How to navigate the changing retirement benefits landscape Featured

8:00pm EDT September 25, 2010

The employee benefits plan you offered five years ago may not suit your organization today. And with industrywide changes impacting 401(k) plans, businesses need a partner who can guide them through the process of designing and implementing flexible retirement plans.

“There have been big, sweeping changes in the industry over the last few years, and we can expect those to continue,” says Jeff West, first vice president of wealth management for Old Second National Bank, Aurora, Ill.

Since 401(k) plans were introduced in the early 1980s, the savings vehicle has revolutionized the retirement plan business and outpaced pension plans in assets, West says. The sheer amount of 401(k) assets — worth trillions of dollars — has prompted the need for greater oversight of these plans. At the same time, employers need employee benefits that can flex with their ever-changing companies, which offers a great opportunity.

“The key is to understand regulatory changes and ensure that your plan is compliant so employers and their work forces realize the full benefit of their plans,” West says.

Smart Business spoke with West about employee benefits plans and how industry changes are affecting the way plans are designed, administered and regulated.

What changes have occurred recently in the industry that affect profit-sharing plans?

There have been many updates recently, especially as more players are entering the profit-sharing field since the 401(k) has become such a popular plan. For example, providers must supply the plan sponsor with a Service Provider Document Disclosure. This is a tool for the fiduciaries of retirement plans to make sure plan fees are reasonable.

Because of different providers and different ways to get paid in the field, this disclosure levels the playing field so that businesses can see which fees fall into which buckets. It gives them a comparison tool so they can fulfill their fiduciary responsibility.

Another change is the electronic filing of plans’ Form 5500. This year, plan sponsors are required to obtain the credentials from the Department of Labor and file the Form 5500 electronically. Businesses should work closely with their providers to make sure that those 5500 reports are filed in a timely manner.

What common mistakes do employers make when administering employee benefits such as 401(k)s and other profit-sharing vehicles?

One is very simple, and that’s not following the signed plan document, which includes specific rules governing the plan. The plan document outlines when employees can participate in the plan, when they can withdrawal money, etc.

Many times, businesses simply don’t follow the rules. And if they make a mistake administering the plan, they need to fix it. Common errors are easily resolved through various programs available through the DOL that make it easy to report the issue, fix it and move on.

You don’t want to wait until an audit situation to clear up errors.

Why should companies re-evaluate their plan design and set clear objectives for their profit-sharing plans?

We see a lot of employee benefits plans that were set up years ago, and businesses have since changed.

For example, the work force may have shrunk, or the business could have developed into a new niche market, and what made sense a few years ago might not work today.

Be sure to review the plan on a regular basis — at least annually — and make sure the plan design matches your objectives. One company’s goal might be to ensure that the business owner is realizing the full benefits; another company might design a plan that will attract and retain workers.

Talk to a professional in the field about objectives and partner with someone who understands your business and employee benefits needs as they change.

How can employers build flexibility into their employee benefits plans?

Many employers use a prototype plan, which is a document that is approved by the Internal Revenue Service. Employers simply check the boxes on the document without careful review, assuming it’s a package deal.

But actually, this boilerplate legal document does contain quite a few decisions that companies can make that will build flexibility into the plan. This is why it’s a good idea to consult with an expert who can help guide the process so that your company gets exactly what it needs.

How can a company identify a firm to partner with that can provide employee benefits resources?

Find a partner with expertise who has dedicated resources. The 401(k) business has exploded in the last decade — firms see the assets and fee potential and want to jump into the business.

But it’s a complex market, and businesses should be sure that their vendors have the market insight and tools to steer them through the changing landscape.

Jeff West is first vice president of wealth management at Old Second National Bank in Aurora, Ill. Reach him at (630) 906-5500 or jwest@oldsecond.com.