In our first meeting with potential 401k clients we always ask this question, and we often get answers ranging from blank stares to, “I’m not sure what you mean”. In the small to mid-sized employer market, this question can be tough, often because the 401k is handled by someone with another job, be it a CFO, Controller, HR person, or Owner. Not having a great answer is understandable because the 401k is not something you think about that often. You already have a day job, and “success” can mean many things, but here are a couple of things that are important to every 401k program.
1. A Focus on Retirement Readiness
The first thing to remember about a 401k is why you have a retirement plan in the first place. A 401k is a savings program for employee’s retirement. One possible measure of success is your employee’s retirement readiness. This does not mean that your employees are ready to retire today. Retirement readiness simply means that your participants understand how much they need to save, have a pathway to get there and they are on track to accomplish their goals. This sounds simple, but what we know is that many people fail to plan for the future and often make poor financial decisions.
Did you Know?
- Fewer than half of Americans have calculated how much they need to save for retirement.1
- 34% of Americans have no savings set aside for retirement.2
2 Fast Facts & Figures About Social Security, 2012
So, how do you as an employer, affect your employees financial wellbeing and retirement readiness? A few suggestions:
- Provide financial education. With today’s technology and proliferation of blogs, vlogs, and websites there is no shortage of information. Your 401k plan document probably has an education requirement, and employees often need help with budgeting, planning, saving and investing.
- Consider financial advice. A service offered by Advisors that specialize in 401k plans, individualized advice takes your plan to the next level by providing your employees access to an advisor that they may never get outside your plan. Information about financial planning is plentiful, but nothing compares to sitting across the table from a professional that can assist you with your situation.
- Set goals and track your progress (and share). Keep track of improvements in general participation and savings rates, then compare it to best-in-class 401k programs. Share it during your annual employee meetings. A little competition and gamesmanship can go a long way toward creating a culture of savings and participation.
2. Active Plan Management
As we have already discussed, you probably have day job and your retirement program is not the first thing on your list on Monday, nor the last thing on your mind on Friday. But a successful program does not happen by accident and today’s regulations are not something you can ignore as a plan fiduciary.
61% of plan sponsors are concerned about meeting their fiduciary obligations? And more than a third of sponsors are looking for help.
- 2015 MassMutual Winning Combination Study
Consider these suggestions for managing your retirement plan
- Supervise the plan. This sounds like common sense, but many employers we meet cannot tell us how much their plans costs, what services are included or even how much their consultant receives from the plan. As the plan sponsor you not only have to know these things, you are responsible for these things.
- Review your Service Providers. We often run into plans that have been with the same provider for years and years. There is nothing wrong with maintaining a relationship with your providers for years or even decades, but you are responsible for ensuring the providers are appropriately reviewed and that the services and fees are reasonable. Benchmarking is required at least every three years and there is a couple of ways to do it: 1) Procure a benchmarking report to compare your fees and services to similar plans, or 2) Go to market every three years and find out what providers will do for your plan. By the way, we prefer #2.
- Know your Costs – a little extra fee here and there can make a big difference when compounded over years. If audited or questioned by a participant you must understand the fees within your plan, whether they are service fees or investment fees. Anything you can do to reduce the cost of your plan can also make a difference for your employees.
- Outsource to Professional Fiduciaries – You cannot outsource all your duties, but you can outsource a lot of them. We often recommend that our clients consider not only a 3(38) investment fiduciary, but also a 3(16) administrative fiduciary. You are not in the retirement plan business, so let someone that is in the business handle the bulk of your plan duties. Some of our clients even take it a step further and outsource to a Directed Trustee.
- Consider a Fee-based Advisor - Supervision requires an active role in overseeing the plan, but does not mean you have to do the heavy lifting. An Advisor that specializes in Retirement Plans can simplify your management tasks by handling the plan reviews, negotiating with service providers, benchmarking fees, and providing employee education. With this approach your supervision becomes primarily a decision-making role. Why fee-based? In our opinion it is very simple. A fee-based advisor is fee-for-service which means they cannot receive the fee without providing the service.