As always, this time of year is very busy! As I write this, the Tycor retirement plan team is feverishly analyzing client data for hundreds of plans. It is one deadline after another….1099-Rs must go out, refunds of excess 401(k) contributions must be made, client contribution deductions need to be calculated and provided to the accounting community so they can keep the business returns moving along before the IRS deadline…and so on. Somedays it feels like you are riding a wave so big you just hope the force of it doesn’t crush you….and we love it!
The best part about this season is, with so much going on, everyone is engaged. Clients, participants, and professionals are all focusing on their finances in one way or another. We have no choice; it’s tax season!
This is a great time of year to give yourself a retirement plan tune up.
Individual Account Tune-Up
When was the last time you reviewed your investment allocation, or the amount you are contributing to your 401(k) plan? Do you know if you are on track for retirement? How long will your account last in retirement?
If you answered “Huh?” here’s what I suggest for this time of year:
- Take a look at your investment allocation.
- Do you understand where your money is invested?
- Did you pick those funds? Do you remember how or why?
- Are you diversified?
- Are you invested appropriately based on your current age or risk tolerance?
- Is it time to rebalance your account?
If you aren’t sure about any of the above, now is the time to either contact the investment advisor associated with your plan, or educate yourself using the materials provided by the investment platform. I suggest people do it now, as you are already financially focused trying to pull together your information for your tax return. Spend an hour or two to better prepare yourself for retirement.
- Take a look at how much you are having deducted from your paycheck.
- When is the last time you increased your contribution?
- Is it enough to get you to your desired account balance at retirement?
- Generally speaking, you should try to work up to 10-15% of your paycheck going into retirement savings. How far away are you? If you are at 5% now, make a deal with yourself to increase it gradually each year until you reach the desired savings level.
- Are you contributing pre-tax, or post-tax (Roth)? Do you know the difference? Do you know the advantages of one over the other? Again, contact the advisor associated with your plan, or consult the education materials provided by your investment platform.
Generally speaking, people spend more time planning vacations each year than they do planning for retirement. The reason is simple….it’s more fun! The problem with that is also simple….you will spend about one to two years on vacation when you combine them all….but you will spend decades in retirement. Looking at it that way, it deserves a little more attention don’t you think?
Retirement Plan Sponsors Tune Up
Being a plan sponsor requires attention to detail! Small 401(k) plans tend to have bigger problems than larger ones because they don’t require the audit checks that the plans with over 100 people do. And if you don’t have really good human resource, advisory, and administrative support overseeing your plan operation, things can fall through the cracks.
As you gather your plan and financial data together to give to the various plan service providers, go the extra step to make sure you have all the records required should you get audited.
- Make sure you have the most current plan document and any related amendments on file, signed and dated. It’s not enough just to be able to find that adoption agreement your administrator gave you, it has to actually be “adopted”.
- Make sure you have enrollment forms for every employee that is eligible for the plan…even if they decide not to participate! This is a big one believe it or not…sponsors assume giving the forms or online enrollment instructions is enough, but it is not! If they decline participation and you get audited, the burden of proof is on you to show they actually declined. This can cost you serious money if discovered in an audit; I’ve seen it happen.
- While you are digging through those employee files, do you have a beneficiary election on file for everyone? There can be some drama if someone dies without a beneficiary form on file, so make it a best practice to have those for everyone.
- Do you have all of the required notices on file that you should? Have you distributed the required notices to your participants in a timely fashion, and more importantly, did you document it?
- Do you have everything you need to keep your fiduciary files in order? Fiduciary responsibility does not require that you are right all of the time, only that you have a prudent, documented process, and that you follow it. Attorneys don’t tend to take your word for it, so do yourself a favor: document appropriately and keep it in a file labeled for that plan year.
At Tycor, we try to educate and assist our plan sponsors and participants with making informed decisions – in addition to keeping the proper records. If you have any questions on any of these “tune up” items, please give your Tycor representative a call. We are always happy to help!
This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation.
Using asset allocation and diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.