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The Power of Sunlight

| August 24, 2015
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How to Boost Your Company’s Retirement Plan Growth

Boosting Plan Sponsor Vitamin D

For our post today, we are going to describe “sunlight” as the ability to make decisions that will affect all within its reach. Also, since sunlight has the power to affect everyone, we are going to say that it comes forth from company decision-makers. Now that we have set the stage, let’s discuss what sunny day actions company decision-makers can use to help yield a more prepared retirement workforce. The actions of decision-makers have the ability to affect plan options, design, investments, availability, flexibility, and more. 

Eligibility

Are employees immediately eligible to participant in the retirement plan? Or - is there a waiting period? 

Each company is different and so are employee behaviors. As a general guideline, for companies with an average employee tenure of more than one (1) year, it might make sense to remove any existing barriers to entry and immediately allow plan participation.  However, if your company experiences high employee turnover, it might make sense to place eligibility restrictions on new hires entering the retirement plan. 

Age

Age: what is in a number? Per the DOL EBSA, the maximum age restriction is 21 years. Once an employee turns 21, and with the proper eligibility requirements satisfied, a company must offer the retirement plan.[1] 

However – aren’t we trying to encourage early saving habits and responsibility? By allowing your younger employees immediate eligibility, you are teaching them right away about planning for their retirement. 

Again, one important caveat – if you have a predominately younger workforce and a high turnover ratio, speak with a TPA for plan design guidance.  Also, it is a good idea to speak with your plan provider about their Automatic Rollover feature for plan balances between $1-5k and the automatic cash out for balances under $1k.  These are Safe Harbor provisions you can take advantage of today to help your employees save for retirement as you encourage preparedness.[2] 

Auto-Enrollment

Surprisingly, only 40% of plans take advantage of auto-enrollment. [3] This plan feature came from the Pension Protection Act of 2006 in an effort to get more people to save for retirement. The feature is a great way to foster maximum participation and promote retirement savings.

Cost

Nothing is free – and the same goes for retirement plans. There are costs associated with every retirement account. As a plan sponsor, it is your responsibility to benchmark retirement plan fees that are reasonable. What does this mean? 

An easy way to benchmark plan fees is to quote the plan. Just as with most goods and services, there are different prices for different qualities.  As a company decision-maker and informed consumer, it is not only beneficial to know the true cost of your retirement plan, but it is also required. The ERISA regulation 408(b)2, passed in July 2012, requires plan sponsors to document all* plan expenses and benchmark price for reasonableness.[4] 

Investment Options

Each person has his or her own risk barometer. Some people like to soar close to the sun and others like to lay in the grass.  Either way, a properly diversified menu of investment options is way to allow for a spectrum of risk tolerance. The average retirement plan has 21 investment options.[5] Also, the average participant invests in approximately 6 different funds.[6]   

As a plan fiduciary for your company’s retirement plan, it is imperative to actively and continuously monitor investments. In the recent Tibble vs. Edison Supreme Court case, the court unanimously ruled that company fiduciaries violated their duty to monitor investments. The presiding Justice Breyer wrote that a trustee “has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.” Furthermore, he said, a trustee must “systematically consider all the investments of the trust at regular intervals” to ensure appropriateness.[7]

Not only is this prudent on behalf of the participants, but also as a plan fiduciary – you could potentially be held liable for breach of fiduciary duty.”[8]

Company decision makers influence many important factors of the retirement plan, so we hope that you enjoyed reading about some of those choices, and will consider each with reasonableness, objectivity, and remember that it’s okay to change. If your current options have not been benchmarked in a few years, maybe it makes sense to sit down and have a conversation – to let a little light in. 

We believe that with the right attention everyone can retire. Yet, it does takes a team of personal, dedicated, and focused professionals helping employees become retirement ready!

www.atlantaretirementpartners.com

This information is not intended as authoritative guidance or tax or legal advice.  You should consult with your attorney or tax advisor for guidance on your specific situation.

 

***

Securities and Advisory Services Offered Through LPL Financial A Registered Investment Adviser. Member FINRA / SIPC.

*Covered service providers.  Plan providers that receive more than $1,000 per year in annual plan income. [For more information: http://www.dol.gov/ebsa/newsroom/fs408b2finalreg.html

[1] IRS. A Guide to Common Qualified Plan Requirements. http://www.irs.gov/Retirement-Plans/A-Guide-to-Common-Qualified-Plan-Requirements

[2] IRS. Automatic Rollover Notice 2005-5. http://www.irs.gov/pub/irs-drop/n-05-05.pdf

[3] 2014 PLANSPONSOR Survey, All Industries.

[4] DOL. Final Regulation Relating to Service Provider Disclosures Under Section 408(b)(2).  February 2012. http://www.dol.gov/ebsa/newsroom/fs408b2finalreg.html

[5] 2014 PLANSPONSOR Survey, All Industries.

[6] 2014 PLANSPONSOR Survey, All Industries.

[7] Thornton, Nick. Benefitspro.  Supreme Court rules for plaintiffs in Tibble vs. Edison: Unanimous decision overturns lower court ruling.

http://www.benefitspro.com/2015/05/18/supreme-court-rules-for-plaintiffs-in-tibble-vs-ed 18 May 2015.

[8] Rosenbaum, Ary. JD Supra Business Advisor. Why Retirement Plan Sponsors are Always on the Hook for Liability. 14 May 2013. http://www.jdsupra.com/legalnews/why-retirement-plan-sponsors-are-always-55772/

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