Is Your Company’s 401(k) Plan Competitive?
Why Every Business Should Benchmark Its Retirement Plan
Many business owners assume that once their 401(k) plan is established, there is little else to do beyond ensuring contributions are deposited and annual compliance requirements are met.In reality, one of the most important fiduciary responsibilities of sponsoring a retirement plan is periodically evaluating whether the plan remains competitive, cost-effective, and in the best interest of participants.
This process is known as 401(k) benchmarking.
What Is 401(k) Benchmarking?
401(k) benchmarking is the process of comparing your company’s retirement plan against similar plans to determine whether it continues to provide value for both the employer and employees.A comprehensive benchmark evaluates much more than investment performance. It examines the overall health of your retirement plan, including:
- Investment expenses
- Recordkeeping fees
- Advisor compensation
- Fund performance
- Participant outcomes
- Employer matching formula
- Plan features
- Fiduciary oversight
- Employee participation rates
Why Is Benchmarking Important?
Retirement plans evolve over time. New investment options become available, fees change, regulations are updated, and employee expectations continue to grow.A plan that was competitive five years ago may no longer be competitive today.
Regular benchmarking helps employers answer important questions:
- Are we paying reasonable fees?
- Are our investment options performing as expected?
- Are employees participating and saving enough?
- Does our advisor provide sufficient value?
- Are we meeting our fiduciary responsibilities?
- Could another provider improve participant outcomes?
Fiduciary Responsibilities Matter
Under federal law, employers who sponsor a 401(k) plan have fiduciary responsibilities.One of those responsibilities is ensuring that plan fees are reasonable and that service providers continue to provide value.
Benchmarking helps document that the plan sponsor is periodically reviewing the plan rather than simply leaving it on autopilot.
What Areas Should Be Benchmarked?
A quality benchmarking review typically evaluates:Plan Fees
Many employers are surprised to learn exactly what participants are paying.Benchmarking reviews:
- Investment expenses
- Administrative costs
- Recordkeeping fees
- Advisor compensation
- Revenue sharing arrangements
Understanding total plan costs is an important part of prudent fiduciary oversight.
Investment Lineup
Are employees offered an appropriate mix of investments?A review examines:
- Fund performance
- Expense ratios
- Diversification
- Risk profiles
- Target-date fund quality
- Underperforming investments
Employee Participation
A successful retirement plan isn’t measured only by investment performance.Questions include:
- How many employees participate?
- Are they contributing enough to receive the employer match?
- Are auto-enrollment and auto-escalation available?
- Are employees receiving ongoing education?
Helping employees prepare for retirement benefits both participants and employers.
Plan Design
Sometimes small plan design changes can improve participation while helping employers achieve their business objectives.Benchmarking may identify opportunities involving:
- Employer matching formulas
- Safe Harbor provisions
- Profit sharing
- Eligibility requirements
- Automatic enrollment
- Automatic contribution increases
How Often Should a 401(k) Plan Be Benchmarked?
Most retirement professionals recommend conducting a benchmarking review every two to three years, or sooner if:- Your company has grown significantly.
- Your advisor has changed.
- Plan fees have increased.
- Employees have raised concerns.
- New retirement plan features have become available.
- You have not reviewed the plan in several years.
Benefits of Benchmarking
A comprehensive review can help employers:- Identify opportunities to reduce plan costs
- Improve participant investment options
- Strengthen fiduciary documentation
- Increase employee participation
- Evaluate service providers
- Improve retirement readiness for employees
- Demonstrate prudent oversight
Is Your 401(k) Due for a Benchmark Review?
Many employers have never completed an independent benchmark of their retirement plan.A benchmarking review does not necessarily mean changing providers. Often, it simply provides valuable information that helps employers make informed decisions.
At AMFG Wealth Management, we provide independent 401(k) benchmarking reviews designed to help employers understand how their retirement plan compares to similar plans and identify opportunities for improvement.
Whether your goal is reducing costs, improving participant outcomes, or fulfilling your fiduciary responsibilities, benchmarking can provide valuable insights.
Request a Complimentary 401(k) Benchmark Review
If you sponsor a retirement plan and would like to understand how your 401(k) compares to similar plans, contact AMFG Wealth Management to request a complimentary benchmark review.Our analysis can help you evaluate:
- Plan fees
- Investment options
- Fiduciary processes
- Participant outcomes
- Overall plan competitiveness