Retirement plans are complex and can be confusing to navigate. This challenge can be magnified when you are just getting started and don’t know what you don’t know. Not to worry – we have outlined below the main elements that need to come together to setup a Retirement plan for your Association and be sure it is designed the way you want it to be:

Plan design

Retirement plans are setup and governed by what is known as a “Plan Document.” The plan document simply outlines the framework for how the plan will function and how employees will participate. There are many sections in this document and it’s easy to get confused, so below is an outline of the most significant parts and what you’ll need to answer in order to tailor the plan to your Association:

How do you want your employees to benefit from the retirement plan?
Not unlike other benefits you can offer to an employee, you start designing a retirement plan by detailing the “eligibility criteria” that needs to be met to allow your employees to participate. Things such as age, minimum required hours, any waiting period before they can start saving, are some of the components to this. The goal is to make the plan as favorable to employees as you can so that they can experience its value early in employment.

Is your Association going to contribute any money
to the plan on behalf of your employees?

This next component may be the most important section of your plan document because when designed the right way, it accomplishes two important things:

  1. It can allow you to generously support your employees’ retirement success by allowing you to contribute additional funds from the Association in addition to the amount they save themselves. The two main categories for employer contributions are “matching” and “profit sharing.”
  2. The right design can also ensure your retirement plan satisfactorily passes the yearly plan testing that all plans must undergo. Qualified Retirement plans are regulated on the basis of “fairness” and should not be designed to favor certain employees above others. The tests that can cause issues are called ADP/ACP and Top-Heavy tests that measure employee contribution levels across the employee population weighed against compensation. Failing either one of these tests can not only prove costly but may require contributions to be “backed out” triggering taxes and hindering certain participants from saving effectively. However, if you decide to design the plan as a Safe Harbor Plan, that ensures the plan will pass both of these tests each year.

If you need help navigating these plan design elements for your Association it’s a good idea to work with an advisor or broker that specializes in retirement plans and can advise you on your various options.

Plan Administration

As mentioned earlier, Retirement Plans are highly regulated and require both annual compliance testing, but also require annual filings (known as a 5500). To ensure this is done correctly and efficiently each year you should consider working with a dedicated Third Party Administrator (TPA) that specializes in Qualified Retirement plans. A Plan Administrator’s job is to provide dedicated support services to make plan administration easier. This role is critical to plan compliance but can also be a major source of frustration if you are not working with the right partner. TPAs play a critical role helping employees with things such as plan loans, rollovers into the plan, hardships, and distributions from the plan when an employee leaves or retires. When evaluating a TPA look for the following:

  • A high level of quality service. Annual plan testing and administration deals with the regulatory elements of a retirement plan, so working with a firm that makes this experience as easy as possible is important.
  • Plan administration performed at a low or reasonable cost is essential. The market for Third Party Administrators is considerably larger than the market for Plan providers, and this works to your advantage because it keeps costs low due to competition. This is not about buying cheap, because you usually get what you pay for. It is about finding value at a reasonable price. If the current TPA’s service starts to suffer, there are likely many more options at the same cost just waiting to take better care of you.

We caution leaders to examine this function critically especially if either your retirement plan provider is offering it as part of a “bundle” or if your payroll company is offering it as part of their payroll services. While there may be value in the convenience, there may be a drop off in service and there is also always a cost involved.

Plan provider integration

The final element to consider needs to answer the following two questions:

  1. How much does the plan cost an employee?
  2. How easy is it to “use” the plan as it relates to my day-to-day operations?

Evaluating the costs of the underlying funds currently offered against those from alternate providers is an important step to take. What is the cost of participating in the plan (funds fees, and provider asset costs)? No one wants to pay too much to invest for retirement. The challenge with starting a plan from scratch though is there’s no money you can leverage to buydown the underlying investment costs providers charge that tend to be higher in the beginning until you have sufficient assets in the plan where those costs can be lowered. However, that does not mean you need to accept whatever level of plan expenses a provider offers to you. Work with an advisor that specializes in retirement plans so you can do an assessment of the provider landscape to find the most reasonably priced option available.

Once you find a reasonably priced provider it is important to understand how to submit contributions and then access plan information on a regular basis to ensure the plan runs smoothly. This is where working with both a good TPA and a good payroll company is critical. Each provider may integrate a bit differently into your payroll system. It is important to understand this functionality so that the person on staff responsible for payroll and plan contributions feels comfortable in that role. Since employees can make changes to their contribution rate throughout the year this cannot be a “set it and forget it” mentality. While contributing to the plan should not be arduous or require a significant amount of time, it does require oversight to make sure things go in correctly, including any matching amounts that may be coming from the Association.

Setting up a Retirement Plan for your Association is something to celebrate. The process should not become a burden when you align yourself with the right partners that can help you build the plan the right way from day one.

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