As a financial services firm with an in depth 401(k) background, one situation we see again and again is the outright mismanagement of company 401(k) plans. Medical offices in particular are often the victims of this poor planning.
There are several reasons why medical offices are often tangled in this situation. The first is most likely related to the (wrong) stereotype of doctors in terms of finances. Take the outdated “marrying a doctor is a dream” example. Doctors are perceived as having a lot of money. It is true that many make a substantial salary. However, when it comes to managing this money, doctors tend to do the opposite of what is fiscally responsible. Thus, many financial advisors cannot wait to get their foot in the door of a medical office.
The second reason may have to do with medical offices being so busy, with reams of paperwork to sift through and not enough time to do so. Insurances and billing alone takes an extraordinary amount of time, so things like 401(k)s get swept under the rug.
The point of this article is to use the experience our company has with managing other company’s 401(k)s to tell other offices what they should look out for.
Three Things You Should Know with Your Medical Office’s 401(k):
1) Your fees should go DOWN as your 401(k) grows.
If your advisor and/or 401(k) manager is doing right by you, your fees should decrease percentage-wise as the 401(k) grows. They should not be rising with the value of the 401(k). If the fees are rising, this means you are paying a percentage of your growth, instead of a fixed fee. If you have a fee-only advisor, you will never be charged for growth; only a fixed rate. If you notice the fees rising as the 401(k) grows, you may want to check into this. It could be a clue that your 401(k) is not being properly managed.
2) Are You Getting a Regular 401(k) Checkup?
We’ve seen 401(k) plans that were set up a decade ago, and were never looked at or adjusted again. This is extremely disadvantageous, as changing tax laws mean you could miss out on tremendous tax advantages available to you. Is your company qualified to manage a new 401(k) plan? What kind of profit sharing (if any) does your company do? Are you aware of the tax advantages of this? A good 401(k) manager will be proactive in ensuring you are achieving the maximum benefit from your 401(k) plan. This not only makes for happier employees, but it can save your company a lot of time and effort.
3) Does Your Plan Manager Act as A Fiduciary?
Is your 401(k) manager working in your best interest or theirs? This can be a tricky question to answer. In laymen’s terms, your 401(k) manager should be working on a flat fee, regardless of how your plan grows. They should also be checking up on the account, at least annually, whether or not they have anything to gain monetarily from doing so. You should be able to fully trust your plan manager. If you have any doubt, then perhaps it’s time to look at other options.
In the end, your 401(k) plan matters a great deal to your practice. It helps your employees prepare for retirement, makes your practice a more attractive place to work, and it acts as an excellent tax shelter for all involved. 401(k) plans can be intricate, and there are a lot of moving parts. As a company or practice owner, it is your responsibility to make sure you chose the right people to manage and maintain your company’s 401(k) accounts.
Jake Rushton, AIF® is the Vice President of TrueNorth Retirement Services, a fee-only financial services firm that helps businesses get the most out of their retirement benefit plans. They provide clients a fee-only fiduciary approach, and offer unrivaled expertise on an array of plan options ranging from 401k, Defined Benefit, Cash Balance, and Tax-Exempt Plans.