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Easy Retirement Plan Guide and Explanation for Small Employers

November 16, 2010 By Leave a Comment

To  help you narrow your search for a retirement plan that is right for your business, we asked CPA Brian Dooley, who is also an International Tax Expert, to give us a smple outline of your options regarding retirement planning.

This is a small excerpt from a much larger article that includes links to the IRS. See more about these issue and Brian at: www.IntlTaxCounselors.com

Plans With IRAs

  • Participant’s retirement benefits based on participant’s account balance

  • Some plans may allow employees to contribute

  • Depending on the type of plan, employer may be required to make annual minimum contributions

  • Contribution limits of $5,000 to $49,0001, depending on the type of plan

  • Depending on the type of plan, must cover some or all of the employees in all your businesses

  • Easy to set up and operate

  • No annual return required

  • Annual nondiscrimination testing not required

  • Little design flexibility

  • No loans allowed

  • Immediate vesting of all contributions

 

401(k) and Profit-Sharing Plans

  • Participant’s retirement benefits based on participant’s account balance

  • May allow employees to contribute through salary deferrals

  • Depending on the type of plan, employer may be required to make annual minimum contributions

  • Contribution limits of up to $49,0001 or more if catch-up contributions

  • Must meet minimum coverage tests but can exclude some employees

  • More complex to set up and operate

  • Annual return usually required

  • May require annual nondiscrimination testing

  • Greater design flexibility

  • Loans and hardship withdrawals allowed

  • May delay vesting of some employer contributions

Defined Benefit Plan

  • Participant’s annual retirement benefit determined by the plan’s benefit formula

  • Higher annual retirement benefits possible, up to $195,0001 per year

  • Actuary required to determine employer’s annual contributions

  • Must meet minimum coverage tests but can exclude some employees

  • Most complex to set up and operate

  • Annual return required

  • Annual nondiscrimination testing required

  • Greater design flexibility

  • Plan may allow loans

  • May delay vesting of participants’ accrued benefit

Brian  Dooley, CPA, MBT  www.IntlTaxCounselors.com

Direct 949-939-3414   Fax 949-269-6355

Filed Under: 401K, business legal planning, Finance, investing, IRS, tax deductions, taxes Tagged With: , , , , , , ,

FRAUD – 10 WARNING SIGNS ABOUT YOUR 401K

August 24, 2010 By Leave a Comment

The U.S. Labor Department publishes
10 signs that your 401(k) retirement account may be subject to fraud:

1) Your quarterly 401(k) statement is consistently late or comes at irregular intervals.

2) Your account balance appears to be inaccurate.

3) Your employer failed to transmit your contribution to the plan on a timely basis.

4) A significant drop in account balance appears that cannot be explained by normal market ups and downs.

5) Your 401(k) statement shows that your contribution from your paycheck was not made.

6) Investments listed on your statement are not what you authorized.

7) Former employees are having trouble getting their benefits paid on time or in the correct amounts.

8) Unusual transactions show up.

9) Frequent and unexplained changes take place in investment managers or consultants.

10) Your employer has recently experienced severe financial difficulty.

 
This was excerpted from a a larger article by Jim Gallagher in St. Louis today – recommended reading if you or your clients have a closely managed retirement account of any kind.
Filed Under: 2010 Economic Outlook, 401K, Asset Protection, business legal planning, business survival, Finance, financial advisors, Ike Devji

Business Owners and Executives – Are You Running Your Company’s 401k? BEWARE OF LIABILITY!

November 7, 2009 By Leave a Comment

Guest Author Roger Wohlner

Below is a great article by financial advisor Roger Wohlner. It once again points out the difference between what we can and should be doing.

There is tremendous liability in managing investments, and most of you would never dream of taking on that liability for everyone in your company – or have you already done so?

Ike

Smart Money recently ran an article depicting several small companies where either the owner or a group of senior managers were in charge of the firm’s 401(k) plan and who were largely making decisions regarding the plan on their own.

The article pointed out that many of these folks do not have a background in either investments or qualified plans.The focus of the article was to point out to plan participants that in many cases their plan was being run by folks who may or may not be qualified to make decisions as to investments offered, the custodial platform, or the plan record keeper.

My take on this article is to wonder why these small/mid-sized company owners and managers would want to take on this responsibility.

First of all, these individuals would be considered plan fiduciaries,which means that they can be held personally liable under certain circumstances for doing a poor job. Effectively managing a 401(k) plan involves taking the time to select and monitor the investments, overall plan expenses, as well as the fees and performance of all plan vendors.

Today it seems that business owners and their senior managers have more on their plates than ever. Running a 401(k) plan is about more than the investments. Total plan cost has always been a key issue and is coming more into the limelight as the spotlight shines on the issue of Fiduciary roles and obligations.

Selection and monitoring of Target Date funds is receiving much attention in the press and in Congress in light of the losses suffered in 2008 by some of the shorter maturity date funds. Defaulting to the funds offered by a bundled provider is not always the right answer, this option will likely come under more and more scrutiny over the next few years.

Even if the business owner is a knowledgeable investor in his/her own right, does this knowledge translate into the ability or the time to select and monitor all aspects of a solid retirement plan that is a great option for the majority of the company’s employees?

I’ve seen instances of plans that will take the suggestions of their bundled provider (a fund company such as Vanguard, Fidelity, or T. Rowe, or an insurance company such as Prudential) and implement those suggestions as the plan’s investment lineup. The representatives of these companies are not plan fiduciaries, but company managers running the plan are. I doubt that these folks are trying to do the plan any harm, but at the end of the day their loyalty is to their employer not the plan participants.

If your company’s plan is via an insurance company, your agent or registered rep may be providing investment advice to the plan. Again, this person is likely not a fiduciary, they receive commissions paid by the provider and their loyalties are at best divided.

In the interest of full disclosure I am a fee-only consultant to 401(k) plans providing advice to small/mid-sized plans. If this post seems self-serving I apologize, but this is a key issue for both owners/managers of these companies and their employees.

In my opinion, running the company’s 401(k) plan requires a level of diligence and expertise that the “do it your selfer” business owner often does not have. Pulling out a Morningstar report on the funds once or twice per year does not, in my opinion, constitute proper diligence and monitoring of the plan.

For further reading in this area, please see Roger’s prior posts:

The Process of Monitoring Investment Holdings http://bit.ly/Wnaj8

Characteristics of a Good 401(k) Plan http://ow.ly/ySZf

Hellish Retirement Plans http://ow.ly/yT0i

Here is a link the Smart Money article that inspired this post Who’s Running Your 401(k): An Overview http://ow.ly/yT1I

Roger Wohlner,CFP® is a Fee-only financial advisor with Asset Strategy Consultants in Arlington Heights, IL. 847-506-9827; rwohlner@comcast.
Filed Under: 401K, Ike Devji