RETIREMENT SOLUTIONS

Retirement Plans 101

Streamline retirement plans and empower your HR team.

Retirement plans are increasingly important for retaining and attracting talent. But their recordkeeping, administration and compliance landscape can be complex, time consuming and expensive. That’s why it’s imperative to partner with the right experts — so that they can handle all the retirement plan details while your stretched in-house HR team can focus on recruitment and retention.

Retirement plans can be confusing. That’s where Daybright comes in. We assist employers and sponsoring entities with retirement plan:

  • Consulting, design and administration
  • Investment advisory services
  • Education, communications and enrollment
  • Recordkeeping
  • Third-party administration
  • Defined benefit actuarial services

Types of retirement plans

  • Defined benefit retirement plans vs. defined contribution retirement plans
  • ERISA vs. Non-ERISA

Defined benefit plans offer guaranteed retirement income with the employer managing the investment risk. Defined contribution plans depend on contributions and investment returns, placing the investment risk on the employee.

Defined benefit retirement plans remain popular in the public and non-profit sectors due to their offer of long-term stability. Public sector and non-profit workers have historically had longer employment tenures, which aligns well with the structure of a retirement plan favoring long-service workers with an attractive guaranteed income.

In the private sector, defined benefit plans are still offered in certain industries such as utilities and manufacturing. However, many private companies have shifted to defined contribution plans, like 401(k) plans. This shift is due to factors such as a changing regulatory environment, labor market trends, cost management, changing preferences for managing risk, and less appetite for private employers to offer employer-funded guaranteed retirement income for their employees.

Why it matters?

Employers must make informed decisions, understand their retirement plan options, and consider administration, cost, flexibility, legal compliance, tax implications, and risk in supporting their employees’ financial wellness.

The Employee Retirement Income Security Act (ERISA) is a federal law that regulates private sector employee benefit plans, including retirement plans. ERISA safeguards the retirement incomes of millions of Americans by ensuring that plans are managed correctly, provide adequate transparency, and are appropriately funded.

ERISA does not extend to the public sector or certain non-profit sector retirement plans. Public sector plans are typically governed by state and federal laws such as the Public Employees Retirement System (PERS) or the Federal Employees Retirement System (FERS).

Retirement plans established by religious organizations are exempt from ERISA. These plans are typically regulated by the religious organization itself.

Non-profit organizations can offer ERISA-covered plans if they choose to, but some may have plans that fall under other regulatory frameworks, like those offered by governmental or church-affiliated organizations.

Why it matters?

Employers must make informed decisions and understand their retirement plan options. The difference between ERISA and non-ERISA plans affects administration, cost, flexibility, legal compliance, tax implications, and risk, all of which impact employees’ financial wellness.

Plan Sponsor

The plan sponsor — typically the employer — is the organization that initially sets up the retirement plan and is responsible for every element, including plan design, investment selection, parties with specialized knowledge, and may delegate associated fiduciary duties* to them.

* According to the U.S. Dept of Labor, the primary responsibility of fiduciaries “is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries must act prudently and must diversify the plan’s investments to minimize the risk of large losses. In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with the 1974 Employee Retirement Income Security Act (ERISA). They also must avoid conflicts of interest. In other words, they may not engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers, or the plan sponsor.

Investment Advisor / Financial Advisor

This individual or company assists and educates retirement plan sponsors and participants regarding plan design and investment tactics to achieve both short- and long-term financial goals. Based on those goals and risk tolerances, the advisor provides guidance and recommendations on investment options and monitors overall market performance.  This role has fiduciary duties.

Recordkeeper

This role keeps track of assets in the plans and participant account contributions and distributions, serving as the effective bookkeeper for the plan. Recordkeepers process contributions and distributions, produce participant statements, and offer access to the plan, generally through a website.

Plan Administrator

These are the individuals who run the plan. Their roles can include plan design, participant education, enrollment assistance, plan governance and vendor management. They can be employees of the sponsoring organization, and are often the HR manager, chief financial officer or both.

Named Fiduciary

This key role explicitly is designated in the plan document, the formal, written document that details and governs each retirement plan. This person serves as the primary decision-maker for the plan, and ensures that the retirement plan operates smoothly and in the best interests of participants and beneficiaries.

Trustee (or Custodian)

A trustee is involved in safeguarding plan assets and ensuring prudent investment decisions are made for participants’ benefit. This can be a named employer within the sponsoring company or a separate specialist, trust company or bank. 

Bundling means using a single provider to assist with your retirement plan. A single company may provide the full range of services including investment advisory, recordkeeping, participant communication and administration. Unbundling means using multiple vendors to assist, including recordkeepers that focus on technology and participant experience, and independent Third-Party Administrators (TPAs) to focus on plan design, compliance and regulatory governance. 

Which is best?

It depends. There are pros and cons to both approaches related to cost, flexibility, ease of sponsor oversight, coordination of providers, and customization of plans. Daybright can do both. Our process covers all the services you need:

We serve:

  • Individuals
  • Public sector employers
  • Private sector employers
  • Non-profit employers
  • Financial advisors
  • Other Third-Party Administrators (TPAs)
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