Business Advice Daily

Reprint and Repost Policy

by Joe Goldberg

Offering Employees A Customized 401(k) Plan

How can you identify the best possible program? The analysis includes several issues:

1. Does the plan have appropriate investment choices?

2. Is it cost-effective for both you, the sponsor, and your employees, the participants?

3. Can it be easily administered via efficient third-party administrators and record keepers?

The first hurdle is deciding how to create a plan that your employees will appreciate and in which they will strongly participate. So that you don’t have to “fly solo,” you might wish to seek an investment advisor who can help implement the plan as well as act as an investment fiduciary throughout the life of the plan. Following are additional merits to consider.

* Find your employees’ niche by identifying their demographics.

What type of 401(k) plan would best suit your employees? Ask them! Send out a survey in both electronic and hardcopy format and encourage their input. There is a caveat, however, regarding setting appropriate expectations: Make sure your company is committed to offering a program before you communicate with your employees.

* Help participants better understand and appreciate the plan.

Employees might need help understanding the plan once they are enrolled in it. Don’t rely on a third party administrator or fund manager to provide proper education to your participants.

* Consider offering model portfolios.

A fast-growing approach within retirement plan services is to replace the traditional dozens of individual fund offerings with a few basic “model portfolios.” The participant identifies his or her risk tolerance—aggressive, conservative, etc.—and long-term investment objectives, and then simply selects a single model portfolio that best matches that profile. The best news? Studies indicate that reducing the choices to a manageable few via model portfolios has resulted in increased participation.

* Consider seeking help from a qualified professional.

An advisor can help you find efficient third-party administrators and record keepers, whose responsibilities typically include storing documents, processing transactions and distributing statements. He or she can perform an analysis on both your existing plan as well as any you may be considering. In the process of performing such an analysis, even if you make no changes, you have an assessment for your files, as evidence that you are maintaining a watchful eye on your fiduciary responsibilities as a plan sponsor. Your advisor might find opportunities for you to reduce plan fees for you and your participants, while maintaining or exceeding current service levels.

* Be aware of automatic enrollment.

Another option gaining some interest is the concept of automatically enrolling employees in one’s 401(k) plan, requiring them to actively opt out if they do not wish to participate. Debate continues on the topic of setting up automatic paycheck deductions without employee consent, and some may feel auto-enrollment is too drastic a measure.

The automatic enrollment feature may or may not fit your employees’ individual needs, plus there are some instances when such tactics can backfire. An article in the December 2005 HR Magazine identified several situations: “Unlikely candidates for autopilot plans include companies with high turnover—they may end up having to manage a large number of former employees’ small accounts—and employers that believe benefits are best appreciated if employees are actively involved.”

While a 401(k) plan is only one element of a comprehensive benefits package, studies indicate that it is an essential one. By offering and actively promoting a high-quality plan that meets your employees’ needs, you will have taken a big step toward keeping your valued team committed to your company’s growth, and away from competitors’ offers. Perhaps even better, you will be providing a benefit that you and your employees can both feel great about—the opportunity to retire comfortably when the time comes.

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