Your small or midsized business is unique, with unique challenges and needs. So why would you incorporate an “off-the-shelf” or “401(k) in a box” retirement plan, and expect to get results?
If your retirement plan is structured right, you can use it to attract and retain top talent, maximize owner and key employee benefits, increase employees’ financial wellness and/or help employees save and invest wisely in order to have a timely, dignified retirement.
“But the majority of employers continue to work with a friend, colleague, the adviser who manages their individual assets or someone at a 1-800 number who works for a plan provider,” says Robert Yelenovsky, vice president and manager at Fragasso Financial Advisors.
Smart Business spoke with Yelenovsky about setting up a retirement program that contributes to a business’s long-term success.
Where do organizations make mistakes with their retirement plans?
They don’t work with a financial adviser or consultant with enough experience — someone held to a fiduciary standard with independence from service provider bias. Find an adviser whose exclusive or primary business model is focused on retirement plan services. If the adviser has two to three plan clients or cannot be held as a fiduciary to the plan, continue your search.
With new Department of Labor fiduciary rules and regulations, starting in April, some advisers who don’t focus in the retirement space will begin to defer or partner with those who do. This will benefit the adviser, employer and ultimately employees.
What structures are available?
There are many different ways to structure a retirement program. Employers can have the traditional qualified defined contribution plan, like a Simple IRA or 401(k). They can also add a non-qualified deferred compensation plan for select key employees, a defined benefit or cash balance plan, or even an Employee Stock Ownership Plan or ESOP. Which plan(s) they choose to offer will be determined by factors like corporate structure, number of employees and highly compensated employees, profitability, growth and owner exit plans, to name a few.
How much does flexibility matter?
Flexibility matters for most plan design strategies and needs to be discussed prior to making the final recommendations. You want consistency and a pattern of improved benefits to employees; you don’t want to offer a benefit, to later reduce or take it away.
Is it ever too late to change the structure? How can employers discover whether a change is worth it?
It’s never too late to change the structure or design, although specific times of the year may have regulatory constraints that cause the implementation to be pushed to the next year. The only way to determine the impact is to perform a cost benefit analysis and review multiple scenarios. These aren’t difficult and typically there is no cost to do them. However, you’ll need competent guidance to assist with and coordinate the many service providers needed to achieve the proper results.
What can be added as the company grows?
All plan options mentioned previously can be added, changed or terminated, based on the current or future needs of the organization, ownership and workforce demographic. Plan design should be evaluated annually, and a cost benefit analysis performed periodically — every four to five years according to best practices.
What else would you like to share?
Most small to midsized plans aren’t thoroughly vetted against the organization’s goals, challenges, strategic initiatives, profitability and employee demographics. The majority of advisers who are paid by the plans typically aren’t focusing on the retirement plan space, aren’t held as fiduciaries to the plan, and therefore don’t have the experience to understand how to use retirement plan strategies to contribute to the long-term success of the organization.
Ask yourself whether or not you can receive unbiased advice from a provider who has everything to lose if you want or need services they do not offer. Employers should interview and hire experienced advisers who are capable of helping them achieve their goals, are held as fiduciaries and provide independent and unbiased advice.
Insights Wealth Management is brought to you by Fragasso Financial Advisors
