Retirement plan sponsors are fiduciaries and therefore responsible for offering the best retirement savings vehicle that they can for their plan participants. Part of your responsibility as a fiduciary is to review all aspects of your plan on a regular basis to ensure that it is still providing a solid retirement savings option for your employees.
Beyond your duty as a fiduciary, you will want to be sure that your company’s plan is perceived as a real benefit by your employees and by candidates that you hope to convince to join your organization.
There are many aspects of the plan to review, here are three reasons that we see companies review and change their 401(k) plan.
Fees and expenses
Excessive fees and expenses are often cited as a reason in participant lawsuits 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. In some cases, revenue sharing arrangements might cause the amount charged against participant accounts for these services to be higher than needed. This might arise from fees tied to the investments such as 12b-1 fees. Either way, it is ultimately the plan sponsor’s responsibility to monitor and control these costs.
High expenses have been cited as a drag on participant’s ability to accumulate a sufficient amount for retirement.
There are multiple aspects of a 401(k) plan that need to be evaluated. The investments that are available to offer plan participants might be the most critical feature of the quality of a 401(k) plan provider.
Part of this lies with your plan’s advisor. It is up to them to ensure that your participants have the best possible lineup that is aligned with the investment policy statement for your plan.
The issue may go beyond the quality of the advisor’s advice to the quality of the investment choices offered by your current provider. The provider may not offer access to low cost index funds or offer only higher cost fund share classes.
A plan with a range of mediocre investments from which to choose may be an indicator that your company has outgrown your current plan provider. Perhaps this provider was chosen early on and the number of participants and the assets in the plan have steadily increased over time. This growth can open up a wider selection of providers from which to choose, including providers who offer a more robust range of investment choices to choose from.
Employee education and guidance
Retirement readiness among participants has become a bigger concern among many plan sponsors over the past few years. They want to help ensure that their employees can retire on time and with a sufficient plan balance for their retirement needs to the best extent possible.
Employee education and guidance helps promote retirement readiness. Beyond simply helping employees prepare for retirement, employee education has been shown to increase employee engagement in the plan which can lead to increased levels of saving. It can also help employees allocate their investments in the plan in a direction that best serves their retirement goals.
A key benefit of employee education can be a reduction in employee 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 programs are inadequate, this may be a valid reason to switch 401(k) providers.
In addition to the reasons listed above, there are other reasons that plan sponsors might review their business 401(k) plan and consider changing plans. Some of these reasons include:
- Low levels of service for the plan participants with their needs.
- Poor support for the sponsor with compliance issues including discrimination testing, overall compliance and plan audits.
- Technology that is behind what other providers offer.
Plan sponsors should be reviewing all aspects of their company’s 401(k) on a regular basis including these three reasons. Your plan’s advisor or consultant should be playing an integral role in this review process. Upgrading your plan every so often can be a good thing for your company and for your participants.