I built Fisher Investments 401(k) Solutions because I saw that many small businesses were not receiving the level of care from their 401(k) providers that other, larger businesses expect and get. I have spoken with countless small business owners and managers, and have seen a common theme arise as they talk about their retirement benefits plans: they are all too busy to think much about them.
If a small business’s chosen 401(k) provider doesn’t actively support that business’s employees, this can mean trouble for employees who rely on their retirement savings to meet their personal goals. It’s not that smaller employers don’t care; in reality, I’ve seen that most small business owners and managers have a close relationship with their employees, and earnestly want to offer true benefits and support to them. They simply lack the knowledge or the bandwidth to do so.
In order to help these businesses make sure they’re getting the most from their providers, I have developed a mnemonic device called R.E.T.I.R.E. sm to act as a diagnostic tool for owners and managers. This framework is something I’ve put into practice for many of my own clients, and others in the industry are starting to pay attention. Using my R.E.T.I.R.E. framework, you can evaluate your 401(k) plan and make sure your provider is supporting your employees with resources to help them reach their goals, and that your provider is doing their fair share of the work to empower and engage employees.
What does R.E.T.I.R.E. stand for?
R: Resources to help people prepare for retirement
The first step in evaluating your plan is to take a look at the resources your employees are receiving from their 401(k) service provider. I’ve found that employees can be scared and confused by retirement, and tend to avoid talking about it. While some providers have plenty of guides and FAQs available, they may not offer the kind of personalized resources some employees, may want or need. Some may prefer to speak to a real person one-on-one to ask their specific questions about their plans. Others may prefer a full-service real-person help desk they can call in a pinch, or even more self-service tools like online calculators or newsletters. Not everyone will be motivated to save (or save more) for retirement with the same tools, so you really have to make sure your provider offers all of these in the cumulative.
E: Employee engagement
Next, dig a little deeper into how actively your employees are engaging in saving toward retirement. It’s not enough to measure how many employees participate; many will tend to set everything up once and leave it be, unless they’re given a reason to check in. Evaluate how many of your employees are participating, but also how much of their salaries they are contributing, and how diversified their investments are. From there, speak directly to your employees and ask them how they feel about their plans and their own retirement readiness. By bringing it up, you may help them realize they aren’t as engaged as they should be. Don’t get me wrong—auto enrollment and auto-escalation are great plan design features, but they generally won’t get un-engaged employees on track for a dignified retirement, and keep them on track.
T: Tracking individuals toward retirement readiness
Once you begin speaking with your employees directly, it’s time to bridge the gap between those resources your provider offers and the goals your employees have. While many employees are happy to limit their contributions to the matching levels offered in their 401(k) plan, oftentimes anywhere from 0% to 6%, I want most people to put 10% to 15% of their salary toward retirement. While that may not be a realistic target initially, it is a good goal to work toward. Ultimately, tools like savings-gap analyses and even direct conversations with your provider about an employee’s goal can help that employee better understand how much they should be saving in order to be ready for the retirement they want.
I: Investment solutions for different types of investors
More than making sure your employees use whatever tools are available to them, you should also take a look at the different investment solutions your 401(k) plan offers. While some employees will prefer to manage their own investments within the plan based on what they hear in the news, most people would benefit far more from a target date fund or a managed account solution. When I meet with business owners, if I see anything less than 90% of participants in these types of investment solutions, I know there is an opportunity to improve their retirement readiness. That way, most people who don’t want to (or have time to) think about their retirement savings can rely on investment professionals to make decisions to move dollars based on market trends, global politics, and other factors.
R: Removing conflicts of interest
I believe that removing possible conflicts of interest from your plan is necessary and in the best interest of your employees. We’ve written at length about the Department of Labor’s final rule on conflicts of interest, which works to define fiduciaries and their advisory role in a 401(k) plan, and it’s critical that any small business owner or manager takes some basic steps to reduce conflicts of interest regarding the management of their 401(k) plan. The first step you can take is to make sure that your adviser is acting as a fiduciary on your plan. Next, request that your provider gives you a list containing any potential conflicts of interest, and then helps you to remove or remedy them.
E: Expenses - keep fees reasonable
It is important that you are meticulous in evaluating any fees your provider charges, in order to make sure more money stays with your employees. As a plan sponsor, under ERISA, you have an obligation to ensure the fees are reasonable. The fees your employees pay on their 401(k) plan are a chunk of money that is being taken out of their retirement savings. Those fees may seem reasonable for one year, but fee disclosures do change, and over an entire 30-year career, they can be higher than you may think. Make sure your provider can explain to both you and your employees exactly what fees you are being charged—and why—so you have a clear understanding of the real cost of your plan. I address this concern head-on at my firm by benchmarking our fees against industry averages, and then reporting those fees transparently to both plan sponsor and employee. We also help plan sponsors benchmark their fees against industry averages.
If you take the time to explore these topics as they relate to your current 401(k) plan, you may find that your employees aren’t as ready for retirement as they thought. Ultimately, this is about making sure your provider is the right one for your company, and that your employees are empowered to make the most of their retirement benefits. Retirement is a terribly important issue, and this isn’t something you want to leave alone to work itself out.
As you work through the R.E.T.I.R.E. framework, a good next step would be to use our 401(k) Plan Assessment Tool to get an even better understanding of how your current plan and provider are fulfilling the needs of you and your employees. If you would like our full R.E.T.I.R.E. Kit mailed to you, please complete our form here.