Poorly managing your employee 401(k) plan directly threatens your company’s bottom line.
In fact, while most people only consider the impact a mismanaged plan has on employee morale, ignoring your fiduciary responsibilities could actually result in serious financial consequences. For this reason, companies offering these plans as part of their benefits package need to remain vigilant about 401(k) plan compliance and best practices.
Is your employee 401(k) plan putting your company in financial jeopardy? Keep reading to discover how your 401(k) plan could drain your profits, and how to protect your company from risk.
Managing An Employee 401(k) Plan Through Frequent Change
Sponsoring an employee 401(k) plan comes with regulatory demands and fiduciary requirements. Those requirements change almost every year.
In fact, the Obama administration recently proposed a broad set of regulatory changes that could represent new opportunities and challenges for businesses sponsoring plans. While it’s unclear whether any of these proposals will make it through Congress, it does underscore that plan sponsors and their advisors need to keep a close watch on a constantly shifting regulatory landscape.
Employee 401(k) Plan Mismanagement Poses Severe Financial Risks
Becoming lax about fiduciary responsibilities and ignoring employee retirement plan best practices could seriously threaten your company’s profits.
If your employees don’t understand the value of your plan or feel that it is being mismanaged, you could be exposed to serious financial risks. First, you risk losing valuable employees to competitors. Also, errors in plan management could result in IRS fines, and fiduciary non-compliance may lead the Department of Labor to impose consequences. Finally, if your employees believe you are mismanaging your plan, or that they were not properly made aware of its benefits, they could sue you.
Protecting Your Company From Financial Peril
The most important step you can take to protect your company from the threats outlined above is to bring in a third-party advisor to measure the value and quality of your employee 401(k) plan. This advisor examines whether your plan’s fees and investment opportunities are in line with those offered by similar companies.
You also need to make your employees fully aware of the opportunity to participate in the plan and the benefits of participating. For instance, if your company transitioned from a pension plan to a 401(k) plan, your employees must know the difference in benefits between the two plans. Your organization could face a major lawsuit if retiring employees find that they missed the opportunity to invest in their retirement due to poor communication.
It’s also important to communicate frequently and effectively with both the plan sponsors and your employees. You should meet regularly, between one and four times per year, with your company’s leadership and your employee 401(k) plan advisors to discuss any changes in the plan and in your fiduciary responsibilities.
When transitioning to a new plan, or when employees join your company and become newly eligible, you need to make sure every associated email and letter is sent. To more thoroughly protect your company, you may want to choose a plan with an auto-enroll option, which requires employees to opt out of participation rather than opt in.
Limiting Your Risks While Helping Employees Secure A Comfortable Retirement
It’s becoming more challenging to attract and retain employees in today’s economy.
Any hiring manager knows that talented employees want a full suite of attractive benefits in addition to a competitive salary. When it’s managed in a way that minimizes costs and maximizes value, your employee retirement plan offers you a powerful tool to boost your employee retention and recruitment efforts.
But offering retirement benefits, such as an employee 401(k) plan, isn’t simple. Without proper oversight and management, what should be a tool to help your employees build a secure retirement could turn into a threat to your company and your profits.
Offering your employees a retirement plan as a benefit helps you create a stronger workforce, while enabling your employees to build a secure future. By taking steps to make sure your plan is fully compliant and your employees are fully informed, you protect your company and your profits from needless risks.
Protect your company’s profits and your employees’ futures. Schedule a 30-minute consultation to optimize your employee retirement plan.
