When it comes to 401(k) plans, simple solutions may not be good solutions.
Updated: Mar 10, 2022
I am in sales and have I got a deal for you, Mr. Plan Sponsor.
I know you don’t want to spend much time on your employee’s retirement plan. With our bundled solution we won’t get many people involved in the actual operation of your plan, so you won’t be confused with numerous people to call. We will keep this simple so that expenses really won’t have to be discussed for administration—It is just all included in the one easy price. Lastly, why get bogged down with a discussion of plan design and administration when we can just structure a 401(k) like everyone else’s plan?
Besides that, the biggest time and expense drain for 401(k) is payroll and you can farm that service out (maybe with our firm) and they will do a great job. After all, isn’t this how you run the finances of your business? I'm sure you just hire a bookkeeper at the most reasonable salary you can negotiate, give that person open access to your finances and never hire a CPA to double-check their work. Don’t worry about it. Why wouldn’t you agree to my one-stop, one price, one decision sales pitch?
Mr. Plan Sponsor, I have some thoughts for you that you may want to consider. You didn’t get this far in business by making foolish decisions and you don’t want to make foolish decisions with your employees’ retirement plan assets for which you are personally liable. Hiring credentialed professionals from an ERISA consulting firm to do the accounting and legal work for your retirement plan makes a lot of sense. You want to have someone double checking the accounting for the retirement plan right down to the participants’ account, similarly to how you use a CPA. Most bundled firms don’t do that and there are mistakes found in approximately one-third of the employees’ account statements. Payroll mistakes make up a lot of these issues. You want an employee distribution with incorrect account values, vesting, and money sources? A good TPA firm will oversee that for you. Do you want a bundled provider that leaves half of the work to you, Mr. Plan Sponsor? It would be your responsibility to determine who is highly compensated, who is a key employee, to make complex allocations of contributions and to submit them, with the pressure on you to ensure it is done correctly.
Let's talk about plan design. Many times, that is skipped over in an effort to keep the process simple. Failure to properly set up the plan or include other companies you may own will make your plan top-heavy in a few short years. Have you thought about whether automatic enrollments can, or should be, done for your firm? How about whether the plan is accomplishing your goals and rewarding the right employees who you want to keep employed? You may be wondering why all of this matters. It matters because it could cost you a lot in contributions, corrections, fines, or all three if you do it wrong. Why not get it right, to begin with by using a professional?
Finally, why waste money with another fee? A bundled provider can just add it to the product fee. This way there is no check for a Plan Sponsor to write. But, let me ask you, if I bundle this fee into the plan as a percentage of assets, when the assets continue to grow, doesn’t the fee continue to go up for the same amount of work? If it is a percentage of assets, who usually has the most assets that this fee will be coming from? Chances are, it is you, Mr. Plan Sponsor. It is my guess that no one has ever really talked to you about the fact that, if you charged those fees to the company, not only would they remain level, but they are also tax-deductible at the corporate tax rate.
Perhaps now you are thinking my original sales pitch isn’t as exciting as you first thought. You’re right. It isn’t. I have one about why you need to hire RPCSI that I can quantify. Ask me to show you how.