Retirement plans are awesome…until they’re not! And they’re *not* awesome when they’re a drain on your cash flow, a bane of the plan administrator’s existence, and considered a throw away benefit by your employees. Let’s talk about the back stories on some clean up work we were involved with lately and hopefully you can avoid these mistakes.
We started this cash balance pension plan and now…
…and now they hate this plan. No prior consideration was given to how this cash balance plan fit with future company cash flow, what the ramifications would be down the road as more and more employees became eligible, what the impact of worst-case investment return scenarios would be on the company pocketbook, and suddenly a “great” idea turned into an unexpected $400,000 sink hole of company resources. The worst part? The employees didn’t appreciate the plan; they said they’d rather have the cash. #Fail
This could have been prevented if the advisor involved didn’t have the attitude of “that’s the vendor’s job” and pushed providing wise counsel onto the product deliverer. What I mean by that is the decision to implement the plan (or not) had been left to the plan sponsor with assistance from the Third Party Administrator. Guess what? The TPA representative wasn’t a business owner so they didn’t do much talking about the future plans of the company other than to ask if cash flow was “stable.” When the big bill hit for this year’s plan contribution, the TPA viewed the tax savings as better than having resources to reinvest in growing the business. In short, nobody talked about the future, no one knew to ask, and decision-making power was delegated to non-business-owners.
IMHO, if you call yourself a retirement plan advisor and you’re advising on retirement plans, it’s NEVER just the vendor’s job! It’s the retirement plan advisor’s job to help a client through a very important business decision, and that’s why that retirement plan advisor needs to be a specialist, not a plan dabbler.
Last, there was also no consideration given to how the plan fit with company culture. These employees didn’t view this as a valued benefit (and it wasn’t marketed to them that way either) so instead of corporate leaders getting great goodwill mileage out of the plan, it was received with the same attitude as an ungrateful teenager informing you she doesn’t like the dinner you made.
Don’t let this be you. It’s never just the vendor’s job. Hire a retirement planologist. (Contact us here.)