How do you decide which topics to omit from a plan-design discussion?

For one point about the design of a retirement plan, a recent BenefitsLink discussion shows differing views about which set of provisions is likelier to meet a sponsor’s interest, and perhaps about how the point might be explained in a plan-design discussion (or instead presumed).

https://benefitslink.com/boards/index.php?/topic/62281-that-a-retirement-plan-required-no-spouses-consent-for-a-distribution-before-the-participants-death-meant-a-surviving-spouse-gets-no-portion-of-a-27-million-benefit/&page=2

That started me thinking about a practical point:

The time available for a plan-design discussion might be limited—whether by a client’s availability or attention span, a client’s choice to limit a practitioner’s time billed, or a practitioner’s choice to limit time to sustain profitability for a fixed fee or an assumed cost.

If time is limited so it’s not feasible to discuss all plan-design choices, how does a practitioner leading the discussion decide which topics should get little or no attention (and instead fall into some presumed norm)?

I just say:  "Trust me.  I'll pick the best provisions for you."

;)

IMHO, that's sort of unanswerable. Entirely dependent upon facts and circumstances. But maybe I'm misunderstanding your question. If it is a "plan design" meeting purely for purposes of getting an illustration(s), then I wouldn't necessarily worry about distribution options, rollovers, bonding, whatever...

1 hour ago, Fiduciary Guidance Counsel said:

If time is limited so it’s not feasible to discuss all plan-design choices, how does a practitioner leading the discussion decide which topics should get little or no attention (and instead fall into some presumed norm)?

We never discuss all plan-design choices, regardless of how much time we have at our disposal.  Most clients don't want to know all the ins and outs, they want a plan that fits their needs and wants.  I do have a few attorney clients who have read every single page of the document and asked a couple of hundred questions, but those clients are very rare.

The way I look at it, plan design is a service.  I don't expect my clients look at an adoption agreement and tell me which boxes to check.  Instead, I find out what the client wants (often with input from the CPA, adviser, and sometimes attorney) and I design a plan to fit those needs.  I will then present that plan and explain why I designed certain sections the way I did.  If the client wants something changed, we talk about why they want the change and whether it is the best way to achieve it.

With most of our small employer clients, I start out the plan design meeting by saying:

"To start with, we are going to draft the plan in a manner that is most beneficial to you the employer and the business owner."

Then I attempt to to hit the hot topics:  Eligibility,  contribution allocations,  distribution provisions, and then other applicable provisions.

In other words, I want to tell the business owner or team, how do you get in, what's in it for you and your employees and and how do you get out.

What I SHOULD start it with is, "Give me your wallet."

Thank you for the helpful observations.

A few specific questions:

Do you explain the advantages and disadvantages of automatic-contribution arrangements?

Do you talk about whether to allow or preclude participant loans?

Do you talk about whether to allow or preclude hardship distributions?

Do you discuss the several choices for service-crediting methods?  If not, what information do you gather to discern which methods are the better fits for a particular employer?

Do you usually discuss whether to include or exclude nonresident aliens?  If usually you don't, do you discuss it if the workplace is within commuting distance of Canada's border?

And perhaps BenefitsLink mavens will suggest more questions.

21 minutes ago, Fiduciary Guidance Counsel said:

Thank you for the helpful observations.

A few specific questions:

Do you explain the advantages and disadvantages of automatic-contribution arrangements?

Do you talk about whether to allow or preclude participant loans?

Do you talk about whether to allow or preclude hardship distributions?

Do you discuss the several choices for service-crediting methods?  If not, what information do you gather to discern which methods are the better fits for a particular employer?

Do you usually discuss whether to include or exclude nonresident aliens?  If usually you don't, do you discuss it if the workplace is within commuting distance of Canada's border?

And perhaps BenefitsLink mavens will suggest more questions.

 

 

Peter,

A very good original question. Yes, mostly it's "I know what's best" and we discuss only the variables that make sense.  Do I ever ask them if they want the one year marriage clause in the document?  No never. (How many even know what I"m talking about! :-) ).

As to your specific questions, let's review.

We don't have ANY plans with automatic contribution arrangements.  Our small business clients will just screw them up and it isn't worth the hassle.  Our clients are  not that concerned about the employees since most plans are designed to get the biggest bang for the buck for the owners and the employees just go along for the ride.  Since most of our plans are or will be top heavy, they are safe harbor non-elective 3% so the employees do get that (and maybe actually the gateway, so another 2% or so).

Loan: we don't want them.  Does the employer really want to open a loan window in their office?  Do they really want to have to foreclose on an employee?  We have a few plans with loans, but not many.  In plan design, I tell them why we DON'T want to have loans (BTW, we do make money on loans, but I tell the client that is not our way of doing business).

We always allow hardship distributions using the safe harbor rules. I'm still thinking about how I want to change that given the new, more liberal options.  I'll have to decide that around year end.

Service crediting: actual hours only (except for one plan I think).Not even discussed unless something about their operation encourage me to bring it up.  

Non-resident aliens is not an issue in southern new england.  We have had a few plans that are actually german companies and those we have excluded non-resident because of the controlled group issues; that gets complicated with foreign parents to american companies.  Sometimes, the american subs don't even know what other subs exist in the US. Really interesting results years ago when the german parent wouldn't tell the american sub what other companies they owned in the US....

I'm happy to respond to other issues if anyone brings them up. 

Larry.

Larry Starr, thanks for your good grace in engaging with the question.

BenefitsLink mavens, I've heard that when a choice isn't directly considered some practitioners choose whichever provision the practitioner believes will incur a less or least expensive correction if the employer operates the plan differently than the written provisions.

Is this a sensible work method?  If so, how do you use it?

3 hours ago, Fiduciary Guidance Counsel said:

Do you explain the advantages and disadvantages of automatic-contribution arrangements?

Nope. Like Larry, my clients are mostly small businesses with no HR department.  We are lucky if we get a practice manager for day to day stuff, but even then auto-enroll and auto escalation type plans will be more problematic than useful.  We have had a couple of advisers bring up the question but our clients have shot them down pretty quickly.

3 hours ago, Fiduciary Guidance Counsel said:

Do you talk about whether to allow or preclude participant loans?

I never encourage loans.  Most of our clients start out without them, but some have added loan provisions down the road.

3 hours ago, Fiduciary Guidance Counsel said:

Do you talk about whether to allow or preclude hardship distributions?

Yes.  Most of our plans include hardship provisions.  All but one or two use the safe harbor rules.

3 hours ago, Fiduciary Guidance Counsel said:

Do you discuss the several choices for service-crediting methods?  If not, what information do you gather to discern which methods are the better fits for a particular employer?

No.  Actual hours of service unless there is a compelling reason not to (and that is very rare).  We have a handful of plans that use some  sort of equivalency, but only because that is how they do it for other reasons and they want their plan to have the same rules.

3 hours ago, Fiduciary Guidance Counsel said:

Do you usually discuss whether to include or exclude nonresident aliens?  If usually you don't, do you discuss it if the workplace is within commuting distance of Canada's border?

Not an issue for our plans.  The question has come up a few times, but in each case it was because someone misunderstood what it means.

3 hours ago, Fiduciary Guidance Counsel said:

And perhaps BenefitsLink mavens will suggest more questions.

Our document has the option to recognize domestic partners as a spouse.  There have been times where I have had to explain the difference between domestic partner and spouse. 

Investment direction.  If a client comes on without an adviser, we always talk about what the client wants to do for investment direction.  A lot of clients start with the position of "I want the participant to be responsible for their own investments" because they have heard that its a good way to get rid of liability.  Once we explain what is required of them, many of our clients decide that pooled investment aren't so bad after all.  We have plenty of trustee directed 401(k) plans and they outperform participant directed plans every single time.  Many don't even realize that you don't have to let participants play Gordon Gekko just because they can defer.  

RatherBeGolfing, thank you for the further information, especially about a choice between directed and undirected investment.

If a sponsor selects the option to recognize a participant's domestic partner as though they were spouses, what provisions does that option invoke?  Must a participant who has a domestic partner get the partner's consent to make a beneficiary that would provide a benefit other than to the partner?  Does the option invoke any other provision?

Now that every State that affords opposite-sex marriage must equally afford same-sex marriage, do sponsors ignore this domestic-partner option, or are there some that ask about it?

Does the document permit a user to specify ranges of dates for when the domestic-partner provisions apply and don't apply?  For example, could a plan specify that the domestic-partner provisions applied for deaths before August 1, 2016, and do not apply for deaths after July 31, 2016?

No limitations or dates.  A domestic partner is treated as spouse for all plan purposes if the provision is elected.  None of my clients have elected to apply the provision after discussing it.  I think that would be very different pre-Windsor. 

Spousal consent would be triggered by the election, but I'm not entirely sure what would happen if the participant were to elect an annuity.  Would the issuer of annuity contract recognize the domestic partner as a spouse for the survivor portion?  

Even my openly gay clients have decided against this provision with the reasoning that marriage is now option in every state.

Do you explain the advantages and disadvantages of automatic-contribution arrangements?

• No.  As others have noted, just something to screw up.

Do you talk about whether to allow or preclude participant loans?

• Yes, discourage them but suggest that if they think they want them, limit them to deferrals only so employees are not borrowing employer contributions.

Do you talk about whether to allow or preclude hardship distributions?

• Discuss to the extent of telling them why they shouldn't have them.

Do you discuss the several choices for service-crediting methods?  If not, what information do you gather to discern which methods are the better fits for a particular employer?

• No

Do you usually discuss whether to include or exclude nonresident aliens?  If usually you don't, do you discuss it if the workplace is within commuting distance of Canada's border?

• No.  Always excluded I think without discussion.

Here is what I discuss:

Eligibility, Contributions, vesting, and in-service distributions/loans.

That's it.  I hit those topics every time and don't discuss much of anything outside of those.  I never discuss for example auto rollovers.  I just add them.  I never discuss which Death RMD option to choose, how to use forfeitures, etc.  Don't discuss distribution options at termination (lump-sum only!).

Obviously the level of detail depends on the client and their level of interest. Sometimes General Counsel for a client will dig way down deep, but obviously that is not the norm.  

I agree with Austin3515 except I am going to add a few more things to the list, just because I know from nearly 30 years of experience where the errors typically occur:

who are the Trustees?

How is compensation defined - particularly how are bonuses/commission payments being treated?

timing of termination distributions?

MOST IMPORTANT - who owns the business; are there family members; do owners own any other businesses, etc.

2 hours ago, AKconsult said:

How is compensation defined - particularly how are bonuses/commission payments being treated?

Gross - include taxable fringe benefits if small closely held where only owner has any.  Exclude if otherwise.  Always comp as a participant.  Nothing I need to bother the client with!  

2 hours ago, AKconsult said:

timing of termination distributions?

 

end of year if pooled or FBO, ASAP if on a platform.

Just to be clear, I am talking about the Doctor, or the landscaper with 10 employees.  If we're talking about a plan with 150 people (as an example) obviously more detail applies.  Those people hired me because they want me to do as much possible for them and recommend the "right" design for them.  So I see that as my value added.

Obviously my cover-letters etc ask the clients to review the documents closely, and hey, I know some do because I will occassionaly get questions. 

Lastly, I always summarize in a 2 page word document the most important provisions to make sure they do;t come back to me and say "Hey, I wanted the Safe HArbor Match, not non-elective!"  If all I give them is a 40 page adoption agreement, that's not really a great defense.

Thanks, RBG, Bird, austin3515, and AKconsult, for the thoughtful information.

For a situation in which the trustee won't be a bank or trust company, do you suggest that the business owner accept or avoid a trusteeship?

What factors play into which persons to set up as trustees?

Business owner(s) and spouse if only one owner is (are) virtually always trustee on our plans (all small - max a few hundred participants).  Little discussion on that.