Employee Retirement Planning Need Not Be Difficult.

So, you have worked hard, invested your money in your own business, and now your employees want a retirement plan. Or maybe you find that the old retirement plan provisions have not kept pace with the growth of your company. Where do you turn for help without it costing you an arm and a leg or placing you under the scrutiny of the Department of Labor or Internal Revenue Service? Take heart, this is not the daunting task it appears to be.

While the number of players who are willing to "make it easy for the right fee" probably exceeds the number of chads on the floor of a Florida voting booth, it's usually better not to buy a "bundled" package, particularly if you are a small company. The component vendors of a retirement plan are the Third Party Plan Administrator (TPA), Investment Provider, Custodian, Record Keeper and Trustee.

First, let's start with the key player, the Third Party Plan Administrator, or TPA. Generally, a TPA will have a large number of IRS pre-approved retirement plans that will cover just about every retirement plan objective you could imagine. Take your time and be sure the TPA explains the various plan options carefully to you, because the subtleties and nuances of your new plan can make a big difference in your retirement benefits and costs.

After your new plan has been filed with the IRS, or your existing plan has been amended to incorporate the new features you need, it will be the job of the TPA to perform the various periodic "tests" required, prepare the Form 5500 (tax return) for the trustee's signature, calculate contributions and keep the plan documents updated and stated correctly.

If you have 100 or more employees, your auditors are required to generate a certified audit for your retirement plan.

Choosing wisely

Many TPAs exist solely for the purpose of selling investment services and insurance. The most important question to ask a potential candidate is, "What other services do you provide?" If the TPA is a registered broker/dealer or insurance agency, you probably need to assume that retirement plan administration is not the company's main business, and is being used to generate commissions or fees from investments on your plan.

Find a TPA whose sole source of revenue is retirement plan administration. Remember that regardless of what you are told, there is no such thing as a free lunch. If the plan administration is being performed without charge or for a small perfunctory fee, you may be paying too much for your investment services.

How do you find a good TPA? Try asking your CPA. Because plan administration is such a highly specialized and labor-intensive service, most CPA firms like to outsource this work, so your CPA may have the name of a TPA that is not involved in the investment business.

Investment providers abound in the retirement plan arena, including stockbrokers, insurance companies and mutual fund providers. Remember, the Department of Labor does care what the plan pays for services. Generally, the simpler the investment structure of the plan, the lower the cost. For example, if a number of mutual funds from different mutual fund groups are offered to plan participants, usually called a "wrap program," the plan sponsor can usually expect much higher fees.

Often, the investment adviser provides the custodian -- the holder of the retirement plan assets. This is especially common if you intend to use mutual funds for your investment choices. Every mutual fund group uses the services of a bank or trust company to hold the assets of the fund. The fees charged by the banks for this service are included in the expense ratio of the mutual funds involved, and am paid by the investors.

Each participant in your retirement plan will need to receive, in some acceptable format, a satisfactory rendering of the periodic value of his or her investments, a statement of salary deferrals made by the participant (if applicable), contributions by the employer (if applicable), loan information (if applicable) and a vesting schedule.

Keeping track

Record keeping is the biggest headache associated with retirement plans, and it's the most frustrating to perform. That's easy to understand given the fact that plan participants can usually change mutual fund investments daily and many retirement plans also allow participant loans. No matter what the record keeper promises, you will have a glitch from time to time.

One of the most common selling techniques used by investment providers is fear. It's easy to paint a nightmare scenario for an employer with the enforcement powers of the Department of Labor or Internal Revenue Service. Relax. Both of these agencies are anxious to keep your retirement plan in force and operating.

To relieve some of the paranoia often displayed by employers when they are told that the trustees of the plan can lose all their possessions and first-born if anything goes wrong with the plan, authorities have written section 404C into the law, which clearly outlines the rules under which the retirement plan game is played, and the ways trustees of the plan can reduce most of the contingent liability associated with being a trustee.

Remember, polls show that retirement plans and health insurance benefits are the two greatest motivators to attract and retain valued workers. Often, salary finishes in third place.

Brian Lamb is President of Incentive Benefits Inc.

Entrepreneur's Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California.