How does your 401(K) plan stack up?

It used to be accepted thinking that simply offering your employees a 401(k) plan with the basic features was enough.  Now we think it’s important to measure your plan’s success…and take the appropriate action when needed!

How do you measure whether your 401(k) plan is effective?  Do you look at what services you receive in exchange for plan expenses, such as annual plan or per participant fees, or asset-based charges?  Or do you make sure that you’re offering a wide variety of well-known investment managers and you’ve got the risk-return continuum covered?  Or that you make available educational resources to help your employees understand the plan?

All of these are important areas that you, as a plan fiduciary, need to grasp.  But increasingly, the expectation is for you to understand whether your plan is effective in its basic reason for existence.  Namely, are your employees on track for a financially secure retirement?

How can you tell?  First, how many of your eligible employees enroll in the plan?  Most large employers report 75% participation.  In plans sponsored by smaller employers, 80% to 100% is a reasonable target.  Next, how many of your employees contribute enough to the plan to put them on track?  Industry experts suggest that, unless you provide a defined benefit plan, 401(k) participants contribute 13% to 18% of pay annually (including employer match) over a 30 year working career ending at age 65  It’s even more if employees get a late start saving or want to retire early.  Next, how many of your employees have properly diversified portfolios using a sound asset allocation strategy? Nationally, many 401(k) participants make unsound decisions or do not update their mixture of stocks, bonds and cash as often as necessary to reflect life changes. Lastly, how many of your employees are on track right now to fund a reasonable standard of living in retirement?

Do you know the answers to these questions?  It is important to know whether your plan is benefiting eligible employees and whether they are using your plan effectively.  CUNA Mutual Group recently developed an innovative plan profile to supply plan sponsors with information (and recommended actions if they’re below suggested targets). 

Keep in mind that statistics only measure your employees’ decisions.  You can’t force someone to make certain decisions.  However, the following steps can play a large role in encouraging sound decision-making:

• Plan design including an employer matching contribution and automatic enrollment.
• Relevant education and plan communication, delivered through multiple channels (on-line, e-mail, print, webinar)
• Benchmark your 401(k) plan in terms of participation, contribution rate, asset allocation and readiness for adequate retirement income. Know where you stand and where you’d like the plan to be.

If you would like help in determining the effectiveness of your plan, feel free to visit www.cunamutual.com/think401k  and request an assessment.

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