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B2B Company Owner Enhances Retirement Program


An owner of a B2B company with 25 long-term employees had a 401(k) plan with a low-cost provider. His 401(k) plan providers, third-party administrators and even his financial advisor neglected to provide on-site services. He was unaware of the many options available for a corporate retirement program, which could help both he and his employees defer more income, have access to lower cost funds, and improve their chances of a comfortable retirement. His financial advisor, who was acting as a broker to the plan, did not offer advice with respect to fund selection, asset allocation and how to be a fiduciary to the plan.

We immediately recognized areas where Fragasso could offer assistance. The first phase of the project was to review the plan design. Because of the standard profit sharing design, the owner was deferring only the maximum employee deferral and catch-up contributions, and taking the safe harbor match from the company. We recommended a change to the type of safe harbor contribution, changed the profit sharing plan to allow older participants to receive a larger allocation, and added a cash balance plan. By doing so, the owner was able to defer an additional $170,000 tax efficiently. The employees also benefited, as they saw an increase of the company contribution at an average of 10 percent of salary annually.

The second phase of this project was to implement a semi-annual education program. Education provides the opportunity for employees to enhance their overall understanding of important topics such as saving for retirement, compound interest, asset allocation and risk versus reward. They also benefit from one-on-one time with a financial advisor; something many employees do not have access to on a regular basis.

Acting as a fiduciary to the plan, the third phase was to examine how to not only gain more transparency with respect to participant and plan fees, but also to reduce them. Instead of using the brokerage model and paying a commission (as they had been doing with their previous advisor), we changed the structure of the plan to a fee-based plan. The plan sponsor was then able to use no-load institutional share class funds with no hidden fees. It also increased transparency by listing separately who the fees were being paid to specifically. We were able to keep the same provider and lower total participant fees by over 25 percent.

Finally, as a Registered Investment Advisor (RIA), Fragasso Financial Advisors provided advice to the plan and its participants, by both recommending and monitoring funds. With our Fragasso risk-based models, and the fact that Fragasso has no proprietary funds, we were able to help participants best understand how to pick a suitable lineup for their particular risk tolerance, and help them take ownership of their retirement goals.

Our client appreciates the consulting approach we take, the team of professionals we partner with, the regularly scheduled employee education, quarterly fund reviews and co-fiduciary status. We are pleased that we are able to help the owner save more for retirement, help provide additional benefits to his employees tax effectively, and have the opportunity to meet regularly with plan participants, in order to best help them make sound decisions for their own retirement.