A retirement program that helps employees meet their savings goals is an important part of a comprehensive benefits package. At some point, meeting the changing needs of your employees will require you to make changes to your retirement plan offering. However, this process is much easier said than done, as there are many twists and turns along the way that businesses simply don’t anticipate when they set out to offer their employees a better plan. We’re here to save you from making the same mistakes as your peers. Read on to learn three of the most common pitfalls associated with switching retirement plans, and how your business can avoid them when rolling out your new offering.
1. Not accurately estimating your expenses
The path to switching your company’s retirement plan is a complex endeavor with lots of components that can really throw you off track if you don’t plan for them first. Due to the multi-faceted nature of business retirement planning, one of the most common pitfalls we see is companies underestimating exactly how expensive their new plan or the transition will be. This can include oversight of things like fees associated with leaving an existing 401(k) provider, or choosing a new provider that doesn’t integrate with your current payroll system. Both of these and many other blunders can significantly increase the cost and administrative burden of rolling out a new plan, which is why it’s so important to have an accurate idea of what the costs will be up front. To avoid ending up with a plan that’s far more expensive than you anticipated, ask lots of questions up front, and be sure to give yourself a bit of wiggle room in your budget in case unexpected things come up.
2. Not choosing the correct plan type
Retirement plans come in many shapes and sizes. When planning to roll out a new offering for your company, you’ll have your choice of 401(k), simple IRA, and SEP IRA plans–all of which have unique advantages and drawbacks that will make them more appropriate for some businesses than others. Contrary to what some people believe, each investment vehicle provides a completely different approach to retirement savings, and choosing the wrong one can seriously hinder you and your employees’ ability to plan for a comfortable retirement. For example, the following IRA plan types are great for some organizations, but for others these characteristics might be hindering.
SEP IRA: Employer contributions must be made annually and pro-rata, and employees can’t contribute money to their own plans. SEP IRAs also must be made available to all company employees, regardless of seniority or full or part-time status.
Simple IRA: Contributions are capped at $13,500 per year, a significantly lower limit than a typical 401(k). Money put into the plan is immediately vested, and simple IRAs come with stringent rules around when they can be converted to 401(k)s. This often leaves business owners stuck with a simple IRA plan for much longer than they anticipated.
3. Not hiring a good advisor
A specialized advisor can truly be one of the most important assets you have when strategizing and implementing a change in your enterprise retirement plan. What may come as a surprise to you will most likely be common knowledge for an informed financial advisor with years of experience managing company retirement plans. This specialized knowledge can save you countless amounts of time and money you may have otherwise squandered on excess fees and administrative work. With the right advisor, you can feel confident that you’ll have the understanding you need to choose the right plan type, with the right terms, and you won’t experience the shock of countless unwelcome surprises along the way.
Switching your company’s retirement plan is a large (but important) undertaking that’s worthwhile, but make sure you do it correctly the first time. Now that we’ve broken down some of the most common mistakes companies make, you’ll have an idea of what you should be looking out for when changing retirement plans to avoid wasting additional time and money throughout the process. As always, a dedicated financial advisor is still going to be your best bet if you want to make the most informed decision about your retirement plan and enjoy a smooth transition to your new provider. To contact the Segrust Group for a consultation, fill out our quick contact form or give us a call at 847-468-0439.
Sources:
https://www.fisher401k.com/blog/3-mistakes-to-avoid
https://www.forusall.com/401k-blog/switching-401k-companies-avoid-these-3-costly-surprises/
https://www.employeefiduciary.com/blog/switching-401k-providers