By Mark Olsen, Managing Director at PlanPILOT
In the world of retirement plans, ensuring favorable outcomes for both sponsors and participants hinges on sidestepping a myriad of potential mistakes. I’ve previously shared my top lessons for retirement plan sponsors, which are certainly important to focus on. Yet it would also be helpful to know not just what we want to do, but what we want to avoid. To aid sponsors in this endeavor, we have crafted a two-part series that examines the most common errors and offers guidance on how to prevent them.
In this first chapter, we zero in on plan administration, a foundational aspect of orchestrating a successful retirement plan. Taking a proactive and risk-minimized approach to plan administration will serve as a springboard for our next article into the nuances of investments. That said, here are five mistakes I see made frequently with regard to plan administration.
1. Lack of a Diverse Plan Committee
A robust retirement plan starts with a diverse plan committee, encompassing a range of perspectives to foster a holistic strategy that meets the needs of all participants. Unfortunately, many committees fall short, leveraging a narrow viewpoint that fails to resonate with a varied participant base.
To avoid this pitfall, we advocate for the formation of a committee rich in diversity, tapping into various professional backgrounds, ages, genders, and ethnicities. This approach not only nurtures well-rounded discussions but also facilitates informed, encompassing decisions that cater to a broader spectrum of needs and preferences.
2. Not Benchmarking and Reviewing Your Plan Every 3-5 Years
In a rapidly evolving financial environment, static strategies often lead to diminished outcomes. A critical yet frequently overlooked practice is the regular benchmarking and reviewing of your retirement plan, ideally every 3-5 years. This process not only helps keep your plan fresh and aligned with current trends but also aids in keeping the fees in check, preventing participants from being overburdened with unnecessary costs.
Regrettably, it is common to see plans gathering dust, with outdated strategies that no longer serve the best interest of the participants. Stale plans can result in higher fees and potentially lesser returns, impeding the financial growth of the plan’s beneficiaries.
3. Not Understanding and Explaining Employee Eligibility
One aspect of plan administration that can often be misinterpreted or overlooked is understanding the eligibility criteria for employee participation in retirement plans. Proper comprehension of employee eligibility not only ensures you are in compliance with regulatory mandates but also fosters inclusivity and fairness in the retirement plan you offer. Just as you educate employees about investment options and learning about risk literacy, you should also educate on employee eligibility.
Mistakes in this area can potentially lead to legal ramifications, not to mention dissatisfaction and mistrust among your workforce. It is not uncommon to witness scenarios where inadequate knowledge about employee eligibility results in missed opportunities, hindering employees from reaping the benefits they are entitled to.
4. Not Having Frequent Committee Meetings and Recording Notes
A well-oiled machine operates smoothly with regular check-ins and adjustments; similarly, a retirement plan thrives on frequent committee meetings where vital decisions are made and strategies are formulated. However, it’s not just the meetings that are crucial; documenting the discussions, decisions, and action plans formulated in these meetings stands equally important.
Unfortunately, some plan sponsors overlook the need for documentation, creating a void of accountability and potentially fostering environments ripe for inconsistencies and misunderstandings. This not only dampens the effectiveness of the meetings but can also entail legal repercussions.
5. Late Remittance of Employee Deferrals
Timely remittance of employee deferrals is more than a regulatory requirement; it’s a cornerstone of trust and reliability in a retirement plan. Delaying these remittances can not only attract regulatory scrutiny and penalties but also erode the faith employees place in the plan, possibly affecting their financial stability in retirement.
Ready to Sidestep These Common Mistakes? Let’s Talk.
Navigating the intricacies of plan administration doesn’t have to be a solitary journey. At PlanPILOT, we stand ready to guide you every step of the way, helping you avoid the common pitfalls that can hinder the success of your retirement plan.
If you’d like to minimize mistakes and maximize your retirement plan, we’d love to help. You can call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.