Retirement Plan Consulting

Simple IRA

Q: Why do doctors, dentists & other small business owners start SIMPLE IRAs?
A: Potential tax-deferred retirement income & tax breaks.

Self-directed SIMPLE IRAs can become great retirement savings vehicles – and they may also give your business some tax relief.

How does a SIMPLE IRA work? A Simple IRA is set up for you and your employees, funded by pre-tax salary reductions. The annual contribution limits can be much higher than that of a traditional or Roth IRA. These limits are subject to cost-of-living adjustments, so they may rise over time.

As your employees defer salary into their Simple IRA, you can either match their contributions up to 3% of their annual compensation or just contribute a flat 2% of their compensation into the account per year.

Employees are always 100% vested; salary deferrals into the Simple IRA are purely elective. Participants can invest Simple IRA assets in many different ways, and those assets benefit from tax deferred growth until they are distributed.

These plans don’t normally require IRS filings and are easy to run. In fact, your business may be eligible for a tax credit of up to $500 per year for the first three years the plan is in place per IRS Form 8881.

Do you want a high-contribution retirement plan that is easily administered? Then we invite you to learn more about the SIMPLE IRA.

SEP IRA

Do you own a small business with a few employees? Are you self-employed? In either case, the SEP IRA may be the ideal low-cost, easily administered retirement savings plan for you.

This is a simple pension plan using a traditional IRA. (SEP stands for Simplified Employee Pension.) It lets you put aside money into individual IRAs for you and your employees, with lower administrative fees and less paperwork than other types of retirement plans.

Tax-deferred compounding of pre-tax dollars. You contribute pre-tax dollars to a SEP IRA, and that has the effect of lowering your tax bill. The money in the SEP IRA grows tax-deferred, and your business doesn’t pay any taxes on the SEP IRA earnings. The assets can be invested in myriad ways.

The traditional IRA rules apply. When you take the money out of a SEP IRA for retirement, you pay ordinary income taxes on it. (Should you withdraw SEP IRA assets before age 59½, you’ll likely be assessed a penalty, with some exceptions.)

Contributions are discretionary. Each year, you can contribute or not contribute to the SEP IRA. The amount you put into the SEP IRA can also vary. No catch-up contributions are permitted for older employees.

A three-point employee eligibility test. Generally, employees of a small business are eligible for a SEP IRA if they;

1. Are older than 21,
2. Have worked for the business in at least three of the five years preceding the year in which the IRA contribution is made,
3. Have received $550 or more in compensation from the business in 2009 (this can rise with COLA adjustments in future years). However, the IRS states that an employer “may use less restrictive requirements to determine an eligible employee.”3

Employees covered by a union contract may be excluded from a SEP, as well as non-resident aliens who have not earned income from your business.

All eligible employees must participate in the SEP – including part-time and seasonal workers and employees who die, quit, or get laid off or fired during the year.

Are you self-employed? Assuming your business is unincorporated, you can contribute up to 20% of your net adjusted self-employment income to a SEP each year. If you have a bad year, you have the option of skipping your SEP contribution, and no penalty will come your way if you do.

Starting up a SEP IRA is easy. We can help you. In fact, you can set up a SEP IRA for your small business even if you already participate in another retirement plan at another company.

Sole proprietors, partnerships, and corporations can all create SEPs. In fact, they may qualify for annual tax credits of up to $500 during the plan’s first three years.1 So if you have a small business or work on your own and you want a retirement plan that works for your future without a lot of hassles, a SEP IRA may be right for you.

401K

Are you satisfied with the state of your company’s 401k plan? As a plan sponsor, you may be thinking about the following issues:

• Should our plan offer our employees more investment choices?
• How can we make the plan more user-friendly?
• Is automatic enrollment a good idea?
• Is there a cheaper plan out there that might be just as good?
• Are we satisfying the 404(c) employee education requirements?
• Are we truly meeting our fiduciary responsibility?
• What steps could we take to try and reduce liability?
• How does our 401k plan stack up against others in terms of fund quality, costs, and fees?
• Is there a way we can monitor and evaluate investment performance?

Are your employees fully participating? Who do they contact with questions and how quickly do they receive answers? Do you feel like your company is capably fulfilling its fiduciary responsibility?

Many companies aren’t happy with their plan or their Advisor. It may be a service issue; it may be a desire to find a cheaper or more appealing alternative to the plan now in place. Having over a decade of experience with 401k plan programs, we are familiar with these issues and have helped businesses address them.

We can help you evaluate your current plan – or search for a new one. We consult companies about their retirement programs and help owners, HR officers and employees make informed decisions.

3(38) vs. 3(21) 401K Fiduciary

3(38) Fiduciary
An ERISA section 3(38) fiduciary must make decisions for which it has legal responsibility (and therefore legal liability), because such a fiduciary is charged with ERISA-defined “discretion.” Under ERISA, if an entity has discretion to make a decision, that entity is responsible for that decision, not the entity that appointed it. This gives a plan sponsor significant cover from fiduciary risk. An ERISA 3(38) fiduciary decides what investment options such as stand-alone mutual funds or model portfolios should be placed on a plan’s selection menu, where to remove them from the menu and, if it does remove them, what investment options will replace them. The plan sponsor no longer has any such responsibilities because the sponsor has delegated them to the 3(38) fiduciary.

3(21) Fiduciary
An ERISA section 3(21) fiduciary makes only recommendations for which it has no legal responsibility (and therefore no legal liability), because such a fiduciary has no ERISA-defined “discretion”. This does not give plan sponsors cover from fiduciary risk. Most cases the advisor is an ERISA 3(21) fiduciary tasked with “recommending,” “assisting,” “helping,” or “advising” the sponsor as the sponsor itself goes about making selection/monitoring/replacement decisions. Such contracts make it very clear that an advisor who is a 3(21) has no legally defined “discretion” to actually make decisions about plan investment options but only to be a helpful to the plan sponsor who continues to retain the significant responsibility (and there for the significant liability) to select, monitor and (if necessary) replace plan investment options.

So, What Does This Mean To 401K Plan Sponsors…
A 3(38) fiduciary takes on the fiduciary liability, unlike 3(21) fiduciaries, and hence the corresponding liability and risk associated with platform performance and management. The plan sponsor will be able to delegate what would otherwise be their fiduciary liability to the 3(38) fiduciary.

Bundled or Unbundled 401k Plans?

An unbundled plan structure means the administrator, record keeper, custodian, and money manager of the plan are all separate entities. Some bundled plan providers offer the administration of the plan for “free” and then pack your plan with hidden costs and funds with high fees—whether those funds are performing well or not.

An unbundled approach provides four main benefits:

1. Use of a 3(38) fiduciary, giving the liability of investment management to a professional money management firm 
2. The use of asset class funds
3. Transparency of fees; and
4. The option to use some fees as business deductions
5. The flexibility to leave an individual vendor if they are not providing optimal service, without disrupting the entire plan

In recent years, more and more bundled plan administrators have removed themselves as fiduciaries, electing to be a 3(21) fiduciary.  With an unbundled plan you can elect a third party investment management firm acting as a 3(38) fiduciary, this removes the plan sponsor’s burden and liability in choosing funds for the plan.

Bundled plan providers usually stock 401(k) plans with their own mutual funds, only including outside funds upon request. Some providers may even have limited access to Asset Class funds.

Transparency of fees is not only important to ensure that you aren’t paying too much for your 401(k) plan, but it is also important from a legal standpoint. Recently, several large corporations were sued by plan participants because they didn’t know how much they were paying in fees. With and unbundled plan structure you always know what costs are involved because they are fully disclosed to the plan sponsor.

The option to set up your plan to deduct certain fees as business expenses provides a tax break to your company, but there is another layer to this benefit as well. When other companies add fees to the mutual funds in the plan to pay for your “free” plan administration, that means you are paying more out of the funds you’ve saved for retirement. So paying for administration fees from your business assets provides a business tax deduction and keeps more money in your retirement account.

Flexibility to change individual vendors is an advantage.  Bundled programs are in business to sell investments.  All other plan disciplines, are considered overhead.  Vendors of unbundled programs are dependent upon the successful completion of their discipline for their respective profitability.

Steps to building a stronger retirement plan for your company

Stage 1: See what your currently have…
Our current plan analysis provides you with an evaluation of your company’s retirement plan objectives and concerns and an analysis of other plan solutions.  We’ll also discuss and review funding strategies for fee administration.

Stage 2: What may be missing….
This step is designed to analyze your current portfolio to identify specific deficiencies and potential opportunities for improvement by transitioning to a recommended portfolio.  The key areas of analysis include asset allocation, diversification, investment costs, portfolio risk and efficiency.

Stage 3: The Fiduciary Shield
Meeting your fiduciary responsibilities can be a complex process.  We can help you understand your responsibility, develop your Investment Policy Statement and establishing a 3(38) fiduciary to be responsible for selecting and monitoring your investment.

Stage 4: Although complex, it does not have to be difficult…
We’re on your team.  We sit on your side of the negotiation table to walk you through the Request For Proposal (RFP) process, manage the flow of information, analyze and review proposal and guide you in making an informed and knowledgeable decision. We manage every step of the transition from your current retirement program to your new program.  We enroll your employees and educate them on the benefits of their new program.  We’ll ensure their satisfaction through newsletters, videos, quarterly, semi-annual and annual education and investor coaching seminars. Our goal is to help participants to be able to answer YES to all of the 20 must answer questions.

Stage 6: The Long Term…
We’ll manage the health and welfare of your retirement program over its lifetime, advising you on regulatory changes, program enhancements and investment due diligence on a quarterly or semi-annual basis.

Benefits from working with us…

Greater employee satisfaction and participation
• Delegated fiduciary plan requirements
• Reduced plan anxiety
• State-of-the-art processes
• Out-sourced HR functionality
• Educational and financial planning services provided by an independent, Registered Investment Advisor.

401K Participant Continuing Education

401K participant education is an important part of creating participant awareness. It is important to note that general education is different than investment advice. Investment advice could lead to fiduciary liability exposure, where participant education could actually provide insulation for fiduciaries. To provide clarification, the Department of Labor has highlighted the kinds of information that it does not consider investment advice.

We provided quarterly or semianually participant education seminars, designed to help plan particiapants get to the point where they can answer yes to the 20 must answer questions for peace of mind investing.

Here is a short list of some of the titles of the workshop we provide for participants.

• Separating Myths From Truth, The Story of Investing
• Choosing Your Investment Philosophy
• Examining Your Expectations
• Understanding the Dimensions of Risk & Return
• The Investment Vortex: Getting through the black hole of investing
• Structuring your Free Market Portfolio
• Costs: The Dark side of Investing
• The critical mindset for harnessing the power of Free Markets
• The history of investing
• The benefits of international investing
• Putting risk to work for your portfolio
• The grand enigmas of investing