The individual or small business owner represents an ideal candidate for the establishment of a qualified retirement plan. Which is right plan for my client? Who creates the plan document? Who does what for proper plan operation? These are questions every advisor asks. Given the favorable tax deferred status these plans provide, questions like these and their answers are even more important than ever before.

Important information to know to determine what kind of plan to establish is Entity type. Is the company a LLC, partnership, S-corp? Other important factors include who are the owners and do they have any other ownership interest in another company and what is the compensation of not only the owner(s) but of all employees in the plan. Lastly, but probably one of the more important pieces of information to obtain, is their capability to fund a plan. Once plan type is determined then the type of plan document can be created. The easiest to adopt are the prototype plans, however they do have limits on certain provisions you may want to use in plan design. Volume Submitter and Individually Designed documents are also available and all types will allow for the creation of an investment policy statement (IPS) for the plan. Plan type will also dictate whether the plan is valued annually, traditional with profit sharing, defined benefit and cash balance plans or daily as with 401(k) plans. All plans either upon inception or when the value of the plan reaches a certain dollar limit are required to file the form 5500 to report the status of the plan on an annual basis. Vendors, TPA’s and Attorney’s typically offer plan document creation and maintenance programs.

Several players perform operational duties for qualified retirement plans. Traditionally in the micro to small plan market (plan with under $10mm in assets), the owner of the company serves as the trustee of the plan, however, there can be more than one. An entity such as a bank or trust company will serve as the custodian of the assets of the plan and, in the case of a 401(k) plan, you will have a recordkeeper who will account for the assets of the plan, money coming and money going out, create the quarterly statements as well as offer the web and voice response access interfaces for the plan participants. The third party administrator (TPA) will perform annual administration and compliance testing for all plan types and prepare the 5500 form. In some cases the TPA and recordkeeper are one in the same. In a 401(k) environment the employee traditionally will have discretion over investment choices based on the line-up provided by the vendor the advisor has selected. For other plans in which there is no employee discretion over investments, the advisor will work with the plan sponsor to determine best course of investment action for the plan.

The investment advisor will review the plan at the investment, service and fee levels on a periodic basis as dictated by the service model established and by the Investment Policy Statement (ISP) for the plan. Most vendors and TPA’s, who typically create the plan document, have ISP templates that can be created at the same time the plan document is generated for use. Overseeing the enrollment meetings and being available for investment review and analysis of investment and fees, are roles the investment advisor assumes in the plan operational cycle. By knowing who performs the other duties you, the investment advisor, can control the relationship to ensure success for you and your client.

Susan Hajek offers securities through Resource Horizons Group, L.L.C., Member FINRA/SIPC.
1350 Church Street Ext. NE, 3rd Floor, Marietta, GA 30060. Telephone 770-319-1970.
Resource Horizons Group, L.L.C. and Brokers Alliance, Inc. are not affiliated….(read more)

LEARN MORE ABOUT: Qualified Retirement Plans

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