Planning for retirement is a challenge for most everyone, but it’s especially difficult for Employers sponsoring a retirement plan in light of ongoing legislative changes such as SECURE 2.0. The legislation has over 90 potential plan provisions with effective dates ranging from 2023-2028. Employers must balance choosing the right plan for the Company or Firm, the Owners, and the employees involved. Even after you’ve selected and implemented a plan, it’s still important to review the plan regularly to ensure it’s the best option for your company. SECURE 2.0 provides an excellent opportunity to not only review the various plan provisions, both required and optional, but also offers the chance for you to reimagine your company’s retirement plan. With the challenging hiring environment we currently face, keeping your top talent is key—and your retirement plan is a part of your selling point.
In this article, we’ll review three ways you can evaluate your current plan so you can determine if any tweaks or wholesale changes need to be made so you can have confidence you have the right plan for your business.
Review Plan Objectives
When you originally created your plan (or began researching them), you likely had a list of objectives you wanted to achieve. What were they, and have they been accomplished? More central to a review process is the question “Have those objectives changed?” If they have, then it will likely be worth your time to evaluate what type of plan makes sense at present.
Every company has different metrics and goals as you evaluate plans. Key factors to consider include: company size, age of the employees and owners, the goal of the owners, how many participants are currently participating, the cost of the plan, eligibility requirements, reward features (like a company match), does it help attract and retain employees—and more.
Once you see how your plan’s objectives may have changed over the years, you’ll have a better understanding of the best plan design and provisions to consider going forward.
Review Plan Metrics
When you originally designed and implemented your retirement plan, you had no real-world data to go off of. Sure, you might have been able to see how other companies used (and didn’t use) certain features of various retirement plans. But you didn’t know how your specific company would respond and utilize it. Now that your plan has been in existence, you can actually see accurate information about it.
One of the biggest developments to the retirement plan industry over the last 10 years has been the amount of data that Recordkeepers in particular have been able to accumulate on plan participants. Key participant information that participants have loaded onto the Recordkeeper’s website (e.g., DOB, DOH, marital status, income, savings rate, vesting percentage, Social Security benefit estimates, investment allocation, behavior, and aggregation of outside account balances) have all combined to allow Recordkeepers the opportunity and capability of building a solid investment and savings profile for each plan participant.
Virtually every retirement plan is multigenerational at its core. It is important to not only recognize this but design and adapt your plan as the demographics change. At the plan level, this data is available to help you find key information (e.g., participation and deferral rates segregated by generation within the plan and the resulting discrimination testing results, account balances, investment fund utilization—DIY’ers vs. “Help me do it” vs. “Do it for me”— loan activity and default rates, and hardship distribution levels). Some also have the ability to identify participants that have wandered too far away from the best practice prudent investment path. You should evaluate these numbers to take into account any trends or outliers that might skew the results too far in a negative direction.
One critical area of review often overlooked by Plan Sponsors is the review of the plan’s Qualified Default Investment Alternative (“QDIA”), which is often the Target Date Fund. The Department of Labor has issued guidance for plan fiduciaries to consider when reviewing the plan’s QDIA including the importance of establishing and documenting a process for benchmarking these investment funds to the overall demographics of the firm and employee behavior in utilizing them.
At this point, you have a clearer idea of your plan’s overall objectives, as well as real-world data on how your plan and its available funds and features have been exercised by plan participants. That information will be central to the next item, benchmarking your plan against other plans.
Benchmark Plan Metrics and Features
Comparing your plan’s metrics to those of plans of similar size and industry allows you to identify areas that need improvement and areas that are outperforming, and then set realistic goals for the future. This process can also help you feel confident your plan is competitive compared to other employers in your area also vying for talent.
Benchmarking your plan can also help you see if other plan designs might be more advantageous, considering your current objectives as well as the current plan metrics. Simply because you chose this plan design in the past does not necessarily mean it’s the best plan design for you and your business going forward.
Finally, it is important to understand that benchmarking your plan from a fee perspective is also a required fiduciary responsibility, at least on a “periodic” basis. While you can benchmark your plan through a “paper-based” model of using outside independent data centers or resources, the best way to understand how much someone wants your business is to conduct an independent Request for Quote (RFQ) from other retirement plan providers. It’s analogous to evaluating the value of your home. You can go on to Zillow and get a “Zestimate,” which may or may not be accurate. Or you can list it to see what actual buyers would pay for it.
Is Your Retirement Plan Meeting Your Objectives?
It’s important to remember we’ve had two major legislative acts in the retirement plan industry over the past four years (SECURE 1.0 and SECURE 2.0). These Acts, along with a renaissance of plan design features (led by Safe Harbor, Automatic Enrollment, Roth features, ESG Funds, and Managed Accounts), coupled with the emergence of ERISA 3(16) and ERISA 3(38) fiduciary engagements with service providers, can not only dramatically enhance your current retirement plan benefit to your employees, but it can also help lighten the administrative load and mitigate the fiduciary responsibility for Plan Sponsors.
As litigation continues to explode in the retirement plan space and employees look past their wages at the benefits being offered, Plan Sponsors, now more than ever, need to review their plan objectives and metrics—benchmarked against similar plans—and consider potential plan design changes. In light of recent legislation, this review helps you keep your plan optimized for your current business needs, retain and recruit key talent to your company, and reduce your overall fiduciary liability exposure.
Are you looking to learn more about how to properly review your current plan? Would you like to feel confident you have the best plan for your future business needs? I would love to see if I can help. Schedule an introductory meeting by contacting me at (818) 262-3458 or ssansone@sageviewadvisory.com.
About Steve
Steve Sansone has over 30 years of experience in the retirement plan industry and is the Managing Director of the Valencia office at SageView Advisory Group, one of the largest Registered Investment Advisor firms specializing in retirement plans. As an Accredited Investment Fiduciary® and Certified Plan Fiduciary Advisor practitioner, Steve works with professional service groups and companies of all sizes seeking to create a world-class retirement plan experience for their plan participants. He serves as an ERISA 3(21) or 3(38) Advisor, bringing independent, conflict-free services to both Plan Sponsor Committees and retirement plan participants. Steve’s expertise in Cash Balance Plans spans nearly 20 years and is one of the few Advisors in the industry that understands both sides of the Cash Balance equation: Actuarial and Investments. He considers his work to be the greatest financial rescue mission of this time, helping people retire on time, sufficiently prepared to write the next best chapter of their life. To learn more about Steve, connect with him on LinkedIn.
SageView Advisory Group, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where SageView Advisory Group, LLC, and its representatives are properly licensed or exempt from licensure. No advice may be rendered by SageView Advisory Group, LLC unless a client service agreement is in place.