Spend Some Time on Your Company’s Retirement Plan
Retirement plans can be a tremendous benefit for employees. Unfortunately, often times they can also be frustrating and time consuming for small and mid-sized business owners. The reality is that offering this great benefit comes with a great deal of responsibility. If done mindfully, business owners like yourself, can offer a retirement plan that a) maximizes the benefit available to employees, and b) minimizes the cost and frustration?
The following are a few best practices you should be discussing with your retirement plan service providers.
1. Ensure all plan details still work for your company
Is the plan structure still appropriate for your company’s size and personnel demographic? Does your company have special circumstances that need to be addressed? Should you consider a Safe Harbor plan to avoid compliance testing? These are questions that should be discussed with a retirement plan expert, especially if there have been any major changes at the company such as high levels of employee turnover.
2. Examine the fees
The retirement plan industry is getting increasingly competitive and fees have dropped considerably over the last 10 years. Many factors go into what you pay and how you get charged but you should ask your administrator to break down all of the fees for you. Once you understand all the costs you can compare that to industry averages to determine whether or not you are getting the best value for you and your employees.
3. Nudge and educate
It is not uncommon for business owners to offer a retirement plan and then have a difficult time getting the employees to participate. You can lead a horse to water, right? Well, the most effective way to get participation from employees is to have a plan that is “opt-out” instead of “opt-in”.
Most plans are “opt-in” meaning that employees have to sign up. Recently, there has been a growing trend for plans to automatically enroll employees as soon as they are eligible unless they “opt-out”. This simple shift in plan design historically increased participation from as low as 26% to over 85%, according to survey work done by the National Bureau of Economic Research.
Even if employees are automatically enrolled in a plan, but especially if they are not, there should be ample educational opportunities offered to help them make informed decisions about investing for their retirement. While most retirement plan service providers have online videos, and 800 numbers, the most effective educational tool is to have a qualified financial professional come out to speak directly with your employees.
4. Outsource the oversight of investment options
As a retirement plan sponsor, business owners are considered fiduciaries to the participants of the plan. This means they are legally obligated to act in their best interest. This includes making sure that the investment options available to them are appropriate. One way to fulfill that responsibility is to hire a reputable company to serve that function. Most plan administrators offer this service (sometimes at additional cost), or you can find a third party to serve specifically in that role. Either way, this can help mitigate a large potential liability if a scenario where a participant came back and complained they did not have good investment options.
Offering a retirement plan is a great responsibility and requires ongoing maintenance and oversight. Discussing these practices with your retirement plan service professionals can help ensure that you are following the proper regulations, minimizing the cost to you and your employees, and helping give your people confidence in their ability to have a happy and well-funded retirement.
Keith J. Akre, CFA, CFP® – Trust Officer
Opinions expressed are solely my own and do not express the views or opinions of Stillman Bank. Investments available through Stillman Trust & Wealth Management (1) are not FDIC insured (2) are not deposits, obligations, or guaranteed by the bank and (3) are subject to investment risk including possible loss of principal.
Note: This blog post originally ran as a Guest Perspective piece in the February 2020 issue of the Rockford Chamber of Commerce The Voice publication.