- Ary Rosenbuam
There is no such thing as an Assembly Line Retirement Plan
Henry T. Ford is considered the father or the pioneer of the modern day assembly line of manufacturing. His development of the Model T and its way of manufacturing is considered one of the great developments in 20th-century capitalism. His assembly line combined the idea of interchangeable parts and was a model of efficiency. His efficiency did have its limitations. In his autobiography, Ford wrote: “Any customer can have a car painted any color that he wants so long as it is black”.
There are many retirement plan providers that have an assembly line approach when it comes to retirement plans. These providers use their own standardized prototype documents and have a consistent plan design structure. Like the color of a Model T, plan sponsors usually using these providers have no choice in plan design and these limitations may cost the plan sponsor money because they are not able to maximize employer contributions through plan designs that may increase contributions to highly compensated employees, which many times are the owners of the plan sponsor.
There can’t be a cookie-cutter approach to retirement plans. Every plan is different. Even plans sponsored by the same employer are different. Every plan has its own set of circumstances as to why they were set up, what the goals were when set up, as well as the demographics of the plan sponsor supporting it. Their vesting schedule, eligibility requirements, and employer contribution should be drafted to the specific needs and demographics of the plan sponsor. Plan documents are legal documents and legal documents have legal consequences. They should not be churned out by someone who is not an ERISA attorney or is not a paralegal with extensive retirement plan drafting background. Prototype plan documents that have that fill in the blank document look can be a very cost-efficient, but they have their limits and there are very often situations where the plan sponsor’s needs cannot fit within the confines of the plan document’s limited choices.
Retirement plans are not widgets or tubes of toothpaste. Like a suit, they have to be custom made or tailored to meet the specific needs of the plan sponsor. Failure to have the plan fits the needs of a plan sponsor is the same as my 12-year-old son wearing his Size 6 clothes or my clothes. Plan design and drafting is an essential part of retirement plan administration and should not be discounted.
These plan providers that use that assembly line approach that doesn’t offer new comparability plan design or a variety of choice among plan provisions does a disservice to the plan sponsor. Cost for a plan sponsor in retirement plan administration is a concern, but not the overriding concern. Plan sponsors need providers that can draft and administer the plan so it fits their needs.