For 401(k) plan sponsors: It’s all about the plan design.

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“I have a company with twenty employees. I’m paying a lot of money in taxes. Is there anything I can do to save on taxes?”

“I want to set up a retirement plan for my employees. What type of plan should I be looking for?”

As a business owner, you may be looking for ways to mitigate your annual  tax bite. Creating a 401(k) plan for your employees can be a great option for potentially receiving tax breaks and deferrals.

As you begin to set-up a retirement plan, you may quickly see the myriad of options and plans available. Selecting the right Third Party Administrator (TPA) can help you not only create a plan, but ensure that the retirement plan:

  • Remains in compliance, and
  • Satisfies your needs as a business owner

Make sure your plan remains in compliance.

There are two government agencies that oversee 401k’s: the IRS–because of all the tax implications–and the Department of Labor because of the employees participating in the plan. Some 401(k) plans require audits, so if there are errors, the business may be subject to fines. It is the role of  the  TPA to ensure that your plan remains in compliance, and that as the plan sponsor, you the business owner, have a fiduciary responsibility to act in the best interest of your employees.

Design a plan that satisfies your needs

A TPA can help the business owner create a plan that satisfies their needs. This is called “plan design.” Diana Barisof, a Qualified Retirement Plan Solutions Consultant with First Allied Retirement Services Inc., is an important member of our team. We rely on her expertise to help us identify specific weaknesses or potential compliance issues in plans we are reviewing on behalf of our clients.

Here are some common themes which may emerge after a thorough review.

1-Participant annual contributions are far below national average of other plans.

2-The % of employees actually participating is small compared to the number of eligible employees.

3- While the national average rate of salary deferral is 5.2%1 the plan under review is significantly lower.

4- Participants may be looking for a way to assure a guaranteed income stream in retirement, yet the existing company’s plan doesn’t offer this option.

5- Lack of employee education is evident. Employees need help. Only 44% of workers have tried to determine how much they need to save for retirement, while another 44% guessed at the amount.2  Education is especially helpful for new employees, who may miss the opportunity to enroll in the plan and the benefits from having a retirement plan.

6- Excessive fees. By reviewing your 4018(b)(2) and 404a-5 disclosures,  we can help you benchmark your plan and investment costs.

7- Lack of Investment Policy Statement. For plans greater than $5M in assets, 89% have Investment Policy Statements. 3

A review should also provide ideas for specific plan designs. Below is an excerpt of a sample of the review we provide.

For example, in this review an alternative plan designs presents an increase in the potential tax savings 4 by  recommending changes in the plan design.

Feasability Study Sample 401k

 

401(k) plans provide an important benefit to business owners and their employees. To maximize these benefits, who you partner with to deliver 401(k) services, may be just as important.

Ask us about our 401(k) review services.

 

1- Profit Sharing Council of America (PSCA) 57th Edition 2014
2- Employee Benefit Research Institute- The 2014 Retirement Confidence Survey
3- Plan Sponsor Magazine;2014 Defined Contribution Survey- Industry data
4- Tax savings are estimated. Consult with your tax advisor to determine the tax impact of any proposed plan within the context of your total financial picture.This is a hypothetical example and actual results may vary, as individual circumstances will be different in each case

 

Written by Jaimie Blackman

Jaimie Blackman

Jaimie Blackman — a former music educator & retailer— is a Certified Wealth Strategist & Succession Planner. Jaimie helps business owners maximize the value of their company through education & coaching. He is a frequent speaker at the National Association of Music Merchants, (NAMM) Idea Center and has spoken at Yamaha’s succession advantage.

As a financial literacy educator he has taught at New York University and has lectured at the 92nd Street Y, Marymount Manhattan College and CUNY.

His column is published in The Music & Sound Retailer and contributes to NAMM U online, as well as other industry trade magazines.

Jaimie is CEO of Jaimie Blackman & Company, President of BH Wealth Management, and Creator of MoneyCapsules® and the Sound of Money®.

To register for Jaimie’s live webinars, or to subscribe to his podcasts, visit jaimieblackman.com.

The purpose of this post is to educate. Our content should not be construed as advice. If legal, tax or other advice is required by the readers, professional advice should be sought.

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