Does Your Company's 401(k) Plan "Fit" Your Business? 5 Things to Consider
An organization’s size, culture, and employee demographics have a dramatic impact on its benefit needs and bottom line:
A three attorney law firm in Butte, Montana will undoubtedly have different healthcare, payroll, and paper clip-ordering considerations than a 200+ member legal conglomerate with locations in fifteen states—highly unlikely that their 401(k) plan needs are identical, either.
It’s an issue of fit: does your 401(k) fit your business?
Here are 5 ways to check:
1.) Cost. No one likes to overpay, but what if you don’t know you’re overpaying? Smaller businesses tend to pay more for their 401(k) plan services than larger companies and often don’t get the specialized help they need. We regularly get asked by small business owners to “x-ray” their 401(k) plans to help them determine whether they’re getting value for cost. In our experience, many business owners don’t know the true cost of their retirement plans. If you’re not sure what you and your employees are paying for services rendered, log on to your plan’s website and download the 404(a)(5) notice or request it from your third-party administrator, if you have one. But know that some costs are harder to determine than others: the cost of your plan’s investments, for one. If you’re unsure what you’re paying for your investments, ask your advisor or—shameless plug—shoot us an e-mail and we’ll screen the costs for you: email@example.com.
2.) Services. Consider your company’s unique needs and challenges: Do you run multiple payrolls? Do you have a 2nd or 3rd shift? Is your employee-base tech-savvy or do they prefer face-to-face meetings and paper handouts? If you’re paying a record-keeper for its state-of-the-art technology and your employees aren’t using it, are they getting value for money? (Remember that in many 401(k) plans, the participants pay service provider fees directly out of their accounts.) Make a list of your plan’s providers and the services each one offers your plan. Refer to their Covered Service Agreements, if they’ve been provided to you. Doing so will help you determine whether you and your employees are getting the assistance and tools you need and may reveal service gaps that can be improved.
3.) Investments. The Department of Labor requires plan fiduciaries to select investments that are “appropriate for the plan” with respect to diversification, the risk of loss, the opportunity for gain, and liquidity. Notice the DOL doesn’t provide a specific list of “Thou shalt have” and “Thou shalt not have” investments. Regularly meeting with your advisor to review your plan investments for cost, performance, style drift, and correlation is a good way to make sure your plan’s investments are 1.) appropriate, 2.) properly diversified, and 3). cost-efficient. If you’re unsure about your current investment line-up, drop us a line. We’ll review your investments and send you a monitoring report for free: 513.834.9383.
4.) Plan Design. How your plan is designed affects everything from fees to future benefits for you and your staff. For new businesses interested in starting a retirement plan, there are plenty of questions to consider: Is a 401(k) the best choice? What kind of match can we afford to offer? Should we include a profit sharing capability? For established businesses, it’s prudent to review your existing setup. Introducing features like auto-enrollment and auto-escalation, increasing the employer match, or adding a cash balance component are just a few ways to tailor your retirement plan to better meet your business’s and employees’ needs. As your business evolves, it’s crucial to regularly review how your retirement plan is constructed to ensure it’s still a good fit for you and your employees.
5.) Education. Where do your employees go when they have questions about their 401(k) accounts? Who helps them choose investments? Does your education program address the concerns of a diverse workforce? If education is a service provided to you by your plan advisor, take a moment to review the results of recent education efforts. How many meetings have been scheduled in the last year? Is there a record of employee attendance? What topics were discussed? If you and your employees aren’t getting the education you need (but are paying for,) your 401(k) doesn’t fit!
Hey, we’re small business owners, too. We understand the kaleidoscope of time and resource demands you face each day. But your plan is meant to be a benefit to you and your employees. If you suspect that you’re paying too much or that you’re not getting the right services for your business, contact your providers! And if you’re not sure what questions to ask them, call us!