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January 18, 2019

Employers Are Asking: Does My 401(k) Plan Work?

Defined Contribution Plan Sponsors & Their 2019 Expectations

As 2019 begins, many businesses naturally look back and evaluate their year, asking questions such as, “Are our employees happy? Are we keeping our best team members? Do they feel valued?” Business owners understand the importance of reviewing the company health care plan every year, because it’s expensive and critical for the overall wellbeing of the organization. But how many companies closely evaluate their 401(k) plan? It’s often overlooked, and can run on autopilot. Yet, this is perhaps the most important program to closely examine when it comes to your work force and your bottom line.

Fidelity recently released their 2018 survey that reports on the views and concerns of defined contribution plan sponsors (typically employers who offer 401(k) plans). An interesting finding of the poll is that people increased their expectations of their plans and their advisors in 2018, compared to years past. There are many different factors and questions to consider:           

  • Are we truly aware of what our 401(k) plan is?
  • Is our defined contribution plan actually working?
  • Is our plan effective for retirement readiness?
  • How many people in our plan actually participate?
  • How many employees are on track for a meaningful retirement?
  • Are we retaining (and attracting) top workers who find value in our plan?
  • Is our advisor effectively helping us?
  • How can we do better?

For years, typical concerns were ensuring reasonable plan fees, investment choices and testing concerns. The proposed Fiduciary rule changed perceptions and made plan sponsors much more aware of their responsibilities and liabilities under ERISA. Now having dealt with many of the concerns regarding their fiduciary role, employers are increasingly concerned about how effectively employees are preparing for a meaningful retirement.

Strategies To Improve Plan Participation & Effectiveness

Plan Design Tools

The structure of a plan can help to promote participation, improve employee satisfaction and set participants up for success. Elements for a well-designed plan include: auto enrollment for all employees, auto deferral increase, and examining QDIA (Qualified Default Investment Alternative) target date options to assist with age-appropriate asset allocation.

Efficient and Reliable Advisor Support

In the changing landscape of the past year, busy employers who are short on time, are showing a growing interest in hiring a financial advisor / fiduciary to help them to better understand how well the plan works for their employees, and how to improve it. Successful consultants can institute a pro-active approach to educating employees. They can plan mandatory meetings and send out frequent, regular updates, utilizing tech-friendly platforms to interact with participants. Plans with apps can be effective at appealing to younger participants who are comfortable receiving notifications and reacting to them quickly on their phones, therefore increasing engagement.

Track Results

The only way to understand if your plan is working well for your company, is to examine and analyze the data. An advisor can help you to break down the key components of your plan to see if it’s meeting your expectations, and also its full potential. What are your participation rates and deferral rates? How many employees are on track for meaningful retirement (income replacement)? Are there any plan-related business costs that could be reduced? Is the plan helping to retain top workers?

After these questions are answered and analyzed, it’s time to set some goals. For example, set a specific goal for increasing participation, such as a 90% plan participation. Then create an actionable plan to meet this benchmark with your consultant, and the next steps that are necessary to achieve this goal.

Looking Ahead

As the year continues to unfold, analysts will continue to watch how the 2018 plan sponsor attitudes and goals affect the market. It’s clear that plan design, fiduciary support and tracking success will be the top drivers and motivators in defined contribution plans.

Successful financial advisors in 2019 are the fiduciaries who focus on retirement readiness, and create a more dynamic, lively dialogue about the process to clearly show participants how their actions actually translate to income replacement in the years ahead. Successful business owners will continue to ask questions, expect more of their 401(k) plans, and seek out skilled advisors who will help them to navigate through the process.

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TrinityPoint Wealth, located in Milford, CT, provides financial guidance and thoughtful advice that makes a meaningful difference in your life. For information, please visit TrinityPointWealth.com.

TrinityPoint Wealth, LLC (“TrinityPoint”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of TrinityPoint by the SEC nor does it indicate that TrinityPoint has attained a particular level of skill or ability. This material prepared by TrinityPoint is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. TrinityPoint does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.