Attention pharmacy owners! Do you know the details of your 401k? Are you 100% positive that the plan you are offering is the best one for you and your employees? Or, are you simply going with one that was cheap and easy to set up?
If you don't know the basic ins-and-outs of your 401k it could be costing you BIG. In this blog, we are going to be reviewing basic concepts of common 401k plans and providing you with important things to keep in mind when reviewing your 401k plan options.
First and foremost, 401k plans are subject to numerous and complex rules, regulations and tax qualification requirements. Be sure to consult with a qualified professional before making ANY decisions or changes to your 401k.
- Regularly review your 401k plan to make sure that the one you are offering is, in fact, the best option for you and your team.
There are pros and cons to the different retirement plan options. There are things to consider such as eligibility and minimum coverage requirements, documentation requirements, contribution options and limits, employer's responsibilities, and more. See the chart below for a brief review of some basic 401k options and points of differentiation between each.
Account Elective Deferral Maximum Employer Contribution Catch-up Contribution SBO - 401k $18,500 25% of compensation or 20% in the case of a Sole Proprietor or a Schedule C Tax Payer $6,000 SEP IRA Not Allowed 25 % of compensation or 20% of modified net profit for unincorporated business owners
Profit Sharing or Money Purchase Pension Plan Not Allowed 25% of compensation or 20% of modified net profit for unincorporated business owners Not Allowed SIMPLE IRA $12,500 3% of compensation/income $3,000
To find the best plan for you, talk with one of our advisors who can walk you through the differences as they apply to you and your team.
- Know the fees associated with your 401k plan.
If your pharmacy sponsors a 401k plan for your employees, you, as the fiduciary, have the responsibility of making sure you are paying reasonable fees from plan assets. To confirm if your fees are reasonable, it is important to regularly benchmark them by comparing your provider’s fees to other competitors.
Unfortunately, many providers have hidden fees that are buried in places like revenue sharing or wrap fees. If you don’t already receive them, be sure to ask for a fee disclosure document. By doing your due diligence, you may reduce fiduciary liability and lower income taxes.
- Its important to remember that trust is important in the advisor/client relationship but you must verify that you are getting what you need from the advisor.
We see all the time where things aren’t being done correctly, but the client really likes the advisor. I heard a story yesterday about a broker who offers horrible advice to his clients, but they will never move because he’s a “SWELL” guy. This unfortunately is the easy way to evaluate financial advice and can lead to a lawsuit. Additionally, not all advisors fully understand the complexity of 401(k) plans. Your current advisor may be very trustworthy and honest, but they may be unaware of certain ways to customize a 401(k) to benefit pharmacy owners and employees.
There is another story where a financial advisor got a hospital 401k because he donated money to the hospital to build it’s cancer center. That advisor and hospital system are now getting sued because of the conflicts of interest and excessive fees. I assume that the advisor was making donations back to the hospital because he was overcharging the participants.
Most Common Problems we see:
- The 401k was set up for the wrong reason. We have seen situations where pharmacy owners felt peer pressured into providing the 401k - simply because "everyone else is doing it". If you don't have a 401k set up for your team, don't just pick one and go with it because it is easy. There are better ways to go about it.
- Plan design is wrong and the path of least resistance was taken to set up the retirement plan. As we said earlier, not all 401k plans are created equal, and you may not have the plan that is BEST for you and your team. By working with a proper advisor you can review all of your options before making a decision.
- Service levels do not match fee levels and fees aren’t benchmarked effectively. If you are underwhelmed by the service you are receiving from your current advisor, or if you expect more for what you are paying them, it is possible you are over-paying and/or being taken advantage of.
While there are a lot of rules and regulations surrounding retirement plans, below are some key things to know and remember as you continue to review your plan options.
- If you are not getting what you need from your advisor/broker, then you are responsible to make the switch.
If you don’t want to be somewhat engaged with the plan, then it’s better to not have a plan at all
- Switching your 401k plan doesn’t have to be a major ordeal.
It is possible to switch 401k plans without much disruption to your current system.
- This should be seen as a benefit to you and your employees.
If they don’t understand it, then it really isn’t a benefit. Make sure to review the plan with your employees to help boost awareness, participation, and encourage interaction.
- You can always ask for advice.
If you feel that your 401k isn’t providing you and/or your team with the best options, talk with one of our advisors to make sure you have the best plan for you.
Since its inception in 1978, the 401(k) plan has become one of the most popular type of employer-sponsored retirement plan in America. Whether you have a traditional, Roth, SIMPLE, SEP, or safe-harbor IRA/401k it’s important to know what makes your plan unique and how to fully utilize it. Click the button below to set up a call with one of our advisors to review your 401k and make sure you have the best plan for you.
For a complimentary 401k situation analysis and tips on best practices, contact Tyler at Pharmacy 401k by calling 843-873-4420 or email firstname.lastname@example.org.
For more information on our custom approach and to discover your pharmacy's optimal plan, click here to download our company census tool or contact us by emailing email@example.com or call Tyler Campbell at 843-720-3756.