Getting a new start
The year-end is one of my preferred times of the year. After spending time with family, having everything slow down for the season, and being an eggnog glutton, I get to step back and take a glimpse at the year. It's that time when you can examine accomplishments from the year, decide what changes you want to make to improve yourself, your business, and your relationships for the year ahead. If you are involved in your company's 401k, improving the way you manage your company's 401k can be added to the list.
Understand where you stand
When I was 8 years old, I played soccer. I was on my brother's team; he's 2 years older than me. I don't think I ever touched the ball, let alone knew what I was supposed to do. I just knew I wasn't supposed to touch the ball with my hands and I was supposed to try to kick the ball into the opponent's goal.
It's tough to do anything you don't understand. In a recent study of fiduciaries, done by J.P.Morgan, 43% didn’t realize they were fiduciaries. This is a startling example of why it’s important to make sure you know and outline responsibilities. To improve the way you administer your 401k, understanding your role is an important place to start. the IRS' Website has a page on Plan Sponsor's responsibilities. This is a great place to start if you want to know how to fulfill your duties as a plan sponsor.
Understand your team
Let's go back to those soccer days, shall we? One of the issues I had playing soccer was that not only did I not know what my role was on the team, but I had no idea what the roles were of my teammates- except for our goalie. When everyone knows their role in the plan and the roles of those around them, it makes for a more enjoyable, and successful, soccer game. When it comes to understanding your role in the management of the 401k, it's no different.
There are many sponsors out there that see their 401k teammates the same way I saw my soccer teammates. They don't understand the roles each of their teammates plays. For example, it's common for me to come across Plan Sponsors who believe the recordkeeper is the fiduciary and have full responsibility for the outcome of the plan when they are not. It's common for me to see Plan Sponsors who are positive that someone else is supposed to watch over the investments when they are the ones in charge of those decisions.
Read your service agreements. Gain a clear understanding of what your service providers are getting paid to do. There are common players in a 401k plan with common responsibilities. But each plan is unique from the next. Understanding the roles your providers play and having a process in selecting them can help you better serve plan participants.
Understand your fees
One of your responsibilities as a Plan Sponsor is to "only pay reasonable plan expenses". Fees can eat away at retirement account balances. As someone who has responsibilities to make decisions in the best interest of the plan participants, it’s important to make sure any fees justify the services provided. That doesn’t mean cheap is best, but you should be aware of the fees and make sure they are truly justified. One place to track down fees is by requesting a 408(b)2 fee disclosure from your service providers. This disclosure outlines fees for services provided. Some providers also have fee disclosures in their “Plan Review” reports.
How so you know how well you are doing if you have nothing to compare to? Benchmarking is the process that allows you to compare your plan to others out there. Providers often have access to reports that show how your plan compares to other plans of a similar size or industry. Utilizing these types of reports can be a great way to see how fees and services look compared to your competitors. Even if you don’t make any changes to your plan, it can be helpful to keep the results of your benchmarking in your files to ensure you are managing your company’s retirement plan prudently.
Know when to Outsource
When I played soccer, I knew my talents - judging the post-game snacks and cheering my friends on. My friends were better at the whole scoring thing anyways.
Most people I’ve run into who are involved in their company’s retirement plan have responsibilities other than just running the retirement plan. If you don't know what you are doing, learn what your duties are and/or outsource those functions - if you can.
What does this boil down to?
There are plenty of resources out there and many able professionals. At the end of the day, don’t lose track of what your company’s retirement plan is there for. Someday the people who work at your company will need to retire. I think people forget what an honor, privilege, and responsibility it is to be a part of that.
UNITED STATES DEPARTMENT OF LABOR. (n.d.). Meeting Your Fiduciary Responsibilities. Retrieved from dol.gov: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.pdf