Optimize Your 401(k) Plan by Avoiding Four Common Mistakes

Last month, we discussed four key advantages of offering your team a 401(k) plan, and how easy it can be to do so with the right partner by your side. This month, we’re diving into plan optimization and how to avoid some common employer mistakes.

Why It’s Critical to Fine-Tune Your 401(k) Strategy

A 401(k) is a staple in the world of employee benefits, providing both employers and workers with numerous advantages. However, you might not fully realize those advantages if you’re making common mistakes. The good news is it’s easy to optimize your 401(k) plan to better support your goals.

Ideally, offering a 401(k) plan should help you achieve the following goals:

• Provide tax-advantaged compensation that provides a better value than cash salary and wages.
• Offer a competitive employee compensation package to compete for top talent.
• Show employees that you value them to boost employee engagement, productivity, and retention.
• Reduce financial stress, enabling employees to focus on their work without distractions.

While offering a 401(k) plan can absolutely help you achieve all these goals, success is not automatic and is highly dependent on having a smart strategy. If you don’t structure your 401(k) plan competitively with reasonable fees, or your workers don’t understand or appreciate the plan, you may not see the return on investment you expected.

Is Your 401(k) Strategy Underperforming?

Employers who offer 401(k)s sometimes encounter these challenges:

• Employee participation may be lower than expected. Data from the BLS shows that the participation rate for employer-provided retirement plans is 75%. A participation rate considerably lower than this could indicate a problem.
• Employee satisfaction may be lower than you expected. Since many workers are trying to catch up on retirement savings, they should be happy to have an employer-sponsored retirement plan. Dissatisfaction with the plan indicates a problem.
• The burden on HR may be higher than you expected. HR professionals already have a lot on their plates. When offering a retirement plan, it’s important to have a partner to help you manage the details in accordance with fiduciary requirements.
• The overall costs may be higher than you expected. Retirement plans come with fees, but these fees should be reasonable.

If you’re facing one or more of these issues, you might be thinking about abandoning your 401(k). That could be a big mistake. Employees tend to react poorly when their employers take benefits away. Discontinuing a 401(k) plan could cause some of your best workers to quit. Besides, you presumably started offering the 401(k) plan because you thought it could help you achieve your goals. To achieve those goals, you just need to tweak your strategy a little.

Four Common 401(k) Mistakes and How to Avoid Them

When a 401(k) is not meeting a company’s objectives, it usually comes down to four common mistakes.

Mistake #1: Employee education is lacking.

If employee participation or plan satisfaction n is low, a lack of employee education could be to blame. Retirement plans are confusing. Making matters worse, many people don’t take the time to read through dense plan information. Employees may not understand how the plan works, which may lead them to avoid participation.

How to fix this problem: Provide easy-to-understand education in many different formats.

• Ask your 401(k) provider to conduct webinars or host brown bag lunch sessions to educate team members and answer questions.
• Provide an FAQ sheet along with some real-life savings scenarios to demonstrate the value.
• Allow employees to meet with the plan provider and ask questions one-on-one.
• Consider sending short emails or text messages to communicate key points and enrollment timelines.
• Within your own team, foster top-down support, and encourage leaders to discuss the plan with their teams.

Mistake #2: The fees are excessive.

Excessive fees increase plan costs and make your strategy less effective. Employees may be unhappy with the plan because they see the fees as a waste of money. Plan sponsors may even face lawsuits over excessive fees.

How to fix this problem: Don’t just assume the fees you’re paying are acceptable. Find out what normal fees are by using fee benchmarking. This will provide the insights you need to verify that you’re paying reasonable costs or to negotiate better costs. Taking this step is also an important way of fulfilling your fiduciary duties and avoiding liability.

You don’t have to figure this out alone. Your group plan provider should have access to fee benchmarks and should help you compare your options and identify the best choice for your business.

Mistake #3: The company takes full responsibility for fiduciary liability.

Lawsuits over mismanagement of retirement plans are common. Part of the problem is that most companies are not experts in managing retirement plans. As a result, they may make mistakes, or overlook key steps, which could lead to litigation.

How to fix this problem: Employers don’t have to accept 100% of the fiduciary liability involved in offering a 401(k). They can outsource this to a benefits partner that has the expertise to meet fiduciary requirements.

Mistake #4: You’re not getting enough support from your retirement services provider.

The retirement services provider you select has a significant impact on the effectiveness of your 401(k) plan. Although all retirement services providers should fulfill the basic task of providing a retirement plan for your employees, not all providers go above and beyond to support your success. Furthermore, many personal financial planners do not specialize in providing 401(k)s – they simply happen into the role when a personal client asks about options for their small business.

How to fix this problem: If you’re not seeing the results you want from your retirement services provider, consider whether a different partner could achieve more. Ask yourself whether your current partner provides the level of expertise and the types of services you need. For example, does your current partner …

• Provide investment analysis, plan design, fee benchmarking, and provider negotiations to help your plan perform well without excessive fees?
• Facilitate employee education, rather than expecting you to handle all this on your own?
• Offer fiduciary compliance and target date fund consulting to help you comply with regulatory requirements?

If your partner doesn’t provide all the services above, it may be time to switch. On the other hand, if your partner already offers these services, you may just need to make sure you’re using all the resources available to you. Reach out to your retirement planning services provider to find solutions.

The Altura Difference

The team at Altura Financial Advisors specializes in 401(k) plans for businesses of all sizes. We have the knowledge, expertise and track record to make your benefit package a success.

While many advisors take compensation for the plan and then help only at an administrative level, we go above and beyond by providing support at the service level.

We will meet with your employees individually – charging no individual fees. We also help with investment analysis, plan development, fee benchmarking, provider negotiations, fiduciary compliance, and target date fund consulting, which significantly reduces the burden for HR teams.

Are you ready to experience the Altura difference?
Call Tyler Hadley at 801-214-9900 to start a conversation.