What the Nobel Prize and 401(k) Plans Have in Common

Left to their own devices, many people wouldn’t save enough (or at all) for retirement, no matter how attractive the 401(k) plan.

Statistically speaking, most Americans in their forties have saved an average of $63,000. But according to Fidelity, this may present a dangerous retirement savings gap if held to the conservative benchmark that a nest egg be three times a person’s annual salary.

Look closely, however, and you might notice participation and savings rates slowly creeping upward.

This may be due to the work of Richard Thaler, an economist and professor at the University of Chicago. He’s also the 2017 Nobel Prize winner for Economic Sciences.

Thaler is a pioneer in a field of study called behavioral economics. His research looks at the ways we, as human beings, are our own worst enemies when it comes to acting rationally and in our personal best interests. This is particularly true when it comes to saving and investing for the future.

For instance, a company may offer an employee the chance to participate in a tax-deferred retirement benefit, such as a 401(k) program. As an extra incentive to sign up and begin building financial security, the company may even offer to match the employee’s plan contributions up to a certain amount.

While you’d think that most employees would be jumping for joy and running to sign up, plan sponsors would likely tell you that this is not the case, and that getting people to participate in retirement savings programs is quite difficult, akin to pulling teeth.

Regardless of the reasons why people wouldn’t participate (Laziness? Lack of awareness or education? Misinformation?), the good news is that people can be influenced to act more rationally through mechanisms that Thaler calls “nudges.”  

Opt Out, Not In

An example of a nudge is when an employer automatically enrolls its employees into 401(k) plans from the start, and puts the onus on people to opt out rather than opt in. The results are uncanny, with a much higher number of employees saving for retirement.

This insight kicked off an industry-wide trend toward auto-enrollment. The Plan Sponsor Council of America (PSCA) found that in 2016, 58% of plans were automatically signing up workers, up from just 8.1% in 2000.

Just getting people to participate was a big step forward, but Thaler also looked for ways to influence participants to save more.

Auto-escalation locks in higher contributions   

In his paper, “Save More Tomorrow,” Thaler proposed another “nudge” to increase contributions, called auto-escalation.

Participants would start at first by allocating 3% of income to retirement. Then, with every salary raise, their investment contributions would automatically increase.

Auto-escalation has taken hold among larger plan sponsors. Callan’s 2017 Defined Contribution Trends survey found that 63% of large and mega plans offer an auto-escalation feature, up from 46% in 2015.

Thaler’s insight into why people don’t save and how to get them to do better laid the foundation for a more stable, secure retirement system—and all it took was a little nudge.  

How Tax Reform May Impact the Investment Industry


How Tax Reform May Impact the Investment Industry

The Senate recently passed its version of the GOP’s tax reform legislation.

The legislation isn’t final, however, as the House and the Senate must hammer out a final version of the bill that reconciles their differences.

Until that happens, you should be aware of the major changes proposed, and how they may impact your clients.

Exemptions and deductions

Under both proposals, personal exemptions would be eliminated. Both proposals would also eliminate the state and local income tax or sales tax deduction for individual taxpayers, though the standard deduction will nearly double.

The deduction for property taxes will now be capped at $10,000 (as there was no federal cap before).

While the impact on individuals will vary by situation, this could result in many investors having less cash flow to invest in their 401(k) plans and elsewhere.

No changes to 401(k) deferrals

One provision that was discussed early on in the process was limiting employee pre-tax contributions to 401(k) retirement plans.

This ultimately was not part of the package, and the IRS has increased 401(k) contribution limits to $18,500 (with $24,500 for those 50 and over) in 2018.

For those who lose the ability to itemize deductions via the changes in the tax bill, such as the increase in the standard deduction, the ability to make pre-tax retirement contributions becomes even more valuable.

It is important to remind your clients and prospects to max out their contributions if they aren’t already doing so, if this is an appropriate strategy for their situation.

For small business owners who were on the fence about starting a small business retirement plan, the ability to contribute to one for themselves might be an even better incentive under the new tax rules.

Impact on the markets

While trying to predict the direction of the stock market is always a fool’s errand at best, part of the premise of the plan is to lower corporate tax rates in an effort to spur growth.

This could well be a stimulus for the markets, but of course there are many factors that come into play here.

Be a resource

Even if you aren’t a tax expert, become knowledgeable about the features of these new rules that will impact your clients and prospects. Incorporate more knowledge into your advice to existing clients and your marketing to prospects.

Vestwell does not offer tax advice, please consult your tax professional, as necessary, related to any tax-related topics.

The “Rothification” of the Investment Industry



Even before President Trump’s tax reform legislation was finalized, rumblings of limits to 401(k) contribution amounts gave credence to “Rothification” impacting the investment industry.

If such proposals had passed, this would have reduced the amount of pre-tax money that people could contribute to their 401(k) plans, while freeing up spending money for the government.

But the industry is already seeing a rise in the conversion from some or all traditional defined contribution plans to Roth-like plans, hence the movement being coined Rothification. The results have sparked a debate about the pros and cons of moving in this direction.


Proponents of the increased reliance on Roth 401(k)s and IRAs point to the tax benefits later in life for retirement savers.

These savers will sacrifice a tax break today, so that they can avoid paying taxes when the money is withdrawn from their savings in retirement.

There are also estate planning benefits, because there are no required minimum distributions (RMDs) on Roth IRAs. Roth 401(k) accounts rolled over to Roth IRAs would also receive such benefits.


Many financial advisors fear that Rothification would lead to reduced retirement savings at a time when Americans can ill-afford to do so.

The loss of the income tax deduction would cause worker’s take-home pay to be reduced.

This could, in effect, limit the cash-flow available for 401(k) contributions and other retirement savings.

Consider Taxes

Roth accounts certainly offer solid options for retirement saving. While the benefit of tax savings down the road in retirement can seem distant, the reality is that many retirees may find themselves in a higher income tax bracket in the future.

Many also see Roth accounts as a way for retirement savers to diversify their retirement accounts’ tax profiles, in efforts to be prepared no matter what tax rules are passed in the future.

In the Meantime

Financial advisors should consider how Roth accounts can make sense for 401(k) plan sponsors and their employees.

We haven’t seen the last of the Rothification movement, so it’s best to first be educated, and then be prepared for what’s next.

Vestwell does not offer tax advice, please consult your tax professional, as necessary, related to any tax-related topics.  

Building A Modern Retirement Plan Offering

What happens when technology meets retirement? The Institute for Innovation Development interviewed Vestwell’s Founder and CEO, Aaron Schumm, to find out. Learn how a modern approach can address the “three major friction points of a retirement plan.”

Click here to read more about what Vestwell does differently. 

Vestwell Announces New Advisory Board of Six Industry Leaders including Josh Brown and Lori Hardwick to Provide Strategic Counsel on Company Initiatives

NEW YORK, Nov. 9, 2017 /PRNewswire/ — Vestwell announced today the creation of a new advisory board to provide guidance and advice as the firm experiences significant growth. As of today, the board includes six prestigious industry leaders.

Vestwell’s new advisory board will meet with the firm’s leadership team to provide strategic counsel. Discussions will revolve around best practices, innovative ideas, and sharing feedback on the growing company’s trajectory. The newly appointed Advisory Board members include:

  • Josh Brown, CEO of Ritholtz Wealth Management
  • Lori Hardwick, Founder & President at AI Labs, former Co-Founder & Group President at Envestnet, Inc. and Chief Operating Officer of BNY Mellon’s Pershing
  • Aaron Schildkrout, Global Head of Growth & Driver Product at Uber
  • Lowell Putnam, Co-Founder and CEO of Quovo
  • Jamie Bernardin, Former CTO at Integral Ad Science & Founder/President of DataSynapse (acquired by TIBCO Software)
  • Peter Kennedy, Former Chief Operating Officer TIAA Individual & Institutional Services, LLC. and former Chief Administrative Officer for the Managed Account Business at UBS Financial

Josh Brown, CEO of Ritholtz Wealth Management, is a renowned industry thought leader known for sharing market and industry insights on his blog, The Reformed Broker. “I am thrilled to be selected as an inaugural member of Vestwell’s new Advisory Board,” said Brown. “I’m excited to use my experience as a financial advisor to shed light on industry issues to help propel Vestwell’s effort of providing advisors with best-in-class retirement planning technology to the next level.”

Lori Hardwick, is an entrepreneur at heart, having been a co-Founder of Envestnet as Group President of Advisor Services, and most recently co-founding Advisor Innovation Labs. She has deep working knowledge of what drives advisors and how they can best service their clients. Her proven ability to grow, shape and lead a team in the FinTech & FinServ space is highly-valued. As it pertains to Vestwell, Ms. Hardwick states, “The company’s retirement technology solutions are changing the way advisors interact with their clients. I’m looking forward to providing counsel to the board on how to service advisors on all sides of the table, from technology to customer service perspectives.”

“In just about a year since launching, Vestwell has attracted thousands of financial advisors looking to offer low-cost retirement plan options on a platform that assumes fiduciary responsibility,” said Aaron Schumm, Vestwell founder and CEO. “We are thrilled to announce our new Advisory Board, which will continue to push us to innovate more, allowing us to create efficient and customized solutions for financial advisors – ensuring that plan sponsors have access to high quality, low-cost retirement plan options. It’s a true pleasure to be surrounded by such experts and thought leaders in the industry, as we take Vestwell to new heights.”

About Vestwell Holdings, Inc.
Vestwell Advisors, LLC is a SEC registered investment advisor, a wholly owned subsidiary of Vestwell Holdings, Inc., specializing in 401(k), 403(b) and other defined contribution and benefit retirement investment management services. Built by an experienced team led by CEO Aaron Schumm, Vestwell assumes 3(38) investment management and ERISA3(16) fiduciary responsibility on the behalf of advisors and their plan sponsor clients. Learn more at Vestwell.com and on Twitter @Vestwell.

This is not an offer, solicitation, or advice to buy or sell securities in jurisdictions where Vestwell Advisors is not registered. An investor should consider investment objectives, risks and expenses before investing. More information is available within Vestwell Advisors’ ADV. There are risks involved with investing. Investors should consider all of their assets, income and investments. Portfolios are subject to change. All opinions and results included in this publication constitute Vestwell Advisors’ judgment as of the date of this publication and are subject to change without notice.

SOURCE Vestwell Holdings, Inc.

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This Tax Benefit Can Get Your Client Over the Fence About Starting a Retirement Plan

It’s time to discuss whether your small business owner should start offering a retirement plan.*

You might be able to garner more interest on the topic by showing what tax benefits are included.

The tax credit, a dollar-for-dollar reduction of the company’s income taxes, might just be enough to get your client over the fence.

Credit for Small Employer Pension Plan Startup Costs

If certain conditions are met, your client can claim a deduction for the start-up costs of a new retirement plan, of up to $500 per year for the first three years of the plan, for a maximum of $1,500.

The plan must be a qualified retirement plan, SEP-IRA, or SIMPLE.

Is Your Employer Eligible?

According to IRS rules, eligible employers must:

  • Have fewer than 100 employees who received at least $5,000 in compensation for the past year
  • Have at least one non-highly compensated employee in the plan
  • Not have contributions or accrued benefits from another qualified retirement plan from the same company or as part of a control group, for this same group of employees, for the prior three years before this plan was put in place

The Tax Credit

The amount of the credit is 50% of the normal start-up costs for the plan each year, up to a limit of $500.

Eligible start-up costs include:

  • Costs to establish the plan
  • Cost to educate your employees about the plan

The credit may be claimed for each of the first three years of the plan, and businesses may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.

It is also part of the general business credit and may be carried backwards or forward if it can’t be used in the current tax year.

There is no “double dipping,” i.e., the same costs used for the credit cannot then be deducted as a business expense.

Retirement plans offer a number of benefits for business owner and their employees.

Mention the $1,500 tax credit benefit to your small business clients, and you might be able to get them over the fence about offering a retirement plan to their employees.


The opinions expressed in this article are those of the author, and do not constitute any service or obligation of Vestwell Holdings, Inc or its affiliates.

*Vestwell and its affiliates do not offer tax advice

Are you about to lose your client? Maybe, if you’re not managing these top 3 problems

A new Fidelity Investments “2017 Plan Sponsor Attitudes” study shows that 4 in 10 plan sponsors say they want new advisors. Nearly half of your book of business may be at risk.

That change in advisors could set some $1.3 trillion in defined contribution assets in motion.* But it’s also an opportunity.

You now have the chance to win the same percentage of plans away from your competitors.

To gather this information, Fidelity surveyed 1,106 plan sponsors responsible for plans with at least 25 participants and between $10 and $250 million in assets. Some, but not all, of the respondents were Fidelity recordkeeping clients.

“The stakes for plan advisors have been raised,” according to Jordan Burgess, head of specialist field sales for Fidelity Institutional Asset Management.

How can advisors protect their existing book of defined contribution business — and ensure they get a slice of that $1.3 trillion in moving assets?  

By addressing the issues that plague plan sponsors most, the top three pain points for company owners who offer defined contribution plans.

Plan Sponsor Pain Point #1: I’m not sure I’m fulfilling my fiduciary duties.

Most plan sponsors know they have to manage their company’s plans to serve participants’ best interests, but few understand exactly what that means.

Your ability to explain their fiduciary duties—and, if possible, take on some of these duties in their place—can go a long way to assuage these concerns.

Working with Vestwell, for instance, solves this problem. Vestwell can take on fiduciary responsibility for your clients and provide ERISA Section 3(16) fiduciary plan administration services, as well as 3(21) or 3(38) fiduciary investment management services.

Plan Sponsor Pain Point #2: My plan’s investment options may not be performing well enough.

More than a third (36%) of the plan sponsors in the Fidelity survey replaced at least one underperforming fund last year.

Plan sponsors understand that they are responsible for offering participants a sound, well-managed array of options.

But most company owners and HR professionals don’t have time to continually monitor investment performance.

You can help them by providing a competitive analysis that shows how their investment menu compares with other companies in your industry through Vestwell.


Plan Sponsor Pain Point #3: My plan costs too much in fees.

Keeping fees reasonable is a big part of any plan sponsor’s fiduciary responsibility—and it’s a moving target since the fee landscape has been changing rapidly over the last several years.

You can set a plan sponsor’s mind at rest by offering a competitive analysis of plan fees through Vestwell.

This analysis will show whether a plan is paying more, about the same, or less in fees than similar sized plans in the company’s industry.

To capture your share these assets in motion, you’ll need to offer in-depth retirement plan expertise, insightful plan design, quality, cost-effective investment options and advice, and guidance on fiduciary responsibilities.

Vestwell can help you meet their needs with streamlined, cost-effective plan design and the ability to take on fiduciary responsibility.

For more on how we can help you make the most of this opportunity, visit www.vestwell.com.


*Fidelity Investments, 2017 Plan Sponsor Attitudes

Vestwell Recognized Globally for its Innovation by RegTech 100 List


Vestwell is excited to be named one of 2018’s most innovative companies in regulatory technology by RegTech 100. The RegTech 100 recognizes companies that are transforming the regulatory technology industry and are quickly becoming important to financial institutions. Vestwell is proud to offer a solution that makes the complexity of regulating retirement planning a simple, streamlined process for financial advisors, companies, and participants.


Global RegTech 100 list announced to recognize the FinTech companies changing the landscape for financial institutions