Since the launch of the first target date fund (TDF) in 1993, its story has been an elegant and simple one-select the date around when the participant plans to retire and the fund will take care of everything. As the retirement date approaches, the TDF will rebalance to a more conservative mix, and manage that mix not only into retirement, but throughout it as well. The TDF is a “one stop shop” where the participant can “set it and forget it.” It was that easy; pick a fund corresponding to the participant’s retirement date and they were done. If only it were that simple. June 2015
On Tuesday January 28th at 8:30am we will be running a seminar at the ABC Delaware Classroom titled “Retirement Plan Fees-Are you Getting the Best Deal?” HRCI credits will be available, here are some of topics that we will be discussing:
Do you know what you are being charged in retirement plan fees?
Making Sense of Retirement Plan Fees
How can you determine if your fees are reasonable?
How much does it cost to run a 401k plan? What am I receiving as service? Among other duties enumerated by the Department of Labor, 401k plan fiduciaries have a “responsibility to ensure that the services provided to their plan are necessary and that the cost of those services is reasonable.” That’s not exactly a hard metric to measure what your plan should cost. Typically fees can be in the range of 0.5% to as high as 5% of your account balance. New regulations that went into effect in 2012 require 401k plans to provide a more transparent breakdown of their fees to employers and employees. While this may help, confusion is still the norm. See 401k Plan Fees
Participant education is one of the most neglected aspects of a 401k plan. The goal for a successful plan should be the same for the sponsors and the participants; to reach retirement with the accumulated assets they need. Studies have shown that nearly one in four eligible employees do not contribute to their company’s 401k plan. Studies also show that even actively participating employees often have contribution rates and investment allocations inconsistent with their long term goals. See 401k Education Program
“Out of sight out of mind” is not how you treat an important piece of equipment. Regularly scheduled maintenance ensures vital machinery and tools perform at optimal levels. The same principles apply to your 401k. Putting in place a Service Plan that addresses the essential elements of your plan can work the same way.
The Service Plan should focus on the main objectives of addressing the fiduciary needs of the 401k sponsor and by extension address the needs of both the sponsor and the participants. A well run plan serves everyone’s best interests. 401k Service Plan
The fiduciary responsibilities of a 401k plan sponsor on their face seem pretty straight forward. The U.S. Department of Labor lists the essential elements.
Each plan has certain key elements. These include:
- A written plan that describes the benefit structure and guides day-to-day operations;
- A trust fund to hold the plan’s assets1;
- A recordkeeping system to track the flow of monies going to and from the retirement plan; and
- Documents to provide plan information to employees participating in the plan and to the government.
The basic framework of a 401k plan is easy to put in place. For it to actually function to help your organization and your employees to more effectively work toward a good retirement outcome requires disciplined execution of a process that focuses a few fundamental concepts. Over the next several weeks we will be posting a series of articles highlighting those concepts and how your organization can put in place the processes to make your 401k plan more successful. Essential Elements of a Successful 401k