With changing markets, the current political landscape, and new industry regulation, it’s important for 401(k) plan sponsors to actively manage sponsor plans. Today’s employee faces more challenges than ever before; in fact, retirement, once considered the pinnacle of financial goal-setting, is now one of a myriad of issues the modern employee faces. Additional monetary concerns like student loans and the cost of housing are now common issues employees juggle alongside retirement.
In today’s post, we explore 9 ways 401(k) plan sponsors can more actively manage accounts and in return better position their companies and employees for financial success.
1. Focus on offering employees broader financial plans. For many employees, retirement is not the single most pressing financial concern like it was 30-50 years ago. Increased financial obligations in the form of student loans or college savings plans are now eating away at employee funds once delegated towards retirement plans, like 401(k)’s. In fact, according to the Economist over forty million Americans hold over $1.3 trillion in student loan debt, with the average American holding at least $30,000 in student loans. Employees need a more holistic financial plan to deal with their changing needs. Employers who manage 401(k) plans have the ability to adjust plans to incorporate solutions for these issues. Employers who address these needs stand to gain substantially in finding and retaining top talent.
2. Review incentives and matching plans. Most 401(k) plans offer matching incentives to employees who contribute to the plan. However, many companies fail to review these policies year over year. Outdated matching plans may incentivize employees in ways that are no longer beneficial to the firm and/or to the employee. It’s important to review plan specifics each year and adjust to changing legislation, regulation, industry trends, and societal needs.
3. Consider the new fiduciary ruling. As of April 10, 2017 the Department of Labor will enact a new fiduciary rule that, as Investopedia puts it, “automatically elevates all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary, bound legally and ethically to meet the standards of that status.” This ruling directly impacts 401(k) plan sponsors and partnering managed account providers. The ruling requires plan sponsors to fully understand the role of account providers, clear and sign off on the advice provided, and ensure no conflicts of interest arise.
4. Is the 401(k) plan still suitable for participants? The beginning of each year is a perfect time to reevaluate and assess whether or not the current 401(k) plan offering is meeting employee needs. It’s important to look at both participants, those enrolled in the program, and non-participants, those who’ve elected to not enroll in the program for whatever reason. Are there new packages or offerings that may attract more employees to sign up? How are other companies handling 401(k) plans and what new incentives might you consider offering existing clients in the plan? Taking a moment to evaluate your current plan status and planning out how and where you want to end by this time next year is extremely helpful.
5. Craft a plan to combat cyber attacks. If you would have asked Target in early 2013 whether or not it should prepare for a cyber attack, you may have gotten a dramatically different response in the beginning of the year compared to the end of the year. As you may remember, Target was notoriously attacked during the 2013 holiday season, leaving hundreds of thousands of customer information – including credit card data, personal email addresses, and physical mailing addresses – exposed. The attack changed the landscape for how businesses protect their data and should have been a signal to all 401(k) plan holders to stringently protect sensitive participant information. If your company does not have a plan to combat cyber attacks in place already, you need to create one immediately.
6. Ensure target date funds are still on par. Within your 401(k) plan you may have a target date fund component. Essentially, a target date fund is a hybrid asset fund with an expected target date of maturity. For each plan participant, the target date fund may have a different ‘end’ date that signifies when funds are expected to be released during retirement for the participant. The fund comprises both stocks and bonds, and generally remixes portfolio allocation each year the participant nears retirement. Part of the DOL’s new fiduciary ruling requires plan sponsors to ensure target date funds fit with a plan participant’s needs. Things to check for include: whether or not target date funds are appropriate investments, grade of stocks and bonds, and market fit.
7. What responsibilities should be delegated? The new DOL fiduciary rule is certainly changing the financial industry landscape, particularly for those involved in retirement and investment services. Now, before the ruling goes into effect on April 10,2017, is a necessary time to evaluate what specific duties and roles each plan sponsor and each managed account provider should be responsible for. What, if any, duties can and should be delegated? To whom should they be delegated? These factors are paramount in the uncertain landscape and bear consideration.
8. How are retirement incomes factored into the plan? More and more employees of retirement age are choosing to continue working. Whether that’s in an entirely new field, continuing in a current position or industry, or in pursuing passion projects, retirees are staying in the workplace longer. How does your plan offer financial advising and assistance to plan participants who don’t plan to pull from or plan to only pull partial savings upon turning 66? Another area of consideration is how the Retirement Enhancement and Savings Act of 2016 will impact plan participants moving forward.
9. Are fee structures appropriate? It’s a good time to reassess whether your 401(k) plan sponsor fees are appropriate. Are the fees relative to the services and benefits provided fair? Do they make sense for plan participants? Are there ways to cut costs and/or needed add-ons that would be beneficial for participants? It’s the plan sponsor’s responsibility to dutifully ensure the correct plan and fee structure meet participants needs, objectives, and goals.
At TrueNorth Retirement Services, we can help make your journey easier. We believe in honesty, reliability, and hard-work. As fee-only fiduciary advisors, we sit on the same side of the legal table as plan sponsors providing sound investment advice. We listen to plan sponsors and understand your challenges. Our goal is to understand your needs and then try to create a plan to address those needs. We appreciate the opportunity to assist you, your company’s retirement plan, and your participants. For a free financial consultation, please call: (801) 274-1768 or email info@truenorthwealth.com.
