Maximizing your 401(k)

Selecting and maintaining the right 401(k) plan provider is difficult for most business owners. There are many considerations including investment performance, fees, employee education and fiduciary liability. Selecting the right financial adviser is equally crucial in maintaining a high-quality 401(k) plan for your company and employees.

Smart Business received advice from ChamberChoice, which provides options and consultation.

What is the hallmark of a good 401(k) plan?

First and foremost, you want to select a financial adviser who will invest the time to understand your business. The adviser who listens to your company’s goals and who can translate these goals to a responsive marketplace will provide your company with the most appropriate 401(k) plan for you and your employees.

Could you explain some of the important value-added components that should be part of the 401(k) plan?

1. Fiduciary Responsibility. The financial adviser that you select should help you understand and satisfy your fiduciary responsibility. As a plan sponsor, you must meet certain fiduciary obligations as required by ERISA (Employee Retirement Income Security Act of 1974) and the U.S. Department of Labor. Under ERISA, it is important for fiduciaries to be able to demonstrate that a prudent process has been properly established and adhered to, and that significant decisions affecting the plan have been adequately documented. We provide our clients with a Fiduciary Audit File Checklist that is intended to be a general guide for assisting 401(k) plan fiduciaries in developing a plan documentation file. If your 401(k) plan is flagged for an audit, it is crucial that your plan documentation file is in order.

2. Employee Education. Along with fiduciary responsibility, the financial adviser associated with the 401(k) plan should help employees understand how much money they need to save in order to meet their retirement goals. Additionally, the financial adviser should review employees’ investment choices quarterly or at least semiannually to confirm that they are properly diversified according to their retirement goals, risk tolerance and time horizon. It is very important that your employees receive this education.

3. Investment Performance. There are many factors that could decrease the quality of the investment choices available through your 401(k). The financial adviser should be proactive in informing the plan sponsor if any of the investment choices are underperforming.

What is a common misconception that business owners have about 401(k) plans?

We see a lot of companies that have put together a great 401(k) plan for their employees but then fail to review the plan as their company grows and as the 401(k) marketplace continues to change. As the plan assets grow and the number of participants grows, companies should review their 401(k) plan to confirm that they have the best plan in place for their company.

What should employers do if the financial adviser associated with their 401(k) plan is not up to par?

If an employer or plan sponsor is happy with the 401(k) plan provider but does not feel that the financial adviser is providing the appropriate service to the 401(k) plan, they can simply change financial advisers without affecting the current plan. Is your current financial adviser well-compensated but providing little more than an annual visit? If so, consider the added value that your company should be receiving.

The key to maximizing the relationship with a financial adviser is to know what to expect, and that you need more than an annual visit. A quality adviser-client relationship is a proactive partnership that ensures the best long-term value and service for the company and its employees.

For more information, or to receive a Fiduciary Audit File Checklist, contact Amy Broadbent, senior consultant for ChamberChoice at (412) 456-7250.