Page 43 - MetalForming July 2009

one of the questions I ask every client: “What is your average annual rate of return on your investments—personal funds, qualified retirement plan (QRP) funds, excess funds in your business and other funds you control?”
The shocking answer: 80 percent earn less than the general market (mea- sured by the Dow or S&P) average per- centage growth (about 10 percent per year). About one-third average 6.5 per- cent or less. Ah, but here’s what’s even more interesting—almost all of those in the low-earning 80-percent group do their own investing—great business people, lousy investors.
What about the other 20 percent who, most of the time, beat the gener- al market growth? Almost all of them had a professional money manager. When this 20-percent group used pro- fessionals to manager their QRP funds, their employees enjoyed the same investment success. My client files are bulging with hundreds of examples.
So why do about 80 percent of you mess up? You sign up your 401(k) plan as a CC plan. That sounds terrific, but in practice puts you in that unwanted 80- percent group.
A CC plan almost automatically puts you and your employees in the unhap- py 80 percent group. Why does this happen? Because you and your employ- ees are expected to become investment gurus (and beat the pros). A few do. Most fail. Let’s face it, if your CC plan has 142 (more or less) investment choic- es, you are locked out of every other possible investment. Worse yet, it is a rare employee or business owner who knows which of those 142 to pick in the first place or when to switch to anoth- er investment. Many of the employees (including the boss), overwhelmed by the investment choices, invest a large, sometimes all, portion of their funds in cash—a disastrous long-term invest- ment choice.
Time to confess. When I wrote the
article in 2007, it never occurred to me that the only reason—no fiduciary lia- bility—for having a CC plan would go down the drain, courtesy of LaRue.
Now consider the opportunity door LaRue opens for every business with a CC plan. Actually, we have been taking advantage of this opportunity for our clients for years with a simple two-step process: 1) amend (easily done) the CC plan to make the business owner(s) the trustee(s), often called a “trustee plan” (just like the old days to save fees) and 2) hire a professional money manager to invest the plan funds (eliminate the threat of being sued for a fiduciary breach).
It should be noted that most profes- sional money managers have a mini- mum of $500,000 of funds to be man- aged. Easily done because the total amount of the funds in the plan is what
counts, not the smaller amounts in each participant’s account. Typically, the pros willbeattheDowandS&Pby1to3 percent per year, on average.
If you already have a trustee plan, congratulations. You are already at the head of the class. But what if you would like to join the trustee plan club?
My experience tells me that this kind of article—switching to a trustee plan— raises all kinds of questions and requests for more information. Want more info? Send Irv a fax (on your company letter- head) to 847/674-5299 or a letter to Irv Blackman, 401(k) info, 4545 W. Touhy, 602 E, Lincolnwood, IL 60712. Include your name, title, all phone numbers where you can be reached, number of partic- ipants in your 401(k) plan, total amount of plan funds to be invested and amount in your personal plan account. MF
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