Your 401(k) plan is one of the most important employee benefits your company offers. When your plan works well, it boosts employee retention and recruitment efforts, while offering your employees a great way to save for retirement.
When your employee 401(k) plan isn’t functioning as it should, your business may suffer. Dissatisfied employees might leave when they realize they can get better benefits elsewhere. Additionally, you could even run into regulatory compliance issues.
Learn five warning signs to watch out for that might indicate your employee 401(k) plan is in trouble.
1. Low Participation Rates
What percentage of your eligible employees are participating in your plan? If that number is less than 80%, you might have cause for concern. If it’s less than 50%, your plan is definitely in trouble.
Low 401(k) plan participation rates typically mean your employees don’t see much value in your plan and therefore don’t enroll. This creates a snowball effect that drags your participation rates down even further as new employees aren’t encouraged by their peers to participate.
When your employees don’t participate, you’re missing out on a valuable tool that should be encouraging them to stay with your company longer.
2. Limited Investment Options
A lack of investment options means your employees have less control over their money and their future. Additionally, it’s more difficult to tailor their 401(k) investments to their own financial goals.
Plans with limited investment options tend to perform poorer than plans with an array of options, which means you and your employees see fewer gains. This lack of growth doesn’t just threaten your employees’ retirement futures; it threatens your employee retention.
3. No Formal Advisor Due Diligence Process
When selecting your plan advisor and trustees, you need to go through a formal due diligence process to make sure you and your employees work with experienced, objective advisors.
Advisors who receive direct compensation from the fund company or proprietary funds may not always be giving you the most objective advice. Other advisors simply might not have the depth of knowledge and experience needed for retirement investing and plan management.
When reviewing your plan advisors or potential new advisors, make sure you ask about their experience, their resources and whether they receive compensation from certain funds or firms.
4. A Lack Of Awareness Of Your Fees And Expenses
Many fees are associated with administering an employee 401(k) plan. These fees affect both your company and your employees. Some of these fees go directly to your plan’s advisors. Others go to different funds your plan’s assets are tied up in.
The key is to know where your fees are going and how they measure up to comparable plans. If your plan lacks transparency, that could be a warning sign.
5. Little To No One-On-One Guidance
Do your plan advisors offer your participating employees one-on-one 401(k) plan guidance? If not, you might not be getting enough value for the fees you’re paying.
One-on-one guidance helps employees make better decisions with their 401(k) plan investments and makes them feel more supported. This often results in higher participation rates and deeper employee satisfaction with the plan.
Taking Action To Fix Your Employee 401(k) Plan
If you’re noticing the warning signs above, take the following actions:
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Review all of your plan documentation to learn what your plan entitles you to.
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Administer an employee 401(k) census to discover what percentage of employees are participating in your plan and how they feel about it.
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Meet with your plan advisors and plan trustees to ask any questions you have about what you’re paying for and what they’re providing.
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Conduct a plan optimization review with your plan advisor or an outside advisor to ensure your plan’s costs and benefits match up with your company’s budget.
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Compare your plan and its benefits to plans of similarly sized companies.
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Assemble a team to determine what actions you need to take to change your plan or derive more value from it.
When you watch out for the warning signs above, you’re able to find ways to correct your plan before it goes too far off course. This helps you offer the best plan for both your company’s and employee’s needs.
Learn how to maximize the benefits your company gains from its employee retirement plan. View Our Employee 401(k) Plan Optimization Video Series.
