For endowments and foundations, the goal of any spending policy is to balance current needs with long-term financial health. To meet that goal, governing boards often design spending policies that prioritize perpetuity and consistency above all else, with spending as a percentage of total assets remaining constant year after year. But when markets dip or swell outside normal ranges—reducing or increasing assets in unexpected ways—board members may feel tempted to react and reevaluate the organization’s baseline spending policies.

Depending on the circumstances, straying from predefined spending policies may be a good idea for some organizations. What’s key is to understand both the long- and short-term impacts of any potential change, and that can be difficult to do in the moment.

To better prepare for volatile market behavior, CAPTRUST experts recommend endowments and foundations run stress tests to model different scenarios when establishing spending policies. What will the organization do if a market rally creates a 20 percent asset growth in one year? What will it do if a market pullback reduces asset value by the same amount? In these cases, for some organizations, creating conditional spending policies with provisions beyond the core distribution target for each asset pool may make sense.

For those who are involved in making spending policy decisions, here are a few best practices and examples to consider when designing conditional spending policies.

Plan Ahead

A conditional spending policy is designed to encourage an organization to think proactively, not reactively, says Wally Terrell, senior specialist on CAPTRUST’s asset and liability team. “If certain conditions happen in the market, like outsize gains or the recent dip in both stocks and bonds, then spending is adjusted based on pre-planned conversations. This way, board members can be sure they’re not making knee-jerk reactions without considering the long-term perspective.”

Modeling assists decision makers in understanding how different events can affect the organization and how the organization will react. It also helps ensure the organization is aware of—and comfortable with—spending policy implications to its portfolio and mission.

It is important to keep in mind that adding conditional spending policies to an investment policy statement (IPS) does not mean the organization will be locked into these provisions. Conditional spending policies simply become another part of the organization’s comprehensive investment strategy, named within the IPS alongside other portfolio parameters and strategic principles, such as the organization’s investment objectives, constraints, and reporting requirements.

As a best practice, the IPS should be reviewed at least annually and any time there is a material change in the organization’s circumstances. As Grant Verhaeghe, endowment and foundation practice leader at CAPTRUST, explains, “When a triggering event occurs, board members can confirm in committee meetings whether the decision made in anticipation of this event is still the one they continue to believe is the right course of action, or not.”

There is nothing suggesting that the organization can’t change course, so long as it follows applicable tax codes, honors donor intent, and aligns with legal compliance in the context of long-term objectives.

Create Overlap

Another best practice is to integrate the organization’s spending and investment policies by creating overlap in the teams that design them. Ideally, the people who are making spending decisions will be some of the same people on the investment committee so that both groups are aware of what is happening in both areas.

“At a minimum,” Verhaeghe says, “the IPS ought to reference the spending policy, if they are separate documents. Organizations might also consider creating a single document that encompasses both policies.

“It’s even better,” he says, “if an organization can create overlap between the committees that are making these decisions, because overlap creates better information and leads to better financial decisions.”

Terrell agrees: “Allocation decisions should be codified in the organization’s IPS, and everything should revolve around the mission. Spending policy, investment policy, the mission—they should all be in harmony.”

Customize the Plan

Although planning itself is a consistent best practice, there is no fixed way to establish a spending policy. Every organization is unique, which means every IPS will be unique, and the conditional spending policies included in that IPS can be infinitely customized. “There is so much flexibility,” says Terrell. “The key is to think about the organization’s unique mission and how its assets support that mission.”  

As Verhaeghe explains, “The right spending policies will depend on how the organization utilizes each pool of assets for its ongoing needs.”

In other words, committee members need to understand the organization’s financial vulnerabilities and how different market conditions will impact its mission. For example, some foundations rely heavily on one asset pool, while others depend on grants and donations. The latter will have more flexibility to take investment risks but will also likely see donations decline while markets are down.

Terrell says one widespread practice is to apply different spending policies to each asset pool. For instance, he says, it’s common to have asset pools that function as reserves. Typically, these funds are invested conservatively and may grow slowly over time. In this case, Terrell says, “The foundation may decide to institute a conditional spending policy that says ‘When assets in this pool exceed a certain amount, the organization may institute a simple spending policy. But if assets do not reach the target, there is no spending from this pool whatsoever.’”

One of the more unusual types of IPS spending policies Terrell has seen is from a client that has, essentially, a growth portfolio and a separate, capital preservation portfolio with a more conservative investment strategy. “Their policy is that if the equity markets decline by more than 10 percent, then instead of distributing from the bigger, growth-focused portfolio, they would instead spend from the more conservative portfolio,” he says. “This way, they don’t unnecessarily deteriorate their equity assets and can use the market downturn as an opportunity to become more tactically aggressive than they otherwise would be under normal spending behaviors.”

Verhaeghe elaborates: “It’s like saying, ‘I don’t want to sell growth assets in a distressed environment.’ Their spending policy means they can hold onto growth assets when market valuation is better.”

As examples of how market conditions may influence mission-centered spending behaviors, Terrell and Verhaeghe offer three case studies for consideration. Note that these examples do not consider regulatory spending requirements that apply to some nonprofits, nor are they meant to serve as ready-made examples for adoption. The right conditional spending policies for each endowment or foundation will depend on that organization’s unique goals and circumstances.

Example A: Spending Floors and Ceilings

Example A

An organization may choose a flat dollar spending target, such as $1 million per year, and an additional constraint that restricts the dollar value to a minimum of 4 percent and a maximum of 6 percent of assets. While $1 million is the annual spending goal in this example, if, in a particular year, conditions result in a $1-million spend equaling less than 4 percent of assets, then distributions would be adjusted higher. The inverse would be true for a spending ceiling: If conditions result in $1 million equaling less than 6 percent of assets, then distributions would be adjusted lower.

Example B: Portfolio Valuation Date

Example B

Another organization may choose a simple 5 percent annual spending policy. Determining the applicable date of market values can impact the sensitivity of spending levels to fast-changing market conditions, Terrell says. For instance, the organization may have targeted spending of $250,000 as of year-end, but the amount would be lowered to $210,000 if an additional rule considers a more recent asset value. The organization may choose to make the inverse true as well, specifying that if asset values on a defined date equal more than $250,000, spending may be raised. This could happen as the result of an unusually large rally or after the receipt of a large gift, for example.

Example C: Market Conditions

Example C

Some conditional spending policies may adjust spending levels when market performance meets certain thresholds or when assets rise above—or fall beneath—specific values. Another option is to temporarily halt distributions after a large enough decline in the portfolio, when assets fall below a reserve level. Some organizations will also choose to increase spending over time to address inflation.

When Markets Are Down

“No matter which policies are implemented,” says Verhaeghe, “every organization will have to consider its unique requirements. A private foundation might be subject to IRS rules, while a public foundation might have more flexibility. One organization may rely heavily on an endowment or foundation to cover its operational expenses, and another may have a mission that requires significantly more spending in a tough market.”

This is a common theme. Many endowments and foundations have a greater need for spending when markets are depressed. In fact, for some of these organizations, reducing spending in times of disruption will run contrary to the reason they exist—to support people, institutions, and communities, especially when they need it most.

“It’s not lost on me that telling endowments and foundations to spend less in a difficult economic environment is easy to say and hard to do,” Verhaeghe says. “But this is unlikely to be the only time that markets are volatile or down.”

His advice: “Stay committed to the mission. But also, as a long-term best practice, the more planning an organization can do, the more likely it is that its team will make good financial decisions, because planning helps create balance between immediate spending needs and long-term spending plans.”

Understanding that the organization will almost certainly face another unusual market makes a clear case both for robust planning and for conditional spending policy design. “With a defined spending policy that is formally documented in the organization’s IPS, decision makers are not simply reacting to portfolio growth or decline,” says Verhaeghe. “They’re making proactive decisions that help protect the organization’s ability to achieve its mission, both now and for the long run.”

On November 22, the Department of Labor (DOL) released its final rule designed to clarify a path forward for retirement plan fiduciaries wishing to incorporate environmental, social, and governance (ESG) factors into their investment selection and monitoring process. The long-awaited rule, titled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” was originally proposed in October of 2021, months after an announced non-enforcement policy to the rule issued on October 30, 2020.

Once effective, this final rule will modify and reverse certain amendments to the Investment Duties regulation under the Employee Retirement Income Security Act of 1974 (ERISA). An early read of the final rule should allay the fears of many commenters to the 2021 proposed rule, as the DOL makes clear that fiduciaries may consider climate change and other collateral benefits when making investment decisions and exercising shareholder rights. However, there is no requirement to incorporate such considerations, as was the concern by many readers of the proposed rule.

Over the last approximately 40 years, the DOL has periodically provided plan sponsors with interpretive guidance on how ERISA’s fiduciary duties of prudence and loyalty apply to the selecting and monitoring of investments that promote ESG goals. The DOL’s use of non-regulatory guidance recognized that, under the appropriate circumstances, ERISA did not preclude fiduciaries from making investment decisions that took ESG goals into consideration in connection with an investment’s risk and return.

As discussed in a previous Plan Sponsor e.Brief, the October 2020 rule aimed to address perceived confusion about the implications of that guidance. However, in confirming that fiduciaries may only select investments based solely on the consideration of pecuniary factors, it discouraged many sponsors’ desires to integrate ESG goals.

In its final ruling, the DOL has aimed to reverse what the Assistant Secretary of Labor Lisa Gomez called the “chilling effects” from the previous ruling by creating space for the consideration of relevant collateral factors without tilting the scales in favor of ESG factors.

Among the many modifications and changes to the Investment Duties regulation, this final rule includes the following:

With the exception of the rule’s proxy voting provisions, the amendments set forth will go into effect 60 days after its publication in the Federal Register.

Should you have immediate questions, or for more information, please contact your CAPTRUST Financial Advisor at 800.216.0645.

Long-term care typically refers to support that is required for an individual to perform the regular activities of daily living, such as dressing and bathing, due to a medical or mental condition. According to data from the Department of Health and Human Services (DHHS), 70 percent of Americans today will require some type of long-term care, and the average person will pay roughly $138,000 for their long-term care. Public programs and insurance will cover about half of these costs, but one in six people will still pay more than $100,000 out of pocket for long-term care expenses.

Almost everyone will qualify for Medicare coverage, and most people assume that it will cover all their health needs. But the truth is that Medicare covers health issues a person could possibly recover from or manage the severity of, like a broken bone, diabetes, or cancer. Medicare does not cover long-term care for permanent physical or mental limitations. In those cases, the individual is responsible for payment using their own resources. Another option is to purchase long-term care insurance.

planning for long-term care chart

Sources: 2020 Cost of Care Survey, Genworth Financial

What Types of Long-Term Care Exist?

There are three types of long-term care. All three types can be provided at home or in a dedicated facility, such as an assisted living center or continuing-care retirement center.

The first and most-used type of long-term care is custodial care. With custodial care, you receive help with daily living activities like eating, dressing, bathing, or getting around town. Custodial care is generally considered to be non-medical in nature. It can be provided by unpaid family caregivers or can be part of a paid service provided by home health workers or nurse aides.

One step up from custodial care is intermediate care. This is the term for health care that is provided by a skilled professional at regular intervals but usually on an infrequent basis. One example is weekly rehabilitative services.

The third type, called skilled care, involves 24-hour professional health care. Although many people associate skilled care with nursing homes, it may be provided at your own home, in an assisted living facility, in a hospital, or in other locations.

DHHS data shows that the average American will need three years of long-term care, including one year of paid care in-home and one year in a healthcare facility. Whether you plan to age in place or move to a retirement community, planning for the cost of your long-term care should be part of your larger financial plan.

How Will You Pay for It?

Medicare provides healthcare benefits for medical needs, including a percentage of some types of intermediate care and skilled care. It does not cover custodial care—the type of long-term health care that most individuals will need—even if a paid professional provides that care.

Medicaid, which is often confused with Medicare, is a joint federal and state healthcare program open to people with limited income and assets. Medicaid covers some long-term care but provides only limited coverage, and because of the income limit, the majority of Americans do not qualify for this program.

That means most people have two true options to fund their long-term care: pay out of pocket or buy long-term care insurance.

Is Self-Insurance a Good Option?

Paying out of pocket—also called self-insurance—is the most common way to pay for long-term care expenses. Self-insurance gives you the freedom and flexibility of full control over your long-term care decisions without having to consider what is covered or not covered by your insurance policy. When choosing this option, it’s important to understand the rising costs of long-term care and be sure you are making an intentional decision as part of your financial plan.

According to data from Genworth Financial:

Note that the cost of long-term care will vary depending on the level of care you need and your location. You’ll find the least expensive long-term care in the country in Louisiana, West Virginia, Missouri, and Oklahoma. The most expensive markets for long-term care are in Connecticut, Alaska, New York, and New Jersey. The average cost of a private room in a nursing home in the Bridgeport-Stamford-Norwalk area of Connecticut, for instance, is nearly $160,000 a year. Equivalent care in Baton Rouge, Louisiana will cost around $57,000.

If you choose to self-insure, you’ll want to be confident that you have sufficient assets to pay the costs of care, no matter what. You may need to reallocate liquid assets, and you may face corresponding tax consequences. A financial advisor can help you plan and prepare for these moves.

What is Long-Term Care Insurance?

Long-term care insurance (LTCI) is specifically designed to pay for long-term healthcare in settings like nursing homes or in your own home. Essentially, LTCI enables you to transfer a portion of the financial liability of long-term care to an insurance company in exchange for regular premiums. But policies vary widely, so it is important to know what you want and choose a policy that aligns with your needs.

Most LTCI policies cover all three levels of care—custodial, intermediate, and skilled—so long as you are receiving them in a licensed nursing home. Some policies will limit or exclude additional settings, like home health care. Generally, long-term care insurance will also cover adult day-care centers, respite care, and other forms of health care provided by licensed and registered professionals, like physical therapists and nurses.

Comprehensive policies are more likely to cover home care services and assisted living, but also come with a heftier premium. Some comprehensive policies will cover the cost of personal care consultants and caregiver training for a family member or friend.

Before you can use your benefits, insurance companies typically require that you meet certain physical, social, or mental conditions. For example, you may need to provide proof that you can no longer independently perform regular daily activities, like bathing or dressing. All these requirements will be explained in your policy documents at enrollment.

According to 2020 data from the American Association for Long-Term Care Insurance, the average annual long-term care insurance premium for a 55-year-old couple was $3,050. Single males of the same age paid $1,700 a year, and single, 55-year-old females paid $2,650 a year. But prices for virtually identical insurance policies varied from $3,000 to $6,300 a month, which is why it’s important to do your research and make an informed decision. You might also consider working with an insurance professional who can help you compare multiple insurers and policies.

One benefit to LTCI is that it may help you minimize the financial impact of an extreme medical event or condition. As part of your financial plan, LTCI may be a piece of portfolio risk management or estate and legacy planning.

While there is no one-size-fits-all answer or obvious net-worth threshold that makes one option better than the other, there is a clear first step. Talk with your financial advisor about your needs, concerns, and desires. Having a plan in place will help you evaluate potential scenarios, stress-test your choices, and feel confident in your long-term care decisions.

Since health savings accounts (HSAs) first became available in 2003, they have been helping individuals covered under a compatible health plan, known as a high-deductible health plan (HDHP), become more engaged healthcare consumers who are better prepared for their healthcare expenses both now and in retirement. 

HSAs can be used in a variety of ways to help manage current qualified medical expenses and also future qualified medical expenses even after employees retire. Unlike flexible spending accounts (FSAs), HSAs are not subject to the use-it-or-lose-it rule. And employees can actually sock away quite a bit of money annually in an HSA. 

For 2022, the annual cap on HSAs is $3,650 for self-only and $7,300 for family coverage. Also, employees who don’t use the money can keep saving it in their HSA accounts. Once employees establish a cash cushion within their HSA to pay for short-term, unanticipated, qualified medical expenses and out-of-pocket maximum deductible limits, many have a large enough balance to begin investing in mutual funds, stocks, or bonds. 

Ultimately, these programs empower employees as healthcare consumers. Because they are contributing more of their own money when they’re using an HDHP and an HSA, they are more involved in the cost of healthcare services, says CAPTRUST defined contribution practice leader Jennifer Doss. “Employees may be more inclined to consider the necessity of high-cost health care in certain circumstances; for example, an urgent care visit versus a visit to the emergency room.” 

By enabling employees to choose when and how their healthcare dollars are spent, HSAs allow participants to decide what’s best for their unique situations. What’s more: HSAs offer savings and tax advantages that traditional health plans can’t duplicate. 

HSAs are the only type of retirement account that is triple tax free. The money employees put in is tax free; the money employees take out for qualified medical expenses is tax free; and earnings on account balances are tax free. Further, because an HSA stays with the employee, not the employer, it’s very attractive to employees who are worried about paying for healthcare costs if they are furloughed, laid off, or simply want to move to a different organization.  

Also, HSAs are growing. In recent years, enrollment has increased significantly with over 30 percent of workers covered under these plans, according to the Kaiser Family Foundation. And, by some estimates, HSA-eligible health plan enrollment is projected to continue to grow by nearly 25 percent annually and is on pace to exceed 36 million enrolled in HSAs by 2023. In 2022, 63 percent of large employers offered an HSAs: a rise of 20 percent since 2018.

While the rapidly evolving HSA market undoubtedly points to improved spending and saving experiences for the employee, it also shows meaningful value for employers. 

HSA Advantages for Employers

Since 2008, there has been a significant increase in employers offering HDHPs and HSAs. In 2020 alone, the percentage of employers that offer HSAs grew at a rate of more than 50 percent. According to the experts, the reasons are clear. 

From reduced taxes and lower insurance premium rates to employee retention and increased flexibility for plan sponsors, the HSA is as much a savings gem for employers as it is for employees. 

HSAs reduce taxes. When employers contribute money to their employees’ HSAs, 100 percent of those contributions are tax-deductible, Doss says. “A lot of employers contribute between $500 and $1,000 to the HSA for a participant to start out with.” Some employers choose to contribute a lump-sum payment, while others opt for periodic deposits.  

When employees contribute to HSAs through payroll deductions, the contribution is made pre-tax, which saves both employees and employers on Federal Insurance Contributions Act (FICA) taxes (7.65 percent each). 

In other words, while employees are able to leverage the triple tax advantage HSAs offer, employers are also able to benefit from HSA tax advantages. Experts say the FICA tax savings for employers alone can be so substantial that many employers choose to increase their employer HSA contributions in order to maximize those tax savings. 

HSAs reduce insurance premium rates. Used in conjunction with HDHPs, HSAs help employers save on health insurance premiums, says Doss. “As employees take ownership over their health and become more involved healthcare consumers, that often spills over to lower increases on annual premiums.” 

Even with an employer contribution to employees’ HSAs, the overall cost for healthcare coverage is usually less because the premium rates on HDHPs are considerably lower than traditional health plans. In fact, the National Bureau of Economic Research indicates that employers who switched from non-HDHPs to an HDHP paired with an HSA saw a 10 to 12 percent decrease in firm-wide health spending in just two years. 

HSAs improve employee retention.  An employer contribution to = an HSA is a  visible, valuable, and welcome addition to an employee’s total compensation package. “Because HDHPs and HSAs can help your employees save money and invest for the future in a way they can see, they’re a great addition to any benefits package,” Doss says. 

In a survey of 1,200 employers, 50 percent said employee recruitment was a big part of their decision to offer an HSA, and 57 percent indicated employee retention as a driver. What’s more, those numbers increased by 100 percent from the year prior.  

Garry Simmons, practice leader of health and group benefits consulting at Milliman says that uptick makes sense. “There’s such a war for talent right now. It’s so hard to find anybody who’s willing to work, for one thing. And then beyond that, it’s how do you keep them?” Simmons says offering an HSA helps employers “maintain a market competitive position and can aid in attracting and retaining top talent.” 

Although not all employees will embrace HSAs, savvy employees who understand the benefits will value a program that includes an HSA. And employees appear to be getting more comfortable with the combination of an HDHP and HSA–especially younger employees. 

It’s these younger generations—Generation z, the millennials, and Generation x, which make up a combined 68 percent of the current labor force—who are responsible for the highest growth in HSA contributions since 2018, as shown in Figure One. Additionally, gen z employees nearly doubled their family HSA contributions since 2018, increasing contributions by 42 percent in 2021 alone. 

Figure One: HSA Contribution Trends by Generation

Age groups used in this report: Generation z (born 1997 and after), millennials (born 1981-1996), Generation x (born 1965-1980), baby boomers (born 1946-1964), and traditionalists (born 1945 or before). 

Source: “2” benefitfocus.com, 2022 

HSAs support overall employee wellness. Fifteen months after the start of the COVID-19 pandemic, a study by MetLife discovered even more reason for employers and plan sponsors to offer HSAs: They make a positive impact on workers who are shaken by the pandemic’s resulting financial uncertainties. 

Simmons agrees. “An HSA certainly can help employees manage their medical finances and avoid what could be a catastrophic financial situation,” he says. If employees are stressing or they’re distracted by finances, they’re not as productive to the employer, he says. “As part of an overall financial well-being package, HSAs ultimately improve the productivity of a workforce, and [the employer] benefits from that.” 

The study indicates that employees who owned an HSA felt significantly better about their financial wellness and were better able to manage stress related to their personal finances compared with employees without an HSA. Based on MetLife’s research, employees who owned an HSA were 22 percent more likely to say they felt better in general—physically, financially, mentally, and socially. 

Additionally, companies offering HSAs find that employee healthcare choices and behaviors change dramatically, Doss says. “HSAs create a powerful reason for employees to want to stay healthy.” It’s the concept of consumer-driven healthcare, Doss says. “That means, with HSAs, employees tend to be more careful and inquisitive into their healthcare purchases because this is their money.” 

HSAs improve employee retirement readiness. According to a recent report, healthcare costs have risen by 40 percent since 2015 and 5 percent in 2022 alone.  In fact, according to HVS Financial, for a healthy, 65-year-old couple retiring in 2022, total costs for premiums and out-of-pocket expenses will average $683,306. Moreover, if this couple starts receiving Social Security payments at 65, healthcare expenses will consume 71 percent of their benefits, leaving far less than many might expect for other living expenses such as housing. 

Sound stressful? It is. John Hancock’s 6th annual financial stress survey reports that saving for retirement is the most prominent cause of financial anxiety for employees. Specifically, respondents’ top retirement-related financial concern was putting enough funds away to cover the healthcare costs they’ll incur. 

This stress doesn’t take a toll only on individuals, Doss says. “Employees struggling to effectively prepare for retirement can have a real impact on the health of a business through reduced productivity and increased employee absences.” Moreover, when workers are extending their employment into their senior years out of necessity, they can slow the promotion pipeline and consume a disproportionate share of the organization’s resources, Doss says. 

Luckily, employers have a powerful tool at their disposal to help address these issues and give their employees peace of mind. 

With its triple tax advantage, the HSA is a great way for employees of all ages to supplement their retirement savings while covering out-of-pocket health expenses, Doss says. “HSAs’ unique ability to avoid paying taxes on both contributions and earnings if used for qualifying medical expenses sets them apart from 401(k)s and IRAs and puts them at the top of the list for tax-efficient investment options for retirement.” 

Better yet, at the age of 65, employees can use their HSAs to pay for any nonqualified medical expenses. As Simmons says, there’s always the long-term HSA advantage. “You’ve got money to pay for the expenses that Medicare doesn’t cover, or even premiums for Medicare supplement plans.” 

Plan flexibility. A major strength of offering an HSA is program flexibility. “Like any other benefit, employers have the ability to go out and shop to decide what kind of HSA platform they want to offer,” Doss says. 

HSA platforms differ in the types of investments offered, minimums required for investment, account accessibility, and overall fees, Doss says. Some platforms also offer education for employees and assistance with creating model portfolios. “Education here is key. Employers should consider offering resources to help employees look at ways to invest their money and reduce the difference between what they should have in short-term savings for everyday medical expenses versus that long-term retirement medical expense,” Doss says. 

Another flexibility: The two cost components of HDHPs and HSAs—the HDHP premium and the employer contribution to employees’ HSA accounts—are independent and can be changed as needed. Flexible plan design means employers can adapt the plan options according to their changing business needs. For example, employers can partially fund their employees’ HSAs or pay for a percentage of HDHP coverage. They can also fully fund an HSA and pay for the HDHP coverage. Employers are using the flexibility of the HSA to reduce their involvement in benefits and share more responsibility with the employee. 

Low administrative burden. Speaking of sharing more responsibility with the employee, given the individual account nature of HSAs, much of the administrative burden is switched from the employer (or paid third-party administrator) to the employee and the HSA provider. 

From the employer standpoint, you’re engaging with an HSA provider to do the administration for you, Doss says. “Once the money goes into these individual HSAs, it belongs to the individual. The employer is not administering anything from the HSA perspective at that point.” 

Experts agree: Employees are not the only ones who benefit from having an HSA. Employers can also realize savings through lower medical premiums, tax-deductible contributions to employees’ HSAs, plan flexibility, and more. 

Employers not yet offering these accounts may want to explore their health plan offerings and consider incorporating an HDHP paired with an HSA. As offerings continue to expand, employers that are already offering HSAs may think about comparing terms of their current accounts with other industry offerings to ensure they are taking advantage of plans with minimal fees and the best investment performance. 

Indexed Target Date Funds Challenged in 401(k) Litigation for Too Low Returns

In an interesting twist, the focus of attacks on 401(k) plan fiduciaries has expanded to include challenges to the use of low-cost indexed target date funds. Approximately 10 lawsuits have been filed against plan fiduciaries for using the BlackRock LifePath indexed target date funds. The challenge claims the BlackRock funds have had consistently lower returns than the most-used and best-performing, (mostly) actively managed target date funds. The T. Rowe Price Retirement Funds and Fidelity Freedom Funds were cited as examples, among others. 

Different from the all-too-familiar claims in nearly 200 recent lawsuits that challenged 401(k) plan fees, expenses, and sometimes investment performance, these lawsuits challenge only investment performance. 

They allege that investment returns were sacrificed in favor of low costs. However, there are two critical differences in the BlackRock funds versus the funds they are being compared with that are likely major contributors to performance differences.  

There are legitimate and prudent reasons for plan fiduciaries to select target date funds with either a to-retirement or a through-retirement strategy, and with either actively managed or passively managed underlying fund components. It’s also paramount that plan fiduciaries understand they have no responsibility, per ERISA, to select the best-performing investment options or the cheapest. However, in a familiar refrain from prior Fiduciary Updates, it is essential that those choices be made through a thoughtful evaluation and selection process. It is equally important that those decisions be well documented.

UnitedHealth Group CFO Added as an Individual Defendant in Lawsuit Challenging the Retention of Underperforming Target Date Funds

UnitedHealth Group (UnitedHealth) is the subject of another lawsuit challenging fiduciaries’ use of target date funds. The complaint, filed in 2021, alleges that the company’s retirement plan continued to offer Wells Fargo target date funds from 2015 to 2021, even though they consistently and significantly underperformed. Snyder v. UnitedHealth Group (D. Minn. 2021).

Through the litigation discovery process, the plaintiffs claim to have found evidence that although the UnitedHealth fiduciary committee had determined to remove the Wells Fargo funds, the CFO interceded to keep those funds in place. An amended complaint was filed in August 2022, adding the CFO as an individually named defendant. The amended complaint alleges that the CFO directed a comparison of UnitedHealth’s business relationships with Wells Fargo and the firms whose funds were candidates to replace Wells Fargo. Upon determining that Wells Fargo was a significant business partner, the decision was made to retain the Wells Fargo funds. Soon after, the plan’s fiduciary committee was restructured to include the CFO, who had not previously been a member. The complaint contends that UnitedHealth’s business success took precedence over the interests of plan participants, thereby violating ERISA’s exclusive benefit rule and causing losses for plan participants.

So far, only the plaintiff’s allegations are known. Counsel for the defendants issued a statement noting that lawyers may choose to pursue baseless claims and stating that allegations against the CFO are completely without merit.

This case and the multiple lawsuits challenging the BlackRock LifePath funds (reviewed earlier in this Fiduciary Update) underscore the importance of carefully selecting and monitoring target date funds—along with a plan’s other investments.

Recent Decision in CommonSpirit Supports Fee Case Dismissals by Two Other Circuit Courts of Appeal

Last quarter, we reported on a decision from the Sixth Circuit Court of Appeals affirming the dismissal of a 401(k) plan fees case in CommonSpirit. Relying on the reasoning in that case, dismissals have also been upheld in the Seventh and Eighth Circuits. These cases and other recent dismissals at the district court level are a departure from a recent trend of allowing these cases to proceed. This may indicate that courts are developing a more complete understanding of this area.

In Albert v. Oshkosh Corp. (7th Cir. 2022), now-familiar claims were filed, alleging too-high fees among other complaints. Affirming dismissal, the court said the following:

CAPTRUST comment: Even though this statement provides some breathing room for fiduciaries, it is a fiduciary duty to pay only reasonable fees for plan services. We believe it is a best practice to periodically benchmark fees against similar plans and services.

CAPTRUST comment: While this particular court may view this as a novel approach, a significant number of plans utilize it, and one recently filed fees case directly alleges a fiduciary breach in not using it. There is no one right way to pay for plan fees, but a full understanding of all plan fees is required.

In Matousek v. MidAmerica Energy Company (8th Cir. 2022), again, familiar claims were made. Affirming dismissal, the court said the following:

CAPTRUST comment: Periodic like-to-like benchmarking is a best practice.

CAPTRUST comment: It is a best practice to periodically review and evaluate plan investments relative to appropriate benchmark and peer group data—and document those reviews.

Two District Courts Conclude Plan-Related Data is Not a Plan Asset

A wide-ranging lawsuit was brought against Automatic Data Processing, Inc, making the usual allegations of overpaying fees and retaining underperforming investments. This suit also included the claim that plan data is a plan asset and that plan fiduciaries breached their responsibility by allowing the plan recordkeeper, Voya, to use participant data to solicit plan rollovers and sell other products. The court decided that plan data is not a plan asset and dismissed that claim. The court did note that it is possible that plan fiduciaries should have limited Voya’s use of plan data, but nothing in the complaint supported a finding that failure to do so caused losses or harm. Berkelhammer v. Automatic Data Processing Inc. (D. N.J. 2022).

In the second case, TIAA-CREF was challenged for using plan data to encourage plan rollovers and sell other services. The judge stated in his opinion that due to TIAA’s lagging market share in the retirement plan space it took action to support its business and implemented a multi-step approach. This strategy included offering free financial planning services to plan participants so the company could decide whom to target for other services. The company also implemented processes to encourage internal advisors to sell other services. The court concluded that plan data was not a plan asset that could give rise to TIAA being a fiduciary or committing a fiduciary breach for the data’s misuse. Carfora v. Teachers Insurance Annuity Association of America (S.D. N.Y. 2022).

Although these cases do not find a fiduciary responsibility for the use of plan assets, plan fiduciaries will likely want to be aware of any cross-selling and ancillary services provided to their employee/participants by plan recordkeepers. Also, this is a developing area and not all courts will necessarily reach a similar conclusion, depending on the facts and circumstances. 

Independent Fiduciary Provides Shield to Plan Fiduciaries in Employer Stock Case

Boeing’s 401(k) plan permits plan participants to invest in Boeing stock. For more than 15 years, the Boeing Investment Committee has retained an independent fiduciary who has both independent and exclusive responsibility for monitoring Boeing stock as a plan investment. After two fatal crashes of Boeing’s 737 MAX aircraft, the company’s stock lost considerable value. In the wake of the second crash, plan participants sued Boeing and its fiduciary committees, alleging that—after the first crash and the subsequent recovery of the flight data recorder—Boeing knew and concealed the risks of the 737 MAX aircraft. They argued that Boeing stock should have been eliminated from the plan. A lawsuit was not brought against the independent fiduciary.

The court evaluated the respective roles of Boeing, its fiduciary committees, and the independent fiduciary. It concluded that with the appointment and delegation of exclusive responsibility for the Boeing stock to the independent fiduciary, neither Boeing nor its committees had a fiduciary role or responsibility with respect to the Boeing stock. As a result, the case was dismissed. Dismissal was appealed to the Seventh Circuit, which affirmed dismissal. Burke v. Boeing Co. (7th Cir. 2022).

This case illustrates a potential benefit of retaining an independent fiduciary in employer stock situations that may warrant it.

For a while, it was great. “For about six or eight months, it was sort of like a retirement honeymoon,” says Vertz, who is now 74 and lives in Wakefield, Rhode Island. “I didn’t have to get up early. I could just go and do whatever I wanted to do. Every morning, I would walk the beach. And then I found a group of people I could go and play golf with. It was really nice.”

Until it wasn’t.

After those few honeymoon months, Vertz says, he felt a strong sense that he was no longer contributing to the world, that he was “a taker, just breathing out carbon dioxide.”

Vertz found his way, first by forming a group with other retired men struggling with purpose and then by teaching classes to other older adults. One of the classes he teaches at the University of Rhode Island’s Osher Lifelong Learning Institute is on finding purpose for successful retirement. He’s also written a book: Purpose Driven Retirement.

Vertz’s experience rings true to many retirees, but it also raises questions: Does every retiree need a clearly defined purpose? Or can a life of leisure be fulfilling?

Defining Purpose

Research suggests that purpose, if not essential, is certainly a good thing and is linked to better health, a longer life, and a more positive outlook. But dig deeper and the answers get more complicated.

People, including researchers, define purpose in different ways.

Does purpose mean having clear goals? Does it mean pursuing activities that are deeply meaningful to you? And do you have to contribute to the broader world in some way?

It depends on whom you ask.

Fred Sloan, a CAPTRUST financial advisor in Lake Success, New York, says he works with some retirees who live a leisurely retirement lifestyle, but do seem purposeful and satisfied. “I’m thinking of one person who plays golf three days a week and tennis three days a week, and on the seventh day, he rests. He goes to see his grandkids once in a while and maybe reads The Wall Street Journal in the morning, but that’s about it. He feels fulfilled and happy, and that’s his purpose.”

While it’s good to be thoughtful about what successful retirement looks like for you, Sloan says, “I don’t think you owe it to the world to get another job or cure cancer. Once you decide to retire, I think you should have the freedom to do whatever it is you want to do.”

Sloan says he encourages his clients to think about how to use all that freedom. These are some questions he suggests they ask themselves: What does a great day look like? What’s on my bucket list? What can I learn, both positive and negative, from how my parents handled retirement? The answers vary, Sloan says—and they should.

Joshua Becker is the author of Things That Matter and founder of becomingminimalist.com, a website dedicated to living with fewer possessions and more purpose. He says that, to him, living with purpose at any age means “not wasting away our days or letting someone else define what is going to be important to us, but realizing that we have just one life to live, and we want to make the most of it.”

Andrea Millar, a life planning coach, says that she sees living with purpose as “getting to the core of who you are as an individual, living a life true to what makes you feel most energized, what makes you come most alive, and what gets you out of bed in the morning.”

For some retirees, Millar says, that’s a high-impact volunteer role or a second career. For others, she says, it means having some fun, taking care of loved ones, or contributing to their communities in small ways. The most fulfilling life, at any stage, tends to be one that combines self-care, strong relationships, and giving back to the wider world, she says.

Giving Back

Nearly a third of older adults are working toward “goals that are meaningful to the self and aim to contribute to the world beyond the self,” according to a 2018 survey of 1,200 adults ages 50 to 90 conducted by researchers at Stanford University and encore.org.

Almost all those purposeful people have a bright outlook on life, the researchers reported: “Though many people in this group were dealing with serious life problems, such as poverty, poor health, family difficulties, or bereavement, they emphasized the joy and satisfaction they experienced in their lives.”

That good feeling we get when we give back is just part of human nature, says retirement coach Nancy Collamer: “I think we are wired as human beings to feel good when we help other people.” A retirement lifestyle based entirely on fun and leisure is less nurturing, she says. “It’s like having a diet of just sugar and junk all the time. It’s going to catch up with you.”

Becker says social science backs up that view. “Every study that’s ever been done shows that people who reach the end of their lives the most fulfilled and with the highest sense of well-being are people who volunteered, people who gave, people who were generous, and people who served others.”

Purpose Anxiety

Purpose has become such a byword for both working and retired adults that some people have developed what researchers call purpose anxiety, a sense that, if they can’t identify their one true purpose, they are doomed. Collamer says she sees some clients “burdened by the concept of purpose.” But she and other experts say retirees struggling with the idea should understand a few key concepts.

You Can Take Your Time

Millar says many people approaching retirement are “sick and tired of the never-ending to-do lists.” For those people, taking some time to relax, with a few clear goals and plans, can be essential to successful retirement. A period of calm and quiet, she says, can help people see what they want to do next.

Collamer agrees: “There is typically a period of time after somebody retires, particularly from a very intense career, when they just want to be able to kick back and decompress, and there’s absolutely nothing wrong with that.”

Your Retirement Lifestyle Doesn’t Have to Change the World

Much of the anxiety new retirees feel around purpose, Collamer says, stems from confusion over “purpose with a capital P” versus “purpose with a little p.” If you think purpose means “you have to solve world hunger, then it’s very intimidating and overwhelming.” If you grow and give a bit every day, you are on the right track, she says.

Millar says that giving doesn’t have to involve formal volunteer work. The woodworker who makes someone’s home a little nicer or the gardener who makes her block more beautiful is also making a meaningful contribution, she says.

You Will Learn by Doing

Collamer says she encourages clients to think of the first year of retirement as a gap year, like the one many young people take between high school and college. “It’s your opportunity to try different things on for size, no pressure, to see what speaks to you.”

Millar says that a little experimentation can be eye-opening: “You really can’t get clarity unless you take action.”

Becker agrees: “I would encourage [the uncertain] person to just get started with the one thing that they’re most passionate about.”

You Can Still Have Fun

Vertz, the aviation executive turned beachcomber turned teacher, says that he encourages his students to set some goals that are all about enjoying themselves. In his case, that meant setting a goal to ski and snowboard at 50 ski resorts on five continents in five years. He started in 2013 and finished in 2018.

Collamer says her own husband retired recently and struggled for a while with finding purpose. He’s now working as a nature guide—and playing a lot of pickleball. “That’s not a particularly purposeful activity,” she says. “But it’s fun.”

She wasn’t at ease for long.

Salinas started receiving calls about careers with Fortune 500 companies, but nothing felt right. Then she heard from a headhunter about leading the Girl Scouts in her area.

“It was the first phone call I got excited about,” says Salinas, 68. “I realized this was a chance to impact the next generation of leaders.”

In 2015, she became chief executive officer of Girl Scouts of Southwest Texas, based in San Antonio, overseeing the nonprofit’s operation, which then included 21,000 Girl Scouts and adult volunteers in a 21-county area.

“The reason I took this job is every single Girl Scout wears the American flag on her sash and her vest,” Salinas says. “Every meeting starts with the Pledge of Allegiance and the Girl Scout Promise. I get to work with girls who, at the age of five, raise their hands and say the words, ‘On my honor, I will try to serve God and my country.’”

“There’s my link,” she says. “To me, it’s the patriotism, because being in the military, I am a patriot. This is one of the few organizations today that still teaches patriotism.”

General Salinas Image One

Growing Up in Texas and California

Salinas’s life took several surprising turns before she landed where she is today. She was born in Alice, Texas, the youngest of five children. When she was in fourth grade, her family moved to Vallejo, California.

Both her father, a mechanic, and her mother, a housecleaner, were smart and hardworking but struggled financially. They tried to do everything they could to help her blend in, so they got her into Girl Scouts. “I didn’t quite feel welcome because I didn’t look like the other girls, but I was proud of the green uniform, yellow tie, and beret,” Salinas says.

Navigating New Territory

After high school, Salinas knew she needed an advanced education to chart a different course for herself, so she enrolled in Dominican College (now Dominican University) in San Rafael, California. “Nobody in my family had completed college when I went,” she says. “But we understood that if we wanted to get ahead, we had to go.”

General Salinas Image Two

There were only three Hispanic students in the school, she says. “Nobody looked like me. I had bad study habits. I had no support. I was good at one thing—I partied. My grades showed it. I was at the bottom of my class.”

She considered dropping out. “I had convinced myself that people like me don’t go to college,” Salinas says. “We are domestics. We clean houses. We work at McDonald’s. We are not the people who rise in the world.”

That was 1974, and the Vietnam War was winding down. “Americans were burning the flag. Military service members were afraid to wear their uniforms.”

In the spring, Salinas, 19, was walking to mail a letter when a chance meeting with a Marine recruiter changed her life. He said to her, “Why aren’t you a Marine?”

“I said, ‘Look buddy, I’m just trying to mail a letter.’”

Looking back, she says, “I believe it was truly fate. That was April 30. On May 4, I was taking the oath: ‘I do solemnly swear that I will support and defend the Constitution of the United States against all enemies, foreign and domestic.’”

On May 7, she reported to boot camp in Parris Island, South Carolina.

“I was being dressed down,” Salinas says. “I had abandoned my civilian identity. I was now recruit Salinas. I was standing there wondering what I’d done. The transformation had begun. My entire life changed from almost being a college dropout to where I sit today. It was a blessing.”

Having the Right Stuff

For her first two years in the Marines, Salinas was in the Reserves so that she could finish college. She graduated with a degree in history in 1976 and later earned a Master of Arts from the Naval War College. The Marine Corps was 98 percent male when she joined. “For many of my assignments, I was the first woman,” Salinas says.

She was the first woman to command a recruit depot and the first Hispanic woman promoted to general in 2006. She was named major general in 2010.

Her goal during her years of service: “I didn’t want to be known as a good Latina Marine or a good female Marine. I just wanted to be known as a good Marine.”

When she retired, Salinas was the highest-ranking woman in the Corps, and she is still the only Hispanic female major general. Her many military decorations include the Defense Superior Service Medal and the Navy Distinguished Service Medal.

General Salinas Image Three

Accepting a New Challenge

About a year and a half into her retirement from the military, Salinas stepped into the role of CEO of Girl Scouts of Southwest Texas. She felt strongly that many girls in the area would benefit from the program. “I love the mission: to build girls of courage, confidence, and character, who make the world a better place,” she says.

“About 76 percent of the members in my area are Latinas or people of color. This is a population that historically hasn’t been attracted to Girl Scouts,” she says.

The program helps prepare girls to be future leaders, she says. Many successful women today were Girl Scouts—including most of the women who have flown in space and all three women former secretaries of state: Madeleine Albright, Condoleezza Rice, and Hillary Clinton.

Girl Scout activities are built around four areas: entrepreneurship, life skills, outdoors, and STEM (science, technology, engineering, and math) education. Members can earn badges on a wide range of topics, from cybersecurity to cooking new cuisines to becoming an eco-explorer.

It’s difficult to find enough adult volunteers for the troops, so Salinas and her staff have found nontraditional ways to make things work, including taking the program into schools and partnering with other nonprofit organizations. “A staff member does virtual meetings with girls who are waiting to go into a troop while we’re looking for a leader,” Salinas says.

The pandemic hurt membership, and the council is working to encourage parents to get girls into the program, she says.

Raising Money for Girl Scouts

Stepping into this job meant Salinas had to develop new skills, including learning how to raise money.

When she took control, the group was in the red. It was critical to balance the budget because people are uncomfortable giving money unless you do, Salinas says.

Every year, she must raise enough for her council to pay the staff; offer a variety of programs; provide scholarships to girls; and maintain the camp, buildings, and grounds. “Right now, I’m struggling, because if people don’t want to donate, I can’t offer some programs. I have a 236-acre camp that needs a new water tank.”

She made a mistake early in her new role that helped shape her philosophy. She met with a donor and walked away thinking she had gotten a large financial commitment, but at the second meeting, she realized she had misunderstood. “I had already put the money in the budget. Camp was in session. We had given girls scholarships.”

“I got in my car, ready to quit,” Salinas says. “I thought to myself: This is too hard. I’m a general. I’m a failure. I’m at my wit’s end. How do I go to the board and tell them that we are going to go a quarter of a million dollars in the hole?”

“But I thought about a seven-year-old Girl Scout trying to sell cookies,” she says. “She might have a goal of selling 250 boxes of cookies to help pay for a trip the troop is planning.

“That young Girl Scout may ask someone if they want to buy a box of cookies, and they say no. She asks if they would like to buy a box to give to a friend. They say no. She asks if they would like to donate a box to a military member, and they say no again. The Girl Scout says, ‘Thank you very much, and have a great day.’”

“She’s bummed, but she still has to sell 250 boxes of cookies because people are depending on her,” Salinas says.

“I thought, if that seven-year-old Girl Scout can figure it out after someone says no to her three times, I can figure it out. That’s my philosophy.”

Salinas went back to her office and wrote on the wall: “Figure it out.” The motto is still there.

Taking a lesson from that young Girl Scout, Salinas went back to the donor. “I said, ‘Listen, please blame me. I’m new. I made a mistake. I didn’t get it in writing, but I can’t solve this problem without your money. I will never ask for another penny, but please don’t punish our Girl Scouts for me not knowing what I’m doing.’”

The donor didn’t give the full amount but gave enough for Salinas to make her budget. And after a few years, the donor came back to offer financial help again.

Salinas is in awe of people “who invest in our mission.” At lunch with a donor recently, she explained her vision to turn 3.5 acres into a space with an outdoor pavilion, a camping area, ropes and an adventure area, and nature trails. When Salinas was driving home, the woman called and offered $1 million to jump-start the project.

“We had never received a donation in this amount in a non- capital campaign. I almost drove through my garage.”

Enjoying the Achievements

Salinas says she’s inspired by the girls who use their Gold Awards—the highest achievement a Girl Scout can receive—or use other projects to help fix a problem in their communities or make a lasting change in their world. One girl worked with the state legislature on a bill to combat cyberbullying; another created a magnet with medical information for senior citizens to post on their refrigerators.

One of the biggest rewards of the job is seeing how the program changes lives. One Girl Scout was introduced to aviation by a volunteer, and she eventually met an Air Force pilot who took her for a flight on a Cessna. “Later, that girl went to the United States Air Force Academy and is now flying jets for the Air Force,” Salinas says. All because of a chance meeting through Girl Scouts.

Another girl decided to pursue a degree in the environmental sciences after her experiences at camp. “These are women who, in the next 10 years, are going to be incredible movers and shakers. They already are.”

Saluting Her Work

General Salinas Image Five

People who know Salinas are impressed with her dedication and management style. She’s the perfect person for the job because of her leadership skills, communication ability, and likeability, says Suzanne Goudge, a banker and a strong supporter of the Girl Scouts. “She’s real and approachable. She is humble.”

If Salinas is walking by a young Girl Scout, she immediately stops, gets down on her level, and talks to her, Goudge says. “She is a role model who enables the girls to see that they can be whatever they want to be, no matter where they start from.”

CAPTRUST Senior Director Teri Grubb, one of the Girl Scouts of Southwest Texas’s board members, agrees. “She does everything she can to make things better for these young girls. She looks for ways to offer them new opportunities and pathways to education and future careers. She lives and breathes the mission through and through.”

Her management style is inclusive, Grubb says. “When we are talking about ideas, everybody’s voice and vote counts. You don’t see that in all leaders.”

When it comes to her legacy in this role, Salinas says it’s not about her.

“Our council is celebrating 100 years in 2024. I’m envisioning a stadium filled with people from our community taking a pledge to commit to ensuring our Girl Scouts are here for the next 100 years. That should be everyone’s legacy,” she says.

The organization teaches its members to leave a place better than it was when they found it. Salinas wants to do the same. “I hope that people say that I was a good Marine and that I was a good Girl Scout.”

In doing so, they paved the way for generations of camper van lovers to put their own twists on the mobile lifestyle. You can credit their children—millennials—for elevating the van-life aesthetic with social media photographs of sunrise beaches, faux-vintage tin mugs, and customized campers.

But it was the global pandemic and the resulting work-from- home boom that really supercharged the recent van-life craze, filling American campgrounds to overflowing these past two summers.

According to the RV Industry Association, recreational vehicle (RV) ownership surged to 11.2 million households, an increase of 62 percent in the past 20 years. The trend stretches across all age groups, but about half of RVers are over age 55. Roughly one million RV owners live in their vehicles full time.

RVs, trailers, fifth wheels, converted school buses (called skoolies), and other luxury camper vans have been hot commodities in recent years as Americans seek the freedom to vacation—and live—in the open air or to safely visit friends and relatives.

Shops specializing in upscale van conversions are now common across the country and are doing roaring business: A Mercedes- Benz Sprinter or Ram ProMaster van with a built-in bed and storage and an on-board kitchen can cost more than $100,000, depending on the customizations. Or you can convert a camper on your own for around $1,000.

Cindy and Kevin McCabe retired in February 2020, sold their home, and had big dreams of traveling the country in an RV, but campground closures halted the plan. Instead, the two made a semipermanent home solution, splitting time between their parked 40-foot fifth wheel at Lake Gaston, North Carolina, and an active retirement community in Central Florida.

The McCabes love having kayaks and sporting gear at their disposal, but the people are what keep them there. “We have found that people who camp are friendly and so unique,” says Cindy. Camping culture is full of camaraderie, from cookouts to boating on the lake together. “We meet so many folks from all walks of life. That’s what we enjoy most about the campground.”

Here are some other ways that baby boomers are enjoying their RVs and campers.

RVing Off-Grid

One major trend has been to venture beyond established campgrounds into the wild. Recently, many campers seeking solitude or to socially distance from their neighbors leaned into the joys of dispersed camping, meaning off-grid camping outside of designated sites. Think of it as backcountry camping in an RV. These sites usually don’t have access to amenities like bathrooms or trash removal, but they can be some of the most beautiful places to camp.

Tracy Finnegan, 54, says she and her husband, Tim, 56, bought their camper in 2019 as a way to decompress from the work week. The pair, who have been married for 31 years, have dreams of retiring and traveling across the U.S.

For now, the empty nesters are venturing out mostly on the weekends. “Our first trip was in April of 2019, and we’ve had 51 since,” says Tracy. The Finnegans like to travel across the Southeast, finding new campsites where they can hike, kayak, or simply take in the views. “The mornings are spent with coffee by the campfire, and then we end the day with sunsets by the campfire. We love the minimalistic lifestyle it provides.”

Dispersed camping—also known as boondocking, dry camping, or wild camping—has grown increasingly popular as more RVers park on public land, often for free, but without the benefit of water and electric hookups.

The Forest Service and Bureau of Land Management allow this type of camping only in specific areas, typically requiring that visitors stay no longer than 16 nights at one spot, keep away from developed recreation areas, follow rules to protect natural resources, and remove all their own garbage and waste. Often, you will also need a permit.

But the reward for your effort is an unspoiled, back-to-nature experience. And it’s easy to plan and book through recreation.gov—the federal government’s trip planning and reservation service portal.

The App Experience

Another type of camping experience that’s all the rage these past few years is upscale glamping—or glamorous camping—on farms and other private properties. Mobile tools like Campendium, The Dyrt, and Hipcamp make all sorts of camp settings easy to find and book.

For example, Hipcamp has created networks of property owners who open their cabins, RV sites, vineyards, or orchards to campers. To browse the site is a trip in itself, and you’ll find thousands of unique spots, often paired with unique experiences.

Recent RV site listings include $25 to camp at an Ohio fish aquaculture farm, with an option to participate in a shrimp harvest on certain dates and a free shrimp-boil dinner for those who help with the harvest; $70 to park at an Oregon winery next to a creek, among apple trees and chickens, with an eight-wine tasting flight available for an additional $9; and $60 for a waterfront RV pad on Core Sound in North Carolina, next to the ferry landing for Cape Lookout beaches.

Work Camping and Volunteering

Many baby boomer campers and RVers feel a strong desire to give back, along with a fervent wish to stay longer in many of the beautiful areas they visit. Hence the allure of work camping—which means taking a casual short-term job or volunteer position at a park for a few days, weeks, or a season.

Instead of just a short stay, wonderful though that may be, imagine getting up-to-your-elbows involved as a camp host at Yosemite National Park or the Grand Canyon. Imagine helping to clean up animal habitats or beach boardwalks at scenic parks across the country. In exchange for such typically light-duty jobs, the work camper often receives access to a free RV pad with hookups, amenities like laundry and propane, or sometimes even a small wage.

The possibilities are endless, ranging from pure volunteerism to paid positions. Work and volunteer campers have lent a hand at amusement park booths, Christmas tree stands, park gift shops, recreational shooting ranges, and more. Opportunities are available for individuals, couples, or families.

Some gigs are mostly indoors, such as the chance to work in cultural resources at Yellowstone National Park, researching museum exhibits, archiving photos, and creating custom storage boxes for interesting artifacts. Campers can also contribute their professional talents in photography, resource management, computers, and more. Volunteers often receive a free national or state park pass after a certain number of service hours.

Unique Local Stopovers

While road tripping, it’s often a good idea to break up long drives by finding somewhere—anywhere—to park your RV to catch a few z’s. In a pinch, that can mean a less-than- beautiful parking lot. But surely you’d prefer something more memorable.

The need for an overnight stay inspired the membership club Harvest Hosts. This booking service ($99 a year) connects RVers with available private lands where they can stay overnight. However, only self-contained vehicles with indoor plumbing are permitted—no tents, RV hookups, or outside cooking. The network has nearly 5,000 unusual camping locations in the U.S. and Canada, including alpaca farms, lavender farms, golf courses, and museums.

Members don’t pay to stay, and the hosts don’t collect a campsite fee, but you’re encouraged to talk with the business owners; sample local wine, craft brews, or homegrown produce; and buy handmade goods or play a round of golf.

By venturing off the beaten path in your camper van, you’ll have more opportunities to connect with local residents and make an impact on local economies. Many campers choose to support small businesses by bringing their wares to the folks back home as gifts and souvenirs. After all, the whole point of RVing or van life is to see new sights, try things you’ve never done before, and explore the world.

Note: Although there are several types of tax-favored employer- sponsored retirement savings plans, this article focuses mainly on 401(k) plans because of their widespread use. Most of the following also applies to 403(b) plans and Roth-designated 401(k)s, but these plans will have extra features to consider. Before you take any action regarding your retirement funds, speak to your financial advisor about your specific case.

What should you do with your 401(k) when you retire? Broadly speaking, you have two tax-smart options: Stay in your plan, or move the money to an individual retirement account (IRA). Which approach is right for you depends on your circumstances, says Philip D’Unger, a manager on the CAPTRUST wealth planning team. For either path, there are multiple factors you should keep in mind, including investment options, taxes, and recordkeeping.

Staying in Your Plan

Assuming your employer allows for this option, you can choose to keep your 401(k) account in your employer’s plan. There are lots of potential benefits to staying in your plan. For one thing, there are no immediate tax consequences, says Jennifer Wertheim, a director of tax at CAPTRUST. “Tax deferral is always an option unless you take the money directly,” she explains. There can be other advantages too.

For example:

But there are also potential disadvantages to staying in your plan, including the following:

Moving to an IRA

Another option is to move—or roll over—your account balance to a traditional IRA. Depending on the circumstances, you may be able to transfer the money directly from your 401(k) to an IRA. In other cases, your employer will send you a check for the entire amount. Then it becomes your responsibility to redeposit the funds into your IRA.

There are several benefits to an IRA. IRAs typically offer more flexibility and investment options than 401(k)s. Many financial services companies, including registered investment advisors, banks, and mutual fund companies, offer IRAs. And if you have had multiple 401(k) plans through multiple employers, you can consolidate them into a single account.

With an IRA, you typically can get access to your funds when you want, though tax rules still apply, and you have greater control of your saved money.

You can set up any number of IRAs and designate one beneficiary for each one. But with a 401(k), you are typically allowed to designate only one beneficiary for your account. That means, from an estate-planning perspective, an IRA may offer more flexibility.

You may want to use part of your IRA assets to buy an immediate annuity. The annuity option generally pays you a fixed amount throughout your life, says Gal Wettstein, a senior research economist at the Center for Retirement Research at Boston College. Note that a federal law enacted in 2019 generally lets 401(k) plans provide annuity income options too, but some plans may not offer the option—or may not offer it yet.

There are also some disadvantages to an IRA. For instance, you’ll need to pay attention to specific time windows for completing the rollover, and if you miss them, you’ll have to pay the tax consequence.

D’Unger says some 401(k) plans he’s worked with are “incredibly flexible” and generally let you do what you want, when you want. Some plans won’t let you keep your 401(k) account in place once you retire or otherwise separate from service, but other plans may let you make partial or systematic withdrawals. In brief, it pays to be familiar with all of your plan’s rules and how they work, he says.

Planning Feature Chart One

Mind the Rules

If you plan to move your money to an IRA, be sure to follow the proper procedure. For example, if your plan sends you a lump- sum check, make sure that the check is not made payable solely to you. If it is, you could be taxed on the entire amount, including the 20 percent that your employer typically withholds for taxes.

To avoid such complications, ask that the check be made payable to your financial institution for your benefit, Wertheim says. Technically, the check may be made payable to the custodian or trustee that oversees your IRA, using the initials FBO (meaning for the benefit of). For instance, a check might be made payable to “Trustee of Plan X, for the benefit of Alice Smith” or “Institution Z, FBO Alice Smith’s IRA.”

Don’t sign or cash the check. Instead, forward it to your IRA or new employer’s plan. It’s a good idea to consult your IRA provider or new retirement plan to see what procedures are required in such cases. The point is to avoid immediate tax consequences, thus allowing your money to keep growing on a tax-free basis until you begin withdrawals.

Whether your plan sends the money directly to your IRA or sends you a check with an FBO, as described previously, it’s considered a direct rollover and no immediate tax consequences will ensue. Wertheim says she recommends direct rollovers “because there’s less room for errors.”

Check with your 401(k) plan provider and your IRA to be sure you are taking the right steps in the right order.

Middle of the Road

Another option is to move some of your money from your 401(k) to an IRA and leave the rest of the money in the plan. This means more recordkeeping for you but still may suit your current circumstances.

You might also consider leaving your nest egg inside your 401(k) temporarily, until you make a final decision. In other words, there’s no need to rush. Take your time to explore IRA options, comparing features such as investment options and fees.

Cashing Out

At retirement, many people feel tempted to take a lump-sum payment and cash out their retirement savings. But cashing out may not be your best bet. For one thing, you’ll miss out on the potential for your nest egg to keep growing.

Also, if you have a traditional, pre-tax 401(k), the entire amount will be taxed as ordinary income at federal tax rates of up to 37 percent, says Wertheim. Depending on where you live, state and local taxes may also take a bite. Thus, in what seems like the blink of an eye, a big chunk of your savings can disappear.

Although it ultimately depends on your situation, cashing out is generally “not a good choice,” D’Unger says.

Bridge to Social Security

Planning Feature Chart Two

One final strategy to consider: Use periodic withdrawals from your 401(k) to serve as an income resource—a bridge—until you finally start collecting Social Security benefits. Underlying the bridge strategy is a key point about Social Security benefits. The longer you wait to start collecting your monthly benefit, the higher the amount of that benefit will be. That means, in effect, you could use the bridge strategy to ensure a higher Social Security benefit later on, says Wettstein.

The following example shows how this bridge might work. Suppose you were born in early 1955 and earned enough money in your working years to start collecting a $3,100 monthly Social Security retirement benefit at 65 years old. If you instead wait until you are 68 years old to start collecting, then your monthly benefit might be closer to $3,800—$700 a month more.

If you need a source of income in the meantime—a way to make up for the money you did not collect from Social Security—you could use your 401(k) or other such account as a bridge, withdrawing money every month.

While this example is intentionally broad, relying on numerous assumptions that may not precisely fit your situation, the bridge option is worth considering.

When you retire, what you do with your traditional, pre-tax 401(k) account generally comes down to two options: Leave it in your employer’s plan, or move it to a traditional IRA. There are advantages and disadvantages to each. “There is no one-size-fits-all solution. It depends on what you’re trying to accomplish,” says D’Unger.

His advice: Start weighing the factors long before you retire so you don’t feel tempted to rush. Also, consider talking with your financial and tax advisors to ensure you choose the solution that’s right for you.

By gaining a holistic picture of your financial life, including your goals and risk tolerance, a financial advisor can customize your investments to meet your unique needs and desires. They do it through a combination of inputs that include financial planning insights, capital market acumen, and tax perspective. Behind the scenes, the financial advisor is constantly trying to position each client’s portfolio so that it stands to benefit from a multitude of potential future events.

What difference does it make if your portfolio is 60 percent stock and 40 percent bonds versus 80 percent stock and 20 percent bonds?

Both portfolios might be equally likely to fund your retirement spending needs, but the difference may lie in what you leave behind. Or it could impact how much flexibility you will have to indulge in things like an 80th birthday cruise around the world, a large donation to charity, or the decision to fund a grandchild’s education.

“Imagine three buckets,” says Mark Feldman, CAPTRUST principal and head of tax services. “The first bucket is the one that’s going to take care of you for the rest of your life, so those assets are going to be invested more conservatively. We call this the capital preservation bucket.”

“The second bucket—the liquid risk bucket—contains more volatile investments to help grow the portfolio. And the third bucket—the illiquid risk bucket—contains assets that will grow the portfolio but are not able to be accessed immediately,” says Feldman. “If you know your needs are taken care of with the capital preservation bucket, you become more risk tolerant with the excess.”

By separating your assets into buckets like these, a financial advisor can craft an investment portfolio that’s personalized to meet your goals.

Planning for Investment Goals

“We do the planning first,” says Briana Smith, CAPTRUST financial advisor. “Then the plan informs how we will manage the portfolio. First, we need to know your cash flow, your long- term legacy goals, your charitable intention—all those things. Then, we can align your portfolio appropriately to reach your goals.” A robust financial plan will take account of your income, expenses, investments, estate planning, insurance, taxes, and more.

Investment planning is one part of financial planning. It involves portfolio construction, selection of investments, monitoring, rebalancing, and trading for clients. It is the merging of investments with financial planning.

What is key, says Smith, is for the financial advisor to have a complete picture of your financial activities, needs, and goals.

The Investment Engine

To create that holistic picture, your financial advisor will strategize your unique investment plan, evaluating available investment portfolios to find the ones that best align with your goals and risk tolerance.

The hidden driver behind this investment plan is the investment team that designs each individual portfolio. This is the group of people responsible for doing deep research and weighing all the crosswinds—in the markets and the global economy—to guard portfolios against outsize losses that would compromise clients’ financial plans.

The investment group is always dealing with uncertainty, but it is also always planning and preparing for a wide range of outcomes. What happens in the markets if a war breaks out tomorrow? What happens if a war abruptly ends? The investment team faces the capital markets every day, making decisions about where they see opportunities and where they take risks, always with your interests in mind.

In other words, the investment team is responsible for developing a range of portfolio options with enough variety that your financial advisor can easily match your individual assets to the goals set by your financial plan. That means offering multiple investment engines that meet the needs and life goals of a large and diverse client base with unique tax profiles and circumstances. And it means balancing the risk and reward of any given security in a portfolio.

Proactive Tax Strategies

Perspectives from tax planning and advisory services are another big piece of the investment planning puzzle. To create a fully optimized investment plan, your financial advisor will pair your portfolio and investment opportunities with income tax strategies.

Eric Ensign, CAPTRUST financial advisor and tax consultant, says most people still think of doing a tax return as if it is only meant to take account of the past. “Most people are looking backward at the tax year that just occurred,” he says. “They’re usually not looking forward to the future with one eye on strategic tax planning.” That’s a potential missed opportunity.

The aha moment is when advisors can find synergies between tax planning, estate planning, and investment strategy that enrich your financial picture.

Tax advisory involves not only planning and strategizing but also considering tax implications and analyzing the tax impact of various investment strategies. As Jennifer Wertheim, CPA, a director of tax at CAPTRUST, explains, “Although tax might not be the biggest driver of a financial plan or financial decision, understanding and being aware of the potential consequences is important so that there aren’t surprises on the back end. If advisors can understand what your goals are, then they can plan and try to make your tax consequences complement the choices you’re making and the choices you plan to make in the future.”

Assembling Your Roundtable

Robust planning is simply not possible unless your financial advisor has all the necessary information at their fingertips, right when they need it. “Unless we’re looking at the tax return right next to the balance sheet,” says Feldman, “we’re going to miss the ways to connect them. We can save people more money when we view those two things together.”

Of course, that can mean more work upfront for you, namely in tracking down and uploading tax reports and account statements. But with recent technology, including secure files and uploads, it’s not as hard as it used to be.

The best-case scenario, says Jeremy Altfeder, CAPTRUST financial advisor, is when clients connect him directly to their other advisors, including tax professionals, insurance agents, estate attorneys, and more. “Then, if you are making big tax payments or moving money around, your CPA can just tell me what needs to happen and copy you on the conversation. Or the estate attorney can send documents directly to me so we can spare you the time and hassle. You probably don’t want to play the middleman, and frankly, you don’t have to,” he says.

This way, your financial advisor can act as a general contractor or project manager on your behalf.

Also, Altfeder says, “If it is only a financial advisor and a client working together, the voice of the financial advisor can sound a lot like the mom from the old Peanuts cartoons: ‘Wah wah wah.’ But when there are multiple perspectives from professionals with different expertise, that group of people is likely to generate better outcomes than one advisor alone.”

Creating this group of experts and putting them directly in touch with each other increases operational efficiency, reduces room for error, and can enhance the overall value of the advice. “You may be wary of bringing more advisors to the table,” says Wertheim, “because you haven’t needed to in the past, or you like to keep things simple, or you want to avoid fees. But having more people in the room—all your professional advisors talking to each other—adds tremendous long-term value that will exceed the short-term cost.”

Reducing Risk

What are the risks of not integrating your investment management with your tax and financial plans? In Feldman’s words, “Suboptimization of the options.” Or as Altfeder phrases it, “If your advisor can see only half of the picture, they can only give you half of the great advice.”

Wertheim agrees: “From a tax perspective, it could undermine your goals. If you aren’t aware that you are going to have a huge tax bill at the end of the year because of whatever strategies you’ve engaged in, it can leave you feeling very frustrated.”

“If you have a gain, yes, you’ll also have a tax bill at the end of the year, but hopefully we can minimize or strategize how to use that gain,” says Wertheim. “If you have a loss, that can also be beneficial. In fact, you might strategically plan to have a loss so that you can use it against something else. The key is to avoid unbeneficial losses.”

By integrating investments, planning, and tax, your advisors create a benchmark and can give you a clear-eyed vision of the future. You can practice scenarios so that you feel prepared. In this way, investment planning creates better outcomes, and it grows your confidence.

“We’re going to constantly test our assumptions about what the excess is,” says Feldman, “and we need you to guide us on how you want to allocate and design your plan. We need you to tell us what happens with the excess. And to the extent that we know there is excess, and the excess is unguarded by taxes, we look for ways to design the excess more tax-efficiently.”

Making Changes

For some investors, this type of long-term planning can feel prescriptive or limiting. Others wonder: What if this financial advisor isn’t the right one for me? What if I change my mind in five years? Remember that nothing is set in stone. Your financial plan is a living document.

Unlike the old days, when plans were reviewed only every three to five years, today’s technology allows advisors to make frequent updates and model different scenarios, like changes in spending, market environments, and tax rules. Your financial advisor will also help you edit your plan whenever there is a big shift in your financial situation, whether that means an unexpected gain, the selling of a business, or the loss of a family member.

You can also replan and recalculate when you feel your risk tolerance changing. For instance, if the market takes off, you can probably have a less risky portfolio and still achieve your life goals. Or you can choose to keep the pedal to the metal and leave a bigger legacy behind.

Right on Target

Smith says, “Having a path to follow—that is, the recommendations determined from the plan—and your financial advisor as an accountability partner is the biggest value to having a holistic plan, rather than just setting a portfolio. The plan will provide peace of mind when the market dips and give you clarity on what impact short-term decisions will have on your long-term projections.” Also, “Having a sounding board to discuss your goals and fears before making a big decision helps to make sure you aren’t acting out of emotion,” she says.

For Ensign, the beauty of integrating investments with tax and with financial planning is that advisors can provide more accurate, personalized guidance. Ensign says, “We often find ourselves challenging the investment thesis, which says, ‘This is the right thing to do right now. Sell this and buy this.’ But we can look at a client’s unique situation and say, ‘OK, that might improve the performance report, but for this particular client, it would be absolutely disastrous.’” That’s why it is critical advisors have a variety of portfolio options to choose from.

“It feels almost magical when it all comes together and we can find these big wins for people,” says Ensign. “We do this one thing over here, shift this other thing over there, and suddenly 1+1=3. Those moments don’t come for every client, every month, or every year necessarily. But when they do, that’s a bull’s-eye.”