Can your company 401(k) plan withstand the heat?
As summer temperatures rise and competition in Colorado’s job market heats up, do you have what it takes to rise above the rest? Are you sure your company’s benefits are valued by your employees and by prospective candidates who you want to join your organization?
A strong company 401(k) offering can help you recruit and retain employees.
As a business owner offering a retirement plan to employees, you are a fiduciary and that brings a responsibility to offer the best retirement savings vehicle for plan participants. Part of your responsibility is to review your 401(k) plan on an annual basis to make sure that it continues to provide a solid retirement savings option for your employees. Your responsibility as a plan sponsor is to evaluate several aspects of the 401(k) plan starting with the investments that are made available to the plan participants.
Employees can choose the investments within their 401(k) which can include individual mutual funds or from a selection of asset allocation portfolios. It is important for the plan sponsor or the advisor to the plan to ensure that participants have the best possible investment lineup that is aligned with the investment policy statement for your plan.
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 should open your plan to a wider selection of providers, including those who offer a more robust range of investment choices to choose from.
Fees and expenses
High fees and expenses can inhibit the progress for plan participants to accumulate enough money for retirement. Additionally, excessive fees and expenses are often a reason for participant lawsuits over the quality of a company’s 401(k) plan.
Where do these high fees and expenses hide? A review of your 401(k) plan might show that high fees arise from using mutual fund share classes with high expense ratios. Another source of high expenses can come from the fees charged by the 401(k) plan’s administrator.
While fees may be excessive by themselves, non-transparent revenue sharing arrangements can cause the amount charged against participant accounts to be higher than needed. Wherever the fees may be levied, it is ultimately the plan sponsor’s responsibility to monitor and control these costs.
Employee education and guidance
Retirement readiness among participants has become an important concern among many plan sponsors who want to help ensure that employees can retire on time and with a sufficient plan balance for their retirement needs.
Employee education and guidance helps promote retirement readiness. Beyond simply helping employees prepare for retirement, employee education has been shown to enhance employee engagement, which can lead to increased levels of saving. It also helps employees allocate their investments in the plan in a way 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 consider switching 401(k) plan providers.
There are additional reasons plan sponsors might review their business 401(k) plan and consider changing plans, including:
- Low levels of service for plan participants
- Poor sponsor support with compliance issues including discrimination testing, overall compliance, and plan audits
- Inadequate technology
Plan sponsors should review all aspects of their company’s 401(k) on a regular basis. Your plan’s advisor or consultant should be playing an integral role in this review process. Upgrading your plan can be a good thing for your company and your employees.
Shelton Capital Management does not provide accounting or tax advice to its clients. All clients should be aware that tax treatment is subject to change by law, in the future or retroactively, and clients should consult with their tax advisors regarding any potential strategy, investment or transaction.
The information provided should not be considered investment advice and does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security.
Investors should consider a strategy’s investment objectives, risks, charges and expenses carefully before investing.
INVESTMENTS ARE NOT FDIC INSURED OR BANK GUARANTEED AND MAY LOSE VALUE