Starting a Business? Don’t Tap Your 401(k)

Let me think about this.

I can give my client this calendar listing all the work his key people will have to do during the next 12 months to maintain a 401k plan, or I can tell my client that “I understand you have a business you are running and you are trying to make money, I have found an innovative solution that allows you to throw this calendar away.

I understand you need your CFO giving you valuable information as opposed to dealing with employee loans, hardships, 5500’s or year end plan audits. I understand you need your CFO to focus on your business. The management team at amsource running 401k Safe who have been in business for 20 years will actually put their names on all of the legal documents and take personal responsibility as plan Sponsor, Administrator and fiduciary. Hmm, let me think about it….

http://wwwrs.massmutual.com/retire/pdffolder/rs2468.pdf

http://www.planadviser.com/West_Virgina_Mulls_State_Retirement_Plan_for_Small_Businesses.aspx

Given the economy we have seen a higher number of clients that have laid off part of their workforce. Each situation is different and the IRS rule is not clear. The IRS states, “Whether a partial termination occurs depends on the individual facts and circumstances of a given case.”

If you have clients that have downsized encourage them to execute on their process to comply. If you are calling on new prospect it might be an opportunity to add value if they down sized and failed to fully vest employees that were laid off.

http://www.irs.gov/retirement/participant/article/0,,id=151798,00.html

Think about it. A company can either expend energy in areas that will yield profits or they can push paper. The only resource that is truly limited is time. It is by far the most precious resource on the earth. Year end 401(k) audits, investment committee meetings, processing employee loans and hardships while critical yield no impact on the bottom line. Given the opportunity, high performance management teams will work to outsource all activities that don’t have the potential to increase net income.

http://money.cnn.com/news/newsfeeds/articles/marketwire/0577565.htm

AD, Yes, If you read the Fred Reish article, Fred list four (4) primary tools to mitigate risk for investment related losses in participant accounts: #1 QDIA, #2 Participant investment advice, #3 404(c) compliance, and #4 Section 3(38) advisor. 401k SAFE covers all that Fred Reish mentions above. For example: We have Stadion taking care of #1 & #2. We are in compliance with #3 by the processes we have in place and with Ibbotson, we have the 3(38) investment advisor role covered. In addition, amsource is a full scope 3(21) advisor that has delegated the investment monitoring process to the 3(38) advisor. Hope this helps!

http://www.reish.com/publications/article_detail.cfm?ARTICLEID=867

Alan Ridgway
Senior Partner
amsource 401k SAFE
1608 13th Avenue South
Suite 200
Birmingham, AL 35205
1-888-401k-SAFE (1.888.401.5723)
Cell: 205.914.8412
www.amsource.net

——————————————————————————–
From: AD Financial Advisor, AIF
Sent: Wednesday, January 13, 2010 10:03 AM
To: Alan Ridgway
Subject: Follow up Question re 401k SAFE

Alan, I wanted to follow up on a specific question. Will 401k SAFE take on serving as the fiduciary under section 3(38) of ERISA and state that in writing?

Regards,
AD, AIF®
Group Retirement Plans

Working Smart!

One of our partners shared that he was helping a new advisor understand the value of using 401k Safe in his marketing efforts to gain new fee based clients. First he told him that if he called a hundred prospects marketing fee based planning he would most likely get one new client, he then went on to explain that he would easily triple that number leading with 401kSafe.

First, employers with in excess of a hundred employees usually have an in house CFO that is dealing with a 401k annual plan audit. The CFO already has an appreciation of the administrative burdens and it’s not a difficult conversation to bring him up to speed on the fiduciary liabilities they face as plan sponsors. (See CFO Magazine link on partner portal). In many cases CFO’s are open to a new solution that solves both the administrative and fiduciary challenges of maintaining a 401(k) plan.

Once a plan is sold the advisor will begin to develop a relationship while reviewing plan options as well as understanding the details of ownership and affiliated entities in completing the adoption agreement. The 401kSafe on boarding process sets the stage for developing a deeper relationship with high net worth clients.

Innovation makes the world go round!!

This is unfortunately not uncommon, but it’s usually related to a termination. This is the first time I have seen this relating to a 401(k) plan, but it doesn’t surprise me.

Over the last 18 months we have seen spike in employee calls requesting loans and hardships. We have full time associates that take pride in being courteous, respectful, and timely when employees need assistance. Over the past 20 years we have learned from working with clients in our HR outsourcing business the importance of working to minimize conflict, especially when dealing with terminations and other sensitive issues like denying a hardship request.

Unfortunately, some employees will remain irate regardless of how the situation is handled. Associates should be sensitive to distinguish between employee that is upset vs. irate or threatening. When the latter occurs employers should have a plan of action to maximize the security of their associates.

I would like to think that these tragedies could be avoided if best practices where followed, but realize that in some cases people just unexpectedly go off the deep end. My thoughts and prayers are with these people, what a waste..

http://www.wbir.com/news/national/story.aspx?storyid=110005&provider=gnews

The article states:

“Industry experts expect that regulations on 401(k) plan fee disclosure and investment advice will be finalized this year and that their implementation will prompt a wave of financial advisers to exit the market.”

I am not sure I buy the part about advisors exiting the market at least not voluntarily. Advisors that inform their clients that as plan sponsors it is their fiduciary duty to know what they are paying in fees and to take steps to insure it is reasonable will thrive. The advisor’s that fail to inform their clients of their fiduciary duties as plan sponsors will lose both credibility and business. Market share will shift to the former.

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20100103/REG/301039987&ht=401%20(k)

The world has changed. There is nothing like the threat of losing market share, profits, and credit to spark innovation. If success breeds complacency, crisis breeds innovation.

In the January issue of Harvard Business Review they list the “Ten Breakthrough Ideas for 2010.” Number one on the list is “What really motivates workers.” It’s not “recognition, incentives, or clear goals” as the majority of managers thought, it’s “Progress.” People take pride in getting better; “meaningful accomplishment.”

What does this have to do with your employer clients that offer 401(k) plans? Unless your client is providing 401(k) services to their clients it’s not “progress” it’s administration.

Management teams have a renewed since of focus on driving innovations that lead to better products and services at lower costs. Partnering with other firms to increase time spent focusing on innovations that increase production efficiencies and service is a strategy that all successful companies will aggressively execute.

We hope you will join us in 2010 in offering employers a 401(k) solution that not only keeps your clients Safe, but also increases the most valuable resource a company has, TIME to focus on innovation!

Call us at 1-888-401k-SAFE or register at our partner portal.

Lee Lichtenstein