Three Significant Ways Recordkeeping Arrangements May Vary

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Recordkeeping for an employer-sponsored qualified retirement plan is pretty much just as it sounds; an outside provider is hired to literally keep a record of participant accounts. This includes everything from accounting for how much money each participant has in her account, to the number of investment shares held, to the source of money deposited. On the surface, recordkeepers seem fairly similar, but get into the fine print and there are significant differences in contracts and services offered. Here is a list of some of those differences I have seen in my history of working with various recordkeepers.

  1. Termination Clauses – When things are good, they’re good, but should your company need to terminate your relationship with your recordkeeper, there is a good chance that some fee will apply to end the relationship. Fees may vary. Also, recordkeepers have different arrangements when it comes to the services they will complete once they have been handed their pink slip. I recently came across a situation where the recordkeeper refused to complete the annual testing or Form 5500 if the plan transferred assets prior to the calendar year end.
  2. Available Investments – The universe of investment options is slowly but surely become more available thanks in part to the Department of Labor’s Fiduciary Rule, but there remains some noteworthy discrepancies in the accessibility of investments across various recordkeepers. In some cases, recordkeepers offer sub-advised or sub-managed investments which includes the investment arm of the recordkeeper offering additional oversight on traditional investments, usually for an additional fee. There are also differences in the share classes offered. Share class matters because it often dictates the overall cost of investing in an investment option along with the amount that various parties, such as the financial adviser and recordkeeper, receive in compensation from the investment. (See my blog Share Class Warfare for additional information).
  3. Third-Party Administration Services – Often recordkeepers will also offer third-party administration (TPA) services in what the industry calls a “bundled” service arrangement. In many cases, this arrangement makes sense because much of the data that a recordkeeper collects is also used by a TPA and therefore, having them work together is a win-win for the client and the provider. However, TPA services are another area with vastly different capabilities, costs, and proficiencies. Before you enter into a bundled agreement it is important to assess what the compliance and administrative needs of your plan are and whether or not the bundled TPA can meet those needs.

Although all recordkeepers may seem the same on the surface, there are several differences that can be found in the details and operation. If you would like assistance reviewing your recordkeeping arrangement, please contact me at 205-970-9088 or email jamie@grinkmeyerleonard.com.

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One Item to Immediately Address With Your Participants

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Often when we are engrossed in the day-to-day operation of 401(k) plan management, we can overlook the reason why we are all doing this – for the benefit of our people. We also focus on the here and now; making sure that employee deferrals are contributed on time, that investments are top notch, and that participants are retirement ready. The one item that often get overlooked is what will happen when your hard-working people pass way. The simplest way to answer that question is to make certain all of your participants have an accurate beneficiary form on file with you, the plan sponsor, and if possible, the plan’s recordkeeper. Here are 5 items that can help you and your participants get back on track with their beneficiary forms.

1. Don’t leave a beneficiary form blank, and don’t name your estate as beneficiary.
Failing to name an individual, or individuals, as your beneficiary could deprive your heirs or loved ones of inheriting your retirement assets. Another downside of not naming a beneficiary – your retirement assets would need to go through the lengthy probate process and could be subject to creditors.

2. Make a beneficiary designation for each retirement account that you own.
People often make the mistake of assuming that the beneficiary they name on one account will dictate who the beneficiary is on their other retirement accounts, but that is not the case. You need to have a valid beneficiary on file for each account.

3. Remember that beneficiary designations take precedence over wills.
Retirement assets are distributed according to the named beneficiary, regardless of any other agreements, such as wills.

4. Keep your beneficiary designations current.
Many people fail to update their beneficiary designations after major life events, such as a marriage, divorce, or new addition to the family.

5. Consider consulting a professional.
You may wish to seek the guidance of an experienced attorney, CPA, or financial advisor to help you make the best choices for you and your heirs.

Don’t let your hard work or that of your participants go to waste by having their retirement account balances go to the wrong person or worse, the state. If you need assistance with making sure that your beneficiary forms are on file and in good order, please give me a call at 205-970-9088 or email me at jamie@grinkmeyerleonard.com.

 

 

Best Practices for Retirement Plan Management

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As I mentioned in last week’s blog, running a 401(k) plan is a lot of work that is marked by several complex tasks and timelines. Therefore, this week I thought it would be helpful to highlight some of best practices for 401(k) plan management.

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If you have any questions about how to implement these practices in your business, please give me a call at 205-970-9088 or email me at jamie@grinkmeyerleonard.com.

Three Major Reasons Your 401(k) Plan Matters

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Hours of work goes into managing and administering your company’s 401(k) and at times it may seem like a mountain of work for a molehill of appreciation. However, as someone who spends every day working on 401(k) plans, I am here to tell you that they matter – a lot! They matter to your company, your people, and you.

1. The 401(k) plan offers your employees a powerful savings vehicle
The 401(k) has many qualities that make it an attractive option for savers. High deduction limits (in 2017 employees under the age of 50 can contribute $18,000, those over 50 may contribute an additional $6,000) allow employees to save a significant amount into their 401(k) through simple payroll deductions; Roth options allow employees the ability to choose whether to be taxed now or taxed later; and features like automatic enrollment and automatic deferral increase allow employees to begin and increase their deferral amounts without proactive action.

2. 401(k)s can be a more financially prudent choice than a traditional investment account
Despite the confusion surrounding 401(k) fees, there are times when a 401(k) can be a better financial choice than an Individual Retirement Account. Due to the size of 401(k) plans, they may have access to shares of investments that may not be available to individual investors. This can lead to lower investment expenses. Additionally, 401(k) plans may offer access to a financial adviser who can provide financial education to you and your employees for no additional cost.

3. 401(k)s can lead to happier, more loyal employees
In the 2017 Workplace Benefits Report published by Bank of America, they found that 31% of employees selected a 401(k) plan as their top employment benefit, second only to health benefits. This same survey found that employee’s number one financial goal was saving for retirement. Furthermore, a study conducted by Lockton Retirement Services and detailed in the report “Finding the Links Between Retirement, Stress, and Health” found that 52% of respondents reported that having a retirement savings plan helps ease financial concerns “a great deal” and an additional 43% said it helps “a little.” Additionally, those employees with access to a retirement plan in which the employer contributed to the plan reported higher levels of job satisfaction and lower incidents of physical ailments. Therefore, if your company offers a 401(k) plan that can help employees save for retirement and reduce stress, it seems highly likely that those same employees will be happier and more loyal to your company.

Your employees look to your company to help them to save for retirement. If you do not think that your current plan is achieving that goal, please call me at 205-970-9088 or email me at jamie@grinkmeyerleonard.com and I will get to work for you today on developing a plan that works for your company and its employees.

 

4 Tips to Make Your Plan Conversion Go More Smoothly

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For retirement plans that are eyeing a year-end conversion or any transition in the near future, here are four tips to help make the conversion process go as smoothly as possible.

1. Make Sure Everyone is on Board

In my experience, many times the person that has the final say in deciding whether to hire or fire a service provider is not usually the same person in the company that works directly with the provider. Therefore, before making the decision to pull the plug on a provider you need to ensure that all members of your team are on board. Ask your team questions like, “What does ABC provider do that makes your life easier?” or “What is something that you wish ABC provider did better?” Once the decision has been made to make a change, make certain everyone is involved from day one.

2. Ask for Specifics

We all know that often times what we are sold and what we get don’t exactly match up. For this reason, it is important to ask your sales representative to give you specifics on what your plan conversion will look like and better yet, ask them to involve your service representative from the very beginning of the process. Get the details on payroll upload file feeds, distribution processing and timing, blackout periods, and service standards.

3. Tie Up the Loose Ends at Your Current Provider

The old saying “garbage in, garbage out” applies here. More than likely, you chose to convert your plan to a new provider because something at the old provider was broken; so, don’t bring that broken process or bad data to your new provider. Items that can be an issue in a conversion are outstanding loans, participant vesting information, automatic enrollment start dates, and more.

4. Control the Message to Your Participants

You may be excited to get a fresh start at a new provider, but keep in mind that change is hard, especially on your participants. They will have to learn a website and memorize a new call center number and they probably had absolutely no say in whether or not to make the change. The blackout period can also cause uneasiness among participants since there will be a time that they will not be able to access or even see their account balances. Therefore, make sure to get ahead of any unrest by controlling the messages they receive from you and the new provider.

There is so much that goes in to a successful plan conversion. If you would like to discuss these tips and many more, please contact me at jamie@grinkmeyerleonard.com or 205-970-9088.

Your Missing Full-Time Employee

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How many of you would hire a full-time employee and expect them to come to work once a year or maybe never again? I am sure that number is a big fat ZERO. However, many retirement plans hire a broker or financial adviser that does a lot of work initially and then only shows up once a year, if that – all while compensating that adviser like you would a full-time employee. While I am not advocating that your adviser should be in your office every month, she should be adding value to you, your plan, and your participants throughout the year.

One of the most important ways an adviser can contribute throughout the year is to offer education to your participants. Our team offers semi-annual education to the plans we work with along with on demand access to adviser advice when a participant has a question. It is all too common for advisers to skip this step because it can be a time and revenue drain, but it is far too important to the success of your participants’ retirement futures to neglect it. A full-time adviser will recognize this and offer solutions on to help educate your participants.

Your adviser should also be a thought leader who brings new ideas and solutions to the plan without being prompted. I recently drafted a letter for all of our plan sponsors to use to remain in contact with terminated participants. I did this because of the focus on terminated participant communication and orphaned account balances from the Employee Benefit Security Administration. There is always something new in the world of qualified plan management and your full-time adviser should be aware of how changes impact your plan.

Finally, your adviser should be able to identify trends, successes, and needs for your plan. This can be anything from overall plan cost to asset allocation. We keep track of asset growth, participation numbers, deferral percentages, and total plan cost as a way to analyze our impact on the plan over time. Trends can be important indicators of plan health and a full-time adviser should be able recognize them and their affect on your plan.

Chances are you are paying your adviser like a full-time employee and you should be getting the same value out of her that you would expect out of your top team members. If you would like to review your plan, please email me at jamie@grinkmeyerleonard.com or call me at 205-970-9088.

The Myth of the Year-End Conversion

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Here we are already in the middle of the third quarter; prime time for starting planning and projections for next year. If you are a member of your company’s investment or benefits committee that may mean you are considering making a provider change for 2018. And, chances are if you are considering making a change, you have an advisor urging you to make a decision now in order to get that change accomplished on January 1, 2018. However, as a former employee of a recordkeeper, let me encourage you to think twice about falling into the myth of the year-end conversion.

Back in the days of paper records and/or massive Excel spreadsheets, there was a necessity to transfer data at the end of a plan or calendar year in order to have a “fresh” start for the next year. That is not necessarily the case any longer. With the seamless, electronic transmission of records and the electronic retention of participant records, there is not the same sense of urgency to have the plan established at the new provider on the first day of the new year. Third party administrators, recordkeepers, and auditors are all more than capable of getting the information they need to perform their job functions from multiple sources. Granted there may be a little additional work required if gathering data from more than one source, but with the level of technology available to them, there should not be an issue.

One could even argue that a January 1 conversion could be the worst time to try to push your plan through a conversion since there is a sizeable number of 401(k) plans that are trying to do just that. Of course, that’s not to say that recordkeepers are not well equipped to handle an influx of new clients, but think about your own business. Isn’t there a great opportunity for mistakes or errors to happen when there is a higher volume of work to be done?

Another point to consider when aiming for a year-end conversion is that more than likely the “blackout period,” the amount of time that your participants will not be able to access their money for distributions including loans, will more than likely fall in or around the holiday season. There may need to be additional education for your employees to ensure they understand their ability to get to their money will be limited during the prime spending season.

Finally, reflect on the amount of additional work that your team who handles your 401(k) plan has at the end of the year. Chances are the same individuals at your company who are responsible for running the 401(k) plan are also preparing profit and loss statements, gathering information for year-end payroll, and handling a variety of other tasks that present themselves as the year draws to a close.

While there is no right or wrong answer to whether or not a year-end conversion is right for your plan, I would encourage you not to fall for the myth that you have to convert the plan on January 1. If you would like to discuss this matter further, please contact me at jamie@grinkmeyerleonard.com or 205-970-9088.

Five Tips a Retirement Plan Adviser Wants You to Know

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Recently, my partner Caleb Bagwell and I had the opportunity to speak to a group of Human Resource professionals about how to leverage strategic partnerships. In preparing for the presentation, I was surprised about the lack of information on how to best work with professionals you hire to perform a function for your business; i.e. best practices for working with a CPA or top tips for getting the most out of your relationship with a benefit’s adviser. So, in the spirit of not bringing up an issue without a providing a solution, here are five things that I want you to know when working with a retirement plan advisor.

1. Ask Questions – I love the ins and outs of plan design, compliance testing, and investment analytics and strive to make the details of these complicated topics as relatable and understandable as possible, but that can be difficult. Therefore, I encourage the plan sponsors that I work with and you to ask questions when you don’t understand a topic. The 401(k) plan is designed to be a benefit for you and your employees and it is imperative that you understand how it works and works for you.

2. Don’t Accept the Status Quo – I cannot tell you the number of times I’ve heard, “We’ve always done it that way.” While the old way may have worked and may still be working, there have been significant advances in plan design and participant value-adds that your plan may want to take advantage of. Your retirement plan advisor should want the best results for your plan and “the old way” should not be an excuse not explore alternative plan designs, analyze your current investment menu, or demand better a better participant experience.

3. Read the Darn Document – When I first heard this mantra, there was a stronger adjective used, but you get the idea. Why this is so important is that the plan document is the instruction manual for the plan and following it is critically important to the operation of the plan.  While it seems intuitive that the plan providers would be following the document, that is not always the case. Furthermore, the consequences for not correctly following it can be anything from fines to total plan disqualification.

4. Be Engaged – You know your people better than anyone else, so be engaged and let your plan adviser know what works and what doesn’t. For example, several plan providers have introduced state-of-the-art website technology, but if your employees are not computer savvy and/or prefer live interaction or attentive call center representatives, speak up and let your advisor know what is most effective for you and your team.

5. Take Your Plan Off the Back Burner – The stock market as a whole has been on an upward trend for the last several years and most everyone has benefited in their investment accounts. While I am certainly not complaining about this, it has led to 401(k) plans being placed lower on the priority list because everything appears to be going well. However, just because no one is complaining, does not necessarily mean nothing is wrong. Your plan may be in need of a fee review, investment review, or retirement readiness assessment and none of those things are going to happen if no one is paying attention to the plan.

If you would like additional insight on how to best work with a qualified retirement plan adviser, please contact me at jamie@grinkmeyerleonard.com or by phone, 205-970-9088.

10 Attributes of a Retirement Plan Advisor

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There are a number of advisors to choose from when it comes to providing advice for your company’s retirement plan. There are advisors that manage personal money, provide other benefit services, are best friends with the owner, specialize in qualified retirement plans, or if you are lucky some combination of those attributes. Our firm specializes in qualified retirement plans and is partnered with the Retirement Plan Advisory Group (RPAG) to offer investment analytics, plan design reviews, and enhance participant outcomes. RPAG also assists us with offering services that satisfy ERISA’s strict standards. Here are some guidelines from RPAG that can help you select a retirement plan advisor.

Attributes of a Good Advisor Why You Should Hire One
Independence Ability to help evaluate funds and providers objectively and without conflict of interest
Familiarity with ERISA Ability to keep the committee updated on litigation, legislation and regulations impacting plans and fiduciaries
Prudent Expert ERISA section 404(a) requires fiduciaries to act with the skill, knowledge and expertise of a prudent expert
Expertise with Plan Design Ability to help plans maintain qualified status while continuing to meet the goals and objectives of our organization
Knowledge of the Provider Marketplace Ability to ensure that our plan is being administered in the most efficient manner and for a reasonable price
Qualified Plan Investment Expertise Ability to evaluate, select and monitor fund performance
Documentation Skills Ability to demonstrate procedural prudence in a well-documented manner
Communication Skills Ability to educate employees regarding plan highlights and how to create an appropriate investment strategy
Acceptance of Role as a Co-Fiduciary Willingness to acknowledge in writing that they’re a co-fiduciary to our plan with respect to the investment advice being delivered
Full and Open Disclosure Fully and openly discloses all sources of fees being received on a direct and/or indirect basis

If you would like to learn more about how we fulfill these qualifications, please contact me at 205-970-9088 or jamie@grinkmeyerleonard.com.

 

Automatic Enrollment Myths

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In Vanguard’s “How America Saves 2017” report, they cited a 300% increase in plans offering automatic enrollment since year-end 2007!  If your plan is considering adopting the automatic enrollment provision, here are some common myths you should address.

  1. 6% is too high to start the deferrals
    The fear that most plan sponsors have with starting automatic enrollment at an amount over the commonly accepted 3% is that the amendment will be met with ill will from the employees and/or the amount will be too much for the employees to afford. However, research has shown the opposite of that to be true. According to the 2014 PLANSPONSOR Defined Contribution survey, plans with a 5-6% default deferral rate have a 90% participation rate which is 13% higher than the national average.
  2. My participants will be ready to retire
    Even though 3% is better than nothing, it will not get your participants ready to retire if it is the only form of savings they take advantage of. It may be worthwhile to take a look at adding an auto-escalate provision which would increase deferral percentages up to a certain number. For instance, the provision could read “every January 1st, all automatically enrolled participants deferral percentages increase by 1% until a 10% deferral percentage is achieved.”
  3. It will immediately help annual compliance testing
    More than likely only automatically enrolling newly hired employees will not have a significant impact on your plan’s annual compliance testing since it does nothing to address the employees that are not currently participating. With that in mind, your plan may want to consider including all eligible employees in the automatic enrollment which may have a more immediate positive impact.
  4. It costs nothing
    While it is true there may only be a nominal document amendment fee to add the automatic enrollment provision, a company that offers a match needs to consider what an increase in participation will do to the company match commitment.

Automatic enrollment is here and gaining popularity and, in most cases, is a great addition to a company’s 401(k) plan as long as you completely understand what it is and isn’t before making the change. If you would like to discuss the potential impact that auto-enroll would have on your plan, please call me at 205-970-9088 or email me at jamie@grinkmeyerleonard.com.