Monday, September 13, 2010

The following article was the beginning of a series on women. because so many Boomers have been faced with the need to remake their careers and even remarket their talents, many have looked to business ownership as the road they need to travel.  Also consider the time you might devote to this sort of venture.  Conceivably, at age 55, you could create business that could need your stewardship for tow decades or longer.  That said, there are many things to consider.

I just recently began season two of a radio show with Gina Robison-Billups and Kat Bellucci.  Quite often, Gina reminds us what this project is designed to do: help women in business not only achieve their goals but to level the playing field in business. This playing field, it seems, isn't level for any of the players when it comes to retirement planning.

We have discussed numerous ways for the women in the her audience to create and maintain a retirement that is both affordable and provides the right incentives for all of their employees.  But while women (and men) concentrate their time and efforts into growing the business itself, what you don't see or accidentally ignore, could cost in terms of legal fees and quality employees.

Once the business you are in becomes big enough to consider more than just a self-employed IRA for your retirement plan, an IRA suited best for the business owner and employer of one, the decisions seem to suddenly become more complicated and costly.

You might be CEO, chief sales person, plant manager and human resource department among the numerous hats you might be donning as your business grows.  But don't forget, you will also be the chief financial officer.

CFOs are faced with numerous problems when it comes to creating and maintaining a 401(k) plan.  You will need to hire a plan sponsor. At first, you will wonder if this is a necessary step.  But there are numerous reasons why you should hire what you can afford.

In a small business situation, the simple plan is probably the best.  Often referred to as a prototype, the plan comes with some basic elements in place and some you may not have considered. The best advice in structuring your 401(k) is to separate the elements of the plan.  Mutual fund and insurance companies offer a complete package of services designed to make the plan a sort of one-stop shop sort of affair.  Now, I'm not saying that this is a bad idea and on the surface it may look as if it might be the most cost efficient.  But in the long-run, as your company expands, it might become more burdensome.

As the CFO, you need to consider compliance and regulation issues. This is almost impossible to do in-house. Hiring outside of your company may cost a little more than your typical investment/insurance company might offer, but consider asking yourself these questions when hiring them: are they capable of protecting your plan and its participants from costly mistakes, regulatory penalties, liability exposure and all nature of aggravations that will act as distractions and interfere with the operation of your business or non-profit organization?  They might say yes but the simple truth is, much of those issues fall back to you should they become legal actions.

According to, one of the scariest parts surrounding 401(k) plans, is the participant lawsuit. Why? because if you haven't done your job, you will probably lose a lawsuit. According to the site: "Recently, there’s been a spike in employee lawsuits over excessive 401(k) fees. The scary part: If you can’t prove that your company did its best to negotiate lower fees from your 401(k) provider, courts are likely to rule against you."

One of the main reasons employers use 401(k)s, aside from their ability to create retirement wealth that is directed by the employee themselves, is the matching contribution.  This is something the employer provides and people beginning their plans should keep a couple of things in mind when deciding how much to offer or even to offer anything at all.  We have all heard news reports over the last couple of years about companies reigning in the 401(k) matches, citing difficult economic times.

While we have also heard about the huge amounts of cash they are hoarding, taking something away from employees is harder to do than you might imagine.

So when beginning to offer a match, keep in mind that no match or a little match can be improved upon. Small business employees will understand your prudence and might even see it as a wise business choice made by a smart owner. If you do decide to offer something, consider selecting a match that motivates current and potential employees, increases employee participation in your plan, affectively works at appreciation of the 401(k) plan and helps reduce employer contributions needed to pass ADP/ACP tests (actual deferral percentage/actual contribution percentage).

Now you might think that no match or a low match might be considered stingy.  But studies have begun to show that the higher the match, the higher the likelihood your employees will contribute only the enough to meet the match. Another consideration when building these plans is to offer them some sort of way to see the future.  It used to be that a number goal was what we all chased.  Now, we need to know how long the number goal will last.

And most importantly, women business owners can do their female counterparts a huge service by offering a lifetime annuity in their plan choices.  Now, as a rule I am not a fan of the annuity.  They cost a lot and are sold with all sorts of add-ons.  But they are particularly treacherous for women who receive a lump sum at retirement.  Annuities consider length of life and determine the payout based on actuarial assumptions. Shopping for one after retirement, leaves women vulnerable to getting far less than they would had they had access to it while they were working.

Paul Petillo is the Managing Editor of and a fellow Boomer.

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