Financial Services Case Study: Marcum Accountants Flag Retirement Savings Opportunities for Client

Marcum LLP has a tax and accounting client who is a manufacturer of pharmaceutical packaging products within the U.S. Our client implemented a profit sharing plan with a 401(k) component in 2005 for the benefit of all employees as well as the key executives and the owners. The company decided to use the safe harbor feature for the plan since a large portion of the employee base is transient and lower wage earners. This enabled the company to pass all plan testing, and allowed the highly compensated employees to maximize their annual deferral into the plan.

The plan sponsor and owners were content with the plan as over the years they believed it met their needs and the company’s needs. They were able to defer salary at their discretion, invest their funds within the confines of the investment matrix created, offer a benefit to those employees who chose to enroll, dedicate limited time and resources toward maintenance and communication, and satisfy their fiduciary responsibility to the plan and their employees.

Their plan provider and administrator filed all forms with the Internal Revenue Service and ensured that the company complied with all ERISA regulations. When the occasional service issue arose, those were handled appropriately and with little inconvenience to the company. Their advisor who initially provided quality and timely service eventually became scarce and provided minimal maintenance, oversight, and concern for the day-to-day and annual review of the plan.

Our client, who initially was satisfied that the plan was meeting the objectives originally identified became dissatisfied with the providers as well as how the plan was being maintained. During a conversation and comprehensive review meeting, a Marcum Director discovered that our client was exposed to certain liabilities as the fiduciary responsible for the plan. In addition, the client was recently informed by the plan administrator that since they now had over 100 participants in the plan, they would be required to conduct a plan audit of the previous year’s IRS filing documents. This would be an additional ongoing annual cost that coupled with the other factors now made the plan a financial and administrative burden.

The Director reached out to the retirement plan specialists at Marcum Financial Services, the independent wealth management and financial advisory group within the Marcum Group. A consultation was arranged by the Director with the client and the Financial Services Advisor. The consultation starting out by understanding the client’s overall goals and objectives for the plan in relation to a profile of the organization and the employee pool. It also addressed several areas, such as communication, plan design, enrollment process, fund choice and investment policy statement, costs, and employee education.

The Marcum Financial Services advisor quickly identified that the safe harbor feature of the plan in conjunction with the high turnover of the employees created a situation where there were many inactive employees who had been separated from service for months and even years. These were participants that counted toward the audit limit requirement although they were not currently employed by the client.

Both groups, Marcum LLP and Marcum Financial Services, developed a strategy to rate all plan providers, evaluate costs, review employee communication and education procedures, and reduce the exposure to fiduciary liability. In addition, a plan was immediately implemented where we could remove inactive employees with balances under certain dollar limits provided by ERISA regulations. The plan when completed would bring the number of participants with balances below the level where the costly 401(k) audit could be avoided.

The final outcome resulted in the client saving substantial unnecessary expenses, offering a more efficient and effective plan that addresses their fiduciary responsibilities in a manner that reduces their risk to litigation and dissatisfied employees. In the end, the client had a substantially better outcome as a result of Marcum’s comprehensive team.