We here at Metro like to sell billable hours – it’s kind of our job. But let’s examine this concept more carefully – perhaps there are “good” and “bad” billable hours? Is this possible?

To me, a “good” billable hour is one that serves a constructive purpose, such as working on a Plan that contributes to the well-being of your firm. Most of ours are just like that.

But some are not. In fairness, we don’t always “see behind the curtain” of just what our clients are trying to do with their Plans but we usually have a good clue. Here are two examples of wasted fees:

 

1. A pension plan, such as Defined Benefit or Cash Balance, that has been frozen for a while.

These plans used to be (commonly) frozen if they were underfunded and the Employer didn’t have the funds needed to fully fund them and terminate them. I get that. However, the vast majority of these Plans have already been terminated over the past decade, as investments generally did well, allowing assets to catch up to liabilities. (yay/I like happy endings).

However…. We still retain a fair number of these frozen pension plans that do have sufficient assets to terminate. We understand that perhaps the Employer is just taking a break, and may unfreeze later. That makes sense. But after a while, the frozen pension plan feels like a parking lot, i.e., a place to leave the Plan for perhaps a future re-awakening or a change in Employer goals. In any case, this is an expensive strategy for two reasons:

1. It costs a lot to keep a frozen pension plan, especially for little or no purpose.
2. There is an underlying investment risk, in case asset values decrease. This could well leave the Employer on the hook for future (unwanted) Employer contributions.

 

2. A small 401(k) Plan where you could accomplish the exact same thing without a 401(k) Plan at all

We have a number of 401(k) Plans where there is really no desire to max it out; just the opposite, as we see some very modest designs with a low rate of both employee salary deferrals (not near the max limit) and Employer contributions.

Congress invented the concept of a SIMPLE Plan in 1997. This is available in two flavors – either as a SIMPLE IRA or 401(k). (Spoiler alert – the IRA has evolved as the drastically more popular one). Congress did this in order to expand “ retirement coverage”, which is a very common and logical goal of theirs. This accomplished the goal by allowing employees to participate in a plan, even if the Employer didn’t want to go to the trouble and cost of creating an actual 401(K) Plan.

This is because the SIMPLE Plans are not really “adult” 401(k)’s. Not meaning to diminish them at all, but they are best thought of as “Junior” 401k Plans. Accordingly, there is no need for:

1. A plan document
2. Any discrimination testing at all
3. Any tax forms (“5500”)
4. Any fees, or a TPA like Metro to be hired at all.

Like wow.

The SIMPLE limits allow for an Employer contribution or match of perhaps 2-4% of pay, which must be vested right away. The employee salary deferral limits ($16,500 in 2025) are only about 60% of the 401(k) limits. But if these facts don’t bother you, then you might be wasting time, effort, and fees on a 401(k) when, perhaps, you don’t need one.

 

So why are we saying this?

Aren’t we supposed to sell billable hours? Yes, but …..

we are also selling “efficient” retirement plans to fulfill Employer needs appropriately. We think that if we do that in the long run, the billable hours will take care of themselves.

Please let me, your Analyst, or your Managing Consultant know if you’d like to discuss this further.

 

David M. Lipkin, FSA
Consulting Actuary