The Importance of Regular 401(k) Benchmarking

Maintaining a 401(k) plan can be likened to caring for a well-constructed home. Just as a sturdy house demands regular upkeep to stay in prime condition, a 401(k) plan requires ongoing benchmarking to ensure it’s functioning optimally. Even if nothing appears “wrong” on the surface, neglect can lead to hidden risks and inefficiencies.

What is 401(k) Benchmarking?

Benchmarking your 401(k) involves comparing the plan’s features, fees, investment performance, and participant outcomes against industry standards. This process helps uncover areas needing improvement, ensuring the plan remains aligned with market trends and participant goals.

The Benefits of Regular Benchmarking

Benchmarking offers crucial insights that help keep fees reasonable and transparent, thus protecting participants' savings from gradual erosion. By frequently reviewing investment performance, sponsors can identify opportunities to switch to better-performing options, potentially improving participant outcomes.

Fiduciary Responsibility and Peace of Mind

Fiduciary compliance is a legal obligation, and regular benchmarking acts as documented proof of diligent management. Given recent shifts in industry standards and rising fiduciary lawsuits, many employers are moving from triennial reviews to annual ones. This adjustment not only mitigates legal risks but also assures plan sponsors and participants of sound plan management.

Enhancing Plan Engagement

Benchmarking evaluates participant engagement and retirement readiness, offering insights into how effectively the plan meets the needs of its participants. Findings from benchmarking can lead to strategic enhancements, such as implementing auto-enrollment features, which can significantly boost participation rates.

A Proactive Approach

Incorporating regular 401(k) benchmarking into a company’s rhythm is essential for preventing potential pitfalls and optimizing savings potential. Much like servicing a home protects its value and safety, proactive benchmarking safeguards the stability and success of retirement plans.

Ultimately, the goal is to stay ahead of problems before they arise. Companies are encouraged to seek expert assistance in reviewing their plans, ensuring all aspects of the 401(k) are delivering as intended.