6 Traits of the Best 401(k) Plan Providers: A Focus on Advisers

Finding the right 401(k) plan adviser for your business takes careful consideration. Yet it’s well worth the effort to do your homework. Aligning yourself with the right 401(k) plan adviser can go a long way toward putting you and your employees on a path to meet your retirement goals. And in today’s tight labor market, benefits matter more than ever when it comes to attracting and retaining talent. With so many choices out there, you may be asking:

What are the traits of the best 401(k) plan advisers for small businesses?

•    Trait 1: Has a small-business focus that fits your company.
•    Trait 2: Offers customizable investing options.
•    Trait 3: Provides clear and transparent fees.
•    Trait 4: Offers top-level fiduciary protection for investment decisions.
•    Trait 5: Provides compliance support.
•    Trait 6: Gives one-on-one education and retirement-planning guidance.

Let’s breakdown each trait individually.

1. A small-business focus that fits your company

Advisers with services specifically tailored to small and medium-sized businesses understand the kind of support such businesses need from a plan partner. With advisers who don’t specialize in 401(k) plans for small and mid-sized businesses, your firm might not get the same level of service or options that larger companies do.

2. An adviser who offers customizable investing options

We all come to retirement planning with different levels of investment know-how and preferences in terms of how much help we want or need. Some of us want help creating a retirement portfolio, while others prefer to go it alone. Most companies have employees with a range of investment styles and preferences. That’s why your 401(k) plan shouldn’t take a one-size-fits-all approach.

Look for an adviser who offers an investment platform that fits many investment styles. We find that most investors fit into one of these four types of solutions:

• Do It for Me: This solution provides fund options for employees who don’t want to spend time making investment decisions.
• Guide Me: Some employees want to be involved in selecting funds for their 401(k) accounts, but need help building portfolios that are tailored to their needs and goals. Look for an adviser with a tool that helps each user build a portfolio that’s right for them.
• Select My Own Fund Mix: Some participants would rather select their own investments than choose from pre-designed model portfolios. A range of professionally managed, proprietary funds may be best for this investing style.
• Open My Own Brokerage Account: Investment-savvy participants who want more options may be more comfortable with a self-directed brokerage account option that allows them to choose from thousands of mutual funds, stocks and bonds.1

3. Clear and transparent fees

Paying reasonable fees for services received is important, but fees also matter for a couple key reasons: You could be held liable for a plan that charges excessive fees, and high fees eat into retirement savings over time. The majority of fees are often paid out of plan assets, which means they’re paid by participating employees.

Although 401(k) advisers are required to divulge their compensation through a document called a 408(b)(2) disclosure, understanding and evaluating fees—and comparing one plan to the next—can be challenging. To learn more, read our article Understanding and Analyzing 401(k) Plan Fees.

Bottom line: Fees charged by advisers shouldn’t be hidden or difficult to understand. Look for advisers who can explain their fee structures simply and clearly, while offering transparency into the value and service they bring.

4. An adviser who helps you choose a fund lineup and offers top-level fiduciary protection for investment decisions

You may be personally liable under the Employee Retirement Income Security Act (ERISA) for failing to act in the best interest of plan participants. That’s why it’s important to understand the levels of fiduciary protection offered by different types of 401(k) plan providers.

When evaluating your options, consider that a 3(38) investment manager allows you to fully delegate your fiduciary responsibility and liability for selecting, monitoring and updating plan investments. Brokers and other types of investment advisors may provide investment recommendations, but typically offer only limited fiduciary protection or none at all. Partnering with a 3(38) investment manager is a great way to reduce your personal risk.

5. An adviser that provides compliance support by tracking deadlines and helping to maintain a fiduciary audit file

The Department of Labor (DOL) requires any plan with 100 or more eligible participants to be audited each year. If you have fewer eligible participants, the DOL or Internal Revenue Service may still do an inspection or random audit at any time.

Why not look for a 401(k) adviser that helps you meet your filing deadlines and maintain a fiduciary audit file? A fiduciary audit file—which can be a physical or electronic file—is a compilation of all the documents a plan sponsor would need in the event of an audit. To learn more, you may request our no-cost Fiduciary Audit File Guide.

6. An adviser who offers one-on-one education and retirement-planning guidance to you and your employees

Your employees are your biggest asset, and they deserve a plan that reflects your commitment to them. That’s why your adviser should take an active role in helping to enroll and educate your staff.

A proactive approach not only helps to boost participation rates in your 401(k) plan, but also employee contributions and satisfaction. One study found that 66 percent of employees cited one-on-one meetings with a financial professional as the most-effective form of communication for positive changes in retirement saving.2

To be sure, choosing a 401(k) plan adviser for your small business takes some legwork. But by seeking out advisers who embody these six, best-in-class traits, you can take some of the guesswork out of an important decision for you, your company and employees.

 

 

1 Self-Directed Brokerage may not be appropriate for every plan and/or participant.

2 Moore, Rebecca. Instinctive Decision-Making Hurts Retirement Readiness. PlanSponsor.com, March 2016

 

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