The Top 3 Things Employers Might Not Know about their 401(k) Plan

A 401(k) plan is a popular retirement savings option offered by many employers to their employees. While employers may be familiar with the basic features of their 401(k) plan, there may be some lesser-known aspects of the plan that could have significant impacts on both the employer and employees. Here are three things employers might not know about their current 401(k) plan:

1. Hidden Fees and Expenses

One of the most significant factors that can impact an employer's 401(k) plan is the fees and expenses associated with it. While employers may be aware of the administrative fees charged by their plan provider, there may be hidden fees associated with investments and record-keeping that are not immediately apparent. These fees can eat into employee's retirement savings and may result in lower returns. Employers should review their plan's fees and expenses regularly to ensure they are reasonable and transparent. Additionally, employers may want to consider benchmarking their plan fees against industry standards to ensure they are competitive.

2. Plan Design and Compliance

Employers must adhere to specific rules and regulations to ensure their 401(k) plan is compliant with federal laws. Plan design can also have a significant impact on employee participation and retirement readiness. Employers may not be aware of the potential impact of their plan's design on employee outcomes. For example, plans with automatic enrollment and automatic escalation features tend to have higher employee participation rates and higher retirement savings rates. Employers should work with their plan provider and consider working with a financial advisor to review their plan's design and ensure it aligns with their retirement goals and objectives.

3. Investment Options

Employers may not be aware of the range of investment options available to plan participants within their 401(k) plan. While employers may offer a limited set of investment options, employees may benefit from a more diversified investment menu. Employers should review their plan's investment options regularly and consider offering a range of options that meet the needs of different employees. Additionally, employers may want to consider offering target-date funds, which are designed to adjust investment risk based on an employee's age and retirement date.

While employers may be familiar with the basic features of their 401(k) plan, there may be hidden fees, compliance issues, and investment options that they may not be aware of. By working with their plan provider and a financial advisor, employers can gain a deeper understanding of their plan and take steps to optimize it for their employees' retirement needs.

References:

"TheHiddenFeesinYour401(k),"NerdWallet, https://www.nerdwallet.com/article/investing/hidden-fees-401k

"TheImportanceof401(k)PlanDesign,"Fidelity, https://www.fidelity.com/learning-center/personal-finance/retirement/401k-plan-design

"TheBenefitsofTarget-DateFundsin401(k)Plans,"U.S.News&WorldReport, https://money.usnews.com/investing/articles/the-benefits-of-target-date-funds-i n-401-k-plans

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

The principal value of a target fund is not guaranteed at any time, including at the target date. The target date is the approximate date when investors plan to start withdrawing their money.