Magazine

micro scope | PLANADVISER March/April 2017

Thinking Efficiently

By Rebecca Moore editors@planadviser.strategic-i.com | March/April 2017

“In the small-plan market, the retirement plan is someone’s part-time job—the owner’s or someone the owner delegates it to—and he doesn’t understand what the company is trying to do with the plan,” she observes. “Small plans take a combination of time and knowledge. Good advisers and plan providers can add value.”

The Needs of Small Plans
Clark says that small-plan sponsors may be operating without a plan administration or investment committee; advisers can help them act as if they have one. A best practice for advisers is to have quarterly meetings with the plan sponsor. Advisers can also help with issuing requests for proposals (RFPs)—not just to select or benchmark service providers, but also to benchmark fees.

Connelly says the first thing advisers can do is have a conversation with those at the company about what they want to get out of their plan. “Advisers can first help them set goals and then provide a road map to get there,” she says. “They can help set up an investment policy statement [IPS] or help with plan design features to achieve goals.”

She adds, if the small-plan sponsor is looking to make sure all participants will be comfortable post-retirement, it will probably want to consider automatic enrollment and a qualified default investment alternative (QDIA). If the goal is just to check a box saying, “I have a plan for recruiting,” and the sponsor wants to minimize the amount spent on the plan, a different plan design will be needed.

When Chepenik talks of teaching small-plan sponsors, he says this could be as basic as explaining what a 401(k) is, how deductions work or by when contributions must be invested. More advanced education would cover Form 5500 and financial audits or educating about actual deferral percentage (ADP)/actual contribution percentage (ACP) testing and how this may affect highly compensated employees.

He also says it is important to inform small-plan sponsors of the costs involved in running the plan—the recordkeeping fees, auditor fees and investment fees.

Clark says small plans are more often top-heavy than large plans, so they may have to provide a qualified nonelective contribution (QNEC). In addition, the ACP test is more of an issue. “We can help small-plan sponsors design a plan to max out deferrals at a far lower cost if they use a cross-testing formula for nondiscrimination testing,” he says.