July 5, 2022 | Business insights
As an employer, attracting and retaining talent is challenging as you work to drive your business forward. The workforce continues to be compressed, which only intensifies the need to stand out amongst other employers in your industry. This might include additional PTO, assistance programs, health care benefits, and for many, a structured and valuable retirement plan.
As a leader at your company, the retirement plan landscape can be overwhelming at times. You want to offer your employees a plan to help them achieve a good retirement, while minimizing your risk and ensuring your plan fits your company’s needs. All providers are not created equal and it is important to consider three key areas when determining if you have the right partner and plan structure: Custom Plan Design, Investments, and Fiduciary Responsibility.
Customization Is Key to Optimizing Savings and Outcomes
No two retirement plans are alike. Each must fit the goals of the organization while helping plan participants save for retirement. The challenge facing many plan sponsors is boosting deferrals to help maximize participants’ savings.
Left to their own devices, participant deferrals are often too low to create adequate retirement income.
Help is needed, and as an employer, you are in a great position to deliver it.
This can be done through custom plan design features like automatic enrollment and auto-escalation, which may bridge the savings gap while simplifying participant deferral decisions. Auto features provide a strong foundation, however, achieving optimal savings rates may require shifting focus from current participation, deferral rates, and asset allocations to retirement readiness and income suitability. Implementing more dynamic auto features and customized defaults that can adjust for participants’ specific circumstances — like age, salary and existing retirement savings — can help boost readiness and overall financial confidence. For your Highly Compensated Employees (HCEs), it’s important to conduct cross-testing of your retirement plan to ensure the adequacy of their contributions, and have strategies in place for non-discrimination testing such as an HCE cap to maximize testing results.
Building and selecting the best investment fund lineup can be exhaustive and overwhelming. There are thousands of options to choose from, and it’s important to have an unbiased selection process. When looking at investment options, it’s critical to understand and be aware of what plan fees you are paying, why, and how often. Fee transparency, an unbiased investment selection process, and creating the right mix that meets YOUR plans needs are imperative to your plan's success. With that, five core values should consistently apply:
- Benchmark and peer group comparisons
- Return consistency and market capture relative to style/strategy/peer group
- Market and style-based volatility comparisons
- Downside deviation and drawdown analysis
- Makeup consistent with style and strategy
- Attribution to identify reasons for success
- Returns- and holdings-based analysis to identify style drift
4. INVESTMENT STRATEGY
- Qualitative review of implementation consistency
- Monitor adherence to portfolio constraints
5. MANAGEMENT COMPANY
- Fund expenses relative to peer group
- Manager and/or organizational changes
- Monitor fund flows and AUM changes
A fiduciary is an individual empowered and trusted to make decisions on your behalf with a legal obligation to act only in your best interests. As it relates to your retirement plan, fiduciary responsibility includes, but is not limited to, diversifying investments, acting in accordance with retirement plan documents and performing any actions that minimize losses. Simply put, it is defined by the action and the process rather than the result. So how can you protect the plan and your business? Follow the law and plan documents or hire an expert to ensure you are meeting the two mentioned criteria!
Retirement plan fiduciaries must follow the rules set out in the plan and the Employee Retirement Income Security Act of 1974 (ERISA). If your plan has an investment policy statement, you need to assure any investment decisions you make align with it. Fiduciaries must also follow ERISA’s prudent person rule, which essentially says they must use a sensible process in selecting and monitoring investment funds. While there is no sure way to avoid all risk in the management of a retirement plan, certain steps can provide a solid level of protection. Among them, make sure you have an objective, prudent process for all plan decisions, keeping clear records of those decisions and how you arrived at them. And when you can, work with providers that can serve as fiduciary over all or a portion of your investments, like our Retirement Plan Services. Doing so can reduce the liability and risk to both you and your company, as well as relieve some operational and administrative burden.
Products offered through Heartland Retirement Plan Services are not FDIC insured, are not bank guaranteed and may lose value, unless otherwise noted.
Heartland Retirement Plan Services are offered through Dubuque Bank and Trust Company. The information provided herein is general in nature and is not intended to be nor should be construed as specific investment, legal or tax advice. The factual information has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Heartland Retirement Plan Services makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, it.
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