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Talking Points

Sales Process Development

It’s not often that retirement plan advisors are presented a roadmap of opportunity that itemizes exactly what seems to be troubling plan sponsors. When charged with the daunting task of getting every plan participant to the retirement finish line, plan sponsors face both macro-level obstacles and a series of localized repetitive duties. These topics are targeted talking points when starting the conversation of moving a plan to a new advisor.

Industry-wide Challenges

First, cybersecurity concerns have become a high priority for plan sponsors. ERISA established standards and requirements intending to protect plan participants and beneficiaries in employer-sponsored retirement plans. On April 14, 2021, the Department of Labor finally issued guidance for plan sponsors, plan fiduciaries, record keepers and plan participants on best practices for maintaining cybersecurity. The checklists included in that guidance are ready-made talking points for all prospects.

Second, 401(k) lawsuits continue to increase in the wake of the record number of plan-based lawsuits filed during 2020. Popular claims include excessive fees, poor investment returns and insufficient investment choices. As this trend continues, it is important to understand the basis of these lawsuits.

Working Through the Minutia

  • Loans from retirement plan assets can be a harbinger of bad outcomes. Plan sponsors can establish a plan that permits multiple outstanding loans concurrently. Since plans are permitted to allow a participant to borrow up to 50% of their retirement account, a participant can subtract half of their retirement savings prior to reaching the normal retirement age.
  • Depositing salary deferrals on a timely basis is a requirement for plan sponsors. This task must be accomplished expeditiously. The DOL is laser-focused on plan sponsors that make late deposits of salary deferrals, including incorporating a specific question about any late deposits on the Form 5500. 

Read more commentary from Steff Chalk here.

  • Accurately tracking employee eligibility is a requirement for every retirement plan. Regardless of the plan’s eligibility formula, plan sponsors must make employees aware of their plan eligibility once they become eligible. It’s important for plan sponsors to make sure that plan operations are carried out in accordance with the terms of the plan document. Failing to identify and include eligible employees is costly. Unfortunately, corrective contributions must go to all affected employees—regardless of whether they intended to make salary deferral contributions or not. 
  • The definition of compensation can be a big problem. The conundrum occurs when a 401(k) plan sponsor uses a definition of compensation for purposes of salary deferrals and employer contributions that differs from the one specified in the plan document. Mistakes do happen, of course; however, the longer a mistake lingers the more expensive it is likely to become!  
  • Maintaining all plan documents for the retirement plan is important. Plan sponsors are often informed that they must keep plan records for at least 7 years. However, a best practice is to maintain plan records for the life of the plan and beyond. The major problem with failing to produce a fully dated and executed amendment/restatement is that the IRS treats the plan sponsor as if the amendment/restatement had never been executed.
  • Satisfy ERISA §404(c) requirements for increased protection. Many plan sponsors feel that they are shielded from liability, assuming that they cannot be held liable for losses incurred by participants who direct their own 401(k) investments. This may or may not actually be the case.

The best news for plan advisors is that in its 401(k) Plan Fix-It Guide, the IRS publishes a summary of past mistakes with corresponding fixes—including the top 12 mistakes that retirement plan sponsors make. These topics make great talking points for starting a conversation with a prospect about moving their plan to a new advisor.

Steff Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the Fall 2021 issue of NAPA Net the Magazine.