The Importance of Benchmarking Your 401k Plan
Suppose you implemented a 401k plan several years ago. You were excited to provide another benefit to employees and perhaps even offered a generous match within the plan. Congratulations, everything is good…right?! Maybe, but there is more to a 401k plan than simply making it available.
As it turns out, business owners (plan sponsors) who offer a 401k plan are held to a fiduciary standard requiring them to ensure all plan expenses are necessary and reasonable. 401k plans cannot simply be implemented and placed on autopilot. As it pertains to retirement plan expenses, economies of scale drive down costs just like in the rest of the business world! As your 401k plan grows in assets, your fees (which are often derived as a percentage of assets) should be reduced accordingly.
So, what should you do if you’re a business owner? How are you supposed to know what constitutes “reasonable” fees and whether economies of scale are benefiting your plan? You need to periodically benchmark your plan! Benchmarking allows for comparisons to similar plans (participants, total assets and average account size are key metrics) across the country. Best practices suggest benchmarking plan fees every 3-5 years to evaluate how plan services and costs compare to your peers. This can (and should) be easily handled by an experienced and knowledgeable plan advisor.
By benchmarking your 401k plan, you are both fulfilling your role as a fiduciary and ensuring the benefit you offer employees reflects the high expectations you place on your own business!
Conor R. Kelly, ChFC
The ETF Store, Inc.
“This communication is for informational purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product. Please contact an investment advisor before making any investment decisions.”