But unless an unmistakable injury or illness crops up, many people often put off trips to the doctor for far too long. Plan sponsors—especially small-business owners—can find it extremely difficult to carve time out of a busy schedule to conduct a thorough retirement plan review.
Most employers routinely review their retirement plan’s investment performance, but it’s just as important to scrutinize plan operations. Compliance missteps? Plan falling short of the employer’s business objectives? Discovering these issues earlier rather than later allows an employer to get the plan back on a healthy path—before problems become too costly.
Establishing annual plan reviews is more than just a good practice for sponsors. Financial professionals can showcase their expertise as well as the depth and breadth of their support services with strategies that facilitate regular plan checkups. An effective plan review process can be a critical component of a financial professional’s value proposition and can help reinforce client relationships.
It can also be a useful talking point to use with prospects. New client meetings are a perfect time to highlight expertise in this area. If the financial professional wins the account, the foundation of a good annual plan review has already been established.
A healthy plan is one that meets the employer's business objectives and is compliant with related laws and regulations. Of course, one of the biggest benefits of a healthy plan is that it keeps employees engaged and inspires them to save for a financially secure retirement.
The annual plan review is the best time to revisit key benchmarks such as current salary deferrals, average deferral rates and the percentage of employees participating.
Each employee’s retirement readiness should be evaluated based on their level of plan participation and where they are in their career path. Older and longer-tenured employees will have different expectations than younger and newly hired personnel.
Financial professionals can play a critical role in developing an employer’s strategy to build plan awareness among employees and drive participation. The goal is to match plan objectives with an actionable engagement strategy, such as “lunch and learn” seminars, webinars, one-on-one counseling, email updates, payroll stuffers, e-newsletters and other tactics to educate and inspire employees.
Financial professionals are not involved in day-to-day administration or compliance oversight for their clients’ retirement plans. Under the Employee Retirement Income Security Act (ERISA), that is the responsibility of the plan sponsor, usually with the help of a third-party administrator. Yet it is clear that many clients and prospects are too busy running their core business to pay much attention to plan health unless a problem presents itself.
Financial professionals can help employers prioritize their business objectives for the plan and find solutions to improve overall plan health. They are also in a great position to help educate plan sponsors about their fiduciary responsibility to ensure regulatory compliance by highlighting ERISA’s five standards of conduct: loyalty, prudence, diversification, adherence to plan documents and commitment to paying reasonable expenses.
Helping employers better understand their duties is the first step toward helping them mitigate their fiduciary risk. Next is helping ensure they have the appropriate products, services and tools to meet their obligations.
Financial professionals can introduce employers to tools to proactively monitor plan wellness. The Internal Revenue Service (IRS) and Department of Labor (DOL) have created several plan checkup tools and corrections programs that enable employers to evaluate a plan and fix plan errors at minimal or, in some cases, no cost—if the problem is discovered by the employer. Much like preventive health care, these programs are designed to encourage employers to proactively monitor and correct issues before they become big problems.
Common mistakes the IRS finds when conducting plan examinations include:
- Not covering the proper employees.
- Not giving employees required information/notices.
- Not depositing employee deferrals on time.
- Not depositing employer contributions on time.
- Not following the terms of the plan document.
- Not administering participant loans correctly.
The annual compliance testing season winds to a close in the spring for most plans, so it’s critical to introduce a plan checkup well in advance to prospective clients and existing clients. Testing failures, low participation rates and contribution limits are more pressing concerns for employers at this time of year. Add a conversation about whether the plan is meeting its business objectives, and you can have a valuable discussion about plan wellness.
Items on the adviser’s to-do list could include:
- Incorporate plan wellness support in your value proposition. Consider updating your value proposition to include this if it is not already in place. Add plan wellness to your quarterly meeting agenda or set a special meeting.
- Display tools that you can offer clients, such as a compliance calendar, education policy, annual plan review checklists and plan document checklists.
- Do your homework. Review plan metrics and compliance testing results before the meeting (many service providers like Guardian Retirement Solutions have tools available to support you in this effort).
- Offer solutions, such as the IRS checklist for conducting a plan checkup, or a referral to their third-party administrator or plan corrections resource if a compliance problem is identified.
An ounce of prevention is worth a pound of cure, as the old saying goes, and so it is with retirement plan health. By paying early and regular attention to the operational stability of clients’ plans, financial professionals can offer that ounce of prevention and reinforce the trust they have worked so diligently to earn.
Steve Davis is national sales manager at Guardian Retirement Solutions
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.