roth

July 22, 2021: Healthcare in Retirement

July 29, 2021: The Future of Retirement in America

Markets in Review

The first quarter of 2021 marked the 4th straight quarter of positive returns for the equity markets. The end of the first quarter of 2021 was met with more fiscal relief as the $1.9 trillion American Rescue Plan (ARP) was passed.  Massive fiscal stimulus, the anticipation of pent-up consumer demand leading to a strengthening economy, and improved COVID-19 numbers have all led to unprecedented equity market returns with the S&P 500 up nearly 80% since the market low in March 2020.

Value stocks continued to outperform growth stocks during the quarter. The Russell 1000 Value Index returned 11.3%, while the Russell 1000 Growth Index returned 0.9%. All S&P 500 sectors were in positive territory during the quarter, with energy and financials continuing to lead the way, returning 30.9% and 16.0%, respectively.

Foreign equity markets posted modest positive returns during the quarter with the broad International Index (as measured by the All Country World Index ex US) and Emerging Markets indices up 3.5% and 2.3%, respectively. 

However, the bond markets have seen a much different story as yields continued to rise from historical lows with investors revising their expectations for economic growth upward (bonds have an inverse relationship with interest rates so when bond yields increase, bond prices fall).  The 10-year Treasury rose from 0.93% to 1.74% during the quarter, resulting in a negative return of the Barclays US Aggregate Bond Index of -3.37%.

US economic growth in the first quarter 2021 picked up as COVID-19 vaccinations began to reach more people and more of the economy reopened. First quarter GDP grew at an annual rate of 6.4% based on the first advanced estimate.  Quarterly growth rates of GDP are likely to fall in the range of 5% to 10% over the next year (a magnitude that hasn’t been seen since the mid-1980’s). 

Total nonfarm payrolls increased by more than 900,000 in March which was the largest gain in eight months. Manufacturing activity spiked to the highest level since 1983, mostly led by the automotive and capital goods sectors.  

During the first quarter, headline inflation as measured by the Consumer Price Index (CPI-U), grew at 2.6%, up from 1.4% the previous quarter. A continued rise in energy prices, particularly gasoline prices during the quarter, were the major contributors to the increase in the inflation index.