Retirement plan sponsors are fiduciaries and therefore responsible for offering the best retirement savings plan they can for their employees. Part of a fiduciary’s responsibility is to review all aspects of the plan on a regular basis to ensure it is still a strong retirement savings option for your employees.
There are many aspects of the plan to review, below are some common reasons that businesses review and change their 401(k) plan.
Fees and expenses
Excessive fees and expenses are often mentioned as a reason for complaints over the quality of a company’s 401(k) plan. High fees might arise from using mutual fund share classes with high expense ratios.
Another source of high expenses can come from the fees charged by the plan’s outside administrator. The fees may be excessive by themselves. Either way, it is ultimately the plan sponsor’s responsibility to monitor and control these costs.
High expenses have also been cited as a hurdle in an employees’ capacity to accumulate enough for retirement.
One crucial feature of a 401(k) plan are the investments available to offer plan participants.
If you have a plan advisor, it is up to them to ensure that your plan participants have a comprehensive lineup that is aligned with the investment policy statement for your plan.
However, it may not just be the quality of your plan advisor’s advice - it could be the quality of the investment options offered by your current provider. Your plan provider may not offer access to low-cost index funds or offer only higher cost fund share classes.
A plan with a range of so-so investments from which to choose may be an indicator that your business has outgrown your current plan provider. Maybe this provider was chosen early on and the number of participants and the assets in the plan have increased. This growth may open up a larger selection of outside plan providers to choose from, including those who offer a heartier range of investment options to choose from.
Employee education and guidance
Retirement preparedness among plan participants has become a big concern among many plan sponsors over the past few years.
Employee education helps encourage retirement readiness. Beyond simply helping employees prepare for retirement, employee education has been shown to increase employee engagement in their retirement plan which can drive increased levels of saving. It can also help employees allocate their investments in the plan that best serves their retirement goals.
An indispensable benefit of employee education can be in reducing employees’ financial stress. This provides a benefit not only to the plan participant, but also to the company. Employees with lower levels of financial stress are often more productive.
If your plan provider does not offer employee education and guidance, or if their program is less than stellar, this may be a valid reason to switch 401(k) providers. Or consider hiring a plan advisor who does employee education and guidance. Additionally, a plan advisor may be able to negotiate lower fees and expenses, choose better investments to add the plan, remove poorly performing investments IN ADDITION to providing personalized employee education and guidance.
Plan sponsors should be reviewing all aspects of their company’s retirement plan on a regular basis. Your plan advisor should play an integral role in the review process. Upgrading your plan (i.e., changing the outside plan administrator, changing expensive and poor performing investments, and hiring a plan advisor) can be a good thing for your business and for your employees.
Cappuccino Financial Retirement Solutions is a retirement plan services firm assisting small to-mid-sized businesses manage the complex challenges posed by employer-sponsored plans. Contact us at your earliest convenience for a complimentary consultation to see how we can help you get started. We help make retirement plans simple!
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. For Plan Sponsor Use Only -not for use with participants or the public.