Once you have made the decision to adopt a retirement plan & you are ready to roll out the plan to your employees & START CONTRIBUTING TO THE PLAN - keep these six things in mind. A few words of caution as you embark on this journey to save for your future. Here are 6 ways you can keep annual plan administration costs to a minimum while keeping the plan in compliance and saving for retirement.
1. Follow the provisions of the plan!
- Your plan document has customized plan features that detail how the plan operates. Eligibility requirements, entry dates, contribution allocation requirements, contribution formulas, etc. Read the Adoption Agreement to get a sense of how the plan works and when to notify participants they are eligible for the plan. Your Third-party Administrator (TPA) can walk you through the plan provisions and provide you with a calendar of what to expect when.
- The result of failing to let an employee into the plan when they are eligible can be a costly and time-consuming correction procedure – “cha-ching $$$$$$.”
2. Carefully choose the person you will designate as the internal employee responsible for operating the plan. Third-party administrators refer to this employee as your “day-to-day contact” for the plan.
- Preferably you should choose a person/position with low turnover. Each time the person handling your plan leaves the company you have to spend time & resources training the new contact.
- Is this employee a detail-oriented critical thinker? If not, you should consider the problems that will occur when employee contributions are not made timely, when TPA data requests are not completed thoroughly and accurately. The more time the TPA spends clarifying data and re-doing work that was based on inaccurate data, the more you will be billed for TPA services.
3. Choose advisors that will partner with you to keep tabs on the plan!
- Insulate yourself with the experts who will work together to maximize the benefits of the plan (TPA, Investment Advisor, CPA)
- Ensure your TPA is reviewing the optimum contribution calculation options (Age-weighted, cross-tested, integrated). Are you ready to fund more for retirement that your current 401(k) Profit Sharing plan allows? Have you considered a defined benefit plan in combination with your existing plan? Utilize your plan to the fullest and get the most “bang for your buck.”
4. Understand what fees you are paying!
- If you want to save money, you first have to know what you are spending. Is it reasonable? If you don’t know, ask! TPA’s typically charge a flat fee for services & a per-participant fee which is straight forward, but do you know what management fees are bundled inside of the investment options you have chosen for your plan? Sometimes TPA’s are eligible to receive revenue sharing from the investment provider you have selected (typically based on the amount of assets in the plan). What commission is your investment advisor adding to the fees as compensation for their services? Ask for a contract that details ALL fees, set up (front-end), termination (back-end), on-going, etc.
- You should also verify if the investments chosen for the plan have a required investment time. In other words, if you want to change investment providers, will you be assessed a charge for not keeping your current investments long enough (sometimes referred to as contingent deferred sales charges). There are many different terms for fees assessed to the plan, so be inquisitive and each one of your advisors and providers what they charge – compared to what they offer.
5. Transmit employee contributions to the plan immediately
- Once you cut payroll checks, immediately send employee contributions (pre-tax & Roth deferrals, loan payments, etc.) to the plan the same day. If you hold them too long, you will be subject to fees and penalties – and you are required to report late deposits on your annual Form 5500 Filing (“DOL audit trigger!”). An audit (whether performed by the DOL or IRS) is costly. Your TPA may represent you during an audit, and you will be charged (typically at an hourly rate) for services provided with respect to the audit.
6. Respond to your Third-Party-Administrator’s Inquiries immediately
- Every year your TPA will ask for census data (employee listing, hire dates, birth dates, termination dates, compensation, deposit confirmation, etc.).
- Understand what “compensation” really means. Yes, your document has a specific definition, and it is typically W-2 wages, so send your W-2’s to your TPA as a back-up to the data request they need completed. If you ever go through a DOL or IRS audit, your TPA will have sufficient data to back-up the work they performed.
- Ask your TPA for a sample of what they need each year, so you can start collecting the data each month. At the end of the year, you will have everything at your fingertips. If the data is accurate and thorough you can bet your annual administration work will be completed quickly, accurately and within the quoted fee estimate you were provided!
Your company retirement plan is an investment in your company and your employees, but be sure to follow these steps so that you can save money on your company retirement plan.digitalart / FreeDigitalPhotos.net