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| Finance: Five-Step Plan |
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| Written by Amy Buttell Crane |
| Tuesday, 30 September 2008 19:00 |
 {mosimage} As a fiduciary for a retirement plan, it’s incumbent on you to periodically review your plan to make sure your employees are receiving a quality offering in terms of investment options offered, fees, disclosures, and education. Here is a five-step plan to go about evaluating what you’ve got and deciding whether or not you need to make a change. Step 1: Assess your needs. The first step is to assess where you want to take your plan and to realize there’s no one-size-fits-all solution, said Larry Heller, an enrolled actuary and director of employee benefit services for Becher, Della Torre, Gitto & Co., a CPA firm in Ridgewood, NJ. “Think about what objectives you want to achieve for your company through the plan,” he added. “Do you want to elevate the employer match, increase profit sharing, make the plan better for employees with more years of service, improve communication about the plan, or something else? You have a finite budget, so you need to figure out what to do with it.” Step 2: Review current plan document and compliance. Compliance is becoming a bigger headache than ever, as plan stakeholders are pressing employers to live up to their responsibility as plan fiduciaries. In evaluating your current plan, Brian Lakkides, an accredited investment fiduciary with Corporate Plan Administrators in Waterford, Mich., recommended the online self-assessment tool at FI360.com, Self Assessment of Fiduciary Excellence (http://safe.actifi.com). “Fiduciary liability is a big issue, especially now that the Supreme Court has issued the LaRue decision, where a plan sponsor can be held liable for an administrative mistake,” he said. Most small and mid-sized employers outsource all or most of plan administration, but that doesn’t mean that you’re off the hook in terms of liability. It is still your job to adequately supervise your vendors and ensure they are following the letter of the laws that regulate employee benefit plans, including the Employee Retirement Income Security Act (ERISA) and the 2006 Pension Protection Act, both administered by the federal Department of Labor. Step 3: Rate investment managers, options, and fees. The days when you could take your golf buddy’s recommendation on an investment management firm are gone—you must show that your investment mangers, options, and fees are competitive with what is offered by other providers. Fees, especially, are a hot button issue, as the Department of Labor continues to press employers for more transparency in fees in terms of who pays the fees (employer or employee) and what services are covered by fees, noted Jon Waite, chief actuary at SEI Global Institutional Group, a global provider of retirement and management investment solutions in Oaks, Pa. “Look not only at the fees and whether they are in line with comparable offerings, but also that they are in line with the services provided,” Waite said. “Another red flag can be too many investment options, whether or not there are target date portfolios offered, and if you are relying on one investment provider with only that vendor’s underlying funds.” A best practice is to offer participants investment choices in each major sector, including various style and market capitalization US funds, a foreign fund, several bond funds, and target date funds aimed at various retirement dates. In line with the Pension Protection Act, many employers are offering investment advice, integrating more target date funds into portfolios, and changing opt-in programs to opt-out programs, so employees have to make an effort not to participate in the plan, rather than the other way around. Step 4: Step up employee education. All the goodwill in the world won’t bump participation rates up in your plan without a solid, comprehensible educational plan. Web sites are a solid option for providing education, explaining options, and even offering advice by having employees answer questions to produce a risk profile that will then provide a slate of investment options. But again, the scope of your effort depends on the objective you’re trying to achieve. Heller remembered one client that decided a quick response rate to employee calls about the retirement fund was a priority. “They paid a lot of money to staff a call center where no employee would ever be on call for more than 30 seconds. It cost more than a slower response rate would have, but it was important enough to them that this was how they wanted to spend their available dollars,” he said. Step 5: Implement exit procedures. More companies are paying attention to exit procedures for when their employees retire, quit, or are laid off. “One of the ways executives can improve their companies 401(k) plans is by adding rollover management services. This is support for people exiting the plan so they have help understanding their options and the consequences of their decisions, receive independent guidance in making their choices, and get assistance in executing the rollover process,” said Jim Langenwalter of RolloverSystems, Inc., a provider of retirement plan rollover services in Charlotte, NC. Without such guidance, many employees will take their money out of a retirement fund, paying penalties to the IRS and forfeiting the chance to build the funds they will need in the future for retirement. Also, employees who are retiring can benefit from advice about how to structure their payout and appropriate amounts to withdraw over time so they won’t run out of money during retirement. All in all, retirement plans deserve careful attention from executives. Compliance can pose particular difficulties, as can an expensive and non-diversified array of investment options, but with appropriate attention and outsourcing, everyone in the company can gain from a well-designed and intelligently communicated plan. Amy Buttell Crane is a freelance writer and editor based in Erie, Pa. She can be reached through her Web site www.amybcrane.com. |