In many industries, offering a 401(k) plan is a competitive necessity. If you do not offer one and a competitor does, it could mean the difference in a job candidate’s decision to accept their offer over yours. It could even send employees heading for the door.
Assuming you do offer a 401(k), the challenge then becomes plan maintenance and compliance. Just as you presumably visit your doctor annually for a checkup, you should review the administrative processes and fiduciary procedures associated with your plan at least once a year. Here we will look at some important areas of consideration:
Investments. Study your plan’s investment choices to determine whether the selections available to participants are appropriate. Does the lineup offer options along the risk-and-return spectrum for all ages of participants? Are any pre-mixed funds, which are based on age or expected retirement date, appropriate for your employee population?
If the plan includes a default investment for participants who have failed to direct investment contributions, check the option to ensure that it continues to be appropriate. If your company plan does not have a written investment policy in place or does not use an independent outside consultant to assist in selecting and monitoring investments, consider incorporating these into your investment procedures.
Fees. 401(k) plan fees often come under criticism in the media and can aggravate employees who follow their accounts closely. Calculate the amount of current participant fees associated with your plan’s investments and benchmark them against industry standards.
Investment managers. Have you documented in writing the processes your plan has in place for the selection and monitoring of investment managers? If not, doing so in consultation with an attorney is highly advisable. If you have, reread the documents to ensure they are still accurate and comprehensive.
Administrator. Solicit and monitor participant feedback on the administrator so that you know about grumblings before they grow into heated complaints. Further, put criteria in place to assess the plan administrator’s performance on an ongoing basis and to benchmark performance against industry standards.
Compliance. Are your plan’s administrative procedures in compliance with current regulations? If you intend your plan to be a participant-directed individual account plan, are all the provisions of the Employee Retirement Income Security Act of 1974 Section 404(c) being followed? Have there been any major changes to 401(k) regulations over the last year? These are just a few critical questions to ask and answer.
A 401(k) is usually among the most valued benefits a business can offer its employees, but you have got to keep a close and constant eye on its details. We would be happy to help you assess the costs and other financial details of your company’s plan.