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· 5 Principles Essential to Solid Corporate Retirement Plan
Your company has individual needs, so your corporate retirement plan must be responsive to those needs. Key issues, such as cash flow and organizational structure factor into the type of plan design you select. There are different types of corporate retirement plans each with multiple variations consisting of distinct characteristics and design features that need to be understood. Often a company will have multiple plans tailored to address their unique needs. Frequently this involves the integration of broad based qualified retirement plans, with more customized non-qualified executive retirement plans and increasingly global retirement plans. The most important concept is the overall employer objective that the plan is intended to satisfy.
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For example, a corporate retirement plan can be:
- structured to motivate employees by conditioning contributions on the success of the business, recruit and attract new employees to the workplace, and retain and reward key executive talent.
- designed to reward employees with longer service and to penalize employees who terminate employment after a short tenure.
- utilized to encourage employees to save for their retirement, an employer could allocate its contributions only to those employees who contribute a portion of their own compensation to the plan.
Which plan is right for you? That depends on a number of factors but be certain that the provisions of corporate retirement plans can be designed to help the employer achieve competitive advantage while providing meaningful opportunities for their employees to accumulate wealth in a tax-favored environment. It is critical that when designing a corporate retirement plan and integrating multiple plans that it be well orchestrated and communicated. Let the Retirement plan specialist of SFI help you customize your corporate retirement plan.
The five principles essential to a solid corporate retirement plan.
- Plan Design, Integration and Compliance ·More
- The Plan Fiduciary ·More
- Investment Monitoring·More
- Education ·More
- Administration·More
Plan Design and Compliance -
Tailoring the Plan to Your Specific Needs
Your corporate retirement plan must be responsive your companies individual needs. A properly structured plan align corporate objectives with employee expectations. In addition to providing you and your employees with all the benefits you deserve, your plan must remain in compliance with complex laws and IRS regulations. The challenge of this task increases when multiple plans are in place.
Following are a few of the compliance issues you may want to consider:
- Do you have a written plan document and an IRS determination letter?
- Are you familiar with the terms of the plan and is the plan being administered in accordance with its terms?
- Is the plan top heavy and is the 5500 prepared annually?
- Does your plan require a CPA audit?
- Do you have a fidelity bond?
- Has the plan evaluated plan service providers against competitors for cost and quality of service?
If the plan by its terms or in operation results in prohibited acts, the plan's tax favored qualifications would be forfeited.
The Plan Fiduciary
Understanding the role of the plan fiduciary is a critical component of a retirement plan.
What is a Fiduciary?
A fiduciary is anyone who exercises any discretionary authority or control over the management of a retirement plan or its assets. You are a fiduciary if you perform any of the following:
- Have discretionary authority or control over the retirement plan's management or administration
- Have decision-making authority in the selection and retention of plan fiduciaries
- Select plan investment vehicles
- Give investment advice to the plan for compensation
- Acquire or dispose of plan assets
- Make discretionary decisions under the plan (for example, authorize or disallow benefit payments)
- Named Fiduciary
When establishing a retirement plan, you acquire the responsibilities of a fiduciary. A plan must have at least one Named Fiduciary - a person who is primarily responsible for the overall operations and administration of your company's retirement plan. Usually the Plan Sponsor, Plan Administrator, Trustee, Plan Committee, or administrative Committee serves as the Named Fiduciary.
The Plan Sponsor's fiduciary's responsibilities include the following:
- Selecting an Investment provider and investment options
- Keep a due diligence file for fiduciary decisions
- Appoint other plan fiduciaries, as needed
- Evaluate plan needs
- Create an Investment Policy Statement
- Compare and select an investment provider
- Finalize plan features, including investment options and services
- Communicating to employees
- Monitoring investment options and plan operations4
Selecting and Monitoring the Plan's Investments
A retirement plan must provide a smart and balanced selection of investment options with a proven track record of strong performance compared to benchmarks. Selecting the investments for your retirement plan is one of the most important things you will do. It is also one of the most difficult. Balancing risk with reward is a tricky task fraught with two general kinds of risk-downside and upside. The former is the risk that you and employees will take on too much volatility relative to goals and level of risk aversion. The latter is the risk that the investments you select will leave you and employees short of long-term goals.
To walk this fine line, you should have an Investment Policy Statement. This statement sets the guidelines your plan will use to select and monitor investments. When creating the plan's Investment Policy Statement, considers the following:
- Performance relative to investment style category.
- Risk relative to investment style category.
- Minimum track record of investment manager.
- Holdings consistent with investment style.
- Expense ratios/fees.
- Stability of the organization.
Education
Consistent participant education is the cornerstone of a successful retirement plan. A comprehensive education program should provide a wide range of materials delivered through a variety of platforms-in person, online and on paper. Because each employee has unique needs, you should have a range of support from the enrollment to the distribution phase. Enrollment meetings and enrollment kits play a major role in the participation of your plan. Many vendors have gone to great lengths to ensure the enrollment process is easy and productive. During the accumulation phase, employees need to understand the tax advantages of qualified plans and the impact compounding can have on their nest egg. They also need help managing risk and balancing investments according to their risk tolerance. How does investment-planning change from the accumulation phase to the pre-retiree phase? How much income is required for you and your employees and what is the cost of generating that income? These are important questions that need attention during the distribution phase.
Service, Technology and Day-to-Day Administration
A plan that is not administered or serviced correctly can burden your staff unnecessarily. Your retirement plan should minimize the burdens on your organization rather than bogging you down with day-to-day administrative issues. Exceptional customer service minimizes time spent administering a plan.
Service and technology issues to consider:
- How much time do you spend managing your plan?
- Does your plan have central administration or is a Third Party Administrator involved?
- Do you have a dedicated, responsive client contact at your current provider?
- If participants have a problem or a question, will they call you or your plan provider first?
- How efficient is the payroll and loan processing?
- What Tools do the participants have access to?
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