Author Archives: Tyler

Unequal Benefits

Are you unknowingly discriminating against your key executives with your current benefit plan structure? Company benefit plans can cause unintended reverse discrimination against highly compensated employees, whether by plan design or regulatory limitations.

How is this possible? The statutory contribution limits on qualified retirement plans, and caps on group disability and life insurance create gaps that make these programs less effective for higher-earning employees.

For example, let’s compare two employees who are both maxing out their 401(k) contributions at $23,000 per year — the limit for 2024. Employee A makes $95,000 annually and the maximum contribution represents 24% of their annual income. Employee B makes $350,000 annually, and the maximum contribution represents 6.5% of their annual income.

A standard financial planning rule of thumb suggests that employees will need approximately 70-80% of their pre-retirement income to maintain their standard of living in retirement. Employee A, saving 24% of their income each year, has a much higher probability of hitting that goal. In contrast, Employee B may only be able to replace 30-50% of their salary. This stark difference creates a significant retirement income gap.

By taking the proactive step of implementing an Executive Benefit Solution, you can effectively address this shortfall. Since Executive Benefit Plans are not governed by the same rules as 401(k) plans, they generally offer pre-tax savings opportunities with no cap on contributions. This not only provides your high value executives with greater savings opportunities, but also enhances your company’s ability to retain key personnel by demonstrating this additional value.

Let’s face it, turnover at the executive level is difficult. The direct costs to replace a highly compensated executive are estimated to be 200% of the annual salary for that position. So, attracting and retaining high-level talent is crucial.

Have you thought about how your company will address this situation? RPS can help! Not only do we provide 3(38) fiduciary advisory services for employer-sponsored 401(k) plans, but we can help design an Executive Benefits Plan that will solve the above issues and make your executives feel more valued.

Don’t Tolerate an Absentee Advisor

As a business owner, C-suite executive, or HR professional, you already understand the value of monitoring costs and maintaining close relationships with vendor partners. However, when it comes to 401(k) plans and their service providers, many plan sponsors express a high degree of confusion and dissatisfaction with understanding exactly how much they are being charged, and what they receive in return for those fees.

Typical scenarios for such service providers include quarterly invoicing with little explanation of the services provided or how the fees are generated. Maybe you see this vendor once a year, or maybe not at all. And the only time you speak to them is when you are the one reaching out. Often, the service provider is quite content with this type of absent, behind-the-scenes relationship. But you shouldn’t be.

Unfortunately, we see this all too often when it comes to 401(k) plans and their service providers. Many companies we speak with say they already have an advisor or broker for their company’s retirement plan. When we probe a little deeper to find out what kind of services that advisor provides, we hear answers like, “Well, the broker is our owner’s personal advisor,” or, “We’ve been with him/her for a long time and aren’t looking to make a change.” Rarely can they tell us the services or deliverables the broker provides or when the last time the broker came out to meet with their employees to review the plan.

Further compounding matters, 401(k) plan fees are usually paid by someone other than the company. In most cases, they come out of the 401(k) plan balances themselves. This means that the employees are paying for services that they aren’t really receiving.

If you sponsor a 401(k) plan for your employees, you have fiduciary obligations to monitor service providers and ensure the plan pays only reasonable fees. Neglecting to do so not only carries quantifiable risk in the event of an audit, but it also does a disservice to your employees, potentially leaving them with inadequate retirement savings.

Furthermore, as a plan fiduciary, you can be held personally liable for a fiduciary breach. It’s crucial that you take the initiative to evaluate and benchmark service providers and fees at least every 3 years — a service RPS automatically provides for each of our clients.

Isn’t it time your company and your employees received the level of service you’re paying for?