By Reid Thompson
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.
Reid Thompson graduated from Furman University in 1998 with a BA in Business Administration. He has worked in financial services since 2003 and is now VP & Corporate Retirement Specialist with Colonial Trust Advisors. Prior to joining Colonial, Reid worked for Nilife Securities, Eagle Strategies, and North Star Securities serving individuals and institutions.