BRI’s annual Retirement Confidence Survey shows need for action now. This survey highlights that workers‘ confidence regarding their ability to “live a comfortable lifestyle” in retirement has dropped to its lowest point in 23 years, with 28% of respondents identifying themselves as “not at all confident.” Clearly, low savings levels and high consumer debt are problems for workers, demonstrating an urgent need for action. October 2013
The basic framework of a 401k plan is easy to put in place. For it to actually function to help your organization and your employees to more effectively work toward a good retirement outcome requires disciplined execution of a process that focuses a few fundamental concepts. Over the next several weeks we will be posting a series of articles highlighting those concepts and how your organization can put in place the processes to make your 401k plan more successful. Essential Elements of a Successful 401k
How much does it cost to run a 401k plan? What am I receiving as service? Among other duties enumerated by the Department of Labor, 401k plan fiduciaries have a “responsibility to ensure that the services provided to their plan are necessary and that the cost of those services is reasonable.” That’s not exactly a hard metric to measure what your plan should cost. Typically fees can be in the range of 0.5% to as high as 5% of your account balance. New regulations that went into effect in 2012 require 401k plans to provide a more transparent breakdown of their fees to employers and employees. While this may help, confusion is still the norm. See 401k Plan Fees
Participant education is one of the most neglected aspects of a 401k plan. The goal for a successful plan should be the same for the sponsors and the participants; to reach retirement with the accumulated assets they need. Studies have shown that nearly one in four eligible employees do not contribute to their company’s 401k plan. Studies also show that even actively participating employees often have contribution rates and investment allocations inconsistent with their long term goals. See 401k Education Program
“Out of sight out of mind” is not how you treat an important piece of equipment. Regularly scheduled maintenance ensures vital machinery and tools perform at optimal levels. The same principles apply to your 401k. Putting in place a Service Plan that addresses the essential elements of your plan can work the same way.
The Service Plan should focus on the main objectives of addressing the fiduciary needs of the 401k sponsor and by extension address the needs of both the sponsor and the participants. A well run plan serves everyone’s best interests. 401k Service Plan
The fiduciary responsibilities of a 401k plan sponsor on their face seem pretty straight forward. The U.S. Department of Labor lists the essential elements.
Each plan has certain key elements. These include:
- A written plan that describes the benefit structure and guides day-to-day operations;
- A trust fund to hold the plan’s assets1;
- A recordkeeping system to track the flow of monies going to and from the retirement plan; and
- Documents to provide plan information to employees participating in the plan and to the government.
TP Investment Advisory works closely with Plan Sponsors, Trustees, and Investment Committees of Defined Benefit Plans / Pension Plans to ensure that the proper solutions/options are in place and continuously being monitored and reviewed to help ease the burden that can be a Defined Benefit plan.
Below are the typical Defined Benefit plans we deal with and common questions & concerns associated with those plans.
Hard Frozen – Generally the decision has already been made to terminate the plan ASAP at the lowest possible cost. This plan no longer allows new entrants into the plan and the benefit accruals have stopped for all existing employees in the plan.
Concerns and Questions:
– Volatility of Contributions (costs).
– What is the ultimate exit strategy?
– How do I monitor the progress of the termination?
Soft Frozen – No longer allows new entrants, but existing employees in the plan continue to accrue additional benefits. The goal of complete termination may or may not be the end result here.
Concerns and Questions:
– What review process did you go through on deciding to soft-freeze the plan?
– Is managing the soft frozen plan increasing your administration burden?
– How are you managing potential volatility in the level and amount of contributions needed to fund the plan? (costs)
– Are you still spending too much time administering the plan?
Active Plan (Non-Frozen) – New and existing employees are still accruing benefits.
Concerns and Questions:
– The volatility of contributions (costs!)
– Burden of administration for a Defined Benefit plan (spending too much time on this plan)
TP Investment Advisory understands and works with plan sponsors to determine their short and long term plan goals. We help meet your needs by offering and working with an array of services including:
Investments, Plan design, Actuarial, Recordkeeping, Participant Education, Plan Document
Retirement Plan Consulting
Plan sponsors can be overwhelmed by their obligations to a number of parties: Congress, Department of Labor, and even their own employees. TP Investment Advisory Services’ objective is to understand and address the evolving interests of plan sponsors and their employees. This specialization allows us to work with and build progressive, well run, and cost effective retirement plans.
- How we can help make your Retirement Plan better?
- With TP Investment Advisory Services as your advisor and proponent, we help you find quality plan administration services, provide employee education and communication, help construct a quality investment lineup, and objectively monitor your plan vendor. With access to 60+ tier one vendor options we work to ensure that your companies changing needs are being met. We work with Profit Sharing, 401k/403b, 457, and Defined Benefit including Frozen and Non-Frozen plans as well as Executive Bonus Programs. You need the best possible guidance if you are a fiduciary to a retirement plan.
- Is your Retirement Plan Designed Properly?
- Our plan review and design process helps lay the groundwork for a successful plan. It begins with a sound strategy and progresses with attentive execution. Our Retirement Plan checklist includes 50+ check points to review for your plan.
- Other determinations in good design:
- Fund flows into the plan
- Account balances
- Eligibility Requirements
- Vesting Schedules
- Fee and service benchmarking
- Full fee and revenue analysis
- The foundation we provide supports a more complete understanding of your needs rather than a cookie cutter vendor strategy. With access to over 60+ Tier 1 Providers our approach focuses on a few key areas in evaluating a vendor relationship and getting the right product fit your company and employees. This includes whether the price structure is correct and whether the investment options are robust enough.
- Is a Plan Conversion Necessary?
- Not in all cases. We know Plan conversion can be disruptive and confusing. Initiating a conversion requires proper coordination and smooth execution. As your advisor and primary contact, we provide support and assistance to you. One of our jobs is to ensure that your company and employees’ needs are met through communications from all parties involved including the service provider and other professionals so that you are fully informed throughout the implementation process.
- Do you or your HR people have adequate support?
- Through the use of Fiduciary Briefcase, a proprietary portal designed to be your private filing system in the virtual world, you will house meeting summaries, compliance documents, newsletters, and much more. The Fiduciary Briefcase affords your committee 24/7 access to pertinent Plan information and readily prepares your Plan for audit.
- Are you meeting your employees educational needs?
- Getting participants ready to retire is a big job. We work with Plan Sponsors to design an education program to help your participants work toward their retirement goals. This may include group meetings, one-on-one meetings, and retirement projections.
- Are you fulfilling your on-going Fiduciary requirements?
- Many plan sponsors do not know their fiduciary responsibilities under the law. We utilize a Fiduciary Fitness Program to help measure the health of the retirement plan and its ability to operate in Accordance with ERISA. For Presidents, CFOs and CEOs with fiduciary responsibilities to the Plan, we will prepare a detailed annual review to present to Retirement Plan Committee.
Each client circumstance is unique. Each client has their own individual goals, risk tolerance and time horizons. We design customized portfolios that properly balance the client’s needs based on security, growth and/or income. Then continuously monitor the portfolio’s performance against those objectives as well as the broader universe of investments.
- Devise an investment strategy consistent with the client’s objectives and risk tolerance
- Design a strategic portfolio allocation to meet those objectives using asset and sector classes believed to be in long term up trends.
- Select investment vehicles to execute the strategy. These may include mutual funds, exchange traded funds, selected separate account managers as well as individual securities.
- Tactically manage the portfolio to remain faithful to it’s objectives using a combination fundamental and cyclical analysis methods and technical and trend analysis techniques to control risk and adapt the portfolio to changing market conditions.
- Track performance (net of fees) against a selection of benchmarks to measure effectiveness.
- Review portfolios in order to make adjustments to changes in the investment environment and/or changes in client objectives.
The vast array of investment choices available can be staggeringly confusing. Selecting a portfolio of stocks, bonds and mutual funds and holding on for the long term may not be as advantageous as it used to be. By the same token, the vast universe of choices giving the individual investor access to investment tools that in the past were available only to the largest institutions may help protect investment portfolios from today’s extreme market volatility.