Sound Investing with Jason Lampa, MBA
Emerging Enterprises who currently sponsor an existing retirement plan or have thoughts of starting one need to be aware of the responsibilities placed on them by the DOL and ERISA. This article will cover the three main areas in which business owners need to be fluent, in order to meet their fiduciary responsibility:
- Costs
- Investment Options
- Employee Education
- Administration/Recordkeeping Fee
- Annual Audit
- Back-End Load
- Balance-Inquiry
- Brokerage Commission
- Contract Administration Charge
- Contract Termination Charge
- Conversion Fee
- Distribution Expense
Most the business owners with whom I speak, face a major challenge in choosing the investment options for their employees to choose from within a retirement plan. Though they usually have the best intentions, too many times, the business owners selects the lowest cost investment options because large asset management firms convince them that investment options with the lowest expense outperform other investment options with higher expenses. Nothing could be further from the truth. One of the main reasons that employees have lost more than half of their retirement savings within the past five years is because the investment options within their plan were did not provide them the diversification necessary to manage downside risk.
In my experience, less than 50% of business owners provide their employees with access to educational resources with regards to the company retirement plan. By not providing access to these resources, business owners are opening themselves up to lawsuits. We have already begun to see this happening with larger companies and as this trend continues it will begin to affect the emerging enterprise community as well.
Fulfilling your fiduciary responsibility as business owner to an employer-sponsored retirement plan is not an issue to take lightly. If you do not follow the rules put in place by Department of Labor and ERISA law, you could wind up paying a hefty price. Though your intentions are pure, in providing your employees with a vehicle to save for retirement, failing to provide them with an adequate retirement plan can land you in hot water.
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