Many retirement plans are at risk of failure because plan sponsors have the same lethargy about retirement savings as their employees.It is very easy to “set it and forget it” on both sides.
So what can retirement plan sponsors do to make sure they aren’t wasting their money and resources on a plan that doesn’t stand a chance? The most important step is to hire a financial advisor who has a lot of experience working in the retirement plan space and a recordkeeper whose focus is retirement plans versus something they do on the side,” said Kathleen Connelly, executive vice president of client service at Ascensus in Pennsylvania.
It is also imperative that the plan sponsor knows who owns the plan. In larger businesses, it is usually a benefits or 401(k) committee. Even at smaller companies, the role is assigned to someone, whether it is the owner of the company, a spouse or a human resources person.
Retirement plan sponsors also forget that retirement savings and health care benefits go hand-in-hand, particularly when speaking about retirement. Health care expenses are the largest expense most retirees will face in the future so it makes sense to have conversations with employees about both topics, said Shelby George, an ERISA attorney and practice leader for the Benefits Solutions Group at Manning & Napier Advisors.
Many plans skip setting objectives because there are multiple decision makers at the company who all have different priorities, she said. That’s why it is important to have a conversation about how to satisfy everyone’s needs. If an employer determines that employee satisfaction is the long-term goal and cost management is the short-term goal, the plan sponsor must find a way to allocate dollars between the health plan and retirement plan that will facilitate both objectives.
Lack of engagement, escalating costs and feeling that you aren’t getting what you want out of your benefit plans are all signs of retirement plan failure.
At a minimum, retirement plan sponsors should sit down once a year to review fund lineup and how the plan is doing compared to other companies of the same size and in the same industry, Connelly said. Review the company’s communications strategy as well.
“It isn’t just having the right lineup,” she said. It is important to have the right options but it is most important to make sure participants are taking advantage of those options. Companies do a disservice to employees when they put in place qualified default investment alternatives that have the opt-in deferral rate at less than 3 percent and no auto escalation policy in place.