Why you should be Benchmarking your 401(k) Program
401(k) plans are the most popular employer-sponsored retirement plans in America, and for good reason, as they can be greatly beneficial to their participants. However, as with any employer-sponsored benefit plan, the degree to which a given 401(k) program is effective depends on the program’s quality and pricing. Given the fact that retirement plans and the fees associated with them are always changing, getting a good assessment of the quality of a plan can be difficult. How does one determine when a 401(k) plan is working as it should, and whether it is worth the cost?
If you want to ensure that you are providing your employees with a high-quality plan, it is important to regularly benchmark your 401(k) program against market norms. A benchmarking report will include detailed information about the complexity of the plan, the fees that plan participants (i.e., your employees) will have to pay, and the costs that you will face as the plan’s sponsor.
How is this information useful, and why is benchmarking so important? In short: because it can protect your employees and your company itself in ways you may not have considered.
- Benchmarking ensures that your employees are getting the most for their money
As mentioned above, benchmarking reports include information not just on the fees faced by the employer, but also the fees that will need to be paid by those participating in the plan. Having this type of information handy makes it easier to compare the expenses your employees will face versus the benefits they will receive, which can provide a clearer picture of the plan’s overall quality and value. It can also help highlight unreasonable or unnecessary fees that reduce that quality and can be seriously detrimental to those who participate.
- Benchmarking helps your company avoid legal issues and meet government standards
When running a business, it pays to be careful and perform one’s due diligence wherever possible. Keeping a close eye on things now can save one from costly audits and legal disputes later on. As mentioned in the previous section, a benchmarking report can call attention to unreasonable fees that have been snuck into your plan. If left unchecked, these fees can take a serious financial toll, and victims may take legal action. According to the Department of Labor, many such cases end in favor of the employees, and 75% of 401(k)-related audits result in some sort of fine or penalty for the plan’s sponsor. Collecting benchmarking reports will not only help you identify these fees when they pop up; it will also clearly demonstrate your commitment to due diligence and looking out for your employees’ best interests.
One must also consider government standards and regulations surrounding 401(k) programs. The Department of Labor requires employers who offer 401(k)s to monitor the cost of their programs. As stated previously, benchmarking reports include in-depth analyses of all of the fees associated with the program, which can make it easier to compare your company’s 401(k) to market norms, and thus keep in line with DoL policy.
- Need another incentive? Benchmarking can be done at little to no cost
In most cases, your 401(k) benefits advisor will be able to get you a benchmarking report free of charge. Even when this is not possible, third-party benefits providers can be hired to draw up a benchmarking report for only a minimal fee.
As with any financial matter, it is important to keep a close eye on the costs associated with your employer-sponsored 401(k) program. Doing so benefits both your employees and your company itself, and at little to no cost to you, it is definitely worth the effort.
Want to do even more to ensure that you have a top-notch 401(k) program? Request bids from a handful of 401(k) providers from time to time, or ask your benefits advisor to do so. Comparing these bids to the fees you currently pay can help you further assess the quality of your plan versus the other plans on the market and make changes as needed to ensure that you are getting the best program for the best price.