What to Expect From Your 401(k) Advisor
An Important Decision
As an employer and sponsor of a 401(k) plan, your company shoulders a major responsibility. You must listen to the needs of your employees and then select the appropriate service provider(s) at a reasonable cost, determine the optimal plan design provisions, choose and monitor investments, keep up with legislative changes, ensure your plan is administered properly, and educate and inform plan participants. All of this hopefully results in a plan that inspires employees to reach their retirement dreams, while helping you recruit and retain valuable associates.
How do you know if your company is meeting these challenges? How do you select service providers or investments – what are the criteria? How do you know if your plan is working? Does your company have the resources to handle these responsibilities alone?
Unless your company has individuals with 401(k) expertise who are solely dedicated to managing your employee retirement plan, you should consider hiring a financial advisor who specializes in 401(k) plans and is as dedicated to your needs as you are to your employees.
An effective 401(k) advisor is much like a coach, coordinating the work of those with specific expertise in certain areas. Since you have the overall responsibility for all the various plan functions, it is important that you select someone who can manage the whole, rather than just certain parts.
Components of a Successful Plan
Like complex machines, 401(k) plans have many different moving parts that must be coordinated to run smoothly and meet the needs of the organization sponsoring the plan. These moving components – people, firms and systems – represent the delivery structure of the various service areas such as administration, investment management and employee communications. Delivery of these services in a format consistent with your organization’s expectations is critical. If the different components don’t fit well together or match your needs, the results may include incorrect depositing of funds, inaccurate and untimely participant information or IRS reporting, and/or employees who don’t understand, appreciate or participate in the plan.
In general, all 401(k) plans have the same basic objective – to serve as a retirement savings plan for employees. Yet there are many different 401(k) plan models that suit a wide range of specific company needs. The 401(k) advisor’s role is to help you set reasonable expectations, select the most appropriate plan, then manage all the components on an ongoing basis to help ensure a successful plan.
Why You Should Choose a Raymond James 401(k) Advisor
Raymond James financial advisors are objective and fully independent in making their recommendations to you and your employees. Because we do not offer a proprietary “in-house” 401(k) plan, we have no incentive to sell any specific product, but work with virtually all the different product and service providers in the 401(k) market.
We understand many factors are involved in the selection of 401(k) providers ... each employer has specific needs and objectives that are important in this decision. Raymond James 401(k) advisors assist companies in evaluating alternatives and then, after providers are selected, coordinate the different components of the 401(k) process on an ongoing basis. Our goal is to build and foster long-term relationships with you as well as with your company and its employees.
Since one of the most significant roles of a 401(k) advisor is to educate employees about investments, an important distinction is whether that advisor is familiar with the many intricacies of today’s investment alternatives. As a plan sponsor, it is important to make sure you have a knowledgeable investment professional advising you and your participants.
The Role of the 401(k) Advisor
Maintaining an appropriate retirement plan for your company often seems like a daunting task – especially when you consider everything else that goes into running a successful business. For us at Raymond James, it’s one of our specialties. In general, the role of a 401(k) advisor can be segmented into:
Clearly defining the parameters of the specific client relationship and establishing reasonable expectations for both the client and the advisor. Developing an overall retirement plan strategy with specific goals is critical in ensuring success.
Evaluating and selecting service providers. A qualified 401(k) advisor can diagnose the particular aspects of the service delivery that are critical to your situation and recommend the most appropriate alternatives. Since Raymond James advisors are not tied to a particular provider, we’re free to recommend what is best for your company and employees.
Performing plan design consulting. A review of the plan design is very important because plan design provisions can make a big difference in whether your plan meets your needs. These provisions address matching contribution formulas, cross-tested profit sharing allocations, qualification and eligibility issues, and merger and acquisition situations. Raymond James 401(k) advisors will work closely with the provider’s administration experts to ensure that all available aspects of plan design are considered.
Assist in designing an investment policy statement (IPS). As a plan sponsor, you can minimize your fiduciary liability by implementing an IPS. An IPS outlines a detailed, prudent plan of action for the trust’s investment managers and advisors to follow. It describes the plan’s investment philosophy, risk tolerance and long-term goals to help guide all decisions – and changes – made regarding the plan. Because the IPS is in writing, it helps prevent misunderstandings between you and the plan’s advisors. Some 401(k) plan sponsors don’t have an IPS, but because we consider this an integral part of helping you develop a successful plan, we will assist you in developing your own written statements.
Managing the implementation and transition to new provider(s). This is perhaps the most challenging function of all, and is usually where most problems begin. Most “fired” providers are not overly anxious to cooperate with new providers, so it takes a dedicated effort to ensure a smooth transition. Having one individual responsible for coordination makes the process more user-friendly for you.
Serving as the primary contact for all aspects of plan servicing. No longer will you or your employees need to wonder who to call when problems or questions arise. We’ll act as the single source responsible for managing all the moving parts and will troubleshoot as needed. Moreover, we will monitor the service providers to ensure that they continue to meet your retirement plan needs, replacing them if necessary.
Providing ongoing plan reviews. This includes: discussing overall plan service, operation and results, such as participation levels, deferral percentages, loans, non-discrimination testing, enrollment and communication strategies, and any other items of relative importance; offering a performance analysis at least annually of investments utilized by the plan versus benchmarks and/or peer groups; monitoring funds selected by the plan sponsor for style drift and correlation with fund investment objectives stated in the IPS; and providing regulatory updates such as information on legislative, Department of Labor and IRS matters of relevance to retirement plans.
Managing employee communication and investment education. We believe that coordinating enrollment meetings and providing ongoing investment education for participants regarding plan options is a valuable part of our service. That’s why Raymond James 401(k) advisors will be available to your employees by phone and, periodically, in person for individual consultation. If enrollment and/or education teams from the provider are necessary due to multiple company locations, we will coordinate those efforts. We also provide supplemental educational materials if desired.
In addition, we can integrate qualified plan goals into a personal customized financial and estate plan as necessary. Finally, we will educate plan participants about plan distribution alternatives, provide retirement cash flow analysis, and, whenever necessary, consult with retirees regarding investment asset allocation. Services rendered will be dependent on applicable agreements.
Frequently Asked Questions
Can a profit sharing plan be combined with a 401(k) plan?
A 401(k) plan is simply a profit sharing plan with a provision allowing employee salary deferrals. Most 401(k) plans provide employer matching contributions based on a participant's contribution, with an additional option for a profit sharing allocation. Although most 401(k) plans use a salary ratio formula for profit sharing plan allocations, any of the other formulas could be used.
What are the costs of implementing and maintaining a profit sharing plan?
Cost can vary significantly depending on the design complexity of the plan, the number of employees and the structure of the investment portfolio.
Can an IRA be rolled into a profit sharing plan?
Yes. An IRA can be rolled into a profit sharing plan as long as the profit sharing plan permits such a rollover.
Do all employees have to be included in a plan?
Certain employees may be excluded, but strict coverage rules prevent the plan from discriminating in favor of highly compensated employees.
What is the difference between a profit sharing plan and a SEP plan?
The profit sharing plan allows vesting schedules, while SEP plans require 100% immediate vesting. A profit sharing plan can require employees to work at least 500 hours to share in the contribution, but a SEP plan covers all eligible employees, regardless of hours worked.
What are the administrative requirements?
All profit sharing plans are subject to IRS reporting requirements. This includes keeping the plan up to date with new laws, performing nondiscrimination tests, filing an IRS Form 5500 return each year, and providing benefit statements and other plan information to participants at least annually. Self-employed persons with no employees are not required to file returns until the plan has $250,000 in assets. A professional pension plan administrator should usually be retained to perform these annual reporting functions.
An Independent 401(k) Advisor Will Make Your Life Easier
When you enlist the services of a Raymond James 401(k) advisor, you gain a valuable ally and time-saving resource who will help you develop and maintain a solid strategy for your retirement plan. Plus, you will receive personalized attention and involvement at the level you want and need. Our goal is a win-win 401(k) relationship. This relationship will be meaningful only if we maintain it over the long term by focusing on your needs, continually meeting your expectations and making you an advocate of our valuable 401(k) advisory services.
For additional information about 401(k) plans, please call your financial advisor.
401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
Roth 401(k) plans are long-term retirement savings vehicles. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 70 1/2.
Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.