A business’ success is tied directly to the quality of its workforce. Giving your employees top-notch, thoughtful benefits, like a 401(k), is a great way to ensure they are happy, remain loyal to your company, and are engaged in its success.
Like any piece of equipment, a 401(k) needs routine maintenance to ensure that it operates at peak performance. Oil changes, lubrication, and tire inspections are part of routine maintenance. Preventive maintenance goes a step further, making repairs before anything severe breaks down, and identifying critical parts that need to be replaced. This approach is more cost-effective, too; experts can find mishaps before they happen. Your 401(k) needs preventive maintenance as well: For example, the investment options within your plan may be underperforming their benchmarks, or they are simply too expensive when compared with other, similar options. The landscape has changed dramatically in recent years, mutual fund fees have compressed, and there are likely opportunities to save your employees money. The participation rate in the plan may be low due to a lack of education and engagement, or perhaps employees just aren’t saving enough. These issues are fixable but urgent; waiting will only prolong the problem and could result in catastrophe if an employee does not achieve a satisfactory retirement outcome. Use our Preventive Maintenance Checklist below to keep your 401(k) running efficiently:
- Benchmark your 401(k) Plan Fees:
One of the most important 401(k) fiduciary responsibilities is ensuring that plan fees are reasonable. This can be a daunting task because fee structures can be very confusing! Typically, 401(k) plans have 3 different expenses – payment for the investment options, to the recordkeeper, and to the advisor. Unfortunately, benchmarking these plan fees can be difficult given the numerous ways 401(k) providers can be compensated today; some of these fees are paid directly by employers, some through plan assets (participant paid), while others are paid indirectly from plan investments in the form of revenue sharing. Excessive 401(k) fees can also mean severe consequences for you as a plan fiduciary, including personal liability. Smart businesses engage experts to perform preventive and routine maintenance in this respect, swapping out expensive funds or changing to more inexpensive share classes, ensuring the plan is priced reasonably and remains ERISA compliant. I recommend obtaining a copy of your plan’s 408(b)(2) fee disclosure from your recordkeeper or advisor and seeking input from a professional to understand where improvements and savings can be found.
- Review your Investment Policy Statement (IPS)
A 401(k) Investment Policy Statement (IPS) can provide a vital roadmap to the continuing success of a company sponsored 401(k) plan. It frames how the plan undertakes its due diligence on behalf of plan participants and guides the plan sponsor both in its fiduciary duty and in its monitoring of third-party providers. Think of it as an operator’s manual – it details the investment goals and strategies on portfolio construction and ongoing management for all fiduciaries associated with the plan and helps them stay on course. As the plan sponsor, you have ultimate responsibility for the investment policy statement, but it is typically the advisor who is responsible for designing it. If you do not have an IPS, work with your advisor to create one.
- Examine Your Financial Wellness Program
Financial wellness programs are becoming standard in the workplace as more employees expect their employers to provide professional financial advice on their 401(k) and their personal finances. It goes beyond retirement planning and investing, addressing areas of concern for employees like budgeting, emergency savings, debt elimination and planning for life events. Think of it like you might think of safety training; you can provide workers with all the appropriate tools to be safe, but without education and reinforcement, you won’t foster a safe culture and accidents could happen. Along the same line, simply providing employees with a great 401(K) does not mean that they will experience great outcomes; employees require education and advice to make decisions that will provide a roadmap for a financially healthy retirement.
PricewaterhouseCoopers (PwC) 9th annual “Employee Financial Wellness Survey” released in May 2020 uncovered some concerning data points. It incorporates the views of 1,683 full-time employed adults ranging from age 24-75, and found:
- Many employees are unprepared for short-term cash needs. 38% of all employees have less than $1,000 saved to deal with emergency expenses.
- Financial Stress is a major distraction at work. 58% of employees admit they are stressed about their finances.
- Most employees seek financial guidance at key decision points or when they are already in crisis.
Financial wellness is the evolution of the standard education offering and dives deeper; it can help employees and employers alike, resulting in reduced stress, improved morale, increased productivity, and greater retention.
- Evaluate Your Advisor
Exceptional 401(k) plan advisors become trusted business partners, help employers develop and maintain an optimized plan for employees, and they help participants make important decisions about saving for retirement. They serve as co-fiduciaries and take several steps to ensure your plan is healthy. You should expect your plan advisor to:
- Review the overall health of the plan on a regular basis. This includes evaluating metrics such as:
- Plan participation rate
- Employee savings rates
- Appropriate asset allocation
- Show up and drive quarterly 401(k) committee meetings to discuss the plan health, including ideas for improvement.
- Demonstrate that the 401(k) pricing is fair to your employees.
- Benchmark your 401(k) plan.
- Educate and provide financial wellness services to employees.
Using this checklist can put you on the path to meeting your fiduciary obligations and holding your plan providers accountable. More importantly, it will help your company maintain a plan that is operating optimally, in the best interest of employees, generating goodwill, loyalty and engagement in the success of the business.
My firm works as an advisor and co-fiduciary to corporate 401(k) plans, specializing in the construction industry. We work with many firms to enhance their 401(k) offering and build education programs designed to engage employees. We appreciate that each company is unique, and we take the time to understand how you operate before creating a customized plan that is suitable, low cost, high value, and ERISA compliant.
Contact me, Mike Meyers, at (732) 291-3338 or mikemeyers@mhipartners.com for more information.
