Business Innovators Radio - Interview with Shaun Clearwater with Full Focus Financial Discussing Company Retirement Plan Maintenance

Episode Date: March 14, 2024

Shaun’s start in the financial services industry came from his desire to share both standard and advanced financial strategies with middle America across the kitchen table. Since his start in 2004, he’s shifted his focus to the 401(k) space where it can have a greater impact as he can impart knowledge broadly and efficiently. Shaun is fortunate to be surrounded by his 3 amazing daughters and loves to enjoy a glass of red wine with his beautiful wife.Learn More: http://www.fullfocusfinancial.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-shaun-clearwater-with-full-focus-financial-discussing-company-retirement-plan-maintenance

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of influential entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with the Sean Clearwater with full focus financial and we'll be talking about company retirement plan maintenance. Sean, welcome back to the program. Thank you, sir. Appreciate being here. So when I hear the word maintenance, I think, well, it's not set it and forget it.

You can't check the box and say, we have one, we set it up. You actually should maintain things. And that's indicative of many areas in our life financially, personally, professionally, and all of that. So let's jump right into what type of maintenance are you recommending for a company retirement plan? Great question. This is something that most don't really look at. They don't think that they need to. They don't realize that there's a lot of value in doing it.

And so I think that what needs to happen is this country needs to have a company that specifies their specialty in reviewing financial plans as well as company and employer sponsored plans like 401Ks. You've got to have that outside third party opinion of where it's at and where it could be just to kind of do that health check, just like you're making reference to. And it's almost like it reminds me of, you know, a company that spends six months updating and maintaining their marketing plan, their business plan, and then they never review it again. Well, then it's not done anyone any good. So how can you tell if a company's retirement plan is being properly maintained? Great question. So there's a unique opportunity with retirement plans. They kind of sit by themselves as a separate entity. They have their own tax identification numbers. They have their own. tax filing requirements. And so because of that, a lot of this information is actually public information. So there's a database, a government database that anybody can look up that allows you to review these annual tax forms that these retirement plans have to file. It's called a 5500 form. And if you've got a company that has, typically the threshold is 100 employees or more,

they have to file a long form, which just means it has a lot more information. But if you have fewer than that, there's a short form. But either way, there is a 5,500 form that identifies some key metrics and information, statistics and whatnot about retirement plans for each individual company. So that's kind of like the laser focused right there. How often should you be reviewing and updating this? Because, you know, you think about once you do it, you know, once a year here and there, then can it go to once every 10 years? But that there's going to be a frequency that's going to be recommended. Right. Yeah, there's a number of different governmental agencies. There's one you may have heard reference to it's called ERISA. It's a big long acronym. But ERISA requirements and recommendations go in tandem with some of the Department of Labor recommendations. And they say that there's a fiduciary responsibility to make sure that you would do a review on your retirement plan, at least on an annual basis. And what most employers and plan sponsors assume is that they've got some.

someone else that's helping manage that. They assume that either the financial advisor that's attached to the plan is doing it or the accountant that's doing, the audit is doing it. But at the end of the day, it's whoever signs that form, which is typically the plan sponsor, who's the owner or head of HR or CFO perhaps that's signing that form has the ultimate responsibility. And more often than not we're seeing that these plans are not outsourcing this type of activity. They're trying to do it in-house. And so they're signing personally on that form and taking that responsibility of doing it. And they're just not. They don't realize that they are supposed to be and they don't know what they're supposed to do. And so then it doesn't get done. You know, and it reminds me when you were describing

that of like, I've seen several of my clients that have an annual audit done, but they bring in like an internal, they do an internal audit before the actual external auditor comes in. So they, They know the hotspots to look for. And then the internal audit brings up some things to polish up and check. And then when the audit happens, it puts them in the best position there. Is that something that can be done where if you feel like you want to have your finger on the pulse, you know, maybe you can do a review internally, but then you bring in that external third party as well? Yeah.

You know, it brings up an interesting point. I was going to share that what I've seen is small companies to large companies, the same problem exists. And when I say large, I mean gigantic, like large technology companies like Intel Corporation, where they've got 100,000 plus employees, billions of dollars in their plan. They have dedicated boards of financial people that are reviewing these plans. And I see some of the same problems in those plans that I see in mom and pop shop retirement plans. And so, you know, when you ask that question, you know, I think that there's, again, these assumptions that there's maintenance and competitive analysis,

that's being done, but some of the most basic things are being missed. And I'm yet to get a real clear answer from anybody on why some of these things are missed or why they perform so poorly. But the truth remains that there's a lot of improvement that can be made out there with an outside firm taking a look with just some basic tools and metrics, pointing out opportunities for improvement. And you feel like that should be done annually, right? Just moving forward every year, this should be done annually? You know, the plans that we, we personally work on are done on a quarterly basis, but the Department of Labor and ERISA recommend that at least be done on an annual basis. If the company can't show that they've done some type of maintenance work, at least on an

annual basis, they're violating some of the basic fiduciary responsibilities. It doesn't mean that that doesn't happen a lot, but it is still a requirement out there. So minimum annually could be, some cases quarterly, but maybe in the middle, you know, every six months could be something where you're just making sure that all the indicators are pointing in the right direction. Yeah, I would agree. You know, it can be as simple as the thinking of a health check. You know, if you had a problem, maybe you work on it and you check in on it more often until it, you ensure that it's in line and performing properly. And so once you get it where it should be, maybe the annual it is enough. But if there are changes within the company, whether it's, you know,

employment-wise or whatnot, there might be other reasons that could instigate a need for a new maintenance check. Yeah. So when you're doing this, whether at whatever frequency, when you're coming in, what are some of those critical areas you're looking at to kind of make sure and where they're lining up or not? Good question. So the key areas of focus are on participation.

How many employees do they have versus how many are participating in the plan? The higher that is, the better. It's typically an indication of how good of a plan it is. The more participation, the better. And then administrative fee-wise, I'm able to see how much is being charged. And so I'm looking at a comparison between how the fees are rating for that particular company in comparison to benchmark of other companies that are similarly sized. And then I'm also looking for rate of return comparisons.

So how did their plan perform growth wise? And sometimes it's the other direction if you've got a recession or poor performance in the market. It's how bad did it go? Was it as bad as others or worse? And so we're ranking them and giving them kind of a grade in each of these categories. How are they doing fee-wise? How are they doing participation-wise? And how are they doing performance rate-of-return wise?

You know, when you mentioned participation, it made me wonder, what if the participation level is not where it could be? Is there a component that you would recommend that the employers start an education process to help employees recognize the benefits of the retirement plan and having them learn a little bit more about it to increase that participation? For sure. You know, this can be done in a number of different ways. A lot of the other employers that we work with like to do simple, surveys to kind of get a feel for what their employees want. Do they want somebody to meet with virtually? Do they want somebody to come into the lunchroom and put on,

you know, a quarterly little seminar on on financial services and, and what people can do not only with the existing retirement plan, but, you know, with finances in general. And sometimes it's just an opportunity to have a human face to talk to. And so, you know,

a phone number that goes to a human and not just an 800 number that goes to a a call center. So when you can give, you know, these participants and these employees a real solid point of contact, somebody that they can develop a relationship with in both directions, you can really figure out what their needs are and you can make a big difference in their life on a personal financial level. And that can lead to better performance in, in the workplace too. You know, when you're able to help people feel more comfortable about their future, it can lead to a lot better productivity across the board. You know, a little while ago or at another conversation you had mentioned about having pages and pages and pages of options and that can confuse people, is one of the aspects, would this skew the numbers?

What if there are a certain number of employees that are no longer with the company so they're not participating, but yet are they still on the roles and that could cause some of the participation numbers to be skewed and how do you make sure that that's being taken care of? Yeah, that's a big one in more cases than not in the medical fields. What we notice is that some of our medical facility clients, there's a lot of turnover. And so a lot of people are coming and going. And so I've seen cases where half of the participants don't work there anymore. And we're talking on the orders of hundreds sometimes. So the problem of that presents, most people don't realize that that even would be a problem. So it's again, an educational opportunity to share with that. them what the risk is in not doing something about it and having a strategy or a plan in place to reduce or eliminate that as a risk. So the risk is that you've got people that don't work there anymore that have assets on your retirement plan as an employer, as a business owner. The issue there is that you don't have the ability to keep regular tabs on them. You don't know what their current phone number is. You don't know if they've moved one, two, three or four times. you don't know if they're even alive in some cases.

You know, that can be a really, really tricky thing as people age. And depending on the industry, that's a bigger area of concern than others. But the problem is not having the ability to stay in touch with them. So they have a fiduciary responsibility to keep statements going out, to keep communication about changes in the plan. You have to make sure that those are being received by the participants. and when they're not current employees, you don't have their current contact information. And that can become a really glaring problem and actually a legal issue down the road for the plan sponsor. So having something in place that ensures that people that separate from service also pull their retirement assets out is really key.

Yeah. And that's just keeping things cleaned up and precise. And there's always going to be the stragglers. But like in your example there, if it's dozen. or hundreds, then that really could throw a wrench in the work. So that you're going to discover that in your quarterly semi-annual or annual review. I think that's a big piece to take away. Yeah. And it's not something that's given a whole lot of attention to.

It's usually just a line on the form that says, you know, how many people don't work here anymore. And nobody realizes that number should be zero. The implication of that. Yeah, there's no obvious indication that anything other than zero is something that should be worked on. and to bring it down to zero. And so that's one of the services that we provide is an opportunity to help come in and eliminate that risk off of the table for these employers. You know,

we mentioned the frequency of maintaining and reviewing. If that is dialed in and you're and you're, you know, making sure that you're reviewing the plan every year or more, what are some of the consequences if it's not being managed properly? because there's a difference between, yeah, we did a review, but like you just said about the number of employees no longer there, you might not have picked up on that. So that's not properly managing it. What are some of the things that happened if retirement plans are not properly managed? Yeah, I think the one that'll get the most attention are the bigger plans that get newsworthy attention where, you know, an employee realizes because they work with a financial advisor or they have a family or friend. that's in the legal environment where they realize that there's issues there. And at the end of the day, sometimes it comes down to simple negligence where you can't,

these employers aren't able to effectively justify why they offer one thing instead of another and vice versa. And so the problem is that you can have legal issues where you've got as an employer, you now have to defend your retirement plan against, disgruntled employee that's frustrated with the way that the plan was managed. And so what we can do is be very proactive at making sure that there's no reason for anybody to complain. The one big issue that I like to be able to avoid is a share class issue where there's the exact same fund that's available in the marketplace that's cheaper than the one that's on the plan.

And that's just a really difficult one. Honestly, it's impossible for a plan sponsor to actually justify that. So that's legitimate negligence there. And it's completely avoidable. And, but if nobody points it out or if nobody knows to look for it, what are they supposed to do? I kind of feel for them because they don't, they don't have proper guidance and trusted advisors that are really helping them with really important things. So the legal aspect is one major consequence. Another consequence is that they could unnecessarily struggle with retention and attraction of talent. So people that work there that are important and are valuable, you want to make sure that you're offering them quality benefit packages. And that includes some form of a retirement

package in more cases than not. And so if you don't have a good one, or if you don't have an above average at least benefit plan that includes quality retirement plans, that's just another reason for somebody to consider leaving, is if there's a competitive offer with a company that has a better retirement plan, you don't want to lose quality talent because of that. And if you're trying to attract talent, the same principles apply there. So that's two key things. The third one, I think, would be just, you know, the general day-to-day frustrations that HR teams can find themselves spending a lot of time doing day-to-day management with these

retirement plans. The more employees, you know, a company might have, the more scenarios of hard ship withdrawals, loans, and struggles with what to put their money in or how to take it out and things of that nature. Those are all HR burdens that they don't have to take on, but they commonly do. And so all of this stuff can be outsource, the legal responsibility, the fiduciary responsibility, the day-to-day management of the plan. All of these things do not have to be done by the plan sponsor or a member of the HR team.

all that stuff can all be done by outside professional firms and should be. And it's even encouraged to be done that way by the Department of Labor. You know, and also one thought, we'll kind of wrap up with this point because I think this one is like one of those, you don't really think of it much. But if you dig in really, really deep, it's like a nice, aha, light bulb moment, which is you talk about some of these flaws and issues, toxic issues that could be in these company retirement plans that you're unearthed. thing and fixing. Well, it could actually cause some of the employees to not be able to retire in the time frame that they want, which for a large, large company, you know, the, you know, the problem is they are said, well, you don't treat us like humans. You treat us like numbers. But for many, most of the kind, many cases, the owners in the management team, they do care about

the people. And if they hear that this is an, uh, an issue, they care that. oh, you weren't able to retire at this age and you now had to work this many years, all because maybe the retirement plan could have been just polished up a little bit. Talk a little bit about that kind of like intangible aspect. That's a great point. And one of the things that needs to be realized is that a lot of times the owners and the executives, they have a vested interest because they're key participants in the plan as well. A lot of their wealth is developed within the retirement plan.

So they have a, they should, if they don't already, they should have a vested interest in it performing as good as it possibly can. And yeah, if you've got a, you know, a big quality company that's been around a long time and plans on being around a long time, you want to have a quality talent and employees that stay there a long time. And you want them to have something to look forward to. You want them to be able to retire at some point in the future. And you want that to be something that they look forward to. And one of the key issues with the way that these plans are managed in the country is, is that they don't know what they don't know and they don't know that they have options. And so the concern is that a lot of this, a lot of the fees and a lot of the money that it's

kind of slowly siphoned off. It's like a, you know, it's just like a slow leak in a tire that they don't know that they have. So being made aware of it and patching it, fixing it, it just allows so much better improvement but that's hard to put a number to, and it's hard to make somebody realize how big of a difference that can make. But if you look closely at it, you realize how that change can affect an employee that's going to be there for another five, 10, 20 years, it's really significant.

So just helping people be aware of the improvement that they can make with minimal effort is really a satisfying action on my part to be able to make, you know, business owners and whatnot aware. of the opportunity that I'm presenting them with. Excellent. Well, Sean, if someone is interested in learning more about this and reaching out and connecting with you, what is the best way that they can do that? I'd encourage them to go to our website, full focusfinancial.com and read more about some of

these topics that we just finished discussing here. And, you know, hit the contact us button. We'll make sure we take great care of you. Excellent. Well, Sean, thank you so much for coming back on today. It's been a real pleasure talking with you. You bet. Thank you, Mike.

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