401k Retirement Plans --Investment Options, Record-keeper and Broker of Record

As you evaluate various 401k retirement plans, you must choose a Plan Administrator. A Plan Administrator is someone who oversees the operation of the 401k.

In small organizations, it is the business owner; in larger ones it is someone in the Human Resources department. When it comes to choosing a 401k retirement plan, consider three key components: Investment Options, Record-Keeper, and Broker of Record.

The Record-Keeper

The Record Keeper administers either Traditional 401k plans or Safe Harbor 401k Plans. The Record Keeper does all the accounting, participant reporting, testing, and usually files 5500 reports with the IRS.

Investment Options

Various fund families or groups of mutual funds are the "menu" that your employees will be able to choose from.The plans typically allow you to choose from a variety of investment choices, such as mutual funds, stocks (including your company’s stock), bonds and guaranteed investment contracts (GICs; similar to certificates of deposit).

It is important to consider your risk tolerance and investment time horizon (how long you have until retirement), and to invest accordingly. Generally speaking, younger people are advised to invest more aggressively since they have time to recover from any losses and as they age are advised to move toward more conservative investments as they approach retirement.

Most plans allow you to make changes whenever you want, while others permit changes only once a month or once per quarter. Compare this for the various retirement savings plans you are considering if you feel this will be important for your employees.

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Broker of Record

In addition to the Investment Options and Record-Keeper, you may also opt for a Broker of Record. A Broker of Record is a licensed investment adviser who can help your Plan Administrator to enroll your employees in your chosen retirement savings plan.

When choosing a broker, you should seek out one who will also provide the employees with information on their 401k retirement plan to help advise them about where their money should be invested. They will provide details about any fund families available in the plan, and a detailed analysis of the benefits and risks associated with each one.

The Broker of Record can meet with employees annually to give them current information on 401k retirement plans and any new benefits or options they may have available. Employees can be advised of any 401k employer match available to them, and how best to create a plan for retirement savings. He can also be available for employees to call on an as-needed basis.

Unfortunately, many business owners have no idea what they are paying for their 401k plans for small business; they believe that they are paying a lot less than they actually are.

To combat this, be sure to insist on full disclosure about the various fees associated with each of the retirement savings plans you are considering, both to the employer and employee. Then carefully compare the fees for each plan considered; those investment options which have yielded the greatest returns in the past may in actuality netted less for the employee if the fees are greater as well.

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