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Develop a retirement plan strategy


Developing a retirement plan strategy begins with a goal, what do you want the retirement plan to do? A retirement plan is a savings plan; however, it also can serve as an enticement for recruiting.  Or it can help company owners and employees maximize tax deductions.  

Once the goal of the plan is clear, the roles of the people working on the plan are more defined.  In the previous stage of setting expectations, we developed a list of individuals that work on the mechanics of the retirement plan.  Developing a strategy delineates their role more clearly.

Understanding who will handle specific responsibilities is essential for the company as well.  Will decisions concerning the plan be made by a single person within the company?  Or will they develop a committee to make decisions on the plan?  In smaller to medium sized companies, typically the decisions are made by one person.  And that person is designated as the plan’s trustee.  The duties of the trustee go beyond the scope of this section.  However, in short, the trustee has a fiduciary obligation to oversee the retirement plan for the best interest of the employees. The following diagram follows the money from the employee through the day-to-day cycle of a retirement plan.  This is only an illustration of the money trail.  It does not include details on government reporting.

In a small company or individual retirement plans, all the roles above can fall on one person.  Some retirement plans such as SIMPLE 401k’s or Solo 401k’s have much less administrative duties.  Regular 401k plans that are below 100 participants have no audit requirements.   The bottom line is that an understanding of what needs to be done within a retirement plan helps guide the strategy. 

There are two goals of plan operation, administer the plan promptly within the current regulatory requirements.  Second, do not lose sight that the ultimate purpose of the plan is to help employees save money for retirement. That is why employee education is so important, not only in the beginning but on a continuing basis.  Most people do not have the time or education to have a thorough understanding of investments.  And most employers want their employees more concerned about their job, not overly concerned with retirement plan investments.  The role of the retirement plan consultant as an educator for the plan is necessary.  They serve as the authority for explaining the structure of the plan as well as educating employees on the basics of investing as it applies to the retirement plan.   The retirement plan consultant can be key to the trustee fulfilling their duty of operating the retirement plan in the best interest of employees. 

From this perspective, the employer fulfills their goal for the retirement plan and can foresee the level of administrative responsibility the company will need to operate the plan.  In some companies, there is a separate payroll department, for small businesses the payroll department may be the owner of the company.  Understanding the fund's transmission process is significant to the employer.  Most of today’s investment administrators have an online system for transmitting funds, making the process much easier and less labor intensive.   The largest amount of the time will be for the first transmission of funds when all employees’ data is entered. 

By clearly seeing the payroll deduction process, funds transmission, investment allocation process and how all of this is accounted for, the employer will be in a better position to develop a retirement plan strategy. (Back)