The introduction of a company retirement plan represents one of the most common tools that employers use to help provide enhanced long-term benefits for their workforce. Employers can use the creation of a company retirement plan not only to help employees build long-term financial stability, but also help to enhance loyalty among the workforce. While the decision to introduce a retirement plan may seem easy, there are several issues that employers must address. The following items represent just a few of the subjects employers may want to consider prior to implementing a new retirement plan.
Which type of Plan is best?
There are several different variations of company retirement plans which can be selected. However, it should be a goal of company management to choose the type of plan which would provide benefits to employees while also being best suited for the organization. Most employers offer a traditional 401(k) Plan for employees to make deferral contributions on a pay-by-pay basis. In most cases, this type of plan is best suited for the needs of the workforce. Despite the popularity of this type of plan, employers must be able to gauge the level of interest that employees would have in actively participating in a 401(k) program. If employee participation is low, the creation of a retirement plan may become cumbersome to the company as well as causing contribution limitations on highly-compensated employees due to annual compliance testing.
Should the company make contributions to the plan?
While basic 401(k) Plans allow employees to defer their own pre-tax money into a tax-deferred retirement account, most employers also choose to have the option of making company contributions to employees accounts as well. If an employer decides to include company contributions in their 401(k) Plan, they must also determine the type of contribution that will be made, the frequency of the deposits and whether these company contributions will be discretionary or mandatory. Employers may also want to base their contribution selection on the amount of participation among their employees. This decision is a highly critical since choosing an inappropriate company contribution option can become a financial burden for employers.
What are the company’s responsibilities in maintaining a retirement plan?
When starting a new retirement plan, many employers are not aware of the myriad of responsibilities which must be assumed in order to ensure that the plan is correctly administered. Further complicating the matter is the fact that operating a retirement plan often falls outside of the scope of typical company operations. Most employers are not equipped to administer their own retirement plan, so it is critical that decision-makers engage experts for assistance. Whether it is processing contributions or distributions, performing discrimination testing, filing annual Form 5500 return and other tax forms, handling periodic plan document restatements or any other required tasks, employers must understand that it is in the best interest of the plan to engage the expertise of retirement plan professionals.
Be sure to understand all plan fees
Once a new plan is created, employers are often surprised at the amount of operational fees they may incur. While many employers understand that there are investment advisory fees associated with the value of assets in the plan, they are often not prepared for the additional charges that can be accrued. Mandatory discrimination testing, Form 5500 preparation and periodic plan document changes and restatements often require the payment of significant fees which are not always anticipated. In addition, depending on the number of participants in the plan, an audit of the plan may also need to be performed by an independent accounting firm, thus increasing plan fees. Employers must carefully select competent plan advisors, while also seeking the best value of services which must be provided by external professional advisors.
Schneider Downs Wealth Management Advisors is proud to employ a team of retirement plan specialists who are ready to help any company looking to introduce, modify or enhance their 401(k) Plan. Please contact Karl W. Kunkle (412-697-5401) or Jeff Acheson (614-586-7259) for any retirement plan need.
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