4 questions every small-business owner should ask their retirement plan advisor

Time is a luxury for many business owners, so the effort it takes to create and offer a retirement plan can be overwhelming. But just as saving for retirement is crucial to your own financial independence, offering a retirement plan to your employees is also an important part of your overall benefits package.

That’s why Jim Marx, director of the Retirement Plans Division at Edelman Financial Engines, recommends partnering with a knowledgeable retirement plan advisor to help you make the best decision for you, your business and your employees. “It’s imperative to find an experienced retirement plan professional that will put you and your employees’ interests above all others,” said Marx. “Not simply because it’s a legal requirement but because it’s the right thing to do.”

Whether you’re just starting your search for a retirement advisor or you’ve been working with one for years, there are several questions you should ask to help ensure you are maximizing your employees’ retirement benefits, including your own.

Here are four questions every small-business owner should ask their retirement plan advisor:

Regardless of how established your retirement plan is, meeting semiannually provides you with an opportunity to optimize your plan’s design and review the progress of your long-term goals. It could also help you reduce costs, improve investment options or even minimize your fiduciary obligations. Additionally, changes to your business – or changes in the law – might impact the type of plan you and your employees should utilize.

For example, states such as California, Colorado, New York, Ohio and Virginia require private-sector businesses of a certain size to offer a retirement plan. If you already offer a retirement plan, you may register for an exemption from the state retirement program. For those that do not, it’s important to understand the state’s mandated requirements and the difference between a state-run and an independent retirement plan program. Some of the state-run programs may not offer the flexibility you desire for your business.

Tip: It’s also important to ensure that you’re discussing factors like inflation risk, the sequence of return risk and the average Social Security benefit in relation to your ideal retirement age. These elements all factor into your long-term financial security.

Transparency is critical to help ensure you are optimizing where your money goes. Independent advisors who act in a fiduciary capacity are not tied to a particular family of funds and can provide objective financial planning and investment management services based on your unique situation and financial goals. They cannot accept commissions, incentives or benefits for the products and services they recommend.

Demystifying the fee structure is a way to understand how the various financial firms within a retirement plan (advisor, record-keeper and third-party administrator) earn money from you. That said, there are many ways to structure the fees for your retirement plan. The most important thing is to understand where your money is spent for the services offered. There should never be any hidden or layered fees.

3. Can you help me maximize my individual savings rate and corporate deductions?¹

For 401(k), 403(b) and certain 457 plans, the 2022 maximum contribution for individuals aged 49 and under is $20,500. If you are 50 or older, you can contribute an additional $6,5002. This is known as a catch-up contribution.

To maximize the corporate deduction for your 401(k) plan, you can contribute up to 25% of the eligible payroll amount. With a cash balance pension plan, you can increase your corporate deductions with an additional $50,000 to $300,000 per year, per targeted employee, depending on age and income levels.

Tip: The cash balance retirement plan structure gives partners, shareholders or owners the ability to build a custom savings plan based on their goals. Begin by answering this question – “How big of a check would you write to yourself each year, from your business, to fund your retirement plan?” If that number is $75,000 or greater annually, you may want to consider a cash balance plan.