A quality retirement plan is made up of several parts: a good group of diversified funds to choose from; a good user interface for participants to manage their assets, get reports, and have questions answered; and a secure entity that holds the plan assets, offers quality fund choices, and transacts efficiently and inexpensively. Many retirement plans use a single entity to handle all of these responsibilities (a “bundled” plan), but we’ve seen that when one entity tries to be all things to all people quality of services tend to diminish and/or costs rise. Another common concern with single entity providers is that costs can get lost or hidden in the details making it difficult for the sponsor to know how much their plan really costs them and their participants. Furthermore, bundled plan providers may only offer you their family of funds, regardless of how those funds are performing. An unbundled solution separates the aforementioned responsibilities and hands them off to their respective experts, which tends to improve options, reduce costs, improve service, and increase transparency.
There are three main areas where a plan sponsor has fiduciary responsibility. First, you have a duty to act in the best interest of the participants. Second, you act as the trustee of the plan. Trustees are responsible for the management and control of plan assets, but may hire a non-trustee 3(38) investment advisor to perform these functions. Third, you act as the plan administrator and thus bear responsibility for operational functions such as form 5500 filings, which may require an audit and participant notices. However, a Third-Party Administrator (TPA) can perform these functions on your behalf.
A 3(38) investment advisor is a service provider who takes on a fiduciary duty for the retirement plan’s sponsor. The majority of retirement plans do not have a 3(38) advisor but instead a 3(21) advisor who proposes funds to the plan sponsor for the retirement plan, but the ultimate responsibility for fund selection lies with the sponsor. A 3(38) advisor has discretionary authority to select and change the funds in the plan. If you do not have a 3(38) advisor you hold the fiduciary responsibility to choose appropriate funds for your plan. By hiring a 3(38) advisor you shift some of your fiduciary risk to the advisor. As a 3(38) advisor, VeraPath does more than just choose the fund options for the plan, we create diversified model portfolios that participants can choose from, and we help educate participants through quarterly market updates and an annual enrollment meeting.
A multiple employer plan is a retirement plan adopted by two or more similarly situated employers who are unrelated for income tax purposes. Typically, members of associations are similarly situated enough to qualify for a MEP. Using a MEP would make the association the plan sponsor, rather than each employer having to sponsor their own plan. We believe a MEP offers a win-win-win for the association, the employer (member), and the plan participant.
There are many advantages of joining a MEP:
- Saves adopting members money – With a separate retirement plan each member must bear the cost of an annual 5500 tax filing and an audit once the plan has 120 participants. Using a MEP allows those costs to be shared among all members.
- Greater bargaining power – pooling the resources of all participating members gives them access to higher quality funds with lower fees.
- Reduced fiduciary liability – A member joins as an “adopting member” rather than a sponsor. This greatly reduces the fiduciary responsibility and oversight needed for your company. An adopting member’s responsibility is to abide by the rules of the MEP, but they need not form investment committees or conduct annual reviews.
- Professionally managed portfolios: Our plan provides a variety of model portfolios that are managed by our team of experts at no extra cost to participants. This allows your participants to focus on their career rather than needing to become expert investors.
Plans without managed portfolios are given fund choices, but how much to put in each fund (the allocation) is usually left up to each participant. This is a difficult and daunting task for the participant. To help participants overcome this challenge, we created five different allocation models that vary in risk tolerance. These portfolios are professionally managed by us over time, so participants who choose this option have the benefit of an investment professional managing their portfolio. It is still up to the participant to choose their portfolio and adjust their risk tolerance to meet their needs, but we manage the allocation. Participants can create their own asset allocation from the fund choices available if they choose, but studies have shown that most participant accounts perform better when professionally managed. Historically, these models have reduced risk, increased performance and provided our clients with peace of mind.
VeraPath’s small plan solution is designed for companies with less than 120 eligible participants and under $10 million in retirement assets. We’ve introduced this solution to provide small companies access to a plan that normally only much larger companies would be able to take advantage of.
To name a few: high costs, limited investment options, limited flexibility, and greater fiduciary risk.
- High costs: Unfortunately, because retirement funds take their fees out before investors get their returns, most people are unaware of how expensive small sized retirement plans can be. Also, there are administrative costs that can add up very quickly too. These along with the expense of document preparation and design are things that all small plans face.
- Limited investment options: We’ve found that small plans may be limited to a financial institutions family of funds regardless of how well those funds have performed or the appropriateness of their fees. We seek out the best performing funds in each asset class to create a quality, well diversified fund lineup for your plan.
- Limited flexibility: Small companies can easily start a 401k plan but generally they have to use a plan with limited contribution levels, vesting schedules, educational resources, administrative support, etc. Our plan allows for premium service and investment options.
- Fiduciary Risk: Without the aid of professionals, small business owners who offer a 401k plan are too often left to oversee the appropriateness of the fund lineup as well as the administrative responsibilities. This puts the fiduciary risk squarely on the small business owner, who likely doesn’t have the time to keep up with industry standards. By hiring investment and administrative professionals you are removing the attendant tasks from your plate and reducing your fiduciary risk. Our team provides you with the support to help you more easily manage your plan. While we can’t eliminate your fiduciary responsibility, we help you effectively manage the plan with limited use of your time.
The call center number is (888) 700-0808 and is open Mon – Fri from 8 am – 6 pm Mountain Time. The call center can help with account balances, loans, distributions, rollovers, portfolio or allocation changes, online access setup, and more. For investment specific questions or advice, please call VeraPath at (385) 212-4560.
Yes, our plan allows for participant and member contributions. Participants can contribute on a before or after-tax basis. Participants may also transfer their past qualified employment retirement assets into the plan.