Retirement Plans Should Fit Like A Glove

Johnnie Cochran should have been an ERISA attorney. The man who claimed: “if it doesn’t fit, you must acquit” would have made a great ERISA attorney because he would tell his clients that a retirement plan must fit like a glove.

Too many retirement plan sponsors leave money on the table by just selecting a financial advisor and setting up a plain vanilla 401(k) or SIMPLE IRA or SEP without consulting an ERISA Attorney and the consultants at a third party administration firm (TPA).

Retirement plans are like a glove, it needs to fit. While so many advisors take the cookie cutter approach to their clients’ retirement plan needs and use a straight 401(k) plan with a prototype document, so many clients leave money on the table by not getting the right retirement plan and specifications to fit their retirement plan needs.

There are so many different retirement plan designs like unit credit defined benefit, new comparability, safe harbor 401(k), automatic enrollment, cash balance, floor offset, that an advisor would be foolish not to consult with an ERISA attorney and retirement plan specialist from the TPA.

As I stated in the past, I had a new client who asked me whether he could have a retirement plan that would save him more than the $49,000 he could save from his SEP. As an attorney, he received a $500,000 fee. With his age (75) and income plus no employees, it was a no brainer that a defined benefit plan would get him more bang for the buck. Needless to say, the $200,000+ he contributed to the defined benefit plan that first year was a lot more than $49,000.

I had another client that I have had for 10 years because I simply added a safe harbor matching plan design to a client’s 401(k) plan that the payroll provider claiming to be a TPA forgot to bring up. Under my design, the owner was able to maximize her salary deferral limit instead of returning $10,500 of her then $12,000 deferral limit since the plan failed ADP (actual deferral percentage) testing and the payroll provider forgot to also mention that a corrective QNEC (qualified non-elective contribution) contribution would only cost the company $7,000. Thinking only within the box cost that payroll provider, a client and provided me with a client that has survived 10 years and 3 different firms with me.

Every client has different needs and different business arrangements, so the one size fits all approach doesn’t work because the cookie cutter approach doesn’t work as no two cookies (plan sponsors are the same).

So retirement plans should fit like glove, otherwise you should take another look.

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