A Well-Designed Retirement Plan Can Become a Key Strategic Asset for Your Company: Here is the 6 Ingredient Recipe We Follow
In this era of extremely low unemployment, a shortage of qualified and skilled job seekers, and high direct and indirect training costs, it is vitally important for employers to be able to offer attractive and comprehensive salary and benefits packages to their current and future employees. As you would expect, a well thought out, carefully structured, and reasonably priced retirement plan is one of the most important benefits offerings an employer can provide to its employees. A great retirement plan offering can also serve as a key recruiting tool when an employer seeks to add new employees. At the same time, such a plan can also provide the opportunity to set aside for key personnel a significant amount of pre-tax dollars in the tax-deferred company retirement plan.
At BLBB, our Plan Services division works closely with a number of small and mid-sized businesses (who generally have between 10 and 200 employees) to:
- Review and analyze their current retirement plan offering (if they have one)
- Recommend changes and updates to their current plan or design and build a new retirement plan offering. The goal is to reduce costs and either document that the existing plan appears in compliance or make recommendations to bring the plan into ERISA compliance.
- Provide ongoing retirement plan maintenance and management as well as regular employee education
With the BLBB Plan Services staff’s over 20-year history in plan design and management, we have come to believe there are at least 6 specific key attributes that every successful retirement plan should have. Our 6 “ingredient” recipe for a successful retirement plan requires that the plan:
- Be designed and managed in such a way that it enhances an employer’s ability to attract and retain valued employees.
- Operate efficiently.
- Integrate seamlessly with the employer’s payroll system.
- Include high quality and low-cost investment options.
- Offer participants access to ongoing investment education and observations.
- Be designed and managed in a way that it supports and promotes the owners/officers goals and objectives for the company. In most cases, these goals and objectives include providing an excellent retirement plan that encourages all eligible employees to save for the future and engenders firm loyalty.
When we meet with a new retirement plan client, our first task is to evaluate their current plan (if they have one) in order to determine whether the type of plan they have is best suited to and aligned with the company’s goals and objectives. There are many different types of company-sponsored retirement plans that might be appropriate, and the objective is to ascertain which one is best for a particular employer. An often-changing regulatory landscape, particularly when combined with the constant flux of employee demographics and corporate objectives, means that the decision to select a particular type of retirement plan is not usually a “one and done” process”. Rather, we regularly revisit our client’s plans to ensure they are still the best type of plan for them.
Once the plan type has been selected, we then move on to incorporating the 6 key ingredients referenced above.
Attract and retain employees: Most employers want to enhance their company’s ability to attract and retain valued employees. Offering an excellent benefits package – particularly an excellent retirement plan – goes a long way toward accomplishing this goal. A well designed plan can help the organization actually achieve this goal, and to do so cost-effectively.
Plan design is a complex exercise that, if done well, addresses important questions like:
- Should part-time employees be included in the plan?
- What is an appropriate eligibility waiting period for participation?
- What (if any) profit sharing contributions are contemplated over the next 5 years?
- Is there a way to allow the business to contribute additional or higher contributions to key management to enhance retention?
These are just a few of the many issues that need to be tackled and addressed during the plan design phase. Oftentimes, a retirement plan’s downfall is rooted in poor plan design because these usually difficult questions were not addressed and tackled up front during the design phase.
Operate efficiently and accurately: This would seem obvious; however, in reality, poor plan design and confusing or burdensome administrative processes often result in administrative miscues and lots of wasted time for an employer’s HR or benefits staff. Similarly, when retirement plan processes are convoluted or confusing, there is more room for error. A lack of operational efficiency and accuracy also can take its toll on employee morale and even keep them from participating in the plan. Over time, these inefficiencies may also be contributing factors to the lack of success for employee retention initiatives.
Seamless Integration between the plan and the employer’s payroll system: A retirement plan that integrates seamlessly with the employer’s payroll system greatly enhances a plan’s efficiency and accuracy. The frequency of activity around payroll and retirement plan administration is significant. There are numerous activities that are inextricably connected to payroll and also necessary from a plan administration perspective – such as enrollments, changes to deferral amounts, address changes, name changes, etc. Having a plan administration system that is tied to, and operates in tandem with, your payroll system streamlines this work and reduces the potential for error. We believe this ingredient is so critically important to the ongoing success of corporate retirement plans that we only offer retirement plan solutions that are tied directly to payroll services or have proven 360-degree integration capabilities.
High quality and low-cost investment options: This seems like another “obvious” ingredient: why would any retirement plan not offer high quality and low-cost investment options to its participants? Unfortunately, our experience is that many plans still offer a menu of mutual funds with much higher than average embedded expenses and fees. As one would expect, fees negatively impact the return or rate of growth that plan participants receive in their accounts and can create a disincentive to using the plan.
Not all that long ago, it was common for mutual funds to include a fee of 1% or more in order to cover the various costs of running the fund. Over the last 5 – 10 years, however, the fees for some mutual funds have dropped dramatically and in some cases are 1/10 (or less) of what they used to be just a short while ago. Our experience is that there are still many mutual funds that continue to impose fees on investors that are well above the industry average. To make matters worse, retirement plan participants may not even realize that the mutual fund choices they have inside in their work retirement plan may not be “best in class” options and that they are being charged a higher fee than comparable available alternatives. Our Plan Services division regularly reviews, and when appropriate, updates the mutual funds that are offered to participants in each plan. We emphasize the selection of a diversified basket of high quality, low-cost mutual funds. We know these funds are the building blocks each plan participant will use to plan for a better financial future for themselves and their family. We want plan participants to have access to the best possible building blocks and at the best possible price.
Education for plan participants: Investor education is another key component of a comprehensive and well-designed retirement plan. Many retirement plan participants are not well-versed in basic investing principles and may not even understand or realize why it would be to their benefit to participate in the plan. Sometimes, employees do not recognize or appreciate just how generous and well-constructed their employer-sponsored plan really is. Helping plan participants learn about their retirement plan and the benefits of saving for retirement are some of the most rewarding parts of our job! We always offer educational opportunities for all current and future plan participants. We can help employees learn how to tackle a wide variety of topics including:
- How much do I need to save for retirement?
- Which of the available mutual funds makes the best sense for someone like me?
- When can I retire? Can I retire early? How can I use my retirement account after I retire?
- How much should I put into my retirement account each year? Should I be contributing more to my account?
- Am I maximizing my access to my company match program?
Corporate goals and objectives: Whenever we assist a business owner with selecting and implementing a retirement plan solution, we also aim to understand and incorporate the business owner’s objectives for having a retirement plan in the first place. For many small and mid-sized companies, a robust retirement plan can be an important element of the total compensation package for key personnel. By including various contribution and funding capabilities into a retirement plan, the overall retirement solution can dovetail the plan design aspects needed to meet employee benefit goals with the company’s desire to enhance the value proposition for key personnel. For instance, incorporating a permitted disparity formula into the plan could allow a greater percentage of an annual profit-sharing allocation to go to key employees, further aligning key personnel with the ownership objectives. We also help business owners evaluate whether they should consider implementing alternative plan types such as cash balance plans, defined benefit plans or non-qualified deferred compensation plans. BLBB Plan Services is equipped to assist businesses in the design and management of a retirement plan solution that best fits now and that can stand the test of time.
For a no-obligation review of your existing retirement plan or to learn more about how to maximize your retirement planning strategy, please contact your BLBB Financial Advisor or Ed Barnes (Financial Advisor and President of BLB&B Plan Services) at 215-643-9100.