If you already have a retirement plan, how often should you review it?
It’s a good idea for employers to review the plan at least annually. That’s a good time for everybody — the business owner, trustees, financial adviser and third party administrator, if there is one — to sit down and make sure they’ve reviewed all roles and responsibilities, and everybody is handling their fiduciary responsibilities.
Some topics that should be covered in these meetings: the mutual fund or investment lineup, the fund performance, the fees associated with running those funds, and the cost to run the plan from an administrative level, including any fees.
We’re in an era of full fee disclosure. Make sure everybody is on the same page and knows what they are paying for. Things change from year to year. But, the point of the exercise is to ensure the plan in place is the best one possible for both the employer and the employees.
When evaluating a retirement plan, what should an employer look for?
Because there are such a wide variety of plans out there, each one is going to have its positives and negatives. Before you make a decision, it’s important to craft goals. Make sure you choose a plan that allows you to maximize the amount you can save annually.
That goes back to the question of what types of plans are available. If you only want to put away $4,000 or $5,000 do you need a 401(k) plan? Not necessarily, as you might be able to meet that goal in a less expensive plan like a SIMPLE IRA or a SEP.
Are you looking for a plan that allows just employee contributions, employer contributions or both? Today’s plans allow employees to make both pre-tax and Roth contributions.
Business owners are looking for flexibility. You may not want to be locked into a mandatory employer contribution every year. Again flexibility is the key. If you decide to make an employer contribution, make sure your plan also allows you to potentially skip a year if things get lean.
The last factor is cost. How important is the cost of the plan?
The best way to put it is, you get what you pay for. The lowest cost doesn’t always equate to the best plan. In many instances lower cost equates to reduced services. During the evaluation process, it’s imperative that fees and expenses are disclosed, as well as everybody’s roles and responsibilities. That will allow the business owner along with his or her financial professionals to make an honest, intelligent and informed decision.
Robert D. Coode is a principal and registered representative at Skoda Minotti. Reach him at [email protected] or (440) 449-6800.