Too often brokers and financial advisors think about their client’s retirement plan needs and only think about the 401(k) plan. It’s understandable based on their lack of understanding retirement plan basics, but it’s not when there are a vast selection of retirement plan consultants and ERISA attorneys who can help advise the client and the financial advisor.
A 401(k) plan is an attractive savings vehicle for plan participants and if done correctly, a great employee benefit. However, there are a few plan designs such as new comparability and safe harbor design that can help augment the retirement savings of highly compensated employees. In addition, there are other plans that can be added to a 401(k) plan that can certainly add a lot more firepower to retirement savings like a cash balance plan, a defined benefit plan, or in many cases, a non-qualified deferred compensation plan.
Too often, plan advisors just don’t look beyond the 401(k) plan. This is more so when the advisor is using a bundled or payroll provider as the plan’s third party administration (TPA) firm. Bundled or payroll provider TPA tend to be more mechanized about retirement plans, so I find they are the last ones who will try new plan designs or bring the option of adding another plan. Unbundled TPAs tend not be boxed into the 401(k) plans, so I find that they think outside of the box more often.
A few years ago, I met a financial advisor with a law firm client asking whether they could do better than the typical insurance based platform 401(k). Based on the law firm’s demographics, a cash balance plan could be a great option and this broker would never have thought about anything other than a 401(k) plan if he hadn’t talked to me. Based on the way he acted with how much more money I told him the partners could save for retirement, you thought I found a hidden treasure. Needless to say, I made a new friend.
401(k) plans are great plans if done correctly, but there is no reason that a plan sponsor should stop there if their pocketbooks can afford more.