Knowledge Center > Blog >

Company Retirement Plan Pitfalls

There are expensive penalties from federal regulators to be paid when a company does not comply with regulations established by the IRS and the Department of Labor. In fact, when your company sponsors a qualified retirement plan and you defy these rules, you not only face steep costs to pay but you can also be sued by plan participants for the mishandling of trust assets.

It’s imperative that you avoid these company retirement plan pitfalls. Seeking out the skilled guidance from professionals can keep your company in compliance and out of trouble.

Below are a few reasons why skilled professional help is needed in this circumstance.

A “fiduciary” is a company owner under the prudent investor guidelines. As a business owner, you should look into the plan’s entire portfolio and take risks when necessary to reap the appropriate rewards. A strong retirement plan means having proven stocks and high-quality bonds at the foundation of it.

Keeping valuation and liquidity issues in mind, real estate investments can also be included. With documentation that your investment will more than likely pay off, 10 percent of the plan’s portfolio can be determined. Yet, throughout extended periods of time, equities will outperform these investment vehicles.

Think of it like this: if your plan earns 5% per year in low-risk investments while the major stock market averages increase to 20%, you may be required to pay all or a portion of the differential to your employees.

Our recommendation is to save your funds so your funds can be smoothly converted to cash for distributions. Generally, the older your employees are in age then the closer your obligation to paying distributions will be. This will then result in a greater need for cash.

Setting up a SEP or 401(k) plan that provides the opportunity for employees to make their own portfolio decisions will be in your best interest to avoid liability. In this instance, a qualified professional or mutual fund company takes care of your employee’s needs and assists them in creating the program. Staff members will make their investment choices from a list of mutual funds.

Work with PDR CPAs

If you are interested in a prosperous future from a personal and/or business standpoint, reach out to our team of dedicated specialists. When considering accounting, audits, tax or business consulting, one call can make all the difference. Click here to get started. We look forward to working with you!

Leave a Reply

Newsletter Sign-Up

Sign up for industry accounting and tax tips below

Close Menu