It’s Not Your Father’s Retirement Plan Anymore

Retirement Plans. They are not as easy to manage as they once were. Laws, regulations, features and benefits have made managing or creating your company retirement plan a complex endeavor. From the Pension Protection Act to rule 408b(2) and ERISA new standards of documentation and due diligence are necessary to comply with new important directives set forth by the Department of Labor and The Employee Benefit Security Administration. Overiding principles involved in managing your company retirement plan include:

1. Maintain and Monitor your Retirement Plan for the Benefit of your Employees and their Beneficiaries.

2. Make sure the Fees You and Your Employees Pay Represent the Best Value.

As a Plan Sponsor you can accomplish this by:

  • Understanding How to Operate Your Retirement Plan in the Best Interest of Your Employees and Their Beneficiaries.
  • Complying with Regulations Governing Your Retirement Plan.
  • Understanding How to Help Your Employees Invest in Your Retirement Plan.

You Must also:

  • Provide and Communicate Information to Your Employees About Your Retirement Plan to Provide a Clear, Concise and Thorough Understanding of the Way Your Retirement Plan Operates.
  • Document Your Selection of the Parties Necessary to Providing and Administering Your Retirement Plan.
  • Support Your Evaluation of The Fees and Expenses You and Your Employees Pay for Your Plan.
  • Create a Process to Communicate This Information to Your Employees.
  • Put in Place a Process Which Documents the Due Diligence Necessary to Protect You, Your Employees and their Beneficiaries.

You, as a Plan Sponsor may have a Fiduciary Responsibility to operate and maintain your Retirement Plan in the Best Interest of your Employees as Participants in your Retirement Plan. Consequently,  as a Plan Sponsor you should comply with regulations governing your Retirement Plan as set forth by such agencies as: The Department of Labor, the Employee Benefit Security Administration, the Securities and Exchange Commission and the Pennsylvania Department of Banking and Securities.

The practices outlined by these agencies, with their basis founded in ERISA, the Pension Protection Act, Dodd-Frank and other laws are not limited solely to Fee Disclosure. These practices and a myriad of additional concerns involving the process around which you make decisions regarding your Retirement Plan may require you to consider matters such as:

  • Determining if Your Retirement Plan Should be Participant Directed or Not.
  • Vetting Your Retirement Plan Vendors.
  • The Creation of Your Retirement Plan Investment Policy Statement.
  • Selecting Investments for Your Retirement Plan.
  • Determining When to Replace Underperforming Investments.
  • Providing Matching Contributions.
  • Offering Plan Loans.
  • Understanding What Constitutes a Plan Asset.
  • Defining Vesting Schedules.
  • Evaluating if Your Retirement Plan Should Include Auto Enrollment.
  • Educating Your Employees About How to Successfully Invest in Your Retirement Plan.

Therefore, The Investment Advisor believes it is a best practice that you Fully Evaluate these and other concerns with respect to your existing Retirement Plan or as preparation for creating your new Retirement Plan. Regardless, if your Retirement Plan is considered to be a Covered Plan such as a 401k or a Non-Covered plan such as a Simplified Employer Plan (SEP) The Investment Advisor recommends you Evaluate the Complete Picture and Consider Your Process Prior to Implementation.

In situations where your choice of your Retirement Plan is designed as a less complicated Plan certain items need not be considered because they are not a concern in your case. An example of this might be where the type of Retirement Plan chosen or recommended requires immediate vesting such as in a SEP Plan. Therefore, vesting schedules need not be considered.

Retirement Plan Evaluations Should Include:

  • Consultations about the Form and Organization of Your Retirement Plan.
  • Reviewing the Design of Your Retirement Plan.
  • Investigating and Identifying Retirement Plan Providers, Custodians and Administrators Who May Become Vendors to Your Retirement Plan.
  • Assessing Direct Costs of Your Retirement Plan.
  • Determining Indirect Fees and Expenses Associated with Your Retirement Plan.
  • Identifying and Evaluating Revenue Sharing Arrangements Within Your Retirement Plan.
  • Considering the Reasonableness and Competitiveness of all Fees and Expenses Associated with Your Retirement Plan.
  • Creating an Investment Policy for Your Retirement Plan.
  • Reviewing the Investment Options in Your Retirement Plan.
  • Determining the Fees Associated with the Investments in Your Retirement Plan such as:

1. Mutual Funds

  • Annual Operating Expense Ratio (Mutual Fund Management Fee)
  • Sales Charges
  • Redemption Fees
  • Sales and Marketing Charges (12b1 Fees)
  • Wrap Fees (Where Applicable)
  • Analysis of Fees Contained Within Different Share Classes of Mutual Funds

2. Exchange Traded and Index Funds

  • Annual Operating Expense Ratio (Management Fee)
  • Transaction Fees
  • Commissions

3. Money Markets

  • Annual Operating Expense Ratio (Management Fee)
  • Adminstrative Fees
  • Account Fees
  • Maintenance Fees

4. Guaranteed Investment Contracts and Stable Value Funds

  • Asset Based Fees
  • Administrative Fees
  • Investment Management Fees
  • Wrap Fees
  • Early Withdrawal Fees
  • Surrender Charges
  • Sales and Marketing Fees

5. Investment Fees and Expenses Charged within Brokerage Windows as Self Directed Brokerage Accounts Within your Retirement Plan (Where Applicable) for Such Investments as:

Money Markets, CDs’, Stocks, Bonds, Mutual Funds, Index and Exchange Traded Funds, International Investments, Master Limited Partnerships, Real Estate Investment Trusts, Commodities, Listed Options

Including Such Fees and Expenses as:

  • Commissions (Brokerage Agency  Transactions)
  • Markups (Fees Contained Within Brokerage Principal Transactions)
  • Asset Based Fees
  • Wrap Fees
  • Transaction Fees
  • Account Fees
  • Other Custodial Fees and Expenses

6.  Separately Managed Accounts

  • Annual Expense Ratio (Asset Based Management Fees)
  • Administrative Expenses
  • Wrap Fees
  • Advisory Fees
  • Brokerage and Custody Fees

7. Annuities

  • Expense and Mortality Fees
  • Administrative Fees
  • Sales Charges
  • Surrender Fees
  • Fees Contained Within Loan Provisions
  • Annual Operating Expenses of Investments Contained Within Such Products and Services
  • 12b1 Fees
  • Fees Contained Within Different Share Classes of Investments.
  • Fees and Expenses Associated with Riders.
    • Making Recommendations about the Investments Included in Your Retirement Plan.
    • Making recommendations regarding Replacement Investments for Your Retirement Plan.
    • Helping You Document the Due Diligence, Policies and Processes Necessary to Help Your Retirement Plan Conform to Regulatory Requirements.
    • Determine the Process of How to Communicate Information and Disclosures Involving Plan Information, Plan Changes, Fees and Expenses to Your Employees About Your Retirement Plan.
    • Determine How Investment Advice and Education will be Provided to Your Employees as Participants in Your Retirement   Plan.

Implementing Your Retirement Plan Should Include:

  • Selecting the Type of Retirement Plan You Wish to Offer.
  • Selecting Your Retirement Plan Provider, Administrator and Custodian.
  • Choosing Your necessary Retirement Plan Documents for Your Retirement Plan.
  • Implementing Your Investment Policy for Your Retirement Plan
  • Selecting Investments for Your Retirement Plan.
  • Determining which Employees in Your firm are Designated with the Responsibilities to Maintain Your Retirement Plan.
  • Monitoring the Performance of Your Investments within Your Retirement Plan.
  • Putting in Place Your Processes and Triggers to make Investment Changes for Your Retirement Plan.
  • Implementing Your Advice and Education Model for Your Employees as Participants in Your Retirement Plan.
  • Putting in place a Your Process to Communicate Information and Disclosures Involving Plan Information, Plan Changes, Fees and Expenses to Your Employees about Your Retirement Plan.
  • Providing Informational and Operational Access for Your Employees to Invest in Your Retirement Plan.
  • Guidance and Quarterbacking involving all relevant parties to The Administration and Operation of Your Retirement Plan.