As a business owner, you juggle many different priorities — some of them are specific to the long-term growth of your business, while others are critical to your daily operations and customer expectations. But one thing is certain: You couldn’t keep the ship moving forward every day without your employees.
One of the best ways to attract and keep top talent is to invest in an employer-sponsored retirement plan. Retirement plans such as the 401(k) serve as competitive hiring tools, and before accepting a job, some savvy candidates compare eligibility standards, match rates and other plan design features that differ from company to company. Post-hire, retirement plans are certainly one of the most popular vehicles companies use for helping employees create financial security for life after they’ve left the workforce.
Though the benefits of sponsoring a retirement plan abound, it’s a far more serious undertaking than some employers may realize. If you sponsor a plan, you’ve accepted a fiduciary responsibility under the Employee Retirement Income Security Act of 1974 (ERISA), which establishes important regulatory standards for protecting participants’ retirement assets — and your adherence to those standards is critical to your business and employees. In recent years, federal lawmakers have created a “new normal” for compliance, which includes routine fee benchmarking to ensure that plan fees are reasonable as well as regular committee meetings to monitor plan investments, features and activity. It’s also important for plan sponsors to document these ongoing processes, since ERISA’s standards focus more on a “prudent process” than “prudent results.”
So how do you know if your retirement plan and approach to managing it are sound and compliant? If any of the following items resonate with you, it’s time to re-evaluate your plan advisor and process:
1. “Our plan is ‘free.’”
The use of revenue-sharing — and its subsequent lack of transparency — is on the decline. Your advisor should provide you with complete transparency around your plan fees and their various components. They also should benchmark of all those components every three years, at a minimum, or more frequently if your plan demographics and/or asset levels change dramatically. Fee benchmarking not only is a best practice, but it’s also imperative to fulfilling your fiduciary responsibilities.
2. “We use mostly index funds so we don’t need to monitor our plan investments.”
This is a common misperception held by many plan sponsors. Index composition and fees can vary widely across fund managers and even using low-cost funds doesn’t let you off the hook from your fiduciary responsibility, as you’re still expected to prudently monitor your plan investments and fees.
3. “We did an exhaustive review of our plan five years ago.”
In the past, reviewing your plan every few years may have been the norm, but with the industry evolving at a rapid pace, you may be surprised to find you’re not up to speed on new best practices or what’s involved in offering a competitive plan. Make it a priority to review your retirement plan on a regular basis to reduce risk and ensure that it continues to meet your employees’ needs. Your review process may include your plan’s investment lineup, trends in participation and contribution rates and fee benchmarking. If your advisor doesn’t offer retirement plan analysis and review as a service, you should think twice before continuing the relationship.
4. “Our participation rate is low due to our demographics.”
In the past, it was widespread practice to justify and dismiss low participation and/or deferral rates due to demographics, turnover or other employee-related factors. Today, more plan sponsors are committed to improving plan participation by utilizing third-party financial wellness services or hiring comprehensive retirement plan advisors who provide one-on-one employee meetings. Through these meetings, plan advisors can better understand the obstacles employees face in saving for retirement or participating in their plan, and put them on the road to long-term financial security.
5. “By hiring a retirement plan advisor, I can shift my fiduciary responsibility.”
You can’t shift your fiduciary responsibility, but you can delegate it, depending on who you hire as your plan advisor. In light of lawmakers’ decision to stall the U.S. Department of Labor’s (DOL) fiduciary rule last year, now is an appropriate time to ask your advisor if they serve as a fiduciary to your plan. Your advisor’s fiduciary status should also be disclosed in your contract. If your advisor doesn’t uphold the fiduciary standard of care, you, as a plan sponsor and committee member, are solely responsible for serving as a fiduciary to your plan. This means you are also responsible for making decisions regarding your plan, for which you can be held personally and professionally liable.
While it is impossible to eliminate your fiduciary responsibility, you can mitigate your risks by following a prudent process around your plan oversight. And adhering to your fiduciary duty doesn’t have to be scary or difficult, so long as you follow a few best practices and retain the support of an experienced and competent advisor.
Failing to be diligent not only puts you and your business at risk, but it also hurts your employees, too.
Do you think it’s time to re-evaluate your retirement plan? Contact our team to sign up for a complimentary plan analysis today.
Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services and fees is set forth in Wipfli Financial’s current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.