October 1, 2021
As Rockbridge continues to grow, so does the number of client relationships we have with employees of Exelon, mainly at the nuclear plant in Oswego, NY. Through working with employees of Exelon, we have developed an expertise for providing advice on Exelon’s employee benefits. Discussed below are a few areas in which we’ve added value for our clients:
Employee Savings Plan Investment Options
The Exelon Employee Savings Plan has plenty of good investment options. These options are well-diversified, low-cost index funds. However, picking the right mix of funds can be difficult.
The plan also has a full range of target retirement date funds. Most 401(k) plans are designed to use a target date fund as the default investment option for all new participants, which is not a bad place to invest if you want diversification without the need to research all the investment options. However, not all target date funds are created equal (visit link here to read an article on the differences) and there are benefits to creating your own allocation from other fund choices.
We recommend implementing a goal-based allocation (mix of stocks/bonds) rather than an age-based strategy. For example, most 2020 target date funds now have a mix of 40% stocks and 60% bonds, whereas most 2025 funds have a mix of 60% stocks and 40% bonds. We want our clients to take an appropriate amount of risk to meet their financial goals, which shouldn’t change all that much between the end of their working career and retirement.
Employee Stock Purchase Plan
Exelon has an employee stock purchase plan (ESPP), which allows you to purchase Exelon stock at a 10% discount via automatic payroll deductions. In almost all situations, it makes sense to take advantage of this benefit to some degree. We help our clients figure out to what extent they should participate in this program. However, something to consider is that over time, Exelon stock will become an increasing portion of your overall portfolio, and with that comes concentration risk. We also help our clients determine what a comfortable level of Exelon stock to own looks like, and then invest the rest in a globally diversified, low-cost portfolio of index funds.
Cash Balance Pension Plan
Exelon also contributes to a cash balance pension plan for its employees. This is a tax-deferred account that can be taken as an annuity or lump sum at retirement. With a cash balance pension plan, the employer bears the investment risk, which leads to the investment growth of most cash balance plans being tied to US treasuries or another conservative interest rate. This plan is no different and uses the interest rate on 30-year US treasuries. Given that this is account is tied to interest rates, we tend to look at it as a bond for the purposes of allocation.
For example, someone has $900,000 in their Employee Savings Plan and $100,000 in their cash balance plan and our recommended allocation is 70% stocks and 30% bonds. In this case, we would invest the Employee Savings Plan at ~80% stocks and ~20% bonds to offset the fact that 10% of investable assets are held in the cash balance plan.
These are just three of the areas of expertise we have been able to shed some light on for our clients. Whether you’re an employee at Exelon, or just have general questions about any of the items discussed above, please don’t hesitate to schedule a call.