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    More often than not, advisors don't specialize in 401(k)s or other retirement plans. Retirement plan advisories usually require specialized training and certifications, which can be a large investment. However, offering a 401(k), 403(b), and additional retirement plan assistance can prove to be a sustainable branch of growing your advisory service, especially when dealing with small businesses. 

    Small businesses sponsoring a retirement plan need guidance, not only in the differences in plan options but what will be the best for their unique business. These prospective clients need the help of a trained financial advisor who knows the answers to their questions with their best interest in mind. These relationships can build the foundations of trust for future wealth management clients down the road and can broaden your advisory's services in the process. 

    In this article, we look at why an employer may want to offer a retirement plan, the differences between the plans, and some common misconceptions that advisors are often asked to clear up. 

    Defining Retirement Plans and Employer Benefits 

    Offering a retirement plan is a big step in any benefits program, and ultimately reflects the organization's goals. While they can be seen as a way to care for and support an employee's future, retirement plans offer potential significant tax-saving benefits, which can interest small businesses into taking a look into what they can offer. 

    In fact, the federal government often offers tax credits if it's a business's first time establishing a retirement plan. Once your clients have determined that they'd like to start their own plan, it's time to discuss what options would be right for them. Of consideration are the types of contributions that are permitted.  For example, a 401k plan can be set up to allow for different contribution types: 

    • Employee contributions 
    • Roth after-tax contributions 
    • Employer matching contributions 
    • Profit-sharing 

    There are rules and requirements for each of these plans, which is when a financial advisor or a Third-Party Administrator (TPA) is brought in to determine the plan that works best for them. At the end of the day, what plan is offered by employers often reflects their goals as a company and what they are willing to offer. It's important to sit down with them with a consultatory mindset to discover what their goals are and build around them.  

    401(k)s and 403(b)s: What is the Difference?  

    Digging a little deeper into the variety of retirement plans that are offered, the two most common ones that come to mind are 401(k)s and 403(b)s. Both are employer-sponsored retirement plans, but 401(k)s and 403(b)s have their own sets of differences as well as pros and cons. The largest difference between these plans is that a 401(k) is generally offered by private, for-profit companies, while 403(b)s are offered by non-profit organizations or tax-exempt entities such as hospitals, universities, and colleges. The exception to that rule is that a 501(c)(3) organization has the flexibility to offer either 401(k) or 403(b).  

    401(k) plans are covered by the Employee Retirement Income Security Act of 1974 (ERISA) and are subject to nondiscrimination testing in order to ensure that all employees are covered equally no matter their salary or seniority level. In contrast, 403(b)s are not covered by ERISA, so the same testing is not required when establishing this plan. 

    There are some similarities between the programs, as they both require a TPA to provide a plan document and ensure employee salary contributions do not exceed the annual limit. Additionally, both programs allow employee pre-tax contributions.  Both can also permit employee Roth after-tax contributions. 

    Common Misconceptions 

    Not only do many misconceptions about 401(k)s exist, but many small business owners forget that there are other options that are just as viable. You may find that your small business clients have heard of 401(k)s but have heard of little else. In reality, there are many other options such as SEP IRA plans, SIMPLE IRA plans, and defined benefit pension plans, to name a few. SIMPLE IRAs also permit employee pre-tax contributions plus a mandatory employer contribution.  But while a SIMPLE IRA plan is cheaper to initially set up, a custom-tailored 401(k) plan may pay off, in the long run, thanks to larger contribution limits. 

    Additionally, more complex plans—such as defined benefit and cash balance pension plans—require specific investment guidelines and expertise to facilitate them. Most businesses assume that any financial advisor can perform retirement plan creation and advice, which can lead to more risk if the advisor is not educated or specialized in the nuances of various retirement plans.  

    Even if you don't specialize in 401(k)s, you may need additional training before being able to assist your business owner clients in their retirement plan endeavors. Ensure you understand your advisory firm’s compliance requirements as many have specific guidelines on what types of plans and services you are permitted to offer. 

    Navigating Complexities of Retirement Plans 

    As previously stated, there are many rules and regulations that need to be followed when creating an employer-sponsored retirement plan. These regulations span multiple regulatory bodies, most commonly from ERISA, the Financial Industry Regulatory Authority (FINRA), the U.S. Securities and Exchange Commission (SEC), and the U.S. Department of Labor.  

    Additionally, recent trends show that states are now mandating retirement plans for businesses if they don't already have one in place. More than 30 states have considered enacting state-mandated retirement plan legislation, and 13 have already signed these petitions into law.  

    The overarching goal of these mandated requirements is to address the retirement savings gap issue by requiring employers to offer a retirement plan through the private sector, and if they don't, they must adopt a state-governed plan. These state-governed plans are often Roth IRA plans.  

    While state-regulated plans aren't necessarily a bad thing, these offer very little flexibility, and some business owners may end up regretting them. For example, if a high-wage earner—such as the business owner—exceeds the Adjusted Gross Income (AGI) eligibility requirements for making a Roth IRA contribution and fails to recode or reclassify them as traditional IRA contributions prior to their tax filing deadline, it could lead to penalties to IRA taxes at the end of the year. Conversely, there is no AGI requirement for Roth contributions in 401k plans, and 401k plans offer higher contribution limits than IRAs.  So, if your small business client is looking to ensure that their tax savings needs are addressed, they will likely have greater success setting up a 401(k) as opposed to a default state plan. 

    Here's How We Help 

    Navigating the complexities of 401(k)s and other retirement plans can be challenging, but worth it to expand your services. AssetMark has the resources that can support you in helping your clients choose what is appropriate for them and provide more value for their employees. 

    As an ERISA 3(38) Investment Manager Fiduciary, AssetMark provides an outsourced solution, allowing the employer to transfer the inherent fiduciary risk related to investment oversight, including, initial selection and ongoing due diligence and monitoring of investments. By working with AssetMark, you have the opportunity to continue to build your relationship with your client while leaving the details and heavy lifting to us. 

    To learn how else AssetMark can support you and your clients, request a consultation with AssetMark Retirement Services. 


    AssetMark is a leading provider of extensive wealth management and technology solutions that help financial advisors meet the ever-changing needs of their clients and businesses.

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