Bill Cleveland, MBA, CPA, CFP, is a partner and senior adviser for Calvary Wealth, LLC, with offices in the Southern U.S. Cleveland is a fee-only CFP and a member of the National Association of Personal Financial Advisors (NAPFA), providing comprehensive
Now may be the time to review your original goals for having a retirement plan, then evaluate whether your plan is meeting those goals.
Perhaps you're among the many physicians who have recently questioned whether it is worth the cost, frustration, and commitment of time to operate a retirement plan for employees. To the practice owner, it may seem like many employees either don't care or don't participate in these plans, especially in a down market.
On the other hand, as your employees' portfolios shrink, they are probably wondering whether they will ever be able to retire at all.
Now may be the time to review your original goals for having a retirement plan, then evaluate whether your plan is meeting those goals. With the changes in law during the past five years, your plan may no longer have the best design, and there may be ways to adjust the plan to maximize the dollars going to the owners or to better reward long-term employees.
From your point of view, you want the plan to maximize your contribution, defer tax liability, and help your employees achieve their goal of saving for the future. A good retirement plan should give your employees the ability to select from any fund in the marketplace, not just from one fund company. From this universe of options, your adviser then helps you select the funds that are most appropriate for your plan. I typically like to see 15 to 20 funds-enough for diversification, but not too many options to confuse employees.
One of the keys to having a successful retirement plan is offering proper and constant education for your employees. They should get some form of communication on a quarterly basis and should see the adviser at least once a year, and that adviser should be available and responsive to their questions.
Most employees have no idea how to select from among their investment options, especially in volatile markets. Going to cash or stopping contributions in market downturns, picking options based on last year's performance, listening to the most outspoken person in the office, and taking loans from the plan-all of these are common pitfalls and sure ways for employees to have an unsuccessful investing experience. Research shows that investors who make emotional decisions with their money often significantly underperform the market over time.
It is important that employees understand the basics of planning, such as having a six-month reserve fund, saving 10 to 15 percent of their salaries, keeping debt low, and entering into the retirement plan with the idea that they will not touch the money until they actually retire.
That last point is important: Retirement plans are for the future, not the present. While you will never totally eliminate the need for hardship withdrawals or loans (especially during a recession), it's important for employees to know that, while beneficial in the short term, they almost always lose in the long term. Many times, employees will leave a practice and not have the money to pay back the loan, resulting in the balance being taxed, along with a 10 percent early-withdrawal penalty.
As a practice owner, it is not in your best interest to drop a plan, but it may make sense to restructure it. You may have started with a SEP or SIMPLE plan; now, a 401(k) may be more appropriate, or vice versa.
A retirement plan is usually worth the costs and occasional headaches. Make sure your plan still fulfills its original purpose and that you and your employees are receiving the advice you need to make good decisions.