Company retirement plans come in nearly as many flavors as Baskin Robbins offers. Rather than be all things to all people, we focus on helping medical practices and small business owners with the following types of employer-sponsored plans.
Nearly 40% of 401(k) plan sponsors are actively looking for a new advisor, and the reasons are crystal clear. Plan costs remain way too high, many advisors balk at taking on fiduciary responsibilities, and plan design is stuck in the 1990s. Our 401(k) offering is crafted to specifically address these and other common pain points you likely have. Here’s how you and your plan will thrive by having P&A as your 401(k) advisor:
- Reduce your plan costs – Most advisors are still paid by the investments they recommend for your plan, which creates a conflict of interest and robs your participants of a more secure retirement. We don’t believe it’s possible to serve two masters, which is why we are paid by you and only you, not by the investments in your plan. This allows us to improve your fund lineup by focusing on lower cost investments. Why do plan costs matter? – An $8 million plan saving 0.25% per year means $200,000 more in participants’ pockets after 10 years.
- Minimize your fiduciary obligations – Due to increased litigation and DOL attention, most plan sponsors we work with are looking to minimize their fiduciary burden. Since 1995, P&A has fully embraced the fiduciary standard. Along with our partners, we can offer you the most fiduciary coverage available for the investments in your plan as well as for the administration of your plan. Find out if you are working with a fiduciary advisor or a broker?
- Increase participant engagement and retirement readiness – We understand how easy it is for participants to slip on the financial banana peel. Overcoming inertia and getting things on autopilot will help your participants reach the finish line in much better shape. Consider our personalized savings and investment program a 401(k) Crock-Pot because it allows participants to set it and forget it.
- Collaborate to gain traction – Many 401(k) plans are one-size-fits-all and held together by duct tape and bailing wire. By taking a 360-degree view of your plan, we’re able to help you modernize your plan via customized solutions. Have you had the Cash Balance Plan conversation with your current advisor? Would your participants like the option of having their 401(k) account professionally managed? If you crave responsiveness and individual attention to your plan, we can help.
So who are we looking to partner with? We’ve found we do our best work for 401(k) plans with less than 100 participants and between roughly $3 million and $20 million in assets. If you’re interested in reducing your plan costs, protecting your plan against litigation, having more engaged participants and a collaborative partner, let’s continue the conversation.
Who they appeal to: Self-employed individuals and small business owners, including those with employees (sole proprietorships, partnerships, corporations, and S corporations).
Who contributes: Employer only, must contribute same percentage to employee accounts in years they contribute to their own account.
Contribution limits: Employer contributes up to 25% of eligible employee compensation or a maximum of $55,000 for 2018.
Advantages: Easy to set up and maintain, low administration costs, no filing requirements, flexible annual contributions, tax deduction for contributions, tax-deferred growth, no initial setup or annual maintenance fee through Charles Schwab.
Disadvantages: Employee deferrals and catch-up contributions for those over 50 aren’t allowed, no loans allowed. No Roth option.
Who they appeal to: Companies with 100 employees or less, without another company retirement plan (sole proprietorships, partnerships, corporations, and S corporations).
Who contributes: Employer must contribute, and employee may contribute.
Contribution limits: Employee limit for 2018 is 100% of eligible compensation, not to exceed $12,500. If employee is 50 years of age or older, they are allowed a $3,000 catch-up contribution for 2018. Mandatory business contribution of either: 1) a 100% match on the first 3% deferred by the employee, or 2) a 2% non-elective contribution on behalf of all eligible employees. There is some flexibility on the first option, whereby the employer can reduce their match to 1% in two out of every five years.
Advantages: Easy and inexpensive to set up, employees share responsibility for their retirement, no discrimination testing required, tax deduction for contributions, tax-deferred growth, no filing requirement for employer.
Disadvantages: Lower contribution limits than 401(k)s and SEP IRAs, withdrawals taken in the first two years after employer first makes contributions to the account are subject to a 25% penalty, not a good option if your business will grow to more than 100 employees, mandatory employer contributions even if business is having a bad year. No loans allowed and no Roth option.
Who they appeal to: Self-employed individuals or business owners with no employees other than a spouse, and no plans to add employees (sole proprietorships, partnerships, corporations, and S corporations). Independent contractors such as consultants
Who contributes: Employer and employee (business owner and spouse).
Contribution limits: Individuals under the age of 50 can make maximum deferral contributions of $18,500 (for 2018), while those 50 and older can add a $6,000 catch-up contribution, making their max total $24,500. The company can add up to 25% as a profit sharing contribution (20% for sole proprietorships), however, the combined total of employee and employer contributions can’t exceed $55,000 (for those under 50) or $61,000 (for those 50 and older).
Advantages: More flexibility regarding contributions and higher potential limits than SEP IRAs, ability to make profit sharing contributions, Roth option, no discrimination testing, no initial setup or annual maintenance fee through Charles Schwab.
Disadvantages: Slightly more paperwork, must file Form 5500 every year if plan size exceeds $250,000, if you plan to hire employees in the future you’ll want to consider a different plan type.
As with any financial decision, choosing the right retirement plan for your business involves numerous details and specifics, beyond the scope of the generic pros and cons listed above. Please consult with P&A and/or your accountant to determine which of these plans are right for you and your business.
If you’d like help navigating the world of company retirement plans, we can help. Get in touch with us to begin the conversation.
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