401(k) Resources – Finding the Right Tools for 401(k) Success
Resources: Finding the Right Tools for 401(k) Success
When it comes to evaluating any business’ 401(k) plan, there are many factors to consider, from expenses, to available investments, and even potential conflicts of interest. Perhaps most important, however, are the resources and support a 401(k) service provider has to offer both employers and their employees, resources that most providers offer but many employers and employees don’t even know are available. For small to mid-sized businesses especially, these resources can mean the difference between employees’ success and failure as they work to make the most of their 401(k)s and prepare for retirement.
Here, I’ll review resources that can help you as the 401(k) plan manager more effectively manage your plan and resources that will help your employees get and stay on track toward retirement.
Resources for Employers
If you’re like most employers in the small to mid-size business range, you don’t have a ton of time to manage the retirement plan you offer. Your ultimate goal is to make sure your plan is managed well, employees perceive it as a good plan, you’re limiting the risk to your business, and you still have time to do your job. The good news is that in my experience, the success of a 401(k) plan doesn’t come down to the amount of time an employer spends with it, or even how hard they work in administering it. Instead, success tends to stem from how that employer leverages the resources available to them and commands a certain level of service from their provider(s).
Lean on your Service Providers
First and foremost, your 401(k) service provider(s) should have a number of skilled professionals actively servicing your plan and contributing to its overall success. It can vary from provider to provider, but your team should include:
- a record keeper who provides online support, might hold your assets as a custodian, and may even be a trustee for the plan;
- an administrator who may or may not be the same individual as your record keeper, and whose job it is to perform compliance testing to make sure your plan is compliant with updated rules and regulations, to draft the plan document, and to perform annual 5500 filings;
- and an adviser who may help you select and even monitor your investments, and may also meet with you and your employees on a regular basis to make sure the plan is running well and help your employees with their retirement goals.
Request a Robust Fiduciary Audit File
Outside of the professionals managing your plan, your 401(k) service provider should also provide you with a fiduciary audit file, a document that can be either physical or electronic, which contains all of the documents an employer would need as a plan sponsor. It’s best practice for you to have that file easily accessible in the event of questions that may arise about the management of the plan. Likewise, if you are ever audited by the Department of Labor, you will want to have this information at your fingertips. Some 401(k) service providers include more than others in these files, but you should insist upon the following at a minimum:
- Plan Document: Think of this as the master blueprint for your company’s 401(k) plan. This document should describe all the features of your plan in exact detail, including plan eligibility requirements, plan entry dates, types of allowable contributions, and vesting schedules.
- Plan Benchmark: The Employee Retirement Income Security Act requires that any 401(k) plan’s fees be “reasonable,” but it does nothing to explain to employers what reasonable fees may be. To that end, your provider ought to be able to regularly provide you with an analysis that shows what different plans in the market at different levels of service pay so you know you are paying fair fees for the level of service you are being provided. It’s best if this is updated at least every three years, and if it is accompanied by an unbiased report from a third party.
- Investment Analysis: As an employer, you aren’t necessarily an investing expert yourself, but your service provider should be able to provide you with an analysis which shows you the quality of the investments being provided in your plan. This should also be accompanied by a third party report so you know what your adviser or record keeper is telling you is transparent and honest.
Login to Leverage Online Tools
Your 401(k) service provider should offer a variety of online tools to help you manage your plan, and also to help your employees make the most of it (but more on that later). Look for calculators, checklists, and other materials similar to the ones provided here in the R.E.T.I.R.E.SM kit to help you understand the ins and outs of your company’s specific situation.
Talk with Colleagues at other Companies
I believe this resource is often the most overlooked. Other employers in similar plans can help you evaluate any problems you have in managing your plan. Your peers can be a wealth of knowledge and experience, and any chance for collaboration can be a fruitful experience. Such individuals also have no personal interest in convincing you that one resource is better than another, so you can really talk to them about what’s working and expect honest feedback.
Resources for Employees
Of course, much of the success of a 401(k) plan rests on the shoulders of employees, the ones who must take an active interest in contributing and planning for their futures. This is why it’s so critical that those employees have access to resources that are directly relevant to them, from online tools to one on one financial counseling. We know that employees value 401(k) plans they can make the most of; in our own survey, we found that 80% of employees polled prefer to work for an employer that provided 401(k) support. Interestingly, though, almost half of people are not getting any kind of education or counseling for their plan, which then translates to 49% of people saying that they do not feel confident in their own ability to select investments in their plan.
Ultimately, this all leads to employees who aren’t taking the right steps to maximize their retirement planning and saving through their 401(k) plans. It’s key, then, that you make sure you evaluate the resources your provider offers your employees–like access to ongoing education, or to financial counselors who can meet with them one on one–to help them select investments, determine the right level of contributions to make to the plan, and answer any questions employees may have along the way.
There are many resources out there that can be very useful to employees, so make sure you have a robust blend of different types of resources for all learning styles available from your service providers, including:
- Online calculators
- Group meetings
- Individual meetings
With a broad range of tools and educational resources made available to them, your employees will be able to get the help they need in the way they prefer, which results in a more successful plan.
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