Improving your 401(k) plan and other seemingly minor aspects of your business is important if you’re determined to build an exceptional company, instead of one that’s merely average.
“An exceptional company is one that gets all the little details right,” Virgin founder Richard Branson said in an interview with Inc. That requires listening to your employees and acting on their feedback. “The people out on the frontlines know when things are not going right. If you listen to them, you can soon improve all those negative things.”
At the same time, it’s easy to have a mediocre 401(k) plan. Set up a plan, hold an annual trustee meeting and call it a day. In a mediocre plan, there’s no attention to detail: no ongoing monitoring or resolving the many issues that arise during the year, and no ongoing education for the plan’s participants to make sure they’re getting the most value from their retirement benefits.
Of course, you’ll pay a price for going this route.
The investment plan probably won’t maximize tax benefits or align with your business plan. You may also incur high fees with such a plan compared to the value it provides. Meanwhile, a mediocre 401(k) may make it difficult to attract and retain the best employees, and those who do stay won’t have the financial education and support they need to plan for retirement.
7 Ways To Create An Exceptional 401(k) Plan
Unlike mediocre 401(k) plans, an exceptional plan is focused on serving the participants and maximizing value for employees and the company. This type of plan gives employees the forums and resources they need to make good choices about their personal retirement accounts and use them to reach their retirement income needs.
- Offer options that add value for participants: Making your plan valuable to participants is the responsibility of the plan sponsor, the trustees and the plan advisor. If you want to offer an exceptional 401(k) plan, it’s important to consider options such as Roth contributions, automatic enrollment and auto escalation of future contributions.
- Establish a plan investment policy and committee: Your plan’s investments must be monitored on a regular basis, evaluating the investment choices and putting those that merit further scrutiny on a watch list or simply replacing them. To accomplish this monitoring, you need an investment policy and committee, and the plan’s advisor and record keeper should have access to the necessary systems and reporting tools.
- Tailor the plan for maximum tax advantages: Too often, companies follow a one-size-fits-all approach when setting up a 401(k) plan. Instead, your plan sponsors should work closely with the advisor and record keeper to align the plan’s design and structure in such a way that the company is able to maximize its funding needs with the greatest tax advantage.
- Establish a formal enrollment process for all new participants:
Your formal enrollment process should start with a webinar or in-person meeting for participants, in which you review the value the company retirement plan provides and the critical importance of planning for retirement.
The most important topics to cover would include tax benefits, company matching dollars and investment choices. This initial session should be followed with one-on-one sessions to assist each participant and answer questions. - Provide ongoing education: A formal enrollment process is only the beginning. To help employees get the most value from their retirement accounts, provide ongoing financial and investment education through additional on-site meetings and circulating relevant resources, such as informative blogs and whitepapers.
- Make employee communication a priority: Active plan participants should be kept informed of all plan updates. These could include fund changes, increases in deferral limits and updates to the company matching formula.
- Don’t leave employees behind: Too often, eligible employees fail to take advantage of their company’s 401(k) plan, either through oversight or choosing not to participate. Follow up with these employees periodically, remind them of the benefits they are losing by not participating and offer to help them get back on track.
An exceptional 401(k) plan does take more time and effort to create than one that’s merely mediocre. For your human resources director and CFO in particular, it means additional responsibility and time commitment.
However, once the plan’s structure, systems and compliance controls have been put in place, holding a quarterly check-in meeting with the plan’s advisor goes a long way toward maintaining the plan and continuing to maximize its value.
Worried about what your current 401(k) plan is costing your company? Request a free, 30-minute consultation with Richard Brothers and start maximizing your plan’s value.
