Five Design Features Agricultural Companies Worth Considering in a 401(k) Plan

,

As a business owner in the agricultural sector, you may be considering starting a retirement plan for your employees, or you may already have a plan in place that needs some updating. From technology to employee education, there are particular challenges agricultural companies face when designing and communicating a 401(k) plan. We’ll share our top five features to consider when creating or updating your retirement plan.

#1 Adopt a Safe Harbor Provision

If you already have a 401(k) and matching program or are designing your plan for the first time, adding a safe harbor provision may be a critical component.

Companies with a traditional 401(k) plan must perform annual nondiscrimination testing to remain compliant and ensure every employee can benefit from a plan fairly. These tests measure a plan’s participation, contributions, and other factors. For example, suppose more highly compensated employees participate in your plan than lower-paid employees. In that case, it can result in an imbalance in the plan’s assets or a “top-heavy” plan, which the IRS considers is favoring highly compensated employees.

However, the nondiscrimination calculations can also make it difficult for a highly compensated employee, such as an executive or owner, to max out their annual 401(k) contributions. This can quickly become a common scenario and challenge among small agricultural companies that consist of owners and a few farmworkers with significant differences in income.

If this is your situation, you can avoid a top-heavy plan and annual nondiscrimination testing by adopting a safe harbor provision in your 401(k) plan. In a safe harbor plan, employers contribute to an employee plan through matching or other contributions. Matches, in particular, incentivize more employees to participate and save for retirement, and the IRS offers the benefit of “safe harbor” from annual testing. Consult with a retirement plan professional to determine if this would be suitable for your company.

#2 Establish an Investment Committee

Managing a 401(k) program comes with specific requirements and rules from the IRS, Department of Labor, and Employee Retirement Income Security Act (ERISA). Plan administrators have the fiduciary responsibility to oversee a plan, review that investments are diversified and fees are reasonable, and share plan details with employees, among other duties.

It’s important to establish an investment committee so you can stay up-to-date with your plan and regulations and act in your employees’ best interests. A committee may look different from company to company, consisting of executives, HR representatives, a third-party retirement plan professional, or a combination of internal and external teams. If you’re a larger company with several different job levels, you may even consider appointing employee delegates representing the various employees you serve.

#3 Share Plan Information in Multiple Languages

To promote your plan’s success, your staff will need to understand its features and guidelines clearly. It can be challenging to do this if the information, disclosures, and jargon are not in your employees’ primary language.

To facilitate a comprehensive understanding, ensure you’re providing materials and communicating presentations in multiple languages, as applicable to your employees’ needs. While this may seem like an obvious detail, it’s a common mistake we see in the agricultural sector, which overlooks the diverse makeup of its farmworkers and their ability to make investment decisions and plan for retirement.

#4 Use Technology

Another typical detail that’s often missing from agricultural retirement planning for employees is the use of technology. It can be a challenge if most employees, including the owners and managers, work on a farm and do not require a computer to perform their daily tasks.

However, even small steps that leverage technology can be significant in your retirement plan’s effectiveness and ensure you’re meeting your requirements if you’re the plan administrator. For example, it’s harder to walk participants through the plan’s details, disclosures, and guidelines and offer to print essential documents without access to a computer.

At the minimum, we encourage you to set up a workstation where your employees can securely use a computer, view their statements, and print the resources they need.

#5 Provide Employee Education

When you’re managing day-to-day operations, a sprawling worksite, and several groups of employees, retirement plan education can quickly go on the back burner on your list of priorities. However, as a plan administrator, you’re required by law to meet specific compliance guidelines—one of which is providing employee education to help inform investment decisions.

The positive results of education can help increase your plan’s participation and employee loyalty for employees who feel supported, engaged, and secure with their retirement benefits. However, overlooking this key area can result in legal action by your employees, increased risk to your organization, and expensive plan corrections.

Train plan fiduciaries or work with a company specializing in retirement plans and administration to create an employee education campaign that fits your agricultural business and employee needs in an efficient and compliant way.

How RWM Financial Group Can Help

We’re aware of the challenges agricultural companies face daily and how operations could affect the effectiveness of an employee retirement plan.

At RWM, we help businesses like yours create well-managed retirement plans that benefit both your employees and you as an employer. Contact us to learn more about how we develop customized solutions to help you design a 401(k) program, maintain compliance, reduce your costs, and increase employee loyalty.

Some of the Top Mistakes Employers Make When Building a Retirement Plan

,

As an employer, offering a retirement plan is one way to help your employees realize their post-career goals after their years of hard work. When you’re designing your retirement plan, there are key areas to be aware of based on your entity type, such as governmental agencies and non-governmental businesses in both non-tribal and tribal organizations. If you’re unaware of these various factors and differences, you could face administrative and legal challenges.

We’ll share the common—and sometimes costly—mistakes we’ve encountered working with these different types of businesses and explain how you can seek to avoid similar challenges.

Mistake # 1 Not Discussing Your Goals and Needs

Many businesses elect to work with a third-party professional who specializes in retirement plan design and administration. However, the partnership can pose problems when the third party offers a standard prototype design without fully understanding your business type and goals. It’s critical to interview potential third parties to ensure they are well-versed in tailoring a plan to your organization. Ask them questions and discuss which features or strategies are appropriate as you’re establishing your company’s retirement plan.

For example, we frequently come across businesses offering a 401(k) matching program that have not yet adopted a safe harbor provision. There are qualifying factors, but the safe harbor provision helps you maintain compliance and avoid the expense of annual nondiscrimination testing required by the IRS. Unfortunately, many businesses are not made aware of this option and the cost savings available.

Mistake # 2 Setting Up the Wrong Type of Plan for Your Business

Every entity that sponsors an employee retirement plan must follow specific guidelines under various governing boards such as the IRS and the Employee Retirement Income Security Act (ERISA). The type of retirement plan you establish is essential to remaining compliant while not taking on unnecessary risks or costs. However, if you are unaware of the key differences, you may find yourself in a plan that’s unsuitable or costly to your business. Let’s look at a couple of examples.

  • Non-ERISA Plans for Governmental Agencies. It’s critical to know that on the governmental side for non-tribal and tribal agencies, you may be eligible for a non-ERISA plan, excusing you from the requirements found in a traditional ERISA plan. However, once you have filed a standard ERISA plan with the IRS, you cannot reverse it. This can be a damaging revelation for an agency that has implemented a traditional plan and unnecessarily opened itself up to Department of Labor audits and ERISA requirements.

  • 457 Deferred Compensation Plans. The same situation occurs when assumptions are made and a tribal government establishes a 457 plan, committing to its guidelines and associated administrative costs. In traditional, non-tribal governments, a 457 may be appropriate; however, tribal governments, unrecognized under 457 regulations, are usually best suited with a non-ERISA 401(k). In this case, it’s challenging for a tribal government to terminate a 457 plan, which requires lengthy IRS approvals.

Mistake #3 Not Using Technology

Sometimes companies set up a retirement plan without a clear strategy for leveraging technology.

As a plan sponsor, you have a legal obligation to ensure your employees adequately understand the plan’s details. Technology can help to simplify this area. For example, if you have a payroll site where employees can view and print their statements, you may consider adding your retirement plan disclosures, forms, and other resources. This way, you’ll stay compliant and reduce your fiduciary risk while giving employees a central location for important retirement information.

When employees feel more informed and engaged in their retirement benefits, we’ve found they’re more inclined to participate and take an active role in their financial future. And technology and access can be significant factors in helping them pursue their goals.

Mistake #4 Not Providing Employee Education

It can be difficult to coordinate schedules and carve out an hour for your company’s retirement plan education. However, not providing employee education can have long-term consequences.

As we’ve mentioned, providing employee education is part of your fiduciary responsibility as a plan administrator. Employees should be aware of the plan’s details and have an opportunity to ask questions and learn about plan updates, economic and business news, and general investment planning. In extreme cases, you could violate your duties and be at risk for employee litigation in the future by not providing suitable educational opportunities.

Whether through technology or group meetings, we encourage you to establish a retirement plan strategy that consistently promotes employee education. You may also think about how your education needs to shift based on your audience—for example, when speaking to executives versus frontline employees.

We do this for companies by taking advantage of regularly scheduled team meetings or trainings and simply dedicating a few minutes to the retirement plan and employee questions.

Mistake #5 Not Establishing an Investment Committee

As you can see, you must stay up-to-date on the various administrative duties and evolving regulations regarding your company’s retirement plan—and establishing an investment committee can be the determining factor in meeting those needs.

Your investment committee will be the fiduciary body responsible for managing and updating your plan, ensuring investments are appropriately diversified and fund fees are reasonable, and ultimately acting in your employees’ best interests.

When forming a committee, consider who can effectively represent your employees and inform their needs. For example, you may find a group of executives, HR staff, and a third-party partner are sufficient for your company. In contrast, another company may also appoint employee delegates based on their various employee subsets for additional accountability.

Creating a Strong Foundation

There are many moving parts when designing, implementing, and administering a retirement plan. However, when you focus on the key areas in your initial design or partner with a professional specializing in retirement plans and administration, you can strive to avoid the common challenges and unnecessary costs while helping your employees succeed.

At RWM Financial Group, we help commercial businesses and governmental agencies design and oversee well-managed retirement plans in non-tribal and tribal organizations. Learn more about building a custom, cost-effective strategy that is compliant and promotes success for you and your employees.

This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does the advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.