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November 13, 2019

What’s Your View of a Company Retirement Plan?

Introduction

Having had the opportunity to work with over 1000 employers throughout my career I’ve known first-hand that many employers are under the impression—or have enough experience to know—that retirement plans are a legal entity that must be handled by professionals. Some have chosen to leave their retirement plans on “auto-pilot” only to learn later that it was not handled correctly.

Case Studies and Examples

Consider the case of Company A which left its retirement plan on auto-pilot. Over the years they encountered several issues: compliance problems, overpriced investments, and a lack of employee engagement. Conversely, Company B partnered with a professional retirement plan advisor ensuring regular compliance review, strategic investment choices, and better employee engagement. The result? Company B saw higher employee satisfaction, better retirement outcomes, and avoided costly compliance penalties.

Typical Scenario Contrast

Imagine two scenarios:

Auto-Pilot: The company deducts money from employees’ paychecks and sends it to an investment firm without regular oversight or updates. Employees are unaware of their investment options and performance.
Professionally Managed: The company engages a professional who regularly reviews the plan, ensures compliance with government regulations, and provides employees with regular updates and educational sessions on their retirement options.

The difference in outcomes between these two approaches is significant with the professionally managed plan offering better returns and higher employee satisfaction.

What is the Best Choice and How Should a Business Owner View and Select a Company-Sponsored Retirement Plan?

The “It’s Too Difficult” Myth

Setting up a retirement plan is actually quite simple. All a business owner really needs to do is deduct money from an employee’s paycheck, send it to the investment company, and the investment firm handles the rest.

Practical Implementation

In practice, this involves several steps: selecting a retirement plan provider, setting up payroll deductions, and ensuring timely deposits. Common mistakes include incorrect deductions, late deposits, and not regularly reviewing the investment options offered to employees. Each of these mistakes can have serious implications from financial penalties to employee dissatisfaction.

The Real Reality

Retirement plans can indeed be very complex. Government compliance and fiduciary liability and responsibilities are time-consuming and require the help of experts.

Detailed Comparison

Managing retirement plans involves navigating a web of regulations, ensuring fiduciary responsibilities are met, and providing employees with appropriate investment choices. Failure to comply with government regulations can result in hefty fines and legal issues while poor investment choices can negatively impact employees' retirement savings.

What Is Your Philosophy?

Philosophy A

Do you view your retirement plan as an important benefit that must be handled just like you handle other high-level business legal and accounting plans/issues?

Philosophy B

Do you view your retirement plan as just another benefit that you should shop for the lowest price and have the least amount of involvement?

Long-Term Impacts

Philosophy A: Viewing the retirement plan as a critical benefit can lead to higher employee satisfaction and retention. Employees feel valued when their employer invests in their future, leading to better morale and productivity.

Philosophy B: Treating the retirement plan as a minor benefit can result in lower employee engagement and higher turnover rates. Employees may feel undervalued and seek employment elsewhere.

Two Strategies

Strategy A: Hire an Independent 401(k) TPA with a Recordkeeper Alliance and Engage a Financial Adviser

This approach involves outsourcing the administrative and compliance requirements of the plan while engaging a financial advisor to manage the investments. Your investment recordkeeper can coordinate payroll with most payroll vendors.

Strategy B: Bundle Services with a 401(k) Provider Who Does Everything

This option consolidates all services with one provider, such as a payroll provider or mutual fund company.

Roles & Responsibilities

Option A

Provides an outsourced service for administrative and government compliance and is less “hands-on” for the employer.

Option B

Transfers all liability to employers and the process is highly automated.

Specific Roles and Responsibilities

Option A: The TPA handles administrative tasks and compliance while the financial advisor manages investments. The employer’s hand is held to interpret plan provisions and retains some oversight responsibilities.

Option B: The provider handles all aspects of the plan administration and investment accounting. The employer is still responsible for ensuring the provider meets all compliance obligations.

Legal Implications

Choosing the right option can significantly impact the employer's legal responsibilities. Option A allows for more tailored compliance management while Option B centralizes liability but requires diligent provider selection and oversight.

Conclusion

You will find after investigating both Option A and B the cost of each option is about the same. Our professionals at BEI will often recommend you consult with a financial advisor retirement plan specialist to review your key business objectives and goals.

Call to Action

Don’t Hesitate To Reach Out. Our professionals at BEI will often recommend you consult with a financial advisor retirement plan specialist to review your key business objectives and goals. The most important thing is to avoid the consequences of doing nothing. You can use this opportunity to secure a far superior outcome for both your company and employees. Contact us today to speak with an expert Benefit Equity advisor. Here is the number to call: 714-480-1364 ext 212.

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