Winter 2022-23|volume 16|Issue 2

    Your Finances

    When It Comes to Retirement Plans, Do As the Romans Did!
    Daniel Tatomir, AIF®

    Daniel Tatomir, AIF®

    I realize the history of retirement plans is probably not at the top of many reading lists, but it does offer a different, and dare I say interesting, perspective to the general histories that we have read! The idea of a retirement plan dates back centuries to 13 BCE, when the Roman emperor Caesar Augustus offered legionnaires a retirement package worth roughly 13 times their annual salary. This benefit was available after serving for 20 years in a Roman legion and five years in military reserves. A secondary, yet important, reason for offering this benefit was to keep retired soldiers loyal and disincentivize them from revolting against the government.

    In the American Colonies, and eventually the United States, early forms of retirement plans were also offered to military personnel. American Express was the first private-sector company to offer a pension plan to employees in 1875. Private-sector pension plans started to increase in the early 1900s, and by 1970 45 percent of private-sector employees were covered by a defined benefit pension plan.

    When Bob Fragasso entered the investment business in 1972, 401(k) plans did not exist. The Revenue Act of 1978 made the 401(k) as we know it possible, but that was not a specific intent of the law. It included a provision, section 401(k), that simply allowed employees to defer taxes on a portion of their compensation. Ted Benna, a retirement-benefit consultant at the time, was helping a client redesign their retirement program and realized that section 401(k) could help solve their problem if he could get employees to participate in the plan. The concept of employees saving for retirement was a novel one at the time. The solution was to offer employer matching contributions to encourage employee participation in the plan.

    After several clarifications by the IRS in the early 1980s, 401(k) plans grew in popularity. By 1990 assets in 401(k) plans exceeded $380 billion. In 1996 plan assets exceeded $1 trillion, with over 30 million active participants. With this growth in plans, participants, and assets, so too did the complexity of starting and maintaining a 401(k) plan. Additional features from plan providers, new investment products, and regulation changes over time has put more fiduciary responsibility on the shoulders of plan sponsors.

    This increasing complexity was the reason Fragasso Financial Advisors started the Retirement Plan Advisors department in 2014, focused solely on helping businesses and organizations run an effective retirement plan. Business owners and plan sponsors can have varied goals for their retirement plans, and they have many decisions to make in setting up and running retirement plans, such as:

    What provisions and design elements should be included in the plan?
    Which providers should be hired?
    What types of investments should be made available in the plan?
    Who is selecting and monitoring the investments in the lineup?
    Who provides education and guidance to employees?
    Are plan fees reasonable?

    How these questions are answered go a long way in determining how effective a retirement plan will be and if the plan will achieve the desired goal(s).

    The IRS states clearly that those making decisions for a retirement plan are acting in a fiduciary capacity and have the responsibility to act in the best interest of the client. But they do not provide much direction to help fiduciaries fulfill those obligations. Fragasso’s retirement-plan department works with business owners to guide them through the complex plan-related decisions they must make with design and administration. Fragasso’s portfolio-management team assists with investment selection and ongoing monitoring to ensure employees have appropriate investment options while serving the plan in fiduciary capacity, helping to mitigate plan-sponsor liability.

    Fragasso also provides education to help employees understand the benefits of using the plan and feel confident in how they align with their retirement goals. Online meetings allow added flexibility to attend meetings, which is of greater importance as work schedules and location are rapidly changing.
    There have been many changes to employer-sponsored retirement plans in the last 50 years, and with pending legislation in Congress and frequent revisions to provider options and services it’s safe to assume the rate of change will not decrease. Fragasso’s Retirement Plan Advisors department will continue to evolve to provide the services both plan sponsors and employees need.

    Investment advice offered by investment advisor representatives through Fragasso Financial Advisors, a registered investment advisor.