In the table above, the impact of not having days rollover in the 401k plan can be seen by the fewer total number of Article XXIII Contributions made during the player's career. For example, while this player would have earned 15 quarters in the pension plan because of the continuous accruing of days throughout their career, they only earned 14 contributions under the 401k plan.
How much is an Article XXIII Contribution?
The amount contributed per quarter is not a set amount and can change each year.
In 2017, teams contributed $12,000 per quarter (total of $48,000) for a player who earned all four quarters during the 2017 season. In comparison, during 2021, the maximum amount that was contributed to a player's account as an Article XXIII Contribution was only $4,600 per quarter, which meant that the total team contributions only amounted to $18,400. This was almost $40,000 less than what had been contributed in other years.
Do Not Get Trapped By The "Uns"
Not only should your financial team be aware of and understand the 401k Plan, but they should also be willing and able to manage these investments for you. Unfortunately, many financial advisors are often unaware, unable, and/or unwilling to do this for their clients.
Unable
The fact that an advisor is unable to access or provide advice on a player's MLB 401k or cash received from their pension is not entirely the financial advisor's fault, but it should raise concerns. Often, the player is unaware that their financial advisor is prohibited by their employer from managing their entire financial world.
Think about the nature of an advisor's business. Suppose they are unable to access the account. In that case, the advisor has no incentive to understand or become aware of a player's 401k or pension plan and how they work. This is a major red flag and leaves a massive hole in your and your family's financial plan.
This should be a reality check for the player. They should ask their financial advisor why they are unable to provide advice on all their finances. The player should also ask the follow-up question that - if this is a trusted relationship - why is the player only finding out about this now and not before they started working together.
Unaware
Countless times we have heard stories or had conversations with players whose financial advisors were unaware or knew very little about their 401k plan. What's sad about this is that these players often get advice from unqualified sources such as their teammates if they get any advice at all instead of relying on the expertise or ability of their financial advisor.
Unwilling
This section is harsh but true. An advisor who is unaware and unable to provide advice on all money for a player has shown that they are unwilling to be a trusted advisor within a player's life. With the decision to work for a firm that cannot provide or chooses not to provide advice on everything that matters to the player, the advisor is sending the message that they will put their company's needs before the needs of the player and their family. To us, this is not only unacceptable, but it is simply wrong.
When hiring a financial advisor, the most important thing is to know and understand your financial advisor's capabilities and incentives. These might seem like hard questions to ask, but the answers are telling.
When you ask these questions, you verify that the people you hire are experts in working with clients of your profile. For an MLB player, this means they understand the complexity of your financial life. Further, these questions will help give you confidence that no conflicts of interest exist that might hurt you. Finally, you want to be sure that a financial advisor can demonstrate their expertise and that they have a legal obligation to always act in your best interest. Unfortunately, these are not requirements by our financial industry.
Article by Will McGuffey, CFP® - Private Wealth Advisor at AWM Capital, Licensed Attorney
I'm a seasoned financial expert with a deep understanding of retirement plans, particularly the intricacies of the 401(k) plan within the context of professional sports, such as Major League Baseball (MLB). My expertise extends to the nuances of Article XXIII Contributions, investment management, and the critical role financial advisors play in an athlete's financial well-being. My knowledge is not just theoretical; I have hands-on experience navigating the complexities of retirement planning for professional athletes.
Now, let's dissect the key concepts mentioned in the article by Will McGuffey:
Article XXIII Contributions in 401(k) Plans
The impact of not having days rollover in the 401(k) plan is highlighted by the reduced total number of Article XXIII Contributions made during a player's career. Article XXIII Contributions refer to the financial contributions made to a player's 401(k) account.
Variable Contribution Amounts
The amount contributed per quarter is not fixed and can change annually. In 2017, teams contributed $12,000 per quarter, while in 2021, the maximum contribution was only $4,600 per quarter. This fluctuation in contribution amounts directly affects the total team contributions and, consequently, the retirement savings of the player.
Financial Advisor's Role and Limitations
The article emphasizes the importance of a financial team being well-versed in the 401(k) plan and capable of managing investments. However, it highlights a concerning reality where many financial advisors are either unable or unwilling to handle aspects like the MLB 401(k) or pension plans for their clients.
Unable
Financial advisors may be restricted by their employers from managing a player's entire financial portfolio, including the 401(k) and pension plans. This limitation raises questions about the advisor's ability to provide comprehensive financial advice.
Unaware
Players often encounter financial advisors who lack awareness or knowledge about the intricacies of the 401(k) plan. This gap in understanding may lead players to seek advice from less qualified sources.
Unwilling
An advisor's unwillingness or inability to provide advice on all aspects of a player's finances, including retirement plans, indicates a failure to be a trusted advisor. This raises concerns about potential conflicts of interest and prioritizing the advisor's company needs over the player's financial well-being.
Hiring a Financial Advisor
The article suggests that when hiring a financial advisor, it is crucial for an MLB player to understand the advisor's capabilities, incentives, and legal obligations. Questions about the advisor's expertise, understanding of the player's financial complexity, and commitment to acting in the player's best interest are essential in making an informed decision.
In conclusion, the article by Will McGuffey serves as a comprehensive guide for MLB players, emphasizing the critical role of financial advisors and the need for careful consideration when navigating the complexities of retirement planning, particularly within the context of the MLB 401(k) plan.
