Retirement plan checklist for 2010

JOHN FOSTER, PPC

Senior Investment Strategist

JNBA Financial Advisors

John.Foster@jnba.com

jnba.com

Topic: Human Resources

All too often employers and plan participants put off decisions about their retirement plan until after it is too late to address them. Now is the time to outline an action plan to make certain your plan is achieving its goals and objectives. Typical problem areas for retirement plans are low participation, fees being unknown or above industry averages, investments that underperform their peers, or design flaws that do not allow the plan to meet its goals and objectives.

• Low participation. Poor participation is a common problem for retirement plans, especially in challenging economic times. Low participation often causes problems with plan testing leading to owners or key employees being unable to reap the full benefits of the plan. Features such as a match or Safe Harbor contribution often help. In addition, the Pension Protection Act provides employers the ability to have participants automatically enrolled. The proper set-up paired with participant education can lead to increased participation.

• High or unknown fees. If fees seem excessive or you do not know what they are, be sure to request all plan fees be disclosed and compared to plans of similar participant count and asset size. Benchmarking of fees against industry averages is critical in making certain retirement plan dollars are being maximized.
• Plan investment problems. At a minimum an annual review of investment options in the plan should be completed and compared to an appropriate benchmark to make certain investments are fulfilling their plan purpose. Other factors should also be considered; such as consistency with the investments management team, embedded cost structure of the investment, and sufficient choices for participants to allocate their assets in a diversified manor. Investment choices should be made on their merit and not concentrated on the proprietary product of one firm selling or servicing the plan.

• Poor plan design. Reviewing matching, profit sharing, Roth features, eligibility, vesting, and other plan features can aid in maximizing the retirement program. If owners are unable to maximize their pre-tax contributions perhaps a profit sharing feature is appropriate. An employer with problems of higher than desired turnover may want to look at adding a vesting feature to improve retention. Also, an employer with younger workers in a low tax bracket may find a Roth feature benefits their employees.

All too often employers wait until after the plan tax filing, usually in the summer, to review plan changes. However, by that point the plan year is half over. The time to review plan changes is now; prior to the first day of 2010 when changes can be made and the benefits felt throughout 2010 versus just in the second half.