When it comes to retirement plans, the mistake most plan sponsors make is not taking a comprehensive approach to plan design and management, an approach that incorporates the company’s goals into the goals of its retirement plan.
“Fifteen years ago, a company might have reached out to any financial adviser to set up a retirement plan, concerned mostly with the matching contribution,” says Robert Klug, regional executive at The Huntington Private Bank. “There might have been a general idea of what the company wanted to accomplish with a plan, but it likely didn’t think too deeply about the objectives relative to its participants or the company. That’s changing now.”
Today, it’s important that companies ask from the outset why they want a plan and what they hope they can achieve through it. Plans created without specific intentions will inevitably fall short in key areas. Companies could run into fiduciary governance issues, have a lackluster investment menu, poor participant engagement or have participants who are unable to realize the full benefits of the plan.
Companies could also run into challenges with administration, whether internally or externally with vendors, which can be costly to correct. That’s why it’s so important to put a lot of thought and attention into plan design from the start.
Smart Business spoke with Klug about purpose and design in retirement plans.
What services are available to help companies design the right plan for their organization?
More and more, companies are engaging with advisers who specialize in retirement plan design, even companies that have relatively small plans. That’s because it’s become such a complex proposition. Plan advisers can help guide companies through the myriad services available to sponsors to help them with a plan’s ongoing management.
How often should companies review their retirement plan and what should they look for to understand how well the plan is performing?
Plan sponsors should, at minimum, conduct a comprehensive annual plan review. Through it, companies should look over all of their fiduciary responsibilities to ensure they’ve been covered, and review the investment menu as well as participant engagement rates to make sure they’re getting the full use from the plan.
And while companies conduct their annual reviews, they should always look to see that the plans elements align with its goal. If the goal was adding participants, did that happen? Was the purpose a higher average balance? Good investment performance? A plan that’s easy to administer? What progress, if any, has been made toward those ends?
These reviews are also an opportunity to evaluate the retirement plan services providers. Assuming a company has plan goals that align with its overall corporate goals, it should be easy to see if the service providers are helping the company achieve those goals. If not, take a look at what else is out there.
How should companies go about setting retirement plan goals ahead of designing a plan?
Goals are unique to each company because they’re situational. For example, a manufacturing firm in a tight labor market might be looking for ways to keep the employees it’s trained who might get offers elsewhere. That company’s goals might be to increase enrollment and engagement to make sure employees understand all the benefits it offers.
A small professional services firm, on the other hand, might find it more effective to improve the average balance of its retirement benefits.
There are advisers who have experience designing retirement plans for companies in specific industries. That’s important because retirement plans aren’t just a product to be bought and sold. They’re a benefit that needs a thoughtful approach.
Plan sponsors are responsible for making sure that all facets of the plan get the necessary attention they require. If a plan sponsor isn’t sure they’re getting everything covered, they should engage with an adviser, even if it’s just to get a second look to validate that everything is in order.
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