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
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.
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
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.
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.