Twelve Tips for a Great 401k Plan
Updated: Sep 7, 2022
Twelve Tips for a Great 401k Plan
As the plan sponsor, how do I know we have a great 401k plan? You could do a review on your plan by reviewing the provider, checking the investment menu or benchmarking. The important thing is to be objective in your analysis. Use a 401k Advisor and Fiduciary to help you conduct these exercises for a great 401k plan.
1. Research Plan Provider
Do thorough research on the plan provider to check on their rankings in various categories. Different plan providers could be more suitable based off your company’s plan type and plan size.
2. Objectively Benchmark the Plan
Plan providers will insist they have benchmarking tools for you to use. Plan providers have become biased because their tools do not benchmark themselves.
3. Low Fee Investment Menu
It is important to have mutual funds in the menu that are low fees. Having the low fee alternative will significantly increase returns overtime.
4. Diversification
Plan Sponsors need to check diversification in the investment menu. Plan sponsors make the mistake of having highly correlated funds in the investment menu.
5. Avoid Proprietary Date Funds
Beware of plan providers offering mutual funds that charge excessive hidden fees on the participants for no added value.
6. Fund Fee Analysis
Regularly conduct a fee analysis on the investment menu and their expense ratios and see if there are potential alternatives for participant fee saving opportunities.
7. Admin Fee Analysis
Conduct a fee analysis on admin costs. This includes recordkeeping, advisor, auditor costs and much more. Costs over the industry average is unreasonable.
8. Rate of Return
Compare the plans rate of return against other plans in similar industries. It is important to check if the rate of return is underperforming the industry average.
9. Participation Rate
Participation rate of the employees is an important indicator to help you determine the employees’ knowledge of the retirement plan and whether we need to bring awareness.
10. Average Participant Contribution
Contribution will help as a gauge for interest and knowledge on the retirement plan. Added tools and investment insights can help increase this.
11. Fiduciary Advisor
Having a fiduciary advisor on your plan gives you the peace of mind to ensure they are working in your best interest. To verify this, check the investment menu’s fiduciary ratings and any hidden fees.
12. Avoid Conflicts of Interest
If your plan provider and advisor are from the same company, there will be a clear conflict of interest in plan design and investment options.
If you are responsible for managing your company’s retirement plan and are concerned about your current investment options, I can help. My specialty is reviewing and adding 99% value to all of my clients’ retirement plans. Contact me today If you’re ready to get the most value from your company’s retirement plan and protect yourself from personal liability as your company’s fiduciary.