The Advantages of Frequent 401k Plan Fiduciary Reviews

Employer-sponsors are beginning to realize that it’s not our parents’ 401k plan anymore. Long gone are the days of simply setting it and forgetting it. Increased regulatory oversight of 401k plans by the Department of Labor has led to raising the bar in sponsor fiduciary responsibilities along with the penalties for falling short. Many employer-sponsors are catching on and are earnestly trying to implement the DOL’s checklist of fiduciary duties. With the proper context, however, sponsors can gain additional benefits by instituting a regular fiduciary review process every few years.

 

Shopping Your Plan Ensures Lower Costs for Your Plan Needs

 

As plan fiduciaries, it is your responsibility to ensure that the costs associated with your 401k plan and investments meet the standard of “reasonableness” established by the DOL. A fee disclosure review offers the opportunity to consider how your plan is performing in terms of expenses and investment performance. If you are paying too much relative to the level of service you are receiving or the investments are performing poorly relative to their costs, you could be breaching your fiduciary duties. Equally important, your plan is most likely not meeting its objectives, which can lead to lower participation and contribution rates.

 

For both plan compliance and optimal participation your plan should be compared with other, similarly sized plans to determine:

 

• How your costs compare
• Whether your costs are reasonable relative to the level of service received
• If the plan’s investment choices are diversified and suitable enough for your participants
• If the plan is performing as well as other plans

 

By benchmarking these cost and performance factors, you can regularly review them to determine if any adjustments are needed to improve your plan’s success.

 

Staying Current with Technology

 

Plan administration technology is a major determinant in how efficient your processes are. Greater efficiency lowers cost and improves plan effectiveness. Each year, there are enough incremental changes or advances in technology to warrant a review that would determine how much efficiency could be gained by upgrading your systems or software.

 

Ensuring Your Plan is still the Best Possible Plan for Your Participants

 

The plan you selected several years ago may have been ideal for your company’s circumstances at the time. However, just as you canoutgrow your facilities through steady growth, you can also outgrow your 401k plan. Especially, if your participant and contribution levels have grown, it is important to review your plan to determine if you are exceeding the limits of its efficiencies and cost;or, if the demographics of your company have changed (ie.more younger employees), you may need to reconsider the investment options offered.

 

Ensuring Your Plan is Meeting all Compliance Standards all of the Time

 

There are certain aspects of your plan that need to be monitored regularly. Custody statements should be reviewed each month. Investment manager performance should be checked quarterly. The quality of your service provider should be evaluated each year. Then, every three years, you need to closely examine your service provider’s capabilities and fees for reasons described above.

 

By establishing a rigorous and disciplined review of all plan components, you can focus less on the DOL breathing down your neck, and more on the main objective of your plan, which is to help your employees get on track to addressing their financial future. In doing so, plan enrollment and contributions will improve right along with employee morale.

 

Source By: http://www.lifeincrs.com/blog/advantages-frequent-401k-plan-fiduciary-reviews

 

State of the Union Highlights and Notes for Employers to Remember

Automatic Enrollment

While there are several proposed changes, one change that impacts employers the most, is that employers that are not currently offering a plan would be required to offer an IRA or 401(k), with an auto-enrollment feature. This rule is currently proposed for employers with 10 or more employees, and employerswould also be eligible to receive up to a $4,500 tax credit for the cost of starting one.

If you are a business that currently sponsors a 401(K) Plan, SEP or SIMPLE IRA, then your plan will continue to operate as it has going forward, but there are likely changes coming down the road if these rules are enacted. The silver lining is that employers with existing plans could get a $1,500 tax credit for adding auto-enrollment features, but the current language doesn’t seem to require they be added to existing plans in the current proposal.

Including Part Time Employees

One of the largest proposed changes that could impact current businesses with 401(K) Plans is the proposed change to include employees who have worked at least 500 hours in a year, for three consecutive years. Current regulations allow for employees to be excluded from participation if they never work 1,000 hours in a given year. While the rules will likely be a phased in, or have a grace period for enacting them, it would be wise for current plans to look at their current plan design, if the rules are enacted. Many plans are currently designed with these current rules in mind, so plans that have been able to pass discrimination tests in the past, could face new problems if these employees are brought into the plan only to opt out of contributing, or only do so at lower rates.

What to Do Now?

The next key item to point out is that while these tax incentives are enticing, the important thing to do is, monitor the situation, and wait to see if these proposals to become law. While these provisions seemed widely supported in congress, many others did not. This means the proposed Retirement Plan rules could be dragged into the larger fight with the more polarizing proposals. Unfortunately, this means that if you were looking at adding an automatic enrollment feature to you plan in the beginning of 2015, you are faced with a tough decision of whether to move forward, or to wait for possible tax advantages. There is always a chance that the proposal goes through for the 2015 tax year, but if the proposal get delayed as a result of some of the more politically decisive issues, then you could miss out on these tax savings if the proposals are delayed till 2016. Of course, if you wait, there is just as much chance that the proposals never get enacted, and you delayed the auto-enrollment needlessly, further delaying time employees could be building towards retirement.

While these are currently only proposed rules, many of them are jointly supported as a way to better prepare our nation for retirement. There are many other more controversial proposals from the speech with the opportunity to derail the proposals around retirement plans. As always, make sure you are working with a retirement plan professional so they can help apply current and prosed changes to your specific situation.