Don’t Lose Sleep Over 401(k) Duties: 3 Action Items for HR Professionals
What Keeps You Up at Night?
Being an HR Professional, you have a lot on your plate. Among all those other responsibilities, you may be your company's 401(k) administrator. Or you may have another role with your 401(k) plan. If you are like many HR professionals, you may still need formal training for this role. It can be concerning to professionals when they don't understand the scope of this assignment or the liability that comes with it. Some have heard horror stories of plan administration that resulted in less than positive outcomes. So, where do you start?
Fiduciary Responsibilities
One America asked over 1,000 plan sponsors, "What is keeping you up at night?" 57% of the respondents indicated that fiduciary responsibility was their top concern (Plan Advisor, 2018). However, in a recent study by J.P. Morgan Asset Management, 43% of all fiduciaries were unaware they were fiduciaries (J.P. Morgan Asset Management, 2017).
Based on the above statistics, over half of the population sampled indicated fiduciary liability was their top worry in one study. However, in the other study, almost half of the fiduciaries don't realize they are fiduciaries. I imagine more fiduciaries would indicate the fear of fiduciary liability as a higher priority if they realized they were fiduciaries.
What is a fiduciary? According to the Cornell Law Dictionary, "A fiduciary duty is the highest standard of care." Each 401(k) plan must have at least one named fiduciary. Being a fiduciary carries much responsibility with it.
Action Item #1
It is essential to determine who has a fiduciary status, get it in writing, and document it in your fiduciary file. An excellent place to start is by looking at the plan document. You can find the names or titles of those carrying fiduciary responsibilities within your company. Once all plan fiduciaries are aware of their fiduciary status and noted, consider having them receive fiduciary education/training.
Fees
One of the most common first questions we get from plan sponsors is, "Can you save us money?" We live in an age of commoditization. We can compare the prices of virtually anything anywhere in the world within seconds. Retirement plans remain one of those services you cannot easily compare prices through an internet search. Pricing is complex and dependent on a variety of factors. This fact doesn't let plan fiduciaries off the hook.
Though it's challenging to compare 401k prices by searching the internet, finding lawsuits for excessive 401(k) fees isn't. Each dollar spent on plan expenses is a dollar that could have been earning interest in a participant's retirement account. Therefore, you must make an effort to review plan fees.
So, how do you make prudent decisions regarding plan fees? Finding the cheapest car doesn't equate to a sensible decision if you are shopping for a vehicle. Making a prudent decision requires reviewing and considering what the product or service is for and comparing multiple options. Reviewing 401(k) fees is no different.
Action Item #2
It is necessary to have a process to evaluate fees. Benchmarking can be an excellent method of doing this. Rather than concentrating on the costs alone, benchmarking allows you to qualify the expenses relative to the services received and plan size. In addition, benchmarking compares your plan's fees and services to other plans of your size.
Financial Wellness
Financial wellness is a new industry trend. NAPA shared survey results for its 2019 industry trends. Financial wellness was the second "most significant concern for plan sponsor clients." (National Association of Plan Advisors, 2019). What is financial wellness? Financial wellness is more than retirement readiness. It provides participants with the tools and knowledge to improve their financial lives.
Too many plan sponsors confuse investment returns with financial wellness. Not all investments in a plan are there to yield potential high returns. Past performance is no guarantee of future returns. Investment return is one factor to consider in an investment lineup. But, having a diverse investment offering is no replacement for a financial wellness program.
Action Item #3
Financial wellness doesn't have to be an elaborate plan. You can start by looking at your recordkeeping platform and seeing what tools are available to you as the plan admin and your employees. For example, many recordkeeping platforms have analytics you can use to see how prepared participants are for retirement. In addition, you can look at the plan demographics and plan education meetings to meet the needs of the plan demographics. Your plan's financial advisor can also help create a financial wellness plan.
What Do I Do Now?
Employer-Sponsored Retirement plans can be fantastic tools to help your employees save for retirement. But don't let the concerns we examined in this post keep you up at night. Every plan is in a different stage and has different needs. One of the most important things you can do for your plan is sit down and create a process for running your company's retirement plan. Decide when and how you will review your fiduciary responsibilities, fees, and financial wellness objectives. Then, rely on the professionals around you and the resources at your fingertips. And always remember to take the time to document the decisions you make.
Conclusion
Consider setting up a consultation with our team at CUI Wealth Management if you need help reviewing your retirement plan. CUI Wealth Management is located in Salt Lake City, Utah. However, we serve clients in many states. Please see the website footer for a complete list of states we serve.
BibliographyJ.P. Morgan Asset Management. (2017, October 10). Let's be clear about fiduciary status. Retrieved from am.jpmorgan.com: https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/lets-be-clear-about-fiduciary-statusNational Association of Plan Advisors. (2019, August 12). What Are Plan Sponsors Worried About? Retrieved from https://www.napa-net.org/: https://www.napa-net.org/news-info/daily-news/what-are-plan-sponsors-worried-aboutPlan Advisor. (2018, February 5). Plan Sponsors Need Help Managing Concerns and Priorities. Retrieved from www.planadviser.com: https://www.planadviser.com/exclusives/plan-sponsors-need-help-managing-concerns-priorities/