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Plan Sponsor “Don’ts” for Managing Your Retirement Plan Investments

Don'ts For Retirement Plan Investments

In our last post, we discussed the definition and responsibilities of a small business retirement plan sponsor, as well as the top three “do’s” of managing the investment options offered in your plan.

As a two-part series, we’ll now recap the definition of a plan sponsor and their related duties. Also, we’ll describe the top three “don’ts” small business retirement plan sponsors should avoid when it comes to selecting and monitoring the funds offered in your plan’s investment menu.

The definition and duties of a plan sponsor.

To reiterate, a retirement plan sponsor is a company or employer that offers a retirement plan for the benefit of its employees. So, if you own a company that provides a retirement plan for your employees, you likely qualify as the plan sponsor.

From making important decisions about plan design, employee eligibility to updates, and an amendment to the plan and making investment choices, there are endless responsibilities. And, unless you hire a third party to take on your duties as a “fiduciary” to the plan – meaning you’re responsible for acting in the best interests of your plan participants- you’ll need to follow strict rules and regulations that may fall outside of your expertise.

Not sure if you’re a retirement plan fiduciary? You’re not alone. A 2016 study from AllianceBemstein found that less than half of small business retirement plan sponsors considered themselves a fiduciary. When, in fact, every retirement plan sponsor is a fiduciary. Also, it also means your plan -and your actions and decisions related to the plan –          must comply with current rules and regulations. That includes the processes and procedures you follow to select and monitor the options offered in the plan’s investment lineup.

A critical aspect of being a plan fiduciary is it comes with built-in liability. Meaning, if you and your plan aren’t in compliance with existing regulatory standards, you could be held personally liable for any losses or damages suffered by participants. As you now know, this is a responsibility to be taken very seriously!

Of course, that may be easier said than done. As a business owner, you’re an expert at running your company, but you may not be as well-versed in managing your retirement plan and its investments. That’s understandable, and we’re here to help. For starters, if you haven’t already, make sure to read our last article on the “dos” for plan sponsors when it comes to overseeing the investments in your retirement plan. And keep reading to learn the “don’ts” of managing your plan’s investments so you can protect your business, fulfill your fiduciary duties, and make sure you’re offering a top-notch, competitive retirement benefit for your employees.

Here’s What You Should Not Do:

Be hyper-focused on fees.

Spurred by the proliferation of investment fee-related lawsuits in recent years, retirement plan sponsors ranked plan fees- including the cost of the investments offered to plan participants- as their top area of focus in 2019, according to an annual survey from Callan, a retirement plan consulting firm. That’s understandable, especially since part of the plan sponsors’ fiduciary obligation to their participants is making sure the plan and investment fees are “fair and reasonable” as described by the regulations that govern retirement plans. In addition, high fees should be avoided because they can erode participants’ investing earnings over time, taking a significant bite out of their retirement savings.

While plan sponsors should be vigilant about plan and investment fees and ensure that they and their participants are either paying too much nor too little fees are not the only consideration when it comes to investment selection. More important is the process by which the investment elections are being made. When it comes to the investments offered in the plan, having a written Investment Policy Statement (IPS} in place can help plan sponsors-or a third party they hire – to maintain accountability for the process by which the funds are selected, monitored, and changed (if necessary). Besides, it is a good idea to have a thorough, thoughtful, written process should regulators audit your plan, or should anyone question your investment management practices. An IPS accomplish these goals.

It is also important to mention that retirement plans and investment fees have declined significantly within the past few years, thanks in large part to technology. More retirement plan service providers have adopted sophisticated, streamlined technology that enables them to take advantage of economies of scale and more efficient performance reporting. By lowering their costs, the service providers have been able to pass the savings on to retirement plan sponsors and their participants. Also, competition and heightened scrutiny of investment fees by regulators, the retirement plan industry, and fund providers have brought those costs down across the board and paved the way for expanded offerings for participants.

Forget to benchmark.

Benchmarking is defined as the process of comparing your current plan to alternative options that are available in the marketplace. The most significant benefit of benchmarking is it helps to ensure that your existing plan and fees are fair and reasonable and that your plan is delivering value to your participants. If that’s not the case, benchmarking can give you the insights necessary to upgrade your plan so you can feel confident that you’re delivering a benefit that is competitively priced, and that serves your participants’ best interests.

As a best practice, plan sponsors typically benchmark their retirement plans every three to five years. Regular benchmarking of your retirement plan costs and performance allows you to take an objective look at your plan to evaluate its competitiveness against peers- plans that are similar in size, type, design, location, and industry. Moreover, benchmarking can go a long way toward helping protect you from a fiduciarystandpoin\ as well as reducing plan fees and maintaining the level of quality service and advice your participants deserve.

The good news is, you don’t have to go it alone. Alpha Wealth Advisors has the experience to benchmark your plan for you. We’ll take a look at your current retirement plan and compare your actual costs for recordkeeping, investments, and third-party advice against other, similar options. Due to our deep bench of provider relationships, we can deliver targeted, robust plan comparisons.

Thinking you can or should do it all yourself.

Most small business plan sponsors don’t want to take on the added responsibility of handling administration and paperwork, such as annual filings, because of the extra time and responsibility that’s involved.

The same 2016 AllianceBemstein study cited above found that plan sponsor who works with a financial advisor or consultant has a better understanding and awareness of their fiduciary responsibilities than those who don’t. Therefore, it may make sense for you to consider working with an advisor and third party administrator with expertise in the retirement plan space. This relationship would ensure your plan is compliant and delivering value for your participants, and that you’re fulfilling all of your fiduciary duties. We can do all of that for you and more. In addition to serving as your third-party administrator, we can provide full or partial investment management services for your plan. This strategy would give you both investment oversight and administration in one from a provider who knows your plan, inside and out.

When you choose to work with Alpha Wealth Advisors, there’s no guesswork. Our principals have more than 65 years of combined experience in the wealth management and finance industries. We specialize in working with small business retirement plan sponsors, and we are experienced in the marketplace. We have relationships with some of the best, most competitively priced service providers in the business, and we want to ensure you get the level of expertise and service you deserve. Most small business retirement plans don’t-and we don’t think it should be that way.

If you need help managing your small business retirement plan and its investment offerings, give us a call. We’re happy to help you fulfill your responsibilities as a small business retirement plan sponsor while providing a competitive retirement savings benefit designed to help your employees save for the future with confidence.