While your 401(k) plan may not have a chirping reminder, regular reviews, fee benchmarking, and a prudent process are key.
Just as we routinely replace the batteries in our smoke detectors, it’s equally crucial to give your company’s 401(k) plan the attention it deserves.
Often, retirement plans are treated like a smoke detector with fading batteries – they’re there, we know they’re there, but unless there’s an alarming beep, we don’t really bother to examine them in detail. But just as you wouldn’t overlook a chirping smoke detector, you shouldn’t neglect your company’s retirement plan, either.
As a plan sponsor, it’s vital to regularly review your retirement plan and benchmark for fees, services, and overall value.
Striking the Right Balance
Every employer has unique needs and preferences for the company’s retirement plan. Some prefer comprehensive plans with features like financial wellness resources, one-to-one education, onsite educational meetings, regular benchmarking analysis, and hands-on 401(k) consulting. Others favor a simpler approach, with annual investment committee meetings, virtual employee education, online access to financial education, tri-annual benchmarking reports, and periodic vendor analysis.
Regardless of your preference, the key is to ensure that the costs and value of your plan are aligned. If you have ever used dollar store batteries for your smoke detector, you know that the low price means you need to change them out more often which may be more labor intensive and expensive in the long run. So, it’s not about finding the cheapest offer, but rather about finding a plan that is reasonably priced for the services received.
The Need for Regular Reviews
Regular reviews serve as an early warning system for your plan. They help you track your plan’s investments, fees, features, and benefits. You’ll be able to spot any potential issues early on, much like detecting a low battery signal from your smoke detector.
Here’s a quick guide:
| Topic | Warning Sign | Action |
| Investments | Underperforming fund | Replace fund |
| Fees | Benchmark to peer group | Ask for a fee reduction |
| Payroll | Clunky uploads | 360 integration |
| Participation | Less than 90% | Re-enrollment |
| Employee Education | Low contribution rates | Implement a robust education program |
Decoding Plan Fees
Plan fees can vary widely. But as a plan fiduciary, what’s crucial is that you’re aware of what you’re paying and that it’s reasonable for the services received.
Fee reasonableness is necessary because ERISA requires plan fiduciaries to act prudently and solely in the interest of the plan’s participants and beneficiaries. This includes ensuring that the fees paid for services are reasonable and the plan receives fair value for those services.
The importance of maintaining a prudent process and regularly benchmarking retirement plans has been underscored by several court cases. For instance, in the case of Sacerdote v. New York University, the court highlighted the necessity for plan fiduciaries to follow a prudent process when selecting and monitoring service providers. Similarly, in the case of Tussey v. ABB Inc., the court ruled that the plan fiduciaries breached their duties by failing to monitor recordkeeping costs and negotiate for rebates from the service provider.
These cases highlight the significance of having a robust process in place to regularly review and benchmark retirement plans, reinforcing the importance of fee reasonableness and the duties of plan fiduciaries under ERISA.
We’re Here to Help
If you need help decoding your 401(k) plan fees, look for your 408(b)2 document. This document will provide a detailed breakdown of the costs associated with your plan, allowing you to make an informed decision about fees, and we can help you run a benchmarking report to determine if your fees are reasonable for the services provided.
Working Order
Just as we ensure our smoke detectors are in working order, it’s crucial to sit down with an experienced retirement plan advisor to review your company’s retirement plan. Remember, we speak 401(k), and we’re here to help ensure your retirement plan is in top shape.
So, don’t treat your 401(k) plan like a chirping smoke detector any longer. Give it the attention it deserves. After all, a well-maintained retirement plan is a smooth ride towards a secure future.
Additional Disclosure: This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.
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