Episode II: Risks, Reasons and Relief
What are the potential risks if you don’t have a proper retirement plan design? Well, proper plan design is everything. It dictates who can participate and when. It identifies what everyone is entitled to and what everyone who is eligible needs to do. It sets up your roadmap. Without a proper roadmap on a roadtrip, what happens? You get sidetracked, or altogether lost along the way.
It’s no different if you are the plan fiduciary or the plan administrator-or a human resources professional handling the benefits (more than likely you’re a fiduciary on the plan). Plan design matters, the goals matter and so does the roadmap.
So, let me ask you-when was the last time that you went through the plan and identified all the important pieces? When was the last time that you benchmarked your plan against others of a similar size? When was the last time that you identified if you are getting the equal value out of the plan team relative to what you are paying in fees? (Please tell me by now you know what your fees are!)
If it’s been over 3 years (for smaller plans) or 1 year (for larger plans) then you may be leaving a lot of risk open for interpretation. What I mean by this is, if you don’t know all these pieces then how are you evaluating your plan annually (or quarterly even)? What is the baseline or benchmark? This (if true), according to recent events and rulings, may work against setting up positive experiences for you, your company or the employees. This is where undue risk and uncertainty seeps into plans and then starts going against the beneficial interest that retirement plans bring to companies and its employees.
For example, when I have helped clients benchmark their plans; there are 5 major areas that we review within the plan design that identify both potential impacts on cost and retirement readiness. What’s interesting is that these areas are not that abstract. Items to consider are eligibility, employee and employer contributions, investment options and distribution allowances. In most discussions, until we go through the exercise, these are areas that haven’t been reviewed in a long time. Most of these areas I have consulted on can be very impactful on overall participant education programs and total participation rates.
We all want to pursue building opportunities for our employees and participants to build and plan for a funded retirement program….but what are we doing each year to make sure that they have the tools available to pursue retirement readiness? Because within these same parameters, there are 14 recognized industry statistics that measure how well a plan helps plans prepare for retirement. They can be grouped into the following:
So, this is the reason that time needs to be spent focusing on plan design…it matters a lot. What’s your design? Is it what you intend and need it to be? Compare the current plan design with your answers from Episode I-do they align?
In the next episode, we will cover your Team and Who’s on it to help you through the process to enhance and continue pursuing your retirement plan “why”.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations
Securities offered through LPL Financial. Member FINRA/SIPC. Advisory Services offered through HighPoint Advisor Group, LLC, a registered investment advisor. HighPoint Advisor Group, LLC and OnPath Financial are separate entities from LPL Financial.