More Ohio employers are becoming financially stable after the Great Recession. These same business owners are earning high compensation and looking for additional ways to defer taxes. This has led to an increase in companies desiring to start a 401(k) plan.

The 401(k) plan is not only good for retention and recruiting, it’s also a great way to lower taxable income. Plans today are a good blend of benefiting both rank-and-file and highly compensated employees.

“However, when designing the plan, a big pitfall is when an employer doesn’t understand the provisions and how to operate the plan going forward — that can get plan sponsors into a lot of trouble,” says Heather Taylor, QKA, QPA, Manager, Sales and Business Consulting, at Tegrit Group. “Sponsors must stay engaged after the plan is implemented. It’s not just quickly scanning the document and signing. You really need to understand it, because the biggest risk is not operating a plan the way it’s written.”

Smart Business spoke with Taylor about what to know when setting up a 401(k) plan.

What common mistakes do you see when plan sponsors set up 401(k) plans?

Plan sponsors should consult with a third-party administrator (TPA) or consultant to identify a plan design that meets the company’s needs. Too often, providers put plan sponsors in a design that may be easy to administer but does not necessarily meet their goals and objectives. Don’t let a provider put your plan into a ‘box’ to make their job easier. If someone isn’t taking the time to sit down and talk through what you want to accomplish in detail, it’s a sign they may not implement the right plan for you.

Remember to take advantage of annual tax credits. Companies with fewer than 100 employees starting their first qualified plan are eligible to receive up to a $500 tax credit each year for the next three years to offset start-up and installation costs. Employer contributions may be deductible as well.

During the start-up process, don’t rush. Why would you want to offer a bad 401(k)? Ask lots of questions and take time to understand the plan’s limits, testing, reporting and required disclosure notices.

Be sure to give a complete picture of your organization, including discussing other entities you own or plans to acquire or merge with other companies. The more information you provide, the better. You may not think it’s important, but let the experts decide if it’s relevant. For example, controlled group and affiliated service group testing is complex. Your TPA will need to determine if employees at the holding company or other organizations you own (if you are above certain ownership percentage thresholds) must be included in the plan.

What’s key to know about employer contributions?

If you’re setting up a safe harbor plan, employer contributions are mandatory. Take a survey to see which staff will make contributions to get an idea of what your obligation is going to be. In contrast, many traditional 401(k) plans have a discretionary match or discretionary profit sharing contribution, which isn’t required every year.

Safe harbor plans are more common today. They allow highly compensated employees to put away maximum contributions without plan testing. It doesn’t bypass all testing, but is a good option if you’re concerned about discrimination.

Once the plan is set up, what’s next?

You can rely on the experts to perform the above functions, but review the plan regularly. Be aware of and adhere to:

  • Not giving participants investment advice.

  • Timely deposits. For plans with less than 100 participants, the employee deferral deposit time frame is seven business days from the time the payroll is effectively segregated from corporate assets.

  • ERISA fidelity bond coverage. Persons handling plan funds or other plan property generally must be covered by a fidelity bond to protect the plan against loss resulting from fraud and dishonesty.

  • Compliance requirements to avoid penalties and fees.

  • Maintaining updated salary deferral and beneficiary designation information.

You’re also obligated to ensure employees who have satisfied eligibility requirements are given the opportunity to participate by the effective date of the elective deferral component. Failure to do so can be costly in terms of lost earnings and penalties.

Heather Taylor, QKA, QPA, is a manager of Sales and Business Consulting at Tegrit Group. Reach her at (330) 983-0519 or

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If your company sponsors a pre-approved defined contribution retirement plan, such as a 401(k), money purchase or profit sharing plan, your plan documents will need to be completely revised and restated sometime between May 2014 and April 2016.

The IRS requires this restatement process every six years to incorporate all of the regulatory and legal changes that have been imposed by Congress. Without it, the plan will lose its tax-favored status.

Your retirement plan administrator should be having a dialog with you about this already, says Bonny Lightner, J.D., Manager of Technical and Legal Compliance at Tegrit Group.

“We try to get to people right away, especially if they haven’t done anything with their plan in the past six years,” she says. “If plan sponsors know in advance, they can budget for it and have time to be able to really look at it.”

Smart Business spoke with Lightner about what employers need to know regarding restatements, and how to take full advantage of this opportunity.

Which plans must undergo restatement?

About 80 percent of all retirement plans rely on pre-approval letters from the IRS, where the IRS gives its ‘blessing’ to a plan document format with certain limited elections for plan provisions. While all plan documents are extremely complex, a pre-approved document can make a plan less expensive to create and operate than an individually designed document.

All pre-approved defined contribution plans must undergo the restatement process during the upcoming two-year period.

What does the restatement process involve?

This process involves the document drafter — such as a third-party administrator — reviewing, rewriting and updating the plan and summary plan descriptions (SPD), and then assembling and delivering the plan, SPD and related policies to the plan sponsor for approval and signature. Related policies may include separate loan policies, qualified domestic relations orders policies — which are used as part of divorce settlements to divide up a participant’s 401(k) benefits — or withdrawal policies.

How else can business owners benefit from going through a restatement, aside from retaining their IRS tax-favored status?

The plan restatement process is an opportune time for a comprehensive plan review. Don’t just update and restate the document, have your document drafter take an in-depth look at the plan in order to see if it is really meeting your needs. Use this time to:

  • Confirm the document provisions match the actions of how the plan is being operated.

  • Identify whether changes are necessary or wanted going forward, such as wanting to add a Roth feature.

  • Enhance the plan design to be more in line with your objectives, such as tax and retirement objectives, based on workforce demographics. For example, if a person is 50 years or older, he or she can defer catch-up contributions on top of his or her regular deferral amounts. If an employer sees its workforce is aging, the company might want to add that.

  • Maximize the value of the plan by making sure that it still meets the needs of your company and its employees.

This type of consulting may or may not be part of the restatement fee, but either way it’s something to strongly consider. Otherwise, six months down the road, the plan sponsor might say, ‘I really don’t like X provision.’ The change will then require an amendment — and amendments have a fee.

Even if you love your plan the way it is and want to keep all plan provisions the same, you still must have your plan updated during the restatement period from May 2014 to April 2016. The fee to restate the plan for IRS compliance may be paid from the plan’s assets if the plan document permits.

Remember, failure to restate a pre-approved plan could result in loss of the plan’s tax-favored status with the IRS. This in turn could result in loss of deductibility of employer contributions to the plan, immediate recognition of income to plan participants on vested account balances and loss of tax-exempt status to the plan’s trust. Missing the restatement deadline is a serious matter.

Bonny Lightner, J.D., is manager of Technical and Legal Compliance at Tegrit Group. Reach her at (330) 983-0560 or

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Regulatory audits of retirement plans are on the rise — in number and scope — from both the Department of Labor (DOL) and the IRS.

“The DOL has hired hundreds of plan auditors and they are actively looking for violations. Trivial issues, or issues often overlooked in the past, are now being scrutinized during a regulatory audit,” says Mike Spickard, CEO and Chief Actuary at Tegrit Group. “The IRS or DOL will always find something during an audit; often, there are penalties, interest and some pain involved.”

Smart Business spoke with Spickard about avoiding regulatory audits, and what to do if that’s not possible.

Why has there been an uptick?

From the DOL’s perspective, the No. 1 trigger of a regulatory audit is a pattern of participant complaints. Additionally, the IRS and DOL have started to communicate with each other more frequently in the past four or five years. So, if the IRS tags you for an audit and auditors see problems within the DOL’s jurisdiction, you could be dealing with two audits.

How can plan sponsors avoid audits?

To prevent an audit, be an engaged plan sponsor. Know what’s going on with your plan and manage it as part of your corporate operations. Though a plan sponsor’s primary responsibility is running his or her business, it must be recognized that a retirement plan is both an asset and a liability, and needs to be managed as such.

Your plan must be amended if the law or your company changes. Everything needs to be up to date, and the plan administered pursuant to the terms of its document. At a minimum, have an annual review with all service providers, your recordkeeper, third-party administrator (TPA), financial advisors, etc., to ensure everyone is on the same page.

Further, it’s important to stay in tune with your employees. This enables you to deal with plan issues, real or perceived, before participants call the DOL.

What triggers a regulatory audit?

The IRS does not disclose how it selects plans for audits. Audits are partly random, but certain activities may raise flags, such as a late Form 5500 or negative publicity surrounding a troubled company. Certain Form 5500 responses also may trigger an audit. For example, one question on the form is: Did the plan have a fidelity bond in place throughout the plan year? A fidelity bond is required; a ‘no’ may indicate you don’t know what you’re doing, causing a response from the IRS.

What should you do if tapped for an audit?

When you get the initial audit notice, let all your service providers know. Often one service provider, usually the TPA, takes the lead. But it’s easier to respond if records are organized and information is readily available. Disorganization causes auditors to linger, which ultimately costs more.

The DOL or the IRS gives the sponsor, and its advisors, time to gather plan documents, amendments, payroll records, contribution reports, record-keeping reports, etc. Screen all necessary information, as well as any additional information that could be required later. Only give auditors what they ask for.

After the initial review, auditors decide if they want to do a deeper dive on specific issues, or expand the audit to additional years. If your service providers compare notes and plan, you can at least stay in step with the auditor, if not one step ahead.

Afterward, how can business owners thrive?

Pay attention to the audit findings, not only addressing problems throughout the audit, but also indications of future problems.

If you successfully defend an issue, the fact that an auditor challenged it is an opportunity to seek a better solution. For example, it was discovered during an audit that one small business mailed checks to its recordkeeper, delaying the deposit into participant accounts while the check was in transit. This delay isn’t necessarily a violation, but a better alternative would be an automated clearinghouse or wire transfer. Even in successful audits there are opportunities for improvement.

Mike Spickard is CEO, Chief Actuary at Tegrit Group. Reach him at (330) 644-2044 or

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During a merger and acquisition (M&A), both the buyer’s and seller’s retirement plans have ramifications on the deal and its aftermath.

“Make sure you get the right people involved in advance of any acquisition, whether you’re a buyer or seller,” says Don Dalessandro, QPA, QKA, Vice President of Finance at Tegrit Group. “It can be difficult because some people are not privy to this information, but if the CEO, CFO and others doing the deal don’t understand the plan, they should involve somebody that does before it comes back to haunt them.”

Smart Business spoke with Dalessandro about handling retirement plans in an M&A.

Why involve a plan administrator early in the M&A process?

A plan administrator can help with the financial and fiduciary due diligence, laying out the costs and liabilities associated with both retirement plans and how they match up. For example, if your company provides a 4 percent match, but the seller only gives a 1 percent match, you may need to calculate the extra cost of bringing newly acquired employees into the plan.

Retirement plans also have notification requirements. If a buyer or seller plans to merge or terminate a plan, it must follow Employee Retirement Income Security Act (ERISA) regulations. Examples are 30-day participant notifications prior to certain plan changes or a ‘blackout’ period where participant access to plan features may be curtailed. Also, if you terminate a plan, all participants must be 100 percent vested in all plan accounts, which could be an additional cost.

As a buyer, what else should be considered?

Think about whether it’s going to be a stock or asset purchase. If it’s a stock purchase and you absorb the selling company’s plan, you take on many of the risks and liabilities from previous years. In many cases, the buyer may request that the seller terminate its plan prior to the sale. This takes time and coordination, and may adversely impact participants’ retirement goals — as much of the plan participants’ money may be spent or used for other purposes.

With an asset purchase, even though you are not taking on liabilities, you still must consider the companies’ cultures and how to best integrate by comparing plan provisions, such as eligibility, matching contributions, vesting, etc. Whether you merge plans or not, you will likely change certain provisions of your plan as your company is growing and changing as a result of the acquisition.

You will want to understand who the decision-makers are, such as trustees, plan administrator, custodian, record keeper and others who may be making fiduciary decisions. Making a change to the decision-makers may require committee resolutions and amendments, which may be beneficial prior to the acquisition.

How should due diligence be conducted?

As a buyer, make sure the seller has administrated the plan according to ERISA regulations. Ask for prior Form 5500s. Companies with 100 or more plan participants are generally required to have audited financial information as part of the Form 5500 filing. Also, ensure that timely contributions have been made. There is appropriate fiduciary liability bonding, and an investment or retirement committee with meetings and written minutes. The company should be following proper procedures and policies, and all documents are in compliance and signed.

A possible deal breaker is an underfunded defined benefit plan, which promises to pay certain monthly benefits. If the liabilities are too high, it becomes difficult to terminate the plan. Additionally, it may require that you continue to fund and contribute to the plan, which can be expensive going forward.

After the sale, what’s critical to know?

In addition to following ERISA, if you maintain two separate plans by the last day of the plan year following the year in which the two companies merged, a coverage test runs on both.

If the plans have different matching structures, eligibility rules or provisions, they must meet the ‘benefits, rights and features’ test as a single entity. This ensures you don’t discriminate in favor of highly compensated employees. Many people forget, and then two years later realize they never did the testing. Like many of these decisions, it takes careful planning.

Don Dalessandro, QPA, QKA, is Vice President, Finance at Tegrit Group. Reach him at (330) 983-0527 or

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Many retirement plan sponsors don’t realize the significance of breaching their fiduciary responsibilities.

“Being a plan sponsor should not be taken lightly, and being a fiduciary especially should not be taken lightly. There can be, and have been, severe consequences for breach of fiduciary obligations,” says Rob Martin, ERPA, QPA, Senior Team Manager at Tegrit Group. “So, take them seriously and find sound professionals and service providers to guide you.”

Even though the company is sponsoring the plan, a fiduciary is a named individual. Therefore, with very egregious errors, the personal assets of the individual fiduciary could be at risk.

Smart Business spoke with Martin about handling fiduciary obligations.

What fiduciary obligations are retirement plan sponsors responsible for?

The fiduciary obligations are to look out for the best interests of the plan participants and to put their needs before any personal or employer needs. The plan sponsor must have a written investment policy statement that includes how the selection of fund offerings and service providers are made.

If one of the funds has a bad year, it doesn’t necessarily mean the sponsor didn’t do its job. As long as the process is in place to select that fund beforehand — a process that compares past history with benchmarks and other funds in that same category — then there will be no problems from a Department of Labor (DOL) standpoint.

What can happen if sponsors fail to meet their fiduciary obligations?

The DOL has made a point of emphasizing fiduciary obligations when it comes to auditing retirement plans. The DOL audits can occur randomly or if there’s been a complaint against the company.

If a DOL audit finds problems, the sponsor will need to correct them quickly. For egregious errors, the DOL will hold the fiduciary in violation and go through the legal system. Even if a fiduciary is found in good standing, it takes extra work and time, including possibly paying service providers, to find needed items.

Civil lawsuits are another danger if you’re not following DOL guidelines.

How should these obligations be managed?

One of the best places to find information is on the DOL’s Web page: Meeting Your Fiduciary Responsibility, Plan sponsors should call third-party investment administrators or investment advisors for further assistance.

Sponsors need to answer participant questions in a timely manner. Otherwise, participants may file a DOL complaint and/or lawsuit. Once a suit is filed, fiduciaries will have legal fees and face the consequences of the case’s outcome.

Plan sponsors should also have a default account, known as a Qualified Default Investment Alternative (QDIA). A QDIA protects the fiduciaries from participants who do not make an investment election or who fall short in making a full investment election.

What is the biggest hot button area to keep an eye on, as a fiduciary?

The hot button area right now is fees. Part of being a fiduciary is to provide the new fee disclosure notice to the participants. This started in 2012 and now must be provided annually or quarterly to the participants, depending on what’s being disclosed.

Another important fiduciary responsibility is making sure plans have reasonable plan expenses. The plan sponsor should have a process, as part of the investment policy statement, to examine service providers and see whether it pays reasonable plan expenses, by utilizing professionals who provide benchmarks for comparison.

Do late deposits remain a concern?

The DOL is still pursing this. These typically apply to making timely participant contributions and loan repayments — not employer contribution deposits. More specifically, for plans with fewer than 100 participants, the DOL considers timely to be within seven business days.

With all fiduciary obligations, the key is choosing professionals with a good understanding of the requirements, which can be investment advisors, third-party administrators or record keepers.

Rob Martin, ERPA, QPA is a Senior Team Manager at Tegrit Group. Reach him at (614) 458-2023 or

For additional retirement planning tips, visit Tegrit’s Advisor Resource Center at

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The retirement plan marketplace is a buyer’s market right now. Plan sponsors that haven’t shopped around in the past couple years might not be getting the most value for their money.

“The retirement marketplace is constantly changing with the addition of new products and services and the compression of costs,” says John Adzema, Vice President of Sales and Consulting at Tegrit Group. “Plan sponsors need to be aware and take advantage of these enhancements.”

Smart Business spoke with Adzema about the necessity of reviewing and benchmarking your retirement plan.

How often should plan sponsors have retirement plans reviewed?

Have your plan reviewed every three years or as certain events dictate, such as company acquisitions/divestitures, workforce changes, etc. You also could look at your company and its demographics to see if it makes sense to add another plan type such as cash balance, employee stock ownership or non-qualified.

What should you discuss with your financial advisor during a review?

As the plan quarterback, the financial advisor typically is tasked with overseeing plan investments, taking some type of a fiduciary role and managing the involved service providers. So, you should ask:

  • Are my plan costs reasonable?
  • Are my plan’s service providers, including the financial advisor, meeting service standards and helping me meet my fiduciary requirements?
  • Are the plan investments performing as expected?
  • Is my plan receiving the best consulting and latest technology?
  • Are my employees getting the investment help they need?

What could happen if plans aren’t reviewed?

Even though you might not change anything, you need to compare your plan to the marketplace. You may save on costs or be able to expand to another fund family. You could get more tools for participants, website capabilities and educational materials. If your company acquires another  firm and the plan assets increase from $1.5 million to $8 million, not only do you need to review from an operational standpoint to ensure compliance, but as a bigger plan you’ll have more purchasing power.

There can be legal consequences as well. In March, a court ruled against the plan fiduciaries in Tibble v. Edison International because they selected retail mutual funds with higher fees when lower cost institutional funds were available. To protect against Tibble-type claims, fiduciary committees should:

  • Follow written plan documents and procedures, including any investment policy statements and committee charters.
  • Document committee meetings and decisions with respect to plan investments.
  • Review 408(b)(2) fee disclosure information and benchmark fees to comparable plans based on the number of participants and plan assets.

What’s the value of benchmarking?

Retirement plan benchmarking is the act of comparing your own plan’s qualities to similar plans. People immediately think about the plan investments or costs, but benchmarking also extends to a plan’s operating provisions and comparing your plan to plans of the same demographics, industry and geography. Benchmarking this helps ensure you are getting the best value for the price paid.

It’s wise to benchmark certain plan items like investment rates of return on an annual basis, but the entire plan’s workings and its service providers should be reviewed at least every three years.

Any final words on benchmarking?

Your financial advisor or another trusted party should carry out the benchmarking process for a consistent and independent approach. Generally you will get better pricing if you’re a bigger plan with larger average account balances and your plan is easier to run.

While benchmarking is a good indicator of what the masses are experiencing, your plan may have unique provisions that work well for you and your employees. If you pay a little more for someone to administer a plan that’s outside of the norm, then that’s OK.

John Adzema, QPA, QKA, TGPC, AIF, is vice president of sales and consulting at Tegrit Group. Reach him at (330) 983-0525 or

Visit Tegrit’s Advisor Resource Center for additional retirement planning tips.

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Retirement plan sponsors, now more than ever, need to be diligent in carrying out their fiduciary responsibilities. The Department of Labor, IRS and other agencies have eyes on the industry, especially with new retirement planning fee disclosures and a soon to be proposed expanded definition of “fiduciary.”

“The business owner who says, ‘I’m hiring these service providers to run the plan and I don’t have to worry about it’ is nonetheless ultimately responsible if there are problems,” says Paula M. Lewis, Manager, Client and Advisor Experience, at Tegrit Group.

Smart Business spoke with Lewis about what business changes could signal that retirement plan adjustments are necessary.

Who do plan sponsors deal with?

Plan sponsor decision-makers depend on industry experts for assistance in managing their roles and responsibilities. Although some parties may serve multiple roles, the sponsor may engage an accountant, an investment advisor, an actuary, an ERISA attorney and a third-party administrator (TPA), with each having important and distinctive functions impacting the plan’s operation.

Despite having all these providers in place, the ultimate responsibility for the plan still lies with the plan sponsor. Employers sometimes put in a retirement plan and just let it ride, but then no one is ensuring the plan grows and changes with the company and its employees.

In this dynamic environment, it’s crucial that all parties communicate. It’s best if you know that your service providers work well together, which lessens the risk of something being missed, and the best course of action is being charted.

What changes need to be communicated?

Usually, over time there are changes to the employee demographics, financial standing and even the goals of a company. The company’s retirement plan should also change over time to reflect these changes in employees, finances and objectives. Certain changes always should be communicated to plan service providers, including:

  • Changes in ownership.

  • Acquisition or divestiture of another company.

  • Family members becoming employees of the firm.

  • Major compensation changes of key personnel.

  • Retirement plan goal changes of key personnel.

It’s confusing to know who to tell what, but generally, the investment advisor and TPA should be made aware of all of these changes, as they may impact fiduciary considerations and compliance. The investment advisor, along with the TPA, should be able to analyze any changes, determine which parties need to be informed, and make any plan changes to avoid any problems or penalties and ensure the plan is designed to maximize the benefits and goals of the company.

What can happen if changes aren’t reflected in the plan?

There are various penalties that are imposed if a plan falls out of compliance because of changes at the plan sponsor level. Late amendments and failed compliance testing are but two. For instance, if the spouse of the owner of one company purchases a separate company, the two companies can be considered a ‘control group,’ and for plan purposes are ‘one.’ Upon an IRS audit, the less generous company may have to increase its plan contributions, which could be an expensive correction avoidable with advance planning and appropriate plan designs.

When acquiring a company with a pension plan, you acquire its liability, especially if it’s underfunded — unless the acquisition agreements are carefully worded. Without advance planning, closing a division could produce a costly surprise as it could be considered a partial plan termination, requiring that the terminated employees be 100 percent vested.

Another area that can cause compliance issues is how certain family members of owners becoming an employee impacts the retirement plan. According to the IRS, he or she is considered highly compensated regardless of their salary. That could cause a plan to require corrective contributions. It is crucial to keep the lines of communication open with your advisors and TPA.

Paula M. Lewis, QPA, QKA, manager, Client and Advisor Experience, at Tegrit Group. Reach her at (330) 983-0485 or


Website: Visit Tegrit’s Advisor Resource Center at for additional retirement planning tips.


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Yes, there are still many companies that maintain defined benefit plans, but most ceased crediting benefits years ago to stop the pension liability growth. However, even though the majority of Fortune 100 and 500 companies have frozen their plans, they often still have contributions due for what participants have already accrued, as plans typically aren’t 100 percent funded at the time they are frozen. If a company hasn’t settled its obligation or transferred the risk, then it still owns it.

Rich McCleary, Director, Actuarial Service, at Tegrit Group, says, “It’s a popular discussion topic. Our firm has over 300 defined benefit plan clients with whom we work, and many traditional plan sponsors we talk to want to find a way to terminate their plan.”

Smart Business spoke with McCleary about how business owners can mitigate their defined benefit plan risk.

How do defined benefit plans differ from other retirement plans?

A defined benefit plan promises a certain amount of benefits, typically in an annuity form, at retirement to plan participants. The company contributes to the plan and maintains the obligation to provide those benefits once they are earned or accrued. Much like the Social Security system, promises to plan participants are virtually irrevocable. If a company can’t fulfill them, the Pension Benefit Guaranty Corporation (PBGC), the governmental agency that insures pension plans, will step in.

What’s the current situation for defined benefit plans?

On the investment side, pension plan performance has been lackluster over the last decade, remaining steady or decreasing slightly against expectations. In addition, in this severely declining interest rate environment, liabilities have consistently gone up. Along with that, the federal government has continually passed regulations to make the funding requirements more stringent.

Companies maintain this liability and risk on their balance sheets, and the liability remains until the last participant or contingent beneficiary is paid out. Manufacturing in particular has been hit hard, as the industry often used these plans to meet union benefit demands. Also, the liabilities on the balance sheet don’t truly reflect the entire economic cost of the plan. There are numerous administrative expenses, such as fees for investment management, actuarial, legal and accounting, as well as PBGC premiums, which can add 3 to 5 percent to the liabilities.

What are some strategies for plan sponsors to mitigate risk?

Liability-driven investments are a popular way to drive down the risk. Investment managers can help with transferring the risk into fixed income investments that closely match the duration of the pension liabilities.

In order to reduce their pension risk, some large companies have offered lump sum payments to retirees and beneficiaries. Although there might be a higher initial cost, the pension liability is transferred either directly to the participant or an insurance company, which improves the stability of the balance sheet and ultimately, shareholder value. Amazingly, some companies have pension plans with liabilities that approach or exceed the total market capitalization of the company, creating volatility and jeopardizing profits.

Although a smaller company may not be publicly traded, it can find ways to get the necessary cash from other sources besides loan covenants or issuing bonds. As an example, one business took out a second mortgage on its building because it happened to be cheaper at the current mortgage interest rates and loan period than paying down the pension plan liability. However, there are accounting and tax implications that occur when transferring risk, so use expert advisers to carefully review the balance sheet and make sure the risk transfer makes sense.

Rich McCleary is Director, Actuarial Service at Tegrit Group. Reach him at (330) 983-0539 or

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Defined benefit pension plan changes have received a lot of press in the past year. Ford and GM offered lump sum payments to retirees. Many sponsors froze their pension accruals or changed pension plan designs. And now, more plan sponsors are considering these and other changes.

Amy Terry, Director of Benefits Administration and Outsourcing at Tegrit Group, has helped many organizations to communicate pension plan changes.

“The costs involved in communicating change to participants can be significant,” she says. “Regardless of the size of the budget, sponsors who consider their options and develop an effective strategy can realize the best return on their investment.”

Smart Business spoke with Terry about pension change communication strategies.

When planning a communication strategy, where should plan sponsors begin?

A good plan often begins with the end in mind. Know what changes are being made to the plan, the purpose for those changes and what actions participants will be asked to take. Know your participants and how they have reacted to past communication efforts. Consider the communication channels available to decide if new or different channels should be used. And, as always, remember the budget available.

Complex changes or changes that require participant action may need a longer timeline from the initial rollout through the conclusion of the process. Plan to have regular communications throughout to keep participants informed of where everything stands and what is coming next. When plan sponsors don’t keep participants informed, rumors and misinformation can spread. When plan sponsors effectively manage the message throughout the process, they are more likely to realize the desired outcomes, maintain participants’ morale and keep the entire process moving on time and on budget.

Who should be informed first and why?

Begin by ensuring the organization’s leaders, HR and management are ready to assist in driving the message consistently. Having the buy-in of leaders is crucial.

Once the organizations’ leaders are in agreement with the changes and timing, both HR and management must be informed and prepared to talk with employees. Many employees will go to their HR contacts or managers for more information.

Then, share the change and the reasons for the change with participants early. Being clear and direct from the start will help ease participants through the transition and allow sponsors to reinforce the message throughout the process. Often, sponsors will keep the first communication brief, informing participants of the change and notifying them of next steps and timing for future communications.

How can you ensure participants take the necessary actions?

When requiring participants to take action, make it as easy as possible. For example:

  • Do you want them to return a hardcopy document? Enclose a return envelope.

  • Do you want them to log onto a website and respond electronically? Ensure participants all have the necessary login information and instructions in advance.

  • Do your participants want to talk with someone? Open a call center to ensure your participants can reach someone to ask questions or discuss the changes.

When offered a choice, how can employers aid participants with their decision?

Not all sponsors are comfortable offering advice to participants. It is common to direct participants to consult with their own financial adviser or tax consultant when facing pension plan decisions. However, many organizations have buying power that allows them to make advisory services available to participants.

If your defined benefit pension plan change will offer participants a lump sum, then a rollover into a 401(k) or other qualified defined contribution plan is an option participants should consider. Most 401(k) providers offer advice for a fee. Contact your 401(k) provider to determine if it will offer free or discounted advice services during the decision period. Alternatively, sponsors may want to engage a reputable independent adviser to offer seminars and advice for a flat fee.

What communication method works best?

Plan sponsors have a variety of tools at their disposal; however, it often requires a combination of communication methods to ensure the message reaches all participants. Knowing your participant population and how it reacts to regular communications, like annual open enrollment for their health and welfare benefits, may offer clues to deploying communication resources that are effective for your organization and the change you are considering.

Email and face-to-face meetings may work best for current employees, whereas direct mail may be the best option available for terminated and retired participants. Posting information on the company website may be more effective and efficient for younger participants, particularly when follow-up action is required. Older participants may want to talk to someone live, requiring a call center.

Do employers need additional help? 

There are many pension professionals who have experience with communicating change to employees. Your actuary or third-party administrator will know your pension plan and may be a great place to start.

By effectively managing the message, making it easy for participants to take action and consulting with participants where it’s appropriate, sponsors can help participants make the decisions best for them and their families.

Amy Terry is Director of Benefits Administration and Outsourcing at Tegrit Group. Reach her at (330) 983-0580 or

Insights Retirement Plan Services is brought to you by Tegrit Group

Published in Akron/Canton

The Pension Protection Act and recently passed pension legislation amounted to hundreds of pages of regulations affecting 401(k)s and other retirement plans. The size and heft of these laws speak volumes about the complexity and difficulty of administering retirement plans.

In addition, the Department of Labor has increased the number of retirement plans that it audits. DOL statistics show an estimated 70 percent of retirement plans audited in 2009 and 2010 were fined, received penalties or had to make reimbursements for errors. During this time period, the DOL collected $1.08 billion in corrections, reinstatements and fines.

“Fortunately, business owners who provide retirement plans for their employees don’t have to digest the Act or become experts in pension administration if they simply consult a local third-party administrator,” says Brian M. Smith, Director of Sales and Consulting with Tegrit Group.

Smart Business spoke with Smith about how to utilize third-party administrators (TPAs) when trying to decide how to structure your company’s retirement plan.

How can a TPA help with retirement plans?

TPAs provide a wide range of retirement plan services for business owners, from consulting on regulatory changes and maximizing retirement plan designs to administering defined contribution and defined benefit plans. Many small and medium-sized employers lack a dedicated, in-house specialist to administer retirement plans. Working with a local TPA fills the need to have a benefits expert close at hand.

TPAs work closely with dozens of business types in a variety of industries. They understand the challenges business owners face such as rising taxes and business expenses, health care reform, retaining talented employees and more. That means your local TPA is well equipped to help you design a retirement program that meets the unique needs of your company, squeezes the most out of your benefit dollars, provides incentives for your employees and helps you accomplish your own retirement goals.

Why is this kind of assistance so important to business owners?

Running a successful business of any kind is more difficult than ever in today’s challenging economic climate. For many business owners, offering a qualified retirement plan is an ideal way to attract and retain key employees, as well as help the owners plan for their own retirement. For example, given the competitive work landscape, employer match programs are becoming more popular as tides are turning.

The issue facing many business owners is determining the type of plan that is best for their employees and themselves. Is it a defined contribution plan like a 401(k) or a defined benefit plan?

Selecting the right plan for your business is a crucial step and a third-party administrator, with expertise in plan design and administration, can help assist you in meeting your fiduciary responsibility to the plan while providing a path for your participants to achieve their retirement goals.

Has it become common for business owners to utilize TPAs  to administer their retirement plans?

When you bring together years of experience implementing and serving plans, the retirement plans can be more specialized. Businesses can think more outside the box with the expertise of TPAs, as there’s no longer a check-the-box, cookie-cutter solution.

What should an employer look for when deciding on a TPA?

Before you team up with a local TPA firm, make sure you do your due diligence, as not every TPA has the same level of expertise. Ask the right questions to make sure you have a good fit, such as:

  • How extensive are the TPA’s services? Does the TPA specialize in a specific niche such as 401(k) plans, or does the firm consult on a broader range of retirement benefits?

  • What is the TPA’s reputation in the marketplace? Check references to determine if the TPA is easy to work with, whether or not it delivers quality service and if it designs effective retirement plans. Ask for specific case studies.

  • How long has the firm been in business? How many plans and participants does it service?

  • Is it willing to propose a retirement plan design for your company, at no cost, that takes into account your employee and business needs?

  • How many employees does it have? Do employees have credentials or receive training from professional organizations such as the American Society of Pension Professionals and Actuaries?

If you are unaware of the TPA firms that are available locally, contact the provider of your retirement or other benefits programs for referrals. Most providers work with a nationwide network of TPAs that most likely includes some in your area.

Is a team approach or one administrator better when using a TPA for your retirement plan?

There is no right or wrong answer as it depends on the needs of the business. However, a larger TPA firm has the ability to fill more needs than one CPA. The large firm can focus on a host of services from actuarial consulting to plan design to document services. A one-person CPA firm that provides TPA work will be limited in what it can do, so these firms often focus on one piece of the business.

Brian M. Smith is the Director of Sales and Consulting for Tegrit Group’s Columbus, Ohio, office. Tegrit Group is a national leader in actuarial consulting, plan administration and technology solutions for public and private retirement plan sponsors. Reach him at (614) 458-2060 or

Insights Retirement Plan Services is brought to you by Tegrit Group

Published in Akron/Canton
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