Which Plan Design Option is Best for Your Business?
If you are ready to explore the possibility of establishing a retirement plan for your business, there are many plan design options that may fit your needs. Whether your business is large or small, whether it has unique requirements or not, or whether you simply want the best value, there are a range of solutions to carefully consider. You’ll want to work with experienced plan design consultants who can help you make the right decisions based on your organization’s cost and benefit objectives.
The Plan Design Options chart below illustrates some of the key differences between three different defined contribution plan types, which may help you start the process. The chart explores three broad plan design options: single employer plans, closed multiple employer plans (MEPs), and pooled employer plans (PEPs).
Single employer plans, as the name suggests, are plans that are established by one employer. These plans can range from simple designs that meet most employers’ needs to highly tailored plans to meet special concerns or requirements.
Closed MEPs allow several—or many—employers to combine resources to establish a single plan to achieve economies of scale and to delegate certain responsibilities to MEP service providers. Closed MEPs are required to have some “commonality” amongst the adopting employers in order to exist. This commonality could be geographic (e.g., businesses in a certain metropolitan area) or could have a similar business purpose (e.g., car dealerships).
PEPs allow multiple employers to participate in one plan, but without the need for any commonality. Recent legislation extended the MEP benefits to businesses of all kinds and all locations, enabling employers to enjoy the benefits of economies of scale while joining a plan that best meets their needs.
Some other key components that can be found across all three retirement plan types outlined above include:
Fiduciary/Fiduciary Governance: A fiduciary is responsible for maintaining a plan in the best interests of participants and beneficiaries. The employer/plan sponsor is by default a fiduciary but can delegate certain day-to-day responsibilities to third parties, such as Pentegra.
IRS Form 5500: This detailed annual information return is typically sent to the Department of Labor (DOL) to provide plan data on such metrics as number of participants, amount of assets in the plan, distributions made to service providers, and types of investments.
Audit Requirements: Once a plan reaches 100 participants, an annual audit must be sent to the DOL along with the Form 5500. Among other things, this audit (conducted by a CPA firm) evaluates the accuracy of information on Form 5500 and provides an opinion about the plan’s financial statements.
ERISA Section 3(16) Fiduciary: This section of ERISA defines the term “administrator,” who is normally the plan sponsor (employer) and who is responsible for the day-to-day operation of the plan. Such operational duties may be delegated to a third party, such as Pentegra, which relieves the employer from many administrative tasks.
ERISA Section 3(38) Fiduciary: This ERISA section addresses “investment managers,” who must be named in the plan (in writing) and who have the power to manage, acquire, and dispose of plan assets. A 3(38) fiduciary is authorized to prudently select, monitor, and replace investments for a plan, which reduces the employer’s burden.
Pentegra Can Help You Choose the Right Plan
This chart can give you a good framework for starting the process of finding the retirement plan that works best for you. If you have questions about plan design options or next steps, please reach out to Pentegra’s plan design consultants. We’d be more than happy to help you. Contact us at solutions@pentegra.com.