I have the privilege of working with a number of experienced HR leaders as they move through their career and join new companies. With each new role comes new responsibilities, including the responsibility of managing their company’s 401(k) provider. Are you in a new HR role? Or an HR veteran that’s now responsible for administering your company’s 401(k)? Or if you’ve been looking after the 401(k) for a while, but could do with a brush-up on some of the basics? This post is for you.
Getting your head around your company’s 401(k) plan might seem like a daunting task, but as most experienced HR leaders know, it’s an important benefit to get right. That’s why one thing that strong leaders always do at the start of a new HR role is evaluate their current benefits providers and find out if employees are happy with them.
If you’re new in your role, now’s the time to really find out how happy employees are with their 401(k) plan. Start by asking these three questions:
Three Questions to evaluating your company’s 401(k) plan
1. What are you paying in fees?
High 401(k) fees have been stealing the limelight in the media recently, and for good reason! Unfortunately, your provider may make it as difficult for you to actually figure out your fees (red flag if this is the case). Luckily, by knowing a few key terms, you’ll be able to ask your provider for (or figure out through your 408(b)2 fee disclosures) the fees that you are paying.
Employee fees: these are the fees that the participant pays, and usually include: the advisory fee, fiduciary fee, and fund fees, among others. Our rule of thumb is employees paying under 0.60% a year is excellent, including the cost of the fund itself. If your employees are paying over 1%, then they’re paying too much.
Employer fees: these are fees that the company pays. This may be a flat fee, a per-participant fee, or both, and can also include fees for statements, administration fees, and set up fees, among others. If you’re with a good 401(k) provider, you will capture economies of scale with this fee as the plan and your company grows – so you’ll pay less as a percent of assets under management or per employee as the plan gets bigger.
HOT TIP*: When was the last time you reviewed the fees you are paying on your 401(k)? If you haven’t run a price comparison in the past 6 months, now’s the time to see if your provider is still competitive. Download the ForUsAll 401(k) benchmark guide here.*
2. What is your participation rate?
At it’s most simple definition, the participation rate is the number of employees actually enrolled in the 401(k) divided by the total number that are eligible. (Your 401(k) provider should have a dashboard showing this percentage or at least make it easy for you to find the total number of eligible employees. If they don’t, that’s another red flag.) If your participation rates are low, it is worth asking yourself why they are so low, and if there is anything you or your provider can do to improve them. Average participation rates vary by industry and company size, but generally speaking you want to see participation rates of over 70%. For another data point, our customers get an average 88% participation rate.
The sweet thing about boosting participation rates is it helps employees and puts your 401(k) plan in a stronger position to pass IRS non-discrimination testing. More on that here.
HOT TIP*: If you have attempted to improve participation via traditional methods and have not seen a marked improvement, it could be worth seeing if there is a provider more suited to your particular demographic of employee. *
3. What is your fiduciary responsibility?
This one is easy: who signs the form 5500 for your company’s 401(k)? Is it you? If so, then regardless of whether your recordkeeper files, prepares or submits the form on your behalf, you are the named plan fiduciary under the eyes of the Department of Labor and it is your responsibility to keep the plan compliant.
The next question is whether you want to hold onto the liability or if it’s the right thing to outsource the plan liability to a 401(k) expert.
HOT TIP: The [list of responsibilities] that you are liable for is extensive, and signing the 5500 is not a responsibility to be taken lightly. From tracking eligibility to monitoring investments (and everything in between), by signing the 5500, you are liable. Make sure you know who is signing the 5500, and if it is you, a refresher course on the tasks required might be of benefit.
Request a demo to learn about ForUsAll’s 401(k) administration solution. For more on evaluating your current 401(k) provider, use our benchmarking guide with exact questions to ask your current provider.