We all know the critical year-end duties all 401(k) plan sponsors must complete (and if you don't, you can read about them in "5 Tasks Every 401(k) Fiduciary Must Do Right Now," FiduciaryNews.com, Dec. 2, 2014). We'll set those aside and talk for a moment about a laundry list of good ideas for plan sponsors to put on their annual review list.
1. Review and update the plan's Investment Policy Statement (IPS). If you don't have one, you should. Just make it broad enough so it doesn't pigeonhole the plan into doing something it doesn't want to (or worse, something it can't do). If you've got a solid IPS, it should not require much in the way of change. Indeed, it might be years before you need to change it. The main things to look for are any regulatory changes or fundamental shifts in investment theory that might outdate some of the language in the IPS. Here's something to be especially wary of: ERISA attorneys often opine on the content of the IPS. ERISA attorney are not experts in investment theory, so their suggestions there may themselves be outdated. (Along these lines, don't assume just because it's "industry-accepted" that it's appropriate for your IPS.)
2. Review and update the plan's Investment Option Menus. As IPS's have been updated, so, too, have plans' investment option menus. This has been a popular plan improvement for several years now as more and more plans are abandoning the "style box" maze of dozens of fund options. Replacing this older model is the behavioral-based "tiered" or "category" approach. This segments funds into specific attitude-based groups, rather than investment-based groups. Much has been written about this for some time, so I won't belabor the point here. Once this shift has been made, don't expect many changes in fund offerings. On the other hand, changes shouldn't wait for year-end. The fiduciary adviser should be continually supervising the investment menu and take immediate action if necessary.
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3. Review and update your employee education game-plan. This is one that's going currently through a lot of changes, both in delivery mechanisms and content. Gone are the days when you can merely have some broker rep come in and talk about mutual funds. Today, employee education is moving in two very helpful directions. Basic education is becoming a 24-7 web-based commodity. On-site programs are focusing more on savings strategies and behavioral finance as, given the popularity of "no-decision" default options, they're moving away from the tradition investment-oriented discussions.
4. Review and update the company's matching strategy. The latest research shows the traditional matching strategy may not be the best at encouraging employee savings rates. Shifting the matching formula doesn't mean the company needs to offer more, it just means moving the incentive around a bit. It's sort of like squeezing a tube of toothpaste. You can reshape it, but the total volume of toothpaste remains the same.
5. Benchmark the plan's service providers. Again, this is a burden to do every year since you shouldn't expect many changes. On the other hand, a major event at one of your service providers may trigger the need to benchmark, and this could happen at any point in the year.
6. Take your employees' retirement readiness pulse. This is an entirely new and upcoming form of benchmarking your plan. It promises to be the most meaningful as it gets right to the heart of the plan's purpose. There are a variety of ways to accomplish this and several vendors who offer this service. Pick one or several (it's always good to get a second opinion), but it makes sense to begin doing this on an annual basis.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
