Month: February 2024

By Mark Olsen, Managing Director at PlanPILOT

What Is Retirement Plan Benchmarking?

Benchmarking is a process where an employer evaluates and measures its plan against others (normally like-kind) to determine strengths and potential shortfalls. Results may indicate where improvements can be made, using defined criteria that may be applied to the comparables in a fair and balanced manner. For retirement plans, these criteria could include plan design and provisions, features and services of the plan provider, investment selection and offerings, and fees and expenses.

Benchmarks are derived from the average of a large sampling of peers. An oft-used term for each criterion is “reasonableness,” or whether the benchmark fits within the range of other comparable plans. For example, “fee reasonableness” is a common watchword among plan sponsors and their advisors to avoid running afoul of ERISA-based sanctions and enforcement from the DOL. Using benchmarks to design and later demonstrate that the plan is adhering to common industry standards is a wise strategy to stay out of trouble and keep your plan functioning properly.

Your Plan May Work, But Is it Really Right for You and Your Employees?

Assuming you’re being a responsible plan sponsor and following the benchmarked criteria, the next question to ask is: Is your plan successful and effective for your employees? As a fiduciary, plan sponsors are required to ensure the plan is working and meets the needs of its participants. Does your plan? It may meet certain benchmarks, but what is the basis for these benchmarks? In other words, the benchmarks may be measurable, but are they meaningful for you and the participants in the plan?

For example, your plan’s “participation rate” (or how many employees participate in the plan) may be 85% against a benchmark of 80%. While your rate exceeds the benchmark, how does it compare with similar organizations in your industry? If others achieve 90% or better, then your plan falls below average and now becomes a shortfall, not a strength. 

Further, is there a reason behind where your standards measure compared to the benchmark?  Are your employees actively seeking self-help financial tools from a provider? Do they have the capacity to participate in the plan, and do they have an active understanding of plan benefits to make sound financial decisions, whether these involve investment selection, deferral rate, or withdrawal requests?

The Benefits of Customization

These questions point to the need for careful plan design and customization. Retirement plan participants often ask their advisors, “How much do I need to save for retirement?” The honest and fiduciary-minded advisor would (or should) state, “It depends.” 

Just as no one car, house, or personal financial plan fits everyone’s needs, a retirement plan should be custom-designed and managed with the individual needs of the plan participants and the plan sponsor company in mind, within the context of the specific industry, the participant demographics, and even the regional aspects of the company and participants. Moreover, knowing the right questions to ask about the benchmark criteria is crucial to maintaining a vibrant and successful retirement plan.

Why a Partner Consultant Could Be Invaluable

Having a team of professionals to assist in the design and management of your plan offers numerous benefits, including the confidence that your plan is functioning smoothly and cost-effectively and meeting the needs of your company and its employees. 

In 2023, just over 100 new ERISA class-action lawsuits were filed. The regulations of ERISA have increased in complexity over the years and the DOL has become more aggressive in their oversight and enforcement. Understanding and managing these complexities takes away valuable time and focus from running your business. This is where a retirement plan advisor can reduce your responsibilities and risk exposure. 

At PlanPILOT, our company is uniquely positioned to help you with these objectives. If you’re ready to upgrade to a new standard for your benefit planning, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

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, and CUPA-HR.

By Mark Olsen, Managing Director at PlanPILOT

Managing a retirement plan means the stakes are high for employers tasked with the fiduciary responsibility of overseeing their retirement plans. The complexities of compliance with the Employee Retirement Income Security Act of 1974 (ERISA), coupled with the potential for severe financial repercussions due to administrative oversights, and more recently the multitude of mandatory and voluntary provisions under SECURE 2.0, have led many to consider hiring a 3(16) plan administrator. 

This guide is designed to shed light on the crucial aspects of understanding your fiduciary responsibilities, how a 3(16) plan administrator can help you, as well as mitigate risks. While this choice may not be right for every retirement plan, it could be of tremendous value to those wishing to add support to their plans while mitigating risks and seeking to improve the financial well-being of plan participants.  

Understanding Fiduciary Responsibilities

As a fiduciary, the plan sponsor is entrusted with acting in the best interests of the plan participants and their beneficiaries. This encompasses a range of duties, including verifying that plan fees are reasonable, that the plan’s operations adhere strictly to the terms outlined in its documents, that investments are prudently diversified to minimize the risk of large losses, and that all decisions regarding the plan are made with the participants’ best interests in mind. 

The significance of these responsibilities cannot be overstated, as failing to meet them can lead to poor outcomes for participants as well as legal ramifications for those responsible for the plan. Recent surveys, such as one conducted by Alliance Bernstein in 2019, reveal a concerning decline in fiduciary awareness among plan sponsors, with only 44% of respondents believing they are a fiduciary—when in fact all of them are. This trend underscores the critical need for plan sponsors to fully comprehend and embrace their fiduciary duties.

What Is the Role and Value of a 3(16) Fiduciary?

Tasked with the day-to-day operational responsibilities, a 3(16) fiduciary shoulders the complex burden of ensuring compliance with the Employee Retirement Income Security Act of 1974 (ERISA), the Internal Revenue Code, and the plan’s own documents. This includes critical tasks such as managing payroll data for accuracy, determining employee eligibility, overseeing plan enrollments and distributions, and ensuring timely and accurate filing of Form 5500. 

By taking on these duties, the 3(16) fiduciary significantly alleviates the administrative load on employers, enabling them to dedicate more time and resources to their core business functions. Beyond mere administrative relief, the value of a 3(16) fiduciary lies in their knowledge, skill, and diligence in navigating the regulatory landscape, which in turn minimizes the risk of costly errors, mistakes, and compliance issues. This protective oversight offers employers comfort, knowing that their plan’s administration adheres to the highest standards of fiduciary responsibility and operational integrity.

Enhancing Plan Efficiency and Participant Satisfaction

By taking over the intricate administrative tasks, a 3(16) administrator works to create a smoother, more streamlined operation—from enrollment to distributions and loans to education. This efficiency not only eases the employer’s burden but also elevates the participant experience, making interactions with their retirement savings more straightforward and less stressful. As participants find the plan more accessible and understandable and gain useful education on topics that many plan sponsors don’t currently offer, their engagement and savings behaviors can improve, which could contribute to their overall financial wellness.

Choosing the Right Services Provider

Choosing the right 3(16) fiduciary services provider is a decision that requires careful consideration, as the provider plays a crucial role in the success and compliance of your retirement plan. When evaluating potential providers, it’s essential to assess their experience, reputation, and the breadth of services they offer. Look for a provider with a proven track record of effectively managing plans similar in size and complexity to your own, and confirm they have robust processes in place for handling the administrative tasks and compliance requirements of retirement plans. 

It’s also important to understand the specific responsibilities the provider will assume and how they will communicate with you about your plan’s status and any issues that arise. Additionally, consider how the provider’s services can integrate with your existing payroll and human resources systems to facilitate a seamless operation. 

Finally, evaluate the cost of their services in relation to the value they provide, keeping in mind that the right 3(16) fiduciary can save your organization significant time and resources, and potentially shield against costly compliance mistakes. Taking the time to select a 3(16) fiduciary services provider that aligns with your company’s needs and values helps maintain the long-term success and health of your retirement plan.

Elevate Your Plan Management: Partner With a 3(16) Fiduciary 

Are you navigating the complexities of managing your retirement plan all alone? If so, it might be worth considering teaming up with a partner to help you elevate your plan and reduce your responsibilities. At PlanPILOT, our company is focused on helping you navigate retirement planning issues so you can potentially achieve better outcomes. 

If you’re ready to consider a 3(16) plan administrator, we’d love to see if we can help. Reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can tailor our services to meet your unique needs.

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.