Mid-Year Prep for Review / Benchmark Analysis / Fiduciary Compliance
When it comes to your 401(k) Plan too many companies have a
“Set it and Forget it” attitude. Not good for your company, participants
and puts you at risk for your Fiduciary Responsibility.
Topics Discussed in this email:
- What is a 401(k) Plan Review
- Why you need a Benchmark Analysis
- How can a “Fiduciary Compliance” review reduce a possible Audit
- Hiring an outside group for Investment Education
- Mutual Funds can be hazardous to your plan results
- Replace your Target-Date Funds with Model Portfolio’s
- RFP Template to help your group get started
- Atlas Mid-Year 401(k) Newsletter Update
Mid-Year Prep Topics
What is a 401(k) Plan Review:
When you are either; Dissatisfied with your service, Not sure if your administrative fees are “in-line or reasonable”, complaints from participants about asset choices and/or fees, you need more investment education and its not being offered along with other service-related issues, its time to have a 401(k) Plan Review. Usually, most reviews include a Fiduciary Compliance Review and a Benchmark Analysis to create a “baseline”. The baseline is critical to know where you stand now. If you are going to send out RFP to other 401(k) Service Providers, you will be focusing on the main areas of improvement. We would also suggest a “participant survey” of 5-7 questions to garner feedback and help with the RFP and analyzing of 401(k) Service Providers.
Why you Need a Benchmark Analysis:
This analysis is fairly standard, but you should have a “independent analysis” every 1-2 years. This will use DOL (Department of Labor) data for reasonable fee and cost analysis info, along with comparison of peer data for both industry and business type. Lipper (or other) Data will be used to analyze the asset lineup and compare to peers and determine diversification scoring too.
Hiring an Outside Group “just” for Investment Education:
Every human resource survey about 401(k) or any other retirement plan identified that “lack of education” or “lack of investment advisor” availability as a Top 5 issue as to why they don’t like their plans. Education and Investment Guidance is critical to any successful plan and participant satisfaction. We never understood why changes weren’t made when it was determined that the service provider wouldn’t offer or provide more education or investment guidance to participants. You should provide a Participant Survey of 5-7 questions to determine if this is an issue in your organization. If this is your situation and your 401(k) service provider won’t help, it’s time for a change.
Mutual Funds can be hazardous to your plan results:
Do you understand how Mutual Funds in 401(k) Plans really work? We have a PowerPoint presentation that discusses the dissecting of 401(k) Plan Fees (contact us for a brief PPT presentation). If you don’t know and don’t pay attention, you are at a high-risk to be audited or have a citation submitted to the DOL by a participant. A Benchmark Analysis is a tremendous help to compare fees and see if you are in the right class of shares if you have Mutual Funds. If you have ETFs, you are probably fine already, just need to have 2-3 ETF peer comparisons on a quarterly or annual basis to verify fees and performance.
Replace your Target-Date Funds with Model Portfolios:
Target-Date Funds have a very long history of not performing as expected. If you have a “Bundled Solution” and all your assets are provided by one(1) investment house, you may not have the flexibility of ripping and replacing that asset. If your service provider offers Model Portfolio’s, you are better off because they can usually be managing more effectively and changes can be made to the make-up of the portfolio much quicker. We have a PowerPoint presentation that discusses the dissecting of Target-Date Funds (TDFs), their fees, performance and how they confuse participants when they need to make a decision that is best for them (contact us for a brief PPT presentation). Look at the Holdings of most TDFs, it is usually at least 2-4 levels deep as a “fund of funds”. It’s very difficult to understand what is actually invested in each TDF because of the “fund of funds” investment style, or even if its the right fit for you.
Atlas RFP Template:
RFP (Request for Proposal) Template. If you want a “sample” of questions to ask in your next RFP, please contact us and we will email you a copy. We can also include a “Plan Self-Assessment” PDF that will help you score your own plan to determine how well your plan is performing and if you are doing some of the necessary fiduciary compliance tasks.
Atlas Mid-Year 401(k) Newsletter Update:
The newest edition is expected to be sent out the week of July 16th. If you never received a Atlas 401(k) Newsletter, let us know and we will make sure you are added to that list.
Atlas – Why we got into the 401(k) Business