- How can companies attract and retain top talent? One surefire way: a great benefits package with a competitive retirement plan.
- Worried this might be too complicated (and expensive) for your business? With the right advice, it doesn't have to be.
- Follow these best practices for providing a best-in-class retirement plan program to your employees— all while mitigating risks and keeping costs low for your business.
One of the most effective ways to attract and retain top talent is with a first-rate benefits package, particularly one that includes a competitive retirement plan. Still, it can take time to navigate the wide array of industry choices and design a plan with the right combination of options to incentivize a diverse workforce.
The best practices outlined below can help you build a well-structured and effectively governed program, while sidestepping unnecessary costs, cutting through plan-building complexities, and minimizing risk to your business.
Formally Evaluate Your Current Plan
Take the time to fully assess your current employee retirement plan. How well does it meet your business objectives and participant needs? Consider the following benefits, which many business owners deem essential elements for a well-regarded plan.
- Maximum deferral options. Highly motivated employees often want the ability to save and tax-defer as much of their income as they comfortably can, up to the federal government’s permissible limits. Work with your retirement plan service provider to assess your 401 (k) plan’s discrimination testing requirements and maximize employee contribution limits. If you manage a workforce that wants to boost retirement savings beyond what’s permissible in a 401(k), consider an additional plan like a cash balance, defined benefit plan or non-qualified deferred compensation plan.
- Attractive menu of investment options. Offer participants a diverse array of investment options that are appropriate for their overall investment needs, tolerance for risk and demographic profile.
- Minimal fees. Revenue-sharing agreements and retail mutual fund pricing often result in high investment fees that can sap a participant’s long-term earnings potential. A well-trusted retirement plan consultant can help construct a plan without hidden fees or high-cost investment choices.
Establish an Effective Governance Model
A strong retirement plan governance model can help limit fiduciary risk, maintain employee satisfaction and improve plan performance. An internal retirement plan committee can help govern your program, act as key decision-makers, and develop and follow through on plan goals.
Make sure your retirement plan committee is a diverse group. A well-functioning committee will include member representatives from human resources, as well as other company departments, such as sales, operations, marketing, engineering and finance.
In addition to forming a committee, create an Investment Policy Statement to serve as a guide as you select, monitor and make changes to plan investment options.
Select the Right Service Provider
Your retirement plan service provider will manage plan administration, recordkeeping, custodial and trustee services. The right partner will provide options well-suited to your needs at a cost-effective price. Plan provider features to carefully consider include:
Service provider fees can be confusing, even for the most experienced business owner. Certain options may come bundled with not-so-obvious fees, which can add unexpected costs and reduce potential investment returns. Over the length of a career, the culminating effect of these fees can substantially reduce the overall growth potential of a participant’s portfolio. Even the most meticulous saver can be left with a substantially smaller nest egg than she could have amassed with a more efficient, lower-fee plan.
Some providers charge asset-based fees that start low but often increase as plan assets grow. Others offer a fixed-fee structure, which can be more predictable over time. Project the long-term cost of each offered fee structure to determine which will work best for your organization. Fee structure information can be found in your service provider’s fee disclosure document.
Some retirement plan service providers require a fund line-up that’s picked from a selection of their proprietary funds. To avoid this inherent conflict of interest, be sure to select a service provider that offers unlimited flexibility by allowing you to build your retirement plan investment menu from the entire universe of available investment options.
Plan participants will appreciate working with a service provider that has an intuitive, user-friendly website, as well as strong cybersecurity protocols.
Choose a service provider that offers the flexibility your participants want, such as the ability to execute in-plan Roth conversions, automatically enroll with a few simple steps, and increase contributions at regular intervals.
Implement a Robust Participant Education Program
Even the most powerful retirement plan won’t reach peak effectiveness if participants don’t know how to use it to their best advantage. Regularly held in-person meetings or online webinars can help employees understand the importance of retirement plan participation, build and gain confidence in a long-term financial strategy, and understand the ins and outs of your particular retirement plan benefits.
Specifically, a participant education program can help employees:
- Understand the importance of saving for retirement and the long-term savings that can be achieved through plan participation today
- Easily enroll in the retirement plan
- Decide how much to defer, including when and how to increase contributions
- Understand the investment options available through the plan and how to choose those that are best aligned with personal retirement goals and desired outcomes
- Achieve long-term financial wellness
Review Your Plan’s Performance on an Ongoing Basis
In the end, the creation of an effective employee retirement plan is not a one-time event. Instead, it’s an ongoing process that requires regular review and intermittent adjustment. Schedule periodic plan reviews once or twice a year to make sure your plan continues to meet objectives, even as the needs of your business and plan participants evolve over time.
Mitigate Risk by Working with a Trusted Independent Consultant
Offering a competitive retirement plan program can make a significant impact on an employer’s retention and recruitment. At the same time, it’s a great responsibility, one that comes with a legal and ethical obligation to act in the best interests of plan participants.
An independent retirement plan consultant can help shoulder some of this responsibility by sharing fiduciary duties. However, not all consultants are held to the same legal and ethical standards.
Some are bound by a “fiduciary standard,” or a legally binding requirement to disclose any conflicts of interest while always aiming to choose best-fit investment options. A broker-dealer or insurance agent, meanwhile, is held to the less-stringent “suitability standard,” which requires the selection of “suitable” investment options, but not necessarily those that are best for the client. Be sure to choose a consultant who can serve as a 3(38) of 3(21) ERISA fiduciary on your retirement plan and guide you through all of the best practices outlined above.
Ready to explore retirement plan options for your company? Contact you First Republic relationship manager, or have us contact you to learn more about our retirement plan consulting services.
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