When comparing 401(k) retirement plans for a small practice, physicians should look for these important qualities: low fees, a diverse selection of mutual funds, education tools, and plan monitoring.
Some small-business retirement plans charge participants 3 percent a year or more to cover investment management, broker’s commissions, and recordkeeping, an amount Jonathan M. Bergman, vice president and chief investment officer of Palisades Hudson Financial Group, calls “outrageous.”
These high fees come out of the employees’ investments, meaning they’ll have less for retirement. “In some plans, you have to peel the onion a few layers to reveal total plan fees,” he says. Pending federal legislation and regulations will require complete transparency in fees. “They won’t be hidden anymore,” Bergman adds.
Small businesses don’t have the same clout as big employers, and most are still stuck with high-cost plans. According to a 2009 Deloitte Consulting survey, plans with fewer than 100 participants paid an average of 2.03 percent in total fees. But the trends are going in the right direction, as more competition enters the small 401(k) market Bergman says.
When comparing 401(k) retirement plans for a small practice, physicians should look for these important qualities:
A diverse selection of low-cost, high-quality mutual funds. Plans that offer mutual funds from only one or two fund families don’t give participants enough choice. There should be a choice of well-regarded funds from different companies. Investment selections should go beyond ordinary stock and bond funds, to include, for example, natural resources and inflation-protected securities funds.
Careful monitoring of fund managers. The plan trustee must keep close tabs on the performance of all mutual funds in the plan. If any consistently underperform, the funds should be replaced. This is the same kind of monitoring any good investment advisor is already doing for individual clients.
Participant education. The plan provider should offer investment seminars, quarterly market commentaries, and general investment advice via email and telephone hotline.
Low fees. Total fees should never be more than 1.25 percent a year.
Palisades Hudson Financial Group is a fee-only financial planning firm headquartered in Scarsdale, NY. It offers estate planning, insurance consulting, trust planning, cross-border planning, business valuation, family office and business management, executive financial planning, and tax services. Its sister firm, Palisades Hudson Asset Management, is an independent investment advisor with about $950 million under management. Branch offices are located in Atlanta and Ft. Lauderdale.