Retirement Plan Management


Retirement plan management is a complex and time consuming business process that many family business owners prefer to delegate to others. But is that always a good idea? Like any other type of “outsourcing” it all depends on the provider’s experience, knowledge - and the administrative and technical capabilities to stay abreast of all of the changes being made in the tax and compliance codes to keep the family business owner out of trouble.

Family Business Owner - Planning for Retirement?

According to our family business retirement plan management and retirement benefits management expert, the major areas of concern, those areas that produce most of the problems for retirement plan management and retirement benefits management, include these questions that a family business owner should address:

1. Cost: Are the costs that you and your employees pay for your retirement plan (advisor compensation, record keeping cost, administrative costs, investment cost...) justified by the level of service you receive?

Is your advisor a "Two Plan Tony" or a Retirement Plan Advisor who focuses their time and resources in the world of corporate retirement and 401(k) plans?

Recently our family business retirement benefit management expert had a meeting with an Engineering Firm based in Atlanta. They have two owners and over a 3 month period had four separate meetings with our expert - an ERISA Limited Scope 3(21) Fiduciary.

We reviewed the analysis of the plan and found they were paying a very excessive fee of 2.86% on $1M in plan assets!

Both of these gentlemen called their incumbent advisor at a very well-known brokerage firm and asked him what their plan was costing them. Their advisor told them it was free and their only costs were the fund expenses which were around 1.1%!

Their advisor was what we refer to as a "Two Plan Tony". In the retirement plan management and benefits plan management industry; this terminology indicates that their advisor has one or maybe two clients with 401(k) plans.

The rest of "Tony’s" business is personal retail accounts dealing with friends and family in addition to his two retirement plans.

Ask your advisor how many corporate retirement plans they have!

2. Savings: Are you and your Executive team able to maximize your personal retirement savings without having to make exorbitant contributions for the rest of the staff?

Our family business retirement plan management expert has had numerous meetings with plan trustees who were unaware of the most recent plan design features for allowing family owned businesses to put away more in their retirement plan.

Unfortunately there was no advice given by their financial advisor and that cost the family the opportunity to put away more money into the plan.

Our advice - look at your plans annual IRS Form 5500. If you do not know what that form is then contact your CFO or CPA to give you a copy.

You will see a list of characteristic codes on the second page of the form under section 8A or 9A. Some common codes include 2E, 2F, 2G, 2J, 2K etc.

If you do not have code 2A listed in section 8A or 9A of your form then you might want to speak with your broker about a new plan design.

This could help the family members who are executives put away a greater amount into the plan. This missing code 2A is referred to as a new comparability designed plan and can provide a greater benefit to certain classifications of employees.

3. Risk: Has your financial advisor helped reduce your personal risks associated with offering a retirement plan by accepting (in writing) the responsibility of fiduciary to your family owned business 401(k) Plan?

Our family business retirement plan management expert suggests that one of the most critical opportunities for a family owned business is to mitigate their personal responsibility of choosing and monitoring the funds that are made available for their company retirement plan.

Most employees are responsible for making their own choices so you have to make sure that you are providing quality funds for your employees to choose from.

With 1000’s of possible investment funds made available to the market place how do you know whether you, your financial advisor or a 3rd party have this role and responsibility?

THIS IS IMPORTANT - If you are not responsible then you would need to specify in your contract the person who has accepted this responsibility.

They are referred to as an ERISA Limited Scope 3(21) Fiduciary.

In most plans this responsibility rests on the shoulders of the business owner.

Why take on that risk and responsibility when you can pass it onto someone else that is more qualified like your financial advisor? After all, your focus should be your business not trying to figure out what investment options should be in your retirement plan!

4. Employee Education: In any family owned business the strength of that business is the employees and the company culture that the owners instill throughout the organization. As the business owner how have you developed an ongoing and creative educational process to improve and increase employee awareness and participation in your company retirement plan?

The most important reason you have your company retirement plan is to provide your employees the opportunity to have the most dignified retirement possible. If this is not the case and you are making decisions for the plan to benefit you the trustee and not necessarily your employees then you may have breached your responsibility as the trustee to your employees.

If you are doing the right thing and following the Prudent Man Rule which requires the business owner to act thoughtfully and carefully in choosing the available investments for their employees to choose from then you are most likely following in the steps of making prudent decisions.

Parts of those decisions include employee education. This is one of the greatest indicators of support you could provide for your employees. Has your advisor developed an employee education policy statement, (EPS) detailing what they will be doing for your employees? If they have not, then why not?

Most participants are not prepared for retirement and need help.

Education is the key to successful retirement plan management and having an available advisor as a resource is critical.

When this takes place you should see increased participation and contribution rates from your employees.

Quality education programs should target their messages to the employees. For instance, an entry level employee who is age 22 and single will need a different message than the 50+ year old employee who is married with two kids in college.

Our family business expert who deals with issues related to retirement plan management and retirement benefit management is an Accredited Investment Fiduciary Analyst (AIFA®).

AIFA® designees have acquired a thorough knowledge of fiduciary responsibility and can be an invaluable resource to investment fiduciaries and individual investors alike.

An AIFA® designation represents that person’s knowledge of a Global Fiduciary Standard of Excellence, which comprises the 22 Prudent Fiduciary Practices, and their application of the global standard into their own practice.

An AIFA® designee has knowledge and ability to assess whether other fiduciaries conform to the standard of excellence using a detailed assessment process. The 22 Prudent Fiduciary Practices are based on legislation, case law and regulatory opinion letters.

When it comes to retirement plan management and retirement benefits management, we find that many family business owners have a tough time interpreting fee disclosures and are concerned whether they meet the disclosure requirements – our family business retirement plan expert can help.

For example, there are two new regulations that family business owners need to be aware of - 404(a) and 408(b)-2.

The final rule for what is known as 404(a) has many requirements. The major impact will be the disclosure to your employees explaining the fees and expenses they pay from their investments for general plan administrative services that may be charged to their individual accounts. Examples would include fees for legal, accounting, and recordkeeping services. This rule is effective on August 30, 2012.

The U.S. Department of Labor Regulation 408(b)-2 permits retirement plans, under ERISA, to pay fees for expenses under the right circumstances.

Effective July 1, 2012 the Regulation calls for the plan sponsor to receive a disclosure from parties-at-interest (e.g. service providers, record keepers, advisors), who receive monies either directly or indirectly from plan assets.

This disclosure must provide fees for service, a description of the services rendered, and whether or not they take fiduciary responsibility for the plan investments, in writing.

Once the responsible fiduciaries gather this information from the parties-in-interest, they have a responsibility to evaluate the reasonableness of the compensation of their plan’s service providers or parties-at-interest.

Our family business retirement benefits management expert is an Accredited Investment Fiduciary Analyst (AIFA®), who has been certified by the Center for Fiduciary Studies to conduct fiduciary assessments of retirement plans, advisors, and investment managers.

These Fiduciary Assessments determine if there is conformity to the 22 Prudent Fiduciary Practices which are based on legislation, case law and regulatory opinion letters and bulletins.

The AIFA® designation is recognized as a professional designation by the SEC and FINRA.

Proprietary Assessment Process

In our fiduciary assessment process, we provide comparative benchmarking between record-keepers (i.e. Fidelity, John Hancock etc.), utilizing our proprietary request for proposal (RFP). Our process addresses the examination of fees. The fee examination is based on three of the twenty-two Prudent Fiduciary Practices.

We rate twenty-nine of the largest service providers (i.e. Fidelity, John Hancock etc.), in our RFP. To know if your plan fees are reasonable (fees paid to your financial advisor and record keeper) requires comparative benchmarking, which our proprietary RFP does.

By obtaining proposals from only three or four service providers it is easy to reach an erroneous conclusion, but not with twenty-nine proposals!

Our RFP is over thirty pages in length. It is regarded as unique and unusual among the record-keepers and service providers because of the detail of the questions we ask.

The questions regard the service providers’ ability to assist the business owner in conforming to the twenty-two Prudent Fiduciary Practices, which are based on legislation, case law and regulatory opinion letters and bulletins

For example, smart phone apps are an ingredient of new website technology. Service standards are examined in detail and the business owner will understand how many plans each service provider account manager and customer relationship manager has assigned in their workload. Detailed questions are also provided in the RFP for participant education and communication.

We examine the service providers’ ability to conduct educational meetings and their frequency, along with any meeting expense. Lastly, fees are examined in detail for benchmarking and comparison among the twenty-nine service providers.

The RFP format provides excellent documentation for the Department of Labor or as a potential defense against potential law suits related to fees.

Our RFP is updated on a continuous basis as service providers improve offerings, react to regulatory changes or introduce new technologies.

Once we receive the pricing from each service provider, which generally takes about two weeks, we construct a colored-coded, quantified executive summary matrix for ease of use and understanding for business owners.

We also produce important notes from question responses by each service provider, which we know from our experience, are usually raised by business owners and investment committees.

Our presentation to the business owner and investment committee usually lasts approximately two hours. Each member of the committee would receive a copy prior to the committee deliberation, along with the findings, conclusions and recommendations of the Fiduciary Assessments.

Our family business retirement plan management expert advises business owners of corporate retirement plans with the highest fiduciary standards. He will monitor and manage retirement plans to maintain these standards. His services include: Fiduciary Assessments, fee and expense benchmarking and vendor RFP’s.

If you have questions about your company’s retirement plan management or retirement benefits management, simply use the ASK THE EXPERT form (below).


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