Free 401(k)s, and Compensation for Professionals

Tom PalkaFree 401(k) and the Ability for Professionals to be Compensated
Presented by Tom Palka
RIA Technology
Contact tom@401konsite.com

Wednesday, August 8, 2001

Visit the AccountingWEB Workshop Calendar for upcoming sessions.


Summary
  • Now everyone can have a 401(k)
  • Features of free 401(k) – no administration fees
  • True, non-proprietary mutual fund platform
  • Tax credits for new 401(k) plans
  • 401(k)s advice and getting compensated

You can read the complete transcript of this workshop.

There is a new competitor on the block. They are going to turn the 401(k) business on its head. Workshop participants found out about the ability to structure and design a 401(k) ideally suited to a company.

Do you know there are tax credits available for new plans? Tom Palka discussed the options available for servicing your clients on the platform. With over 125 fund choices and a brokerage option available can you pass this up? Be the first to bring this program to your client’s attention.


Workshop Transcript

Session Moderator: Welcome everyone, and thank you for joining us today! I'm happy to introduce Tom Palka, who will be presenting a workshop on the features of free 401(k) plans and related compensation. Tom is a Certified Financial Planner and is the President of 401(k) On-Site Specialists. Tom received his B.S. in Investment Finance from Wayne State University in 1984 and his CFP from the College of Financial Planning in 1992. Tom's financial experience includes: Financial Planner for IDS/American Express, thirteen years as partner in an investment advisory firm and President of 401(k) On-Site Specialists since 2000.

Session Moderator: Welcome Tom!

Tom Palka: Good afternoon everyone and thank you for taking the time out of your day to join us. RIA stands for Registered Investment Advisor. I'm a Certified Financial Planner and I entered the financial planning field at the beginning of January 1987. We are an SEC regulated advisor and can do business in all 50 states. I started out by working with Ford Motor Company employees doing financial planning and analysis as well as advising them on their 401(k) investments. We have broadened out over the years to work with Detroit Edison, GM, Verizon and Visteon employees. Now we are taking our expertise to the small business owner and 401(k) participant

Tom Palka: Our company, RIA Technology specializes in 401(k) s and in giving advice to 401(k) participants. We begin the process with an analysis of their employers' 401(k) plan.

What type of plan is it?
How can we save the employer money?
What type of service is experienced?
What are the investment choices?
How easy is it to work with?
How can we enhance service?

The subject of 401(k) plan is a very hot topic today. Year 2000 was brutal to investors and 2001 isn't going much better. Many armchair portfolio managers are finding out that watching CNNfn, MSNBC and reading money magazine may not be enough investment research to make good decisions. Many employees are looking for guidance on investing their 401(k) funds and we at RIA Technology have the ability to help them. More importantly, we are excited to assist in reviewing their existing plan, investment selection, strategies and make recommendations.

In the "go-go" market from 1995 to 1999 a rising tide seemed to lift all mutual funds. It seemed any domestic Large-cap or Mid-cap fund had anywhere from acceptable to tremendous investment results. Now that the DOW is off its high, the S&P 500 in a bear market and the NASDAQ in a brutal bear market, many 401(k) participants are concerned by the lack of diversification in their 401(k) investment selection. Some existing plans have as few as three (3) alternatives to chose from limiting diversification.

We, have a platform that enjoys many of the country's top fund families. Some of the funds available include: American Century, CS Warburg Pincus, Davis, Deutsch, Evergreen, Exeter, Federated, Franklin-Templeton, Investco, Janus, Loomis Sayles, Oppenheimer, Pioneer, Rydex, Van Kampen. Together they bring over 130 fund choices and the list is growing. Participants fund choices become more diversified and more funds are becoming available. We believe each participant should have full access to as many of the best mutual funds that are available.

To make it even simpler for participants, each of the fund families have model portfolios from conservative, all the way to aggressive. Each participant can chose all their investments themselves; or they could choose to have RIA Technology assist them in plan allocation and diversification based on individual review. We have it setup to make the plan totally flexible

We help companies design the very best 401(k) for their situation. A company with 5000 employees has significantly different 401(k) needs than an outfit with 200 employees and definitely different needs than a 5-person organization. We analyze your current 401(k) plan to look at all the costs. Many 401(k) providers can be very liberal when it comes to fees. Some typical fees would be:

Initial setup fee
Administrative fee: Annual
Record keeping fee: Annual
Compliance cost
Form 5500: Annual
Top Heavy Testing: Regularly
Participant fee
Loan fee
Termination fee

A typical small business 401(k) annual expense averages from $1,500 to $2,500. In addition you have the initial fees to setup a plan and fees per participant. Plan provided by insurance companies can be expensive. Some of these 401(k) plans are packaged and marketed by an insurance company are annuities. Annuities add an additional layer of expenses to the plan. That layer of expenses usually falls in the 1.25% to 1.5% range and is for life. That means if the underlying mutual funds in a variable annuity have an expense of 1.5% and the annuity has a 1.25% expense an investor must earn at least 2.75% to breakeven. Combine the additional annuity expenses with a normal surrender period of 7 years and the plans become extremely restrictive.

Now the insurance company has the opportunity to deliver expensive service. Why? Because every time you make a deposit into the 401(k) the clock resets itself on the Contingent Deferred Sales Charges on those contributions. So you move $1,000,000 into a plan. A year downs the road you realize you made a mistake and you want to pull out. It most likely will cost 6% in year 2 so $60,000 is the penalty. Most people put up with bad service to save the $60,000. The insurance companies know this so what is the hurry?

We can save the employer money. We do not to set up the 401(k) plan. Many providers charge initial fees anywhere from $400 to $2,500 just to set a plan up. On top of this we can save the employer anywhere from $2,000 to $5,000 a year in administrative cost by using our platform. We have automated the system to drive out inefficiencies. Every time a human enters into the equation the amount of time to complete a task increases. The cost of this human is terribly expensive and they tend to be inefficient.

We do not charge for 5500s or for compliance testing. We pass these savings on to you. How can we do this? Because of XML technology and "straight-through processing" the work of humans has been basically eliminated. We pass these cost savings directly on to you. Is there an address to be changed? No more forms to fill out or 1-800-Automated telephone for five minutes of messages telling you which button to push next. Heaven forbid, you get disconnected and you get to go through the process once again. We have automated the 401(k) plan through active online integration. Change the address, hit the enter button and your done.

It's the same with moving funds in the plan. We offer as a plan option that gives participants an optional brokerage account whereby participants can buy individual securities. Now an employee can even go beyond the 130 mutual fund choices and buy individual stocks and bonds. It is up to the employer as to whether or not they want to add this feature to their program. We do not have to overwhelm your employees so many employers request that we put fewer options in their plan.

The employee contributions are constantly monitored so there are no surprises at the end of the year being out of compliance with over funding. Paperwork is optional! No more messy statements and prospectuses clogging up the mailbox. Did you hire a new employee? You don't have to look for paperwork or making the call and waiting on hold for a representative after going through their automated voice response system. You can sign them up online through our Internet connection.

Established players in the 401(k) marketplace have legacy computer systems that employ old technology. They are not sophisticated or powerful enough to take true advantage of Internet technology. How much grief, aggravation and time are spent following up with 401(k) providers? Try getting a terminated employee dropped from payroll and out of the system. Good luck! We have available a one click IRA rollover for terminated employees. It is so simple that anyone can do it. In life there is no free lunch so how can we provide this service? Every 401(k) has investment options and standard investments are equities, bonds, mutual funds as well as a money market account. Record keeping expenses are built directly into all mutual funds. The mutual funds that are available in our 401(k) platform pay a fee to participate in the automated and paperless system. We have both No-Load mutual funds as well as load-waived funds on our platform.

There are true No-Load funds that pay the broker zero dollars. Some funds compensate a representative only with a trail commission and other fund families pay Finders Fees and 12b1 fees or trail commissions. Registered Investment Advisors bill quarterly fees for services. This is deducted from the investment portfolio.

Do you have clients with less than 100 employees and are setting up a new 401(k)? The government is offering tax credits of up to $1,500 on the establishment of a 401(k) plan. The credits are for 3 years at $500 per year. This program expires at the end of the three years so help your client. You could be their best tax credit.

We are living in a wired world. This same technology provided us with the platform to give superior service and selection. Thank you, at the AccountingWEB organization for allowing me to present an alternative 401(k) to your members.

Are there any questions?

Thomas Pritchett: How does your program differ from GoldK and Fast401k ?

Tom Palka: I provide a wrapped 401(k) money managed program.

Beatrice Muganda-Sla: What are your average annual fees for employers with fewer than 50 employees?

Tom Palka: For the employer there are no costs.

Lenard: How to do I set up my company with you?

Thomas Pritchett: Are the costs paid by the participants?

Tom Palka: For the employees they pay a wrap fee for money under management at 2.00% per year. These are pretax dollars and are paid directly from their 401(k) account.

Tom Palka: E-mail me with your name and company particulars. My e-mail is http://mailto:tpalka@riatech.com">tpalka@riatech.com

Beatrice Muganda-Sla: Do you charge termination fees and are there a minimum number of individuals required for an employer to offer your plan?

Tom Palka: There is no termination fee on plan assets but there is an hourly charge for a plan termination and two is the minimum number of participants

Session Moderator: Thanks Tom, for your time and your presentation and thank you all for joining us today!

Tom Palka: Thank you.


Biography

Tom Palka, CFP, is the President of 401(k) On-Site Specialists. Tom received his B.S. in Investment Finance from Wayne State University in 1984 and his CFP from the College of Financial Planning in 1992.

Tom's financial experience includes: Financial Planner for IDS/American Express, thirteen years as partner in an investment advisory firm and President of 401(k) On-Site Specialists since 2000.

Web site: www.401kONsite.com

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