29 July 2021

A Four-Point Checklist to Improve Participant Outcomes in Your 401(k) Plan

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401(k) plans can be an important piece of a firm’s benefits package.  The first goal of a 401(k) is for employees to reach their retirement objectives, with attracting and retaining talent a close second.  It is wise to review your plan to ensure it meets these goals.

According to the latest Principal Retirement Security Survey, 50% of plan sponsors are concerned that their employees may not be adequately prepared for retirement.

What can firms do to improve retirement readiness? 

Plan Design – Consider a reenrollment with default investments and savings rates. This allows the sponsors to reset the participants with increased savings rates and appropriate investment selection through a Qualified Default Investment Alternative (QDIA).  This can sound daunting, but record keepers do the heavy lifting and participants can opt out.  However, according to Vanguard, after one year of a reenrollment, 92% of participants remained in the QDIA and 81% of the savings rates remained.

Participant Education – One-on-one education can solidify a reenrollment.  Regular office visits from the advisor provide participants guidance through reenrollments and retirement readiness.  This can even include the advisor helping the participant budget for their contributions.

Provider Selection – It requires many puzzle pieces to create a sound 401(k) plan and all teams need to work together.  A plan advisor can review record keeper, third-party administrator, and investment options to ensure the value proposition is appropriate for the plan.  Often, this review discovers costs savings or enhancements in service or technology for the participants.

Fiduciary Protection – While the plan sponsor can never be absolved from all fiduciary responsibility, 3(38) advisory services and 3(16) services are available to plan sponsors and can be a wise decision to outsource some of this responsibility.

A 3(38) Investment Manager is a codified investment fiduciary on a retirement plan as defined by ERISA section 3(38). Essentially, the 3(38) is responsible for selecting, managing, monitoring, and benchmarking the investment offerings of the plan.

A 3(16) fiduciary is a service provider hired by an employer to function as a “Plan Administrator,” by fulfilling a comprehensive set of duties that many plan sponsors find demanding, including keeping the plan in compliance with ERISA guidelines.

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