Business owners bear responsibilities for retirement plans

As a small-business owner, you may have established a retirement plan for you and your employees. Your employees view you as the chief fiduciary of the plan and so do the government agencies that will audit your plan. The term “fiduciary” comes from the Latin word fiducia, meaning “trust.” It means you stand in a special relationship of trust, confidence and legal responsibility.

You are held to a standard of conduct and trust above a casual businessperson because of your in-depth knowledge and training.

I realize most small-business owners think that the 401(k) providers they’ve hired are the responsible parties for the retirement plans. It’s likely that these same owners haven’t given the issue much thought since the plan documents were signed, which may have been several years ago, instead relying on the provider to handle all the details.

It’s clear, however, that the U.S. Department of Labor expects you, as the small-business owner, to understand all aspects of your plan and, most importantly, the cost to your employees. It is estimated more than 80 percent of the 47 million 401(k) participants don’t know how much they pay in fees, which can have a dramatic impact on the amount of money they will have in retirement, Barbara Bovbjerg, director of education, work force and income security issues at the U.S. Government Accountability Office has testified. Your employees look to you to inform them about costs and how they can protect their retirement.

The process of reviewing your retirement plan may sound daunting, but it can be accomplished by establishing systematic procedures for your company and your providers. Most service providers will appreciate knowing your expectations.

So where do you start? First, review your plan and costs at least annually. You will be faced with a cornucopia of terms that will make your head spin – terminology such as wrap fees, surrender charges, soft dollars, revenue sharing, sub T-A fees, shareholder service fees and 12(b)-1 fees. Once you understand and separate these charges, you can decide what your company will pay and what your employees will pay.

In addition to the cost of the plan, you will need to understand the services the plan provides to your employees. One of the services needed is education. Ongoing education can help employees make appropriate decisions concerning their asset allocation and amount of deferral.

A new service employers might consider adding is investment advice. Under the Pension Protection Act of 2006, eligible employees may pay to have someone assist them in managing their retirement account.

Although there are strict guidelines to follow, it may be a service employees would welcome.

Finally, investment options must be reviewed annually. In addition, the employers should make sure they continue to cover the basic investment styles and three market cap categories. The investment policy statement should guide the plan’s trustees and the service providers regarding the investment objectives for the plan. By following the dedicated process set forth in the investment policy statement you can go a long way to fulfilling your fiduciary responsibilities.

Retirement Plan Glossary

Soft dollars: Payments to a brokerage firm in terms of commission revenues for services such as research, rather than actual cash payments (i.e., hard dollars).

12(b)-1 fee: The percent of a mutual fund’s assets used to defray marketing and distribution expenses. The amount of the fee is stated in the fund’s prospectus.

Revenue sharing: The investment adviser to a fund or another affiliate of a fund makes payments to a vendor who sells the mutual fund families’ product.

Surrender charge: Sales charge that must be paid if money from an annuity is sold or withdrawn during the surrender period.

Wrap fee: Charge for an investment program that bundles or wraps a number of services together and assesses them with a single fee based on the value of assets under management.

Sub T-A fee: Fee a mutual fund pays a transfer agent for keeping the individual records of its investors in a qualified plan.

Shareholder services fee: The fees paid to persons who respond to investor inquiries and provide investors with information about their investments.

Randal L. Saul is an associate with BKD Wealth Advisors LLC in Springfield, a wholly owned subsidiary of BKD LLP. He may be reached at rsaul@bkd.com.[[In-content Ad]]