Employee Retirement Plans

One of the greatest benefits an employer can provide is a retirement plan. It demonstrates your long-term interest in and commitment to your employees. While it may be an easy decision to offer it, deciding in-house administration or out of house, what type of plan, and what options it will include is not so simple.

Outside administration

If you chose to have an outside administrator for the plan, there is a wide variety from which to choose. Many sources offer the services, including insurance companies, mutual fund companies and financial services companies.

Any retirement plan administrator that you choose will be responsible for managing day-to-day details, as well as long-term decisions to guide both employer and employee contributions into a retirement program. The main distinction between the administrators listed above is whether they offer full services or an unbundled suite of options.

Bundled retirement plan administration services

The majority of small to mid-size businesses turn to retirement plan administrators for bundled services. They provide full plan administration and 401k investment activities. You also have a single point of contact to answer any questions or concerns.

A bundled retirement administration service may cover all of the bases to include:

• Record-keeping
• Administration
• Trustee
• Investment
• Education

Yet many bundled services only offer limited investment options; you may need to bring special advisers in at an additional cost to provide investment advice for your staff. While a bundled service is utterly convenient, administrator selection is critical since your business could be limited by a retirement plan administrator's lack of expertise.

Unbundled retirement plan administration services

Retirement plan administrators offer unbundled services featuring in-house staff and independent service providers - investment managers, trustees, and record-keepers to design a 401k plan. For example, you can have an in-house human resource professional handle record-keeping, while turning to an outside vendor to manage investment management or discrimination testing. Unbundled plans offer greater flexibility since the plan is designed on your terms.

In addition to the five basic services provided in bundled administration, unbundled retirement administration may offer access to:

• Independent consultants to implement retirement plan design
• Tax professionals to manage retirement compliance and administration
• Actuarial services to support an existing retirement plan with customized studies and valuations
• Expert trustee/fiduciary input to provide unbiased investment management
• Auditors to conduct periodic audits to keep a retirement program up-to-date

Unfortunately, the only way to keep administrative costs low for unbundled services is to work on them in-house. This will require a great deal of resources; your business may need to hire one or two additional salaried employees for the task.

Questions to ask a potential retirement plan administrator

Regardless of you in-house or outside decision on administration and bundled or unbundled, chances are that you will hire an administrator at some point for some or all of the items above. Your choice will have a profound impact your business and your employees. Here are several important questions to ask a prospective provider before honing in on the best retirement plan for your business:

• Can a provider demonstrate credibility? If you opt for a bundled service, you should look for long-term financial stability and a solid record in delivering timely and accurate record-keeping, regulatory compliance, and reporting. Required reporting includes annual financial statements and an annual summary report, individual statements for each participant, filing tax form 5500, and the required compliance testing. To certify this information, you can review a provider's range of investment options offered and investment performance over time.
• Can an administrator provide proof of professional qualifications? For both bundled and unbundled services, the third-party administrator's professional certification and registration is important. Start by checking their references to see if they have been involved in any litigation or have been terminated by any other clients; review their overall financial condition and capitalization. The qualifications of their staff are an important consideration, and you will want to know who specifically will be handling your account.
• Is an administrator honest and ethical? Any potential conflicts of interest could be a concern. If the third-party administrator of retirement plans is paid through commissions from an investment company, investment decisions may be biased, potentially affecting the return on investment. In evaluating an investment manager, you should determine the investment goals, strategies and standards, and the diversification of the portfolio.

Before contracting any third-party administrator for your retirement plan, you should get a clear written summary of the services to be provided and the cost. If you're performing any of the work in-house, it will be especially important to ensure there is proper coordination.

Depending on your choice of plans, options and administrators, the price of offering a retirement plan can vary greatly. Plan administration fees, investment feeds, individual service fees, sales charges and management fees are just a few of the ways administrators charge for their services. Look closely at any quote or language regarding who pays for what, what is passed on to the employee (if anything) and clear, defined outline of the requirements.