How an Efficient Retirement Plan Can Help Your Business Prosper
Recruiting new hires can often feel like a never-ending process
While there are many perks your business can offer to help catch the interest of job seekers, there are few more paramount than the 401(k). For instance, did you know that 90 percent of the respondents in a recent Charles Schwab survey said they would rethink accepting a position if the company didn’t provide a 401(k) plan? (Charles Schwab, 2018)
Furthermore, in the American Century Investments 5th Annual Survey of Defined Contribution Plan Participants Stats, its shown that 75 percent of participants aged 25-54 would take a 100 percent match on 3 percent of their retirement contributions compared to a 3 percent higher salary. (American Century Investments, 2017)
With these statistics in mind, companies are beginning to realize that today’s job force is focusing on their savings now more than ever. While many older Americans having little to no retirement savings, the upcoming generations are beginning to prepare, becoming more prudent savers compared to their parents or grandparents before them. (Kemper Capital Management, 2017)
Creating an intentionally-specific retirement benefit plan is often easier said than done. Each plan’s fiduciary, the person responsible for the ethical management of the plan’s associated fund, bears the bulk of the weight when it comes to ensuring that the monies in the fund are being invested in the beneficiaries’ best interest. Every year, it’s important for your company’s designated fiduciary, whether internal or third-party, to review the plan’s current offerings and compare relative market prices to ensure the vendor your company chooses to work with is still in line with current competitor pricing comparisons. (U.S. Department of Labor, 2017)
One of the most common lawsuits between 2016 and 2017 related to employer-backed retirement programs centered on the fiduciary’s negligence in managing fees associated with the fund. A claim of excessive administrative or management fees was the most commonly cited reason for the lawsuits. One emerging lesson from this influx of lawsuits became abundantly clear – fees need to be more transparent and need to be monitored more thoroughly. (Sanzenbacher, 2018)
As a company’s 401(k) plan fiduciary, it is important to know all the investment options your company is offering through the plan. According to the Department of Labor, each retirement plan is required to offer at least three separate investment types for employees to utilize when diversifying their retirement funds. Companies can often help manage risk themselves by also adding another layer of personalization by allowing their employees to manage their own funds, choosing which investments within those options to utilize and change each quarter if desired. This ensures that plan participants have a personal time investment into their retirement savings, and they are actively choosing how those funds are allocated on their behalf. (U.S. Department of Labor, 2017)
One of the most public 401(k) lawsuits was centered around the stock offerings included within the 401(k) plan being administered by Sears on behalf of their employees. One participant sued the fiduciary of the plan for including the company’s own failing stock within the plan’s stock options. The plaintiff argued that the fiduciary should have reasonably known better and hence caused the beneficiaries a significant loss due to a lack of action within the management of the plan by the fiduciary. (Sanzenbacher, 2018)
While implementing a fruitful retirement savings plan for your employees is a benefit that can set your company apart from the rest, it is imperative that the fund is managed with a constant and detailed set of eyes. Implementing safeguards for your company around potential fund-associated risks can seem daunting; however, statistics continue to say that these offerings do impact the outcome of hiring efforts and long-term retention of employees.
At LSB Wealth Management, we understand that every corporation is going to have its own set of needs and standards when it comes to creating and managing their employees’ retirement fund. With tenured advisors and a passion for problem-solving, our team is ready to help serve you, so you can best serve your employees. If you’re interested in updating your company’s retirement benefits or searching for the right vendor to start a plan, our financial advisors are here for you. We would love to help, and we’re just a call away!
*Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
American Century Investments. (2017). Start Your Engines: Employees Want Plan Features that Accelerate Retirement Savings. American City Investments.
Charles Schwab. (2018). 2018 401(k) Participant Survey. Schwab Reitrement Plan Services, Inc.
Kemper Capital Management. (2017). Trends in Generational Saving. Retrieved from Kemper Capital Management: http://www.kempercapitalmanagement.com/trends-in-generational-saving
Sanzenbacher, G. S. (2018). 401(k) Lawsuits: What are the causes and consequences? Boston: Center for Retirement Research at Boston College.
U.S. Department of Labor, E. B. (2017). Meeting Your Fiduciary Responsibilities. Employee Benefits Security Administration.