If only finding a retirement plan to offer your employees were as easy as retiring itself. With the many options out there, it’s easy to get overwhelmed. And you don’t want to make a rush decision, either. After all, it’s your employees’ future.
Before picking one provider, make sure to ask these crucial questions.
1. Do they offer the type of plan you’re looking for?
From Simplified Employee Pension plans to 401(k)s to defined benefit plans, retirement plans come in many forms. Many times a provider will offer more than one type of plan. At this point you should’ve already decided what type of plan best suits your company. You should only contact providers who support that type of plan. If you call providers aimlessly, you might get locked into a plan that’s a complete mismatch for your employees, budget and business.
2. Is this plan designed to support your company size?
At large companies, employees expect a more comprehensive plan that offers a wide range of investment options. As a small business, you probably won’t need to offer such a large scale plan. A provider that caters to large businesses may only offer big business retirement plans. You could end up paying for features you don’t need.
3. What’s it going to cost?
In general, small businesses tend to pay more administrative costs per participant than large businesses do, according to the Small Business Administration’s (SBA) 2005 study, “Cost of Employee Benefits in Small and Large Businesses.
It’s important that you consider all the costs of your retirement plan. Almost all providers charge various administration fees for the daily management of your plan. You may also get charged investment fees, which are usually associated with managing plan investments and are charged based on the amount that’s invested. The Department of Labor says these are usually deducted directly from investment returns. Because of that, employers are often unaware of the missing money. Some providers may also charge individual service fees for the use of the plans features, such as taking out a loan or changing participants’ preferences.
Bottom line is you need get an itemized list of charges you’ll be expected to pay so that there are no surprises down the road.
4. Who will be in charge of the funds?
Most plans require that there be an appointed fiduciary. This person or group is in charge of upholding the principals of the Employee Retirement Income Security Act (ERISA). They oversee the legal, ethical and financial decisions related to your investments. Whoever is the fiduciary will be responsible for ensuring the investments are handled in compliance with the ERISA’s requirements. Some retirement plan providers will appoint a fiduciary as part of your plan, while others take a more hands-off approach and rely on you or someone in your company to direct these decisions and tasks.
5. Who is in charge of the recordkeeping and reporting?
Typically, the appointed fiduciary is also responsible for staying abreast of the current legal requirements of the plan. They must ensure that all activities, record keeping and reporting remain current and compliant.
Even though this is usually the job of the fiduciary, you should ask your provider who will be in charge of these responsibilities. If you fail to maintain detailed records of transactions or you neglect to submit the required documents to the IRS, you will most likely get slapped with some heavy fines.
6. Will your employees be able to participate?
Employees who are 21 years old or older and have worked for the company for at least a year are eligible to participate in most retirement plans. But physical characteristics aren’t the only factors that exclude an employee from participating in a retirement plan.
Most workers don’t participate in an employer-sponsored retirement plan because of strict eligibility requirements and because they can’t afford it, according to the SBA’s 2010 study, “Small Business Retirement Plan Availability and Worker Participation.” If you’re offering an employee-funded plan, you’ll need to make sure the minimum contribution rate is within your employees’ budget. A pricey plan will likely have minimal supporters.
7. What features are included?
The features and investment options may vary from plan to plan. Before you adopt a plan, you should have a good understanding of the different features. For example, some providers will allow you to take out loans against your plan, while others keep all investments under lock and key until a given date. Also, some plans allow employees to withdraw their funds at a reduced rate for early retirement.
Ask your provider for a list of features for each plan. Poll your employees to see what they want and compare the answers to the options. A retirement plan that doesn’t provide the same benefits your employees desire won’t get much participation.
8. How is the retirement plan provider’s customer service?
Thorough management of your plan requires you and your plan’s administrator to frequently work closely with one another. Therefore, it’s important that they offer continual support and interaction.
Providers that offer online options and make an effort to stay in contact with you through regular communications, such as routine statements, reports and newsletters, make it simple for you to stay well-informed about your plan and your provider’s status.
9. Is it difficult for employees to transfer funds when they leave?
Most business owners don’t give this issue a second thought. Why should you care about an employee who is leaving your company? A retirement plan’s portability is a major factor that business owners need to consider, says Chris Kunze, chief operating officer at Perspectives Ltd. He says that if an employee leaves on bad terms, then they’re bound to say something negative about your company to someone else, either inside or outside the company. This can quickly tarnish your reputation.
A provider that assists employees with the transferring of funds, should they decide to leave your company, will help to make the exiting process more pleasant.
10. Who is responsible for advising employees?
To encourage participation, it’s important that your employees are well-informed about all their options.
A survey released in 2010 found that four out of five employers feel that their employees don’t know as much as they should about retirement investing, according to the Transamerica Center for Retirement Studies.
Many employees automatically assume they can’t afford to contribute to a retirement plan, while others feel it’s just unnecessary. Educating your employees will help to clarify their options so their decisions aren’t based on assumptions.
In addition to setting up your plan, some providers will also provide a representative who will consult with employees about the details of the plan. Some may also provide workshops or training sessions to help employees set up their investment options. If your provider doesn’t offer these services, you will need to take it upon yourself to help your employees select, set up and manage their plan.
The Take Away
Choosing a retirement plan for your business can be an exhausting process. But for the sake of your employees and your business, it’s important be conscientious and gather as much information as you can, so that you can make a well-informed decision.
The 2010 Transamerica survey found that about two-thirds of all employers use an outside advisor to help select retirement plans.
An industry expert can give you some additional insight into your retirement plan options, while also guiding you toward reputable and suitable providers.