7 TIPS FOR MANAGING YOUR COMPANY’S 401(K)
STAY ON TOP OF PLAN EXPENSES O ne of the most basic fiduciary duties is to make sure plan fees and expenses are rea- sonable. “This is a hot button for regulators
and is just prudent plan management,” Saradella
says. Like many other aspects of overseeing the
401(k), it requires regular attention.
Manage expenses and benchmark them regularly, especially if your plan has rapidly changing demographics or fast-growing assets.
One way to trim fees is to shift assets into lower
share classes when appropriate, Saradella says.
For example, mutual fund C class shares may be
less expensive than A class shares but ofer limited
voting rights. Portfolio managers can minimize
costs by holding the right mix of share classes at
any given time—A for long-term holdings and C
for shorter-term holdings, for example. Your job
is to make sure they’re doing just that.
Another tactic is to cap your record keeper’s
fees. (The record keeper is the frm that handles
the plan’s nuts and bolts, such as processing enrollment, issuing account statements and providing customer service. T. Rowe Price and Fidelity
Investments are among the better-known players in this space.) If your fee structure is based
on basis points, which measure the value of the
plan’s portfolio, your record keeper will make
more money as assets grow, even when the number of accounts it manages stays steady. At some
point, you’ll probably want to restructure the fees
so they’re either based on the number of accounts
you have or capped. When assets grow, so does
your leverage to lower costs.
Don’t hesitate to renegotiate when circumstances change. “While we have not changed
our record keeper, in the last three years we’ve
negotiated lower fees four different times,”
PAY ATTENTION TO THE RULES T he U.S. Department of Labor (DOL) has in- creased its audit activity over the past several years, causing both disruption and added expense for plan sponsors working their way through
the examination process. You may not be able to
avoid an audit, but you can minimize the pain.
Start by keeping your perspective: Receiving
notice of an audit isn’t a reason to panic. It’s true,
however, that many plan sponsors have struggled
with governance requirements in recent years,
which is why it may be worth hiring a consul-
tant. They “can check all the boxes,” says Ross
Bremen, a partner at Boston-based investment
advisor NEPC. “That makes sense if internal re-
sources aren’t focused.”
Essentially, regulators want to ensure that the
plan and its processes are being managed in com-
pliance with the law. “The DOL doesn’t expect
perfection,” Saradella notes. “If they see mistakes
and then corrections were made and documented,
they’re going to be happy.”
APPLY THE PERSONAL TOUCH C ommunication and education are essential when striving to increase the efectiveness of your company’s 401(k). Help employees
understand not only how to work with your
record keepers but also how to wisely manage
AUTO-FEATURES SLOW TO CATCH ON
Automatically enrolling employees in 401(k)s or boosting their
salary deferral amounts by default are among the most powerful
strategies employers have for increasing workers’ participation
and assets in retirement plans, according to benefits experts. But
these design features have yet to match the widespread use of
of employers match employee
contributions to 401(k)s and other
defined contribution plans.
of companies automatically enroll
new employees into defined
of organizations automatically
increase salary deferral amounts to
defined contribution plans.
Source: Society for Human Resource Management 2017 Employee
Benefits research report.