Are you overpaying for your company’s 401(k( plan? Take these steps to ensure compliance, cost-efficiency and value
Regular benchmarking is an essential fiduciary responsibility. Namely, around 80% of companies across the United States are overpaying on retirement plan administrative fees due to a lack of consistent benchmarking. Benchmarking is only the first step.
An expanded, holistic process for ensuring your 401(k) is not only compliant and cost-efficient, but a strategic, long-term asset that secures more resilient and financially secure futures for both companies and employees. To better align with fiduciary standards and reduce legal risks, companies can adopt the following practices:
- Conduct Annual Benchmarking Audits: Regular benchmarking audits reveal cost-saving opportunities and highlight areas for improvement. Engaging a third-party audit firm specializing in retirement plans can ensure that the analysis remains objective and focuses on fiduciary best practices.
- Review Fee Structures and Seek Transparency: Transparency is key in managing retirement plan fees. If a provider does not offer an annual breakdown of all costs, it’s time to reconsider the partnership. Use benchmarking results to negotiate better rates and hold providers accountable for offering competitive prices.
- Unbundle Services for Better Control: Plan administration often combines recordkeeping, investment management, and advisory services, which can lead to higher costs and conflicts of interest. Companies may benefit from unbundling these services and selecting specialized providers for each component to improve efficiency and lower costs.
- Educate Employees on Fee Structures and Investment Choices: Companies can proactively manage legal risks by educating employees about fee structures and available investments. Transparency fosters trust, and informed employees are more likely to appreciate the value of the retirement plan. Additionally, clear education on how low-fee funds enhance retirement savings can significantly improve plan satisfaction.
- Use Advanced Analytics for Real-Time Monitoring: Data analytics has become critical in managing retirement plans. Advanced analytics allow HR and finance departments to identify and address fee discrepancies, optimize fund performance, and align investment offerings with employee preferences.
Employee Engagement
One benefit often overlooked in benchmarking discussions is the impact on employee engagement and retention. Today’s workforce expects transparency in employer-sponsored benefits, and a well-managed 401(k) plan with competitive fees and diversified investment options can be a powerful tool for attracting and retaining talent. By openly sharing benchmarking results and improvements with employees, companies demonstrate a commitment to financial wellness—a priority for younger generations seeking employers that support long-term wealth building.
In addition to sharing benchmarking data, companies should consider providing one-on-one or group financial education sessions. Employees who understand the value of their retirement plans are more likely to participate fully and appreciate the benefit as a crucial part of their compensation. This engagement can translate into greater loyalty and productivity, as employees feel valued and secure in their retirement outlook.
Long-Term Impacts: Reducing Compliance Risk and Enhancing Company Reputation
As we continue to see an increase in litigation over retirement plan management-related issues, companies should be aware that proactively benchmarking and adjusting their 401(k) plans reduces costs and minimizes compliance risks. A failure to manage fees transparently and ensure competitive options can lead to expensive lawsuits, lost reputation, and increased employee turnover. By making regular benchmarking a core part of their benefits strategy, companies can ensure they offer competitive, compliant, and appealing retirement plans.
More specifically, companies can use this data to negotiate better rates with their current provider or explore alternative options that offer competitive pricing without sacrificing quality. In some cases, companies may benefit from unbundling services—separating recordkeeping, investment management, and advisory services—to improve efficiency and reduce costs.
By viewing retirement plans as dynamic, evolving elements of their benefits strategy, organizations can better serve their employees and mitigate future risks. HR, finance, and other leaders should adopt a proactive approach to retirement planning. Benchmarking is a valuable tool for safeguarding the company’s future and ensuring the financial security of its employees.
A recent audit conducted within the past three years can provide valuable insights into updated regulatory standards and industry best practices. Pairing audits with regular education sessions for employees creates a culture of transparency and empowerment while mitigating potential dissatisfaction and litigation. This education should be provided through a combination of private one-on-one sessions and structured group meetings held monthly or quarterly. While group sessions can cover broad financial wellness topics relevant to most employees, private sessions allow for individualized guidance.
Finally, benchmarking data can be a powerful tool in negotiating provider contracts. By identifying above-market rates, companies can leverage the information to secure better terms or explore alternative providers who offer competitive pricing without sacrificing quality.
A Commitment to Excellence in Retirement Planning
Regular benchmarking is more than a fiduciary responsibility—it’s a commitment to excellence in retirement plan management. Companies that embrace proactive benchmarking not only safeguard their financial and legal standing but also demonstrate a clear dedication to their employees’ financial well-being. This dual focus on compliance and employee engagement strengthens organizational resilience and helps attract and retain top talent in a competitive job market.
By integrating technology, conducting independent audits, and ensuring transparency, companies can transform their retirement plans into strategic advantages. These efforts go beyond mitigating risk; they build trust, enhance loyalty, and position the organization as a forward-thinking leader in benefits management.
Ultimately, a well-benchmarked 401(k) plan is not just a tool for compliance but a reflection of an organization’s values and priorities. It empowers employees to build secure financial futures while ensuring the company remains competitive, compliant, and prepared to navigate the evolving retirement planning landscape.
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