It’s 4th Quarter and the Clock is Ticking: Do You Have a Winning 401(k) Play Book?

Monday, November 02, 2020

Jim Sampson, Business Contributor

 

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With the year-end approaching, it’s a good time for employers to do their 401(k)/403(b) plan reviews, especially because of the continued impact of COVID-19 on businesses. Specifically:

COVID-19 has forced many companies to make changes to the way their plans operate and there may be unintended consequences for reducing, freezing or eliminating matching contributions. It’s better to understand what those consequences might be now instead of waiting until the New Year, since it may be too late to make adjustments then.

Company goals and employee bases may have significantly changed over the last six to eight months, and there are many plan rules that cannot be changed mid-year so reviewing those items prior to year-end could be very advantageous.

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You may have terminated employees with small balances remaining in your plan. If you do, now’s the time to kick in that mandatory cash-out feature, again, in order to get those balances out prior to year-end. This could be the difference between being a small plan filer (<100 participants) and a large plan filer (100+), which requires an independent CPA audit (and a potentially hefty price tag to go with it).

So what should this plan review look like? It should be much more comprehensive today, and not just a meeting to review fund performance.

Gather your committee

Do you have a formal committee? If so, are the committee’s members clear on their roles and do they understand whether they are a fiduciary to the plan or not? And do they know what that really means? Committee training is a best practice to identify what skill sets the members have and what tasks are better outsourced to an outside professional.

Review your plan document, and compare it to your daily procedures

Often, the person at a company handling the retirement plan inherited it from their predecessor, and there’s no user manual or formal training in place to teach them what needs to happen. It’s a good practice to review the plan documents to make sure that the plan operates in accordance with them. Eligibility, timing of contributions, and notice delivery are all items that should be covered. 
Do the rules of the plan still make sense? Depending on how long ago the plan was created, or how your company has changed over time, some of the features may seem outdated or no longer fit.  Make sure that the rules of your plan today still fit your goals of tomorrow.

Review plan usage metrics

How are employees utilizing the plan? Are they using the plan’s website or mobile app, or calling into the call center? What are they doing while they’re there? Do you offer a separate financial wellness program, website or portal, and do they use it?  If so, how?
Do you have access to this data? If so, how do you use it to improve the plan? If not, can you get the data?

Employee communication strategy

Do you have one? Does it consist of someone sitting in your break room waiting for people to stop in and ask questions? Or is it more strategic, using the metrics above? Do you have a formal financial wellness program or do you rely on your plan’s provider or advisor to deliver this? Different companies have different needs, so this is NOT one-size-fits-all but there should be some thought and discussion on how you can improve your current situation.

Benchmarking

How often do you benchmark the metrics of the plan? Do you know if your plan and its features compare favorably to your industry or other plans your size? It’s not necessary to price the plan out every year, but you want to have some level of confidence that it’s competitive since that can often be the difference in attracting and keeping high quality employees.

Costs and investment performance

It’s a good practice to self-evaluate whether company employees that serve on the committee are qualified and capable of fulfilling investment monitoring duties, often on top of their real job, or whether you are better off outsourcing this vital function.
While lower costs are often better, it’s important not to look at costs in a vacuum. Just because a fund or service provider is cheaper than another doesn’t automatically make it a more prudent option. Nowhere in the law (specifically ERISA) does it state that you must have the cheapest option – only that the associated costs are reasonable. Value counts in this equation, and if greater value is being delivered at a higher cost, it’s likely reasonable.  

Sound like a pretty full agenda? These are all items that should be reviewed periodically, and breaking these topics up into multiple meetings over the course of the year can make it easier to focus on certain areas and make sure that the proper attention is paid to each one. Now assemble your team of committee members and trusted advisors and put your game plan in place. 

 

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Jim Sampson, Director of Retirement Advisory Services, Hilb Group Retirement Services in Warwick, supporting retirement plans for companies and their employees for the last 24 years, and is the co-author of the book Save Like a Champion Today, A Winning Game Plan for Retirement.

Investment Advisory services offered through Global Retirement Services (GRP), DBA Hilb Group Retirement Services, a registered investment advisor.

 

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