Employer-based retirement plans are a major benefit to employees, especially in today’s job economy where 401(k) or 403(b) plans make up the majority of employee retirement savings. A 2018 survey from the Plan Sponsor Council of America found that 70 percent of companies retain an independent retirement plan advisor, which was 66.8% in the prior year. There are several factors that lead to this growth, such as overseeing the delivery of investment advice to participants by way of registered investment advisors (30.8 percent), certified financial planners (28.8 percent) or third-party web-based providers (20.2 percent). Let’s look at why companies hire plan advisors, why they should care, and tips to find the right advisor.
Why Plan Sponsors Should Hire a Retirement Plan Advisor/Consultant
Every company has different needs when it comes to their retirement plan and their participants. A retirement plan advisor or consultant works with the plan sponsor in establishing and maintaining plan governance and design that meets the unique goals and objectives of each firm or institution. Retirement plan advisors and consultants with a fiduciary duty towards clients offer the most desirable traits for any retirement plan, such as independence, qualified experience and marketplace knowledge. These qualities provide the benefit of evaluating funds and providers objectively, without conflict of interests, as well as proper adherence to ERISA or Department of Labor regulations.
A few more critical reasons why plan sponsors should hire a retirement plan advisor or consultant include:
- Minimizes your risk from lawsuits or huge losses by ensuring that the plan is properly administered and maintains qualified status
- Offloads or limits your fiduciary responsibilities resulting in less liability for the plan sponsor
- Provides plan sponsors the knowledge to educate employees about retirement saving, their investment options, potential benefits, and how to make changes.
Retirement plans are complex, and trying to develop and maintain one in a constantly evolving legal and regulatory space is difficult for many plan sponsors. Working with an advisor or consultant to maximize their retirement plan allows companies to focus on their core business objectives.
Why Plan Sponsors Should Care
Federal law governing retirement account plans can be quite complicated, from the minutiae of ERISA §408(b)(2) fee and service disclosure requirements to simply understanding the different types of retirement plan advisors. From registered representatives to ERISA 3(21) limited scope advisors to 3(38) designated investment managers, the number of titles among retirement advisors and professionals can be daunting. However, spending a small amount of time to break down the complexity of the industry will be a major benefit to any plan sponsor.
Strong investment advice can greatly benefit employers when it comes to cost savings. Experienced financial professionals with a fiduciary role will help employers select funds with the lowest expenses and administrative fees appropriate to covering plan costs, while maximizing investment return. Fiduciary advisors also serve as protection against a plan sponsor’s worst-case scenario: potentially damaging and costly litigation.
Most importantly, the legal obligation of a plan advisor can accomplish any number of retirement plan objectives, as noted in Forbes. Intangible assets such as recruiting top talent and educating existing employees will coincide with bottom-line savings and expense management if the right advisor is chosen.
Tips on Finding the Right Retirement Plan Advisor
No two plans are alike, and the same can be said of plan advisors and consultants. With that in mind, plan sponsors must perform their due diligence before meeting with any potential investment advisor. One effective form of research is developing a list of questions suited towards the particular needs of an organization prior to a face to face interaction. This is the appropriate time to ask questions such as how they handle employee account rollovers or what their process is for disclosing fees and plan policies to employees. This can be accomplished in a request for information or more formal and comprehensive request for proposal.
Plan sponsors can begin by reviewing and evaluating the exact credentials and professional certifications of potential advisors, and meeting them to conduct a more in-depth review. Once a suitable advisor has been found, another commonly overlooked task during the process to select a plan advisor or consultant is to get in writing the exact nature and fiduciary responsibility of the advisor towards the plan sponsor. Advisors and sponsors that are on the same page will develop a strong business partnership that will best suit the needs of all parties involved.
Enlisting the help of a qualified retirement plan consultant is beneficial to plan sponsors and their plan participants. As an independent Registered Investment Advisor, PlanPILOT is not tied to any investment fund or record-keeper. We offer clients unbiased advice and assistance to control their retirement plan risks and deliver benefits effectively. Plan sponsors also rely on us to review fund lineups and provide scorecards of investments, highlighting any changes recommended. Feel free to contact us at (312) 973-4911 if you would like to learn how PlanPILOT can help with your retirement plan and plan participants.
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Thanks for pointing out that working with a retirement plan consultant will help employers educate employees about retirement options and benefits. My brother recently got hired at a start-up, and they’re currently trying to work out the details of retirement plans for their employees. I’ll definitely suggest they work with a retirement consulting company to help them educate their employees about retirement in the best way possible.