Employee retention is a top benefits strategy for employers. It's important that small businesses consider offering a variety of benefits beyond health, such as retirement plans, so they attract and retain the talent. Building a retirement plan isn't an easy process, but working with a trusted financial advisor who can help you navigate the waters can certainly make the process easier and help you find a solution that works for your company and employees.
Developing a retirement plan for small businesses falls on the shoulders of the employer, advisor, and anyone else associated with a fiduciary responsibility with a company's retirement plan. A systematic plan should be utilized to review a retirement plan due to changing regulations associated with retirement plans taking into account the dynamics within the company itself including size, revenue, capitalization, ownership, etc. among other factors.
A "Plan Sponsor," usually a company or employer, sets up the retirement plan for the benefit of the organization's employees. Sponsors should have specific goals in mind before the evaluation process is started as many company objectives vary, so what worked for another company may not work for you. The duties of the plan sponsor include deciding on the type of plan, investment choices, and determining the company's participation or contributions. While common goals include the lowering of costs, increased participation, improving returns and protecting fiduciary responsibilities, smaller companies may be focused on increasing the benefits for the owners and/or key employees.
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Usually, retirement plan sponsors are not in the investment or retirement plans business. Sponsors who oversee their plans without the services of an autonomous expert may assume increased fiduciary liability. To help with the decision making obligations, a plan sponsor will often avail itself of a financial advisor. This may not reduce or transfer the fiduciary responsibility of the plan sponsor but may assist the plan sponsor with the evaluation process. Keep in mind that when the evaluation process has specific goals and parameters as stated above the plan should stand a better chance of meetings its objectives.
While retirement plans have always been a specialized area, despite the fact that financial advisors represent themselves as knowledgeable with retirement plans, the fact remains that financial planners, advisors, registered reps and insurance professionals are all very different Within each group, the expertise will vary greatly.
Generally there are two types of financial advisors: generalists and specialists. My experience is that the vast majority of financial advisors fall into the generalist category.
To be considered a specialist, or what many view to be an expert, there is no specific designation, license, or degree. Rather it is an ongoing educational experience that the advisor maintains as part of their commitment to this area of competence. The single most important decision of a plan sponsor may be the choosing of an advisor. Therefore, often when reviewing and evaluating a retirement plan, it should include a review of the financial advisor. Fiduciaries should evaluate the advisor's qualifications, including the "reasonableness" of the associated fees.
Plan sponsors may find maintaining existing relationships a simple solution, generalists may not provide fiduciary support. Therefore, plan sponsors should not be hesitant to replace generalists with retirement plan specialists. Remember, only a small number of the professionals in any profession reach a high level of proficiency. Credentials, designations and licenses are good things, but they do not qualify an advisor to service retirement plans.
The Employee Retirement Income Security Act of 1974 (ERISA), is a federal statute that establishes minimum standards for pension plans. ERISA requires plan sponsors/fiduciaries to act "solely" in the interest of plan participants and their beneficiaries. Alignment should exist in a plan with the company, plan sponsor, and employees (including their beneficiaries). This alignment should include all outside individuals including consultants and financial advisors.
Today, a small business owner has numerous choices. Whether the retirement plan of choice is a SIMPLE IRA, SEP, 401-k, Profit Sharing, Defined Benefit or a combination of plans, the initial selection may not be the right decision today. Simply putting in a plan may not be the right decision. Take the time to evaluate the objectives, limitations, the financial advisors, and anyone who has a fiduciary responsibility. The plan sponsor may not be the most knowledgeable person involved in the decision and/or evaluation of a plan; therefore, having a well thought-out plan could be the most critical aspect of the evaluation.
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