7 TIPS FOR MANAGING YOUR COMPANY’S 401(K)
benchmarking guide, for a plan with 100 participants and $5 million in assets, average costs per
participant last year were:
Investment management: $600 ( 1. 2 percent of
assets per participant).
Record-keeping/administration: $35 (0.07 percent of assets per participant).
Trustee costs: $3.
Plan sponsors should benchmark their plan
against those with similar characteristics,
given that costs vary based on the number of
participants and total assets, decreasing on a
per-participant basis for larger plans.
Think of the plan sponsor like a train’s con-
ductor, “making sure everyone—payroll, HR,
record keepers and investment managers—are
doing their part,” says Amy Reynolds, a partner
in Richmond, Va., for consulting firm Mercer. “A
lot of data and partners are involved, and each
one has its own contribution to make to get to
the final destination.”
However you defne your role, “you can’t put it
on autopilot,” she says. “That’s where things go
of the rails.”
“I have a love/hate relationship with 401(k)s,”
admits David Gardner, a managing partner at Cal-
iber Wealth Management, a fnancial advisor in
Orem, Utah. “I love them because they’re a good
foundation for my practice. I hate them because
of all the details involved.”
Those minutiae are why
it’s so important to maintain
sound practices. When you un-
derstand your responsibilities
to the plan’s participants and
how you can help fulfll your
obligations, the complexities
become much more manage-
able. “It’s complicated, but it’s
kind of not,” Saradella says.
OF PLAN DESIGN A s important as it is, grasp- ing your fduciary role is just a start. You’ll be even
more efective if you know the
basics of 401(k) plan design.
“HR needs to understand
how plan design influences
savings behaviors and out-
comes,” Dalessio says. Take,
for example, the power of
automatic enrollment—where employees
are, by default, signed up to contribute to the
401(k) unless they opt out. The practice is an
extremely effective way to increase employees’
participation and help them focus on their
Akamai’s plan participation grew from 74
percent when auto-enrollment was instituted in
2010 to about 93 percent in 2014 and has hovered around that level ever since, according to
Saradella. “It was a radical idea a few years back,
but the landscape has changed,” she says. “It
doesn’t create the frestorm you think it will.” In
fact, her experience has been that people often
appreciate the assistance.
Matching contributions also encourage workers
to contribute more to their 401(k)s. And, if the
matches are generous enough, they can help you
to attract and retain talent in a tight labor market.
You can also use vesting schedules to encourage
retention and reward loyalty.
In addition, consider the primary purpose of
your company’s 401(k), as that can vary from
plan to plan, Gardner says. Some are set up for
the benefit of employees, while others, especially
at smaller businesses, are mainly intended to
provide tax advantages to the company’s owners. Understanding what’s driving the plan will
influence your vendor search and other aspects
of its implementation.
HOW TO REVIEW YOUR PROVIDER
You might love your 401(k) provider, but your fiduciary duties require you to make
sure the plan is benefiting employees in the most cost-effective manner. To evaluate performance, organize your review into three parts, suggests Harry Dalessio,
senior vice president and head of full-service solutions for Prudential Retirement:
Examine the approach to regulatory and compliance issues to make sure
the provider fulfills all obligations.
Consider the quality of operations. How responsive is the call center? How
well does the website work? What’s the overall experience like for both the
employer and employee?
Review the investment options. Are participants given enough choice or
too much? Are the fees involved comparable to others’?
In particular, spend a lot of time understanding fees. “Every three to five
years, the market changes enough to warrant a re-evaluation in fees,” says Gregg
Levinson, a senior consultant for Willis Towers Watson. By benchmarking firms
against one another, you or your consultant should be able to identify reasonable
fee structures. “Reasonable,” not “the lowest,” should be the test, he adds.