Does your 401k service model include these essential features?
Improve your 401k plan outcomes for sponsors and participants with these five key changes.
It’s no surprise that, in the wake of the pandemic and the market volatility that followed, many 401k plan sponsors are recognizing it’s time to reassess the performance of their plans.
“Employers are realizing that their current – and often outdated – plans simply aren’t meeting their standards after so many market changes,” explained Jason Lane, the Director of Retirement Accounts for Advanced 401k Solutions.
In fact, the number of plan sponsors looking to switch advisors is at an all-time high, with 47% reporting they will consider a change, according to the 2022 Plan Sponsor Attitudes Study by Fidelity.
“During the pandemic, most plan sponsors weren’t looking to make changes because they were focused on more immediate financial needs and concerns,” Jason explained. “By now, however, a lot of employers are ready to reassess the most important elements of their business, including the performance of their 401k plans. More importantly, they’re finding there are a lot of opportunities to make improvements.”
From stronger investment menus to attractive new plan features, employers are looking for ways to not only maximize their return but also support their employees as they work toward a stronger financial future.
If your 401k plan hasn’t been recently reassessed, these five key areas can help you make significant improvements in 2023.
1. Superior Investment Lineup
At the top of most plan sponsors’ lists is an updated investment lineup, with 93% of sponsors looking to make changes this year, according to Fidelity.
“When reviewing plans, we’ve noticed that most plans contain old investment menus because advisors aren’t consistently going in, analyzing performance and making changes when appropriate,” Jason explained. “With all this volatility, if you don’t have a proactive advisor who’s looking at different options, then your plan probably isn’t performing like it could be.”
With an Advanced 401k Solutions plan, a Wealth Advisor reviews your investment menu each quarter using a third-party scoring system that compares your plan performance to others of similar size and value.
“We want your investments to rank in the top 25%, and if they’re not where we want them to be, we put them on watch,” Jason explained. “If an investment stays on watch for more than six quarters, then we flag it as a replacement and research better options. While we want to be constantly monitoring the performance of your investment lineup, we also want to give the fund time to adjust, to avoid knee-jerk reactions that might limit long-term gains.”
Without a process like this in place, however, plan sponsors could be missing out on optimal performance and returns.
2. Support for Employees
In addition to improved investment menus, plan sponsors are also looking for better outcomes for their plan participants, by encouraging employees to start saving more and sooner. Often, that process begins with increased communication, stronger educational resources and more financial guidance across the board.
“When plan participants feel like they’re supported by their companies as they work toward a brighter financial future, they’re more likely to be productive at work because they’re not distracted by money stress,” Jason explained. “It builds confidence and happiness at work and at home, which is a good thing for both employers and employees.”
A retirement plan that offers excellent benefits in addition to strong financial guidance also helps employers with recruitment efforts, which 27% of plan sponsors reported was a top goal in 2022 and beyond.
“At Vance Wealth, we recognize that by offering a 30-minute financial planning session to all participants enrolled in an Advanced 401k Solutions plan,” Jason shared. “This planning session helps employees make the most of their benefits, and it’s a great way to stand out and remain competitive for employers.”
In this targeted one-on-one session, each employee receives specific, actionable financial guidance that will make an immediate difference in their lives.
With an Advanced 401k Solutions plan, however, employers can do even more to support employees with attractive plan design features.
3. Improved Plan Design
While communication and education are key, one of the best ways to add value is by improving plan design with attractive features. In fact, this approach has been so successful for many employers that 88% of sponsors intend to make changes to plan design, according to Fidelity.
“Employee participation, savings rates and happiness are all benchmarks that employers use to measure the success of their plan design,” Jason explained, “and we’ve seen success in those areas by implementing a few key changes.”
For example, Vance Wealth advisors have noticed a lack of Roth provisions in retirement plans that have been transferred from other firms. By adding a Roth option, however participants would have the flexibility to make taxable contributions that could maximize their long-term tax strategy, as well.”
Additionally, an auto-enrollment feature encourages more employees to participate in the plan because it gets the conversation going. Of course, employees are able to choose not to participate, but by auto-enrolling, they’re required to make an active decision either way – instead of simply forgetting or getting too busy to go through the enrollment process.
“It’s not a requirement to enroll, but it does encourage a conversation that can help guide employees toward making stronger decisions for their financial futures,” Jason explained. “It’s a positive outcome for everyone involved.”
The same strategy can be applied with an auto-increase provision, which typically auto-enrolls participants at a 1% higher rate each year. Again, the participant can choose to opt-out, but it encourages stronger participation and outcomes across the board.
4. Help With Additional Responsibilities
Beyond overseeing the essential elements of the plan, the sponsor is also responsible for a number of fiduciary and administrative responsibilities that an advisor can help guide and offload, such as working with the recordkeeper. A 401k plan recordkeeper generally handles the bookkeeping for the plan, including who’s participating, as well as investment elections and distributions.
At Vance Wealth, our advisors act as the quarterback of your plan and work closely with the recordkeeper to ensure everything is being executed according to plan. This includes transitioning to a new recordkeeper, which 47% of sponsors reported was a consideration.
“Changing your recordkeeper isn’t an easy process,” Jason explained, “which is why your advisor should act as the quarterback of that transition.”
In addition to working with your recordkeeper, an advisor also plays a key role in ensuring all fiduciary responsibilities are being met, which can be another confusing or overwhelming process for sponsors.
“Feeling confident that your fiduciary responsibilities are being met can provide a lot of peace of mind,” Jason said, “and it protects you from making any unforeseen errors down the road.”
5. Advisor Guidance
While all of these options can help increase the performance of your 401k plan for both sponsors and participants, the best approach is always a personalized one.
“As advisors, it’s our job to ask the right questions, start the right conversations, and most importantly, implement the right solutions for you and your business,” Jason explained. “We’re here to help identify your goals and find the most effective and efficient ways to reach your specific goals.”
After all, what’s best for one plan sponsor may not be the best approach for another. That’s why changes should be made with thoughtful planning, expert research and a team of support.
“At Vance Wealth, many of the changes that sponsors are currently looking for are already part of our current service model,” Jason explained. “There’s a reason why business owners are looking for these performance factors and types of support. It’s the best way to improve their plan for their own benefit and for the benefit of their employees – which is why we believe this is the way it should be done from the start. By taking a proactive approach to retirement planning, everyone achieves more.”
Are you ready to make changes to your 401k plan?
Our team of specialized retirement Wealth Advisors can help.
We offer a complimentary 401k Plan Review, during which we analyze the health of your plan in all the key areas, including your investment lineup, plan design, fiduciary responsibilities and more. In addition to actionable advice, you’ll walk away with a document containing our top recommendations. To schedule your consultation, please visit advanced401k.com or contact our office at 661-775-0950.
Source: Fidelity Institutional. (March 2022) 2022 Plan Sponsor Attitudes Survey. Retrieved from go.fidelity.com/attitudes. Note: Roth is not a pre-tax, its taxed upfront so you don’t have to pay taxes at distribution. The information provided is for educational and informational purposes only and does not constitute advice. Vance Wealth does not provide tax or legal advice. You should contact your tax advisor and/or attorney before making any decisions with tax or legal implications. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Vance Wealth strategies are disclosed in the publicly available Form ADV Part 2A.