Retirement Savings Plans

What You Need to Know

Definitions

Let’s start with some definitions.

Understanding different retirement savings plans can be overwhelming, but it’s essential to have a clear grasp of the basics. There are two major categories of retirement savings plans: Defined Contribution Plans and Defined Benefit Plans. Here’s a breakdown of each:

Defined Contribution Plans: Defined Contribution Plans, such as 401(k), IRA, SEP, SIMPLE, Profit Sharing, etc., are retirement savings plans where the IRS defines and limits the annual contributions that can be made into these types of accounts. While these plans play a vital role in retirement saving, they don’t guarantee a specific amount of money or a guaranteed income during retirement. Instead, they serve as tax-advantaged savings plans that accumulate assets for retirement in a tax-efficient manner.

Defined Benefit Plans: Defined Benefit Plans, including 412(e)(3), Cash Balance, 401(h), etc., are tax-advantaged retirement savings plans that provide specific and guaranteed benefits at retirement. Commonly referred to as “pensions,” these plans provide ongoing distributions of money throughout one’s retirement. Or, referred to as a “Cash Balance Plan”, the benefit could be a specific sum of money available at retirement. In some cases, they can combine both options. Annual contributions and corresponding tax deductions for defined benefit plans are usually substantially greater than those available through defined contribution plans, making them highly desirable for individuals with higher incomes.

The Super(k) ℠: The Super(k) ˢᵐ is a comprehensive retirement savings plan that combines a 401(k) and a Profit Sharing plan, a Cash Balance plan, a 401(h) plan, and a life insurance option. This plan is designed to maximize the total annual tax-deductible contributions while working and optimize the benefits at retirement.

Pension: Although not technically a retirement savings plan, it’s worth noting that a pension involves a guaranteed ongoing distribution of money paid during a person’s retirement from an investment fund to which the individual and/or their employer has contributed throughout their working years.

With numerous choices and options available, selecting the best plan for your specific situation can quickly become confusing. Additionally, it’s important to consider the compliance aspect with regulatory agencies such as the IRS, ERISA, the PBGC, and stay updated on potential changes made by Congress, as they often modify the laws, rules, and regulations governing these plans.

The “Players” In This Game

Now, let’s explore the various parties involved in a retirement savings plan. The specific players and their roles can vary significantly depending on the type of plan. However, let’s take a comprehensive look at all the parties and their duties and responsibilities for our purposes today.

COMPANY LEVEL

At the company level, there are essentially 3 Roles to address:

1. The Plan Sponsor
2. The Investment Committee
3. The Trustee

First, the Plan Sponsor: The plan sponsor is the company offering the retirement savings plan to its employees. As the sponsor, the company acts as a fiduciary to the plan, holding a high legal standard of responsibility. They must provide a fair and functional plan without excessive fees. If employees feel otherwise, the plan sponsor can face significant financial consequences. However, often the employer sponsoring the plan may have limited knowledge about these plans, making it challenging to choose the right plan design and manage fiduciary responsibilities effectively.

Second, the Investment Committee: The investment committee, typically comprised of individuals appointed by the plan sponsor, is responsible for selecting the investment options available to employees within the plan. Even if the employer has limited knowledge about securities, someone within the committee must make these investment decisions on behalf of the employees.

Finally, the role of the Trustee: The trustee primarily handles administrative duties related to the retirement savings plan. They execute plan documents, open investment accounts, and manage other administrative tasks. The Trustee is a fundamentally simple role, but very important role which, again, will generally ride on the shoulders of the business owner.

OUTSIDE SERVICES

In addition to these company-level roles, there are external service providers involved in the retirement savings plan. Here are 5 key roles to consider:

1. The Record Keeper
2. The Administrator (TPA)
3. The Custodian(s)
4. The 3(21) or 3(38) Fiduciary
5. The Plan Financial Advisor or Plan Consultant

Record Keeper: The record keeper provides employees with access to their plan assets, allowing them to track their payroll deferrals and will provide the employee with the ability to make trading and investment decisions. They play a crucial role in facilitating employees’ interaction with the plan.

Administrator (TPA – Third-Party Administrator): The administrator handles various administrative functions of the retirement savings plan. They ensure compliance with regulatory requirements, perform necessary calculations, and assist with reporting and recordkeeping.

Custodian(s): Custodians hold and safeguard the plan’s assets, ensuring their security and proper management. They may also handle transactions and provide reporting related to the plan’s investments.

3(21) or 3(38) Fiduciary: A 3(21) or 3(38) fiduciary provides investment advisory services within the retirement savings plan. Their role may involve selecting and monitoring the plan’s investment options and offering guidance to the plan sponsor and investment committee.

Plan Financial Advisor or Plan Consultant: A plan financial advisor or consultant provides expertise and guidance to the plan sponsor, investment committee, and employees. They help determine the best retirement savings plan option, provide a roadmap for implementation, and offer ongoing support and resources.

It’s important to note that not all plans require all of these parties. The challenge for professionals in tax, legal, or financial advisory roles is identifying the most suitable options for their clients, including the business owner. Similarly, for business owners themselves, understanding where to begin can be overwhelming. How do you know which plan is best for the business owner? If you are a business owner, how do you even know where to begin?

To simplify the process, we invite business owners to click on the “Business Owner’s” link below to access a short questionnaire about your business. Upon completing the questionnaire, you will be redirected to our online calendar to schedule a free interview to discuss the specifics of your situation.

We offer various ways to work together with you and/or your clients, ranging from our full-service model, to serving as your client’s plan consultant, or simply working with you and your client to provide guidance on the best retirement savings plan option to implement, while supporting you with a roadmap and resources throughout the process.

If you’re a professional (an attorney, tax or financial advisor), please click on the “Professionals” link below to schedule a 25-minute meeting via our online calendar. We can discuss the services we provide to both you and your clients in more detail.

What is a
Retirement Savings Plan?

Retirement savings plans, such as 401(k), IRA, SEP, SIMPLE, 401(b), 457, and others, are familiar to most individuals seeking financial security for their retirement years. Regardless of the specific name, all retirement savings plans serve one specific primary purpose: to provide a tax-efficient means of saving for one’s retirement.

Saving for retirement is a smart and proactive choice, regardless of one’s financial status. However, significant changes in the retirement landscape occurred with the passage of the Employment Retirement Income Security Act (ERISA) in 1974, impacting both employers and employees.

In the not-so-distant past, planning for retirement was relatively straightforward. Let’s consider a simplified scenario with Grandpa and Grandma as examples. Like many of their peers, Grandpa worked for a company for over three decades. Upon retirement, he received a pension—an ongoing and assured income for both his and Grandma’s lifetime. Additionally, they received Social Security, providing another lifetime income source.

Benefiting from these two secure and continuing income streams, along with modest savings and likely a mortgage-free home, Grandpa and Grandma could enjoy a comfortable retirement.

Fast-forward to the present, and, wow, how things have changed!

ERISA’s introduction precipitated the swift decline of company-sponsored pensions. Today, except for public sector employees like teachers, firefighters, policemen, and other public servants, individuals are predominantly responsible for funding their retirement. The good news, this shift grants individuals greater control over their retirement savings and investments, but it also exposes the challenge that many are ill-equipped to make the necessary financial decisions for adequate retirement planning.

As a result, a significant portion of the population is ill-prepared for a financially secure retirement. They have underestimated the amount needed to save, they’ve suboptimal investment choices, and overlook the costs associated with funding retirement—especially since they lack the guaranteed income safety nets Grandpa and Grandma once enjoyed.

Small business owners, in particular, face even greater obstacles. Their daily focus centers on surviving, growing, and thriving in their businesses. Although they may desire to invest time and resources into creating a robust retirement savings plan for themselves and their employees, they often find themselves in the same predicament as others—ill-prepared.

In the face of these challenges, individuals and business owners alike require expert guidance to navigate the intricacies of retirement planning effectively. That’s where our expertise at Lifetime Paradigm comes into play. We are committed to helping you develop a comprehensive retirement savings plan tailored to your unique circumstances and goals.

In the subsequent sections, we will delve into our Retirement Savings Plan platform, which addresses the multifaceted needs of both employees and business owners. Our goal is to empower you with the right tools and strategies, so you can confidently embark on the journey to a secure and prosperous retirement.

Benefits of a
Retirement Savings Plan

For the Professional

The Process

Client Consultation.  Following our initial interview, there will be a 1-hour meeting with the business owner and/or Advisor and their client to discuss the details and facts about the specific situation. We dig deep to get an understanding of how the business is structured, and most importantly, clarify the goals of implementing a retirement savings plan in the business.

Design Phase.  Next, our designers take the information gathered in the consultation phase and put together a proposal to help the business owner meet their individual goals. This involves a semi-feasibility study, sample documents, proformas, and illustrations of how the plan will work for them.

Refinement.  After the business owner or Advisor and their client take time to digest the proposal, we will meet again to discuss any unanswered questions and the level of financial commitments needed. These details are then incorporated into a formal proposal.

Action Plan Timeline Preview.  The business owner and/or Advisor and their client will receive an Action Plan that will illustrate the amount of time needed to complete each step of the implementation process. As there can be many steps and many outside parties involved with implementing a retirement savings plan, having a timeline will help to understand all these details and, more importantly, outline who is responsible for what activities and by when they need to be completed.

Implementation and Ongoing Management. This ongoing process keeps everyone informed and updated about the relevant and needed information concerning retirement savings plans.  Changes in the business owner’s needs and goals for these plans are addressed.  Changes in the laws that relate to retirement savings plans are also addressed.  Then, we will help the business owner or the Advisor and their client to implement any modifications to their plan accordingly.

Why Partner With Us

Frequently Asked Questions