James Zahansky, AWMA®
Principal/Managing Partner, Investment Advisor & Chief Goals Strategist
As an employer, offering a 401(k) to your employees is a great way to retain a motivated workforce while attracting new talent. But as a plan sponsor, remember that you have a fiduciary duty to ensure that all fees paid by the 401(k) are reasonable, according to the Department of Labor. An effective way to judge these costs – and to ensure your plan is still a good fit for your business overall – is by asking your financial professional to help you benchmark your 401(k).
The mid-year point is a particularly good time to do this, because at the same time, you can see if you want to make any changes to your plan ahead of the open enrollment period and the new year. You can also reaffirm the value of your plan and the benefit to your employees. Here's how to do it.
What is 401(k) benchmarking?
Benchmarking is a way of organizing, reviewing, and evaluating a 401(k) to learn if it is competitive as well as a good fit for a business. Solid benchmarking may also consider the range and quality of services offered, which can help you make an informed decision about what the plan provides or what may need to be updated to make it a better fit for your business.
Following are a few items your financial professional may evaluate when benchmarking your 401(k).
- Costs and Expenses: As your company's 401(k) grows, you can expect that the costs involved in maintaining it will grow as well. Some providers do not automatically adjust their plan fees, and in some cases, the plan may outgrow the provider.
- Services Offered: Much like plan costs and expenses mentioned above, as your company continues to change and grow, so will its needs. In some cases, evaluating the services offered can uncover if a business has outgrown its plan.
- 401(k) Design: Your financial professional can evaluate your 401(k)’s design and features to determine potential opportunities for improvement. This could include the terms in the plan document, auto-enrollment or, in some cases, Roth features.
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Once the benchmarking is complete, you’ll need to evaluate the results. In particular, you'll want to make sure your business is comfortable with fees being charged or the investment options offered. This is also a good time to take stock of additional features, such as automatic enrollment or automatic escalation. For example, does your 401(k) include a Roth option or the ability to make post-tax contributions? And if not, is this something your business needs?
Decision-Making Based on Benchmarking
Once you and your financial professional have gone through the above steps, it's time to make a determination. If benchmarking your 401(k) shows that you've found a great fit, then no further action may need to be taken. But if your plan doesn’t fulfill your company's needs, it may be time to make a change.
It may be beneficial to approach your plan's provider with the findings of your 401(k) benchmark. Providers are often likely to work with you to find the best fit for your company, especially when provided with documentation of where their product fails to meet the needs of your business.
Finally, remember that a comprehensive benchmark of your plan can be helpful, but it will no doubt take some time to complete. However, the value inherent in understanding how you measure up to others in your industry while also fulfilling your fiduciary responsibilities can go a long way toward your business’s long-term success.
If you’d like help benchmarking your company’s 401(k) plan, and in building an overall strategic financial plan for the betterment of your business as well as your own personal finances, contact us. We help business owners achieve their goals, from formulating a growth strategy to developing an exit strategy for business succession.
Presented by Principal/Managing Partner James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259, 860.928.2341. http://www.whzwealth.com (http://www.whzwealth.com) These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specic tax or legal advice.