Make the effort to manage 401(k) plans responsibly and earn loyalty

A growing number of employers automatically enroll employees in 401(k) plans based on evidence that shows it’s simply a more effective way to get them to save for their retirement.

People are 14 times more likely to save money on a regular basis if it’s automatically deducted from their paycheck than when they are left to their own devices, according to research by the National Association of Plan Advisors, says Jeffery Acheson, managing partner, advisory services at Corporate and Endowment Solutions Inc.

“The stick rate of people who are automatically enrolled in their company’s 401(k) plan is close to 90 percent. People are often just as apathetic about opting out of a 401(k) plan as they are about opting in,” Acheson says, citing a 2012 Blackrock Retirement Survey.

Smart Business spoke with Acheson about how employers can responsibly manage their 401(k) plans.

What is the biggest challenge to managing a 401(k) plan for employees? 

The Employee Retirement Income Security Act (ERISA) of 1974 requires plan sponsors and fiduciaries to carry out their responsibilities prudently and with a duty of loyalty to the participants. Down deep, employers know they need to pay a lot of attention to their retirement plans, but many times they are too busy with other aspects of their business. It needs to be a higher priority. The Department of Labor enforces the many fiduciary requirements that businesses need to adhere to.

What are some best practices for employers to manage their 401(k) plans? 

Develop a detailed investment policy statement that lays out the process and procedures you follow in providing fiduciary oversight of the plan you are managing. Be sure that if the Department of Labor ever does come knocking on your door, you have documented evidence of your adherence to the many requirements mandated by ERISA.

Second, make sure the fees in your plan benchmark well against alternatives in the marketplace. You don’t have to hire the lowest cost providers, but as a plan fiduciary overseeing your plan, you have to be able to ascertain and document that you have deemed your plan’s fees fair and reasonable for the services provided.

How often should a company compare its plan against what is offered by other firms? 

The rule of thumb is every three to five years you should re-evaluate your existing plan against market alternatives. Most ERISA attorneys would agree that is an acceptable length of time to show responsible fiduciary oversight. When you do look at other options, three things can happen. The data will come back and tell you that you are doing all the right things and there isn’t much of anything you should be doing differently. The data may come back and say that you’re doing OK, but highlight improvement potential that if addressed in a few small areas, would allow you to do even better. Or, the data could tell you that your plan is not up to acceptable and defensible standards.

From a plan sponsor standpoint, these are all good outcomes. Either you’ve validated that you’re doing a good job, received some good tips on how to do it even better or gotten a much-needed alert to provide a stronger plan for your employees.

What do employees want in a 401(k) plan? 

It takes a lot of money to get through retirement and with people living longer and the better we get at health care, the more it exacerbates the retirement income security problem. If you want your employees to consider your retirement plan a real benefit, you have to show it’s an important part of your overall compensation package. That starts with how much attention you pay to the plan in trying to make it the best it can be at your company’s intersection of human and financial capital.  

Jeffery Acheson offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC, offers investment advisory products and services through AXA Advisors, LLC, an investment advisor registered with the SEC, and offers insurance and annuity products through AXA Network, LLC, which conducts business in California as AXA Network Insurance Agency of California, LLC, and conducts business in Utah as AXA Network Insurance Agency of Utah, LLC. Corporate and Endowment Solutions, Inc. is not a registered investment advisor and is not owned or operated by AXA Advisors or AXA Network. 

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