Are the 401(k) Plan Benefits At Your Practice Truly Competitive?

If you own a practice, it is very important to consider taking advantage of implementing a 401(k) retirement savings plan. The tax advantages for owners are significant, plus it’s a great way for you to save toward your retirement goals. In tight labor markets, 401(k)s also offer an attractive employee benefit.

Your Responsibility to the 401(k) Plan

When you implement a 401(k) at your business, you become what is known as a “Plan Sponsor.”  As a plan sponsor you have some obligations, which are set forth by the U.S. Department of Labor that provide guidelines on how you will operate and maintain the plan.

As a Plan Sponsor, you also become a fiduciary to the plan. This means that you take legal and ethical responsibility for the 401(k). By law you will need to annually review your plan to assess, among other things:

• Costs of operating the plan
• Investment choices offered through the plan
• Employee education
• Compliance

You should get your insurance policy reviewed regularly, so why not your 401(k)?

We decided to write this piece to help those practice owners who are considering starting a 401(k) retirement plan, but even more importantly, for those who have already instituted one. A 401(k) is no different from any other major investment in your life – whether it’s your home, your practice, or your health – a periodic review is in order.

How To Assess Your 401(k)

When was the last time you assessed your 401(k) to see if it’s still meeting your needs?  In our experience, reviewing their retirement plan is not top of mind for most dentists, given all the other concerns of running a practice. Besides, how would you know if your 401(k) is still competitive? Well, just like a financial services provider will offer to review your insurance policies, they should also be able to review your 401(k) plan.

Let’s look at what an annual 401(k) review would assess:

Consider 401(k) Plan Costs

You should be reviewing your plan every year for cost effectiveness, because it makes good fiscal sense to do so, and because as a fiduciary you are required to make sure the costs are reasonable. Also, as your plan grows, your pricing and options improve, so you’ll want to make sure you’re always taking advantage of what’s available to you. As a plan participant, you too will benefit from lower costs and increased choice.

Review Investment Choices

You are required to look at your fund choices annually. A good, experienced financial advisor can help you with this. Your advisor will benchmark your plan every year against others of similar size, and make recommendations if things need to change.

The Investment Policy Statement

An experienced financial advisor will guide you in the creation of an investment policy statement, a document that lays out the metrics you would use to evaluate your funds. This will help you decide whether to retain your funds, or to replace them with more suitable ones.

Employee Education Program

As a Plan Sponsor you must, by law, offer some form of employee education program about investment and retirement planning. A good advisor will deliver a suitable curriculum to your workforce and assist with employee engagement through educational and open enrollment events.

Ensure 401(k) Plan Compliance

There are many rules and regulations that drive the implementation and maintenance of retirement plans including 401(k)s. For example, contributions need to be remitted to the record keeper in a timely fashion and in a very specific way. Similarly, enrollments need to be completely on time when an employee becomes eligible to contribute. If you don't enroll a person on time, you could pay a penalty. You also need to make sure you have an ERISA bond in place; this is effectively an insurance policy that would reimburse for any assets stolen from the plan.

Find the Right Financial Advisor

There are two types of advisors who can help you install and manage your 401(k) plan. The first kind is a broker who is paid a commission but does not have a fiduciary obligation. A fiduciary obligation is one where there is a legal and ethical obligation to act in the best interest of the client. The broker simply must ensure that the plan they offer you meets a standard of suitability. Suitability is very broadly defined. Cost and compliance do not really affect this definition of suitability.

The second kind of advisor acts as a fiduciary to the plan. Simply put, this implies a higher standard of care. For example, in our firm, we provide what is known as 3(21) fiduciary management. This means that we take legal and ethical responsibility for our guidance on the 401(k)s we implement. In contrast to the broker who is paid by the fund companies, and therefore may be influenced in their recommendations to you, we get paid by the client. This means that we can place the client’s interests first – and no one else’s gets in the way of our recommendation.

Secure a Competitive 401(k) Plan for Your Practice

An advisor who acts as a 3(21) fiduciary has in place a review process to evaluate your 401(k) against a benchmark every year. For example, in our practice, we use an outside party to compare the cost of our client’s plan against other plans of a similar size. We use an investment policy with a scoring system to evaluate whether a fund should be retained, put on watch, or be replaced. We also conduct an annual fiduciary review where we assess the contribution reports prepared by a third-party administrator.

To sum it up, an advisor who acts as a fiduciary makes sure that a client understands everything about their plan, helps to correct any errors, provides ongoing education and service to employees, and ensures the ongoing competitiveness of the plan.

If you have not recently looked at all the aspects we just discussed, it may be time for you to review the health of your 401(k) plan. After all this is your retirement, your future, and the future of your employees. You will want to make sure you have in place the right plan and that you are being advised by the right advisors, so you can make the most of your investment of money, time and energy.

We hope this helps you, and as always, if you have any questions – please don’t hesitate to reach out to us.

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