Why Regular 401(k) Benchmarking Matters for Your Business

Maintaining a retirement plan is a lot like taking care of a well-built home. Even if everything looks fine on the surface, regular inspections are crucial to ensure everything functions optimally. Just like your home, your 401(k) plan needs attention to stay compliant, cost-effective, and aligned with your participants' goals.

Understanding 401(k) Benchmarking

401(k) benchmarking involves comparing a plan’s features, fees, investment performance, and participant outcomes against industry standards. It ensures that your fees are reasonable and transparent, and helps document fiduciary compliance, giving peace of mind to plan sponsors.

The Shift to Frequent Reviews

With rising fiduciary lawsuits and evolving market conditions, the industry is moving from reviewing plans every three years to conducting annual reviews. This proactive approach helps identify and mitigate hidden risks that could undermine the plan's effectiveness.

Evaluating Fees and Performance

Regular benchmarking can reveal unnecessary fees that might be draining retirement accounts. Imagine the difference a small fee reduction can make over decades. A switch from a 1.5% fee to a 0.1% fee can add significant savings for participants. By evaluating investment performance, benchmarking opens doors to better alternatives that could improve participant outcomes.

Participant Engagement and Readiness

Benchmarking assesses how engaged participants are with their retirement plans and how prepared they are for retirement. It aligns well with broader benefits benchmarking trends, ensuring your plan meets current labor market demands and employee needs.

Fiduciary Compliance and Peace of Mind

Documenting your due diligence through benchmarking not only fulfills your obligations under the Employee Retirement Income Security Act but also strengthens fiduciary defensibility. This process uncovers opportunities for strategic enhancements, such as auto-enrollment, Roth features, or improved fund lineups. For instance, one employer saw a 34% increase in enrollment by implementing auto-enrollment and escalation.

Ultimately, regular 401(k) benchmarking is about staying ahead of potential problems and fostering proactive plan management. It's an empowering tool for plan sponsors to ensure their retirement offerings remain competitive and beneficial. Seeking expert help for these reviews can further bolster the plan's effectiveness, preparing your company and its employees for a secure financial future.