Sponsoring a retirement plan is a big commitment of both time and money. With so much on the line, it is important for plan sponsors to ensure that they are getting the most out of the plan that they sponsor. If you have clients who run businesses and sponsor retirement plans, here are three ways that you can help them improve their defined benefit plans this year.
Review Your Fees
Fees are an inevitable part of sponsoring a retirement plan, but that doesn’t mean that they should be ignored. Every plan sponsor has a legal responsibility to ensure that they are only paying “reasonable” fees. It is their fiduciary duty to make sure they are not overpaying based on the specific services they receive and the value those services provide to the plan.
Fees for defined benefit plans include:
- Actuarial services: Consultation, reports, benefit calculations
- Administration and operations: Processing benefits, claims processing, legal/compliance, managing data, participant services, plan audits
- Custodial, trust, and investment services: Investment advice, allocation strategy, managing investments
It is important for every plan sponsor to review their fees on a regular basis to ensure that they are reasonable. Even if you took the time to shop around when setting up the plan, markets change; what was reasonable five years ago may no longer be a good option.
Increase Your Options
Defined benefit plans have traditionally offered two options come retirement: a lifetime annuity or a lump-sum payment. The lifetime annuity provides protection against longevity risk as it is guaranteed for the life of the participant. The lump-sum payment gives the participant complete control over their retirement, allowing more flexibility in how and when they use the money.
Many plan sponsors find that this all-or-nothing approach to retirement income does not serve their workers as well as they expected. When taking an annuity, the worker does not have enough money to pay down debt or do other things that will set them up for a more comfortable retirement. To take a lump-sum payment, the worker loses all protection against longevity risk and greatly increases their chances of outliving their retirement funds.
Luckily, plan sponsors are not limited to only offering these two options. They can create a hybrid option that allows for a smaller initial lump-sum payment and a lifetime annuity. This way, employees have some flexibility with their retirement funds without having to give up all of their longevity protection.
Hire A Professional
Retirement plans are complicated because the laws that govern them are complicated. Many HR professionals simply do not have the time to learn all of the intricacies of defined benefit plan regulations on top of their other responsibilities. This lack of expertise often leads to both elevated levels of stress and plan administration errors.
For this reason, many plan sponsors turn to pension specialists and third-party administrators to help them create and run their retirement plans. Outsourcing to a specialist lightens the load of the company’s staff and also brings a higher level of excellence to the administration of the plan.
If you have clients that sponsor retirement plans, we are here to help you. We can assist with every level of plan design all the way through implementation, including compliance testing and required reporting. For more information about how we can help you help your business-owner clients, email info@ff401k.com today.
About Kenny Phan
Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses around the nation, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.