Originally published on American Funeral Director.com September 2021 issue.
As the father of a teenage boy, the conversation in our house often turns to cars. One time while my son and I were talking about oil changes and tire rotations I found myself inexplicably thinking about retirement plans and the importance of routine, preventive maintenance.
Now, it’s a safe bet that that is not where most people’s mind goes to when they are talking about cars with their children. And for professionals in the deathcare industry, managing the company’s retirement plan pales in importance to taking care of families during their time of need.
However, after working for 20-plus years with company retirement plans, I often ask prospective clients one simple question: Are you doing enough with your company’s retirement plan?
We all know it is very important to regularly change the oil in our cars, rotate the tires and perform various preventive maintenance tasks on our cars because we need them to get us through our everyday lives. But as a business owner or senior executive (who serves as the retirement plan sponsor), when was the last time you thought about preventive maintenance on your company’s retirement plan? If you haven’t, then maybe it is time to think more about some preventive tasks for your company 401(k) plan that could help you and your participants save more money and retire with better outcomes while saving you and your staff headaches in administering the plan. Here are two of the more important areas for deathcare professionals to review to determine if your company’s retirement plan only needs minor repairs or a complete overhaul:
1. Review your plan’s fund selection
One of the first maintenance tasks is to review the investment funds in your 401(k) plan. Think of it like an oil change for your car. The review should be performed at least quarterly to make sure that the funds in your plan are performing properly against the established industry benchmarks (like the S&P 500) and the participants in your company’s retirement plan are getting the best possible funds from which to choose. Play close attention to fund returns, risk, costs and appropriateness for your employees and their investing acumen.
In recent years, it has been very easy for plan sponsors to overlook this step because the markets have performed exceptionally well – and when participants and plan sponsors see positive returns on their statements they tend to put off reviewing fund lineups. Even though you may be getting positive returns in your 401(k), there may still be some problems with the funds. You may be paying too much in management fees for the funds. Many plans use mutual funds with share classes that charge participants more in management fees than is necessary. Another consideration is the risk profile of the fund. The funds you may be using could be producing positive returns, but they are not producing the types of returns that peer funds are returning, or they are taking too much risk for their returns.
All of these are things to take into account when reviewing your fund lineup and can be daunting for plan sponsors. That is why in recent years many plan sponsors have turned to hiring an advisor to serve as a fiduciary to help them review and choose fund lineups for their retirement plans. If you are not using a paid fiduciary – who is legally required to act in your best interest – to help review and choose your 401(k) lineup, now may be the time to look into possibly hiring one to help you mitigate your risk and help your participants increase their investment returns on their retirement plan accounts.
2. Review the duties and performance of your recordkeeper (and the fees being charged!)
Another maintenance item often overlooked by plan sponsors is reviewing the performance of their 401(k) recordkeeping provider and the fees charged. In the past two years, the retirement plan industry has started to see a large number of mergers and acquisitions of 401(k) recordkeeping providers and plan sponsors tend to continue using the same provider (even if it’s part of a new company) because that is who they have always used.
In many of those cases, the company’s plan has grown in the number of participants and asset size over the years, but the performance of the recordkeeper has never been reviewed. I have seen plans that need a new recordkeeper that offers more robust services – but the plan sponsor has not made a change.
Another common issue is that many plans outgrow their original fee structures. What many plan sponsors often forget is that when their 401(k) plans are originally taken on by a recordkeeper, the fee is based on the value of plan assets and the number of participants at that point in time. Over the years, the 401(k) plan may grow in asset size and remain similar in the number of participants, which causes the fee arrangement that was originally properly priced to be out of date. Recordkeepers don’t normally reach out to you to re-price the relationship every few years. It is something that needs to be reviewed regularly and questions asked of the recordkeeper as to their pricing. When doing this review, it is often wise to engage help from an experienced advisor. The same groups that will help you with your investment fiduciary reviews will often be able to provide a review of your 401(k) recordkeepers and their services, as well as benchmark their fees against industry averages to determine if the cost is reasonable.
While reviewing the investments in your 401(k) plan and the fees being charged by your recordkeeping service provider should be a priority, there are many other things that need to be assessed to make sure your retirement plan is in compliance with federal regulations and providing the level of service that will help your employees. These include plan design, investment policy statement and employee education programs, to name a few. All of these things effect the retirement plan in various ways and need to be reviewed from time to time to prevent any legal problems.
If you have not reviewed your plan, take some time before the end of the year to look under the hood. Once properly implemented, these reviews become a normal routine process for deathcare professionals and will make administering your company’s 401(k) plan less of a burden so you can spend more time taking care of families. Just like providing a well-maintained car for your teenager, providing a well maintained 401(k) plan for your employees will help you sleep better at night and help your employees save more for retirement.
Michael Faherty is a Senior Vice President of Institutional Services at Argent Financial Group, the parent company of Heritage. Argent is a leading, independent, fiduciary wealth management with offices across 12 Southern states.