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Basic 401k/Profit sharing plan questions for small practice

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  • Basic 401k/Profit sharing plan questions for small practice

    Spouse is physician in a small group practice that has a profit sharing plan that has investment broker through AB Bernstein.  The investment options for the profit sharing plan are through Great-West, ERs of the investment options are high (most are > 1%).  I believe this family of funds was recommended by the brokers.

    The practice owners green-lighted me to explore other options and I have a meeting setup with the current investment brokers.

    Have a couple of basic questions so I can be somewhat prepared for the meeting.

    -who is the record keeper, is it Bernstein or is it great-west where the investments are purchased?

    -if I want to choose a different record-keeper or 401k provider, does that mean changing Bernstein or Great-west or both?  The only thing I want to do is to change the investment options available to the employees and choose a lower cost provider.

    -I see that Vanguard has small business plans but not sure if they offer profit sharing plans.  If I want to be able to access a low cost family of funds (Vanguard, Schwab, etc), which companies will offer me those for a profit sharing/401k plan?

    thanks!

  • #2
    You may want to check out Americas Best 401k or I have been satisfied with Employee Fiduciary....

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    • #3
      There is probably a profit-sharing arrangement between the 2 groups. The practice owners can even share in the fees.

      You have signed up for a potentially difficult task. If you want to know all about the current plan, you'll need to read the plan documents, which could be several hundred pages long. otoh, the proposed TPA (third party administrator) might be willing to take a look and shortcut the process in exchange for a shot at the business.

      Don't get Vanguard funds mixed up with Vanguard plan services. You can have a plan provider that uses Vanguard funds and will likely have better results than with a cookie-cutter plan document. The costs will be higher but having a TPA who really knows her stuff can make a big difference in the long run. This stuff is far from simple.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4




        Spouse is physician in a small group practice that has a profit sharing plan that has investment broker through AB Bernstein.  The investment options for the profit sharing plan are through Great-West, ERs of the investment options are high (most are > 1%).  I believe this family of funds was recommended by the brokers.

        The practice owners green-lighted me to explore other options and I have a meeting setup with the current investment brokers.

        Have a couple of basic questions so I can be somewhat prepared for the meeting.

        -who is the record keeper, is it Bernstein or is it great-west where the investments are purchased?

        -if I want to choose a different record-keeper or 401k provider, does that mean changing Bernstein or Great-west or both?  The only thing I want to do is to change the investment options available to the employees and choose a lower cost provider.

        -I see that Vanguard has small business plans but not sure if they offer profit sharing plans.  If I want to be able to access a low cost family of funds (Vanguard, Schwab, etc), which companies will offer me those for a profit sharing/401k plan?

        thanks!
        Click to expand...


        You are asking the right questions.  Typically, broker plans like this are bundled so you don't have control over much.  I've written a number of articles to address most of your questions:

        http://whitecoatinvestor.com/how-to-run-a-successful-retirement-plan-for-a-medical-or-dental-practice

        http://www.dentaltown.com/blog/post/3376/small-practice-retirement-plans-how-they-are-different

        http://whitecoatinvestor.com/how-to-reduce-your-practice-retirement-plan-cost/

        In a nutshell, to get the best, lowest cost plan the recipe is simple:

        1) No AUM fees of any type.  This is possible when you select all of your providers independently.

        2) A standalone TPA.  You want your own TPA, not the one who works for a record-keeper.

        3) Open architecture record-keeper that offers access to low cost index funds.

        4) ERISA 3(38) fiduciary who will make sure that you get the best of everything cost-effectively (and who will be responsible for selecting low cost investments with an average expense ratio of 0.15% or so).

        http://litovskymanagement.com/2014/01/hiring-fiduciary-adviser/

         

        As far as Vanguard, I have several plans on their platform, you don't get a good TPA who works for you, no ERISA 3(38) fiduciary, and so you are left pretty much with a relatively low quality huge record-keeper (Ascensus), and that's all, so you can't expect that they provide you with advice that's necessary for this type of plan. This is not the best arrangement for a profit sharing plan because Vanguard uses Ascensus as the record-keeper, and they are not serving many profit sharing plans at all.

        So in short, to get the best plan I would recommend selecting an ERISA 3(38) fiduciary, an independent TPA, and an open architecture record-keeper, and comparing apples to apples - the cost of independent providers vs. bundled providers, and I'm yet to see the case where bundled providers win on cost.

        I've created this calculator to illustrate the effect of asset-based fees on the bottom line:

        http://retirementplanhub.com/retirement-plan-cost-calculator/

        We are always available to put together a proposal.
        Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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        • #5
          Why don't you like Ascensus anymore Konstantine?

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          • #6




            Why don’t you like Ascensus anymore Konstantine?
            Click to expand...


            They are ok as a record-keeper only, for simpler startup plans but definitely not as a TPA (which is how Vanguard uses them) - and docs who have never had a plan have no idea what this means, but I do because Ascensus has very limited experience with profit sharing plans (according to the latest record-keeper survey done by Plansponsor), but also this is my experience as well (most plans they have are plain Safe Harbor - don't try to do a profit sharing plan with Ascensus because as a TPA they just won't do a good job on it), so those who think that Vanguard/Ascensus product is the best thing since sliced bread have no idea what awaits them, and how little advice/support they will actually be getting with respect to plan design/administration/compliance.  Their level of support is seriously lacking when things get tough, and they have trouble with more complex plans (such as older group practice plans that need to be converted).  If it is a startup participant-directed plan, with a good TPA/fiduciary oversight, they are OK as a record-keeper.  I'm currently working with a number of other record-keepers which are significantly smaller than Ascensus, and I like them a lot better all around - a lot less red tape and you deal directly with people who know what they are doing, not some rep who's been on the job for a year or two. I've spent months looking for different record-keepers, and came to the conclusion that smaller ones not only have better pricing for very small plans, but also can offer different types of accounts (such as those for pooled 401k plans and/or Cash Balance plans), which is something Ascensus is not able to offer.  So a group that has a 401k plan with Ascensus would need to go elsewhere for a Cash Balance plan record-keeper in any case, which can be a hassle.

            Lots of stuff under the hood when one digs deep enough.  Finding good record-keepers that are fairly priced is definitely not easy, but one thing I found is that many record-keepers are trying to be competitive in price lately, so this is a good sign.  Another issue is that record-keeping business is low margin, and Ascensus has been 'for sale' for the past several years, which is never a good thing.  I just went though the closure of a record-keeper (a smaller one which never reached critical mass), so this is not a fun experience to move plans around.  After a while companies (such as Ascensus) get to be too large to provide good service, and even Vanguard has lost my confidence given their abysmal service (granted I'm mostly working with complex VRIP accounts, but still), so if you already have a plan on Ascensus platform and it is in good hands, that's just fine, but I just would not recommend Ascensus today, unless the plan sponsor retains a competent TPA/fiduciary and there is a compelling reason to pick Ascensus vs. the alternatives (such as pricing or access to Vanguard institutional TDFs which is only available on the Vanguard/Ascensus platform).  Record-keeper comes last after TPA/fiduciary, and then the right one has to be selected depending on the current/future needs of the plan and price comparison.

             
            Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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