By Andy Ives, CFP®, AIF®
When it comes to 401(k) plans, I feel like the Johnny Cash lyric…“I’ve been everywhere, man.”
I’ve wholesaled record keeping platforms to financial advisors and sold direct to business owners. I’ve taught novice investors about their mutual fund options and crawled through the weeds of 401(k) plan design with CPAs. I’ve helped enroll participants, assisted advisors with fund selection, worked for a third party administrator (TPA), and participated in 401(k) plans myself.
Despite the popularity of retirement plans, understanding how the core pieces fit together remains a mystery to most. In order to explain the moving parts to those looking to implement a new plan, I fashioned an analogy called: “So You Want to Throw a 401(k) House Party.”
ANALOGY: To attract and retain the best employees, a business owner (Roger) believes he must implement a 401(k) plan. Yes, Roger wants to throw a 401(k) house party! But where to start?
Step 1: Party Planner. Roger hires an experienced 401(k) party planner…a financial advisor. A financial advisor knowledgeable of retirement plans knows which levers to pull and which partners to include to create a successful event. Roger and his advisor will be joined at the hip through the start-up process.
Step 2: Venue. Roger and his financial advisor select a venue. Where will the party be held? There are many popular options, referred to as “record keepers.” The glitzy party venue (i.e. “record keeper”) website is where plan participants visit to see balances, available investment options, find education material, etc. Each venue has its own employees who can answer participant questions and help show partygoers around via enrollment meetings.
Step 3: Finger Food. The advisor chooses party favors and finger food. These are the investment options within the plan: mutual funds, ETFs, lifestyle and target date funds, etc. The list of potential choices goes on and on. Oftentimes with the help of the record keeper, the advisor can create a delicious buffet – a diversified mix of investments from which each guest should find something suitable.
Step 4: Security. While Roger and his advisor want everyone to have a grand time at the 401(k) house party, they recognize there are guidelines to follow. They need a chaperone, or maybe some type of security. This is the TPA. The TPA checks IDs at the door to ensure entrants are eligible. As the “Department of Labor Police” circle the neighborhood, the TPA monitors music levels, they report annually to the government that all is in order, and generally make sure participant partygoers follow the rules.
If Roger hires a competent party planner (advisor), identifies a reputable venue (record keeper), selects some tasty finger food (investment lineup), and has the festivities monitored by a skilled security team (TPA), his 401(k) house party should be a roaring success.
Only thing left to do is play some Johnny Cash!
When it comes to 401(k) plans, I feel like the Johnny Cash lyric…”I’ve been everywhere, man.” I’ve wholesaled record keeping platforms to financial advisors and sold direct to business owners. I’ve taught novice investors about their mutual fund options and crawled through the weeds of 401(k) plan design with CPAs.