Setting up a 401(k) plan


 * Guideline #1 How to select a core mix of index funds for the 401(k) or 403(b) plan that employees choose their mix of investments from.
 * Guideline #2 How to set up a low cost Self-directed Brokerage Account option for employees who don't want to use index funds.
 * Guideline #3 How to select a truly low cost recordkeeper and administrator.
 * Guideline #4 How to educate employees so that everyone is on the same page. This guideline includes ideas on how to communicate effectively.
 * Guideline #5 How to manage and monitor a 401(k) or 403(b) plan for results. Good results mean you earn more money on the investments, save money on costs, and save time, too.

If you are an employee, you will learn how to talk to your employer in a way that is guaranteed to get him or her interested in improving your 401(k) or 403(b) plan. Please keep an open mind, and read the information provided about each of the five guidelines shown above. Then, contact a Third Party Administrator (TPA) who can show your employer a comparison of why it makes sense to switch from your old 401(k) or 403(b) to a new one. Next, arrange a meeting between the TPA and your employer. Also, you can ask to attend the next committee meeting to present your ideas to the plan's fiduciarys. Easy!

If you are an employer, you will learn how to set up, manage, and monitor a truly low cost and optimal plan FAST. Please keep an open mind, and read the information provided about each of the five guidelines shown above. Easy!

Instructions:

Step 1: First, draft a mission statement for your plan. A leader decides on the mission and how the mission will be accomplished, right? As the employer, you could adopt the following mission statement: Our mission is to select a core mix of no-load, low-cost index funds because index funds are designed to match the market’s performance (less their cost). This will allow employees (participants) to choose their mix of investments from the mix of index funds. We will set up a self-directed account for each employee who thinks that he or she can pick funds that will beat the perfor- mance of index funds. Next, we will pay no more than the current benchmark for the necessary record keeping and adminis-tration. We will not pay any asset-based fees for services such as consulting, investment advice, education, or administration. We will draft a plan document that is compatible with our mission statement, and we will draft a summary plan description. Step 2: Select the plan’s investments. Your plan’s investment policy statement (IPS) will specify which index funds to pick for the plan. It will also specify why you picked index funds and how you will monitor them. In the IPS you must also explain why you decided not to use managed funds, and/or asset-allocation, target-date, life-cycle, lifestyle, and balanced funds–if you have decided against them. No one will file a legal action against you for not trying to pick funds that will beat index funds (the market) in performance. It will also describe how you will set up the self-directed accounts for employees. Step 3: Hire the plan’s vendors. Using your mission statement’s guidelines, hire vendors and ensure that they aren’t paid more than the current benchmark of $30 per eligible employee per year for record keeping and administration. Don’t pay any asset-based fees for services such as consulting, investment advice, or employee education. Step 4: Manage your plan. Guided by your mission statement, so that it has truly low-cost services and a mix of investments that will match the market’s performance. Step 5: Monitor your plan. Each month, use the guidelines in your mission statement to ensure that you have accomplished your mission of setting up an optimal 401(k) plan.

In addition to your mission statement, plan document, and summary plan description, you need a provider policy statement (PPS), which is composed of the following documents: 1. Mission statement (MS). 2. Investment policy statement (IPS): guidelines for choosing the plan’s investments and monitoring them. 3. Vendor policy statement (VPS): guidelines that will ensure that only vendors who can assist you in making your plan truly optimal are hired. 4. Education policy statement (EPS): guidelines for a program that educates employees about 401(k) plans and trains every employee to be part of an effective system of checks and balances. 5. Communications Policy Statement (CPS): guidelines for a communications program that ensures employees are informed so that they are part of an effective system of checks and balances. 6. Monitoring policy statement (MPS): guidelines for monitoring the plan’s vendors, investments, and education and communication programs.

Keep it simple; your guidelines shouldn’t be more than a few sentences. You may find it handy to use a three-ring binder for your PPS documents.

If you complete this proven process, both you and your employees will reap the benefits.

Employer benefits: 1. The named fiduciary will save time because a plan that is optimal requires less time to manage and monitor. 2. Your company will save money on the plan’s cost. 3. Employees won’t spend excessive time while at work trying to figure how the plan works, how to select their mix of investments, and how to monitor their investments.

Employee benefits: 1. Employees won’t need to spend countless hours trying to figure how the plan works, how to select their mix of investments, and how to monitor their investments. 2. Employees will save money on the plan’s cost. 3. Employees will save money on the cost of their investments. Summary: First, select the plan’s investments. Then, hire the plan’s vendors, and educate your employees about the plan and its investments.

Books

 * Frank R. Cirullo, Cut Your 401(k) Plan Expenses AND Keep More of YOUR Money: Simple steps to cut plan costs, save money, and make monitoring your plan stress free, ISBN 978-1439236291 or Amazon book link
 * Joshua Iztoe, Fixing the 401(k): What Fiduciaries Must Know (And Do) to Help Employees Retire Successfully, ISBN 978-1934937174 or Amazon book link

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