CEO's Notebook

CEOs give advice on finding the right retirement plan, career planning for employees, learning to take a break from work, and motivating workers with employee-of-the-month awards.

Building a better nest egg

It's not always easy for entrepreneurs to find the right retirement plan
By Jill Andresky Fraser

Can't make up your mind about setting up a retirement plan? You probably haven't taken as long as Brooke Dickinson, the president of Ditco Inc., in Kent, Wash., which designs and manufactures electronic-control systems for industrial equipment. Dickinson, whose company employs 17 people and logs about $1 million in revenues, investigated 401(k)s and other retirement plans for about a decade. She and her husband, Jim Bitondo, Ditco's general manager, were convinced that "after health insurance, this was the most meaningful benefit we could provide," but the costs and complications kept scaring them off.

"We wanted to go with a 401(k) because we liked the borrowing option and wanted new employees to be able to roll over existing 401(k) savings into our plan," Dickinson explains. "But we kept running up against a big hurdle, which was the treatment of so-called highly compensated employees." Those are defined as anyone who owns 5% or more of the company or who earns more than $80,000. Regulations for standard 401(k)s restrict such employees' savings levels in proportion to those of lower-paid employees. Those restrictions, Dickinson says, "would have limited Jim and me to saving less than we would have with a regular IRA, which just didn't make sense."

Last January, Dickinson and Bitondo finally found their solution: a fairly new option known as a SIMPLE 401(k). The two liked the SIMPLE 401(k) because it will allow anyone in their company to contribute up to $6,000 a year, regardless of ownership status or salary. The payoff? Currently, all of Ditco's employees participate in the plan.

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Get the best plan

We asked Dan Maul, president of Retirement Planning Associates, in Kirkland, Wash., for some advice on how to comparison shop for a retirement plan among insurance companies, mutual-fund houses, and other providers. Here's what he recommends:

• Focus on choosing the right plan for your company. "Once you figure out the type of plan that works best and unbundle the services you're shopping for, it's remarkable how quickly everything else falls into place," concludes Maul.
• Unbundle the services you need. "Companies basically require two types of services: the administrative ones--which include setting up the paperwork, filing taxes, and conducting compliance testing--and the investment services, which basically boil down to investing participants' savings," Maul explains. "Plenty of companies will offer to provide both services, but it's easier to compare costs and negotiate for lower prices when you've broken them down and shopped them separately."
• Get tough on investment costs. "You need to compare investment options by breaking them down into three components: transaction costs, or what you'll be charged for buying and selling shares; ongoing operating costs, or the charge for servicing each account; and performance results." --J.A.F.

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You better shop around

For small companies, 401(k) costs vary substantially--so it pays to comparison shop. Here are some recent annual cost statistics for plans with 25 participants and $750,000 in assets:

Record-keeping and administrative costs

Low: $3/person

High: $260/person

Average: $97/person

Investment-management expenses

Low: 0.36% of total assets

High: 1.87% of total assets

Average: 0.97% of total assets

Total bundled services
(combined costs of administration and investment management)

Low: $270/person

High: $809/person

Average: $495/person

Source: 401k Provider Directory Averages Book, 1997, HR Investment Consultants, Baltimore.

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Hot Tips

Think only big companies, like major airlines, give frequent customers points and prizes? Think again. Dan Miller, CEO of MTS Group Inc., a $2-million résumé-database service based in Waltham, Mass., has created a point system that rewards customers for their continued patronage. For example, Miller's customers--in this case, human-resources directors at businesses--win points each time their companies make a hire from the MTS database. HR directors can trade in their points for prizes. --Susan Greco

If you need information from the federal government--but hate talking to bureaucrats--maybe you'll find what you need at www.business.gov. The Web site, called the U.S. Business Advisor, describes itself as the "one-stop electronic link to government for business."