Tag Archives: retirement

A Happy Parking Story

IPMI Blog Image 2By Kim Fernandez

Ready for some good news and a smile? I thought so. Read this story about Bhupinder “Bob” Dhaliwal, who retired last week after 33 years as a parking attendant in the same garage in Manitoba, Canada.

Saying he’s had the time of his life, Dhaliwal told a reporter that he loved working in parking. For more than three decades, he greeted and assisted parkers, who showed up in droves for his retirement, sharing hugs and gifts and heartfelt thanks. It’s no wonder—he got to know them through the years, going so far as to help clear their cars of snow while they worked, unasked. And he retired with words of encouragement to other attendants: “Enjoy the job.”

Kim Fernandez is IPMI’s director of publications and editor of Parking & Mobility.

The Benefits of Funding Retirement Healthcare Benefits

By Scott A. Petri

As a result of long-standing financial prudence, the Philadelphia Parking Authority (PPA), a state agency, has recently been able to fully fund the present-day value of its post-retirement healthcare benefits for employees.  Why is that important?

When I served on the state Appropriations Committee, I saw firsthand how increasing pension and employee healthcare costs crowded out other priorities in the budget. The same is true for authorities and city governments. The PPA’s Board of Directors was fiscally wise in creating a self-restricted account to hold funds in a separate bank account, which gave the PPA the ability to quickly comply with Government Accounting Standards Board (GASB) requirements relating to the reporting of post-retirement health care liabilities.  Unlike many government entities that did not plan for the day of reckoning, the PPA had foresight.

Recently, the Authority transferred funds that were set aside for post-retirement health benefits into an other post-employment benefits (OPEB) restricted trust. This enabled the PPA to improve its financial statement and reduce its liability under GASB 75. Funds that are set aside in a trust and invested are given credit toward the actual determined liability. GASB 75 is intended to improve accounting and financial reports by state and local governments OPEB. Effective for fiscal years beginning after June 15, 2017, the funded and unfunded portions appear on financial statements. Like the disclosure of pension costs, this provides transparency to taxpayers, the financial community, and to management. As a result of the set aside trust, we are also able to reimburse our approximately $1.2 million budgeted this year for OPEB expense. These funds will be available to the Philadelphia School District and the City of Philadelphia for distribution this year.

The statistics regarding those that have failed to set aside funds are alarming.  According to information provided by our consultant, the vast majority of government entities are on a pay-as-you-go method of funding OPEB. A 2018 S&P Global Report, “Rising U.S. States’ OPEB Liabilities Signal Higher Costs Ahead,” identified an increase in unfunded liabilities among all states of $63 billion in fiscal 2017 alone. Total OPEB liabilities are now $678 billion across the nation, according to this report. Kicking the can down the road ties your hands and limits your ability to innovate, and we are at a critical time for innovation in the parking industry. Developing a plan to address reducing such liabilities is the first step. You might not have the luxury that the PPA had in transferring funds in one shot and you may have inherited this cost as a legacy, but you will need a plan to address this requirement. It may even seem like an impossible task. My advice is to contact a consultant, develop a plan and stick to the plan.

In addition to the benefit of acting prudently, the primary benefit of pre-funding future OPEB costs is ensuring that employees know that their future retirement benefits are fully protected. Decades ago, I attended a meeting as a legislator of retirees of a large private company that went bankrupt and learned their pensions were essentially gone. Helpless to right this wrong, I knew and understood the responsibility of private and public employers to keep their promise to employees by properly funding retirement benefits. For the PPA, that is the most important reason to set aside funds in an investment account. It’s simply the right thing to do.

Scott A. Petri
 is executive director of the Philadelphia Parking Authority.

The S.M.A.R.T. Approach to Financial Goals

By Mark A. Vergenes

As you move through life, it’s essential to continually establish, measure, and refine long-term financial goals. We recommend using the S.M.A.R.T. planning tool. It’s believed George T. Doran created this acronym for a management paper he wrote back in 1981 for the Washington Water Power Company.

S: Specific Financial Goals

When you create goals, it’s not enough to write down that you want to have enough money to live a general kind of life or save for retirement. Instead, be specific in ways that help you map out a real plan: pay off my existing debt in the next 12 months, or save enough in the next eight years to pay for half of my two children’s college.

You can have more than one specific goal but you shouldn’t have dozens. Pick the items that are most important to you and your way of life and focus on achieving the most important goals.

M: Measurable Financial Goals

As you develop your financial goals, you’ll need to assign dollar values. To see your progress as you reach your goals, you’ll need to measure them periodically.

A broad goal is to save for retirement. Think more specifically. You may be 20 years from retirement and want enough to spend $50,000 a year each year for an estimated 15 years of retirement. This allows a financial planner to help you figure out reasonable savings goals, factoring in interest over time, expected returns, social security, cost of living, health care concerns, and inflation.

A: Assignable Financial Activities

Who is going to track your financial goals? Are you going to spend time doing this with your partner or spouse? Would you like a financial planner to help you track your progress? Is your sister-in-law an accountant who wants to help? To reach aggressive financial goals, assemble a team of experts and make sure everyone understands their assigned role.

R: Realistic Financial Goals

We all want a Porsche. And a villa in Italy. And to retire at age 40. But shooting for the moon is not helpful when creating financial plans. Consider your income and a reasonable projection of your future income, and plan accordingly. If you want to eliminate mortgage payments before you retire in five years but you owe more than $100,000, diverting all your money into home payments may not be your best move. It may be more realistic to downsize, refinance, or even rent your home to tourists for three months of every year.

T: Timeline

Most of us postpone serious financial commitments until our 30s, 40s, 50s, or beyond. Create realistic timelines for your goals and stick to them. While it may feel uncomfortable to extend your mortgage into your retirement years, it may be necessary to meet other financial obligations in the interim.

The more time you give yourself to reach financial goals, the more attainable they will become. Planning early can, literally, pay off in the long run.

Mark A. Vergenes is president of MIRUS Financial Partners. He will speak on this topic at IPMI’s 2019 Leadership Summit, Oct. 3-4 in Pittsburgh, Pa.

Investment Advisor Representative offering Securities and Advisory Services through Cetera Advisor Networks LLC, member FINRA/SIPC. Cetera is under separate ownership from any other named entity. MIRUS Financial Partners and Cetera Advisor Networks LLC are not affiliated. 

The Art of Transition

By L. Dennis Burns, CAPP

One thing we can probably all agree on is that change is a constant. While there is nothing new in this observation, I am currently experiencing a new perspective on it. After nearly four decades in the parking profession, I find myself planning for retirement. This new wrinkle (no pun intended) has me thinking differently about a lot of things, but mostly I am focused on transitions.

Webster defines “transition” as:

1a: Passage from one state, stage, subject, or place to another : change.

b: A movement, development, or evolution from one form, stage, or style to another.

2a: A musical passage leading from one section of a piece to another.

I am fortunate to work for a great company that appreciates and values my contributions. When I approached them with my ideas on a three-year retirement transition plan, they embraced the idea. The plan involves staff recruitment and training, client transitions, and collecting, organizing, and sharing a career’s worth of data and best practices, etc. Just thinking through a transition plan (whether in a personal or professional setting) creates some interesting shifts in perspective.

Rather than planning for the next big thing and developing strategies on how to stay relevant in a dynamic and fast-changing industry (which will always be important), you now imagine developing and implementing these new approaches without you in the picture. While this can be a little unnerving, it can also be quite liberating. Letting go is difficult for some but I have found myself excited by the energy, skills, creativity, and passion of our young professionals.

I rather like the allusion to the musical passage in the Webster definition above. As an analogy, I can almost hear the change in key and cadence and feel a shift in tone and focus in my life these days. I feel honored to have had the opportunities that this industry and my many friends and colleagues have provided over the years.

Even though I am entering a new career phase, this is not a time to only look back. The challenges and opportunities for advancing our profession are more exciting now than ever—so it’s on to the next challenge! (If I could only find my darned glasses!)

L. Dennis Burns, CAPP, is regional vice president, senior practice builder, with Kimley-Horn.

AN EARLY OUT? NOT SO FAST.

AN EARLY OUT? NOT SO FAST.

How to evaluate an early retirement offer and see if it’s the right move for you.
Risks and upsides to early retirement

In today’s corporate environment, cost cutting, restructuring, and down­sizing are the norm, and many employers are offering their employ­ees early retirement packages. But how do you know if the seem­ingly attractive offer you’ve received is a good one? There’s a simple answer: By evaluating it carefully to make sure the offer fits your needs.

What’s the Severance Package?
Most early retirement offers include a severance package that is based on your annual salary and years of service at the company. For example, your employer might offer you one or two weeks’ salary (or even a month’s salary) for each year of service. Make sure the severance package will be enough for you to make the transition to the next phase of your life. Also, make sure you understand the payout options available to you. You may be able to take a lump-sum severance payment and then invest the money to provide income or use it to meet large expenses. Or you may be able to take deferred payments during several years to spread out your tax bill on the money.

How Does this Affect Pension?
If your employer has a traditional pension plan, the retirement benefits you receive from the plan are based on your age, years of service, and annual salary. You typically must work until your company’s normal retirement age (usually 65) to receive the maximum benefits. This means you may receive smaller ben­efits if you accept an offer to retire early. The difference between this reduced pension and a full pension could be large, because pension benefits typically accrue faster as you near retirement. However, your employer may provide you with larger pension benefits until you can start collecting Social Security at age 62. Alternately, your employer might boost your pension benefits by adding years to your age, length of service, or both. These types of pension sweeteners are key features to look for in your employer’s offer, especially if a reduced pension won’t give you enough income.

What about Health Insurance?
Does your employer’s early retirement offer include medical coverage for you and your family? If not, look at your other health insurance options, such as COBRA, a private policy, or dependent coverage through your spouse’s employer-sponsored plan. Because your health care costs will probably increase as you age, an offer with no medical coverage may not be worth taking if these other options are unavailable or too expensive. Even if the offer does include medical coverage, make sure you understand and evaluate the coverage. Will you be covered for life or at least until you’re eligible for Medicare? Is the coverage adequate and affordable (some employers may cut benefits or raise premiums for early retirees)? If your employer’s coverage doesn’t meet your health insurance needs, you may be able to fill the gaps with other insurance.

What about Other Benefits?
Some early retirement offers include employer-sponsored life insurance. This can help meet your life insurance needs, and the coverage probably won’t cost you much (if anything). However, continued employer coverage is usually limited (for example, one year’s coverage equal to your annual salary) or may not be offered at all. This may not be a problem if you already have enough life insurance elsewhere or if you’re financially secure and don’t need life insurance. Otherwise, weigh your needs against the cost of buying an individual policy. You may also be able to convert some of your old employer cov­erage to an individual policy, though your premium will be higher than when you were employed.

In addition, a good early retirement offer may include other perks. Your employer may provide you and other early retirees with financial planning assistance. This can come in handy if you feel overwhelmed by all of the financial issues that early retirement brings. Your employer may also offer job placement assistance to help you find other employment. If you have company stock options, your employer may give you more time to exercise them. Other benefits, such as educational assistance, may also be available. Check with your employer to find out exactly what its offer includes.

Can You Afford It?
To decide if you should accept an early retirement offer, you can’t just look at the offer itself. You have to consid­er your total financial picture. Can you afford to retire early? Even if you can, will you still be able to reach all of your retirement goals? These are tough questions that a financial professional should help you sort out, but you can take some basic steps yourself.

Identify your sources of retirement income and the yearly amount you can expect from each source. Then, estimate your annual retirement expenses (don’t forget taxes and inflation), and make sure your income will be more than enough to meet them. You may find that you can accept your employer’s offer and likely still have the retirement lifestyle you want. But remember, these are only estimates. Build in a comfortable cushion in case your expenses increase, your income drops, or you live longer than expected.

If you don’t think you can afford early retirement, it may be better not to accept your employer’s offer. The longer you stay in the workforce, the shorter your retirement will be and the less money you’ll need to fund it. Working longer may also allow you to build larger savings in your IRAs, retirement plans, and investments. However, if you really want to retire early, making some smart choices may help you overcome the obstacles. Try to lower or eliminate some of your retirement expenses. Consider a more aggressive approach to investing. Take a part-time job for extra income. Finally, think about electing early Social Security benefits at age 62, but remember that your monthly benefit will be smaller if you do this.

Finding a New Job
You may find yourself having to accept an early retirement offer even though you can’t afford to retire. One way to make up for the difference between what you receive from your early retirement package and your old paycheck is to find a new job, but that doesn’t mean you have to abandon your former line of work for a new career. You can start by finding out if your former employer would hire you as a consultant. Or, you may find that you would like to turn what was once just a hobby into a second career. Then there is always the possibility of finding full- or part-time employment with a new company.

For the employee who has 20 years of service with the same company, the prospect of job hunting may be terrifying. If you have been out of the job market for a long time, you might not feel comfortable or have experi­ence marketing yourself for a new job. Some companies provide career counseling to assist employees re-entering the workforce. If your company does not provide you with this service, you may want to look into corporate outplacement firms and nonprofit organizations in your area that deal with career transition.

Many early retirement offers contain noncompeti­tion agreements or offer monetary inducements on the condition that you agree not to work for a competitor. However, you’ll generally be able to work for a new employer and still receive your pension and other re­tirement plan benefits.

What If You Say No?
If you refuse early retirement, you may continue to thrive with your employer. You could earn promotions and salary raises that boost your pension. You could receive a second early retirement offer that’s better than the first one. But you may not be so lucky. Consider whether your position could be eliminated down the road.

If the consequences of saying no are hard to predict, use your best judgment and seek professional advice. But don’t take too long. You may have only a short window of time, typically 60 to 90 days, to make your decision.

MARK A. VERGENES, is president of Financial Partners and chair of the Lancaster (Pa.) Parking Authority. He can be reached at mark@mirusfinancialpartners.com

TPP-2017-01-Early Out? Not so fast. 

 

 

Rolling It

tpp-2016-03-rolling-itby Mark A. Vergenes

Changing jobs? 401(k) rollovers come with lots of choices. Learn how to make the best ones. 

If you’re changing jobs, you may be wondering what to do with your 401(k) plan account. No matter what stage you are in your career or how close you are to retirement, it’s important to understand your options.

Your Entitlements
If you leave your job (voluntarily or involuntarily), you’ll be entitled to a distribution of your vested balance. Your vested balance always includes your own contributions (pretax, after-tax, and Roth) and typically any investment earnings on those amounts. It also includes employer contributions and earnings that have satisfied your plan’s vesting schedule.

In general, there are two ways to become vested in your employer’s contributions to your retirement plan:

  • Cliff vesting means you’re 100 percent vested in employer contributions after three years of service.
  • Graded vesting happens gradually at 20 percent per year. After six years, employees are 100 percent vested.

Plans can have faster vesting schedules, and some even have 100 percent immediate vesting. You’ll also be 100 percent vested once you’ve reached your plan’s normal retirement age.

It’s important to understand how your particular plan’s vesting schedule works because you’ll forfeit any employer contributions that aren’t vested at the time you leave your job. Your summary plan description (SPD) will spell out how the vesting schedule for your particular plan works. If you don’t have one, ask your plan administrator for it. If you’re on the cusp of vesting, it may make sense to wait a bit before leaving if you have that luxury.

Don’t Spend It—Roll It
While your retirement plan’s pool of dollars may look attractive, don’t spend it unless you absolutely need to. Taking a distribution means you’ll be taxed at ordinary income tax rates on the entire value of your account except for any after-tax or Roth 401(k) contributions you’ve made. And if you’re not yet age 55, an additional 10 percent penalty may apply to the taxable portion of your payout. (Special rules may apply if you receive a lump-sum distribution and you were born before 1936 or if the lump sum includes employer stock.)

If your vested balance is more than $5,000, you can leave your money in your employer’s plan until you reach normal retirement age. Your employer, however, must also allow you to make a direct rollover to an individual retirement account (IRA) or to another employer’s 401(k) plan. As the name suggests, in a direct rollover the money passes directly from your 401(k) plan account to the IRA or other plan. This is preferable to a 60-day rollover, in which you get the check and then roll the money over yourself because your employer has to withhold 20 percent of the taxable portion of a 60- day rollover. You can still roll over the entire amount of your distribution, but you’ll need to come up with the 20 percent that’s been withheld until you recapture that amount when you file your income tax return.

IRA or Employer 401(k)?
Picking between your own IRA and an employer 401(k) plan looks like a tough choice, but assuming both options are available to you, there’s no right or wrong answer to this question. There are strong arguments to be made on both sides. You need to weigh all of the factors and make a decision based on your own needs and priorities. It’s best to have a professional assist you with this, as the decision you make may have significant consequences—both now and in the future.

Reasons to roll over to an IRA:

  • You’ll generally have more investment choices with an IRA than with an employer’s 401(k) plan. In a typical situation, you can freely move your money around to the various investments offered by your IRA trustee, and you may divide up your balance among as many of those investments as you want. By contrast, employer-sponsored plans typically give you a limited menu of investments (usually mutual funds) from which to choose.
  • You can freely allocate your IRA dollars among different IRA trustees/custodians. There’s no limit on how many direct, trustee-to-trustee IRA transfers you can do in a year. This gives you flexibility to change trustees often if you are dissatisfied with investment performance or customer service. It can also allow you to have IRA accounts with more than one institution for added diversification. In an employer’s plan, you can’t move the funds to a different trustee unless you leave your job and roll over the funds.
  • An IRA may give you more flexibility with distributions. Your distribution options in a 401(k) plan depend on the terms of that particular plan, and your options may be limited. However, with an IRA, the timing and amount of distributions is generally at your discretion (until you reach age 70½ and must start taking required minimum distributions (RMDs) in the case of a traditional IRA).
  • You can roll over (essentially convert) your 401(k) plan distribution to a Roth IRA. You’ll generally have to pay taxes on the amount you roll over (minus any after-tax contributions you’ve made), but any qualified distributions from the Roth IRA in the future will be tax-free.

Reasons to roll over to your new employer’s 401(k) plan:

  • Many employer-sponsored plans have loan provisions. If you roll over your retirement funds to a new employer’s plan that permits loans, you may be able to borrow up to 50 percent of the amount you roll over if you need the money. You can’t borrow from an IRA; IRA funds can only be accessed by taking a distribution, which may be subject to income tax and penalties. (You can, however, give yourself a short-term loan from an IRA by taking a distribution and then rolling the dollars back to an IRA within 60 days.)
  • A rollover to your new employer’s 401(k) plan may provide greater creditor protection than a rollover to an IRA. Most 401(k) plans receive unlimited protection from creditors under federal law. Creditors (with certain exceptions) cannot attach your plan funds to satisfy any of your debts and obligations, regardless of whether you’ve declared bankruptcy. In contrast, any amounts you roll over to a traditional or Roth IRA are generally protected under federal law only if you declare bankruptcy. Any creditor protection your IRA may receive in cases outside of bankruptcy will generally depend on the laws of your particular state. If you are concerned about asset protection, be sure to seek the assistance of a qualified professional.
  • You may be able to postpone required minimum distributions. For traditional IRAs, these distributions must begin by April 1 following the year you reach age 70½. However, if you work past that age and are still participating in your employer’s 401(k) plan, you can delay your first distribution from that plan until April 1 following the year of your retirement. (You also must own no more than 5 percent of the company.)
  • If your distribution includes Roth 401(k) contributions and earnings, you can roll those amounts over to either a Roth IRA or your new employer’s Roth 401(k) plan if it accepts rollovers. If you roll the funds over to a Roth IRA, the Roth IRA holding period will determine when you can begin receiving tax-free qualified distributions from the IRA. So if you’re establishing a Roth IRA for the first time, your Roth 401(k) dollars will be subject to a new five-year holding period. On the other hand, if you roll the dollars over to your new employer’s Roth 401(k) plan, your existing five-year holding period will carry over to the new plan. This may enable you to receive tax-free qualified distributions sooner.

When evaluating whether to initiate a rollover always be sure to:

  • Ask about possible surrender charges that may be imposed by your employer plan or new surrender charges your IRA may impose.
  • Compare investment fees and expenses charged by your IRA (and investment funds) with those charged by your employer plan (if any).
  • Understand any accumulated rights or guarantees that you may be giving up by transferring funds out of your employer plan.

Outstanding Plan Loans
In general, if you have an outstanding plan loan, you’ll need to pay it back or the outstanding balance will be taxed as if it had been distributed to you in cash. If you can’t pay the loan back before you leave, you’ll still have 60 days to roll over the amount that’s been treated as a distribution to your IRA. Of course, you’ll need to come up with the dollars from other sources.

MIRUS Financial Partners nor Cetera Advisor Networks LLC, give tax or legal advice. Opinions expressed are not intended as investment advice, and it may not be relied on for the purpose of determining your social security benefits, eligibility, or avoiding any federal tax penalties. All information is believed to be from reliable sources; however, we make no representations as to its completeness or accuracy. All economic and performance information is historical and indicative of future results.

MARK A. VERGENES is president of MIRUS Financial Partners and chair of the Lancaster
(Pa.) Parking Authority. He can be reached at mark@mirusfinancialpartners.com.

TPP-2016-03 Rolling It