The United States government in the 1980s introduced several
tax-deferred savings to increase individual saving for retirement. Ideally, the
two options which generated the most attention were Individual Retirement
Accounts (IRAs) and 401k plans. Though IRAs and 401k plans are similar since
they both allow an individual to deduct contributions from taxable income.
Furthermore, also allow tax-free accrual of interest on assets held within the
plan till withdrawal. Its noteworthy that workers in organizations offering
plans are eligible for participation, while participation in IRAs is open to
everyone. So why do you need a 401k Financial Advisor?
Most people are familiar with salary deferral, of which the
best known are 401k plans. Specifically, in salary deferral plans you put part
of your earnings into a retirement savings account. All while your employer
optionally contributes to your account as well. Furthermore, these plans are
generally self-directed hence you’re responsible for deciding how to invest the
money in your account. The monies each participant receives upon retirement is
left up to the investment performance of their contributions. Despite plans
such as IRAs, profit sharing plans, and money purchase plans, the 401k is by
far the most popular.
When asking why a 401k
financial advisor is necessary, we need to understand maintenance of a 401k
plan. In retrospect, maintenance of a 401k plan is difficult enough. This is
due to many specialized tasks, such as the ongoing monitoring of a plan
provider and ensuring that the plan is up to date with industry developments.
Furthermore, reviewing fees to ensure that they remain reasonable and dealing
with unexpected issues. Additionally, with new legislation and ever-more-complex
rules passed, provider platforms have enhanced with more features and services.
These range from expanded investment options to enhanced pricing options.
Generally, while Plan vendors/administrators supply and
maintain your 401 k, it’s an employer that sponsors it. Furthermore, 401k plans
are supplied by a vendor typically supplies the plan itself and all its related
documentation. Investments for a 401k plans can be supplied by the vendor,
another party or the investment custodian. Additionally, employers offering
401k plans typically hire service providers or 401k financial advisors to
operate the plans. And these providers typically charge fees for their
services. These advisors further can help with tax-efficient investing
strategies and advice on basics like giving company stock.
Why a 401k Financial Advisor
As mentioned before, the 401k landscape is more dynamic
nowadays than ever. Hence, it makes it essential for plan sponsors to work with
a 401k advisor who specializes in this marketplace. Generally, a 401k financial
advisor can periodically review plan services, features and expenses. They can
help in investment choices and education. Additionally, helping to resolve
day-to-day issues and suggest potential plan enhancements consistent with
legislative changes and industry trends. Your 401k financial Advisor will offer
professional guidance helping you uncover and assess your needs and later
evaluate provider proposals. This is just the tip of the iceberg, let’s
A 401k financial advisor will provide fiduciary education
and support to help plan sponsors meet their obligations under ERISA. Employee
Retirement Income Security Act (ERISA) helps protect 401k plan participants’
rights and retirement savings, the watch dog! They will serve as Fiduciary
Advisors to help plan sponsors mitigate their liability, plan cost analysis and
benchmarking. All ensuring the plan has a competitive and optimal investment
line-up. Furthermore, employee education helps plan participants maximize their
retirement accumulations the best way possible.
They assist in vendor searches ensuring the plan has cost effective,
technology proficient, administrative and record keeping services.
Managing Fiduciary Responsibility
Managing fiduciary responsibility nowadays is no easy task, especially
in today’s regulatory environment. A 401k plan sponsor is the plan fiduciary
and a fiduciary’s
responsibilities under the rules of ERISA are paramount. As a plan sponsor,
how do you demonstrate that you’ve fulfilled your legal obligation under ERISA?
Sadly, many plan sponsors feel overwhelmed in trying to manage their fiduciary
obligations. These obligations are why most plan sponsors seek the assistance
of a 401K financial Advisor. With hundreds of potential vendors willing to administer
your plan, without the guidance of an experienced 401k financial Advisor. Evaluating
and selecting the appropriate provider can be confusing and time
Despite ERISA is always
on the lookout, don’t forget choosing an appropriate menu of investments is
challenging. How do you select investments that best meet the needs of your
employees? Do you continually monitor the funds to make sure that they are appropriate?
Are expenses reasonable? These issues can be an overwhelming burden to 401k
plan sponsors especially, under ERISA’s “prudent-person rule,”. This rule
states that a plan fiduciary who isn’t qualified to make informed investment
decisions must always seek expert assistance. A 401k Financial Advisor should
have the tools and resources to help you make the right investment decisions.
In conclusion, a 401k
advisor will assist you in establishing an investment policy statement and analyze
your investment options. Furthermore, they help in establishing a framework for
monitoring investments which includes review of performance and expenses.
Additionally, they help you understand 401k fees and give guidance in achieving
higher employee participation and deferral rates. This can be by conducting
enrollment meetings, providing investment education and suggesting potential
Executive Assistant and Content designer at T3 Direct LLC
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About us and this blog
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