Benchmark Your Company 401(k) - Part 2
In part two of this educational Benchmarking Your Company’s 401(k) video series, you’ll learn strategies to find typical 401(k) fees. Additionally, the information shows how the fees you pay and service you receive differ among your service providers and 401(k) plan adviser. You’ll also see how the features of your retirement plan design might affect how your employees use the plan.
Hi and Welcome to Benchmark Your Company 401(k) - Part 2. Let's get started.
There are a lot of areas to cover, so we'll look at the first three key areas to benchmark: Service providers, advisers, and plan design features.
There are often several providers who support a 401(k) service. When benchmarking your service providers, you're looking at their costs and the services they offer in order to determine value. Here is an example of a benchmarking report that includes the recordkeeper. You’ll see that it shows the range of fees a recordkeeper can charge by percentage or dollar amount for similar sized plans. You’d evaluate where your fees fall in this spectrum and then double check if your plan gets typical services. If you find out that you only get some of the services, but are paying the high-end of the fees, it’s likely time to change recordkeepers.
The next key area is about the 401(k) plan adviser. Here's an example from the retail industry. This company looked at how their adviser services stacked up to other plan’s services. Using the benchmark, they found that their plan was being under served for the fees they were paying. Are you getting the right value? High fees may not be unreasonable if they come with a high level of service, and low fees may be unreasonable if you get an even lower level of service.
Let's talk about fiduciary support. Sometimes a business owner will choose their own personal adviser to advise the 401(k) plan. Those advisers that don’t frequently work with 401(k) plans, typically don’t offer any fiduciary support and therefore cannot make recommendations, and may only provide education if they choose to do so.
Both a 3(21) Investment adviser and a 3(38) investment manager can provide fiduciary protection, but at different levels. A 3(21) can provide recommendations on what funds to keep in your fund line up, and which ones to remove, but you hold the final decision. They’ll share some of the risk with you in the case of a lawsuit, but a 3(38) will offer full fiduciary protection when it comes to fund line up. This means they will choose the investments in the plan, monitor them and update them. They are held responsible to make the decisions in the best interest of your employees.
Here, we're looking at a scope of services for a plan compared against a benchmark. The Department of Labor (DOL) recommends you consider the quality of your service when determining if the cost is reasonable. In this example, an adviser benchmark report compares your 401(k) plan against 28 services across the categories shown on the left. This way, you can see what services you’re paying for and how they compare to other similar plans in your industry.
Things to consider when benchmarking your adviser include:
- How your adviser is paid
- What services your adviser provides
- Is your adviser working in the best interests of you and your plan participants?
- And has your adviser committed to do so in writing?
Now let’s talk about Plan Design Features, or the options you can choose to add to your 401(k) plan and how they compare to similar sized companies or within your industry. Your 401(k) plan design may have a range of options, and it's a good idea to compare those options to others in your industry as shown in this sample benchmark. You want to know if your plan offers similar benefits to others, if the costs are aligned and if the plan options you have are improving the retirement readiness of your employees.
Here’s one example where a medical practice benchmarked their plan’s design. They wanted to see how their plan features compared with others in their industry, and they discovered that 76% of plans included an employer match. But their 401(k) plan did not.
A little bit about us, we provide ongoing educational services and customized support for 401(k) plan managers. And offer comprehensive plan services that are designed to help employees optimize their retirement savings while easing the company's risk and administrative burden.
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