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Approach Your Retirement Plan Like You Approach Your Business

By Daniel J. McGee CRPS is a Vice President for Business Development - Retirement Services with the Principal Financial Group. Dan is active in working within the consultant, TPA, RIA, wirehouse and independent broker/dealer channels. You may contact Dan at mcgee.dan@principal.com.


Over the last few years we have read many articles regarding retirement plans, employer stock in plans, stock market declines, and participants lacking the knowledge to make wise investment decisions. While the reasons for this coverage are unfortunate, the fact that the light is now being shined on these issues is a good thing. Retirement is a significant life and financial event which should not be taken lightly. For the vast majority of Americans, retirement security (or lack of it) is going to be a function of three things; 1) does the individual have access to a retirement plan at their place of employment; 2) how much does the individual save; and 3) how does the individual invest his/her retirement savings. It's the first of these that I would like to address in this article.

Employers have a large responsibility when it comes to helping to ensure employees have a financially secure retirement. It starts with an employer implementing a plan but certainly doesn't end there. Implementing and maintaining a comprehensive and effective retirement plan is important and can be approached the same way the business approached starting their company. When we work with our clients, this is the mindset we try to encourage. Lets examine this approach.

  1. Determine the type of business entity. C-Corp, S-Corp, LLC, etc. Similarly, a company needs to determine the type of plan or plans to implement. Defined benefit or defined contribution? 401k or cross-tested profit sharing? This process starts with a determination of goals and objectives. Only after this is done can the company and their advisor determine the best type of plan(s) to implement.
  2. Understand and recognize the regulatory environment the business operates in. With a retirement plan this is no different. The business needs to understand and manage their fiduciary responsibilities. The first step in managing fiduciary responsibilities starts with identifying who at the company is a fiduciary. The next step is to implement processes and procedures to ensure that prudent decisions are being made regarding the plan.
  3. Create a business plan. The corresponding retirement plan comparison is to create an investment policy statement (IPS). An IPS, like a business plan, provides a roadmap for plan fiduciaries with respect to plan investments and guides the plan in the selection and evaluation of investment alternatives and asset classes.
  4. Execute the business plan to maximize profits. Similarly, the retirement plan needs to implement operational measures to maximize the plan and its benefits. Here's where process becomes important. Regular employee communication, continually (quarterly) evaluating investments within the plan, and maximizing the plan providers services are all key components to ensuring plan success.
  5. Monitor and evaluate business progress. With a retirement plan, again it is no different. Plan fiduciaries and company executives should monitor the effectiveness of the plan. Is the plan meeting the desired corporate objectives? Do the employees appreciate the plan and do they have a sense of confidence and security regarding retirement? Are the investment options or portfolios providing adequate investment performance? Each of these are key evaluation points to determine whether the retirement plan is successful.

Retirement plans, like businesses can be and indeed are complex. However, taking a practical, businesslike approach to implementing, evaluating and maintaining a retirement plan helps to keep all the "noise" out. With proper planning and the retention of competent professionals your business can be on its way to having plan fiduciaries protected, plan participants educated and overall plan performance elevated.

Other articles by Daniel McGee: Five "Best Practices" for Employer Retirement Plans and Opportunity Knocks.


401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise.

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