Your Plan Might Need a Tune-Up

Is Your Employee Pension Plan Overdue For A Tune-up?

by Ary Rosenbaum, Esq.
Meyer, Suozzi, English & Klein, P.C. Counselors at Law
1350 Broadway – Suite 501, New York, NY 10018 T: 212-239-4999    www.msek.com

When it comes to establishing an Employee Retirement Plan, most business owners are content with a set-it and forget-it mindset.

But business owners beware. It’s not enough to merely establish an employee retirement plan; you have to continually monitor it as well. Avoiding plan maintenance is a common, costly, and dangerous mistake that can lead to skyrocketing payouts and fees, not to mention the risk of litigation.

It’s estimated that 9 out of 10 employers who adopt a “cruise control” approach to pension planning are leaving dollars on the table, while jacking up their risk for unwanted liability.

It’s not that most business owners mean to be irresponsible; it’s just that most sole-proprietors and small-to-medium-size companies are not well-versed in the intricacies inherent in retirement plans and therefore don’t understand the importance of regular plan upkeep. Unless someone walks them through their own plan, they may be ignorant of the financial damage they’re causing themselves.

Case in point: Recently, a colleague at our firm referred me to one of his clients, an attorney who practices alone. It seems that within the past year, this gentleman realized a half- million dollar fee, but his retirement plan allowed him to deposit only 46K of that fee into his retirement fund.

He was not an expert in retirement plans and had no idea how to proceed so he could make his fund work for him. I was able to customize a defined benefit plan that allowed our client to retain a full 260K. That’s a whopping 214K more in his retirement pocket than he would have realized if he had not consulted our firm.

A retirement plan can be likened to an automobile; for optimum performance, both demand constant maintenance. If you don’t change the oil on your car, the engine can seize up; if you don’t examine your retirement plan, it can leave you running on empty. With both the types of vehicles, you have to lift the hood from time to time and see what’s what. Sometimes all that’s needed is a minor adjustment. Other times, you have to retire your plan from the road and start fresh. Almost always you need an expert opinion.

Sometimes the lack of maintenance stems from a lack of communication. Confusion arises when plan adminis- trators use double talk to explain plan features. No matter how intelligent an employer might be, he or she may not necessarily have the background to thoroughly understand the information being presented. It’s important for employers to understand their own plans’ nuances and they should not be uncomfortable asking the expert to supply additional explanations or clarifications.

Once employers have a plan in place, they need to pay attention to their company’s evolving needs and the plan’s corresponding administrative concerns. For a retirement plan to be effective, it must remain in step with the evolving needs of the company it serves. A plan once considered appro- priate can become outmoded as the company changes, grows, and matures. Then, too, a designated third party administration company once deemed a perfect fit might eventually prove to be a mismatch.

For example, another colleague at our firm introduced me to a client whose original plan had the client’s company investing heavily in equities — an investment we deemed inappropriate in these economic times.

Then, too, the plan was administered by a third party management company headquartered in the Midwest. We are in the process of moving the company’s assets to more appropriate investment vehicles and engaged an administration company located in Long Island. The management switch alone saved the client over $1, 000 annually. Needless to say, the client was quite pleased with this lucrative plan make-over.

The Employee Retirement Income Security Act (ERISA) is a difficult law to understand. It’s especially challenging for business owners operating without a human resources expert or employee benefit specialist on staff. But ignorance of ERISA’s requirements can result in serious negative consequences.

Barring in-house expertise, any responsible business would do well to establish a relationship with a knowledgeable employee retirement plan expert who can analyze the company’s existing plan and goals, identify what’s not working, and then design a more cost-effective employee pension plan that’s better suited to the company’s goals. An initial consultation with a retirement plan expert is time and money well spent because the ongoing support and direction of that expert will pay dividends now and in the years to come.

10 Great Questions for Business Owners to Consider Before Consulting with an Employee Retirement Plan Expert

1. Do we have an Employee Retirement Plan? What are the pros and cons of putting one in place?
2. If we have such a plan, who first established it? When?
3. Who administers our plan? And do we have full disclosure of all the fees involved?
4. How were the funds chosen for our plan?
5. Do we review our funds regularly to see if they are performing well, or can employees hold us respon- sible for not being vigilant?
6. When was the last time we reviewed our employee retirement plan to see if it still fits our current needs?
7. Do we distribute accurate, informative educational retirement fund materials to our employees?
8. Are we leaving money on the table?
9. Is it time to retire our current plan in favor of one that works better for us in this economic climate?
10. Who should we call to find out what we need to know?

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