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Retirement Plan Sponsors: The Importance of Benchmarking Your Plan Thumbnail

Retirement Plan Sponsors: The Importance of Benchmarking Your Plan

Investing Retirement Funding First Responder

As an employer, offering a retirement plan (401(k), 403(b), 457, etc.) to your employees is a great way to retain a motivated workforce while attracting new talent. But, like most retirement vehicles, there are some legal points to keep in mind. 

First, by offering a retirement plan to your employees, you are now considered a plan sponsor. Second, as a sponsor, you have a fiduciary duty to ensure that all fees paid by the retirement plan are reasonable, according to the Department of Labor.1 An effective way to judge these costs is by asking your financial professional about benchmarking your retirement plan.

What Is Retirement Plan Benchmarking?

Benchmarking is a way of organizing, reviewing and evaluating a retirement plan to learn if it is competitive as well as a good fit for an organization. In addition to evaluating the fees associated with your plan, solid benchmarking may also consider the range and quality of services offered. This can help you make an informed decision about what the plan provides or what may need to be updated to make it a better fit for your business. 

Here are a few items your financial professional may evaluate when benchmarking your retirement plan.

Costs and Expenses

As your organization's plan grows, you can expect that the costs involved in maintaining it will grow as well. Some providers do not automatically adjust their plan fees, and in some cases, the plan may outgrow the provider.

Services Offered

Much like plan costs and expenses mentioned above, as your organization continues to change and grow, so will its needs. In some cases, evaluating the services offered can uncover if a business has outgrown its plan.

Plan Design

Your financial professional can evaluate your plan’s design and features to determine potential opportunities for improvement. This could include the terms in the plan document, auto-enrollment or, in some cases, Roth features. 

Once the benchmarking is complete, you’ll need to evaluate the results. In particular, you'll want to make sure your business is comfortable with fees being charged or the investment options offered. This is also a good time to take stock of additional features, such as automatic enrollment or automatic escalation. For example, does your plan include a Roth option or the ability to make post-tax contributions? And if not, is this something your business needs?

Decision-Making Based on Benchmarking

Once you and your financial professional have gone through the above steps, it's time to make a determination. 

If benchmarking your retirement plan shows that you've found a great fit, then no further action may need to be taken. But if your plan doesn’t fulfill your company's needs, it may be time to make a change. It may be beneficial to approach your plan's provider with the findings of your  benchmark with the guidance of your advisor. Once issues are brought to the attention of the provider, they are often likely to work with you to find the best solutions for your organization, especially when provided with documentation of where their product fails to meet your organization's needs.

Finally, remember that a comprehensive benchmark of your plan can be helpful, but it will no doubt take some time to complete. However, the value inherent in understanding how you measure up to others in your industry while also fulfilling your fiduciary responsibilities can go a long way toward your organization’s long-term success.

  1. https://www.dol.gov/general/topic/retirement/fiduciaryresp

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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